VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND/, POS AMI, 1998-02-17

VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND/
POS AMI, 1998-02-17

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
FILE NO. 811-6421
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 7 [X]
</TABLE>

VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)

ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

(630) 684-6000

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE

RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA

OAKBROOK TERRACE, ILLINOIS 60181

(NAME AND ADDRESS OF AGENT FOR SERVICE)

---------------------

COPIES TO:

WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700

================================================================================
<PAGE> 2

PART A

INFORMATION REQUIRED IN A PROSPECTUS

Items 1, 2, 3 and 5A of Part A are omitted pursuant to Item F.4. of the General
Instructions to Form N-1A.

This Prospectus, which incorporates by reference the entire Statement of
Additional Information, concisely sets forth certain information about the Fund
that a prospective shareholder should know before investing in the Fund.
Shareholders should read this Prospectus carefully and retain it for future
reference. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or for Telecommunications Device for
the Deaf at (800) 421-2833. The Statement of Additional Information has been
filed with the Securities and Exchange Commission ("SEC") and is available along
with other related materials at the SEC's internet web site
(http://www.sec.gov).

This Prospectus is dated February 17, 1998.

ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.

(a) (i) Van Kampen American Capital Small Capitalization Fund, formerly
known as American Capital Small Capitalization Fund, Inc. (the
"Fund"), is a diversified, open-end management investment company
registered under the Investment Company Act of 1940 (the "1940
Act"). The Fund was originally incorporated in Maryland on August
28, 1991. The Fund was reorganized under the laws of the State of
Delaware as a business trust and adopted its present name as of
August 25, 1995.

(ii) The Fund's investment objective is to approximate the performance
of the small capitalization sector of the equities market by
investing primarily in common stocks of small capitalization
companies. The Fund may also invest in money market obligations
such as government securities, certificates of deposit and
commercial paper and may enter into repurchase agreements. It may
also enter into futures contracts and options thereon.

The Fund has been created and is managed to provide a convenient
vehicle for the publicly offered funds distributed by Van Kampen
American Capital Distributors, Inc. for which Van Kampen American
Capital Asset Management, Inc. (the "Adviser") and Van Kampen
American Capital Investment Advisory Corp. (the "VK Adviser")
serve as investment advisers or sub-advisers to participate
conveniently and economically in the "small capitalization" sector
of the equity securities market. To this end, it invests in a
broadly diversified selection of stocks of companies that have
relatively small capitalization.

The Adviser views companies with market capitalization smaller
than the 500 companies with the largest market capitalization as
being "small capitalization" companies.

(b) INAPPLICABLE

ITEM 5. MANAGEMENT OF THE FUND.

(a) The business and affairs of the Fund are managed under the direction of
the Board of Trustees of the Fund. Subject to the Trustees' authority,
the Adviser determines the investment of the Fund's assets, provides
administrative services and manages the Fund's business and affairs.

(b) Van Kampen American Capital Asset Management, Inc. serves as investment
adviser to the Fund.

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital,
Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail
investor accounts, extensive capabilities for managing institutional
portfolios, and more than $57 billion under management or supervision.
Van Kampen American

A-1
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Capital's more than 60 open-end and 37 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide.

Van Kampen American Capital is an indirect wholly-owned subsidiary of
Morgan Stanley, Dean Witter, Discover & Co. The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181.

Morgan Stanley, Dean Witter, Discover & Co. and various of its directly
or indirectly owned subsidiaries, including Morgan Stanley Asset
Management, Inc., an investment adviser, Morgan Stanley & Co.
Incorporated, a registered broker-dealer and investment adviser, and
Morgan Stanley International, are engaged in a wide range of financial
services. Their principal businesses include securities underwriting,
distribution and trading; merger, acquisition, restructuring and other
corporate finance advisory activities; merchant banking; stock brokerage
and research services; credit services; asset management; trading of
futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate
advice, financing and investing; and global custody, securities
clearance services and securities lending.

The Fund retains the Adviser to manage the investment of its assets and
to place orders for the purchase and sale of its portfolio securities.
Under an investment advisory agreement between the Adviser and the Fund
(the "Advisory Agreement"), the Adviser provides these services to the
Fund without cost, but the Fund pays its own expenses including
reimbursement of the Adviser for the cost of the Fund's accounting
services, which include maintaining its financial books and records and
calculating its daily net asset value.

(c) John Cunniff has been primarily responsible for the day-to-day
management of the Fund's portfolio since October 1995. Mr. Cunniff is a
Vice President of the Adviser and has been employed by the Adviser since
October 1995. Since October 1995, Mr. Cunniff has been a Vice President
of the VK Adviser. Prior to that time, Mr. Cunniff was Vice President,
Portfolio Manager at Templeton Quantitative Advisors.

(d) INAPPLICABLE

(e) ACCESS Investor Services, Inc. ("ACCESS"), P.O. Box 418256, Kansas
City, Missouri 64141-9256, serves as shareholder service agent for the
Fund. ACCESS, a wholly-owned subsidiary of Van Kampen American Capital,
provides these services at cost plus a profit.

(f) The Fund's total expense ratio for its most recent fiscal year as a
percentage of average net assets was 0.11%.

(g) The Adviser may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Fund, the Adviser or
their affiliated persons and with firms participating in the
distribution of other funds advised by the Adviser or its affiliates if
it reasonably believes the quality of execution and the commissions are
comparable to that of other qualified firms.

ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.

(a) The holders of Registrant's shares of beneficial interest will have
equal rights to participate in distributions made by the Fund, equal
rights to the Fund's assets upon dissolution and equal voting rights;
the Fund does not allow cumulative voting. Shares may be redeemed at any
time at net asset value with no charge.

(b) The Fund's shares are offered and sold only to publicly offered funds
distributed by Van Kampen American Capital Distributors, Inc. and
advised or subadvised by the Adviser or the VK Adviser. In the event any
of such publicly offered funds owned more than 25% of the outstanding
shares of the Fund, such publicly offered fund would be deemed to
control the Fund within the meaning of the 1940 Act. As of February 9,
1998, Van Kampen American Capital Pace Fund owned beneficially and of
record 100% of the outstanding shares of the Fund, and therefore, may be
deemed to control

A-2
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the Fund. Van Kampen American Capital Pace Fund is a Delaware business
trust located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

(d) INAPPLICABLE

(e) Inquiries regarding the Fund or its shares should be made to the Fund's
Secretary, Ronald A. Nyberg, at One Parkview Plaza, Oakbrook Terrace, IL
60181.

(f) The Fund makes annual distributions of net investment income. The Fund
distributes realized capital gains to shareholders annually.

(g) The Fund has qualified and intends to continue to qualify each year to
be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). As such, the
Fund will distribute all of its net income and capital gains to its
shareholders and such distributions will generally be taxable as such to
its shareholders; while shareholders may be proportionately liable for
taxes on income and gains of the Fund, shareholders not subject to tax
on their income will not be required to pay tax on amounts distributed
to them; the Fund will inform its shareholders of the amount and nature
of such income and gains distributed.

(h) INAPPLICABLE

ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.

(a) INAPPLICABLE

(b) Shares of the Fund are offered to eligible purchasers based on the next
calculation of a net asset value, which is determined as described under
Item 8(a) below, after the order is placed. There is no sales charge on
the sale of Fund shares.

(d) INAPPLICABLE

(e) There is no continuing fee paid out of Fund assets to any dealer or any
persons who may be advising shareholders regarding the purchase, sale or
retention of Fund shares.

(f) INAPPLICABLE

(g) INAPPLICABLE

ITEM 8. REDEMPTION OR REPURCHASE.

(a) Shareholders may redeem shares at net asset value at any time without
charge by submitting a written request in proper form to ACCESS at P.O.
Box 418256, Kansas City, Missouri 64141-9256.

The net asset value per share is determined as of 2:00 p.m. eastern time
on each day on which the New York Stock Exchange (the "Exchange") is
open or such earlier time as determined by the Trustees when the
Exchange closes before 4:00 p.m. eastern time.

The net asset value per share is determined using prices as of 2:00 p.m.
eastern time and (i) valuing securities listed or traded on a national
securities exchange at the last reported sale price, or if there has
been no sale that day, at the last reported bid price, (ii) valuing
options at the last sale price, or if there has been no sale that day,
at the mean between the bid and asked prices, (iii) valuing over-the-
counter securities for which the last sale price is available from the
National Association of Securities Dealers Automated Quotations
("NASDAQ") at that price, (iv) valuing all other over-the-counter
securities for which market quotations are available at the most recent
bid quotation supplied by NASDAQ or broker-dealers, and (v) valuing any
securities for which market quotations are not readily available, and
any other assets as fair value as determined in good faith by the

A-3
<PAGE> 5

Trustees of the Fund; for these purposes "last price" means the last
price reported at or before 2:00 p.m. eastern time. The Fund reserves
the right to redeem in kind.

(b) INAPPLICABLE

(d) Payment for shares redeemed may be postponed or the right of redemption
suspended as provided by rules of the SEC.

ITEM 9. PENDING LEGAL PROCEEDINGS.

INAPPLICABLE

A-4
<PAGE> 6

PART B

INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

ITEM 10. COVER PAGE.

Van Kampen American Capital Small Capitalization Fund (the "Fund") is a
diversified, open-end management investment company.

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all of the information a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen American Capital Distributors, Inc. at
One Parkview Plaza, Oakbrook Terrace, Illinois 60181 at (800) 421-5666.

This Statement of Additional Information is dated February 17, 1998.

ITEM 11. TABLE OF CONTENTS.

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PAGE
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<S> <C> <C>
General Information and History............................. B-1
Investment Objectives and Policies.......................... B-1
Management of the Fund...................................... B-3
Control Persons and Principal Holders of Securities......... B-12
Investment Advisory and Other Services...................... B-12
Brokerage Allocation and Other Practices.................... B-13
Capital Stock and Other Securities.......................... B-15
Purchase, Redemption and Pricing of Securities Being
Offered..................................................... B-15
Tax Status.................................................. B-15
Underwriters................................................ B-15
Calculation of Performance Data............................. B-15
Report of Independent Accountants........................... B-16
Financial Statements........................................ B-17
Notes to Financial Statements............................... B-30
</TABLE>

ITEM 12. GENERAL INFORMATION AND HISTORY.

See Item 4.

The Fund and Van Kampen American Capital Asset Management, Inc. (the
"Adviser") have adopted Codes of Ethics designed to recognize the fiduciary
relationship between the Fund and the Adviser and its employees. The Codes
permit directors, trustees, officers and employees to buy and sell securities
for their personal accounts subject to certain restrictions. Persons with access
to certain sensitive information are subject to preclearance and other
procedures designed to prevent conflicts of interest.

ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.

(a) See Item 4.

(b) The Fund has adopted certain investment restrictions which may be
altered or rescinded only with the approval by the vote of a majority
of its outstanding voting shares, which is defined by the Investment
Company Act of 1940, as amended (the "1940 Act"), as the lesser of (i)
67% or more of the voting securities present at a meeting, if the
holders of more than 50% of the outstanding

B-1
<PAGE> 7

voting securities are present or represented by proxy, or (ii) more than 50% of
the outstanding voting securities. These restrictions provide that the Fund
shall not:

(1) Issue senior securities within the meaning of the 1940 Act;

(2) Purchase securities on margin, except that the Fund may obtain such
short term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Fund of an
initial or maintenance margin in connection with futures contracts or
related option transactions is not considered the purchase of a
security on margin;

(3) Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional
cost securities identical to those sold short;

(4) Borrow money, except that the Fund may borrow from banks to meet
redemptions or for other temporary or emergency purposes, with such
borrowing not to exceed 5% of the total assets of the Fund at market
value at the time of the borrowing. Any such borrowing may be secured
provided that not more than 10% of the total assets of the Fund at
market value at the time of the pledging may be used as security for
such borrowings;

(5) Underwrite the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 by
virtue of disposing of portfolio securities;

(6) Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, except that this
restriction shall not apply to securities issued by the United States
Government, its agencies or instrumentalities;

(7) Invest more than 5% of its total assets at market value at the time
of purchase in the securities of any one issuer (other than
obligations of the United States Government, its agencies or
instrumentalities) or purchase more than 10% of the outstanding
voting securities of any one issuer;

(8) Invest in real estate or real estate mortgage loans, except that the
Fund may purchase securities secured by real estate or interests
therein;

(9) Purchase or sell commodities or commodity contracts, except that the
Fund may purchase, hold and sell listed futures contracts.

An additional fundamental policy provides that, under normal
circumstances, at least 80% of the Fund's total assets will be invested
in securities of companies with market capitalization no greater than
that of the company whose market capitalization ranks 500th among
publicly traded U.S. common stocks.

(d) INAPPLICABLE

B-2
<PAGE> 8

ITEM 14. MANAGEMENT OF THE FUND.

The tables below list the trustees and officers of the Fund and other
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with VK/AC
Holding, Inc. ("VKAC Holding"), Van Kampen American Capital, Inc. ("Van Kampen
American Capital" or "VKAC"), Van Kampen American Capital Investment Advisory
Corp. ("Advisory Corp."), Van Kampen American Capital Asset Management, Inc.
("Asset Management"), Van Kampen American Capital Distributors, Inc., the
distributor of the Fund's shares (the "Distributor"), Van Kampen American
Capital Advisors Corp., Van Kampen Merritt Equity Advisors Corp., Van Kampen
American Capital Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van
Kampen American Capital Record Keeping Services, Inc., American Capital
Contractual Services, Inc., Van Kampen American Capital Trust Company, Van
Kampen American Capital Exchange Corporation, and ACCESS Investors Services
Inc., the Fund's transfer agent ("ACCESS"). Advisory Corp. and Asset Management
sometimes are referred to herein collectively as the "Advisers". For purposes
hereof, the term "Fund Complex" includes each of the open-end investment
companies advised by the Advisers.

