AMERICAN CAPITAL GROWTH & INCOME FUND INC, N14EL24/A, 1995-07-31

AMERICAN CAPITAL GROWTH & INCOME FUND INC
N14EL24/A, 1995-07-31

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1995

1933 ACT REGISTRATION NO. 33-57619

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14

<TABLE>
<S> <C>
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
</TABLE>

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

VAN KAMPEN AMERICAN CAPITAL

GROWTH AND INCOME FUND

(Exact Name of Registrant as Specified in Charter)

2800 POST OAK BOULEVARD, HOUSTON, TEXAS 77056
(Address of Principal Executive Offices)

TELEPHONE NUMBER: (713) 993-0500

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<TABLE>
<S> <C>
RONALD A. NYBERG, ESQ. COPY TO:
VAN KAMPEN AMERICAN CAPITAL GEORGE M. BARTLETT, ESQ.
GROWTH AND INCOME FUND O'MELVENY & MYERS
ONE PARKVIEW PLAZA 400 SOUTH HOPE STREET
OAKBROOK TERRACE, ILLINOIS 60181 LOS ANGELES, CALIFORNIA 90071
(Name and Address of Agent for Service)
</TABLE>

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PURSUANT TO THE PROVISIONS OF RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF
1940, THE REGISTRANT HAS ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES AND
WILL FILE A RULE 24F-2 NOTICE WITH THE COMMISSION FOR ITS FISCAL YEAR ENDING
NOVEMBER 30, 1995 ON OR BEFORE JANUARY 31, 1996. THEREFORE, NO FILING FEE IS DUE
AT THIS TIME.

PURSUANT TO A MERGER EFFECTIVE AS OF JULY 31, 1995, VAN KAMPEN AMERICAN
CAPITAL GROWTH AND INCOME FUND, A DELAWARE BUSINESS TRUST (THE "REGISTRANT"), IS
THE SUCCESSOR OF AMERICAN CAPITAL GROWTH AND INCOME FUND, INC., A MARYLAND
CORPORATION. REGISTRANT HEREBY EXPRESSLY ADOPTS THE REGISTRATION STATEMENT ON
FORM N-14 OF AMERICAN CAPITAL GROWTH AND INCOME FUND, INC. (FILE NO. 33-57619)
AS REGISTRANT'S OWN REGISTRATION STATEMENT FOR ALL PURPOSES OF THE SECURITIES
ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934 AND ANY PRIOR RULE 24F-2
NOTICES OF AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.

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VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

CROSS-REFERENCE SHEET PURSUANT TO RULE 481(A) OF REGULATION C
UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
FORM N-14 PROXY STATEMENT/PROSPECTUS
ITEM NO. CAPTION*
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<S> <C> <C>
PART A INFORMATION REQUIRED IN THE PROSPECTUS

Item 1. Beginning of Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside front cover page of
Proxy Statement/Prospectus
Item 2. Beginning and Outside Back Cover Page of Proxy
Statement/Prospectus.............................. Table of Contents
Item 3. Fee Table, Synopsis Information and Risk Factors.... Summary; Risk Factors; Fee
Comparisons
Item 4. Information about the Transaction................... Summary; The Proposed
Reorganization
Item 5. Information about the Registrant.................... Outside front cover page of
Proxy Statement/Prospectus;
Summary; The Proposed
Reorganization; Other
Information; Prospectus and
Statement of Additional
Information of the Van
Kampen American Capital
Growth and Income Fund
(incorporated by reference)
Item 6. Information about the Company Being Acquired........ Prospectus and Statement of
Additional Information of
Van Kampen Merritt Growth
and Income Fund
(incorporated by reference)
Item 7. Voting Information.................................. Voting Information and
Requirements
Item 8. Interest of Certain Persons and Experts............. Summary; Reasons for the
Proposed Reorganization;
Legal Matters
Item 9. Additional Information Required for Reoffering by
Persons Deemed to be Underwriters................. Not applicable

PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION

Item 10. Cover Page.......................................... Cover Page
Item 11. Table of Contents................................... Table of Contents
Item 12. Additional Information about the Registrant......... Incorporation of Documents by
Reference
Item 13. Additional Information about the Company Being
Acquired.......................................... Incorporation of Documents by
Reference
Item 14. Financial Statements................................ Financial Statements

PART C OTHER INFORMATION

Items 15-17. Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of this Registration Statement.
</TABLE>

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* References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
<PAGE> 3

DEAR VAN KAMPEN MERRITT GROWTH AND INCOME FUND SHAREHOLDER:

Enclosed is information asking you for your vote on a reorganization (the
"Reorganization") pursuant to an Agreement and Plan of Reorganization (the
"Agreement") for the Van Kampen Merritt Growth and Income Fund (the "VK Fund"),
a series of the Van Kampen American Capital Equity Trust (the "VKAC Equity
Trust"). The Reorganization calls for VK Fund shareholders to become
shareholders of the Van Kampen American Capital Growth and Income Fund ("AC
Fund"), a mutual fund which pursues a substantially similar investment
objective.

The enclosed materials include a combined Proxy Statement/Prospectus
containing information you need to make an informed decision. However, we
thought it would also be helpful for you to have, at the start, answers to some
of the important questions you might have about the proposed Reorganization. We
hope you find these explanations useful as you review your materials before
voting. For more detailed information about the Reorganization, please refer to
the combined Proxy Statement/Prospectus.

HOW WILL THE REORGANIZATION AFFECT ME?

Assuming shareholders of the VK Fund approve the Reorganization, the assets
and liabilities of the VK Fund will be combined with those of the AC Fund and
you will become a shareholder of the AC Fund. You will receive shares of the AC
Fund equal in value at the time of issuance to the shares of the VK Fund that
you hold immediately prior to the Reorganization. Class A shareholders of the VK
Fund will receive Class A shares of the AC Fund; Class B shareholders of the VK
Fund will receive Class B shares of the AC Fund; and Class C shareholders of the
VK Fund will receive Class C shares of the AC Fund.

WHY IS THE REORGANIZATION BEING RECOMMENDED?

As we reported to you earlier, the parent company of Van Kampen American
Capital Asset Management, Inc. ("AC Adviser"), the investment adviser to the AC
Fund, was acquired in December 1994 by Van Kampen American Capital, Inc.
("VKAC"), and was subsequently merged into VKAC. VKAC, through its wholly owned
subsidiaries, distributes and manages the Van Kampen American Capital funds. AC
Adviser is an affiliate of Van Kampen American Capital Investment Advisory Corp.
("VK Adviser"), the investment adviser to the VK Fund. The primary purposes of
the proposed Reorganization are to seek to achieve future economies of scale and
eliminate certain costs associated with operating the VK Fund and the AC Fund
separately. The Reorganization will result in combining the assets and
liabilities of the VK Fund with the assets and liabilities of the AC Fund and
consolidating their operations.
<PAGE> 4

The Reorganization is intended to provide various benefits to shareholders of
the VK Fund who become shareholders of the AC Fund (as well as to existing and
future investors in the AC Fund). For example, higher net asset levels would
enable the AC Fund to spread fixed and relatively fixed costs, such as
accounting, legal and printing expenses, over a larger asset base, thereby
potentially reducing per share expense levels. Higher net asset levels also may
benefit portfolio management by permitting larger individual portfolio
investments that may result in reduced transaction costs or more favorable
pricing and by providing the opportunity for greater portfolio diversity. These
benefits, in turn, should have a favorable effect on the relative performance of
the AC Fund.

The consummation of the Reorganization is subject to the satisfaction of a
number of conditions (including approval by the VK Fund's shareholders), which
are summarized below in "The Proposed Reorganization -- Terms of the Agreement"
section of the Proxy Statement/Prospectus. These conditions are stated in the
Agreement which is attached as Exhibit A to the combined Proxy Statement/
Prospectus.

WILL I HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER TRANSACTIONAL FEE IN
CONNECTION WITH THE REORGANIZATION?

No. The full value of your shares of the VK Fund will be exchanged for shares
of the corresponding class of the AC Fund without any sales load, commission or
other transactional fee being imposed. As more fully discussed in the combined
Proxy Statement/Prospectus, the holding period for shareholders acquiring Class
B or C shares in the Reorganization subject to a contingent deferred sales
charge will be measured from the time (i) the holder purchased Class B or C
shares from the VK Fund or (ii) purchased Class B or C shares of any other Van
Kampen American Capital open-end fund and subsequently exchanged into Class B or
C shares of the VK Fund. If the Reorganization is completed, the AC Fund will
bear the costs associated with the Reorganization, such as printing and mailing
costs and other expenses associated with the Special Meeting. If the
Reorganization is not completed, VKAC will bear the costs associated with the
Reorganization.

HOW WILL THE FEES PAID BY THE AC FUND COMPARE TO THOSE PAYABLE BY THE VK FUND?

It is anticipated that, on a per share basis, the total of the various fees
and expenses incurred by the AC Fund will be less, upon completion of the
Reorganization, than the total of such fees and expenses applicable to the VK
Fund.

WHAT WILL I HAVE TO DO TO OPEN AN ACCOUNT IN THE AC FUND? WHAT HAPPENS TO MY
ACCOUNT IF THE REORGANIZATION IS APPROVED?

If the Reorganization is approved, your interest in Class A, B or C shares of
the VK Fund will automatically be converted into the same class of shares of the
AC

<PAGE> 5

Fund and we will send you written confirmation that this change has taken place.
You will receive the same class of shares of the AC Fund equal in value to your
Class A, B or C shares of the VK Fund. No certificates for AC Fund shares will
be issued in connection with the Reorganization, although such certificates will
be available upon request. If you currently hold certificates representing your
shares of the VK Fund, it is not necessary to surrender such certificates.

WHO WILL ADVISE THE AC FUND AND PROVIDE OTHER SERVICES?

AC Adviser provides advisory services to the AC Fund under an arrangement that
is substantially similar to that currently in effect between the VK Fund and VK
Adviser. Van Kampen American Capital Distributors, Inc. serves as distributor of
shares of both the AC Fund and the VK Fund. In addition, State Street Bank &
Trust Company, 225 Franklin Street, P.O. Box 1713, Boston, Massachusetts
02105-1713 is the custodian of both the AC Fund and the VK Fund. ACCESS Investor
Services, Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256 serves as the
transfer agent for both the AC Fund and the VK Fund.

WILL I HAVE TO PAY ANY FEDERAL TAXES AS A RESULT OF THE REORGANIZATION?

The Reorganization is intended to qualify as a "reorganization" with the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Reorganization so qualifies, in general, a shareholder of
the VK Fund will recognize no gain or loss upon its receipt of solely the shares
of the AC Fund in connection with the Reorganization. Additionally, the VK Fund
would not recognize any gain or loss as a result of the transfer of all of its
assets and liabilities solely in exchange for the shares of the AC Fund or as a
result of its liquidation. The AC Fund expects that it will not recognize any
gain or loss as a result of the Reorganization, that it will take a carryover
basis in the assets acquired from the VK Fund and that its holding period of
such assets will include the period during which the assets were held by the VK
Fund. See "The Proposed Reorganization -- Federal Income Tax Consequences" in
the combined Proxy Statement/Prospectus.

WHAT IF I REDEEM MY VK FUND SHARES BEFORE THE REORGANIZATION TAKES PLACE?

If you choose to redeem your shares of the VK Fund before the Reorganization
takes place, the redemption will be treated as a normal sale of shares and will
be a taxable transaction, unless your account is not subject to taxation, such
as an individual retirement account or other tax-qualified retirement plan.

We hope these answers help to clarify the Reorganization proposal for you. If
you still have questions, do not hesitate to call us at 1-800-341-2911. Please
give this matter your prompt attention. We need to receive your proxy before the
shareholder meeting scheduled for September 15, 1995. If shareholders approve
the Reorganization, it is expected to take effect on September 22, 1995.

<PAGE> 6

Thank you for your investment in Van Kampen Merritt Growth and Income Fund.

Very truly yours,

Van Kampen Merritt Growth
and Income Fund

Dennis J. McDonnell
President, Chief Executive Officer
and Trustee
<PAGE> 7

VAN KAMPEN MERRITT
GROWTH AND INCOME FUND
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181

(800) 341-2911

NOTICE OF SPECIAL MEETING

SEPTEMBER 15, 1995

A Special Meeting of Shareholders of the Van Kampen Merritt Growth and Income
Fund ("VK Fund") will be held at the Hyatt Regency Oak Brook, 1909 Spring Road,
Oak Brook, Illinois 60521, on September 15, 1995 at 2:00 p.m. (the "Special
Meeting") for the following purposes:

(1) To approve a plan of reorganization pursuant to which the VK Fund would
transfer all of its assets and liabilities to the Van Kampen American Capital
Growth and Income Fund (the "AC Fund") in exchange for corresponding Class A,
B and C shares of beneficial interest of the AC Fund, the VK Fund would
distribute such Class A, B and C shares of the AC Fund to the holders of Class
A, B and C shares of the VK Fund, respectively, and the VK Fund would be
dissolved.

(2) To transact such other business as may properly come before the Special
Meeting.

The Special Meeting is scheduled to be held jointly with the special meetings
of the respective shareholders of five other Van Kampen American Capital Funds
because the shareholders of each of such funds are expected to consider and vote
on similar matters. In the event that any shareholder of any Van Kampen American
Capital Fund present at the special meetings objects to the holding of a joint
meeting and moves for an adjournment of the meeting of such fund to a time
immediately after the other special meetings so that such fund's special meeting
may be held separately, the persons named as proxies will vote in favor of such
adjournment. Shareholders of each Van Kampen American Capital Fund will vote
separately on each of the proposals relating to their fund, and an unfavorable
vote on a proposal by the shareholders of one fund will not affect the
implementation of such a proposal by another fund if the proposal is approved by
the shareholders of that fund.

Shareholders of record as of the close of business on August 1, 1995 are
entitled to vote at the Special Meeting or any adjournment thereof.

For the Board of Trustees,

Ronald A. Nyberg
Vice President and Secretary

August 2, 1995

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PLEASE VOTE PROMPTLY BY SIGNING AND
RETURNING THE ENCLOSED PROXY.

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<PAGE> 8

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PROXY STATEMENT/PROSPECTUS
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
VAN KAMPEN MERRITT GROWTH AND INCOME FUND
BY AND IN EXCHANGE FOR SHARES OF
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

This Proxy Statement/Prospectus is being furnished to shareholders of the Van
Kampen Merritt Growth and Income Fund ("VK Fund") and relates to the Special
Meeting of Shareholders of the VK Fund (the "Special Meeting") called for the
purpose of approving the proposed reorganization of the VK Fund (the
"Reorganization") which would result in shareholders of the VK Fund in effect
exchanging their Class A, B and C shares of the VK Fund for Class A, B and C
shares, respectively, of the Van Kampen American Capital Growth and Income Fund
(the "AC Fund"). The Reorganization would be accomplished as follows: (1) the AC
Fund would acquire all the then existing assets and liabilities of the VK Fund
in exchange for Class A, B and C shares of beneficial interest of the AC Fund
(the "Shares"); (2) the VK Fund would distribute the Shares to the VK Fund
shareholders holding the same respective class of shares; and (3) the VK Fund
would dissolve and all shares of the VK Fund would be cancelled.

The AC Fund is an open-end, diversified management investment company that is
authorized to issue an unlimited number of shares of beneficial interest, par
value $.01 per share. The investment objective of the AC Fund is to seek income
and long-term growth of capital, which is substantially similar to that of the
VK Fund. (See "Risk Factors -- Comparison of Investment Policies" below.) There
can be no assurance that the AC Fund will achieve its investment objective. The
address and principal executive office of the VK Fund is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, telephone no. (708) 684-6000 or (800)
225-2222. The address and principal executive office of the AC Fund is 2800 Post
Oak Boulevard, Houston, Texas 77056, telephone no. (800) 421-5666. The enclosed
proxy and this Proxy Statement/Prospectus are first being sent to VK Fund
shareholders on or about August 2, 1995.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------

1
<PAGE> 9

This Proxy Statement/Prospectus contains information shareholders of the VK
Fund should know before voting on the Reorganization and constitutes an offering
of Class A, B and C Shares of the AC Fund only. Please read it carefully and
retain it for future reference. A Statement of Additional Information dated July
31, 1995, relating to this Proxy Statement/Prospectus (the "Reorganization SAI")
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. A Prospectus (the "AC Fund Prospectus") and
Statement of Additional Information containing additional information about the
AC Fund, each dated August 1, 1995, have been filed with the SEC and are
incorporated herein by reference. A copy of the AC Fund Prospectus accompanies
this Proxy Statement/Prospectus. A Prospectus and Statement of Additional
Information containing additional information about the VK Fund, each dated July
31, 1995, have been filed with the SEC and are incorporated herein by reference.
Copies of any of the foregoing may be obtained without charge by calling or
writing to the VK Fund at the telephone number or address shown above. If you
wish to request the Reorganization SAI, please ask for the "Reorganization SAI."

No person has been authorized to give any information or make any
representation not contained in this Proxy Statement/Prospectus and, if so given
or made, such information or representation must not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities in any jurisdiction in
which, or to any person to whom, it is unlawful to make such offer or
solicitation.
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The AC Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as
amended, (the "Act") and in accordance therewith files reports and other
information with the SEC. Such reports, other information and proxy statements
filed by the AC Fund can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at its Regional Office at 500 West Madison Street, Chicago, Illinois.
Copies of such material can also be obtained from the SEC's Public Reference
Branch, Office of Consumer Affairs and Information Services, Washington, D.C.
20549, at prescribed rates.

The date of this Proxy Statement/Prospectus is July 31, 1995.

2
<PAGE> 10

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
APPROVAL OR DISAPPROVAL OF THE PROPOSED REORGANIZATION...........
4
A. SUMMARY.................................................... 4
The Reorganization....................................... 4
Comparisons of the AC Fund and the VK Fund............... 5
Investment Objective and Policies...................... 7
Advisory and Other Fees................................ 8
Distribution, Purchase, Redemption and Exchange of
Shares............................................... 9
Federal Income Tax Consequences.......................... 14
Reasons for the Proposed Reorganization.................. 14
B. RISK FACTORS............................................... 16
Nature of Investment..................................... 16
Comparison of Investment Policies........................ 17
C. INFORMATION ABOUT THE FUNDS................................ 17
D. THE PROPOSED REORGANIZATION................................ 18
Terms of the Agreement................................... 18
Description of Securities to be Issued................... 20
Shares of Beneficial Interest.......................... 20
Voting Rights of Shareholders.......................... 20
Continuation of Shareholder Accounts and Plans; Share
Certificates........................................... 20
Federal Income Tax Consequences.......................... 21
Capitalization........................................... 23
Comparative Performance Information...................... 23
Ratification of Investment Objective, Policies and
Restrictions of the AC Fund............................ 24
Legal Matters............................................ 24
Expenses................................................. 25
E. RECOMMENDATION OF VK BOARD................................. 25
OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING...........
25
OTHER INFORMATION................................................ 25
A. SHAREHOLDINGS OF THE VK FUND AND THE AC FUND............... 25
B. SHAREHOLDER PROPOSALS...................................... 27
VOTING INFORMATION AND REQUIREMENTS.............................. 27
EXHIBIT A
EXHIBIT B
</TABLE>

3
<PAGE> 11

APPROVAL OR DISAPPROVAL
OF THE PROPOSED REORGANIZATION

A. SUMMARY

The following is a summary of, and is qualified by reference to, the more
complete information contained in this Proxy Statement/Prospectus, including the
Agreement and Plan of Reorganization by and between the AC Fund and the VK Fund,
a series of the Van Kampen American Capital Equity Trust ("VKAC Equity Trust"),
attached hereto as Exhibit A (the "Agreement"), the prospectus of the VK Fund
dated July 31, 1995 (the "VK Fund Prospectus") incorporated herein by reference,
and the prospectus of the AC Fund dated August 1, 1995 (the "AC Fund
Prospectus") incorporated herein by reference and accompanying this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus constitutes an offering of
shares of the AC Fund only.

THE REORGANIZATION

On May 11, 1995, the Board of Trustees of the VKAC Equity Trust (the "VK
Board") approved the Agreement. The Agreement provides that the VK Fund will
transfer all of its assets and liabilities to the AC Fund in exchange for Class
A, B and C Shares of the AC Fund. At the Closing (as defined herein), the AC
Fund will issue Shares of the AC Fund to the VK Fund, which AC Fund Shares will
have an aggregate net asset value equal in amount to the value of the VK Fund
net assets as of the Closing. The Agreement provides that the VK Fund will
dissolve pursuant to a plan of liquidation and dissolution to be adopted by the
VK Board and as part of such dissolution, will distribute to each shareholder of
the VK Fund Shares of the respective class of the AC Fund equal in value to
their existing shares in the VK Fund. All members of the VK Board who are not
affiliated with the VK Adviser were elected as trustees of the AC Fund on July
21, 1995.

The VK Board has unanimously determined that the Reorganization is in the best
interests of the shareholders of each class of shares of the VK Fund and that
the interests of such shareholders will not be diluted as a result of the
Reorganization. Similarly, the Board of Trustees of the AC Fund (the "AC Board")
has unanimously determined that the Reorganization is in the best interest of
the AC Fund and that the interests of the shareholders of each class of shares
of the AC Fund will not be diluted as a result of the Reorganization. Management
of the respective funds believes that the proposed Reorganization of the VK Fund
into the AC Fund should allow the AC Fund to achieve future economies of scale
and eliminate certain costs of operating the VK Fund and the AC Fund separately.

The AC Fund has agreed to pay all of the costs of soliciting approval of the
Reorganization by the VK Fund's shareholders and related costs of the
Reorganization in the event the Reorganization is completed, including expenses
incurred by

4
<PAGE> 12

the VK Fund. Accordingly, if the Reorganization is completed, shareholders of
the AC Fund after the Reorganization will bear a pro rata portion of such
expenses. If the Reorganization is not completed, VKAC will bear the costs
associated with the Reorganization.

The VK Board is asking shareholders of the VK Fund to approve the
Reorganization at the Special Meeting to be held on September 15, 1995. If
shareholders of the VK Fund approve the Reorganization, it is expected that the
Closing will be on September 29, 1995, but it may be at a different time, as
described herein.

THE VK BOARD RECOMMENDS THAT YOU VOTE FOR THE REORGANIZATION. APPROVAL OF THE
REORGANIZATION REQUIRES THE FAVORABLE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES ENTITLED TO VOTE. SEE "VOTING INFORMATION AND REQUIREMENTS."

COMPARISONS OF THE AC FUND AND THE VK FUND

The principal changes which would result from the Reorganization are listed
below:

(1) The shareholders of the VK Fund would become holders of the same class of
Shares, respectively, of the AC Fund. The VK Fund and the AC Fund have
substantially similar investment objectives and follow similar investment
strategies. The VK Fund invests primarily in a diversified portfolio of
dividend paying common stocks. The AC Fund invests principally in
income-producing equity securities, including common stocks and
convertible securities. Each fund may also invest in investment grade
income securities including preferred stock and debt securities. The VK
Fund may invest up to 35% of its assets in foreign securities, while the
AC Fund may invest up to 15% of its assets in foreign securities.

(2) The AC Fund is managed by Van Kampen American Capital Asset Management,
Inc. ("AC Adviser"), an affiliate of the VK Fund's adviser, Van Kampen
American Capital Investment Advisory Corp. ("VK Adviser"). The advisory
fee for the AC Fund is a monthly fee computed on average daily net assets
at an annual rate of 0.50% on the first $150 million of net assets; 0.45%
on the next $100 million of net assets; 0.40% on the next $100 million of
net assets; and 0.35% on net assets over $350 million. The advisory fee
for the VK Fund is a monthly fee computed on average daily net assets at
an annual rate of 0.60% on the first $500 million of net assets; and 0.50%
on net assets over $500 million. As of March 31, 1995, the AC Fund's net
assets were approximately $256.6 million. As of March 31, 1995, the VK
Fund's net assets were approximately $83.3 million.

