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SUPPLEMENT DATED JULY 1, 1996
TO PROSPECTUS OF
COMMON SENSE(R) TRUST DATED MAY 20, 1996
On June 24, 1996, VK/AC Holding, Inc. announced it had entered into an
Agreement and Plan of Merger among Morgan Stanley Group Inc., MSAM Holdings II,
Inc. and MSAM Acquisition Inc., pursuant to which MSAM Acquisition Inc. will be
merged with and into VK/AC Holding, Inc. and VK/AC Holding, Inc. will be the
surviving corporation. Van Kampen American Capital, Inc. is a wholly owned
subsidiary of VK/AC Holding, Inc. The Trust's investment adviser, Van Kampen
American Capital Asset Management, Inc. (the "Adviser"), is a wholly owned
subsidiary of Van Kampen American Capital, Inc.
The proposed transaction may be deemed to cause an assignment, within the
meaning of the Investment Company Act of 1940 and the Investment Advisers Act of
1940, of the investment advisory agreement between the Adviser and the Trust on
behalf of its Funds. Accordingly, the completion of the transaction is
contingent upon, among other things and subject to certain de minimis
exceptions, the approval of both the Trustees of the Trust and the shareholders
of the Trust of a new investment advisory agreement between the Trust, on behalf
of each Fund and the Adviser, and a new investment subadvisory agreement between
the Adviser and Smith Barney Mutual Funds Management, Inc. with respect to the
Common Sense International Equity Fund. Management of the Trust currently
anticipates recommending to the Trust's Trustees that a special meeting of
shareholders be called to obtain such approval and that the record date for such
shareholder meeting be a date in late August. Management of the Trust also
anticipates that investment advisory fees under the proposed new investment
advisory agreement and the proposed new investment subadvisory agreement, if
applicable, to be voted on at such meeting will be in the same amount as those
paid under the current investment advisory agreement and investment subadvisory
agreement.
MSAM Acquisition Inc. is a wholly owned subsidiary of MSAM Holdings II, Inc.
which, in turn, is a wholly owned subsidiary of Morgan Stanley Group Inc.
Subject to a number of conditions being met, it is currently anticipated that a
closing will occur in late November. Thereafter, VK/AC Holding, Inc. and its
affiliated entities shall be part of Morgan Stanley Group Inc.
The following replaces the first paragraph under the section entitled "The
Trust and Its Management -- Portfolio Management":
Stephen Boyd has been primarily responsible for the day-to-day management of
Growth Fund's investment portfolio since 1989. Mr. Boyd is Senior Vice President
- -- Portfolio Manager of the Adviser. James Gilligan has been primarily
responsible for the day-to-day management of Growth and Income Fund's investment
portfolio since July 11, 1994. Mr. Gilligan is Vice President -- Portfolio
Manager of the Adviser. John Reynoldson has been primarily responsible for the
day-to-day management of Government Fund's investment portfolio since 1988. Mr.
Reynoldson is Senior Vice President -- Portfolio Manager of the Adviser. David
Troth has been primarily responsible for the day-to-day management of Money
Market Fund's investment portfolio since its inception. Mr. Troth is Senior
Investment Vice President of the Adviser. Mr. Troth was formerly Investment Vice
President of the Adviser from March, 1978 to July, 1991. Timothy D. Haney has
been primarily responsible for the day-to-day management of Municipal Bond
Fund's investment portfolio since June 13, 1996. Mr. Haney is Assistant Vice
President of the Adviser. Mr. Haney has been employed by Van Kampen American
Capital Investment Advisory Corp., an affiliate of the Adviser, for the last
five years. Gary M. Lewis has been primarily responsible for the day-to-day
management of the Emerging Growth Fund's investment portfolio since its
inception. Mr. Lewis is Vice President -- Portfolio Manager of the Adviser.
The following replaces in its entirety the section entitled "Investment
Practices and Risks -- Investment in Investment Companies":
INVESTMENT IN INVESTMENT COMPANIES. The Emerging Growth Fund, the Growth Fund
and the Growth and Income Fund may invest in two other separate investment
companies, Van Kampen American Capital Small Capitalization Fund ("Small Cap
Fund") and Van Kampen American Capital Foreign Securities Fund ("Foreign
Securities Fund"). The International Equity Fund may invest in the Small Cap
Fund. Small Cap Fund invests in a broad selection of small capitalization
securities. Foreign Securities Fund invests in a broad selection of foreign
securities. The shares of the Small Cap Fund and the Foreign Securities Fund are
available only to investment companies advised by the Adviser and its
affiliates. The Adviser believes that the use of the Small Cap Fund and the
Foreign Securities Fund will provide the Funds investing in them with the most
effective exposure to the performance of the types of securities in which they
invest while at the same time minimizing costs. The Adviser charges no advisory
fee for managing the Small Cap Fund or the Foreign Securities Fund, nor are
there any sales loads or other charges associated with the
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distribution of such funds' shares. Other expenses incurred by the Small Cap
Fund or the Foreign Securities Fund are borne by them, and thus indirectly by a
Fund and the other Van Kampen American Capital funds that invest in them. With
respect to such other expenses, the Adviser anticipates that the efficiencies
resulting from use of the Small Cap Fund and the Foreign Securities Fund will
result in cost savings for the Funds and other Van Kampen American Capital funds
investing in them. In large part, these savings will be attributable to the fact
that administrative actions that would have to be performed multiple times if
each Fund held its own portfolio of small capitalization stocks or foreign
securities will need to be performed only once. The Adviser expects that the
Small Cap Fund and the Foreign Securities Fund will experience trading costs
that will be substantially less than the trading costs that would be incurred if
small capitalization stocks or foreign securities were purchased separately for
a Fund and other Van Kampen American Capital Funds.
A Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund and Foreign Securities Fund. For example, if a Fund's investment
in the Small Cap Fund or the Foreign Securities Fund were $10 million, and the
Small Cap Fund or Foreign Securities Fund had five percent of its assets
invested in the electronics industry, a Fund would be considered to have an
investment of $500,000 in the electronics industry.
RISKS OF INVESTING IN THE SMALL CAP FUND. The securities of small and medium
sized companies that the Small Cap Fund may invest in may be subject to more
abrupt or erratic market movements than securities of larger, more established
companies or market averages in general. In addition, small capitalization
companies typically are subject to a greater degree of change in earnings and
business prospects than are larger, more established companies. In light of
these characteristics of small capitalization companies and their securities,
the Small Cap Fund may be subject to greater investment risk than that assumed
through investment in the equity securities of larger capitalization companies.
RISKS OF INVESTING IN THE FOREIGN SECURITIES FUND. See "Investment Practices
and Risks -- Securities of Foreign Issuers" for a discussion of the risks of
investing in foreign securities.
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