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley, Dean
66th Floor Witter, Discover & Co. Mr. DeMartini is a Director of
New York, NY 10048 InterCapital Funds, Dean Witter Distributors, Inc. and
Date of Birth: 10/12/52 Dean Witter Trust Company. Trustee of the TCW/DW Funds.
Director of the National Healthcare Resources, Inc.
Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc. and Chairman of
the Board of the Nasdaq Stock Market, Inc.
Trustee/Director of each of the funds in the Fund
Complex.
Linda Hutton Heagy........................ Co-Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
</TABLE>

B-3
<PAGE> 9

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services. Director of Illinois
Downers Grove, IL 60515 Tool Works, Inc., a manufacturing company; the Urban
Date of Birth: 07/08/44 Shopping Centers Inc., a retail mall management company;
and Stone Container Corp., a paper manufacturing company.
Trustee, University of Notre Dame. Formerly, President
and Chief Executive Officer, Waste Management Inc., an
environmental services company, and prior to that
President and Chief Operating Officer, Waste Management
Inc. Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen American Capital
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex, and other open-end and closed-end funds
advised by the Advisers or Van Kampen American Capital
Management, Inc.
</TABLE>

- ---------------

* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Mr. DeMartini is an
interested person of the Fund and the Advisers by reason of his position with
Morgan Stanley, Dean Witter, Discover and Co. and its affiliates.

B-4
<PAGE> 10

OFFICERS

Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX
77056.

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President Executive Vice President and a Director of
Date of Birth: 05/20/42 VKAC and VK/AC Holding, Inc. President,
Chief Operating Officer and a Director of
the Advisers, Van Kampen American Capital
Advisors, Inc., and Van Kampen American
Capital Management, Inc. President and a
Director of Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, he
was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to
November 1996, Executive Vice President and
a Director of VKAC Holding. Prior to July
of 1996, Mr. McDonnell was President, Chief
Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds
in the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.

Peter W. Hegel.............. Vice President Executive Vice President of the Advisers,
Date of Birth: 06/25/56 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Prior to July of 1996, Mr.
Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of
McCarthy, Crisanti & Maffei, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
</TABLE>

B-5
<PAGE> 11

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel,
Date of Birth: 07/29/53 Secretary and Director of VKAC and VK/AC
Holding, Inc. Mr. Nyberg is also Executive
Vice President, General Counsel and a
Director of Van Kampen Merritt Equity
Holdings Corp. Executive Vice President,
General Counsel, Assistant Secretary and a
Director of the Advisers and the
Distributor, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Management, Inc., Van Kampen American
Capital Exchange Corporation, American
Capital Contractual Services, Inc. and Van
Kampen American Capital Trust Company.
Executive Vice President, General Counsel
and Assistant Secretary of ACCESS. Director
or officer of certain other subsidiaries of
VKAC. Prior to June of 1997, Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to April of 1997,
he was Executive Vice President, General
Counsel and Director of Van Kampen Merritt
Equity Advisors Corp. Prior to July of
1996, Mr. Nyberg was Executive Vice
President and General Counsel of VSM Inc.
and Executive Vice President and General
Counsel of VCJ Inc. Prior to September of
1996, he was General Counsel of McCarthy,
Crisanti & Maffei, Inc. Vice President and
Secretary of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers,
Date of Birth: 04/20/42 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Vice President of each of
the funds in the Fund Complex and certain
other investment companies advised by the
Advisers or their affiliates.

Paul R. Wolkenberg.......... Vice President Executive Vice President and Director of
Date of Birth: 11/10/44 VKAC, and VK/AC Holding Inc. Executive Vice
President of the AC Adviser and the
Distributor. President and a Director of
ACCESS. President and Chief Operating
Officer of Van Kampen American Capital
Record Keeping Services, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
</TABLE>

B-6
<PAGE> 12

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers and
Date of Birth: 01/11/56 Financial Officer Van Kampen American Capital Management,
Inc. Vice President and Chief Financial
Officer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.

Nicholas Dalmaso............ Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 03/01/65 and Assistant Secretary of VKAC. Vice
President, Associate General Counsel and
Assistant Secretary of the Advisers, the
Distributor, Van Kampen American Capital
Advisors, Inc. and Van Kampen American
Capital Management, Inc. Assistant
Secretary of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.

Huey P. Falgout, Jr......... Assistant Secretary Vice President and an Attorney of VKAC.
Date of Birth: 11/15/63 Vice President and Assistant Secretary of
the Advisers, the Distributor, ACCESS, Van
Kampen American Capital Management, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and Van Kampen American Capital
Advisors, Inc. Assistant Secretary of each
of the funds in the Fund Complex and other
investment companies advised by the
Advisers or the affiliates.
</TABLE>

B-7
<PAGE> 13

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC and
VKAC Holding, Inc. Senior Vice President,
Deputy General Counsel and Secretary of the
Advisers, the Distributor, ACCESS American
Capital Contractual Services, Inc., Van
Kampen American Capital Management, Inc.,
Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VKAC
System, Inc., Van Kampen American Capital
Record Keeping Services, Inc. and Van
Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and
Van Kampen Merritt Holdings Corp. Prior to
September of 1996, Mr. Martin was Deputy
General Counsel and Secretary of McCarthy,
Crisanti & Maffei, Inc., and prior to July
of 1996, he was Senior Vice President,
Deputy General Counsel and Secretary of VSM
Inc. and VCJ Inc. Assistant Secretary of
each of the funds in the Fund Complex and
other investment companies advised by the
Advisers or the affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
Steven M. Hill.............. Assistant Treasurer Vice President of the Advisers. Assistant
Date of Birth: 10/16/64 Treasurer of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.
Michael Robert Sullivan..... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>

Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 64 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each

B-8
<PAGE> 14

trustee/director who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS or Morgan Stanley (each a "Non-Affiliated Trustee") is
compensated by an annual retainer and meeting fees for services to the funds in
the Fund Complex. Each fund in the Fund Complex (except the money market series
of the MS Funds) provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees/directors to defer receipt of their compensation
and earn a return on such deferred amounts. Deferring compensation has the
economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex (except the money
market series of the MS Funds) provides a retirement plan to its Non-Affiliated
Trustees that provides Non-Affiliated Trustees with compensation after
retirement, provided that certain eligibility requirements are met as more fully
described below.

The trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.

For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.

For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.

For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving

B-9
<PAGE> 15

total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.

The trustees/directors were subject to a voluntary aggregate compensation
cap with respect to funds in the Fund Complex of $84,000 per Non-Affiliated
Trustee per year (excluding any retirement benefits) for the period July 22,
1995 through December 31, 1996, subject to the net assets and the number of
funds in the Fund Complex as of July 21, 1995 and certain other exceptions. For
the calendar year ended December 31, 1996, certain trustees/directors received
aggregate compensation from the funds in the Fund Complex over $84,000 due to
compensation received but not subject to the cap, including compensation from
new funds added to the Fund Complex after July 22, 1995 and certain special
meetings in 1996. In addition, each of Advisory Corp. or Asset Management, as
the case may be, agreed to reimburse each fund in the Fund Complex through
December 31, 1996 for any increase in the aggregate compensation over the
aggregate compensation paid by such fund in its 1994 fiscal year, provided that
if a fund did not exist for the entire 1994 fiscal year appropriate adjustments
will be made.

Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.

Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year. Asset Management had reimbursed each AC Fund for the expenses related to
the retirement plan through December 31, 1996.

B-10
<PAGE> 16

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
YEAR FIRST PENSION OR ESTIMATED MAXIMUM COMPENSATION
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1993 $1,346 $30,328 $60,000 $111,197
Linda Hutton Heagy* 1995 1,346 3,141 60,000 111,197
Dr. Roger Hilsman 1993 266 52,273 49,250 0
R. Craig Kennedy* 1995 1,346 2,229 60,000 111,197
Donald C. Miller 1995 266 24,620 21,000 0
Jack E. Nelson* 1995 1,346 15,820 60,000 104,322
Jerome L. Robinson 1995 1,346 32,020 15,750 107,947
Phillip B. Rooney* 1997 810 0 60,000 74,697
Dr. Fernando Sisto* 1993 1,346 60,208 60,000 111,197
Wayne W. Whalen* 1995 1,346 10,788 60,000 111,197
William S. Woodside 1993 266 61,936 49,250 0
</TABLE>

- ---------------
* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.

(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the Fund's
most recently completed fiscal year. Mr. Robinson retired from the Board of
Trustees on December 31, 1997. Messrs. Hilsman, Miller and Woodside retired
from the Board of Trustees on December 31, 1996. Messrs. DeMartini and
McDonnell, also trustees of the Fund during all or a portion of the Fund's
last fiscal year, are not included in the compensation table because they
are affiliated persons of the Advisers and are not eligible for compensation
or retirement benefits from the Fund.

(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended October 31, 1997. The
following trustees deferred compensation from the Fund during the fiscal
year ended October 31, 1997: Mr. Branagan, $1,346; Ms. Heagy, $1,296; Mr.
Kennedy, $540; Mr. Miller, $266; Mr. Nelson, $1,346; Mr. Robinson, $1,346;
Mr. Rooney, $540; Dr. Sisto, $540; and Mr. Whalen, $1,346. Amounts deferred
are retained by the Fund and earn a rate of return determined by reference
to either the return on the common shares of the Fund or other funds in the
Fund Complex as selected by the respective Non-Affiliated Trustee, with the
same economic effect as if such Non-Affiliated Trustee had invested in one
or more funds in the Fund Complex. To the extent permitted by the 1940 Act,
each Fund may invest in securities of those funds selected by the Non-
Affiliated Trustees in order to match the deferred compensation obligation.
The cumulative deferred compensation (including interest) accrued with
respect to each trustee, including former trustees, from the Fund as of
October 31, 1997 is as follows: Mr. Branagan, $1,459; Dr. Caruso, $1,139;
Mr. Gaughan, $741; Ms. Heagy, $2,657; Mr. Kennedy, $1,710; Mr. Miller,
$1,488; Mr. Nelson, $2,910; Mr. Rees, $263; Mr. Robinson, $3,103; Mr.
Rooney, $533; Dr. Sisto, $2,292; and Mr. Whalen, $2,866. The deferred
compensation plan is described above the Compensation Table.

(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for their respective fiscal years ended in 1997. The retirement
plan is described above the Compensation Table.

(4) For Messrs. Hilsman, Miller, Robinson and Woodside, this is the sum of the
actual annual benefits payable by the operating investment companies in the
Fund Complex as of the date of their retirement for each year of the 10-year
period since such trustee's retirement. For the remaining trustees, this is
the sum of the estimated maximum annual benefits payable by the operating
investment companies in the Fund Complex

B-11
<PAGE> 17

for each year of the 10-year period commencing in the year of such
trustee's anticipated retirement. The Retirement Plan is described above
the Compensation Table.

(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1997 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1997. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
trustees were not trustees of such investment companies. Combining the Fund
Complex with other investment companies advised by the Advisers and their
affiliates, Mr. Whalen received Total Compensation of $268,447 during the
calendar year ended December 31, 1997.

As of February 9, 1998, no trustee or officer of the Fund owns or would be
able to acquire 5% or more of the common stock of VK/AC Holding, Inc.

Skadden, Arps, Slate, Meagher & Flom (Illinois) serves as legal counsel to
the Fund.

ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

(a) See Item 6(b).

(b) See Item 6(b).

ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.

(a) (i) The Adviser and ACCESS, the Fund's shareholder service agent, are
wholly-owned subsidiaries of Van Kampen American Capital, which is
an indirect wholly-owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. The principal office of the Adviser and Van
Kampen American Capital is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.

Morgan Stanley, Dean Witter, Discover & Co. and various of its
directly or indirectly owned subsidiaries, including Morgan
Stanley Asset Management, Inc., an investment adviser, Morgan
Stanley & Co. Incorporated, a registered broker-dealer and
investment adviser, and Morgan Stanley International, are engaged
in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger,
acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research
services; credit services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real
estate advice, financing and investing; and global custody,
securities clearance services and securities lending.

(ii) See Item 14.

(iii) The Fund and the Adviser are parties to an investment advisory
agreement (the "Agreement"), which provides that the Adviser will
provide investment advisory services to the Fund at no fee. The
Fund is, however, required to reimburse the Adviser for the cost
of accounting services provided by the Adviser, which includes
maintaining its financial books and records and calculating its
daily net asset value. See Item 16(b).

B-12
<PAGE> 18

The Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii)
by vote of a majority of the Fund's outstanding voting securities
and (b) by the affirmative vote of a majority of the Trustees who
are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for that
purpose. The Agreement provides that it may be terminated without
penalty by either party on not more than 60 days' nor less than
30 days' written notice.