(3) Both the VK Fund and the AC Fund offer three classes of shares. Class A
Shares of the VK Fund and the AC Fund are subject to an initial sales
charge of 5.75%, excluding Class A shares purchased through the dividend
reinvestment plan. Purchases of Class A Shares of the VK Fund or the AC

5
<PAGE> 13

Fund in amounts of $1,000,000 or more are not subject to an initial sales charge
but a contingent deferred sales charge of 1.00% may be imposed on certain
redemptions made within one year of the purchase. However, the initial sales
charge applicable to Class A shares of the AC Fund will be waived for
Class A Shares acquired in the Reorganization. Class B shares of the VK
Fund and Class B Shares of the AC Fund do not incur a sales charge when
they are purchased, but generally are subject to a contingent deferred
sales charge. With respect to the VK Fund, the sales charge applicable to
the Class B shares is 4.00% for shares redeemed within the first year of
purchase and is reduced to zero over a six year period, while the sales
charge applicable to the Class B shares with respect to the AC Fund is
5.00% for shares redeemed within the first year of purchase and is reduced
to zero over a five year period. However, Class B Shares of the AC Fund
acquired in the Reorganization will remain subject to a contingent
deferred sales charge applicable to Class B shares of the VK Fund. Class C
shares of the VK Fund and Class C Shares of the AC Fund do not incur a
sales charge when they are purchased, but are subject to a contingent
deferred sales charge of 1.00% if redeemed within the first year after
purchase.

(4) Both the VK Fund and the AC Fund have adopted distribution plans (the
"Distribution Plans") pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "Act") and have adopted service plans or
agreements (the "Service Plans"). Both the VK Fund and the AC Fund can pay
up to 0.75% of their respective average daily net assets attributable to
Class B and C shares for reimbursement of certain distribution-related
expenses. In addition, both the VK Fund and the AC Fund can pay up to
0.25% of their respective average daily net assets attributable to Class
A, B and C shares for the provision of ongoing services to shareholders.
Class B shares of both the VK Fund and the AC Fund automatically convert
to Class A shares after six years. Unlike Class C shares of the VK Fund,
Class C Shares of the AC Fund automatically convert to Class A Shares
after ten years. However, Class C Shares acquired in the Reorganization
will retain the same conversion attributes as Class C shares of the VK
Fund. Accordingly, Class C Shares of the AC Fund acquired in the
Reorganization will not automatically convert to Class A Shares after ten
years, but will remain Class C Shares. Class C Shares of the AC Fund
purchased subsequent to the Reorganization will automatically convert to
Class A Shares after ten years.

Certain other comparisons between the VK Fund and the AC Fund are discussed
below.

6
<PAGE> 14

INVESTMENT OBJECTIVE AND POLICIES

Although the VK Fund and the AC Fund principally invest in income-producing
equity securities, the AC Fund and the VK Fund may invest in fixed-income
securities, although the VK Fund generally may invest in fixed-income securities
only with respect to 35% of its assets. In addition, the VK Fund has the ability
to invest up to 35% of its assets in foreign securities, while the AC Fund may
invest up to 15% of its total assets in foreign securities. Neither the VK Fund
nor the AC Fund may invest more than 25% of their respective net assets in a
single industry. The AC Fund may lend its portfolio securities up to a maximum
of 10% of the value of its total assets, while the VK Fund may lend its
portfolio securities up to a maximum of 50% of the value of its total assets. In
addition, the AC Fund may not invest more than 5% of its assets in companies
having a record, together with predecessors, of less than three years of
continuous operations, while the VK Fund has committed not to invest any of its
assets in securities of such companies. Finally, the AC Fund may invest up to
not more than 10% of its net assets in shares of a separate open-end investment
company, Van Kampen American Capital Small Capitalization Fund (the "Small Cap.
Fund"), a company that invests in a broad selection of small capitalization
securities and is managed by AC Adviser, but the VK Fund generally may not
invest in other investment companies. The AC Adviser manages the Small Cap.
Fund. The AC Adviser charges no advisory fee for such management, nor are there
any sales load or other charges associated with the distribution of its shares.
Other expenses incurred by the Small Cap. Fund are borne by it and thus
indirectly by the funds that invest in it.

The AC Fund is managed by AC Adviser while the VK Fund is managed by VK
Adviser. AC Adviser and VK Adviser are wholly-owned subsidiaries of Van Kampen
American Capital Inc. ("VKAC"), which has been developing investment strategies
and products for individuals, businesses and institutions since 1974. AC Adviser
and VK Adviser are the primary investment advisers to the Van Kampen American
Capital funds. VKAC is a diversified asset management company with more than two
million retail investor accounts, extensive capabilities for managing
institutional portfolios, and over $50 billion under management or supervision.
VKAC's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. The business address of AC Adviser is 2800 Post Oak Boulevard,
Houston, Texas 77056. AC Adviser and its investment advisory agreement with AC
Fund are

7
<PAGE> 15

more fully described in the AC Fund Prospectus and Statement of Additional
Information.

ADVISORY AND OTHER FEES

The VK Fund pays VK Adviser a monthly fee based on its average daily net asset
value at the annual rates of 0.60% of the first $500 million and 0.50%
thereafter. The advisory fee for the six months ended December 31, 1994 was
0.60% of the VK Fund's average daily net asset value. Further, the VK Fund pays
certain other charges and expenses of its operations including: the compensation
of the trustees of the VK Fund (other than those who are affiliated persons, as
defined in the Act, of VK Adviser, Van Kampen American Capital Distributors,
Inc. or VKAC); the charges and expenses of independent accountants, legal
counsel, any transfer and dividend disbursing agents and the custodian
(including fees for safekeeping of securities); costs of calculating net asset
value; costs of acquiring and disposing of portfolio securities; interest (if
any) on obligations incurred by the VK Fund; costs of share certificates; costs
of membership dues in the Investment Company Institute or any similar
organization; costs of reports and notices to shareholders; costs of registering
shares of the VK Fund under federal securities laws; miscellaneous expenses and
all taxes and fees for federal, state or other governmental agencies, excluding
securities registration expenses. The total operating expenses of the VK Fund
for the six-month period ended December 31, 1994 (annualized) were 1.39%, 2.18%
and 2.15% of the average daily net assets attributable to Class A, B and C
shares, respectively.

The AC Fund pays AC Adviser a monthly fee based on its average daily net asset
value at the annual rates of 0.50% of the first $150 million; 0.45% on the next
$100 million; 0.40% on the next $100 million and 0.35% thereafter. The AC Fund
reimburses AC Adviser for the cost of accounting services, which include
maintaining its financial books and records and calculating its daily net asset
value. In addition, the AC Fund pays certain operating expenses which include
shareholder service agency fees, distribution fees, service fees, custodial
fees, legal and accounting fees, the costs of reports and proxies to
shareholders, directors' fees, and all other business expenses not specifically
assumed by AC Adviser. The total operating expenses of the AC Fund for the
period ended November 30, 1994 were 1.16%, 2.02% and 2.01% of the average daily
net assets attributable to Class A, B and C Shares, respectively. For a complete
description of the VK Fund's advisory services, see the respective sections in
the VK Fund's Prospectus and Statement of Additional Information entitled
"Investment Advisory Services" and "Investment Advisory and Other
Services -- Investment Advisory Agreement." For a complete description of the AC
Fund's advisory services, see the respective sections in the AC Fund's
Prospectus and Statement of Additional Information entitled "Investment Advisory
Services" and "Investment Advisory Agreement."

8
<PAGE> 16

In addition, the VK Fund has adopted the Distribution Plan with respect to
each class of shares pursuant to Rule 12b-1 under the Act and has adopted the
Service Plan with respect to each class of its shares. The Distribution Plan and
the Service Plan provide that the VK Fund can charge up to 0.25%, 1.00% and
1.00% of the VK Fund's average daily net assets attributable to the Class A, B
and C Shares, respectively, for reimbursement of certain distribution-related
expenses and for the provision of ongoing services to shareholders. The
Distribution Plan and the Service Plan are being implemented through an
agreement with Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors"), the distributor of each class of the VK Fund's shares,
sub-agreements between VKAC Distributors and members of the National Association
of Securities Dealers, Inc. ("NASD") who are acting as securities dealers and
NASD members or eligible nonmembers who are acting as brokers or agents and
similar agreements between the VK Fund and banks who are acting as brokers for
their customers that may provide their customers or clients certain services or
assistance. The AC Fund has a similar Distribution Plan and Service Plan. For a
complete description of these arrangements, see the section in the VK Fund's
Prospectus entitled "The Distribution and Service Plans." For a complete
description of these arrangements with respect to the AC Fund, see the
respective sections in the AC Fund's Prospectus and Statement of Additional
Information entitled "Distribution Plans."

DISTRIBUTION, PURCHASE, REDEMPTION AND EXCHANGE OF SHARES

Generally, Class A shares of the VK Fund and the AC Fund are sold at net asset
value applicable at the time of such sale, plus a sales charge of up to 5.75% of
the offering price (which percentage is reduced on investments of $50,000 or
more), and are redeemable at their net asset value applicable at the time of
redemption. Purchases of Class A Shares of the VK Fund or the AC Fund in amounts
of $1,000,000 or more are not subject to an initial sales charge but a
contingent deferred sales charge of 1% may be imposed on certain redemptions
made within one year of the purchase. Class A Shares of the AC Fund acquired in
the Reorganization will not be subject to a sales charge.

Generally, Class B shares do not incur a sales charge when they are purchased,
but generally are subject to a contingent deferred sales charge if redeemed
within a specified period of time from the date of purchase. Class B shares of
the VK Fund are subject to a contingent deferred sales charge equal to 4.00% of
the lesser of the then current net asset value or the original purchase price on
Class B shares redeemed during the first year after purchase, which charge is
reduced to zero over a six year period. Class B Shares of the AC Fund are
subject to a contingent deferred sales charge equal to 5.00% of the lesser of
the then current net asset value or the original purchase price on Class B
Shares redeemed during the first year after purchase, which charge is reduced to
zero over a five year period. However, Class B

9
<PAGE> 17

Shares of the AC Fund acquired in the Reorganization will remain subject to the
contingent deferred sales charge applicable to Class B shares of the VK Fund.

Generally, Class C shares do not incur a sales charge if redeemed after the
first year of purchase. Both Class C shares of the VK Fund and Class C Shares of
the AC Fund are subject to a contingent deferred sales charge equal to 1.00% of
the lesser of the then current net asset value or the original purchase price on
such shares redeemed during the first year after purchase and do not incur a
sales charge if redeemed after the first year from the date of purchase. See
"Fee Comparisons" below.

The minimum initial investment with respect to each class of shares of the VK
Fund and the AC Fund is $500, although Shares of the AC Fund acquired in
connection with the Reorganization will not be subject to the minimum investment
limitation. The minimum subsequent investment in the VK Fund and the AC Fund is
$25. For a complete description of these arrangements, see the section in the VK
Fund's Prospectus entitled "Purchase of Shares." For a complete description of
these arrangements with respect to the AC Fund, see the respective sections in
the AC Fund's Prospectus and Statement of Additional Information entitled
"Purchase of Shares" and "Purchase and Redemption of Shares."

Shares of either the VK Fund or the AC Fund may be purchased by check, by
electronic transfer or by bank wire and also offer exchange privileges among all
other Van Kampen American Capital open-end mutual funds distributed by VKAC
Distributors (except Van Kampen American Capital Government Target Fund).

Shares of the AC Fund and the VK Fund properly presented for redemption may be
redeemed or exchanged at the next determined net asset value per share (subject
to any applicable deferred sales charge). Shares of either the VK Fund or the AC
Fund may be redeemed or exchanged by mail or by special redemption privileges
(telephone exchange, telephone redemption, or electronic transfer). If a
shareholder of either fund attempts to redeem shares within a short time after
they have been purchased by check, the respective fund may delay payment of the
redemption proceeds until such fund can verify that payment for the purchase of
the shares has been (or will be) received. No further purchases of the shares of
the VK Fund may be made after the date on which the shareholders of the VK Fund
approve the Reorganization, and the stock transfer books of the VK Fund will be
permanently closed as of the date of Closing. Only redemption requests and
transfer instructions received in proper form by the close of business on the
day prior to the date of Closing will be fulfilled by the VK Fund. Redemption
requests or transfer instructions received by the VK Fund after that date will
be treated by the VK Fund as requests for the redemption or instructions for
transfer of the Shares of the AC Fund credited to the accounts of the
shareholders of the VK Fund. Redemption requests or transfer instructions
received by the VK Fund after the close of business on the day prior to the date
of Closing will be forwarded to the AC Fund. For a

10
<PAGE> 18

complete description of these redemption arrangements, see the section in the VK
Fund's Prospectus entitled "Redemption of Shares" and the sections in the AC
Fund's Prospectus and AC Fund's Statement of Additional Information entitled
"Redemption of Shares" and "Purchase and Redemption of Shares."

The differences in the distribution, purchase and redemption procedures and
fee structure of the Shares of the AC Fund and the shares of the VK Fund are
highlighted in the table below.

FEE COMPARISONS

<TABLE>
<CAPTION>
AC VK
CLASS A SHARES FUND** FUND* PRO FORMA
- --------------------------------------------------- ----- ------ ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS A SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price).............. 5.75%(1) 5.75% 5.75%(1)
Maximum Deferred Sales Charge
(as a percentage of the lower of the original
purchase price or redemption proceeds)........... None None None

ANNUAL FUND OPERATING EXPENSES FOR CLASS A SHARES
(as a percentage of average net assets)
Management Fees.................................... 0.48% 0.60% 0.47%
Rule 12b-1 Fees.................................... 0.17% 0.27% 0.19%
Other Expenses..................................... 0.51% 0.52% 0.44%
Total Fund Operating Expenses...................... 1.16% 1.39% 1.10%

Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period (4)
One Year......................................... $ 69 $ 71 $ 68
Three Years...................................... $ 92 $ 99 $ 90
Five Years....................................... $ 118 $ 129 $ 115
Ten Years........................................ $ 190 $ 215 $ 184

Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the Period
(4)
One Year......................................... $ 69 $ 71 $ 68
Three Years...................................... $ 92 $ 99 $ 90
Five Years....................................... $ 118 $ 129 $ 115
Ten Years........................................ $ 190 $ 215 $ 184
</TABLE>

11
<PAGE> 19

<TABLE>
<CAPTION>
AC VK
CLASS B SHARES FUND** FUND* PRO FORMA
- --------------------------------------------------- ----- ------ ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS B SHARES
Maximum Sales Load imposed on Purchase of a Share
(as a percentage of Offering Price).............. None None None
Maximum Deferred Sales Charge (as a percentage of
the lower of the original purchase price or
redemption proceeds)............................. 5.00%(3) 4.00% (2) 5.00%(3)

ANNUAL FUND OPERATING EXPENSES FOR CLASS B SHARES
(as a percentage of average net assets)
Management Fees.................................... 0.48% 0.60% 0.47%
Rule 12b-1 Fees.................................... 1.00% 1.00% 1.00%
Other Expenses..................................... 0.54% 0.58% 0.44%
Total Fund Operating Expenses...................... 2.02% 2.18% 1.91%

Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period (4)
One Year......................................... $ 71 $ 62 $ 69
Three Years...................................... $ 93 $ 103 $ 90
Five Years....................................... $ 124 $ 132 $ 118
Ten Years........................................ $ 192 $ 213 $ 183
Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the
Period)(4)
One Year......................................... $ 21 $ 22 $ 19
Three Years...................................... $ 63 $ 68 $ 60
Five Years....................................... $ 109 $ 117 $ 103
Ten Years........................................ $ 192 $ 213 $ 183
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS C SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price).............. None None None
Maximum Deferred Sales Charge
(as a percentage of the lower of the original
purchase price or redemption proceeds)........... 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES FOR CLASS C SHARES
(as a percentage of average net assets)
Management Fees.................................... 0.48% 0.60% 0.47%
Rule 12b-1 Fees.................................... 1.00% 1.00% 1.00%
Other Expenses..................................... 0.53% 0.55% 0.44%
Total Fund Operating Expenses...................... 2.01% 2.15% 1.91%
</TABLE>

12
<PAGE> 20

<TABLE>
<CAPTION>
AC VK
CLASS C SHARES FUND** FUND* PRO FORMA
- --------------------------------------------------- ----- ------ ---------
<S> <C> <C> <C>
Expense Example of Total Operating Expenses
Assuming Redemption at the End of the Period (4)
One Year......................................... $ 30 $ 32 $ 29
Three Years...................................... $ 63 $ 67 $ 60
Five Years....................................... $ 108 $ 115 $ 103
Ten Years........................................ $ 234 $ 248 $ 223
Expense Example of Total Operating Expenses
Assuming No Redemption at the End of the Period
(4)
One Year......................................... $ 20 $ 22 $ 19
Three Years...................................... $ 63 $ 67 $ 60
Five Years....................................... $ 108 $ 115 $ 103
Ten Years........................................ $ 234 $ 248 $ 223
</TABLE>

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

(1) Class A shares of the AC Fund received pursuant to the Reorganization will
not be subject to a sales charge upon purchase.
(2) Class B shares of the VK Fund are subject to a contingent deferred sales
charge equal to 4.00% of the lesser of the then current net asset value or
the original purchase price on Class B Shares redeemed during the first year
after purchase, which charge is reduced each year thereafter to zero over a
six year period as follows: Year 1 -- 4.00%; Year 2 -- 3.75%; Year
3 -- 3.50%; Year 4 -- 2.50%; Year 5 -- 1.50%; Year 6 -- 1.00%.
(3) Class B Shares of the AC Fund are subject to a contingent deferred sales
charge equal to 5.00% of the lesser of the then current net asset value or
the original purchase price on Class B Shares redeemed during the first year
after purchase, which charge is reduced each year thereafter to zero over a
five year period as follows: Year 1 -- 5.00%; Year 2 -- 4.00%; Year
3 -- 3.00%; Year 4 -- 2.50%; Year 5 -- 1.50%.

(4) Expenses examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return with either redemption or no redemption at the
end of each time period as noted in the above table. The Pro Forma column
reflects expenses estimated to be paid on new shares purchased from the
combined fund subsequent to the Reorganization. For those shares issued in
connection with the Reorganization, the following expenses would be incurred
based upon the purchase of the VK Fund immediately prior to the
Reorganization and the Pro Forma expense ratio:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
With Redemption at End of Period
Class A............................... $ 68 $90 $115 $ 184
Class B............................... $ 59 $95 $118 $ 183
Class C............................... $ 29 $60 $103 $ 223
Without Redemption at End of Period
Class A............................... $ 68 $90 $115 $ 184
Class B............................... $ 19 $60 $103 $ 183
Class C............................... $ 19 $60 $103 $ 223
</TABLE>

* For the semi-annual period ended December 31, 1994 on an annualized basis.
** For the fiscal year ended November 30, 1994.

13
<PAGE> 21

FEDERAL INCOME TAX CONSEQUENCES

The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Reorganization so qualifies, in general a shareholder of
the VK Fund will recognize no gain or loss upon the receipt of solely the Shares
of the AC Fund pursuant to the Reorganization. Additionally, the VK Fund would
not recognize any gain or loss as a result of the exchange of all of its assets
for the Shares of the AC Fund or as a result of its liquidation. The AC Fund
expects that it will not recognize any gain or loss as a result of the
Reorganization, that it will take a carryover basis in the assets acquired from
the VK Fund and that its holding period of such assets will include the period
during which the assets were held by the VK Fund. See "The Proposed
Reorganization -- Federal Income Tax Consequences."

The above information is only a summary of more complete information contained
in this Proxy Statement/Prospectus and the related Statement of Additional
Information.

REASONS FOR THE PROPOSED REORGANIZATION

On December 20, 1994, The Van Kampen Merritt Companies, Inc. acquired from The
Travelers Inc. all of the outstanding capital stock of American Capital
Management & Research, Inc., the parent company of the AC Adviser. Immediately
after the acquisition, American Capital Management & Research, Inc. was merged
into The Van Kampen Merritt Companies, Inc. and the combined entity was renamed
Van Kampen American Capital, Inc. ("VKAC"). The VK Adviser and the AC Adviser
currently are each wholly-owned subsidiaries of VKAC.

On February 10, 1995, the VK Board and the AC Board held a joint meeting to
discuss with management ("Management") of the VK Adviser and the AC Adviser the
costs and potential benefits to shareholders of, among other things, (i)
combining certain funds advised by the VK Adviser and the AC Adviser, including
the VK Fund and the AC Fund, in order to seek to achieve certain economies of
scale and efficiencies, (ii) permitting exchangeability of shares between funds
advised by the VK Adviser and the AC Adviser, (iii) selecting a common transfer
agent to facilitate exchangeability and enhance shareholder services, and (iv)
consolidating the VK Board and the AC Board into a combined board of trustees
(collectively, the "Consolidation").

The VK Board and the AC Board created a joint committee (the "Joint
Committee") to consider the possible costs and benefits to shareholders
associated with the proposed Consolidation, including the combination of the VK
Fund and the AC Fund. The Joint Committee held meetings on February 20, 1995,
March 27, 1995 and April 3, 1995 to consider issues relating to the
Consolidation, review

14
<PAGE> 22

information requested from and provided by Management and review information
requested from and provided by third-party analytical services.

The VK Board and the AC Board held joint meetings on March 14, 1995 and April
6-7, 1995 to review the findings and recommendations of the Joint Committee. The
VK Board unanimously approved each element of the Consolidation, including the
combination of the VK Fund and AC Fund, on April 7, 1995, subject to approval of
the Consolidation by the AC Board. The AC Board met on May 11, 1995, and
unanimously approved each element of the Consolidation, including the
combination of the VK Fund and the AC Fund. Each of the VK Board and the AC
Board also approved submitting the necessary proposals to the respective
shareholders of the VK Fund and the AC Fund to effect the Consolidation.

At separate shareholder meetings held on July 21, 1995, shareholders of the VK
Fund and the AC Fund approved the reorganization of the VK Fund and the AC Fund
into Delaware business trusts (or series thereof) and the combination of the VK
Board and AC Board. Shareholders of the VK Fund are now being asked to approve
its combination with the AC Fund in order to (i) eliminate the duplication of
services that currently exists as a result of the separate operations of the
funds, (ii) seek to achieve economies of scale by combining the assets of the
funds and (iii) potentially reduce transaction costs and obtain greater
portfolio diversity.

In connection with approving the merger of the VK Fund into the AC Fund, the
VK Board considered the costs resulting from the separate operations of the VK
Fund and the AC Fund in light of their substantially similar investment
objectives, policies and restrictions. The VK Board also considered the
potential expense savings, economies of scale, reduced per share expenses and
benefits to the portfolio management process that could result from combining
the operations of the VK Fund and the AC Fund. In this regard, the VK Board
reviewed information provided by the VK Adviser, AC Adviser and VKAC
Distributors relating to the anticipated cost savings to the shareholders of the
VK Fund and the AC Fund as a result of the Reorganization.

In particular, the VK Board considered the probability that the elimination of
duplicative operations and the increase in asset levels of the AC Fund after the
Reorganization would result in the following benefits for investors, although
there can, of course, be no assurances in this regard:

(1) ELIMINATION OF SEPARATE OPERATIONS. Consolidating the VK Fund and the
AC Fund should eliminate the duplication of services that currently exists as
a result of their separate operations. For example, currently the VK Fund and
the AC Fund are managed separately by different affiliated investment
advisers. Consolidating the separate operations of the VK Fund with those of
the AC Fund should promote more efficient operations on a more cost-effective
basis.

15
<PAGE> 23

(2) ACHIEVEMENT OF REDUCED PER SHARE EXPENSES AND ECONOMIES OF SCALE.
Combining the net assets of the VK Fund with the assets of the AC Fund also
may lead to reduced expenses, on a per share basis, by allowing fixed and
relatively fixed costs, such as accounting, legal and printing expenses, to be
spread over a larger asset base. An increase in the net asset levels of the AC
Fund also could result in achieving future economies of scale, which should
also reduce per share expenses. Any significant reductions in expenses on a
per share basis should, in turn, have a favorable effect on the relative total
return of the AC Fund.