(b) Under the Agreement, the Fund retains the Adviser to manage the
investment of its assets and to place orders for the purchase and sale
of its portfolio securities. The Adviser obtains and evaluates
economic, statistical and financial information to formulate and
implement the Fund's investment programs. The Adviser also furnishes at
no cost to the Fund (except as noted herein) the services of sufficient
executive and clerical personnel for the Fund as are necessary to
prepare registration statements, shareholder reports and notices and
proxy solicitation materials. In addition, the Adviser furnishes at no
cost to the Fund the services of the Fund's President, one or more Vice
Presidents as needed, and a Secretary.

Under the Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting
services include the salaries and overhead expenses of the Fund's
Principal Financial and Accounting Officer and personnel operating
under his direction. The Adviser receives no compensation for its
investment management services. During the fiscal years ended October
31, 1997, 1996 and 1995, the Fund paid $28,000, $90,400 and $23,710 for
accounting services. A portion of these amounts are paid to the Adviser
in reimbursement of personnel, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The
services provided by the Adviser are at cost, which is allocated among
the investment companies advised by the Adviser. The Fund also pays
custodian fees, legal and auditing fees, the costs of reports to
shareholders and all other ordinary expenses not specifically assumed
by the Adviser.

The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to
advise the Trustees of the Fund of any other commissions, fees,
brokerage or similar payments which may be possible for the Adviser or
any other direct or indirect majority owned subsidiary of VK/AC
Holding, Inc. to receive in connection with the Fund's portfolio
transactions or other arrangements which may benefit the Fund.

(d) INAPPLICABLE

(e) INAPPLICABLE

(f) INAPPLICABLE

(g) INAPPLICABLE

(h) The custodian of all the Fund's assets is State Street Bank and Trust
Company located at 225 West Franklin Street, Boston, Massachusetts
02110.

Price Waterhouse LLP, 200 East Randolph Drive, Chicago, Illinois 60601,
the independent accountants for the Fund, performs an annual audit of
the Fund's financial statement.

(i) During the fiscal years ended October 31, 1997, 1996 and 1995, ACCESS,
shareholder service agent for the Fund, received fees aggregating
$15,000, $14,800 and $16,490, respectively. These services are provided
at cost plus a profit.

ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.

(a) The Adviser is responsible for decisions to buy and sell securities for
the Fund and for the placement of its portfolio business and the
negotiation of the commissions paid on such transactions. It is the
policy of the Adviser to seek the best security price available with
respect to each transaction. In
B-13
<PAGE> 19

over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described
below) on a portion of its transactions executed on securities exchanges,
the Adviser seeks the best security price at the most favorable
commission rate. See also Item 17(b).

(b) Brokerage commissions paid by the Fund on portfolio transactions for
the fiscal years ended October 31, 1997, 1996 and 1995 totalled
$164,367, $247,272 and $210,601, respectively. During these same
periods, the Fund paid $157,554, $235,862 and $210,601, respectively,
in brokerage commissions on transactions totalling $302,667,766,
$292,491,740 and $342,387,038, respectively, to brokers selected
primarily on the basis of research services provided to the Adviser.

(c) In selecting dealers and in negotiating commissions, the Adviser
considers the firm's reliability, the quality of its execution services
on a continuing basis and its financial condition. When more than one
firm is believed to meet these criteria, preference may be given to
firms which also provide research services to the Fund or the Adviser.

Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an
account to pay a broker or dealer who supplies brokerage and research
services a commission for effecting a securities transaction in excess
of the amount of commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research services include
(a) furnishing advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability
of securities or purchasers or sellers of securities, (b) furnishing
analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (c) effecting securities transactions and performing
functions incidental thereto (such as clearance, settlement and
custody).

Pursuant to provisions of the Agreement, the Fund's Trustees have
authorized the Adviser to cause the Fund to incur brokerage commissions
in an amount higher than the lowest available rate in return for
research services provided to the Adviser. The Adviser is of the
opinion that the continued receipt of supplemental investment research
services from dealers is essential to its provision of high quality
portfolio management services to the Fund. The Adviser undertakes that
such higher commissions will not be paid by the Fund unless (a) the
Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in
terms of the Adviser's overall responsibilities with respect to the
accounts as to which it exercises investment discretion, (b) such
payment is made in compliance with the provisions of Section 28(e) and
other applicable state and federal laws, and (c) in the opinion of the
Adviser, the total commissions paid by the Fund are reasonable in
relation to the expected benefits to the Fund over the long term.

The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by
firms through which the Fund effects its securities transactions may be
used by the Adviser in servicing all of its accounts; not all of such
services may be used by the Adviser in connection with the Fund. In the
opinion of the Adviser, the benefits from research services to each of
the accounts (including the Fund) managed by the Adviser cannot be
measured separately. Because the volume and nature of the trading
activities of the accounts are not uniform, the amount of commissions
in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of
the Adviser, such costs to the Fund will not be disproportionate to the
benefits received by the Fund on a continuing basis.

The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could
have an adverse effect on the price or the amount of securities
available to the Fund. In making such allocations among the Fund and
other advisory accounts, the main factors considered by the Adviser are
the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash
for investment, the size of
B-14
<PAGE> 20

investment commitments generally held, and opinions of the persons responsible
for recommending the investment.

(d) See Item 17(b).

(e) INAPPLICABLE

ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.

See Item 6.

ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.

(a) See Item 7.

(b) See Item 8.

ITEM 20. TAX STATUS.

See Item 6(g).

ITEM 21. UNDERWRITERS.

(a) INAPPLICABLE

(b) INAPPLICABLE

ITEM 22. CALCULATION OF PERFORMANCE DATA.

INAPPLICABLE

ITEM 23. FINANCIAL STATEMENTS.

B-15
<PAGE> 21

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Trustees of
Van Kampen American Capital
Small Capitalization Fund

In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital Small
Capitalization Fund (the 'Fund') at October 31, 1997 and the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1997 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.

/s/ Price Waterhouse LLP
Price Waterhouse LLP

Chicago, Illinois

December 5, 1997

B-16
<PAGE> 22
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 98.9%
CONSUMER DISTRIBUTION 4.9%
Americredit Corp. (a) 9,200 $ 274,275
BJ's Wholesale Club, Inc. (a) 1,400 40,075
Brightpoint, Inc. (a) 1,100 35,750
DIMON, Inc. 2,300 59,800
Food Lion, Inc. 9,200 71,588
Homebase, Inc. (a) 1,400 13,563
HON Industries, Inc. 4,100 207,050
Meyer (Fred), Inc. Delaware (a) 2,800 79,100
Neiman Marcus Group, Inc. (a) 1,800 59,737
Premark International, Inc. 4,600 126,212
Proffitts, Inc. (a) 2,680 76,380
Rite Aid Corp. 4,600 272,263
Safeway, Inc. (a) 6,850 405,006
Saks Holdings, Inc. (a) 2,300 48,588
Supervalue, Inc. 2,300 84,237
Tech Data Corp. (a) 2,300 102,638
TJX Cos., Inc. 15,600 464,100
U.S. Office Products Co. (a) 2,300 72,594
Zale Corp. (a) 12,900 324,113
-------------
2,817,069
-------------

CONSUMER DURABLES 2.9%
Arvin Industries, Inc. 9,900 371,869
Borg Warner Automotive, Inc. 3,700 200,725
Callaway Golf Co. 2,800 90,125
Culligan Water Technologies, Inc. (a) 225 9,563
Furniture Brands International, Inc. (a) 13,800 232,875
Galoob Toys, Inc. (a) 200 2,625
Harman International Industries, Inc. 1,100 58,850
Mohawk Industries, Inc. (a) 7,800 239,850
Snap-On Tools, Inc. 9,600 408,600
Sturm Ruger & Co., Inc. 3,700 68,450
-------------
1,683,532
-------------

CONSUMER NON-DURABLES 10.1%
Alberto Culver Co., Class B 3,800 114,712
American Greetings Corp., Class A 6,900 244,088
Borders Group, Inc. (a) 4,600 118,738
Brown Group, Inc. 8,000 121,000
Burlington Industries, Inc. (a) 9,200 136,275
Dean Foods Co. 4,600 218,500

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-17

<PAGE> 23
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>

CONSUMER NON-DURABLES (CONTINUED)
Donnkenny, Inc. (a) 11,500 $ 43,125
Fruit of the Loom, Inc. (a) 16,100 420,613
Griffon Corp. (a) 20,700 324,731
Guilford Mills, Inc. 20,700 499,388
Herbalife International, Inc. 16,100 400,488
Lancaster Colony Corp. 3,200 158,400
Liz Claiborne, Inc. 5,500 278,781
McCormick & Co., Inc. 2,300 57,356
Nautica Enterprises, Inc. (a) 12,400 330,925
Reebok International Ltd. 4,600 170,200
Revlon, Inc. Class A (a) 4,800 177,600
Russ Berrie & Co., Inc. 9,200 248,400
Russell Corp. 14,400 422,100
Smithfield Foods, Inc. (a) 13,800 410,550
St. John Knits, Inc. 7,400 298,775
Tultex Corp. (a) 39,100 195,500
Unifi, Inc. 4,600 177,675
Westpoint Stevens, Inc. (a) 6,900 288,075
-------------
5,855,995
-------------

CONSUMER SERVICES 6.2%
Amresco, Inc. (a) 9,200 287,500
APAC Teleservices, Inc. (a) 1,400 18,988
Applebee's International, Inc. 1,800 40,162
Banta Corp. 6,900 180,262
Darden Restaurants, Inc. 10,000 110,625
Firstplus Financial Group, Inc. (a) 2,300 124,056
Imperial Credit Industries, Inc. (a) 8,000 200,000
International Game Technology 4,600 114,138
King World Productions, Inc. (a) 9,200 439,300
Media General, Inc., Class A 2,400 98,100
MGM Grand, Inc. (a) 4,600 197,800
New York Times Co., Class A 6,400 345,200
Norrell Corp. 9,200 263,925
Omnicom Group 5,400 378,338
Papa John's International, Inc. (a) 6,550 194,044
Promus Hotel Corp. (a) 3,300 129,525
Regal Cinemas, Inc. (a) 9,350 215,050
Sonic Corp. (a) 2,800 72,275
Stewart Enterprises, Inc., Class A 2,300 96,600
Sunburst Hospitality Corp. (a) 1,233 12,330
Valassis Communications, Inc. (a) 3,200 95,000
-------------
3,613,218
-------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-18

<PAGE> 24
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>

ENERGY 8.8%
Apache Corp. 5,100 $ 209,419
Ashland, Inc. 3,200 152,200
BJ Services Co. (a) 600 51,188
Canadian Occidental Petroleum Ltd. 3,700 95,044
Cliffs Drilling Co. (a) 2,800 203,000
Columbia Gas Systems, Inc. 3,700 267,556
Devon Energy Corp. 2,300 100,913
El Paso Natural Gas Co. 4,700 281,413
KeySpan Energy Corp. 6,900 213,900
MCN Corp. 500 17,281
Murphy Oil Corp. 2,300 133,400
National Fuel Gas Co. 2,300 101,631
Newfield Exploration Co. (a) 1,800 48,038
NGC Corp. 4,600 87,975
NICOR, Inc. 500 19,187
Offshore Logistics, Inc. (a) 4,600 95,450
ONEOK, Inc. 11,200 382,900
Pennzoil Co. 3,200 236,800
Pool Energy Services Co. (a) 11,500 385,250
Reading & Bates Corp. (a) 1,400 59,850
Seagull Energy Corp. (a) 3,488 85,020
Smith International, Inc. (a) 2,300 174,081
Tesoro Petroleum Corp. (a) 14,200 233,412
Tidewater, Inc. 2,300 151,369
Union Texas Petroleum Holdings, Inc. 6,600 149,737
Valero Energy Corp. 5,800 174,363
Vintage Petroleum, Inc. 13,800 310,500
Washington Gas & Light Co. 7,400 190,088
WICOR, Inc. 8,900 381,587
Williams Cos. 2,382 121,780
-------------
5,114,332
-------------

FINANCE 15.8%
20th Century Industries 3,500 87,063
Alliance Capital Management, LP 9,200 317,975
Allied Group, Inc. 2,300 108,531
AMBAC, Inc. 8,200 347,987
American Financial Group, Inc. 6,400 243,200
Amsouth Bancorp. 6,150 294,047
Associated Bancorp. 1,591 79,550
California Federal Bancorp, Inc. (a) 600 13,350
Charter One Financial, Inc. 4,147 237,934

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-19

<PAGE> 25
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997

FINANCE (CONTINUED)
Choice Hotels International, Inc. (a) 3,700 $ 63,825
City National Corp. 10,600 318,662
Cityscape Financial Corp. (a) 4,600 6,900
CMAC Investment Corp. 8,300 454,944
Concentra Managed Care, Inc. (a) 2,500 82,188
Conseco, Inc. 8,818 387,992
Countrywide Credit Industries, Inc. 6,900 235,031
Donaldson Lufkin & Jenrette, Inc. 2,800 195,125
Edwards (A.G.), Inc. 7,650 249,103
Finova Group, Inc. 1,800 78,187
First American Financial Corp. 3,200 192,200
Fremont General Corp. 7,050 328,706
Frontier Insurance Group, Inc. 4,600 156,112
Fund American Enterprises, Inc. 900 107,775
Greenpoint Financial Corp. 2,700 173,981
HCC Insurance Holdings, Inc. 2,300 55,631
Lehman Brothers Holdings, Inc. 1,400 65,975
Mercantile Bankshares Corp. 3,400 117,725
Mercury General Corp. 4,600 194,925
MGIC Investment Corp. of Wisconsin 1,700 102,850
Money Store, Inc. 6,900 196,650
Nationwide Financial Services, Inc., Class A 10,000 302,500
New York Bancorp, Inc. 6,133 208,522
Orion Capital Corp. 8,400 378,000
Pacific Century Financial Corp. 2,300 116,150
Paine Webber Group, Inc. 2,300 101,775
Penncorp Financial Group, Inc. 2,300 74,175
PMI Group, Inc. 900 54,169
Protective Life Corp. 6,900 365,269
Reliance Group Holdings, Inc. 2,600 32,825
Republic New York Corp. 2,300 243,225
Resource Bancshares Management Group, Inc. 9,200 120,175
Southtrust Corp. 4,800 231,600
Sovereign Bancorp, Inc. 25,880 462,605
T R Financial Corp. 4,600 148,925
Transatlantic Holdings, Inc. 6,000 416,250
U.S. Trust Corp. 2,300 134,550
Unitrin, Inc. 2,300 146,337
Vesta Insurance Group, Inc. 2,300 133,400
-------------
9,164,576
-------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-20
<PAGE> 26
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997