In determining whether to recommend approval of the Reorganization to
shareholders of the VK Fund, the VK Board considered a number of factors,
including, but not limited to: (1) capabilities and resources of AC Adviser and
other service providers to the AC Fund in the areas of marketing, investment and
shareholder services; (2) expenses and advisory fees of the VK Fund and the AC
Fund before the Reorganization and the estimated expense ratios of the AC Fund
after the Reorganization; (3) the comparative investment performance of the VK
Fund and the AC Fund, as well as the performance of the AC Fund compared to its
peers; (4) the terms and conditions of the Agreement and whether the
Reorganization would result in dilution of shareholder interests; (5) the
advantages of eliminating the competition and duplication of effort inherent in
marketing two funds having similar investment objectives, in addition to the
economies of scale realized through the combination of the two funds; (6) the
compatibility of the funds' service features available to shareholders,
including the retention of applicable holding periods and exchange privileges;
(7) the costs estimated to be incurred by the respective funds as a result of
the Reorganization; and (8) the anticipated tax consequences of the
Reorganization. Based upon these, as well as other factors, the VK Board
unanimously determined that the Reorganization is in the best interests of the
shareholders of the VK Fund.

B. RISK FACTORS

NATURE OF INVESTMENT

Each of the AC Fund and the VK Fund invest principally in a diversified
portfolio of income-producing equity securities. Investment in either of the AC
Fund or the VK Fund may not be appropriate for all investors See the AC Fund's
Prospectus accompanying this Proxy Statement/Prospectus.

Certain investment policies and practices of the AC Fund involve special
risks. Investment in equity securities involves risk of fluctuation in value as
a result of changes in market conditions and in actual or perceived changes in
the business prospects of the issuer. Investments in income securities are
subject to fluctuation in value in response to changes in market rates of
interest and in actual or perceived changes in the credit quality of the issuer.
Other investment policies and practices

16
<PAGE> 24

also involve special risks, including investment in warrants and newly formed
companies, entering into repurchase agreements, lending of portfolio securities,
investment in foreign securities and use of options and futures. For a more
complete discussion of the risks of an investment in the AC Fund, see the
sections of the AC Fund Prospectus entitled "Investment Objective and Policies"
and "Investment Practices and Restrictions."

COMPARISON OF INVESTMENT POLICIES

The AC Fund and the VK Fund have substantially similar investment objectives
and also share similar investment practices, but there are also certain
differences in their investment policies, practices and restrictions. The
investment objective of the AC Fund is to provide income and long-term growth of
capital. Similarly, the VK Fund has as its investment objective to seek
long-term growth of both capital and dividend income. Both the AC Fund and the
VK Fund seek to fulfill their investment objective by investing principally in a
diversified portfolio of income-producing equity securities. For a description
of certain differences between the funds, see the "Summary -- Comparisons of the
AC Fund and the VK Fund." For a complete description of the VK Fund's investment
policies and practices, see the sections in the VK Fund Prospectus entitled
"Investment Practices" and "Investment Objective and Policies", and the sections
in the VK Fund's Statement of Additional Information entitled "Investment
Policies and Restrictions" and "Additional Investment Considerations." For a
complete description of the AC Fund's investment policies and practices, see the
sections in the AC Fund Prospectus entitled "Investment Objective and Policies"
and "Investment Practices" and the sections of the AC Fund's Statement of
Additional Information entitled "Investment Objective and Policies" and
"Options, Futures Contracts and Related Options."

C. INFORMATION ABOUT THE FUNDS

AC Fund. Information about the AC Fund is included in its current Prospectus
dated August 1, 1995, which accompanies this Proxy Statement/Prospectus.
Additional information about the AC Fund is included in its current Statement of
Additional Information dated the same date as the AC Fund Prospectus. Copies of
the AC Fund's Statement of Additional Information may be obtained without charge
by calling (800) 421-5666. The AC Fund files proxy material, reports and other
information with the SEC. These reports can be inspected and copied at the
Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549 at prescribed rates.

17
<PAGE> 25

VK Fund. Information about the VK Fund is included in its current Prospectus
dated July 31, 1995. Additional information about the VK Fund is included in its
current Statement of Additional Information dated the same date as the VK Fund
Prospectus. Copies of the VK Fund's Statement of Additional Information may be
obtained without charge by calling (800) 341-2911. The VK Fund files proxy
material, reports and other information with the SEC. These reports can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C. 20549
at prescribed rates.

Management's Discussion of AC Fund Performance as of the Annual Report dated
November 30, 1994 and Management's Discussion of VK Fund Performance as of the
Annual Report dated June 30, 1994 are attached hereto as Exhibit B.

AC Fund, as a Delaware business trust, and the VK Fund, as a series of the
VKAC Equity Trust, a Delaware business trust, are governed by their Agreements
and Declarations of Trust ("Declaration"), their respective Bylaws, and
applicable Delaware law.

D. THE PROPOSED REORGANIZATION

The material features of the Agreement are summarized below. This summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement, a copy of which
is attached hereto as Exhibit A. The affirmative vote of a majority of the
outstanding shares entitled to vote is required to approve the Agreement at a
meeting of shareholders at which a quorum is present.

TERMS OF THE AGREEMENT

Pursuant to the Agreement, the AC Fund will acquire all of the assets and
liabilities of the VK Fund on the date of the Closing in exchange for Class A, B
and C shares of the AC Fund.

Subject to VK Fund shareholder approval of the Reorganization, the closing
(the "Closing") will occur within fifteen (15) business days after the later of
the receipt of all necessary regulatory approvals and the final adjournment of
the Special Meeting or such later date as soon as practicable thereafter as the
VK Fund and the AC Fund may mutually agree. On the date of Closing, the VK Fund
will transfer to the AC Fund all of the assets and liabilities of the VK Fund.
The AC Fund will in turn transfer to the VK Fund a number of Class A, B and C
Shares, respectively, of the AC Fund equal in value to the net assets of the VK
Fund transferred to the AC Fund as of the date of Closing as determined in
accordance with the valuation

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<PAGE> 26

method described in the AC Fund's then current prospectus. In order to minimize
any potential for undesirable federal income and excise tax consequences in
connection with the Reorganization, the AC Fund and the VK Fund may distribute
on or before the Closing all or substantially all of their respective
undistributed net investment income (including net capital gains) as of such
date.

The VK Fund expects to distribute the Class A, B and C Shares of the AC Fund
to the shareholders of the VK Fund promptly after the Closing and then to
dissolve pursuant to a plan of liquidation and dissolution adopted by the VK
Board.

The VK Fund and the AC Fund have made certain standard representations and
warranties to each other regarding their respective capitalization, status and
conduct of business.

Unless waived in accordance with the Agreement, the obligations of the parties
to the Agreement are conditioned upon, among other things:

1. approval of the Reorganization by the VK Fund's shareholders;

2. the absence of any rule, regulation, order, injunction or proceeding
preventing or seeking to prevent the consummation of the transactions
contemplated by the Agreement;

3. the receipt of all necessary approvals, registrations and exemptions
under federal and state laws;

4. the truth in all material respects as of the Closing of the
representations and warranties of the parties and performance and compliance
in all material respects with the parties' agreements, obligations and
covenants required by the Agreement;

5. the effectiveness under applicable law of the registration statement of
the AC Fund of which this Proxy Statement/Prospectus forms a part and the
absence of any stop orders under the Securities Act pertaining thereto; and

6. receipt of opinions of counsel relating to, among other things, the tax
free nature of the Reorganization.

The Agreement may be terminated or amended by the mutual consent of the
parties either before or after approval thereof by the shareholders of the VK
Fund, provided that no such amendment after such approval shall be made if it
would have a material adverse effect on the interests of VK Fund's shareholders.
The Agreement may also be terminated by the non-breaching party if there has
been a material misrepresentation, material breach of any representation or
warranty, material breach of contract or failure of any condition to Closing.

The VK Board recommends that you vote for approval of the Reorganization, as
it believes the Reorganization is in the best interest of the VK Fund's
shareholders

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<PAGE> 27

and that the interests of the VK Fund's existing shareholders will not be
diluted as a result of its consummation of the proposed Reorganization.

DESCRIPTION OF SECURITIES TO BE ISSUED

SHARES OF BENEFICIAL INTEREST

Beneficial interests in the AC Fund being offered hereby are represented by
transferable Class A, B and C Shares, with $.01 par value per share. The AC
Fund's Declaration permits the trustees, as they deem necessary or desirable, to
create one or more separate investment portfolios and to issue a separate series
of shares for each portfolio and, subject to compliance with the Act, to further
sub-divide the shares of a series into one or more classes of shares for such
portfolio.

VOTING RIGHTS OF SHAREHOLDERS

Holders of shares of the AC Fund are entitled to one vote per share on matters
as to which they are entitled to vote. The Declarations of VKAC Equity Trust and
the AC Fund are substantially identical, except that the Declaration of the VKAC
Equity Trust permits the VK Board or shareholders to remove a trustee with or
without cause by the act of two-thirds of such trustees or shareholders,
respectively. The Declaration of the AC Fund permits (i) the AC Board to remove
a trustee with cause by the act of two-thirds of the trustees and (ii)
shareholders holding a majority of the shares of each series outstanding to
remove a trustee with or without cause. The Declaration of the AC Fund also
requires the approval of 80% of the trustees in office or majority vote of the
shares of each series then outstanding to amend these provisions.

Each of the AC Fund and the VK Fund operate as a diversified, open-end
management investment company registered with the SEC under the Act. Therefore,
in addition to the specific voting rights described above, shareholders of the
AC Fund, as well as shareholders of the VK Fund, are entitled, under current
law, to vote with respect to certain other matters, including changes in
fundamental investment policies and restrictions and the ratification of the
selection of independent auditors. Moreover, under the Act, shareholders owning
not less than 10% of the outstanding shares of the AC Fund or VK Fund may
request that the respective board of trustees call a shareholders' meeting for
the purpose of voting upon the removal of trustee(s).

CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS; SHARE CERTIFICATES

If the Reorganization is approved, the AC Fund will establish an account for
each VK Fund shareholder containing the appropriate number of Shares of the AC
Fund. Shareholders of the VK Fund who are accumulating VK Fund shares under the
dividend reinvestment plan, or who are receiving payment under the systematic

20
<PAGE> 28

withdrawal plan with respect to VK Fund shares, will retain the same rights and
privileges after the Reorganization in connection with the AC Fund Class A, B
and C Shares, respectively, received in the Reorganization through comparable
plans maintained by the AC Fund. Van Kampen American Capital Trust Company will
continue to serve as custodian for the assets of VK Fund Shareholders held in
IRA accounts after the Reorganization. Such IRA investors will be sent
appropriate documentation to confirm Van Kampen American Capital Trust Company's
custodianship.

It will not be necessary for shareholders of the VK Fund to whom certificates
have been issued to surrender their certificates. Upon liquidation of the VK
Fund, such certificates will become null and void.

FEDERAL INCOME TAX CONSEQUENCES

The following is a general discussion of the material federal income tax
consequences of the Reorganization to shareholders of the VK Fund and
shareholders of the AC Fund. It is based upon the Code, legislative history,
Treasury regulations, judicial authorities, published positions of the Internal
Revenue Service (the "Service") and other relevant authorities, all as in effect
on the date hereof and all of which are subject to change or different
interpretations (possibly on a retroactive basis). This summary is limited to
shareholders who hold their VK Fund shares as capital assets. No advance rulings
have been or will be sought from the Service regarding any matter discussed in
this Proxy Statement/Prospectus. Accordingly, no assurances can be given that
the Service could not successfully challenge the intended federal income tax
treatment described below. Shareholders should consult their own tax advisors to
determine the specific federal income tax consequences of all transactions
relating to the Reorganization, as well as the effects of state, local and
foreign tax laws.

The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Code. It is a condition to closing that the
AC Fund and the VK Fund receive an opinion from Skadden, Arps, Slate, Meagher &
Flom substantially to the effect that, for federal income tax purposes:

1. The acquisition by the AC Fund of the assets of the VK Fund in exchange
solely for Class A, B and C Shares, respectively, of the AC Fund and the
assumption by the AC Fund of the liabilities of the VK Fund will qualify as a
tax-free reorganization within the meaning of Section 368(a)(1) of the Code.

2. No gain or loss will be recognized by the VK Fund or the AC Fund upon the
transfer to the AC Fund of the assets of the VK Fund in exchange solely for
the Class A, B and C shares, respectively, of the AC Fund and the assumption
by the AC Fund of the liabilities of the VK Fund.

21
<PAGE> 29

3. The AC Fund's basis in the VK Fund assets received in the Reorganization
will, in each instance, equal the basis of such assets in the hands of the VK
immediately prior to the transfer, and the AC Fund's holding period of such
assets will, in each instance, include the period during which the assets were
held by the VK Fund.

4. No gain or loss will be recognized by any shareholder of the VK Fund upon
the exchange of their shares of the VK Fund solely for the Class A, B or C
Shares, respectively, of the AC Fund.

5. The aggregate tax basis of the Class A, B and C Shares of the AC Fund
received by the shareholders of the VK Fund will be the same as the aggregate
tax basis of the shares of the VK Fund surrendered in exchange therefor.

6. The holding period of the Class A, B and C Shares of the AC Fund received
by a shareholder of the VK Fund will include the holding period of the shares
of the VK Fund surrendered in exchange therefor if such surrendered shares of
the VK Fund are held as capital assets by such shareholder on the date of the
exchange.

In rendering its opinion, Skadden, Arps, Slate, Meagher & Flom may rely upon
certain representations of the management of the VK Fund and the AC Fund and
assume that the Reorganization will be consummated as described in the Agreement
and that redemptions of shares of the VK Fund occurring prior to the Closing
will consist solely of redemptions in the ordinary course of business.

The AC Fund intends to be taxed under the rules applicable to regulated
investment companies as defined in Section 851 of the Code, which are the same
rules currently applicable to the VK Fund and its shareholders.

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<PAGE> 30

CAPITALIZATION

The following table sets forth the capitalization of the VK Fund and the AC
Fund as of March 31, 1995 and the pro forma combined capitalization of both as
if the Reorganization had occurred on that date. These numbers may differ at the
time of Closing.

CAPITALIZATION TABLE AS OF MARCH 31, 1995

<TABLE>
<CAPTION>
AC FUND VK FUND PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Net assets
Class A Shares.......... $227,033,186 $50,110,738(1) $277,143,924
Class B Shares.......... 25,284,809 31,789,728 57,074,537
Class C Shares.......... 4,280,090 1,391,689 5,671,779
------------ ----------- ------------
Total............ $256,598,085 $83,292,155 $339,890,240
============= ============ =============
Net asset value per share
Class A Shares.......... $12.35 $18.99 $12.35
Class B Shares.......... 12.35 19.01 12.35
Class C Shares.......... 12.36 19.00 12.36
Shares outstanding
Class A Shares.......... 18,390,355 2,639,421(1) 22,449,472
Class B Shares.......... 2,047,381 1,672,452 4,621,483
Class C Shares.......... 346,363 73,228 458,984
------------ ----------- ------------
Total............ 20,784,099 4,385,101 27,529,939
============= ============ =============
Shares authorized
Class A Shares.......... Unlimited Unlimited Unlimited
Class B Shares.......... Unlimited Unlimited Unlimited
Class C Shares.......... Unlimited Unlimited Unlimited
</TABLE>

- ---------------
(1) Includes $2,100 and 111 shares representing Class D shares outstanding as of
March 31, 1995.

COMPARATIVE PERFORMANCE INFORMATION

The average annual total return for the VK Fund for the one-year, three-year
and five-year periods ended March 31, 1995 and for the period beginning October
29, 1986 (the date Class A Shares of the VK Fund were first offered for sale to
the public) through March 31, 1995 were (0.73)%, 5.83%, 8.11% and 8.07% in
respect of its Class A Shares; for the one year period ended March 31, 1995 and
for the period beginning December 1, 1992 (the date Class B Shares of the VK
Fund were first offered for sale to the public) through March 31, 1995 were
0.40% and 5.38% in respect of Class B shares and for the one year period ended
March 31, 1995 and

23
<PAGE> 31

for the period beginning August 13, 1993 (the date Class C Shares of the VK Fund
were first offered to the public) through March 31, 1995 were 3.40% and 2.92% in
respect of Class C shares (inception August 13, 1993).

The average annual total return for Class A Shares of the AC Fund for the
one-year, three-year, five-year and ten-year periods ended March 31, 1995 and
for the period beginning August 1, 1946 (the date Class A Shares of the AC Fund
were first offered for sale to the public) through March 31, 1995 were 4.78%,
9.25%, 10.20%, 11.08% and 9.25%. The average annual total return for Class B and
C Shares of the AC Fund for the one-year period ended March 31, 1995 and for the
period beginning August 2, 1993 (the date Class B and C Shares of the AC Fund
were first offered for sale to the public) through March 31, 1995 were 5.21% and
6.12% in respect of Class B Shares and 9.28% and 8.26% in respect of Class C
Shares. The return figures include the effect of the maximum sales charge
applicable to purchases and sales of shares of both the AC Fund and the VK Fund.
The sales charge with respect to the Class A shares is not being charged to
shareholders of the VK Fund in connection with the Reorganization. The return
figures for Class B and C Shares take into consideration the payment of the CDSC
applicable to redemption at the end of the period indicated.

The total return figures above assume reinvestment of all dividends and
distributions. They are not necessarily indicative of future results. The
performance of a portfolio is a result of conditions in the securities markets,
portfolio management and operating expenses. Although information such as that
shown above is useful in reviewing a portfolio's performance and in providing
some basis for comparison with other investment alternatives, it should not be
used for comparison with other investments using different reinvestment
assumptions or time periods.

RATIFICATION OF INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS OF THE AC FUND

Approval of the Reorganization will constitute the ratification by VK Fund
shareholders of the investment objective, policies and restrictions of the AC
Fund. For a discussion of the investment objective, policies and restrictions of
the AC Fund, see "Summary -- Comparisons of the AC Fund and the VK Fund" and the
AC Fund Prospectus accompanying this Proxy Statement/Prospectus. Approval of the
Reorganization will constitute approval of amendments to any of the fundamental
investment restrictions of the VK Fund that might otherwise be interpreted as
impeding the Reorganization, but solely for the purpose of and to the extent
necessary for, consummation of the Reorganization.

LEGAL MATTERS

Certain legal matters concerning the issuance of Class A, B and C Shares of
the AC Fund will be passed on by O'Melveny & Myers, 400 South Hope Street, Los
Angeles, California 90071, counsel to the AC Fund. Lawrence J. Sheehan, a former

24
<PAGE> 32

partner of O'Melveny & Myers and currently of counsel to said firm, is a Trustee
of the AC Fund. On July 21, 1995, Mr. Sheehan was elected as a Trustee of the
VKAC Equity Trust.

Certain legal matters concerning the federal income tax consequences of the
Reorganization will be passed upon by Skadden, Arps, Slate, Meagher & Flom, 333
West Wacker Drive, Chicago, Illinois 60606, which serves as counsel to the VK
Fund. Wayne W. Whalen, a partner of Skadden, Arps, Slate, Meagher & Flom, is a
Trustee of the VKAC Equity Trust. On July 21, 1995, Mr. Whalen was elected as a
Trustee of the AC Fund.

EXPENSES

The expenses of the Reorganization, including expenses incurred by the VK Fund
will be borne by the AC Fund after the Reorganization. Accordingly, if the
Reorganization is completed, the AC Fund and its shareholders after the
Reorganization will bear such expenses of the Reorganization. If the
Reorganization is not completed VKAC will bear the costs associated with the
Reorganization. The VK Board has determined that the arrangements regarding the
payment of expenses and other charges relating to the Reorganization are fair
and equitable.

E. RECOMMENDATION OF THE VK BOARD

The VK Board has unanimously approved the Agreement and has determined that
participation in the Reorganization is in the best interests of the shareholders
of the VK Fund. THE VK BOARD RECOMMENDS VOTING FOR APPROVAL OF THE PROPOSED
REORGANIZATION.

OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING

It is not anticipated that any action will be asked of the shareholders of the
VK Fund other than as indicated above, but if other matters are properly brought
before the Special Meeting, it is intended that the persons named in the proxy
will vote in accordance with their judgment.

OTHER INFORMATION

A. SHAREHOLDINGS OF THE VK FUND AND THE AC FUND

At the close of business on July 21, 1995, there were 2,594,017 Class A
shares, 1,653,547 Class B shares and 71,194 Class C shares, respectively, of the
VK Fund.

As of July 17, 1995, the trustees and officers as a group own less than 1% of
the Shares of the VK Fund.

25
<PAGE> 33

To the knowledge of the VK Fund, as of July 17, 1995, no person owned of
record or beneficially 5% or more of the Fund's Class A Shares or Class B
Shares.

As of July 17, 1995 the following persons owned of record or beneficially 5%
or more of the VK Fund's Class C Shares: Edward D. Jones and Co. F/A/O
International Guards Union, EDJ #790-02335-1-6, P.O. Box 2500, Maryland Heights,
MO, 63043-8500, 5%; and Parker Hunter Incorporated FBO, Frank Esparraguera IRA,
Parker/Hunter Custodian, 9 Glenview Avenue, Oil City, PA 16301-2137, 22%.

At the close of business on July 21, 1995, there were 19,065,786 Class A
shares, 2,616,099 Class B shares and 449,804 Class C shares, respectively, of
the AC Fund.

Certain officers, directors and employees of VKAC own in the aggregate, not
more than 7% of the common stock of VK/AC Holding, Inc. and have the right to
acquire, upon the exercise of options, approximately an additional 11% of the
common stock of VK/AC Holding, Inc. Advantage Capital Corporation, a retail
broker-dealer affiliate of VKAC Distributors, is a wholly owned subsidiary of
VK/AC Holding, Inc. No officer or trustee of the VK Fund owns or would be able
to acquire 5% or more of the common stock of VK/AC Holding, Inc.

The Trustees and officers of the AC Fund as a group own less than one percent
of the outstanding shares of the AC Fund.

As of July 6, 1995, no person is known by the AC Fund to own beneficially or
to hold of record as much as five percent of the outstanding Class A shares of
the AC Fund except as follows: 18.55% now owned by American Capital Trust
Company, P.O. Box 1411, Houston, Texas 77251-1411.

As of July 6, 1995, no person was known by the AC Fund to own beneficially or
to hold of record as much as five percent of the Class B shares of the AC Fund
except as follows: 30.03% was owned by American Capital Trust Company, P.O. Box
1411, Houston, Texas 77251-1411, 6.45% was owned by Merrill Lynch Pierce Fenner
& Smith, Inc., P.O. Box 45286, Jacksonville, Florida 32232-5286 and 16.80% was
owned by Smith Barney Inc., 388 Greenwich Street, 11th Floor, New York, New York
10013-2375.

As of July 6, 1995, no person was known by the AC Fund to own beneficially or
to hold of record as much as five percent of the Class C shares of the AC Fund
except as follows: 15.52% was owned by American Capital Trust Company, P.O. Box
1411, Houston, Texas 77251-1411, 5.66% was owned by Edward D. Jones & Co., 12555
Manchester Road, 9th Floor, St. Louis, Missouri 63131-3716, 22.05% was owned by
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box 45286, Jacksonville, Florida
32232-5286 and 16.19% was owned by Smith Barney Inc., 388 Greenwich Street, 11th
Floor, New York, New York 10013-2375.

26
<PAGE> 34

B. SHAREHOLDER PROPOSALS

As a general matter, the AC Fund does not intend to hold regular annual or
special meetings of shareholders unless required by the Act. Any shareholder who
wishes to submit proposals for consideration at a meeting of shareholder for the
AC Fund should send such proposal to the AC Fund at 2800 Post Oak Boulevard,
Houston, Texas 77056. To be considered for presentation at a shareholders'
meeting, rules promulgated by the SEC require that, among other things, a
shareholder's proposal must be received at the offices of the AC Fund a
reasonable time before a solicitation is made. Timely submission of a proposal
does not necessarily mean that such proposal will be included.