HEALTHCARE 11.7%
ADAC Laboratories (a) 4,600 $ 90,850
Agouron Pharmaceuticals, Inc. (a) 1,800 82,125
Beckman Industries, Inc. 6,000 238,500
Biomet, Inc. 4,600 112,125
Coherent, Inc. (a) 3,200 124,400
Curative Health Services, Inc. (a) 4,600 136,706
Dekalb Genetics Corp., Class B 9,200 329,475
Dura Pharmaceuticals, Inc. (a) 2,800 136,850
ESC Medical Systems, Ltd. (a) 7,300 286,525
FPA Medical Management, Inc. (a) 11,500 267,375
Haemonetics Corp. (a) 5,500 84,219
HBO & Co. 3,600 158,850
Health Management Associates, Inc., Class A (a) 23,850 591,778
Healthcare & Retirement Corp. (a) 3,100 117,025
Healthcare Compare Corp. (a) 900 49,275
Healthsouth Corp. (a) 12,300 328,256
Integrated Health Services, Inc. 2,903 91,807
Lincare Holdings, Inc. (a) 8,700 464,363
Manor Care, Inc. 3,700 125,106
Medicis Pharmaceutical Corp., Class A (a) 3,700 171,125
Minimed, Inc. (a) 3,300 127,050
NBTY, Inc. (a) 13,800 300,150
Pacificare Health Systems, Inc., Class A 80 5,150
Phycor, Inc. (a) 2,300 54,913
Quorum Health Group, Inc. (a) 7,650 185,513
Renal Treatment Centers, Inc. (a) 9,100 300,300
Rexall Sundown, Inc. (a) 18,400 405,950
Sybron International Corp. (a) 8,700 351,806
Tenet Healthcare Corp. (a) 4,750 142,500
Total Renal Care Holdings, Inc. (a) 3,833 118,583
U.S. Surgical Corp. 1,400 37,363
Vivus, Inc. (a) 7,400 194,250
Watson Pharmaceuticals, Inc. (a) 18,640 592,985
-------------
6,803,248
-------------

PRODUCER MANUFACTURING 7.5%
ACX Technologies, Inc. (a) 2,800 73,325
American Standard Cos., Inc. (a) 3,400 121,337
Ametek, Inc. 2,300 54,625
Blount International, Inc., Class A 1,600 83,700
Camco International, Inc. 3,200 232,000
Cummins Engine Co., Inc. 4,100 249,075
Flowserve Corp. 1,100 32,450

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-21
<PAGE> 27
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>

PRODUCT MANUFACTURING (CONTINUED)
Global Industrial Technologies, Inc. (a) 19,900 $ 340,787
Harnischfeger Industries, Inc. 2,800 110,775
Harsco Corp. 2,800 115,325
IDEX Corp. 9,350 308,550
Intermet Corp. 2,300 42,909
Johnson Controls, Inc. 3,700 166,500
Kaydon Corp. 4,600 139,725
Manitowoc Co., Inc. 3,400 102,850
Mastec, Inc. (a) 2,100 68,250
Mueller Industries, Inc. (a) 5,300 231,875
National Service Industries, Inc. 2,800 124,075
PACCAR, Inc. 3,800 174,562
Republic Industries, Inc. (a) 2,300 68,425
Robbins & Myers, Inc. 5,000 185,312
Ruddick Corp. 4,600 73,025
Southdown, Inc. 4,000 222,000
Tecumseh Products Co., Class A 4,600 238,050
Timken Co. 10,100 340,244
Trinity Industries, Inc. 8,300 371,944
U.S. Filter Corp. (a) 2,300 91,425
-------------
4,363,120
-------------

RAW MATERIALS/PROCESSING INDUSTRIES 4.7%
A K Steel Holding Corp. 900 37,912
Cytec Industries, Inc. (a) 9,500 469,063
Fuller (H. B.) Co. 2,300 109,250
Handy & Harman 14,200 353,225
IP Timberlands 10,100 106,681
Lyondell Petrochemical Co. 7,400 190,550
Medusa Corp. 1,600 67,500
Mississippi Chemical Corp. 1,674 30,760
Potlatch Corp. 900 44,494
Rayonier, Inc. 5,100 223,444
Terra Industries, Inc. 17,000 205,062
UCAR International, Inc. (a) 4,600 172,212
USG Corp. (a) 5,100 239,700
USX-US Steel Group, Inc. 4,600 156,112
Valspar Corp. 4,100 120,950
Vulcan Materials Co. 2,300 202,113
-------------
2,729,028
-------------

SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>

B-22
<PAGE> 28
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>

TECHNOLOGY 16.9%
Adaptec, Inc. (a) 4,600 $ 221,375
Altera Corp. (a) 5,500 236,500
Applied Magnetics Corp. (a) 11,500 265,937
Avnet, Inc. 2,300 144,756
Avx Corp. 2,300 64,831
BancTec, Inc. (a) 9,200 211,600
BMC Software, Inc. (a) 5,100 305,044
Boston Technology, Inc. (a) 4,600 119,887
Cadence Design Systems, Inc. (a) 1,400 72,975
Cambridge Technology Partners (a) 1,800 66,150
CellStar Corp. (a) 10,000 339,375
Citrix Systems, Inc. (a) 9,200 661,250
Cymer, Inc. (a) 6,000 138,750
Data General Corp. (a) 13,800 264,788
Davox Corp. (a) 6,900 243,225
Digital Microwave Corp. (a) 2,300 80,500
Elsag Bailey Process Automation N.V. (a) 6,900 126,788
Fiserv, Inc. (a) 3,700 163,262
General Signal Corp. 2,300 92,144
GenRad, Inc. (a) 6,400 186,000
Harris Corp. 4,600 201,825
Hutchinson Technology, Inc. (a) 6,900 186,300
Hyperion Software Corp. (a) 3,300 119,419
Iomega Corp. (a) 4,600 122,762
Jabil Circuit, Inc. (a) 7,400 344,100
Linear Technology Corp. 900 56,812
Loral Corp. (a) 2,300 48,444
Manugistics Group, Inc. (a) 3,000 106,875
McAfee Associates, Inc. (a) 4,100 208,075
Medic Computer Systems, Inc. (a) 2,300 79,637
Microchip Technology, Inc. (a) 2,300 90,419
Micron Electronics, Inc. (a) 4,600 64,975
Periphonics Corp. (a) 13,600 129,200
Project Software & Dev, Inc. (a) 4,600 107,525
Quantum Corp. (a) 3,000 93,000
Radisys Corp. (a) 4,600 216,200
Rational Software Corp. (a) 2,800 25,375
Recoton Corp. (a) 4,100 53,300
Remedy Corp. (a) 8,300 388,025
Rohr, Inc. (a) 4,600 138,862
Sanmina Corp. (a) 3,700 274,725
SCI Systems, Inc. (a) 9,200 395,025
Solectron Corp. (a) 3,700 141,294

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-23
<PAGE> 29
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997

TECHNOLOGY (CONTINUED)
Storage Technology Corp. (a) 9,600 $ 563,400
Stratus Computer, Inc. (a) 4,600 156,975
Sundstrand Corp. 3,200 174,000
Symbol Technologies, Inc. 1,050 42,131
Systems & Computer Technology Corp. (a) 2,000 84,750
Tekelec (a) 5,000 205,000
Tracor, Inc. (a) 13,800 359,662
Unitrode Corp. (a) 10,800 287,550
Western Digital Corp. (a) 9,600 289,800
Wyman-Gordan Co. (a) 2,300 55,200
-------------
9,815,779
-------------

TRANSPORTATION 2.0%
Continental Airlines, Inc., Class B (a) 2,300 99,188
Expeditors International of Washington, Inc. 4,600 164,738
Halter Marine Group, Inc. (a) 2,864 149,644
Seacor Holdings, Inc. (a) 3,700 238,650
UAL Corp. (a) 1,400 122,413
U.S. Air Group, Inc. (a) 4,600 214,188
USFreightways Corp. 4,600 148,925
-------------
1,137,746
-------------
UTILITIES 7.4%
Boston Edison Co. 9,700 307,369
Centerior Energy Corp. 27,100 350,606
Central Hudson Gas & Electric Corp. 9,000 318,937
Century Telephone Enterprises, Inc. 500 21,219
Cincinnati Bell, Inc. 5,100 137,700
Commonwealth Energy System Cos. 2,300 66,700
Comnet Cellular, Inc. (a) 6,900 238,050
DQE, Inc. 5,500 170,156
Kansas City Power & Light Co. 3,700 107,994
LG & E Energy Corp. 4,600 99,762
Long Island Lighting Co. 21,600 546,750
MidAmerican Energy Holdings Co. 6,900 125,063
Montana Power Co. 6,900 173,794
New Century Energies, Inc. 3,700 152,856
New York State Electric & Gas Corp. 13,800 369,150
NIPSCO Industries, Inc. 1,800 79,312
Pacific Gas & Electric Co. 1,524 38,386
Pinnacle West Capital Corp. 4,600 161,575
Public Service Co. of New Mexico 15,200 295,450
Sierra Pacific Resources 2,300 70,294

SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>

B-24

<PAGE> 30
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
UNITED ILLUMINATING CO. 2,900 $ 113,281
Western Resources, Inc. 9,200 339,825
-------------
4,284,229
-------------

TOTAL LONG-TERM INVESTMENTS 98.9%
(Cost $38,849,010) 57,381,872

REPURCHASE AGREEMENT 1.1%
Lehman Brothers, Inc. ($615,000 par, collateralized by
U.S. government obligations in a pooled cash account,
dated 10/31/97, to be sold on 11/03/97 at $615,291)
(Cost $615,000) 615,000
-------------

TOTAL INVESTMENTS 100.0%
(Cost $39,464,010) 57,996,872

OTHER ASSETS IN EXCESS OF LIABILITIES 0.0% 13,367
-------------
NET ASSETS 100.0% $58,010,239
-------------

(a) Non-income producing security as this stock
currently does not declare dividends.

SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>

B-25

<PAGE> 31
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND

STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997

<TABLE>
<S> <C>
ASSETS:

Total Investments (Cost $39,464,010) $ 57,996,872
Cash 3,228
Dividends Receivable 52,358
Unamortized Organizational Costs 14,427
----------------
Total Assets 58,066,885
----------------

LIABILITIES:

Accrued Expenses 25,539
Trustees' Deferred Compensation and Retirement Plans 25,282
Payable to Affiliates 5,825
----------------
Total Liabilities 56,646
----------------

NET ASSETS $ 58,010,239
================

NET ASSETS CONSIST OF:
Capital $ 18,534,720
Accumulated Net Realized Gain 20,086,340
Net Unrealized Appreciation 18,532,862
Accumulated Undistributed Net Investment Income 856,317
----------------

NET ASSETS $ 58,010,239
================

Net Asset Value, Offering Price and Redemption Price Per Share (Based on net assets of
$58,010,239 and 3,474,702 shares of beneficial interest issued and outstanding) $ 16.70
================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS

B-26
<PAGE> 32
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND

STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 2,077,715
Interest 211,190
-------------
Total Income 2,288,905
-------------

EXPENSES:
Accounting Services 28,029
Audit 27,293
Shareholder Services 15,001
Trustees' Fees and Expenses 12,994
Amortization of Organizational Costs 12,430
Shareholder Reports 11,442
Legal 4,753
Other 57,535
-------------

Total Expenses 169,477
Less Expenses Reimbursed 900
-------------

Net Expenses 168,577
-------------

NET INVESTMENT INCOME $ 2,120,328
=============

REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain $ 59,842,669
-------------

Unrealized Appreciation/Depreciation:
Beginning of the Period 32,939,261
End of the Period 18,532,862
-------------

Net Unrealized Depreciation During the Period (14,406,399)
-------------

NET REALIZED AND UNREALIZED GAIN $ 45,436,270
=============

NET INCREASE IN NET ASSETS FROM OPERATIONS $ 47,556,598
=============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-27
<PAGE> 33

VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND

STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1997 and 1996

<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:

Operations:
Net Investment Income $ 2,120,328 $ 2,838,202
Net Realized Gain 59,842,669 11,896,653
Net Unrealized Appreciation/Depreciation During the Period (14,406,399) 13,248,258
------------------ -----------------
Change in Net Assets from Operations 47,556,598 27,983,113
------------------ -----------------