VOTING INFORMATION AND REQUIREMENTS

Each valid proxy given by a shareholder of the VK Fund will be voted by the
persons named on the proxy in accordance with the designation on such proxy
regarding the Reorganization proposal and as the persons named in the proxy may
determine on such other business as may come before the Special Meeting on which
shareholders are entitled to vote. If no designation is made, the proxy will be
voted by the persons named on the proxy as recommended by the VK Board "FOR"
approval of the Reorganization. Shareholders who execute proxies may revoke them
at any time before they are voted by filing with the VK Fund a written notice of
revocation, by delivering a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person.

The giving of a proxy will not affect your right to vote in person if you
attend the Special Meeting and wish to do so.

The presence in person or by proxy of the holders of a majority of the
outstanding shares entitled to vote is required to constitute a quorum at the
Special Meeting. APPROVAL OF THE REORGANIZATION WILL REQUIRE THE FAVORABLE VOTE
OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF THE VK FUND ENTITLED
TO VOTE AT THE SPECIAL MEETING AT WHICH A QUORUM IS CONSTITUTED. Shares not
voted with respect to a proposal due to an abstention or broker non-vote will be
deemed votes not cast with respect to such proposal, but such shares will be
deemed present for quorum purposes.

In the event that sufficient votes in favor of the Reorganization are not
received by the scheduled time of the Special Meeting, the persons named in the
proxy may propose and vote in favor of one or more adjournments of the Special
Meeting to permit further solicitation of proxies. If sufficient shares were
present to constitute a quorum, but insufficient votes had been cast in favor of
the Reorganization to approve it, proxies would be voted in favor of adjournment
only if the VK Board determined that adjournment and additional solicitation was
reasonable and in the best interest of the shareholders of the VK Fund, taking
into account the nature of

27
<PAGE> 35

the proposal, the percentage of the votes actually cast, the percentage of
negative votes, the nature of any further solicitation that might be made and
the information provided to shareholders about the reasons for additional
solicitation. Any such adjournment will require the affirmative vote of the
holders of a majority of the outstanding shares voted at the session of the
Special Meeting to be adjourned.

Proxies of shareholders of the VK Fund are solicited by the VK Board. The cost
of solicitation will be paid by the AC Fund after the Reorganization if the
Reorganization is completed. If the Reorganization is not completed, VKAC will
bear the costs associated with the Reorganization. In order to obtain the
necessary quorum at the Special Meeting, additional solicitation may be made by
mail, telephone, telegraph or personal interview by representatives of the VK
Fund, the AC Adviser or VKAC, or by dealers or their representatives. In
addition, such solicitation may also be provided by Applied Mailing Systems, a
solicitation firm located in Boston, Massachusetts, at a cost estimated to be
approximately $11,500, plus reasonable expenses.

July 31, 1995

PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY.

YOUR VOTE IS IMPORTANT AND YOUR PARTICIPATION

IN THE AFFAIRS OF YOUR FUND DOES MAKE A DIFFERENCE.

28
<PAGE> 36
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION

This Agreement and Plan of Reorganization (the "Agreement") is made as of
July 31, 1995, by and between the Van Kampen American Capital Growth & Income
Fund, a Delaware business trust created under the laws of the State of Delaware
(the "AC Fund") and the Van Kampen American Capital Equity Trust, a Delaware
business trust created under the laws of the State of Delaware (the "VKM
Trust") on behalf of its series, the Van Kampen Merritt Growth and Income Fund
(the "VKM Fund").

W I T N E S S E T H:

WHEREAS, on December 20, 1994 (the "AC Acquisition Date"), The Van Kampen
Merritt Companies, Inc. ("TVKMC") acquired all of the issued and outstanding
shares of American Capital Management & Research, Inc. ("American Capital") and
subsequently changed the combined entity's name to Van Kampen American Capital,
Inc.;

WHEREAS, American Capital and TVKMC, through their affiliated companies,
sponsor and manage a number of registered investment companies; and

WHEREAS, Van Kampen American Capital Distributors, Inc., successor by merger
between Van Kampen Merritt Inc. and American Capital Marketing, Inc., acts as
the sponsor and principal underwriter for both the AC Fund and the VKM Fund;

WHEREAS, the VKM Trust was organized as a Massachusetts business trust, and
subsequently reorganized as a Delaware business trust pursuant to an Agreement
and Declaration of Trust (the "Declaration of Trust") dated May 10, 1995,
pursuant to which it is authorized to issue an unlimited number of shares of
beneficial interest with par value of $0.01 per share, which at present have
been divided into different series, each series constituting a separate and
distinct entity of the VKM Trust, including the VKM Fund;

WHEREAS, Van Kampen American Capital Investment Advisory Corp. (formerly, Van
Kampen Merritt Investment Advisory Corp.) ("Advisory Corp.") provides
investment advisory and administrative services to the VKM Fund;

WHEREAS, the AC Fund was organized as a Georgia corporation on May 15, 1946
and subsequently reincorporated by merger into a Maryland corporation on July
6, 1993, and then reorganized as a Delaware business trust, pursuant to an
Agreement and Declaration of Trust subsequently amended and restated as of June
20, 1995, pursuant to which it is authorized to issue an unlimited number of
shares of beneficial interest with par value of $.01 per share;

WHEREAS, Van Kampen American Capital Asset Management, Inc. (formerly,
American Capital Asset Management, Inc.) ("VKAC Asset Management") provides
investment advisory and administrative services to the AC Fund;

WHEREAS, the Board of Trustees of each of the VKM Trust and the AC Fund have
determined that entering into this agreement for the AC Fund to acquire the
assets and liabilities of the VKM Fund is in the best interest of the
shareholders of each respective fund; and

1
<PAGE> 37
WHEREAS, the parties intend that this transaction qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code");

NOW, THEREFORE, in consideration of the mutual promises contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:

1. PLAN OF TRANSACTION.

A. TRANSFER OF ASSETS. Upon satisfaction of the conditions precedent set
forth in Sections 7 and 8 hereof, the VKM Trust will convey, transfer and
deliver to the AC Fund at the closing, provided for in Section 2 hereof, all of
the assets of the VKM Fund (including accrued interest to the Closing Date)
consisting of nondefaulted, liquid, primarily income-producing equity
securities including common stocks and convertible securities, due bills, cash
and other marketable securities acceptable to the AC Fund as more fully set
forth on Schedule 1 hereto, and as amended from time to time prior to the
Closing Date (as defined below), free and clear of all liens, encumbrances and
claims whatsoever (the assets so transferred collectively being referred to as
the "Assets").

B. CONSIDERATION. In consideration thereof, the AC Fund agrees that on the
Closing Date the AC Fund will: (i) deliver to the VKM Trust, in exchange for
such Assets, full and fractional Class A, Class B and Class C shares of the AC
Fund having a net asset value per share calculated as provided in Section 3A
hereof, in an amount equal to the aggregate dollar value of the Assets
determined pursuant to Section 3A of this Agreement net of any liabilities of
the VKM Fund described in Section 3E hereof (the "Liabilities") (collectively,
the "AC Fund Shares") and (ii) assume all of VKM Fund's Liabilities. All AC Fund
Shares delivered to the VKM Trust in exchange for such Assets shall be
delivered at net asset value without sales load, commission or other
transactional fee being imposed.

2. CLOSING OF THE TRANSACTION.

CLOSING DATE. The closing shall occur within fifteen (15) business days
after the later of receipt of all necessary regulatory approvals and the final
adjournment of the meeting of shareholders of the VKM Fund at which this
Agreement will be considered and approved or such later date as soon as
practicable thereafter, as the parties may mutually agree (the "Closing Date").
On the Closing Date, the AC Fund shall deliver to the VKM Trust the AC Fund
Shares in the amount determined pursuant to Section 1B hereof and the VKM
Trust thereafter shall, in order to effect the distribution of such shares to
the VKM Fund shareholders, instruct the AC Fund to register the pro rata
interest in the AC Fund Shares (in full and fractional shares) of each of the
holders of record of shares of the VKM Fund in accordance with their holdings
of either Class A, Class B or Class C shares and shall provide as part of such
instruction a complete and updated list of such holders (including addresses
and taxpayer identification numbers), and the AC Fund agrees promptly to
comply with said instruction. The AC Fund shall have no obligation to inquire
as to the validity, propriety or correctness of such instruction, but shall
assume that such instruction is valid, proper and correct.

3. PROCEDURE FOR REORGANIZATION.

A. VALUATION. The value of the Assets and Liabilities of the VKM Fund to be
transferred and assumed, respectively, by the AC Fund shall be computed as of
the Closing Date, in the manner set forth in the most recent Prospectus and
Statement of Additional Information of the AC Fund (collectively, the "AC Fund
Prospectus"), copies of which have been delivered to the VKM Trust.

B. DELIVERY OF FUND ASSETS. The Assets shall be delivered to State Street
Bank and Trust Company, 225 Franklin Street, Post Office Box 1713, Boston,
Massachusetts 02105-1713, as custodian for the AC Fund (the "Custodian") for
the benefit of the AC Fund, duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, free and clear of all
liens, encumbrances and claims whatsoever, in accordance with the custom of
brokers, and shall be

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<PAGE> 38

accompanied by all necessary state stock transfer stamps, the cost of which
shall be borne by the VKM Fund.

C. FAILURE TO DELIVER SECURITIES. If the VKM Trust is unable to make
delivery pursuant to Section 3B hereof to the Custodian of any of the VKM
Fund's securities for the reason that any of such securities purchased by the
AC Fund have not yet been delivered to it by the VKM Fund's broker or brokers,
then, in lieu of such delivery, the VKM Trust shall deliver to the Custodian,
with respect to said securities, executed copies of an agreement of assignment
and due bills executed on behalf of said broker or brokers, together with such
other documents as may be required by the AC Fund or Custodian, including
brokers' confirmation slips.

D. SHAREHOLDER ACCOUNTS. The AC Fund, in order to assist the VKM Trust in
the distribution of the AC Fund Shares to the VKM Fund shareholders after
delivery of the AC Fund Shares to the VKM Trust, will establish pursuant to the
request of the VKM Trust an open account with the AC Fund for each shareholder
of the VKM Fund and, upon request by the VKM Trust, shall transfer to such
account the exact number of full and fractional shares of the AC Fund then held
by the VKM Trust specified in the instruction provided pursuant to Section 2
hereof. The AC Fund is not required to issue certificates representing AC Fund
Shares unless requested to do so by a shareholder. Upon liquidation or
dissolution of the VKM Fund, certificates representing shares of beneficial
interest of the VKM Fund shall become null and void.

E. LIABILITIES. The Liabilities shall include all of the VKM Fund's
liabilities, debts, obligations, and duties of whatever kind or nature, whether
absolute, accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable at the Closing Date,
and whether or not specifically referred to in this Agreement.

F. EXPENSES. In the event that the transactions contemplated herein are
consummated the AC Fund agrees to pay (i) for the reasonable outside expenses
for the transactions contemplated herein; including, but not by way of
limitation, the preparation of the AC Fund's Registration Statement on Form
N-14 (the "Registration Statement") and the solicitation of VKM Fund
shareholder proxies; (ii) VKM Trust's counsel's reasonable attorney's fees
which fees shall be payable pursuant to receipt of an itemized statement, and
(iii) the cost of rendering the tax opinion, more fully referenced in Section
7F below. In the event that the transactions contemplated herein are not
consummated for any reason, then all reasonable expenses set forth above
incurred to the date of termination of this Agreement shall be borne by VKAC
Asset Management.

G. DISSOLUTION. As soon as practicable after the Closing Date but in no
event later than one year after the Closing Date, the VKM Trust shall
voluntarily dissolve and completely liquidate the VKM Fund, by taking, in
accordance with the Delaware Business Trust Law and Federal securities laws,
all steps as shall be necessary and proper to effect a complete liquidation and
dissolution of the VKM Fund. Immediately after the Closing Date, the stock
transfer books relating to the VKM Fund shall be closed and no transfer of
shares shall thereafter be made on such books.

4. VKM TRUST'S REPRESENTATIONS AND WARRANTIES.

The VKM Trust, on behalf of the VKM Fund, hereby represents and warrants to
the AC Fund which representations and warranties are true and correct on the
date hereof, and agrees with the AC Fund that:

A. ORGANIZATION. The VKM Trust is a Delaware Business Trust duly formed
and in good standing under the laws of the State of Delaware and is duly
authorized to transact business in the State of Delaware. The VKM Fund is a
separate series of the VKM Trust duly designated in accordance with the
applicable provisions of the Declaration of Trust. The VKM Trust and the VKM
Fund are qualified to do business in all jurisdictions in which they are
required to be so qualified, except jurisdictions in which the failure to so
qualify would not have a material adverse effect on either the VKM Trust or VKM
Fund.

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<PAGE> 39

The VKM Trust has all material federal, state and local authorizations necessary
to own on behalf of the VKM Fund all of the properties and assets allocated to
the VKM Fund and to carry on its business and the business of the VKM Fund as
now being conducted, except authorizations which the failure to so obtain would
not have a material adverse effect on the VKM Trust or the VKM Fund.

B. REGISTRATION. VKM Fund is registered under the Investment Company
Act of 1940, as amended (the "1940 Act") as an open-end, diversified management
company and such registration has not been revoked or rescinded. The VKM Trust
is in compliance in all material respects with the 1940 Act and the rules and
regulations thereunder with respect to its activities and those undertaken on
behalf of the VKM Fund. All of the outstanding shares of beneficial interest
of the VKM Fund have been duly authorized and are validly issued, fully paid
and non-assessable and not subject to pre-emptive or dissenters' rights.

C. AUDITED FINANCIAL STATEMENTS. The statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets of the VKM Fund audited as of and for the year ended June
30, 1994, and, as soon as reasonably available, same for the year ended June
30, 1995, true and complete copies of which have been heretofore furnished to
the AC Fund, fairly represent the financial condition and the results of
operations of the VKM Fund as of and for their respective dates and periods in
conformity with generally accepted accounting principles applied on a
consistent basis during the periods involved.

D. FINANCIAL STATEMENTS. The VKM Trust shall furnish to the AC Fund (i) an
unaudited statement of assets and liabilities and the portfolio of investments
and the related statements of operations and changes in net assets of the VKM
Fund for the period ended June 30, 1995; and (ii) within five (5) business days
after the Closing Date an unaudited statement of assets and liabilities and the
portfolio of investments and the related statements of operations and changes
in net assets as of and for the interim period ending on the Closing Date; such
financial statements will present fairly the financial position, and portfolio
of investments and the results of the VKM Fund's operations as of, and for the
period ending on, the dates of such statements in conformity with generally
accepted accounting principles applied on a consistent basis during the periods
involved and the results of its operations and changes in financial position
for the periods then ended; and such financial statements shall be certified by
the Treasurer of the VKM Trust as complying with the requirements hereof.

E. CONTINGENT LIABILITIES. There are, and as of the Closing Date will be, no
contingent Liabilities of the VKM Fund not disclosed in the financial
statements delivered pursuant to Sections 4C and 4D which would materially
affect the VKM Fund's financial condition, and there are no legal,
administrative, or other proceedings pending or, to its knowledge, threatened
against the VKM Trust or the VKM Fund which would, if adversely determined,
materially affect the VKM Fund's financial condition. All Liabilities were
incurred by the VKM Fund in the ordinary course of its business.

F. MATERIAL AGREEMENTS. The VKM Trust is in compliance as to the VKM
Fund with all material agreements, rules, laws, statutes, regulations and
administrative orders affecting the VKM Fund's operations or its assets; and
except as referred to in the VKM Fund's Prospectus and Statement of Additional
Information, there are no material agreements outstanding relating to the VKM
Fund to which the VKM Trust is a party.

G. STATEMENT OF EARNINGS. As promptly as practicable, but in any case no
later than 30 calendar days after the Closing Date, KPMG Peat Marwick L.L.P.,
auditors for the VKM Trust, shall furnish the AC Fund with a statement of the
earnings and profits of the VKM Fund within the meaning of the Code as of the
Closing Date.

H. RESTRICTED SECURITIES. None of the securities comprising the assets of
the VKM Fund at the date hereof are, or on the Closing Date or any subsequent
delivery date will be, "restricted securities"

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<PAGE> 40

under the Securities Act of 1933, (the "Securities Act") or the rules and
regulations of the Securities and Exchange Commission (the "SEC") thereunder,
or will be securities for which market quotations are not readily available for
purposes of Section 2(a)(41) under the 1940 Act.

I. TAX RETURNS. At the date hereof and on the Closing Date, all
Federal and other material tax returns and reports of the VKM Fund required by
law to have been filed by such dates shall have been filed, and all Federal
and other taxes shown thereon shall have been paid so far as due, or provision
shall have been made for the payment thereof, and to the best of the VKM
Trust's knowledge no such return is currently under audit and no assessment has
been asserted with respect to any such return.

J. CORPORATE AUTHORITY. The VKM Trust has the necessary power under its
Declaration of Trust to enter into this Agreement and to consummate the
transactions contemplated herein. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein
have been duly authorized by the VKM Trust's Board of Trustees, and except for
obtaining approval of the holders of the shares of beneficial interest of the
VKM Fund, no other corporate acts or proceedings by the VKM Trust or the VKM
Fund are necessary to authorize this Agreement and the transactions
contemplated herein. This Agreement has been duly executed and delivered by
the VKM Trust and constitutes a legal, valid and binding obligation of the VKM
Trust enforceable in accordance with its terms subject to bankruptcy laws and
other equitable remedies.

K. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the VKM Trust does not and will not (i)
result in a material violation of any provision of the Declaration of Trust of
the VKM Trust or the Designation of Series of the VKM Fund, or any amendment
thereto, (ii) result in a material violation of any statute, law, judgment,
writ, decree, order, regulation or rule of any court or governmental authority
applicable to the VKM Trust, (iii) result in a material violation or breach of,
or constitute a default under any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument or obligation to which the VKM Trust
is subject, or (iv) result in the creation or imposition or any lien, charge or
encumbrance upon any property or assets of the VKM Trust. Except as set forth
in Schedule 2 to this Agreement, (i) no consent, approval, authorization, order
or filing with or notice to any court or governmental authority or agency is
required for the consummation by the VKM Trust of the transactions contemplated
by this Agreement and (ii) no consent of or notice to any third party or entity
is required for the consummation by the VKM Trust of the transactions
contemplated by this Agreement.

L. ABSENCE OF CHANGES. From the date of this Agreement through the Closing
Date, there shall not have been:

(1) any change in the business, results of operations, assets, or financial
condition or the manner of conducting the business of the VKM Fund, other than
changes in the ordinary course of its business, or any pending or threatened
litigation, which has had or may have a material adverse effect on such
business, results of operations, assets or financial condition;

(2) issued any option to purchase or other right to acquire shares of the
VKM Fund granted by the VKM Trust to any person other than subscriptions to
purchase shares at net asset value in accordance with terms in the Prospectus
for the VKM Fund;

(3) any entering into, amendment or termination of any contract or
agreement with respect to the VKM Fund by the VKM Trust, except as otherwise
contemplated by this Agreement;

(4) any indebtedness incurred, other than in the ordinary course of
business, by the VKM Fund for borrowed money or any commitment to borrow money
entered into by the VKM Fund or the VKM Trust on behalf of the VKM Fund;

(5) any amendment of the Declaration of Trust of the VKM Trust; or

5
<PAGE> 41

(6) any grant or imposition of any lien, claim, charge or encumbrance
(other than encumbrances arising in the ordinary course of business with
respect to covered options) upon any asset of the VKM Fund other than a lien
for taxes not yet due and payable.

M. TITLE. On the Closing Date, the VKM Fund will have good and marketable
title to the Assets, free and clear of all liens, mortgages, pledges,
encumbrances, charges, claims and equities whatsoever, other than a lien for
taxes not yet due and payable and full right, power and authority to sell,
assign, transfer and deliver such Assets; upon delivery of such Assets, the AC
Fund will receive good and marketable title to such Assets, free and clear of
all liens, mortgages, pledges, encumbrances, charges, claims and equities other
than a lien for taxes not yet due and payable.

N. PROXY STATEMENT. The VKM Trust's Proxy Statement, at the time of delivery
by the VKM Trust to its shareholders in connection with a special meeting of
shareholders to approve this transaction, and the VKM Trust's Prospectus and
Statement of Additional Information with respect to the VKM Fund on the forms
incorporated by reference into such Proxy Statement and as of their respective
dates (collectively, the "VKM Trust's Proxy Statement/Prospectus"), and at the
time the Registration Statement becomes effective, the Registration Statement
insofar as it relates to the VKM Trust and the VKM Fund and each of them at all
times subsequent thereto and including the Closing Date, as amended or as
supplemented if it shall have been amended or supplemented, conform and will
conform, in all material respects, to the applicable requirements of the
applicable Federal and state securities laws and the rules and regulations of
the SEC thereunder, and do not and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representations or
warranties in this Section 4N apply to statements or omissions made in reliance
upon and in conformity with written information concerning the AC Fund or their
affiliates furnished to the VKM Trust by the AC Fund.

O. BROKERS. There are no brokers or finders fees payable by VKM Trust or
VKM Fund in connection with the transactions provided for herein.

P. TAX QUALIFICATION. The VKM Fund has qualified as a regulated investment
company within the meaning of Section 851 of the Code for each of its taxable
years; and has satisfied the distribution requirements imposed by Section 852
of the Code for each of its taxable years.

Q. FAIR MARKET VALUE. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by the AC Fund and
those to which the Assets are subject;

R. VKM TRUST'S LIABILITIES. Except as otherwise provided for herein, the
VKM Trust shall use reasonable efforts, consistent with its ordinary operating
procedures, to repay in full any indebtedness for borrowed money for the
account of the VKM Fund and have discharged or reserved against all of the VKM
Fund's known debts, liabilities and obligations including expenses, costs and
charges whether absolute or contingent, accrued or unaccrued.

5. THE AC FUND'S REPRESENTATIONS AND WARRANTIES.

The AC Fund, hereby represents and warrants to the VKM Trust which
representations and warranties are true and correct on the date hereof and
agrees with the VKM Trust that:

A. ORGANIZATION. The AC Fund is a Delaware Business Trust duly formed and
in good standing under the laws of the State of Delaware and is duly authorized
to transact business in the State of Delaware. The AC Fund is qualified to do
business as a foreign corporation in all jurisdictions in which it is required
to be so qualified, except jurisdictions in which the failure to so qualify
would not have a material adverse effect on the AC Fund. The AC Fund has all
material federal, state and local authorization necessary to own all of its
properties and assets and to carry on its business and the business thereof as
now being conducted, except authorizations which the failure to so obtain would
not have a material adverse effect on the AC Fund.

B. REGISTRATION. The AC Fund is registered under the 1940 Act as an
open-end, diversified management company and; such registration has not been
revoked or rescinded. The AC Fund is in compliance in all material respects
with the 1940 Act and the rules and regulations thereunder. All of the

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<PAGE> 42

outstanding shares of the AC Fund have been duly authorized and are validly
issued, fully paid and non-assessable and not subject to pre-emptive
dissenters' rights.

C. AUDITED FINANCIAL STATEMENTS. The statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets of the AC Fund audited as of and for the year ended
November 30, 1994, true and complete copies of which have been heretofore
furnished to the VKM Trust, fairly represent the financial condition and the
results of operations of the AC Fund as of and for their respective dates and
periods in conformity with generally accepted accounting principles applied on
a consistent basis during the periods involved.

D. FINANCIAL STATEMENTS. The AC Fund shall furnish to the VKM Trust (i) an
unaudited statement of assets and liabilities and the portfolio of investments
and the related statements of operations and changes in net assets of the AC
Fund for the period ended June 30, 1995, and (ii) within five (5) business days
after the Closing Date, an unaudited statement of assets and liabilities and
the portfolio of investments and the related statements of operations and
changes in net assets as of and for the interim period ending on the Closing
Date; such financial statements will represent fairly the financial position
and portfolio of investments of the AC Fund and the results of its operations
as of, and for the period ending on, the dates of such statements in conformity
with generally accepted accounting principles applied on a consistent basis
during the period involved and fairly present the financial position of the AC
Fund as at the dates thereof and the results of its operations and changes in
financial position for the periods then ended; and such financial statements
shall be certified by the Treasurer of the AC Fund as complying with the
requirements hereof.

E. CONTINGENT LIABILITIES. There are no contingent liabilities of the AC
Fund not disclosed in the financial statements delivered pursuant to Sections
5C and 5D which would materially affect the AC Fund's financial condition, and
there are no legal, administrative, or other proceedings pending or, to its
knowledge, threatened against the AC Fund which would, if adversely determined,
materially affect the AC Fund's financial condition.

F. MATERIAL AGREEMENTS. The AC Fund is in compliance with all material
agreements, rules, laws, statutes, regulations and administrative orders
affecting its operations or its assets; and except as referred to the AC Fund
Prospectus, there are no material agreements outstanding to which the AC Fund
is a party.

G. TAX RETURNS. At the date hereof and on the Closing Date, all Federal and
other material tax returns and reports of the AC Fund required by laws to have
been filed by such dates shall have been filed, and all Federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof, and to the best of the AC Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to any
such return.

H. CORPORATE AUTHORITY. The AC Fund has the necessary power to enter into
this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein have been duly authorized by the AC Fund's
Board of Trustees, no other corporate acts or proceedings by the AC Fund are
necessary to authorize this Agreement and the transactions contemplated herein.
This Agreement has been duly executed and delivered by the AC Fund and
constitutes a valid and binding obligation of the AC Fund enforceable in
accordance with its terms subject to bankruptcy laws and other equitable
remedies.

I. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the AC Fund does not and will not (i) result
in a material violation of any provision of the Declaration of Trust of the AC
Fund, or any amendment thereto, (ii) result in a material violation of any
statute, law, judgment, writ, decree, order, regulation or rule of any court or
governmental authority applicable to the AC Fund or (iii) result in a violation
or breach of, or constitute a default under, or result in the creation or
imposition or any lien, charge or encumbrance upon any property or assets of
the AC Fund pursuant to any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument or obligation to which the AC Fund
is subject. Except as set forth in Schedule 3 to this Agreement, (i) no
consent, approval,

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<PAGE> 43

authorization, order or filing with notice to any court or governmental
authority or agency is required for the consummation by the AC Fund of the
transactions contemplated by this Agreement and (ii) no consent of or notice to
any third party or entity is required for the consummation by the AC Fund of
the transactions contemplated by this Agreement.

J. ABSENCE OF PROCEEDINGS. There are no legal, administrative or other
proceedings pending or, to its knowledge, threatened against the AC Fund which
would materially affect its financial condition.

K. SHARES OF THE AC FUND: REGISTRATION. The AC Fund Shares to be issued
pursuant to Section 1 hereof will be duly registered under the Securities Act
and all applicable state securities laws.

L. SHARES OF THE AC FUND: AUTHORIZATION. The shares of the AC Fund to be
issued pursuant to Section 1 hereof have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued and fully paid and
non-assessable by the AC Fund and conform in all material respects to the
description thereof contained in the AC Fund's Prospectus furnished to the VKM
Trust.

M. ABSENCE OF CHANGES. From the date hereof through the Closing Date, there
shall not have been any change in the business, results of operations, assets
or financial condition or the manner of conducting the business of the AC Fund,
other than changes in the ordinary course of its business, which has had a
material adverse effect on such business, results of operations, assets or
financial condition.

N. REGISTRATION STATEMENT. The Registration Statement and the Prospectus
contained therein filed on Form N-14, the ("Registration Statement"), as of the
effective date of the Registration Statement, and at all times subsequent
thereto up to and including the Closing Date, as amended or as supplemented if
they shall have been amended or supplemented, will conform, in all material
respects, to the applicable requirements of the applicable Federal securities
laws and the rules and regulations of the SEC thereunder, and will not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representations or warranties in this Section apply to statements or
omissions made in reliance upon and in conformity with written information
concerning the VKM Trust or the VKM Fund furnished to the AC Fund by the VKM
Trust.

O. TAX QUALIFICATION. The AC Fund has qualified as a regulated investment
company within the meaning of Section 851 of the Code for each of its taxable
years; and has satisfied the distribution requirements imposed by Section 852
of the Code for each of its taxable years. For purposes of this Section, any
reference to the AC Fund shall include its predecessors, a Georgia corporation
organized on May 15, 1946, that was reorganized by merger into a Maryland
corporation on July 6, 1993 and subsequently reorganized by merger with and
into the AC Fund.

6. COVENANTS.

During the period from the date of this Agreement and continuing until the
Closing Date the VKM Trust and AC Fund each agrees that (except as expressly
contemplated or permitted by this Agreement):

A. OTHER ACTIONS. The VKM Fund shall operate only in the ordinary course of
business consistent with prior practice. No party shall take any action that
would, or reasonably would be expected to, result in any of its representations
and warranties set forth in this Agreement being or becoming untrue in any
material respect.

B. GOVERNMENT FILINGS; CONSENTS. The VKM Trust and the AC Fund shall file
all reports required to be filed by the VKM Trust and the AC Fund with the SEC
between the date of this Agreement and the Closing Date and shall deliver to the
other party copies of all such reports promptly after the same are filed.
Except where prohibited by applicable statutes and regulations, each party
shall promptly provide the other (or its counsel) with copies of all other
filings made by such party with any state, local or federal government agency
or entity in connection with this Agreement or the transactions

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<PAGE> 44

contemplated hereby. Each of the VKM Trust and the AC Fund shall use all
reasonable efforts to obtain all consents, approvals, and authorizations
required in connection with the consummation of the transactions contemplated
by this Agreement and to make all necessary filings with the Secretary of State
of the State of Delaware.

C. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT/PROSPECTUS. In connection with the Registration Statement and the
VKM Fund's Proxy Statement/Prospectus, each party hereto will cooperate with
the other and furnish to the other the information relating to the VKM Trust,
VKM Fund or the AC Fund, as the case may be, required by the Securities Act or
the Exchange Act and the rules and regulations thereunder, as the case may be,
to be set forth in the Registration Statement or the Proxy
Statement/Prospectus, as the case may be. The VKM Trust shall promptly prepare
and file with the SEC the Proxy Statement/Prospectus and the AC Fund shall
promptly prepare and file with the SEC the Registration Statement, in which the
Proxy Statement/Prospectus will be included as a prospectus. In connection
with the Registration Statement, insofar as it relates to the VKM Trust and its
affiliated persons, the AC Fund shall only include such information as is
approved by the VKM Trust for use in the Registration Statement. The AC Fund
shall not amend or supplement any such information regarding the VKM Trust and
such affiliates without the prior written consent of the VKM Trust which
consent shall not be unreasonably withheld. The AC Fund shall promptly notify
and provide the VKM Trust with copies of all amendments or supplements filed
with respect to the Registration Statement. The AC Fund shall use all
reasonable efforts to have the Registration Statement declared effective under
the Securities Act as promptly as practicable after such filing. The AC Fund
shall also take any action (other than qualifying to do business in any
jurisdiction in which it is now not so qualified) required to be taken under
any applicable state securities laws in connection with the issuance of the AC
Fund's shares in the transactions contemplated by this Agreement, and the AC
Fund shall furnish all information concerning the VKM Fund and the holders of
the AC Fund's shares of beneficial interest as may be reasonably requested in
connection with any such action.

D. ACCESS TO INFORMATION. During the period prior to the Closing Date, the
VKM Trust shall make available to the AC Fund a copy of each report, schedule,
registration statement and other document (the "Documents") filed or received
by it during such period pursuant to the requirements of Federal or state
securities laws or Federal or state banking laws (other than Documents which
such party is not permitted to disclose under applicable law or which are not
relevant to the VKM Fund). During the period prior to the Closing Date, the AC
Fund shall make available to the VKM Fund each Document pertaining to the
transactions contemplated hereby filed or received by it during such period
pursuant to Federal or state securities laws or Federal or state banking laws
(other than Documents which such party is not permitted to disclose under
applicable law).

E. SHAREHOLDERS MEETING. The VKM Trust shall call a meeting of the VKM Fund
shareholders to be held as promptly as practicable for the purpose of voting
upon the approval of this Agreement and the transactions contemplated herein,
and shall furnish a copy of the Proxy Statement/Prospectus and form of proxy to
each shareholder of the VKM Fund as of the record date for such meeting of
shareholders. The VKM Trust's Board of Trustees shall recommend to the VKM Fund
shareholders approval of this Agreement and the transactions contemplated
herein, subject to fiduciary obligations under applicable law.

F. COORDINATION OF PORTFOLIOS. The VKM Trust and AC Fund covenant and agree
to coordinate the respective portfolios of the VKM Fund and AC Fund from the
date of the Agreement up to and including the Closing Date in order that at
Closing, when the Assets are added to the AC Fund's portfolio, the resulting
portfolio will meet the AC Fund's investment objective, policies and
restrictions, as set forth in the AC Fund Prospectus, a copy of which has
been delivered to VKM Trust.

G. DISTRIBUTION OF THE SHARES. At Closing the VKM Trust covenants that it
shall cause to be distributed the AC Fund Shares in the proper pro rata amount
for the benefit of the VKM Fund's shareholders and such that neither the VKM
Trust nor the VKM Fund shall continue to hold amounts of

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<PAGE> 45

said shares so as to cause a violation of Section 12(d)(1) of the 1940 Act.
The VKM Trust covenants further that, pursuant to Section 3G, it
shall liquidate and dissolve the VKM Fund as promptly as practicable after the
Closing Date. The VKM Trust covenants to use all reasonable efforts to
cooperate with the AC Fund and the AC Fund's transfer agent in the distribution
of said shares.

H. BROKERS OR FINDERS. Except as disclosed in writing to the other party
prior to the date hereof, each of the VKM Trust and the AC Fund represents that
no agent, broker, investment banker, financial advisor or other firm or person
is or will be entitled to any broker's or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by this
Agreement, and each party shall hold the other harmless from and against any
and all claims, liabilities or obligations with respect to any such fees,
commissions or expenses asserted by any person to be due or payable in
connection with any of the transactions contemplated by this Agreement on the
basis of any act or statement alleged to have been made by such first party or
its affiliate.

I. ADDITIONAL AGREEMENTS. In case at any time after the Closing Date any
further action is necessary or desirable in order to carry out the purposes of
this Agreement the proper officers and trustees of each party to this Agreement
shall take all such necessary action.

J. PUBLIC ANNOUNCEMENTS. For a period of time from the date of this
Agreement to the Closing Date, the VKM Trust and the AC Fund will consult with
each other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
herein and shall not issue any press release or make any public statement prior
to such consultation, except as may be required by law or the rules of any
national securities exchange on which such party's securities are traded.

K. TAX STATUS OF REORGANIZATION. The intention of the parties is that the
transaction will qualify as a reorganization within the meaning of Section
368(a) of the Code. Neither the VKM Trust, the VKM Fund nor the AC Fund shall
take any action, or cause any action to be taken (including, without
limitation, the filing of any tax return) that is inconsistent with such
treatment or results in the failure of the transaction to qualify as a
reorganization within meaning of Section 368(a) of the Code. At or prior to
the Closing Date, the VKM Trust, the VKM Fund and the AC Fund will take such
action, or cause such action to be taken, as is reasonably necessary to enable
Skadden, Arps, Slate, Meagher & Flom, counsel to VKM Fund to render the tax
opinion required herein.

L. DECLARATION OF DIVIDEND. At or immediately prior to the Closing Date,
the VKM Fund shall declare and pay to its shareholders a dividend or other
distribution in an amount large enough so that it will have distributed
substantially all (and in any event not less than 98%) of its investment
company taxable income (computed without regard to any deduction for dividends
paid) and realized net capital gain, if any, for the current taxable year
through the Closing Date.

7. CONDITIONS TO OBLIGATIONS OF THE VKM TRUST

The obligations of the VKM Trust hereunder with respect to the consummation
of the Reorganization are subject to the satisfaction, or written waiver by the
VKM Trust, of the following conditions:

A. SHAREHOLDER APPROVAL. This Agreement and the transactions contemplated
herein shall have been approved by the affirmative vote of the holders of a
majority of the shares of beneficial interest of the VKM Fund present in person
or by proxy at a meeting of said shareholders in which a quorum is constituted.

10
<PAGE> 46

B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the representations
and warranties of the AC Fund contained herein shall be true in all material
respects as of the Closing Date, and as of the Closing Date there shall have
been no material adverse change in the financial condition, results of
operations, business properties or assets of the AC Fund since November 30,
1994, and the VKM Trust shall have received a certificate of the President or
Vice President of the AC Fund satisfactory in form and substance to the VKM
Trust so stating. The AC Fund shall have performed and complied in all
material respects with all agreements, obligations and covenants required by
this Agreement to be so performed or complied with by it on or prior to the
Closing Date.

C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.

D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.

E. NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the transactions contemplated by
this Agreement shall be in effect, nor shall any proceeding by any state, local
or federal government agency or entity asking any of the foregoing be pending.
There shall not have been any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the transactions
contemplated by this Agreement, which makes the consummation of the
transactions contemplated by this Agreement illegal or which has a material
adverse affect on the business operations of the AC Fund.

F. TAX OPINION. The VKM Trust shall have obtained an opinion from Skadden,
Arps, Slate, Meagher & Flom, counsel for the VKM Trust, dated as of the Closing
Date, addressed to the VKM Trust, that the consummation of the transactions set
forth in this Agreement comply with the requirements of a reorganization as
described in Section 368(a) of the Code substantially in the form attached as
Annex A.

G. OPINION OF COUNSEL. The VKM Trust shall have received the opinion
of O'Melveny & Myers, counsel for AC Fund, dated as of the Closing Date,
addressed to the VKM Trust and VKM Fund, substantially in the form and to the
effect that: (i) the AC Fund is duly formed and existing as a trust under the
laws of the State of Delaware; (ii) the AC Fund is registered as an open-end,
diversified management company under the 1940 Act; (iii) this Agreement and
the reorganization provided for herein and the execution of this Agreement have
been duly authorized by all necessary trust action of the AC Fund and this
Agreement has been duly executed and delivered by the AC Fund and (assuming the
Agreement is a valid and binding obligation of the other parties thereto) is a
valid and binding obligation of the AC Fund; (iv) neither the execution or
delivery by the AC Fund of this Agreement nor the consummation by the AC Fund
of the transactions contemplated thereby contravene the AC Fund's Declaration
of Trust or, to their knowledge, violate any provision of any statute, or any
published regulation or any judgment or order disclosed to them by the AC Fund
as being applicable to the AC Fund; (v) to their knowledge based solely on the
certificate of an appropriate officer of the AC Fund attached thereto, there is
no pending, or threatened litigation involving the AC Fund except as disclosed
therein (vi) the AC Fund's Shares being issued pursuant to this Agreement have
been duly authorized and upon issuance thereof in accordance with this
Agreement will be validly issued, fully paid and non-assessable; (vii) except
as to financial statements and schedules and other financial and statistical
data included or incorporated by reference therein and subject to usual and
customary qualifications with respect to Rule 10b-5 type opinions as of the
effective date of the Registration Statement filed pursuant to the Agreement,
the portions thereof pertaining to the AC Fund comply as to form in all
material respects with their requirements of the Securities Act, the Securities
Exchange Act and the 1940 Act and the rules and regulations of the Commission
thereunder and no facts have come to counsel's attention which cause them to
believe that as of the effectiveness of the

11
<PAGE> 47
portions of the Registration Statement applicable to the AC Fund, the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; and (viii) to their knowledge
and subject to the qualifications set forth below, the execution and delivery
by the AC Fund of the Agreement and the consummation of the transactions
therein contemplated do not require, under the laws of the State of
Delaware, or the federal laws of the United States, the consent, approval,
authorization, registration, qualification or order of, or filing with, any
court or governmental agency or body (except such as have been obtained under
the Securities Act, the 1940 Act or the rules and regulations thereunder.)
Counsel need express no opinion, however, as to any such consent, approval,
authorization, registration, qualification, order or filing (a) which may be
required as a result of the involvement of other parties to the Agreement in
the transactions contemplated by the Agreement because of their legal or
regulatory status or because of any other facts specifically pertaining to
them; (b) the absence of which does not deprive the VKM Trust or VKM Fund of
any material benefit under such agreements; or (c) which can be readily
obtained without significant delay or expense to the VKM Trust or VKM Fund,
without loss to the VKM Trust or VKM Fund of any material benefit under the
Agreement and without any material adverse effect on them during the period
such consent, approval authorization, registration, qualification or order was
obtained. The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications, orders or fillings under (a)
laws which are specifically referred to in the opinion, (b) laws of the State
of Delaware and the United States of America which, in our experience, are
normally applicable to transactions of the type provided for in the Agreement
and (c) court orders and judgments disclosed to them by the AC Fund in
connection with the opinion. Counsel's opinion as to the validity and binding
nature of this Agreement may be limited to the present law of the State of
Delaware. Counsel's other opinions may be limited to the present Federal law of
the United States and the present general corporation and trust laws of the
State of Delaware.

H. OFFICER CERTIFICATES. The VKM Trust shall have received a certificate of
an authorized officer of the AC Fund, dated as of the Closing Date, certifying
that the representations and warranties set forth in Section 5 are true and
correct on the Closing Date, together with certified copies of the resolutions
adopted by the Board of Directors shall be furnished to the VKM Trust.

8. CONDITIONS TO OBLIGATIONS OF THE AC FUND

The obligations of the AC Fund hereunder with respect to the consummation of
the Reorganization are subject to the satisfaction, or written waiver by the AC
Fund of the following conditions:

B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the representations
and warranties of the VKM Trust contained herein shall be true in all material
respects as of the Closing Date, and as of the Closing Date there shall have
been no material adverse change in the financial condition, results of
operations, business, properties or assets of the VKM Fund since June 30, 1995
and the AC Fund shall have received a certificate of the Chairman or President
of VKM Trust satisfactory in form and substance to the AC Fund so stating.
The VKM Trust and the VKM Fund shall have performed and complied in all material
respects with all agreements, obligations and covenants required by this
Agreement to be so performed or complied with by them on or prior to the
Closing Date.

C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.

12
<PAGE> 48
D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.

E. NO INJUNCTIONS OR RESTRAINTS: ILLEGALITY. No injunction preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect, nor shall any proceeding by any state, local or federal government
agency or entity seeking any of the foregoing be pending. There shall not be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this
Agreement, which makes the consummation of the transactions contemplated by
this Agreement illegal.

F. TAX OPINION. The AC Fund shall have obtained an opinion from Skadden,
Arps, Slate, Meagher & Flom, counsel for the VKM Trust, dated as of the Closing
Date, addressed to the AC Fund, that the consummation of the transactions set
forth in this Agreement comply with the requirements of a reorganization as
described in Section 368(a) of the Code substantially in the form attached as
Annex A.

G. OPINION OF COUNSEL. The AC Fund shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for the VKM Trust, dated as of
the Closing Date, addressed to the AC Fund substantially in the form and to the
effect that: (i) the VKM Trust is duly formed and in good standing as a
business trust under the laws of the State of Delaware; (ii) the Board of
Trustees of the VKM Trust has duly designated the VKM Fund as a series of the
VKM Trust pursuant to the terms of the Declaration of Trust of the VKM Trust;
(iii) the VKM Fund is registered as an open-end, diversified management company
under the 1940 Act; (iv) this Agreement and the reorganization provided for
herein and the execution of this Agreement have been duly authorized and
approved by all requisite action of VKM Trust and this Agreement has been duly
executed and delivered by the VKM Trust and (assuming the Agreement is a valid
and binding obligation of the other parties thereto) is a valid and binding
obligation of the VKM Trust; (v) neither the execution or delivery by the VKM
Trust of this Agreement nor the consummation by the VKM Trust or VKM Fund of
the transactions contemplated thereby contravene the VKM Trust's Declaration of
Trust, or, to the best of their knowledge, violate any provision of any statute
or any published regulation or any judgment or order disclosed to them by the
VKM Trust as being applicable to the VKM Trust or the VKM Fund; (vi) to the
best of their knowledge based solely on the certificate of an appropriate
officer of the VKM Trust attached hereto, there is no pending or threatened
litigation which would have the effect of prohibiting any material business
practice or the acquisition of any material property or the conduct of any
material business of the VKM Fund or might have a material adverse effect on
the value of any assets of the VKM Fund; (vii) except as to financial
statements and schedules and other financial and statistical data included or
incorporated by reference therein and subject to usual and customary
qualifications with respect to Rule 10b-5 type opinions, as of the effective
date of the Registration Statement filed pursuant to the Agreement, the
portions thereof pertaining to VKM Trust and the VKM Fund comply as to form in
all material respects with the requirements of the Securities Act, the
Securities Exchange Act and the 1940 Act and the rules and regulations of the
Commission thereunder and no facts have come to counsel's attention which would
cause them to believe that as of the effectiveness of the portions of the
Registration Statement applicable to VKM Trust and VKM Fund, the Registration
Statement contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and (viii) to the best of their knowledge
and information and subject to the qualifications set forth below, the
execution and delivery by the VKM Trust of the Agreement and the consummation
of the transactions therein contemplated do not require, under the laws of the
States of Delaware or Illinois or the federal laws of the United States, the
consent, approval, authorization, registration, qualification or order of, or
filing with, any court or governmental agency or body (except such as have been
obtained). Counsel need express no opinion, however, as to any such consent,
approval, authorization, registration, qualification, order or filing (a) which
may be required as a result of the involvement of other parties to the
Agreement in the transactions contemplated by the Agreement because of their
legal or regulatory status or because of any other facts specifically
pertaining to them; (b) the absence of which does not deprive the AC Fund of
any material benefit under the Agreement; or (c) which can be readily obtained
without significant delay or expense to the AC Fund, without loss to the AC
Fund of any material benefit under the Agreement and without any material
adverse effect on the AC Fund

13
<PAGE> 49
during the period such consent, approval, authorization, registration,
qualification or order was obtained. The foregoing opinion relates only to
consents, approvals, authorizations, registrations, qualifications, orders or
filings under (a) laws which are specifically referred to in this opinion, (b)
laws of the States of Delaware and Illinois and the United States of America
which, in counsel's experience, are normally applicable to transactions of the
type provided for in the Agreement and (c) court orders and judgments disclosed
to them by the VKM Trust in connection with this opinion. In addition,
although counsel need not specifically considered the possible applicability to
the VKM Trust of any other laws, orders or judgments, nothing has come to their
attention in connection with their representation of the VKM Trust and the VKM
Fund in this transaction that has caused them to conclude that any other
consent, approval, authorization, registration, qualification, order or filing
is required.

H. THE ASSETS. The Assets, as set forth in Schedule 1, as amended, shall
consist solely of nondefaulted, liquid and primarily income producing equity
securities, including common stocks and convertible securities, cash and other
marketable securities which are in conformity with the AC Fund's investment
objective, policy and restrictions as set forth in the AC Fund's prospectus and
statement of additional information, copies of which have been delivered to VKM
Trust.

I. SHAREHOLDER LIST. The VKM Trust shall have delivered to the AC Fund an
updated list of all shareholders of the VKM Fund, as reported by VKM Trust's
transfer agent, as of one (1) business day prior to the Closing Date with each
shareholder's respective holdings in the VKM Fund, taxpayer identification
numbers, Form W-9 and last known address.

J. OFFICER CERTIFICATES. The AC Fund shall have received a certificate of
an authorized officer of VKM Trust, dated as of the Closing Date, certifying
that the representations and warranties set forth in Section 4 are true and
correct on the Closing Date, together with certified copies of the resolutions
adopted by the Board of Trustees and shareholders shall be furnished to the VKM
Trust.