Distributions from:
Net Investment Income (2,779,489) (2,187,156)
Net Realized Gain (11,913,960) (6,520,200)
------------------ -----------------

Total Distributions (14,693,449) (8,707,356)
------------------ -----------------

NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 32,863,149 19,275,757
------------------ -----------------

FROM CAPITAL TRANSACTIONS:

Proceeds from Shares Sold 30,000,000 91,004,000
Net Asset Value of Shares Issued Through Dividend Reinvestment 14,693,449 8,707,356
Cost of Shares Repurchased (213,753,951) (125,124,342)
------------------ -----------------

NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS (169,060,502) (25,412,986)
------------------ -----------------
TOTAL DECREASE IN NET ASSETS (136,197,353) (6,137,229)

NET ASSETS:
Beginning of the Period 194,207,592 200,344,821
------------------ -----------------

End of the Period (Including accumulated undistributed net investment
income of $856,317 and $2,414,943, respectively) $ 58,010,239 $ 194,207,592
================== =================

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

B-28
<PAGE> 34
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND

FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
NOVEMBER 23, 1993
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED OCTOBER 31, OPERATIONS) TO
1997 1996 1995 (a) OCTOBER 31, 1994 (a)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 13.807 $ 12.17 $ 9.82 $ 10.00
------------ ----------- ------------ ------------------

Net Investment Income 0.546 0.197 0.17 0.21
Net Realized and Unrealized Gain 3.468 1.968 2.26 (0.37)
------------ ----------- ------------ ------------------

Total from Investment Operations 4.014 2.165 2.43 (0.16)
------------ ----------- ------------ ------------------

Less:
Distributions from Net Investment Income 0.213 0.133 0.08 0.02
Distributions from Net Realized Gain 0.913 0.395 0.00 0.00
------------ ----------- ------------ ------------------

Total Distributions 1.126 0.528 0.08 0.02
------------ ----------- ------------ ------------------

Net Asset Value, End of the Period $ 16.695 $ 13.807 $ 12.17 $ 9.82
============ =========== ============ ==================

Total Return 31.34% 18.50% 25.00% 1.80%*

Net Assets at End of the Period (In millions) $58.0 $194.2 $200.3 $20.7

Ratio of Expenses to Average Net Assets (b) 0.11% 0.10% 0.08% 0.30%

Ratio of Net Investment Income to Average Net Assets (b) 1.34% 1.45% 1.59% 1.99%

Portfolio Turnover 47% 75% 85% 34%*

Average Commission Paid Per Equity Share Traded (c) $0.0115 $0.0222

</TABLE>

(a) Based on average shares outstanding.

(b) The impact on the Ratios of Expenses to Average Net Assets and Net
Investment Income to Average Net Assets due to VKAC's reimbursement of
certain expenses was less than 0.01%.

(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.

* Non-Annualized

SEE NOTES TO FINANCIAL STATEMENTS

B-29
<PAGE> 35

VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997

1. SIGNIFICANT ACCOUNTING POLICIES

The Van Kampen American Capital Small Capitalization Fund (the "Fund") is
organized as a Delaware business trust, and is registered as a diversified
open-end management investment company under the Investment Company Act of
1940, as amended. The Fund's investment objective is to approximate the
performance of the small capitalization sector of the equities market by
investing primarily in common stocks of small capitalization companies. The
Fund commenced investment operations on November 23, 1993.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

A. SECURITY VALUATION - Investments listed or traded on a national securities
exchange are stated at value using market quotations as of 2:00PM Eastern
Standard Time. Unlisted and listed securities for which the last sale price at
2:00PM Eastern Standard Time is not available are valued at the last reported
bid price. Short-term securities with remaining maturities of 60 days or less
are valued at amortized cost.

B. SECURITY TRANSACTIONS - Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specific price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are collateralized by the
underlying debt security. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.

C. INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis.

D. ORGANIZATIONAL COSTS - The Fund will reimburse Van Kampen American
Capital Distributors, Inc. or its affiliates ("collectively VKAC") for costs
incurred in connection with the Fund's organization in the amount of $62,000.
These costs are being amortized on a straight line basis over the 60 month
period ending October, 1998. The Adviser has agreed that in the event any of
the initial shares of the Fund originally purchased by VKAC are redeemed during
the amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.

E. IN-KIND TRANSACTION - For the year ended October 31, 1997, the Fund
realized gains from in-kind redemptions of $16,444,841.

F. FEDERAL INCOME TAXES - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income and gains
to its shareholders. Therefore, no provision for federal income taxes is
required.
At October 31, 1997, for federal income tax purposes cost of long- and
short-term investments is $39,522,197, the aggregate gross unrealized
appreciation is $19,583,953 and the aggregate gross unrealized depreciation is
$1,109,278, resulting in net unrealized appreciation of $18,474,675.
Net realized gains or losses may differ for financial and tax reporting
purposes as a result of the deferral of losses for tax purposes resulting from
wash sales.

G. DISTRIBUTION OF INCOME AND GAINS - The Fund declares and pays dividends
annually from net investment income and net realized gains on securities, if
any. Distributions from net realized gains for book purposes may include
short-term capital gains, which are included as ordinary income for tax
purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax basis
reporting for the 1997 fiscal year have been identified and appropriately
reclassified. Permanent book and tax basis differences relating to in-kind
distributions of $23,199,194 and $884,472 were reclassified from

B-30
<PAGE> 36
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997

accumulated net realized gain and accumulated net investment income,
respectively, to capital. Permanent differences relating to the realized gain
on in-kind redemptions of $16,444,841 were reclassified from accumulated net
realized gain to capital. Additionally, miscellaneous permanent differences of
($20,725) were reclassified from accumulated net investment income to
accumulated net realized gain and $5,732 was reclassified from accumulated net
investment income to capital.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

The Adviser serves as the investment manager of the Fund, but receives no
compensation for its investment management services.
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $4,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of
the Fund is an affiliated person.
For the year ended October 31, 1997, the Fund recognized expenses of
approximately $28,000, representing VKAC's cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
October 31, 1997, the Fund recognized expenses of approximately $15,000,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and
directors of VKAC. The Fund does not compensate its officers or trustees who
are officers of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.
At October 31, 1997, the Fund was 100% owned by the Van Kampen
American Capital Pace Fund, which is an investment company advised by the
Adviser.

3. CAPITAL TRANSACTIONS
The Fund is authorized to issue an unlimited number of shares of beneficial
interest with a par value of $.01 per share. Fund shares are only available
for purchase by Funds for which VKAC serves as investment adviser.
At October 31, 1997 and October 31 1996, capital aggregated
$18,534,720 and $147,072,447, respectively. Transactions in common shares were
as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Beginning Shares 14,065,878 16,467,558
----------- -----------
Shares Sold 2,090,026 6,965,729
Shares Issued Through
Dividend Reinvestment 1,123,352 731,096
Shares Redeemed (13,804,554) (10,098,505)
----------- -----------
Net Decrease in Shares
Outstanding (10,591,176) (2,401,680)
----------- -----------
Ending Shares 3,474,702 14,065,878
=========== ===========

</TABLE>

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $71,631,433 and
$245,359,818, respectively.

B-31
<PAGE> 37

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

List of all financial statements and exhibits as part of the Registration
Statement.

(a) Financial Statements:

Included in Part B of Registration Statement:

Report of Independent Accountants
Financial Statements
Notes to Financial Statements

(b) Exhibits

<TABLE>
<S> <C>
(1)(a) -- First Amended and Restated Agreement and Declaration of
Trust(2)
(b) -- Certificate of Amendment(2)
(2) -- Amended and Restated Bylaws(2)
(4) -- Specimen Share Certificate(1)
(5) -- Investment Advisory Agreement+
(8)(a) -- Custodian Contract+
(b) -- Transfer Agency and Servicing Agreement+
(9)(a) -- Data Access Services Agreement(3)
(b) -- Fund Accounting Agreement+
(10) -- INAPPLICABLE (Omitted pursuant to Item 24(b))
(11) -- Consent of Price Waterhouse LLP+
(12) -- INAPPLICABLE (Omitted pursuant to Item 24(b))
(27) -- Financial Data Schedule+
</TABLE>

- ---------------

(1) Incorporated herein by reference to Amendment No. 4 to Registrant's
Registration Statement on Form N-1A, File No. 811-6421, filed August
25, 1995.

(2) Incorporated herein by reference to Amendment No. 5 to Registrant's
Registration Statement on Form N-1A, File No. 811-6421, filed
February 28, 1996.

(3) Incorporated herein by reference to Amendment No. 6 to Registrant's
Registration Statement on Form N-1A, File No. 811-6421, filed
February 28, 1997.

+ Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

See the Statement of Additional Information.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

AS OF FEBRUARY 9, 1998:

<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<C> <C> <C>
Shares of Beneficial Interest,
$0.01 par value 1
</TABLE>

ITEM 27. INDEMNIFICATION.

Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.

C-1
<PAGE> 38

Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office, (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively, "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office, the decision by the Registrant to indemnify
such person must be based upon the reasonable determination of independent
counsel or non-party independent trustees, after review of the facts, that such
officer or trustee is not guilty of Disabling Conduct in the conduct of his or
her office.

The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.

Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Management of the Fund" in Part A and "Management of the Fund" in the
Statement of Additional Information for information regarding the business of
Van Kampen American Capital Asset Management, Inc. (the "Adviser"). For
information as to the business, profession, vocation and employment of a
substantial nature of directors and officers of the Adviser, reference is made
to the Adviser's current Form ADV (File No. 801-1669) filed under the Investment
Advisers Act of 1940, as amended, incorporated herein by reference.

ITEM 29. PRINCIPAL UNDERWRITERS.

INAPPLICABLE

C-2
<PAGE> 39

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by Van Kampen American Capital Distributors, Inc., the
principal underwriter, will be maintained at its offices located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181.

ITEM 31. MANAGEMENT SERVICES.

INAPPLICABLE

ITEM 32. UNDERTAKINGS.

INAPPLICABLE

C-3
<PAGE> 40

SIGNATURE

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND, has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Oakbrook Terrace and
State of Illinois, on the 13th day of February, 1998.

VAN KAMPEN AMERICAN CAPITAL
SMALL CAPITALIZATION FUND

By /s/ RONALD A. NYBERG
-------------------------------------
Ronald A. Nyberg, Vice President and
Secretary

<PAGE> 41

SCHEDULE OF EXHIBITS TO AMENDMENT NO. 7 TO FORM N-1A

AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION

ON FEBRUARY 17, 1998

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>

(5) -- Investment Advisory Agreement

(8)(a) -- Custodian Contract

(b) -- Transfer Agency and Servicing Agreement

(9)(b) -- Fund Accounting Agreement

(11) -- Consent of Price Waterhouse LLP

(27) -- Financial Data Schedule
</TABLE>

<PAGE> 1

EXHIBIT (5)

INVESTMENT ADVISORY AGREEMENT

AGREEMENT (herein so called) made this May 31, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL SMALL CAPITALIZATION FUND, a Delaware business trust
(hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").

The FUND and the ADVISER agree as follows:

(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER

The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration
statements, prospectus and stated investment objectives, policies and
restrictions, shall:

a. manage the investment and reinvestment of the FUND's assets
including, by way of illustration, the evaluation of pertinent economic,
statistical, financial and other data, determination of the industries and
companies to be represented in the FUND's portfolio, and formulation and
implementation of investment programs;

b. maintain a trading desk and place all orders for the purchase and
sale of portfolio investments for the FUND's account with brokers or dealers
selected by the ADVISER;

c. conduct and manage the day-to-day operations of the FUND including,
by way of illustration, the preparation of registration statements,
prospectuses, reports, proxy solicitation materials and amendments thereto, the
furnishing of routine legal services except for services provided by outside
counsel to the FUND selected by the Trustees, and the supervision of the FUND's
Treasurer and the personnel working under his direction; and

d. furnish to the FUND office space, facilities, equipment and
personnel adequate to provide the services described in paragraphs a., b., and
c. above and pay the compensation of each FUND trustee and Fund officer who is
an affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.

In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized
by law, the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.

Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their
<PAGE> 2

normal duties for the FUND which consist of maintenance of the accounts, books
and other documents which constitute the record forming the basis for the
FUND's financial statements, preparation of such financial statements and other
FUND documents and reports of a financial nature required by federal and state
laws, and participation in the production of the FUND's registration statement,
prospectuses, proxy solicitation materials and reports to shareholders; (v)
fees of outside counsel to and of independent accountants of the FUND selected
by the Trustees; (vi) custodian, registrar and shareholder service agent fees
and expenses; (vii) expenses related to the repurchase or redemption of its
shares including expenses related to a program of periodic repurchases or
redemptions; (viii) expenses related to the issuance of its shares against
payment therefor by or on behalf of the subscribers thereto; (ix) fees and
related expenses of registering and qualifying the FUND and its shares for
distribution under state and federal securities laws; (x) expenses of printing
and mailing of registration statements, prospectuses, reports, notices and
proxy solicitation materials of the FUND; (xi) all other expenses incidental to
holding meetings of the FUND's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the FUND's membership in trade associations approved by the Trustees; and
(xv) such nonrecurring expenses as may arise, including those associated with
actions, suits or proceedings to which the FUND is a party and the legal
obligation which the FUND may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are
allocated between the FUND and any other party, such allocations shall be
pursuant to methods approved by the Trustees.