9. AMENDMENT, WAIVER AND TERMINATION.

(a) The parties hereto may, by agreement in writing authorized by
their respective Boards of Trustees amend this Agreement at any time before or
after approval thereof by the shareholders of the VKM Fund; provided, however,
that after receipt of VKM Fund shareholder approval, no amendment shall be made
by the parties hereto which substantially changes the terms of Sections 1, 2
and 3 hereof without obtaining VKM Fund's shareholder approval thereof or that
affect any applications for exemptive relief from the SEC or any orders with
respect thereto without obtaining the approval of the staff of the SEC.

(B) At any time prior to the Closing Date, either of the parties may by
written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein. No delay on the part of either party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or
privilege, or any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.

(C) This Agreement may be terminated, and the transactions contemplated
herein may be abandoned at any time prior to the Closing Date:

(i) by the mutual consents of the Board of Trustees of the VKM Trust and
the AC Fund;

14
<PAGE> 50

(ii) by the VKM Trust, if the AC Fund breaches in any material respect
any of its representations, warranties, covenants or agreements contained in
this Agreement;

(iii) by the AC Fund, if the VKM Trust breaches in any material respect
any of its representations, warranties, covenants or agreements contained in
this Agreement;

(iv) by either the VKM Trust or the AC Fund, if the Closing has not
occurred on or prior to September 30, 1995 (provided that the rights to
terminate this Agreement pursuant to this subsection (C) (iv) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur on or before such date);

(v) by the AC Fund in the event that: (a) all the conditions
precedent to the VKM Trust's obligation to close, as set forth in Section 7 of
this Agreement, have been fully satisfied (or can be fully satisfied at the
Closing); (b) the AC Fund gives the VKM Trust written assurance of its intent
to close irrespective of the satisfaction or non-satisfaction of all conditions
precedent to the AC Fund's obligation to close, as set forth in Section 8 of
this Agreement; and (c) the VKM Trust then fails or refuses to close within the
earlier of five (5) business days or September 30, 1995; or

(vi) by the VKM Trust in the event that: (a) all the conditions precedent
to the AC Fund's obligation to close, as set forth in Section 8 of this
Agreement, have been fully satisfied (or can be fully satisfied at the
Closing); (b) the VKM Trust gives the AC Fund written assurance of its intent
to close irrespective of the satisfaction or non-satisfaction of all the
conditions precedent to the VKM Trust's obligation to close, as set forth in
Section 7 of this Agreement; and (c) the AC Fund then fails or refuses to close
within the earlier of five (5) business days or September 30, 1995.

10. REMEDIES

In the event of termination of this Agreement by either or both of the VKM
Trust and AC Fund pursuant to Section 9(C), written notice thereof shall
forthwith be given by the terminating party to the other party hereto, and this
Agreement shall therefore terminate and become void and have no effect, and the
transactions contemplated herein and thereby shall be abandoned, without
further action by the parties hereto.

11. SURVIVAL OF WARRANTIES AND INDEMNIFICATION.

(A) SURVIVAL. The representations and warranties included or provided for
herein, or in the Schedules or other instruments delivered or to be delivered
pursuant hereto, shall survive the Closing Date for a three year period except
that any representation or warranty with respect to taxes shall survive for the
expiration of the statutory period of limitations for assessments of tax
deficiencies as the same may be extended from time to time by the taxpayer.
The covenants and agreements included or provided for herein shall survive and
be continuing obligations in accordance with their terms. The period for which
a representation, warranty, covenant or agreement survives shall be referred to
hereinafter as the "Survival Period." Notwithstanding anything set forth in
the immediately preceding sentence, the VKM Trust's and the AC Fund's right to
seek indemnity pursuant to this Agreement shall survive for a period of ninety
(90) days beyond the expiration of the Survival Period of the representation,
warranty, covenant or agreement upon which indemnity is sought. In no event
shall the VKM Trust or the AC Fund be obligated to indemnify the other if
indemnity is not sought within ninety (90) days of the expiration of the
applicable Survival Period.

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<PAGE> 51

(i) all debts, liabilities and obligations of the VKM Trust of any nature,
whether accrued, absolute, contingent or otherwise, including liabilities or
obligations relating to the Assets (whether or not disclosed to the AC Fund and
whether or not known by the VKM Trust); and

(ii) taxes of any kind in respect of the VKM Fund whether imposed on the VKM
Fund or on any shareholder of the VKM Fund.

(B) INDEMNIFICATION. Each party (an "Indemnitor") shall indemnify and hold
the other and its officers, directors, agents and persons controlled by or
controlling any of them (each an "Indemnified Party") harmless from and against
any and all losses, damages, liabilities, claims, demands, judgments,
settlements, deficiencies, taxes, assessments, charges, costs and expenses of
any nature whatsoever (including reasonable attorneys' fees) including amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by such Indemnified Party in connection with
the defense or disposition of any claim, action, suit or other proceeding,
whether civil or criminal, before any court or administrative or investigative
body in which such Indemnified Party may be or may have been involved as a
party or otherwise or with which such Indemnified Party may be or may have been
threatened, (collectively, the "Losses") arising out of or related to
any claim of a breach of any representation, warranty or covenant made herein
by the Indemnitor; provided, however, that no Indemnified Party shall be
indemnified hereunder against any Losses arising directly from such Indemnified
Party's (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv)
reckless disregard of the duties involved in the conduct of such Indemnified
Party's position.

(C) INDEMNIFICATION PROCEDURE. The Indemnified Party shall use its best
efforts to minimize any liabilities, damages, deficiencies, claims, judgments,
assessments, costs and expenses in respect of which indemnity may be sought
hereunder. The Indemnified Party shall given written notice to Indemnitor
within the earlier of ten (10) days of receipt of written notice to Indemnitor
or thirty (30) days from discovery by Indemnified Party of any matters which
may give rise to a claim for indemnification or reimbursement under this
Agreement. The failure to give such notice shall not affect the right of
Indemnified Party to indemnity hereunder unless such failure has materially and
adversely affected the rights of the Indemnitor; provided that in any event
such notice shall have been given prior to the expiration of the Survival
Period. At any time after ten (10) days from the giving of such notice,
Indemnified Party may, at its option, resist, settle or otherwise compromise,
or pay such claim unless it shall have received notice from Indemnitor that
Indemnitor intends, at Indemnitor's sole cost and expense, to assume the
defense of any such matter, in which case Indemnified Party shall have the
right, at no cost or expense to Indemnitor, to participate in such defense. If
Indemnitor does not assume the defense of such matter, and in any event until
Indemnitor states in writing that it will assume the defense, Indemnitor shall
pay all costs of Indemnified Party arising out of the defense until the defense
is assumed; provided, however, that Indemnified Party shall consult with
Indemnitor and obtain Indemnitor's consent to any payment or settlement of any
such claim. Indemnitor shall keep Indemnified Party fully apprised at all
times as to the status of the defense. If Indemnitor does not assume the
defense, Indemnified Party shall keep Indemnitor apprised at all times as to
the status of the defense. Following indemnification as provided for
hereunder, Indemnitor shall be subrogated to all rights of Indemnified Party
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made.

12. SURVIVAL

The provisions set forth in Sections 10, 11 and 16 hereof shall survive the
termination of this Agreement for any cause whatsoever.

13. NOTICES.

All notices hereunder shall be sufficiently given for all purposes hereunder
if in writing and delivered personally or sent by registered mail or certified
mail, postage prepaid. Notice to the VKM Trust shall be addressed to the VKM
Trust c/o Van Kampen American Capital Investment Advisory Corp., One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, Attention: General Counsel or at such

16
<PAGE> 52

other address and to the attention of such other person as the VKM Trust may
designate by written notice to the AC Fund. Notice to AC Fund shall be
addressed to the AC Fund c/o Van Kampen American Capital Asset Management,
Inc., 2800 Post Oak Boulevard, Houston, Texas 77056, Attention: General
Counsel, with a copy to George M. Bartlett, O'Melveny & Myers, 400 South Hope
Street, Los Angeles, California 900710-2899, or at such other address as AC
Fund may designate by written notice to the VKM Trust. Any notice shall be
deemed to have been served or given as of the date such notice is delivered
personally or mailed.

14. SUCCESSORS AND ASSIGNS.

This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns. This Agreement shall not be assigned
by any party without the prior written consent of the other parties.

15. BOOKS AND RECORDS.

The VKM Trust and the AC Fund agree that copies of the books and records of
the VKM Fund relating to the Assets including, but not limited to all files,
records, written materials; e.g., closing transcripts, surveillance files and
credit reports shall be delivered by the VKM Trust to the AC Fund at the
Closing Date. In addition to, and without limiting the foregoing, the VKM Trust
and the AC Fund agree to take such action as my be necessary in order that the
AC Fund shall have reasonable access to such other books and records as may be
reasonably requested, all for three years after the Closing Date for the three
tax years ending December 31, 1992, December 31, 1993 and December 31, 1994
namely, general ledger, journal entries, voucher registers; distribution
journal; payroll register; monthly balance owing report; income tax returns;
tax depreciation schedules; and investment tax credit basis schedules.

16. GENERAL.

This Agreement supersedes all prior agreements between the parties (written
or oral), is intended as a complete and exclusive statement of the terms of the
Agreement between the parties and may not be amended, modified or changed or
terminated orally. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by the VKM Trust and
the AC Fund and delivered to each of the parties hereto. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. This Agreement is for the
sole benefit of the parties thereto, and nothing in this Agreement, expressed
or implied, is intended to confer upon any other person any rights or remedies
under or by reason of this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to principles of conflicts or choice of law.

17
<PAGE> 53

17. LIMITATION OF LIABILITY.

Copies of the Declarations of Trust of the VKM Trust and AC Fund are on file
with the Secretary of State of the State of Delaware, and notice, is hereby
given and the parties hereto acknowledge and agree that this instrument is
executed on behalf of the Trustees of the VKM Trust and AC Fund, respectively,
as Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or shareholders of the VKM Trust or of
the AC Fund individually but binding only upon the assets and property of the
VKM Trust or the AC Fund, as the case may be.

IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.

VAN KAMPEN AMERICAN CAPITAL GROWTH
AND INCOME FUND, a Delaware business
trust

By: _____________________________

Title: __________________________

Attest: _________________________

Title: _________________________

VAN KAMPEN AMERICAN CAPITAL EQUITY
TRUST, a Delaware business trust

By: _____________________________

Title: __________________________

Attest: ________________________

Title: ________________________

<PAGE> 54

EXHIBIT B

MANAGEMENT'S DISCUSSION OF AC FUND PERFORMANCE AS OF THE ANNUAL REPORT DATED
NOVEMBER 30, 1994 AND MANAGEMENT'S DISCUSSION OF VK FUND PERFORMANCE AS OF THE
ANNUAL REPORT DATED JUNE 30, 1994.

AC Fund. The AC Fund attempts to achieve its investment objective of income
and long-term growth of capital by investing in a combination of dividend-paying
stocks and stocks with potential for capital appreciation. The AC Fund may also
invest in a smaller proportion of bonds, convertible bonds and preferred stocks
which provide additional income potential.

The fiscal year ended November 30, 1994, was a period of generally declining
prices for both stocks and bonds, which had an adverse affect on the AC Fund's
performance.

The Federal Reserve Board (the "Fed") raised short-term interest rates six
times during the past year, including an increase of 0.75% on November 15. The
Fed took this action because it was concerned that the economy was growing too
rapidly and this would cause the inflation rate to increase. However, most
economic indicators do not support the Fed's concerns, so the stock market
reacted negatively to these increases. Many investors believed higher interest
rates would reduce corporate earnings, and this belief negatively impacted the
performance of stocks and stock mutual funds.

As the year started, the AC Fund was heavily invested in cyclical stocks.
These are stocks of companies that are most affected by changing economic
conditions, such as rising interest rates. As the Fed began raising interest
rates, the AC Fund gradually sold most of the economically-sensitive stocks in
the portfolio. The AC Fund focused instead on the stocks of companies with
market capitalization of more than $5 billion that were positioned to enjoy
steady growth in the next few years. The prices of many of these stocks had been
depressed because the companies had declining revenue growth in the past few
years. Some of the stocks the AC Fund acquired during the reporting period
included Ralston Purina, H.J. Heinz, Kellogg, Eli Lilly and Bristol-Myers.

At the end of the reporting period, the top five industries in which the AC
Fund was invested were finance, utilities, technology, health care and energy.

Class A shares of the AC Fund achieved a total return at net asset value
(without a sales charge) of 1.21%, including reinvestment of dividends totalling
$.27 per share. Class B and C shares of the AC Fund achieved a total return at
net asset

B-1
<PAGE> 55

value of 0.36%, including reinvestment of dividends totalling $.15 per share.
Each class of shares also paid a capital gains distribution of $1.7375 per
share.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN --
CLASS A (AS OF 11/30/94) 1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
At Net Asset Value.................... 1.21% 9.06% 10.99%
With Maximum 5.75% Sales Charge....... -4.62% 7.78% 10.34%
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN --
CLASS B (AS OF 11/30/94) 1 YEAR SINCE INCEPTION (8/2/93)
------ -------------------------
<S> <C> <C>
At Net Asset Value............... 0.36% 2.90%
With Applicable Contingent
Deferred Sales Charge Upon
Redemption (Maximum 5%)........ -4.00% 0.21%
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN --
CLASS C (AS OF 11/30/94) 1 YEAR SINCE INCEPTION (8/2/93)
------ -------------------------
<S> <C> <C>
At Net Asset Value............... 0.36% 2.90%
With Applicable Contingent
Deferred Sales Charge Upon
Redemption (Maximum 1%)........ -0.51% 2.90%
</TABLE>

CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE AC FUND VS.
THE STANDARD & POOR'S 500-STOCK INDEX
11/30/74-11/30/94

The following graph compares the value of an investment in the AC Fund's Class
A shares with the value of an investment in the S&P 500 Composite Stock Index
from November 1974 through November 1994, the last trading day of fiscal year
1994, based upon a $10,000 investment in Class A shares of the VK Fund and in
the securities comprising such index as of November 1974. The approximate values
of such an investment at the end of each fiscal year were: 1975: Class A shares
of AC Fund -- $9,000, S&P $11,000; 1976: Class A shares of AC Fund -- $9,100,
S&P Index $10,900; 1977: Class A shares of AC Fund -- $9,100, S&P Index $10,900;
1978: Class A shares of AC Fund -- $11,000, S&P Index $11,000; 1979: Class A
shares of AC Fund -- $18,500, S&P Index $18,500; 1980: Class A shares of AC Fund
- -- $24,000, S&P Index $24,000; 1981: Class A shares of AC Fund -- $25,000, S&P
Index $24,500; 1982: Class A shares of AC Fund -- $35,000, S&P Index $27,500;
1983: Class A shares of AC Fund -- $44,000, S&P Index $33,000; 1984: Class A
shares of AC Fund -- $44,000, S&P Index $34,000; 1985: Class A shares of AC Fund
- -- $50,000, S&P Index $45,000; 1986: Class A shares of AC Fund -- $57,500, S&P
Index $54,000; 1987: Class A shares of AC Fund -- $57,000, S&P Index $53,500;
1988: Class A shares of AC Fund -- $67,000, S&P Index $64,000; 1989: Class A
shares of AC Fund -- $80,000, S&P

B-2
<PAGE> 56

Index $81,000; 1990: Class A shares of AC Fund -- $80,000, S&P Index $90,000;
1991: Class A shares of AC Fund -- $81,000, S&P Index $91,000; 1992: Class A
shares of AC Fund -- $102,000, S&P Index $110,000; 1993: Class A shares of AC
Fund -- $125,000, S&P Index $135,000; 1994: Class A shares of AC Fund --
$138,000, S&P Index $147,000.

Past performance is not indicative of future performance. Performance of other
classes of the fund will be greater or less than the lines shown based on the
differences in loads or fees paid by shareholders investing in the different
classes.

* The Standard & Poor's 500-Stock Index is a broad-based unmanaged index of
stocks. The Index does not reflect any commissions or fees which would be
incurred by an investor purchasing the stocks it represents. All sales charges
and all other fees and expenses are included in the performance shown for the AC
Fund Class A shares with ending value of $130,704. In addition, since investors
purchase shares of the AC Fund with varying sales charges depending primarily on
volume purchased, the AC Fund's Class A performance at net asset value also is
shown.

VK Fund. Fiscal year 1994 was a difficult one for investors and for the VK
Fund. A steady rise in interest rates, which drove the value of the benchmark
30-year Treasury bond down by nearly 20 percent at one point, led to poor
performance for virtually all fixed-income investments. The Federal Reserve's
efforts to control the pace of the economy, combined with the market's
apprehension over inflation, proved detrimental on other fronts, as stocks
mirrored the sub-par performance of the bond market.

Most experts would agree that inflation, or more accurately the fear of
inflation, is largely responsible for the abrupt upturn in interest rates. Up
until the end of 1993, inflation was of little concern as our nation struggled
to recover from the recession that welcomed us into the '90s. But as the economy
rebounded with conspicuous flare during the final quarter of 1993, advancing at
a 6.3 percent pace as measured by the gross domestic product (GDP), inflationary
concerns reemerged.

For nearly five years, the Federal Reserve (the "Fed") worked to nurture the
economy to a sustainable level of moderate economic growth by reducing short-
term interest rates to the lowest levels in decades. Suddenly, confronted with
the prospect that the economy might overheat, the Fed reversed its monetary
policy and began to increase short-term rates in February of 1994. The central
bank feared that a booming economy would lead to higher inflation which could
prematurely stifle the sustained expansion it hoped to promote. Between February
4th and May 16th, the Fed Funds rate was increased four separate times, rising
in total from 3 percent to 4.25 percent.

Many believe that the Fed reacted in haste, increasing rates too aggressively
in response to a threat that was illusory. To date, inflation has yet to surface
as a formidable risk to an economic expansion that continues to sent mixed
signals. For

B-3
<PAGE> 57

example, GDP growth retreated sharply to 3.3 percent in the first quarter of
1994, from 6.3 percent the quarter prior, before rising slightly to 3.7 percent
in second quarter 1994. Others would contend that the economy was showing
legitimate signs of strength and by enduring higher rates now, we have
established a foundation for sustainable economic growth and a lower, more
stable rate environment in the longer term. Regardless of the validity of the
cause or the reasonableness of the market's reaction, one thing is certain -- we
find ourselves in a much higher rate environment than just a few months ago.

PERFORMANCE RESULTS FOR THE YEAR

<TABLE>
<CAPTION>
WALL STREET JOURNAL
ABBREVIATIONS
- --------------------------------
FUND GROUP
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
VANKAMPEN MER
GWTH A GRWTH B N/A
FUND NAME VKGIX VGIBX VGICX
QUOTRON SYMBOL A SHARES B SHARES C SHARES
<S> <C> <C> <C>
One-year total return based on
NAV(1)........................ (2.36%) (3.34%) N/A
One-year total return(2)........ (6.90%) (6.65%) N/A
Five-year average annual total
return(2)..................... 6.73% N/A N/A
Life of Fund average annual
total return(2)............... 7.77% 2.21% (4.82%)
Life of Fund cumulative total
return based on NAV(1)........ 86.16% 6.79% (3.60%)
Commencement Date............... 10/29/86 12/01/92 08/13/93
</TABLE>

- ---------------
N/A = Not Applicable

(1) Assumes reinvestment of all distributions for the period ended June 30,
1994, and does not include payment of the maximum sales charge (4.65% for A
shares) or contingent deferred sales charge (4% for B shares; 1% for C
shares.

(2) Standardized total return for the period ended June 30, 1994.

Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Investor's shares, when
redeemed, may be worth more or less than their original cost.

STANDARDIZED TOTAL RETURN COMPARISON

The following graph compares the value of an investment in the VK Fund's Class
A shares with the value of an investment in the S&P 500 Composite Stock Index
from October 1986 through June 30, 1994, the last trading day of fiscal year
1994, based upon a $10,000 investment in Class A shares of the VK Fund and in

B-4
<PAGE> 58

the securities comprising such index as of October 1986. The approximate values
of such an investment at the end of each fiscal year were: 1987: Class A shares
of VK Fund -- $11,250, S&P Index -- $12,750; 1988: Class A shares of VK Fund --
$10,800, S&P Index -- $11,850; 1989: Class A shares of VK Fund -- $12,200, S&P
Index -- $12,250; 1990: Class A shares of VK Fund -- $12,750, S&P Index --
$16,600; 1991: Class A shares of VK Fund -- $14,100, S&P Index -- $17,850; 1992:
Class A shares of VK Fund -- $15,700, S&P Index -- $20,250; 1993: Class A shares
of VK Fund -- $18,200, S&P Index -- $23,000; 1994: Class A shares of VK Fund --
$17,745, S&P Index -- $23,300.

BASED ON A $10,000 INVESTMENT

VK Fund vs. S&P 500 Composite Stock Index (October 1986 through June 1994)

Fund's Total Return

1 Year Avg. Annual = (6.90%)

5 Year Avg. Annual = 6.73%

Inception Avg. Annual = 7.77%

B-5
<PAGE> 59

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Growth and Income Fund, formerly known as American
Capital Growth and Income Fund, Inc. (the "Fund"), is a mutual fund seeking
income and long-term growth of capital. The Fund invests principally in income-
producing equity securities, including common stocks and convertible securities.
Investments are also made in non-convertible preferred stocks and debt
securities. There is no assurance that the Fund will achieve its investment
objective.

The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is (800)
421-5666.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information, dated August 1, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
Prospectus. 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, (800) 772-8889.

------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED AUGUST 1, 1995.
<PAGE> 60

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary............................................... 3
Shareholder Transaction Expenses................................. 5
Annual Fund Operating Expenses and Example....................... 6
Financial Highlights............................................. 8
The Fund......................................................... 10
Investment Objective and Policies................................ 10
Investment Practices............................................. 11
Investment Advisory Services..................................... 16
Alternative Sales Arrangements................................... 17
Purchase of Shares............................................... 21
Shareholder Services............................................. 30
Redemption of Shares............................................. 34
Distribution Plans............................................... 37
Distributions from the Fund...................................... 39
Tax Status....................................................... 40
Fund Performance................................................. 41
Description of Shares of the Fund................................ 43
Additional Information........................................... 44
</TABLE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.

2
<PAGE> 61

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUND. Van Kampen American Capital Growth and Income Fund (the "Fund") is
a diversified, open-end management investment company organized as a Delaware
business trust.

MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").

INVESTMENT OBJECTIVE. Income and long-term growth of capital.

INVESTMENT POLICY. Invests principally in income-producing equity securities
including common stock and convertible securities, although investments are also
made in non-convertible preferred stocks and debt securities. Use of options,
futures contracts and related options may include additional risks. See
"Investment Practices -- Using Options, Futures Contracts and Related Options."

INVESTMENT RESULTS. The investment results of the Fund during the past 10
years are shown in the table of "Financial Highlights."

ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to
the general public, each with its own sales charge structure: Class A shares,
Class B shares and Class C shares. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class of
shares that best suits their circumstances and objectives. See "Alternative
Sales Arrangements -- Factors for Consideration." Each class of shares
represents an interest in the same portfolio of investments of the Fund. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares. See "Alternative Sales Arrangements." For
information on redeeming shares see "Redemption of Shares."

Class A Shares. These shares are offered at net asset value per share plus a
maximum initial sales charge of 5.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. The Fund pays an annual
service fee of up to 0.25% of its average daily net assets attributable to such
class of shares. See "Purchase of Shares -- Class A Shares" and "Distribution
Plans."

Class B Shares. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of five percent of
redemption proceeds during the first year, declining each year thereafter to
zero after the fifth year. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to one percent of its average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares" and "Distribution Plans." Class B shares will convert
automatically to Class A shares six years after the end of the calendar month in
which the shareholder's order

3
<PAGE> 62

to purchase was accepted. See "Alternative Sales Arrangements -- Conversion
Feature."

Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of one percent on redemptions made
within one year of purchase. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to one percent of its
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution Plans." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."

DISTRIBUTIONS FROM THE FUND. Income dividends are distributed quarterly,
normally in March, June, September and December. Any taxable net realized
capital gains are distributed annually. Such distributions are automatically
reinvested in shares of the Fund at net asset value per share (without a sales
charge) unless payment in cash is requested. See "Distributions from the Fund."

INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser to the Fund.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the
"Distributor").

The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.

4
<PAGE> 63

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- ----------------- -------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... 5.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds).......... None(2) Year 1--5.00% Year 1--1.00%
Year 2--4.00%
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
</TABLE>

- ---------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares."

(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a contingent deferred sales charge of one percent may
be imposed on certain redemptions made within one year of the purchase.

5
<PAGE> 64

- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- --------- ---------
<S> <C> <C> <C>
Management fees (as a percentage of
average daily net assets)............. .48% .48% .48%
12b-1 Fees (as a percentage of average
daily net assets)(3).................. .17% 1.00% (5) 1.00% (5)
Other Expenses (as a percentage of
average daily net assets)(4).......... .51% .54% .53%
Total Fund Operating Expenses (as a
percentage of average daily net
assets)............................... 1.16% 2.02% 2.01%
</TABLE>

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

(3) Up to .25% for Class A shares and one percent for Class B and C shares. See
"Distribution Plans."

(4) See "Investment Advisory Services."

(5) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.

6
<PAGE> 65

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
------ ------ ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.16% for
Class A shares, 2.02% for Class B shares
and 2.01% for Class C shares, (ii) a 5%
annual return and (iii) redemption at the
end of each time period:
Class A............................... $ 69 $ 92 $118 $190
Class B............................... $ 72 $ 96 $126 $192*
Class C............................... $ 31 $ 63 $108 $234
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $ 69 $ 92 $118 $190
Class B............................... $ 21 $ 63 $109 $192*
Class C............................... $ 20 $ 63 $108 $234
</TABLE>

- ---------------
* Based on conversion to Class A shares after six years.

The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."

7
<PAGE> 66

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

(Selected data for a share of beneficial interest outstanding throughout each
of the periods indicated)

The following financial highlights for each of the five years in the period
ended November 30, 1994 has been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the related financial statements and notes thereto
included in the Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED NOVEMBER 30
------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- ---------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................... $14.08 $13.42 $11.69 $ 9.93 $11.71 $10.52
---------- ---------- --------- -------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income........................................ .43 .42 .46 .52 .45 .32
Expenses................................................. (.14) (.15) (.145) (.13) (.12) (.10)
---------- ---------- --------- -------- ---------- ---------
Net investment income.................................... .29 .27 .315 .39 .33 .22
Net realized and unrealized gains or losses on
securities.............................................. (.1025) 1.52 1.785 1.73 (1.12) 1.805
---------- ---------- --------- -------- ---------- ---------
Total from investment operations......................... .1875 1.79 2.10 2.12 (.79) 2.025
---------- ---------- --------- -------- ---------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income..................... (.27) (.2825) (.37) (.36) (.3125) (.22)
Distributions from net realized gains on securities...... (1.7375) (.8475) -- -- (.6775) (.615)
---------- ---------- --------- -------- ---------- ---------
Total distributions...................................... (2.0075) (1.13) (.37) (.36) (.99) (.835)
---------- ---------- --------- -------- ---------- ---------
Net asset value, end of period........................... $12.26 $14.08 $13.42 $11.69 $ 9.93 $11.71
=========== =========== ========== ========== =========== ==========
TOTAL RETURN(3).......................................... 1.21% 14.34% 18.25% 21.59% (7.29%) 20.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................... $205.4 $204.3 $177.8 $157.1 $143.6 $175.6
Ratios to average net assets
Expenses................................................ 1.16% 1.16% 1.15% 1.14% 1.13% .88%
Net investment income................................... 2.25% 2.15% 2.46% 3.40% 3.08% 1.90%
Portfolio turnover rate.................................. 102% 134% .78% .89% 111% .34%

---------------------------------------------
YEAR ENDED NOVEMBER 30
--------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
1987 1986 1985
---------- ---------- --------- -------- ---------- ---------

--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................... $10.19 $12.04 $11.01 $11.01
--------- ---------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income........................................ .29 .32 .35 .43
Expenses................................................. (.08) (.09) (.09) (.08)
--------- ---------- --------- ---------
Net investment income.................................... .21 .23 .26 .35
Net realized and unrealized gains or losses on
securities.............................................. 1.875 (.52) 1.275 .945
--------- ---------- --------- ---------
Total from investment operations......................... 2.085 (.29) 1.535 1.295
--------- ---------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income..................... (.22) (.2175) (.385) (.58)
Distributions from net realized gains on securities...... (1.535) (1.3425) (.12) (.715)
--------- ---------- --------- ---------
Total distributions...................................... (1.755) (1.56) (.505) (1.295)
--------- ---------- --------- ---------
Net asset value, end of period........................... $10.52 $10.19 $12.04 $11.01
========== =========== ========== ==========
TOTAL RETURN(3).......................................... 21.36% (3.25%) 14.00% 13.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................... $165.7 $152.1 $151.5 $146.9
Ratios to average net assets
Expenses................................................ .84% .71% .76% .76%
Net investment income................................... 2.01% 1.82% 2.12% 3.39%
Portfolio turnover rate.................................. .23% .49% .45% .35%
</TABLE>

(Table continued on following page)

8
<PAGE> 67

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

FINANCIAL HIGHLIGHTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------- ----------------------------
AUGUST 2, AUGUST 2,
YEAR ENDED 1993(1) TO YEAR ENDED 1993(1) TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1994 1993(2) 1994 1993(2)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............................... $14.07 $13.64 $14.07 $13.64
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Investment income.................................................. .40 .14 .40 .14
Expenses........................................................... (.23) (.08) (.23) (.08)
------------ ------------ ------------ ------------
Net investment income.............................................. .17 .06 .17 .06
Net realized and unrealized gains or losses on securities.......... (.1025) .4175 (.0925) .4175
------------ ------------ ------------ ------------
Total from investment operations................................... .0675 .4775 .0775 .4775
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
Dividends from net investment income............................... (.15) (.0475) (.15) (.0475)
Distributions from net realized gains on securities................ (1.7375) -- (1.7375) --
------------ ------------ ------------ ------------
Total distributions................................................ (1.8875) (.0475) (1.8875) (.0475)
------------ ------------ ------------ ------------
Net asset value, end of period..................................... $12.25 $14.07 $12.26 $14.07
============ ============ ============ ============
TOTAL RETURN(3).................................................... .36% 3.50% .36% 3.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................... $18.5 $1.7 $3.5 $0.6
Ratios to average net assets
Expenses......................................................... 2.02% 2.02%(4) 2.01% 2.00%(4)
Net investment income............................................ 1.51% 1.51%(4) 1.50% 1.56%(4)
Portfolio turnover rate............................................ 102% 134% 102% 134%
</TABLE>

- ---------------
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total returns for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(4) Annualized.

9
<PAGE> 68

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

The Fund is an open-end, diversified management investment company. This type
of company is commonly known as a mutual fund. A mutual fund provides, for those
who have similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.

Fourteen Trustees have the responsibility for overseeing the affairs of the
Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines the
investment of the Fund's assets, provides administrative services and manages
the Fund's business and affairs. The Adviser together with its predecessors, has
been in the investment advisory business since 1926.

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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective, which cannot be changed without shareholder
approval, is income and long-term growth of capital. Since investment in
securities involves potential gain or loss, there is no assurance that the
Fund's objective will be achieved.

In view of the investment objective, the Fund generally invests principally in
income-producing equity securities including common stocks and convertible
securities; although investments are also made in non-convertible preferred
stocks and debt securities rated "investment grade," i.e., within the four
highest grades assigned by Standard & Poor's Corporation ("S&P") or by Moody's
Investors Service ("Moody's"). Ratings at the time of purchase determine which
securities may be acquired, and a subsequent reduction in rating does not
require the Fund to dispose of a security. Securities rated BBB by S&P or Baa by
Moody's are in the lowest of the four investment grades and are considered by
the rating agencies to be medium grade obligations which possess speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher rated securities. The market prices of
preferred stocks and debt securities generally fluctuate with changes in
interest rates so that the value of investments in such securities can be
expected to decrease as interest rates rise and increase as interest rates fall.
The Fund may also invest in warrants and in securities of newly-formed companies
and in investment companies. See "Investment Practices -- Investment in
Investment Companies." The Fund may enter into repurchase agreements with
domestic banks and broker-dealers which involves certain risks or may lend
portfolio securities on a fully collateralized basis. See "Investment
Practices -- Repurchase Agreements and Lending of Securities." When deemed
appropriate for temporary defensive purposes, the Fund may invest up to 100% of
its

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<PAGE> 69

total assets in U.S. Government securities and investment grade corporate debt
securities.

The Fund may dispose of a security whenever, in the opinion of the Adviser,
factors indicate it is desirable to do so. Such factors include a change in
economic or market factors in general or with respect to a particular industry,
a change in the market trend of or other factors affecting an individual
security, changes in the relative market performance of or appreciation
possibilities offered by individual securities and other circumstances bearing
on the desirability of a given investment.

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INVESTMENT PRACTICES
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REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any other illiquid securities held by the Fund, exceeds ten
percent of the value of its net assets. In the event of the bankruptcy of the
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities, and the Fund could incur a loss if the
value of the underlying securities declines.

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund than would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.

LENDING OF SECURITIES. The Fund may lend its portfolio securities to broker-
dealers and other financial institutions in an amount up to ten percent of the
total assets, provided that such loans are callable at any time by the Fund, and
are at all times secured by cash collateral that is at least equal to the market
value, determined daily, of the loaned securities. During the period of the
loan, the Fund receives the income on both the loaned securities and the
collateral and thereby increases its yield after payment of lending fees.
Lending portfolio securities

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<PAGE> 70

involves risks of delay in recovery of the loaned securities or in some cases
loss of rights in the collateral should the borrower fail financially.
Accordingly, loans of portfolio securities will only be made to borrowers
considered by the Adviser to be creditworthy.

USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize options, futures contracts and options thereon in several different
ways, depending upon the status of the Fund's portfolio and the Adviser's
expectations concerning the securities markets.

In times of stable or rising security prices, the Fund generally seeks to
obtain maximum exposure to the securities markets, i.e., to be "fully invested."
Nevertheless, even when the Fund is fully invested, prudent management requires
that at least a small portion of assets be available as cash to honor redemption
requests and for other short-term needs. The Fund may also have cash on hand
that has not yet been invested. The portion of the Fund's assets that is
invested in cash equivalents does not fluctuate with security market prices, so
that, in times of rising market prices, the Fund may underperform the market in
proportion to the amount of cash equivalents in its portfolio. By purchasing
futures contracts, however, the Fund can compensate for the cash portion of its
assets and obtain equivalent performance to investing 100% of its assets in
equity securities.

If the Adviser forecasts a market decline, the Fund may take a defensive
position, reducing its exposure to the securities markets by increasing its cash
position. By selling futures contracts instead of portfolio securities, a
similar result can be achieved to the extent that the performance of the futures
contracts correlates to the performance of the Fund's portfolio securities. Sale
of futures contracts could frequently be accomplished more rapidly and at less
cost than the actual sale of securities. Once the desired hedged position has
been effected, the Fund could then liquidate securities in a more deliberate
manner, reducing its futures position simultaneously to maintain the desired
balance, or it could maintain the hedged position.

As an alternative to selling stock index futures contracts, the Fund can
purchase stock index puts (or stock index futures puts) to hedge the portfolio's
risk in a declining market. Since the value of a put increases as the index
declines below a specified level, the portfolio's value is protected against a
market decline to the degree the performance of the index correlates with the
performance of the Fund's investment portfolio. If the market remains stable or
advances, the Fund can refrain from exercising the put and its portfolio will
participate in the advance, having incurred only the premium cost for the put.

In certain cases the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower

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<PAGE> 71

cost by utilizing the options and futures markets rather than purchasing or
selling portfolio securities.

POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in securities. While utilization of
options, futures contracts and similar instruments may be advantageous to the
Fund, if the Adviser is not successful in employing such instruments in managing
the Fund's investments, the Fund's performance will be worse than if the Fund
did not make such investments. In addition, the Fund would pay commissions and
other costs in connection with such investments, which may increase the Fund's
expenses and reduce its return. The Fund may write or purchase options in
privately negotiated transactions ("OTC Options") as well as listed options. OTC
Options can be closed out only by agreement with the other party to the
transaction. Any OTC Option purchased by the Fund is considered an illiquid
security. Any OTC Option written by the Fund is with a qualified dealer pursuant
to an agreement under which the Fund may repurchase the option at a formula
price. Such options are considered illiquid to the extent that the formula price
exceeds the intrinsic value of the option. The Fund may not purchase or sell
futures contracts or related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of the Fund's assets. In
order to prevent leverage in connection with the purchase of futures contracts
thereon by the Fund, an amount of cash, cash equivalents or liquid high grade
debt securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian. The Fund may not invest more than ten percent of its
net assets in illiquid securities and repurchase agreements which have a
maturity of longer than seven days. A more complete discussion of the potential
risks involved in transactions in options, futures contracts and related options
is contained in the Statement of Additional Information.

FOREIGN SECURITIES. The Fund may invest up to 15% of its total assets in
securities of foreign governments and companies. Such securities may be subject
to foreign government taxes which would reduce the income yield on such
securities. Foreign investments involve certain risks, such as political or
economic instability of the issuer or of the country of issue, the difficulty of
predicting international trade patterns, fluctuating exchange rates and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations or of the United States Government. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of stock
exchanges, brokers and listed companies abroad than in the United States, and,
with respect to certain foreign countries, there is a possibility of
expropriation

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<PAGE> 72

or confiscatory taxation, or diplomatic developments which could affect
investment in those countries. Finally, in the event of a default on any such
foreign debt obligations, it may be more difficult for the Fund to obtain or to
enforce a judgment against the issuers of such securities.

PORTFOLIO TURNOVER. The Fund may purchase and sell securities without regard
to the length of time the security is to be, or has been held. The Fund's annual
portfolio turnover rate is shown in the table of "Financial Highlights." The
rate may exceed 100%, which is higher than that of many other investment
companies. A 100% turnover rate occurs, for example, if all the Fund's portfolio
securities are replaced during one year. High portfolio activity increases the
Fund's transaction costs, including brokerage commissions. To the extent
short-term trading results in realization of gains on securities held one year
or less, shareholders are subject to taxes at ordinary income rates.

PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The Adviser is authorized to place portfolio transactions
with brokerage firms participating in the distribution of shares of the Fund and
other Van Kampen American Capital mutual funds if it reasonably believes that
the quality of the execution and the commission are comparable to that available
from other qualified brokerage firms. The Adviser is authorized to pay higher
commissions to brokerage firms that provide it with investment and research
information than to firms which do not provide such services if the Adviser
determines that such commissions are reasonable in relation to the overall
services provided. The information received may be used by the Adviser in
managing the assets of other advisory accounts as well as in the management of
the assets of the Fund.

INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in a separate
investment company, Van Kampen American Capital Small Capitalization Fund,
("Small Cap Fund") that invests in a broad selection of small capitalization
securities. The shares of the Small Cap Fund are available only to investment
companies advised by the Adviser. The Adviser believes that the use of the Small
Cap Fund provides the Fund with the most effective exposure to the performance
of the small capitalization sector of the stock market while at the same time
minimizing costs. The Adviser charges no advisory fee for managing the Small Cap
Fund, nor are there any sales load or other charges associated with distribution
of its shares. Other expenses incurred by the Small Cap Fund are borne by it,
and thus indirectly by the Van Kampen American Capital funds that invest in it.
With respect to such other expenses, the Adviser anticipates that the
efficiencies resulting from use of the Small Cap Fund will result in cost
savings for the Fund and other

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<PAGE> 73

Van Kampen American Capital funds. In large part these savings will be
attributable to the fact that administrative actions that would have to be
performed multiple times if each Van Kampen American Capital fund held its own
portfolio of small capitalization stocks will need to be performed only once.
The Adviser expects that the Small Cap Fund will experience trading costs that
will be substantially less than the trading costs that would be incurred if
small capitalization stocks were purchased separately for the Fund and other Van
Kampen American Capital funds.

The securities of small and medium sized companies that the Small Cap Fund may
invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies.

The Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund. For example, if the Fund's investment in the Small Cap Fund were
$10 million, and the Small Cap Fund had five percent of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.

INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without approval by a
majority (as defined in the 1940 Act) vote of the Fund's shareholders. These
restrictions provide, among other things, that the Fund may not:

1. Invest more than 25% of its total net asset value in any one industry
provided, however, that this limitation excludes shares of other open-end
investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company.

2. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than ten
percent of the value of the Fund's net assets would be invested in such
securities provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro
rata portion of the securities and other assets owned by any such company.

In addition to the foregoing, the Fund has adopted additional investment
restrictions which may be changed by the Trustees without a vote of
shareholders. One of these restrictions provides that the Fund may not invest
more than ten

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<PAGE> 74

percent of its net assets (determined at the time of investment) in illiquid
securities and repurchase agreements that have a maturity of longer than seven
days.

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INVESTMENT ADVISORY SERVICES
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THE ADVISER. 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
nearly $50 billion under management or supervision. Van Kampen American
Capital's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trusts are professionally distributed by leading financial advisers
nationwide.

Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital. Van Kampen American Capital is a wholly owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut
limited partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a
New York based private investment firm. The General Partner of C&D L.P. is
Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates L.P.").
The general partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles
Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital own, in the aggregate, not more than seven percent
of the common stock of VK/AC Holding, Inc. and have the right to acquire, upon
the exercise of options, approximately an additional 11% of the common stock of
VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such
options, no officer or trustee of the Fund owns or would own five percent or
more of the common stock of VK/AC Holding, Inc.

ADVISORY 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. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed on average daily net assets of the Fund at the annual rate of 0.50% on
the first $150 million of average net assets; 0.45% on the next $100 million of
average net assets; 0.40% on the next $100 million of average net assets; and
0.35% of average net assets over $350 million. Under the Advisory Agreement the
Fund also reimburses the Adviser for the cost of the Fund's accounting services,
which include

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<PAGE> 75

maintaining its financial books and records and calculating its daily net asset
value. Operating expenses paid by the Fund include shareholder service agency
fees, service fees, distribution fees, custodian fees, legal and accounting
fees, the costs of reports and proxies to shareholders, directors' fees, and all
other business expenses not specifically assumed by the Adviser. Advisory
(management) fee, and total operating expense, ratios are shown under the
caption "Annual Fund Operating Expenses and Example" herein.

From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp.

PERSONAL INVESTING POLICIES. The Fund and 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 pre-clearance and other procedures designed to prevent conflicts of
interest.

PORTFOLIO MANAGEMENT. Mr. James Gilligan has been primarily responsible for
the day-to-day management of the Fund's investment portfolio since January 1990.
Mr. Gilligan is Vice President of the Fund and has been Vice President --
Portfolio Manager of the Adviser since March 1990. Prior to that time, he was a
securities analyst with the Adviser.

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ALTERNATIVE SALES ARRANGEMENTS
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The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.

CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 5.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares are subject to
an ongoing service fee at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Certain purchases
of Class A shares qualify for reduced initial sales charges. See "Purchase of
Shares -- Class A Shares."

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<PAGE> 76

CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
B shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
B Shares." Class B shares will convert automatically to Class A shares six years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class B shares.

CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares." Class C shares will automatically convert to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.

CONVERSION FEATURE. Class B and Class C shares will automatically convert to
Class A shares six years or ten years, respectively, after the end of the
calendar month in which the shares were purchased and will no longer be subject
to the distribution fee. Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. The purpose of the conversion feature is to relieve the holders of
the Class B shares and Class C shares that have been outstanding for a period of
time sufficient for the Distributor to have been substantially compensated for
distribution expenses related to the Class B shares or Class C shares, as the
case may be, from the burden of the ongoing distribution fee.

For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion

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<PAGE> 77

of the Class B shares or Class C shares in the sub-account will also convert to
Class A.

The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code, as amended (the "Code"), and (ii) the conversion of
shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares or Class C shares would occur, and shares might continue to be subject to
the distribution fee for an indefinite period which may extend beyond the period
ending six years or ten years, respectively, after the end of the calendar month
in which the shareholder's order to purchase was accepted.

FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares. In this regard, Class A shares may
be more beneficial to the investor who qualifies for reduced initial sales
charges or purchases at net asset value, as described herein under "Purchase of
Shares -- Class A Shares." For these reasons, the Distributor will reject any
order of $500,000 or more for Class B shares or any order of $1 million or more
for Class C shares.

Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B or Class
C shares and have all their funds invested initially, although remaining subject
to a contingent deferred sales charge. Ongoing distribution fees on Class B
shares and Class C shares will be offset to the extent of the additional funds
originally invested and any return realized on those funds. However, there can
be no assurance as to the return, if any, which will be realized on such
additional funds. For investments held for ten years or more, the

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<PAGE> 78

relative value upon liquidation of the three classes tends to favor Class A or
Class B shares, rather than Class C shares.

Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.

The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION
OF THE CONTINGENT DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH
RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE
INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution Plans."

GENERAL. Dividends paid by the Fund with respect to Class A, Class B and
Class C shares will be calculated in the same manner at the same time on the
same day except that the distribution fees and any incremental transfer agency
costs relating to Class B and Class C shares will be borne by the respective
class. See "Distributions from the Fund." Shares of the Fund may be exchanged,
subject to certain limitations, for shares of the same class of other mutual
funds advised by the Adviser. See "Shareholder Services -- Exchange Privilege."

The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the Investment Company Act
of 1940 (the "1940 Act") and state laws, will seek to ensure that no such
conflict arises.

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PURCHASE OF SHARES
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GENERAL

The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold with an initial sales charge. Class B and
Class C shares are sold without an initial sales charge and are subject to a
contingent deferred sales charge upon certain redemptions. See "Alternative
Sales Arrangements" for a discussion of factors to consider in selecting which
class of shares to purchase. Contact the Investor Services Department at (800)
421-5666 for further information and appropriate forms.

Initial investments must be at least $500, and subsequent investments must be
at least $25. Both minimums may be waived by the Distributor for plans involving
periodic investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.

Shares of the Fund may be purchased on any business day through authorized
dealers. Shares may also be purchased by completing the application accompanying
this Prospectus and forwarding the application, through the designated dealer,
to the shareholder service agent, ACCESS Investor Services, Inc., a wholly owned
subsidiary of Van Kampen American Capital ("ACCESS"). When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class B or
Class C shares.

Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per share for each class is determined once daily as of the close of
trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m.,
New York time) each day the Exchange is open. Net asset value per share for each
class is determined by dividing the value of the Fund's securities, cash and
other assets (including accrued interest) attributable to such class less all
liabilities (including accrued expenses) attributable to such class by the total
number of shares of the class outstanding.

21
<PAGE> 80

Securities listed or traded on a national securities exchange are valued at
the last sale price. Unlisted securities and listed securities for which the
last sale price is not available are valued at the most recent bid price.
Short-term securities are valued in the manner described in the Statement of
Additional Information.

Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and the higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the next
calculation of net asset value (plus applicable Class A sales charges) after an
order is received by a dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by dealers after the close of the Exchange are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
orders received by them to the Distributor so they will be received prior to
such time. Orders of less than $500 are mailed by the dealer and processed at
the offering price next calculated after acceptance by ACCESS.

Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
generally, each class has exclusive voting rights with respect to approvals of
the Rule 12b-1 distribution plan pursuant to which its distribution fee and/or
service fee is paid which relate to a specific class, and (iii) Class B and
Class C shares are subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service options available.
See "Distribution Plans" and "Shareholder Services -- Exchange Privilege." The
net income attributable to Class B and Class C and the dividends payable on
Class B and Class C shares will be reduced by the amount of the distribution fee
and incremental expenses associated with such distribution fees. Sales personnel
of broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class A, Class B or Class C shares.

Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund with subsidiaries of The Travelers Inc.