For a period of one year commencing on the effective date of this Agreement,
the ADVISER and the FUND agree that the retention of (i) the chief executive
officer, president, chief financial officer and secretary of the ADVISER and
(ii) each director, officer and employee of the ADVISER or any of its
Affiliates (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) who serves as an officer of the FUND (each person referred to in
(i) or (ii) hereinafter being referred to as an "Essential Person"), in his or
her current capacities, is in the best interest of the FUND and the FUND's
shareholders. In connection with the ADVISER's acceptance of employment
hereunder, the ADVISER hereby agrees and covenants for itself and on behalf of
its Affiliates that neither the ADVISER nor any of its Affiliates shall make
any material or significant personnel changes or replace or seek to replace any
Essential Person or cause to be replaced any Essential Person, in each case
without first informing the Board of Trustees of the FUND in a timely manner.
In addition, neither the ADVISER nor any Affiliate of the ADVISER shall change
or seek to change or cause to be changed, in any material respect, the duties
and responsibilities of any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner.

(2) ROLE OF ADVISER

The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.

Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND
may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.

Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, neither the ADVISER nor any subadviser shall be subject to
liability to the FUND, or to any shareholder of the FUND, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
<PAGE> 3

(3) COMPENSATION PAYABLE TO THE ADVISER

The ADVISER shall provide to the FUND the services provided for herein
without charge.

The FUND's obligation to reimburse the ADVISER for certain expenses as
described in Section 1 shall be reduced by any commissions, tender solicitation
and other fees, brokerage or similar payments received by the ADVISER, or any
other direct or indirect majority owned subsidiary of VK/AC Holding, Inc., in
connection with the purchase and sale of portfolio investments of the FUND,
less any direct expenses incurred by such person, in connection with obtaining
such commissions, fees, brokerage or similar payments. The ADVISER shall use
its best efforts to recaputre all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Board of Trustees of any other commissions, fees, brokerage or
similar payments which may be possible for the ADVISER or any other direct or
indirect majority owned subsidiary of VK/AC Holding, Inc. to receive in
connection with the FUND's portfolio trasaction or other arrangements which may
benefit the FUND.

(4) BOOKS AND RECORDS

In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the Act.

(5) DURATION OF AGREEMENT

This Agreement shall become effective on the date hereof, and shall remain in
full force until May 31, 1999 unless sooner terminated as hereinafter provided.
This Agreement shall continue in force from year to year thereafter, but only
so long as such continuance is approved at least annually by the vote of a
majority of the FUND's Trustees who are not parties to this Agreement or
interested persons of any such parties, cast in person at a meeting called for
the purpose of voting on such approval , and by a vote of a majority of the
FUND's Trustees or a majority of the FUND's outstanding voting securities.

This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
not more than 60 days', nor less than 30 days' written notice, or upon such
shorter notice as may be mutually agreed upon. Such termination shall be
without payment of any penalty.

(6) MISCELLANEOUS PROVISIONS

For the purposes of this Agreement, the terms "affiliated person, "
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.

The execution of this Agreement has been authorized by the FUND's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the FUND
or the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually but are binding only upon the
assets and
<PAGE> 4

property of the FUND. A Certificate of Trust in respect of the FUND is on file
with the Secretary of State of Delaware.

In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.

All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.

The parties hereto each have caused this Agreement to be signed in duplicate
on its behalf by its duly authorized officer on the above date.

VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC. SMALL CAPITALIZATION FUND

By: /s/ Dennis J. McDonnell By: /s/ Peter W. Hegel
------------------------- --------------------
Name: Dennis J. McDonnell Name: Peter W. Hegel

Its: President Its: Executive Vice President

<PAGE> 1
EXHIBIT (8)(a)

CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES LISTED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . 2

2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Availability of Federal Funds . . . . . . . . . . . . . . 5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Moneys . . . . . . . . . . . . . . . . . . 6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . 7
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in Securities System . . . . . . . 8
2.11 Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . 10
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . 10
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.15 Communications Relating to Fund Securities . . . . . . . . 11

3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . 11

3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . 11
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . 12
3.4 Agreements with Foreign Banking Institutions . . . . . . . 12
3.5 Access of Independent Accountants of the Fund . . . . . . 12
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . 12
3.7 Transactions in Foreign Custody Account . . . . . . . . . 13
3.8 Liability of Foreign Sub-Custodians . . . . . . . . . . . 13
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . . 13
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . . 14
3.11 Monitoring Responsibilities . . . . . . . . . . . . . . . 14
3.12 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.13 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . 15

4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . 15

5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . 16

6. Actions Permitted Without Express Authority . . . . . . . . . . . 16

7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . 17

8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 17

9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . 18

11. Reports to Fund by Independent Public Accountants . . . . . . . . 18

12. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . 18

13. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . 18

14. Effective Period, Termination and Amendment . . . . . . . . . . . 19

15. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . 20

16. Interpretive and Additional Provisions . . . . . . . . . . . . . . 21

17. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . 21

18. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . 22

19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 22

20. Shareholder Communications . . . . . . . . . . . . . . . . . . . . 22

21. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT

This Contract between each fund or series of a fund listed on
Appendix A which evidences its agreement to be bound hereby by executing a copy
of this Contract (each such fund is individually hereafter referred to as
the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",

WITNESSETH:

WITNESSETH THAT, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:

1. Employment of Custodian and Property to be Held by It

The Fund hereby employs the Custodian as the custodian of the assets
of the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities") pursuant to the
provisions of the Fund's governing documents. The Fund agrees to deliver to
the Custodian all securities and cash of the Fund, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, beneficial
interest or partnership interest, as applicable, of the Fund, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be
responsible for any property of a Fund held or received by the Fund and not
delivered to the Custodian.

Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Fund(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund, and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.

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<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States

2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Fund all non-cash property to be held by it in
the United States including all domestic securities owned by such Fund
other than (a) securities which are maintained pursuant to Section 2.10
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury
(and certain federal agencies collectively referred to herein as
"Securities System") and (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.

2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Fund held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund, which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:

1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;

2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;

3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;

4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;

5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;

6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee

2
<PAGE> 6
name of any agent appointed pursuant to Section 2.9 or into
the name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;

7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;

8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;

9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;

10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;

11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;

3
<PAGE> 7
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;

13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;

14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase
or redemption;

15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Board of Trustees,
specifying the securities of the Fund to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such
securities shall be made; and

16) Upon termination of the Contract.

2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to

4
<PAGE> 8
Article 1. All securities accepted by the Custodian on behalf of the
Fund under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs the Custodian
to maintain securities in "street name", the Custodian shall utilize
its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.

2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Fund ,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for a
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Fund be
approved by vote of a majority of the Board of Trustees of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.

2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund, make federal funds available to such Fund
as of specified times agreed upon from time to time by the Fund and
the Custodian in the amount of checks received in payment for Shares
of such Fund which are deposited into the Fund's account.

2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when

5
<PAGE> 9
due on securities held hereunder. Income due each Fund on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.

2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of a Fund in the
following cases only:

1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected
through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of
a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.11; (d) in the case
of repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund or (e) for transfer to
a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined
in Article 5;

2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;

6
<PAGE> 10
3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;

4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;

5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Fund;

6) For payment of the amount of dividends received in respect of
securities sold short;

7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified copy
of a resolution of the Board of Trustees, specifying the amount
of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment
is to be made; and

8) Upon termination of this Contract.

2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.

2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.

7
<PAGE> 11
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Fund in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:

1) The Custodian may keep securities of the Fund in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S.
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;

2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;

3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon (i)
receipt of advice from the U.S. Securities System that payment
for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund.

4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;

8
<PAGE> 12
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;

6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the U.S. Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.

2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Fund in
the Direct Paper System of the Custodian subject to the following
provisions:

1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund ;

2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;

3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;

4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;

9
<PAGE> 13
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the U.S. Securities System for the account of
the Fund;

6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time.

2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of each such Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund , the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities
in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund , a certified copy of a
resolution of the Board of Trustees setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.

2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Fund held by it
and in connection with transfers of securities.

10
<PAGE> 14
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.

2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Fund shall notify the Custodian at
least three business days prior to the date on which the Custodian is
to take such action.

3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States

3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.

3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in

11
<PAGE> 15
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions. The Custodian
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.

3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Funds shall be
maintained in a clearing agency which acts as a securities depository
or in a book-entry system for the central handling of securities
located outside of the United States (each a "Foreign Securities
System") only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof
(Foreign Securities Systems and U.S. Securities Systems are
collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.

3.4 Holding Securities. The Custodian may hold cash, securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (1) the records of the Custodian with respect to cash,
securities and other non-cash property of the Fund which are
maintained in such account shall identify by book-entry the cash,
securities and other non-cash property belonging to the Fund and (ii)
the Custodian shall require that cash, securities and other non-cash
property so held by the foreign sub-custodian be held separately from
any assets of the Custodian, the foreign sub-custodian or of others.

3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of
each Fund will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Fund will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Fund; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund(s) held by the foreign
sub-custodian will be subject only to the instructions of the
Custodian or its agents.

3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.

3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund(s) securities and other assets
and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking

12
<PAGE> 16
institution for the Custodian on behalf of each applicable Fund
indicating, as to securities acquired for a Fund, the identity of the
entity having physical possession of such securities.

3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians. (b) Notwithstanding any provision of this
Contract to the contrary, settlement and payment for securities
received for the account of each applicable Fund and delivery of
securities maintained for the account of each applicable Fund may be
effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. In addition, and
whether or not such practice is a customary established trading
practice in the relevany jurisdictions, the Custodian will, upon
Proper Instructions from the Fund, deliver cash to securities brokers
in foreign jurisdictions who will effect securities trades for the
Fund and cause the securities purchased to be delivered to the
applicable foreign sub-custodian at some later date. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained
in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.

3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.

3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this

13
<PAGE> 17
paragraph 3.10, in delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any responsibility to the
Fund for any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.

3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Fund shall
be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Fund's assets to the extent necessary to obtain
reimbursement.

3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).

3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Fund's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of

14
<PAGE> 18
said Act. The appointment of any such branch as a sub-custodian shall
be governed by paragraph 1 of this Contract. (b) Cash held for each
Fund in the United Kingdom shall be maintained in an interest bearing
account established for the Fund with the Custodian's London branch,
which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.

3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be
the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.

4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund

The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Fund such payments as are received for Shares of that Fund issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Fund and the Transfer Agent of
any receipt by it of payments for Shares of such Fund.

From such funds as may be available for the purpose but subject to the
limitations of the applicable Fund's governing documents and any applicable
votes of the Board of Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In connection
with the redemption or repurchase of Shares of a Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire funds
to or through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.

15
<PAGE> 19
5. Proper Instructions

Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Funds' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.12.

6. Actions Permitted without Express Authority

The Custodian may in its discretion, without express authority from
the Fund:

1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund ;

2) surrender securities in temporary form for securities in
definitive form;

3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and

4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Trustees of the Fund.

16
<PAGE> 20
7. Evidence of Authority

The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the governing documents of
the Fund as described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.

8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income

The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Fund and/or compute the net asset value per share
of the outstanding shares of each Fund or, if the Custodian and the Fund
execute the applicable Price Source Authorization (the "Authorization"), the
Custodian shall keep such books of account and/or compute such net asset value
per share pursuant to the terms of the Authorization and the attachments
thereto. If so directed, the Custodian shall also calculate daily the net
income of the Fund as described in the Fund's currently effective Prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Fund shall be made at the time or times
described from time to time in the Fund's currently effective Prospectus
related to such Fund.

9. Records

The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Fund and held by the Custodian and shall, when requested to

17
<PAGE> 21
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.

10. Opinion of Fund's Independent Accountant

The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with respect
to any other requirements of such Commission.

11. Reports to Fund by Independent Public Accountants

The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.

12. Compensation of Custodian

The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.

13. Responsibility of Custodian

So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in

18
<PAGE> 22
good faith without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.

Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by: (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
its investment adviser in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.

The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.

If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.

If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable Fund
shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of such Fund's assets to the extent necessary to obtain reimbursement.

14. Effective Period, Termination and Amendment

This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30)

19
<PAGE> 23
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Fund act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Fund has approved the initial use of a
particular Securities System by such Fund and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of the
Fund has reviewed any subsequent change regarding the use by such Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Fund act under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of the Direct Paper System by such Fund and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of the Fund has reviewed the use by such Fund of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Fund's governing documents, and further provided, that the Fund
on behalf of one or more of the Funds may at any time by action of its Board (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.

Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.

15. Successor Custodian

If a successor custodian for a Fund shall be appointed by the Board
of Trustees of such Fund, the Custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities, Funds and other properties of each
applicable Fund then held by it hereunder and shall transfer to an account of
the successor custodian all of the securities of each Fund held in a Securities
System.

If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.

In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such

20
<PAGE> 24
termination shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Fund and all instruments held by the Custodian relative thereto and
all other property held by it under this Contract on behalf of each applicable
Fund and to transfer to an account of such successor custodian all of the
securities of each such Fund held in any Securities System. Thereafter, such
bank or trust company shall be the successor of the Custodian under this
Contract.

In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.

16. Interpretive and Additional Provisions

In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the governing documents of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.

17. Additional Funds

In the event that Van Kampen American Capital Distributors , Inc.
establishes any funds in addition to the Funds listed on Appendix A with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such fund shall become a
Fund hereunder, subject to the delivery by the new Fund of resolutions
authorizing the appointment of the Custodian and such other supporting or
related documentation as the Custodian may request. All references herein to
the "Fund" are to each of the Funds listed on Appendix A individually, as if

21
<PAGE> 25
this Contract were between each such individual Fund and the Custodian. With
respect to any Fund which issues shares in separate classes or series, each
class or series of such Fund shall be treated as a separate Fund hereunder.

18. Massachusetts Law to Apply

This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.

19. Prior Contracts

This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Funds and the Custodian relating to the custody of
the Fund's assets.

20. Reproduction of Documents

This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.

21. Shareholder Communications

Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please
indicate below whether the Fund consent or object by checking one of the
alternatives below.

YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions of each Fund listed on
Exhibit A.

NO [X] The Custodian is not authorized to release the Fund's
name, address, and share positions of each Fund listed
on Exhibit A.

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<PAGE> 26
22. Limitation of Liability.

The execution of this Contract has been authorized by each Fund's
Board of Trustees. This Contract is executed on behalf of each Fund or the
trustees of such Fund as trustees and not individually and the obligations of
the Fund under this Contract are not binding upon any of the Fund's trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Fund.

IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 1st day of August, 1997.

ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A

/s/ Nicholas Dalmaso By: /s/ Ronald A. Nyberg
- ------------------------ -----------------------------------
Ronald A. Nyberg, Vice President
and Secretary

ATTEST STATE STREET BANK AND TRUST COMPANY

/s/ Francine Hayes By: [ILLEGIBLE]
- ------------------------ -----------------------------------
Executive Vice President

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<PAGE> 27
APPENDIX A
FUND NAMES

VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
Van Kampen American Capital High Yield Municipal Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
Van Kampen American Capital U.S. Government Fund
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal
Income Fund
Van Kampen American Capital Florida Insured Tax Free
Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
VAN KAMPEN AMERICAN CAPITAL TRUST
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Van Kampen American Capital Utility Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND

24
<PAGE> 28
THE EXPLORER INSTITUTIONAL TRUST
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
VAN KAMPEN AMERICAN CAPITAL NAVIGATOR FUNDS
Emerging Markets Equity Portfolio
Emerging Markets Fixed Income Portfolio
U.S. QUALITY FUNDS
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR PENNSYLVANIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL BOND FUND
VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL INCOME TRUST

<PAGE> 1
EXHIBIT (8)(b)

TRANSFER AGENCY AND SERVICE AGREEMENT

AGREEMENT made as of the 31st day of May, 1997 by and between each of the
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A" hereto,
which are organized under the laws of the state and as the entities set forth
in Schedule "A" hereto (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation ("ACCESS").

R E C I T A L:
-------------

WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:

Article 1. Terms of Appointment; Duties of ACCESS.
---------------------------------------

1.01 Subject to the terms and conditions set forth in this Agreement, each
of the Funds hereby employs and appoints ACCESS as its transfer agent, dividend
disbursing agent and shareholder service agent.

1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.

1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence
in accordance with reasonable industry practice, and that the necessary
facilities, equipment and personnel for such performance will be provided.

1.04 For a period of one year commencing on the effective date of this
Agreement, ACCESS and each of the Funds agree that the retention of (i) the
chief executive officer, president, chief financial officer, chief operating
officer and secretary of ACCESS and (ii) each director, officer and employee of
ACCESS or any of its Affiliates (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) who serves as an officer of the Funds (each
person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest

<PAGE> 2

of the Funds and the Funds' shareholders. In connection with ACCESS's
acceptance of employment hereunder, ACCESS hereby agrees and covenants for
itself and on behalf of its Affiliates that neither ACCESS nor any of its
Affiliates shall make any material or significant personnel changes or replace
or seek to replace any Essential Person or cause to be replaced any Essential
Person, in each case without first informing the Board of Trustees of the Funds
in a timely manner. In addition, neither ACCESS nor any Affiliate of ACCESS
shall change or seek to change or cause to be changed, in any material
respect, the duties and responsibilities of any Essential Person, in each case
without first informing the Board of Trustees of the Funds in a timely
manner.

1.05 In order to assure compliance with section 1.03 and to implement a
cooperative effort to improve and maintain the quality of transfer agency,
dividend disbursing and shareholder services received by each of the Funds and
their shareholders, ACCESS agrees to provide and maintain quantitative
performance objectives, including maximum target turn-around times and maximum
target error rates, for the various services provided hereunder. ACCESS also
agrees to provide a reporting system designed to provide the Board of Trustees
of each of the Funds (the "Board") on a quarterly basis with quantitative data
comparing actual performance for the period with the performance objectives.
The foregoing procedures are designed to provide a basis for continuing
monitoring by the Board of the quality of services rendered hereunder.

Article 2. Fees and Expenses.
------------------

2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.

2.02 In addition to the amounts paid under section 2.01 above, each of the
Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings

Page 2

<PAGE> 3

to all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.

Article 3. Representations and Warranties of Access.
-----------------------------------------

ACCESS represents and warrants to each of the Funds that:

3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.

3.02 It is duly qualified to carry on its business in each jurisdiction in
which the nature of its business requires it to be so qualified.

3.03 It is empowered under applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.

3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.

3.05 It has and will continue to have during the term of this Agreement
access to the necessary facilities, equipment and personnel to perform its
duties and obligations hereunder.

3.06 It will maintain a system regarding "as of" transactions as follows:

(a) Each "as of" transaction effected at a price other than that in
effect on the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS' error,
or delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such
Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month.
If, on any day during the month, the cumulative net effect upon any Fund
is negative and exceeds an amount equivalent to 1/2 of 1 cent per share
of such Fund, ACCESS shall promptly make a payment to such Fund (in cash
or through use of a credit as described in paragraph (c) below) in such
amount as necessary to reduce the negative cumulative net effect to less
than 1/2 of 1 cent per share of such Fund. If on the last business day
of the month the cumulative net effect (adjusted by the amount of any
payments or credits used pursuant to the preceding sentence) upon any
Fund is negative, such Fund shall be entitled to a reduction in the
monthly transfer agency fee next payable by an equivalent amount, except
as provided in paragraph (c) below. If on the last

Page 3

<PAGE> 4

business day of the month the cumulative net effect (similarly adjusted)
upon any Fund is positive, ACCESS shall be entitled to recover certain
past payments, credits used and reductions in fees, and to a credit
against all future payments and fee reductions made under this paragraph
to such Fund, as described in paragraph (c) below.

(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first
be applied to recover any payments, credits used and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar year
by increasing the amount of the monthly transfer agency fee next payable
in an amount equal to prior payments, credits used and fee reductions
made during such year, but not exceeding the sum of that month's credit
and credits arising in prior months during such year to the extent such
prior credits have not previously been utilized as contemplated by this
paragraph (c). Any portion of a credit to ACCESS not so used shall
remain as a credit to be used as payment against the amount of any future
negative cumulative net effects which would otherwise require a payment,
use of a credit or fee reduction to such Fund pursuant to paragraph (b)
above.

Article 4. Representations and Warranties of the Funds.
--------------------------------------------

Each of the Funds hereby represents and warrants on behalf of itself
only and not on behalf of any other Funds which are a party to this Agreement
that:

4.01 It is duly organized and existing and in good standing under the laws
of the commonwealth or state set forth in Schedule "A" hereto.

4.02 It is empowered under applicable laws and regulations and by its
Declaration of Trust and by-laws to enter into and perform this Agreement.

4.03 All requisite proceedings have been taken by its Board to authorize
it to enter into and perform this Agreement.

4.04 It is an open-end, management investment company registered under the
Investment Company Act of 1940, as amended.

Page 4
<PAGE> 5

4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.

Article 5. Indemnification.
---------------
5.01 ACCESS shall not be responsible for and each of the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities (collectively, "Losses") arising out of or attributable to:

(a) All actions of ACCESS required to be taken by ACCESS for the
benefit of such Fund pursuant to this Agreement, provided that ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.

(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS of, information, records and documents which have been prepared or
maintained by or on behalf of such Fund or have been furnished to ACCESS
by or on behalf of such Fund.

(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless
such violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares
be made in general or to the residents of a particular state.

(e) Such Fund's refusal or failure to comply with the terms of this
Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder. Notwithstanding the foregoing, no Fund shall be required to
indemnify or hold ACCESS harmless from and against any Losses arising out
of or attributable to any action or failure to take action, or any
information, records or

Page 5
<PAGE> 6

documents prepared or maintained, on behalf of
the Fund by the Fund's investment adviser or distributor, or any person
providing fund accounting or legal services to the Fund that is also an
officer or employee of Van Kampen American Capital, Inc. or its
subsidiaries unless such person or entity is otherwise entitled to
indemnification from the Fund.

5.02 ACCESS shall indemnify and hold harmless each of the Funds from and
against any and all Losses arising out of or attributable to ACCESS' refusal or
failure to comply with the terms of this Agreement, or ACCESS' lack of good
faith, or its negligence or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.

5.03 At any time ACCESS may apply to any authorized officer of any of the
Funds for instructions, and may consult with any of the Funds' legal counsel,
at the expense of such concerned Fund, with respect to any matter arising in
connection with the services to be performed by ACCESS under this Agreement,
and ACCESS shall not be liable and shall be indemnified by such concerned Fund
for any action taken or omitted by it in good faith in reasonable reliance upon
such instructions or upon the opinion of such counsel. ACCESS shall be
protected and indemnified in acting upon any paper or document reasonably
believed by ACCESS to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the concerned Fund.
ACCESS shall also be protected and indemnified in recognizing stock
certificates which ACCESS reasonably believes to bear the proper manual or
facsimile signatures of the officers of the concerned Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.

5.04 In the event that any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.

5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.

5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim.

Page 6
<PAGE> 7

The party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.

Article 6. Covenants of Each of the Funds and ACCESS.
------------------------------------------
6.01 Each of the Funds shall promptly furnish to ACCESS the following:

(a) Certified copies of the resolution of its Board authorizing the
appointment of ACCESS and the execution and delivery of this Agreement.
(b) Certified copies of its Declaration of Trust or Articles of
Incorporation and by-laws and all amendments thereto.

6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.

6.03 ACCESS shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.

Page 7
<PAGE> 8

6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.

6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned
Funds and to secure instructions from an authorized officer of each of the
concerned Funds as to such inspection. ACCESS reserves the right, however, to
exhibit such Fund Records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit such Fund records to such
person.

Article 7. Term and Termination Of Agreement.
----------------------------------
7.01 The initial term of this Agreement shall expire May 31, 1999,
and thereafter this Agreement shall automatically be renewed for
successive one year periods to begin on June 1 of each year unless any party
provides notice to the other party at least 120 days in advance of that date
that this Agreement is not to be renewed.

7.02 Notwithstanding the foregoing, any party may terminate this
Agreement for good and reasonable cause at any time by giving written
notice to the other party at least 60 days prior to the date on which such
termination is to be effective or such shorter period as may be required by
law.

7.03 Any unpaid fees or reimbursable expenses payable to ACCESS at
the termination date of this Agreement shall be due on that termination date.
ACCESS agrees to use its best efforts to cooperate with the Funds and the
successor transfer, dividend disbursement, or shareholder servicing agent
or agents in accomplishing an orderly transition.

Article 8. Miscellaneous.
--------------
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of
any of the Funds to, another investment company.

8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.

Page 8
<PAGE> 9

8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of
the Funds for the acts and omissions of DST, Inc. or other qualified
servicer as it is for its own acts and omissions.

8.04 Without the prior approval of the Boards of Trustees of the
Funds, ACCESS shall not, directly or indirectly, provide services,
including services such as transfer agent, dividend disbursing agent or
shareholder service agent, to any investment companies.

8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes
any prior agreement with respect thereto, whether oral or written, and
this Agreement may not be modified except by written instrument executed
by the affected parties.

8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on behalf of the Funds or the
Trustees of the Funds as Trustees and not individually and the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Funds individually but are binding only
upon the assets and property of the Funds. A Certificate of Trust in
respect of each of the Funds is on file with the appropriate state
agency.

8.07 For each of those Funds which have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under
this Agreement shall apply only on a portfolio-by-portfolio basis and the
assets of one portfolio shall not be liable for the obligations of any
other.

8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties
hereto agree to renegotiate such affected portions in good faith.

8.09 All questions concerning the validity, meaning and effect of
this Agreement shall be determined in accordance with the laws (without
giving effect to the conflict-of-law principles thereof) of the State of
Delaware applicable to contracts made and to be performed in that state.

8.10 (a) Any dispute, controversy, or claim arising out of or
relating to this Agreement, or the breach, termination or validity
thereof, shall be finally settled by arbitration in accordance with
the Expedited Procedures

Page 9

<PAGE> 10

of the commercial arbitration Rules of the American Arbitration
Association (the "AAA") then in effect (the "Rules"). The
arbitration shall be held in Chicago, Illinois.

(b) There shall be one arbitrator who shall be selected jointly by
the parties. If the parties are unable to agree on an arbitrator
within 15 days after a demand for arbitration is made by a party,
the arbitrator shall be appointed by the AAA in accordance with the
Rules. The hearing shall be held within 90 days of the appointment
of the arbitrator. Notwithstanding the Expedited Procedures
of the Rules, the arbitrator, at his discretion, may schedule
additional days of hearings.

(c) Either party may, without inconsistency with this Agreement,
seek from a court any interim or provisional relief in aid of
arbitration, pending the establishment of the arbitral tribunal.
The parties hereby submit to the exclusive jurisdiction of the
federal and state courts located in the northern district of the
state of Illinois for any such relief in aid of arbitration, or for
any relief relating to arbitration, except for the enforcement of an
arbitral award which may be enforced in any court having
jurisdiction.

(d) Any arbitration proceedings or award rendered hereunder and the
validity, effect and interpretation of Section 8.10 shall be
governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et
--
seq.) The award shall be final and binding upon the parties.
---
Judgment upon any award may be entered in any court having
jurisdiction.

(e) This Agreement and the rights and obligations of the Parties
shall remain in full force and effect pending the award in any
arbitration proceeding hereunder.

Page 10

<PAGE> 11

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.

EACH OF THE VAN KAMPEN AMERICAN CAPITAL
OPEN END FUNDS LISTED ON SCHEDULE
"A" HERETO

BY: /s/ Ronald A. Nyberg
----------------------------------
Vice President

ATTEST:

/s/ Nicholas Dalmaso
- ----------------------------------
Assistant Secretary

ACCESS INVESTOR SERVICES, INC.

BY: /s/ Paul R. Wolkenberg
---------------------------------
President and Chief Executive Officer

ATTEST:
/s/ Huey P. Falgout
- ---------------------------------
Assistant Secretary

Page 11
<PAGE> 12

SCHEDULE "A"
------------
VAN KAMPEN AMERICAN CAPITAL OPEN-END FUNDS

<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Aggressive Growth Fund DE T
Van Kampen American Capital California Insured Tax Free Fund DE T
Van Kampen American Capital Comstock Fund DE T
Van Kampen American Capital Corporate Bond Fund DE T
Van Kampen American Capital Emerging Growth Fund DE T
Van Kampen American Capital Enterprise Fund DE T
Van Kampen American Capital Equity Income Fund DE T
Van Kampen American Capital Florida Insured Tax Free Income Fund DE T
Van Kampen American Capital Foreign Securities Fund DE T
Van Kampen American Capital Global Managed Assets Fund DE T
Van Kampen American Capital Government Securities Fund DE T
Van Kampen American Capital Government Target Fund DE T
Van Kampen American Capital Great American Companies Fund DE T
Van Kampen American Capital Growth Fund DE T
Van Kampen American Capital Growth and Income Fund DE T
Van Kampen American Capital Harbor Fund DE T
Van Kampen American Capital High Income Corporate Bond Fund DE T
Van Kampen American Capital High Yield Fund DE T
Van Kampen American Capital Insured Tax Free Income Fund DE T
Van Kampen American Capital Intermediate Term Municipal Income Fund DE T
</TABLE>

Page 12
<PAGE> 13

Van Kampen American Capital Limited Maturity Government Fund DE T
Van Kampen American Capital Municipal Income Fund DE T
Van Kampen American Capital New Jersey Tax Free Income Fund DE T
Van Kampen American Capital New York Tax Free Income Fund DE T
Van Kampen American Capital Pace Fund DE T
Van Kampen American Capital Pennsylvania Tax Free Income Fund PA T
Van Kampen American Capital Prospector Fund DE T
Van Kampen American Capital Real Estate Securities Fund DE T
Van Kampen American Capital Reserve Fund DE T
Van Kampen American Capital Short-Term Global Income Fund DE T
Van Kampen American Capital Small Capitalization Fund DE T
Van Kampen American Capital Strategic Income Fund DE T
Van Kampen American Capital Tax-Exempt Trust DE T
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Tax Free High Income Fund DE T
Van Kampen American Capital Tax Free Money Fund DE T
Van Kampen American Capital U.S. Government Fund DE T
Van Kampen American Capital U.S. Government Trust for Income DE T
Van Kampen American Capital Utility Fund DE T
Van Kampen American Capital Value Fund DE T
</TABLE>

PAGE 13
<PAGE> 14

PAGE 14

<PAGE> 1

Exhibit (9)(b)

FUND ACCOUNTING AGREEMENT

THIS AGREEMENT, dated May 31, 1997, by and between the parties
set forth in Schedule A hereto (designated collectively hereafter as the
"Funds") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware
corporation ("Advisory Corp.").

W I T N E S S E T H:

WHEREAS, each of the Funds is registered as a management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and

WHEREAS, Advisory Corp. has the capability of providing certain
accounting services to the Funds; and

WHEREAS, each desires to utilize Advisory Corp. in the
provision of such accounting services; and

WHEREAS, Advisory Corp. intends to maintain its staff in order
to accommodate the provision of all such services.

NOW THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:

1. Appointment of Advisory Corp. As agent, Advisory Corp. shall provide
-----------------------------
each of the Funds the accounting services ("Accounting Services") as set
forth in Paragraph 2 of this Agreement. Advisory Corp. accepts such
appointment and agrees to furnish the Accounting Services in return for the
compensation provided in Paragraph 3 of this Agreement.

2. Accounting Services to be Provided. Advisory Corp. will provide
----------------------------------
to each respective Fund accounting related services in connection with the
maintenance of the financial records of such Fund, including without
limitation: (i) maintenance of the general ledger and other financial books
and records; (ii) processing of portfolio transactions; (iii) coordination
of the valuation of portfolio securities; (iv) calculation of the Fund's
net asset value; (v) coordination of financial and regulatory reporting;
(vi) preparation of financial reports for each Fund's Board of Trustees;
(vii) coordination of tax and financial compliance issues; (viii) the
establishment and maintenance of accounting policies; (ix) recommendations
with respect to dividend policies; (x) preparation of each Fund's financial
reports and other accounting and tax related notice information to
shareholders; and (xi) the assimilation and interpretation of accounting
data for meaningful management review. Advisory Corp. shall provide
accurate maintenance of each Fund's financial books and records as required
by the applicable securities statutes and regulations, and shall hire
persons (collectively the "Accounting Service Group") as needed to provide
such Accounting Services.

<PAGE> 2

3. Expenses and Reimbursements. Advisory Corp. shall be reimbursed by the
Funds for all costs and services incurred in connection with the provision
of the aforementioned Accounting Services ("Accounting Service Expenses"),
including but not limited to all salary and related benefits paid to the
personnel of the Accounting Service Group, overhead and expenses related to
office space and related equipment and out-of-pocket expenses.

The Accounting Services Expenses will be paid by Advisory Corp.
and reimbursed by the Funds. Advisory Corp. will tender to each Fund a monthly
invoice as of the last business day of each month which shall certify the total
support service expenses expended. Except as provided herein, Advisory Corp.
will receive no other compensation in connection with Accounting Services
rendered in accordance with this Agreement.

4. Payment for Accounting Service Expenses Among the Funds. As to one
quarter (25%) of the Accounting Service Expenses incurred under the
Agreement, the expense shall be allocated between all Funds based on the
number of classes of shares of beneficial interest that each respective
Fund has issued. As to the remaining three quarters (75%) of the Accounting
Service Expenses incurred under the Agreement, the expense shall be
allocated between all Funds based on their relative net assets. For
purposes of determining the percentage of expenses to be allocated to any
Fund, the liquidation preference of any preferred shares issued by any such
Fund shall not be considered a liability of such Fund for the purposes of
calculating relative net assets of such Fund.

5. Maintenance of Records. All records maintained by Advisory Corp. in
connection with the performance of its duties under this Agreement will
remain the property of each respective Fund and will be preserved by
Advisory Corp. for the periods prescribed in Section 31 of the 1940 Act and
the rules thereunder or such other applicable rules that may be adopted
from time to time under the act. In the event of termination of the
Agreement, such records will be promptly delivered to the respective Funds.
Such records may be inspected by the respective Funds at reasonable times.

6. Liability of Advisory Corp. Advisory Corp. shall not be liable to any
Fund for any action taken or thing done by it or its agents or contractors
on behalf of the fund in carrying out the terms and provisions of the
Agreement if done in good faith and without gross negligence or misconduct
on the part of Advisory Corp., its agents or contractors.

7. Indemnification By Funds. Each Fund will indemnify and hold Advisory
Corp. harmless from all lost, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Advisory Corp. resulting from: (a) any
claim, demand, action or suit in connection with Advisory Corp.'s acceptance of
this Agreement; (b) any action or omission by Advisory Corp. in the performance
of its duties hereunder; (c) Advisory Corp.'s acting upon instructions believed
by it to have been executed by a duly authorized officer of the Fund; or (d)
Advisory Corp.'s acting upon information provided by the Fund in form and under
policies agreed to by Advisory Corp. and the Fund. Advisory Corp. shall not be
entitled to such indemnification in respect of actions or omissions
constituting gross negligence or willful misconduct of Advisory Corp. or its
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, Advisory Corp. shall give the Fund reasonable
opportunity to defend against said claim in its own name or in the name of
Advisory Corp.

8. Indemnification By Advisory Corp. Advisory Corp. will indemnify and
hold harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Advisory Corp.'s failure to comply
with the terms of this Agreement or which arises out of the gross negligence or
willful misconduct of Advisory Corp. or its agents or contractors; provided
that such negligence or misconduct is not attributable to the Funds, their
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, the Fund shall give Advisory Corp. reasonable
opportunity to defend against said claim in its own name or in the name of such
Fund.

2
<PAGE> 3

9. Further Assurances. Each party agrees to perform such further acts and
-------------------
execute such further documents as are necessary to effectuate the purposes
hereof.

10. Dual Interests. It is understood that some person or persons may be
---------------
directors, trustees, officers or shareholders of both the Funds and Advisory
Corp. (including Advisory Corp.'s affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.

11. Execution, Amendment and Termination. The term of this Agreement shall
-------------------------------------
begin as of the date first above written, and unless sooner terminated as
herein provided, this Agreement shall remain in effect through May, 1998, and
thereafter from year to year, if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. This Agreement may be modified or
amended from time to time by mutual agreement between the parties hereto and
may be terminated after May, 1998, by at least sixty (60) days' written notice
given by one party to the others. Upon termination hereof, each Fund shall pay
to Advisory Corp. such compensation as may be due as of the date of such
termination and shall likewise reimburse Advisory Corp. for its costs, expenses
and disbursements payable under this Agreement to such date. This Agreement
may be amended in the future to include as additional parties to the Agreement
other investment companies for with Advisory Corp., any subsidiary or affiliate
serves as investment advisor or distributor if such amendment is approved by
the President of each Fund.

12. Assignment. Any interest of Advisory Corp. under this Agreement shall
-----------
not be assigned or transferred, either voluntarily or involuntarily, by
operation of law or otherwise, without the prior written consent of the Funds.
This Agreement shall automatically and immediately terminate in the event of
its assignment without the prior written consent of the Funds.

13. Notice. Any notice under this Agreement shall be in writing, addressed
-------
and delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt
of such notices. Until further notice to the other parties, it is agreed that
for this purpose the address of each Fund is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181, Attention: President and that of Advisory Corp. for
this purpose is One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attention: President.

14. Personal Liability. As provided for in the Agreement and Declaration of
------------------
Trust of the various Funds, under which the Funds are organized as
unincorporated trusts, the shareholders, trustees, officers, employees and
other agents of the Fund shall not personally be found by or liable for the
matters set forth hereto, nor shall resort be had to their private property for
the satisfaction of any obligation or claim hereunder.

15. Interpretative Provisions. In connection with the operation of this
--------------------------
Agreement, Advisory Corp. and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement.

16. State Law. This Agreement shall be construed and enforced in accordance
----------
with and governed by the laws of the State of Illinois.

17. Captions. The captions in this Agreement are included for convenience
---------
of reference only and in no way define or limit any of the provisions hereof
or otherwise affect their construction or effect.

3
<PAGE> 4

IN WITNESS WHEREOF, the parties have caused this amended and
restated Agreement to be executed as of the day and year first above written.

ALL OF THE PARTIES SET FORTH IN SCHEDULE A

By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President

VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.

By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President

4
<PAGE> 5
SCHEDULE A

I. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):

CLOSED END FUNDS
- ----------------

Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust

INSTITUTIONAL FUNDS
- -------------------

II. Funds Advised by Van Kampen American Capital Management, Inc.
("Management, Inc.") (Collectively, the "Former Van Kampen Funds"):

The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund

5
<PAGE> 6

OPEN END FUNDS
- --------------

III. Funds Advised by Van Kampen American Capital Asset Management, Inc.
("Asset Management, Inc.") (Collectively, the "Former American Capital Funds"):

Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Funds")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")

Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")

Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")

Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf of
its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")

Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")

6
<PAGE> 7

IV. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):

Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")

Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of its
series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York
Tax Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")

Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")

Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth Fund")

Van Kampen American Capital Foreign Securities Fund ("Foreign Securities Fund")

Van Kampen American Capital Pennsylvania Tax Free Income Fund ("Pennsylvania
Tax Free Income Fund")

Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")

<PAGE> 1

EXHIBIT 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Amendment No. 7 to the registration statement on Form
N-1A of our report dated December 5, 1997, relating to the financial statements
and financial highlights of Van Kampen American Capital Small Capitalization
Fund, which appears in such Statement of Additional Information. We also consent
to the reference to us in Item 16(h) in such Statement of Additional
Information.

/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
- --------------------

Chicago, Illinois
February 12, 1998

<ARTICLE> 6

<MULTIPLIER> 1

<S> <C>

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<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 39,464,010
<INVESTMENTS-AT-VALUE> 57,996,872
<RECEIVABLES> 52,358
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<DISTRIBUTIONS-OF-INCOME> (2,779,489)
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