22
<PAGE> 81

broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediaries at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to, and sponsor
business seminars for, qualifying brokers, dealers or financial intermediaries
for certain services or activities which are primarily intended to result in
sales of shares of the Fund. Fees may include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Such fees paid
for such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. The Distributor may provide additional compensation to Edward D. Jones &
Co. or an affiliate thereof based on a combination of its sales of shares and
increases in assets under management. All of the foregoing payments are made by
the Distributor out of its own assets. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.

CLASS A SHARES

The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
REALLOWED TO
AS % OF AS % OF DEALERS (AS
SIZE OF NET AMOUNT OFFERING % OF OFFERING
INVESTMENT INVESTED PRICE PRICE)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than $100,000...... 4.99% 4.75% 4.00%
$100,000 but less than $250,000..... 3.90% 3.75% 3.00%
$250,000 but less than $500,000..... 2.83% 2.75% 2.25%
$500,000 but less than $1,000,000... 2.04% 2.00% 1.75%

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of one percent in the event of certain redemptions
within one year of the purchase. The contingent deferred sales charge incurred
upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
one percent on sales to

23
<PAGE> 82

$2 million, plus 0.80% on the next million, plus 0.20% on the next $2 million
and 0.08% on the excess over $5 million.

In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. Dealers which are
reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the Securities Act of 1933.

The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to dealers described herein. Such financial
institutions, other industry professionals and dealers are hereinafter referred
to as "Service Organizations." Banks are currently prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretation of federal law
expressed herein and banks and other financial institutions may be required to
register as dealers pursuant to certain state laws.

QUANTITY DISCOUNTS

Investors purchasing Class A shares may under certain circumstances be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.

Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.

A person eligible for a reduced sales charge includes an individual, their
spouse and minor children and any corporation, partnership or sole
proprietorship which is 100% owned, either alone or in combination, by any of
the foregoing; a trustee or other fiduciary purchasing for a single fiduciary
account, or a "company" as defined in Section 2(a)(8) of the 1940 Act.

As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital

24
<PAGE> 83

Money Market Fund ("VK Money Market"), Van Kampen American Capital Tax Free
Money Fund ("VK Tax Free"), Van Kampen American Capital Reserve Fund ("Reserve")
and The Govett Funds, Inc.

Volume Discounts. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund
alone, or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.

Cumulative Purchase Discount. The size of investment in the preceding table
may also be determined by combining the amount being invested in shares of the
Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.

Letter of Intent. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over the
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the Participating
Funds previously purchased and still owned. An investor may elect to compute the
13-month period starting up to 90 days before the date of execution of a Letter
of Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
charges applicable to the purchases made and the charges previously paid. The
initial purchase must be for an amount equal to at least five percent of the
minimum total purchase amount of the level selected. If trades not initially
made under a Letter of Intent subsequently qualify for a lower sales charge
through the 90-day back-dating provisions, an adjustment will be made at the
expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanied by this Prospectus.

OTHER PURCHASE PROGRAMS

Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.

Unit Trust Reinvestment Programs. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A shares
of the Fund, other Participating Funds, VK Money Market, VK Tax Free or Reserve
with

25
<PAGE> 84

no minimum initial or subsequent investment requirement, and with a lower sales
charge if the administrator of an investor's unit investment trust program meets
certain uniform criteria relating to cost savings by the Fund and the
Distributor. The total sales charge for all investments made from unit trust
distributions will be one percent of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their securities broker or dealer or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS's processing system.

As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.

NAV Purchase Options. Class A shares of the Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:

(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Investment Advisory Corp. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.

(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.

(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.

26
<PAGE> 85

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or in any combination of
shares of the Fund and shares of other Participating Funds as described
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts,"
during the 13 month period commencing with the first investment pursuant
hereto equals at least $1 million. The Distributor may pay Service
Organizations through which purchases are made an amount up to 0.50% of
the amount invested, over a twelve month period following such
transaction.

(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to one percent for such purchases.

(6) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.

(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.

(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in
Participating Funds, VK Money Market, VK Tax Free or Reserve. For such
investments the Fund imposes a contingent deferred sales charge of one
percent in the event of redemptions within one year of the purchase other
than redemptions required to make payments to participants under the terms
of the plan. The contingent deferred sales charge incurred upon redemption
is paid to the Distributor in reimbursement for distribution-related
expenses. A commission will be paid to dealers who initiate and are
responsible for such purchases as follows: one percent on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million.

The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer or financial institution
may charge a transaction fee for placing an order to purchase shares pursuant to
this

27
<PAGE> 86

provision or for placing a redemption order with respect to such shares. Service
Organizations will be paid a service fee as described herein under "Distribution
Plans" on purchases made as described in (3) through (8) above. The Fund may
terminate, or amend the terms of, offering shares of the Fund at net asset value
to such groups at any time.

CLASS B SHARES

Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions.

The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
shares, all payments during a month are aggregated and deemed to have been made
on the last day of the month.

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNTS SUBJECT TO
YEAR SINCE PURCHASE CHARGE
- ------------------------------------------------------------------------------
<S> <C>
First................................ 5%
Second............................... 4%
Third................................ 3%
Fourth............................... 2.5%
Fifth................................ 1.5%
Sixth................................ None
</TABLE>

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

In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first, of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge, second, of shares held for over five years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the five-year period.

To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares

28
<PAGE> 87

upon dividend reinvestment. If at such time the investor makes his or her first
redemption of 50 shares (proceeds of $600), ten shares will not be subject to
charge because of dividend reinvestment. With respect to the remaining 40
shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds is subject to a deferred sales charge at a rate of four
percent (the applicable rate in the second year after purchase).

A commission or transaction fee of four percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.

CLASS C SHARES

Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of one percent. The charge is assessed on an
amount equal to the lesser of the then current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gains
distributions.

In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first, of any shares in the shareholder's Fund account that are not subject
to a contingent deferred sales charge and second, of shares held for more than
one year or shares acquired pursuant to reinvestment of dividends or
distributions.

A commission or transaction fee of one percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.75% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation to Service Organizations
that sell Class C shares of the Fund.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited

29
<PAGE> 88

to 12% annually of the initial value of the account, and (iv) effected pursuant
to the right of the Fund to liquidate a shareholder's account as described
herein under "Redemption of Shares." The contingent deferred sales charge is
also waived on redemptions of Class C shares as it relates to the reinvestment
of redemption proceeds in shares of the same class of the Fund within 120 days
after redemption. See the Statement of Additional Information for further
discussion of waiver provisions.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of those services.

INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Except as described herein, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in certain of the
Participating Funds or Reserve, may receive statements quarterly from ACCESS
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized investment dealers or
by mailing a check directly to ACCESS.

SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate no more than two percent of the net asset value of the
issued shares, and bill the party to whom the certificate was mailed.

30
<PAGE> 89

may, on the initial application or prior to any declaration, instruct that
dividends be paid in cash and capital gains distributions be reinvested at net
asset value, or that both dividends and capital gains distributions be paid in
cash.

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized investment dealers.

RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP, and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund invested into a pre-existing Class A,
Class B or Class C account in any of the Participating Funds, VK Money Market,
VK Tax Free or Reserve.

If a qualified, pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.

31
<PAGE> 90

EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund other
than Van Kampen American Capital Government Target Fund ("Government Target"),
may be exchanged for shares of the same class of any other fund without sales
charge, provided that shares of certain Van Kampen American Capital fixed-income
funds may not be exchanged within 30 days of acquisition without Adviser
approval. Shares of Government Target may be exchanged for Class A shares of the
Fund without sales charge. Class A shares of VK Money Market, VK Tax Free or
Reserve that were not acquired in exchange for Class B or Class C shares of a
Participating Fund may be exchanged for Class A shares of the Fund upon payment
of the excess, if any, of the sales charge rate applicable to the shares being
acquired over the sales charge rate previously paid. Shares of VK Money Market,
VK Tax Free or Reserve acquired through an exchange of Class B or Class C shares
may be exchanged only for the same class of shares of a Participating Fund
without incurring a contingent deferred sales charge. Shares of any
Participating Fund, VK Money Market, VK Tax Free or Reserve may be exchanged for
shares of any other Participating Fund if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund.

Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other Van
Kampen American Capital fund that offers shares ("new shares") in an amount
equal to the aggregate net asset value of the original shares, without the
payment of any contingent deferred sales charge otherwise due upon redemption of
the original shares. For purposes of computing the contingent deferred sales
charge payable upon a disposition of the new shares, the holding period for the
original shares is added to the holding period of the new shares. Class B or
Class C shareholders would remain subject to the contingent deferred sales
charge imposed by the original fund upon their redemption from the Van Kampen
American Capital complex of funds. The contingent deferred sales charge is based
on the holding period requirement of the original Fund.

Since the maximum sales charge rate applicable to purchases of Class A shares
of the Fund is higher than the maximum sales charge rate applicable to the
purchase of Class A shares of Van Kampen American Capital fixed-income funds,
the foregoing exchange privilege may be utilized to reduce the sales charge paid
to purchase Class A shares of the Fund.

Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although if the shares exchanged have been held
for less than 91 days, the sales charge paid on such shares is not included in
the tax basis of the exchanged shares, but is carried over and included in the
tax basis of the shares acquired. See the Statement of Additional Information.

32
<PAGE> 91

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanied by this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges are effected
at the net asset value per share next calculated after the request is received
in good order with adjustment for any additional sales charge. See "Purchase of
Shares" and "Redemption of Shares." If the exchanging shareholder does not have
an account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options
(except dividend diversification) and dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
file a specific written request. The Fund reserves the right to reject any order
to acquire its shares through exchange. In addition, the Fund may modify,
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment.

A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semi-annual or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."

33
<PAGE> 92

Class B and Class C shareholders who establish a withdrawal plan may redeem up
to 12% annually of the shareholder's initial account balance without incurring a
contingent deferred sales charge. Initial account balance means the amount of
the shareholders' investment in the Fund at the time the election to participate
in the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" and the Statement of Additional Information.

Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under this plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon
redemption of shares.

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized investment
dealer. Orders received from dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by a dealer provided such order
is transmitted to the Distributor prior to the Distributor's close of business
on such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.

As described herein under "Purchase of Shares," redemptions of Class B and
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of one percent may be imposed on certain
redemptions of Class A shares made within one year of purchase for investments
of $1 million or more and for certain qualified 401(k) retirement plans. The
contingent deferred sales charge incurred upon redemption is paid by the
Distributor in reimbursement for distribution-related expenses. See "Purchase of
Shares." A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.

The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed

34
<PAGE> 93

within the previous 30 days, signature(s) must be guaranteed by one of the
following: a bank or trust company; a broker-dealer; a credit union; a national
securities exchange, registered securities association or clearing agency; a
savings and loan association, or a federal savings bank.

Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P. O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.

In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received in proper form. Payment for shares redeemed will be made by check
mailed within seven days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payment may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms the purchase check has cleared, usually a
period of 15 days. Any taxable gain or loss will be recognized by the
shareholder upon redemption of shares.

The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Trustees. At least 60 days advance written notice of any such involuntary
redemption is required and the shareholder is given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.

TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures
previously set forth, the Fund permits redemption of shares by telephone and for

35
<PAGE> 94

redemption proceeds to be sent to the address of record of the account or to the
bank account of record as described below. To establish such privilege, a
shareholder must complete the appropriate section of the application form
accompanying this Prospectus or call the Fund at (800) 421-5666 to request that
a copy of the Telephone Redemption Authorization form be sent to them for
completion. To redeem shares, contact the telephone transaction line at (800)
421-5684. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, neither VKAC nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. Telephone redemptions may not be available if the shareholder cannot
reach ACCESS by telephone, whether because all telephone lines are busy or for
any other reason; in such case, a shareholder would have to use the Fund's
regular redemption procedure previously described. Requests received by ACCESS
prior to 4:00 p.m., New York time, on a regular business day will be processed
at the net asset value per share determined that day. These privileges are
available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
an account has multiple owners, ACCESS may rely on the instructions of any one
owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. To establish such privilege a shareholder must
complete the appropriate section of the application form accompanied by this
Prospectus or call the Fund at 1-800 421-5666. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.

REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of a Class B and Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial

36
<PAGE> 95

gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long-continued
and indefinite duration." While the Fund does not specifically adopt the balance
of the Code's definition which pertains to furnishing the Secretary of Treasury
with such proof as he or she may require, the Distributor will require
satisfactory proof of disability before it determines to waive the contingent
deferred sales charge on Class B and Class C shares.

In cases of disability, the contingent deferred sales charge on Class B and
Class C shares will be waived where the disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the initial determination of disability.
This waiver of the contingent deferred sales charge on Class B and Class C
shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the initial determination of disability.

REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class A shares of the Fund. A Class C shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of the Fund with credit given for any contingent
deferred sales charge paid upon such redemption. Such reinstatement is made at
the net asset value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.

- ------------------------------------------------------------------------------
DISTRIBUTION PLANS
- ------------------------------------------------------------------------------

Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing of its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Trustees of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD Rules
limit

37
<PAGE> 96

the annual distribution charges that a mutual fund may impose on a class of
shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan, the Fund pays a service fee
to the Distributor at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Such payments to
the Distributor under the Class A Plan are based on an annual percentage of the
value of Class A shares held in shareholder accounts for which such Service
Organizations are responsible at the rates of 0.15% annually with respect to
Class A shares in such accounts on September 29, 1989 and 0.25% annually with
respect to Class A shares issued after that date. Under the Class B Plan and
Class C Plan, the Fund pays a service fee to the Distributor at an annual rate
of up to 0.25% and a distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares or
Class C shares to reimburse the Distributor for service fees paid by it to
Service Organizations and for its distribution costs.

The Distributor uses the Class A, Class B and Class C service fees to
compensate Service Organizations for personal service and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to four
percent of the purchase price of Class B shares purchased by the clients of
broker-dealers and other Service Organizations and (ii) other distribution
expenses as described in the Statement of Additional Information. Under the
Class C Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class C shares as reimbursement for (i) upfront commissions and
transaction fees of up to 0.75% of the purchase price of Class C shares
purchased by the clients of broker-dealers and other Service Organizations and
ongoing commissions and transaction fees of up to 0.75% of the average daily net
assets of the Fund's Class C shares, and (ii) other distribution expenses as
described in the Statement of Additional Information.

In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees of the Fund determined that there was a reasonable likelihood that such
Plans would benefit the Fund and its shareholders. Information with respect to
distribution and service revenues and expenses is presented to the Trustees each
year for their consideration in connection with their deliberations as to the
continuance of the Distribution Plans. In their review of the Distribution
Plans, the Trustees are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.

38
<PAGE> 97

Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.

The distribution fee attributable to Class B or Class C shares is designed to
permit an investor to purchase such shares without the assessment of a front-end
sales load and at the same time permit the Distributor to compensate Service
Organizations with respect to such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and distribution fee
are the same as those of the initial sales charge with respect to the Class A
shares of the Fund in that in both cases such charges provide for the financing
of the distribution of the Fund's shares.

Actual distribution expenses paid by the Distributor with respect to Class B
or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class B Plan of $1 million, of which $500,000 was recovered in the form of
contingent deferred sales charges paid by investors and $400,000 was reimbursed
in the form of payments made by the Fund to the Distributor under the Class B
Plan, the balance of $100,000 would be subject to recovery in future fiscal
years from such sources. For the plan year ended June 30, 1994, the unreimbursed
expenses incurred by the Distributor under the Class B Plan and carried forward
were approximately $608,000 or 0.497% of the Class B shares' net assets. For the
plan year ended June 30, 1994, the unreimbursed expenses incurred by the
Distributor under the Class C Plan and carried forward were approximately
$52,000 or 2.01% of the Class C shares' net assets.

If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.

39
<PAGE> 98

DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main source of income. Substantially all of this income, less
expenses, is distributed quarterly, normally in March, June, September and
December, as dividends to shareholders. Unless the shareholder instructs
otherwise, dividends are automatically applied to purchase additional shares of
the Fund at the next determined net asset value. See "Shareholder
Services -- Reinvestment Plan."

The per share dividends on Class B and Class C shares will be lower than the
per share dividend on Class A shares as a result of the distribution fees and
higher incremental transfer agency fees applicable to such classes.

CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund distributes to shareholders once a
year the excess, if any, of its total profits on the sale of securities during
the year over its total losses on the sale of securities, including capital
losses carried forward from prior years under tax laws. As in the case of income
dividends, capital gains distributions are automatically reinvested in
additional shares of the Fund at net asset value. See "Shareholder
Services -- Reinvestment Plan."

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

The Fund has qualified and intends to be taxed as a regulated investment
company under the Code. By qualifying as a regulated investment company, the
Fund is not subject to federal income taxes to the extent it distributes its net
investment income and net realized capital gains. Dividends from net investment
income and distributions from any net realized short-term capital gains are
taxable to shareholders as ordinary income. Long-term capital gains
distributions constitute long-term capital gains for federal income tax
purposes. All such dividends and distributions are taxable to the shareholder
whether or not reinvested in shares. However, shareholders not subject to tax on
their income will not be required to pay tax on amounts distributed to them.

Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions, including information as to the portion (including
short-term capital gains) taxable as ordinary income, and the portion taxable as
long-term capital gains.

To avoid being subject to a 31% federal backup withholding on dividends,
distributions and redemption payments, shareholders must furnish the Fund with a
certification of their correct taxpayer identification number.

Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a

40
<PAGE> 99

dividend or distribution paid shortly after the purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
(to the extent it is paid on the shares so purchased) even though subject to
income taxes as discussed above.

Gains or losses on the Fund's transactions in listed options (except certain
equity options) on securities or indexes, futures and options on futures
generally are treated as 60% long-term and 40% short-term, and positions held by
the Fund at the end of its fiscal year generally are required to be marked to
market, with the result that unrealized gains and losses are treated as
realized. Gains and losses realized by the Fund from writing over-the-counter
options constitute short-term capital gains or losses unless the option is
exercised, in which case the character of the gain or loss is determined by the
holding period of the underlying security. The Code contains certain "straddle"
rules which require deferral of losses incurred in certain transactions
involving hedged positions to the extent the Fund has unrealized gains in
offsetting positions and generally terminate the holding period of the subject
position. Additional information is set forth in the Statement of Additional
Information.

The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisers for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Fund.

- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------

From time to time the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one, five and ten-year periods. Other total return quotations,
aggregate or average, over other time periods may also be included.

The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 5.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable contingent deferred
sales charge has been paid. The Fund's total return will vary depending on
market conditions, the securities comprising the

41
<PAGE> 100

Fund's portfolio, the Fund's operating expenses and unrealized net capital gains
or losses during the period. Since shares of the Fund were offered at a maximum
sales charge of 8.50% prior to June 12, 1989, actual Fund total return would
have been somewhat less than that computed on the basis of the current maximum
sales charge. Total return is based on historical earnings and asset value
fluctuations and is not intended to indicate future performance. No adjustments
are made to reflect any income taxes payable by shareholders on dividends and
distributions paid by the Fund or to reflect the fact no 12b-1 fees were
incurred prior to October 1, 1989.

Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.

Total return is calculated separately for Class A, Class B and Class C shares.
Class A total return figures include the maximum sales charge of 5.75%; Class B
and Class C total return figures include any applicable contingent deferred
sales charge. Because of the differences in sales charges and distribution fees,
the total returns for each of the classes will differ.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. Distribution rate is, therefore, not intended to be a complete measure
of the Fund's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Fund. Distribution rates will be
computed separately for each class of the Fund's shares.

In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average Index, Standard & Poor's, NASDAQ, other appropriate indices
of investment securities, or with investment or savings vehicles. The
performance information may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Investor's Business Daily, Kiplinger's Personal Finance Magazine,
Money, Mutual Fund Forecaster, Stanger's Investment Advisor, USA Today, U.S.
News & World Report and The Wall Street

42
<PAGE> 101

Journal. Such comparative performance information will be stated in the same
terms in which the comparative data or indices are stated. Such advertisements
and sales material may also include a yield quotation as of a current period. In
each case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares. For these purposes, the performance of the
Fund, as well as the performance of other mutual funds or indices, do not
reflect sales charges, the inclusion of which would reduce Fund performance. The
Fund will include performance data for Class A, Class B and Class C shares of
the Fund in any advertisement or information including performance data of the
Fund.

The Fund may also utilize performance information in hypothetical
illustrations as provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.

The Fund's Annual Report contains additional performance information. A copy
of the Annual Report may be obtained without charge by calling or writing the
Fund at the telephone number and address printed on the cover page of this
Prospectus.

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund was originally incorporated in New York on October 21, 1963, as
successor to a Georgia corporation incorporated on May 15, 1946. On July 23,
1990 the Fund's name was changed from Fund of America, Inc. to American Capital
Growth and Income Fund, Inc. The Fund was reincorporated by merger into a
Maryland corporation on July 6, 1993, and reorganized under the laws of Delaware
July 31, 1995. It is authorized to issue an unlimited number of Class A, Class B
and Class C shares of beneficial interest of $0.01 par value. Other classes of
shares may be established from time to time in accordance with provisions of the
Fund's Declaration of Trust. Shares issued by the Fund are fully paid,
non-assessable and have no preemptive or conversion rights.

The Fund currently offers three classes, designated Class A shares, Class B
shares and Class C shares. Each class of shares represents an interest in the
same assets of the Fund and generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. See "Distribution Plans."

The Fund is permitted to issue an unlimited number of classes. Each class of
shares is equal as to earnings, assets and voting privileges, except as noted
above, and each class bears the expenses related to the distribution of its
shares. There are no conversion, preemptive or other subscription rights, except
with respect to the conversion of Class B shares and Class C shares into Class A
shares as described

43
<PAGE> 102

above. In the event of liquidation, each of the shares of the Fund is entitled
to its portion of all of the Fund's net assets after all debt and expenses of
the Fund have been paid. Since Class B shares and Class C shares pay higher
distribution expenses, the liquidation proceeds to Class B shareholders and
Class C shareholders are likely to be lower than to other shareholders.

The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.

The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.

An investment in the Fund may not be appropriate for all investors.

The Fund is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision with respect to the Fund.

An investment in the Fund is intended to be a long-term investment, and should
not be used as a trading vehicle.

44
<PAGE> 103

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR EXISTING
ACCOUNT PLEASE CALL THE FUND'S
TOLL-FREE NUMBER--(800) 421-5666

PROSPECTIVE INVESTORS--CALL YOUR
BROKER OR (800) 421-5666

DEALERS--FOR DEALER INFORMATION,
SELLING AGREEMENTS, WIRE ORDERS, OR
REDEMPTIONS CALL THE DISTRIBUTOR'S
TOLL-FREE NUMBER--(800) 421-5666

FOR SHAREHOLDER AND DEALER INQUIRIES
THROUGH TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD)
DIAL (800) 772-8889

FOR TELEPHONE TRANSACTIONS DIAL (800)
421-5684

VAN KAMPEN AMERICAN CAPITAL
GROWTH AND INCOME FUND
------------------
2800 Post Oak Boulevard
Houston, TX 77056
------------------

Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Boulevard
Houston, TX 77056

Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256

Custodian
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
Funds

Legal Counsel
O'MELVENY & MYERS
400 South Hope Street
Los Angeles, CA 90071

Independent Accountants
PRICE WATERHOUSE LLP
1201 Louisiana
Suite 2900
Houston, TX 77002

<PAGE> 104

GROWTH AND INCOME FUND

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

P R O S P E C T U S

AUGUST 1, 1995

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
- ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 105

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
2800 POST OAK BOULEVARD
HOUSTON, TX 77056
(800) 421-5666

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

STATEMENT OF ADDITIONAL INFORMATION

RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

BY AND IN EXCHANGE FOR SHARES OF

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

DATED JULY 31, 1995

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

This Statement of Additional Information provides information about the Van
Kampen American Capital Growth and Income Fund ("AC Fund") an open-end
management investment company, in addition to information contained in the Proxy
Statement/Prospectus of the AC Fund, dated July 31, 1995, which also serves as
the Proxy Statement of the Van Kampen Merritt Growth and Income Fund (the "VK
Fund"), a series of Van Kampen American Capital Equity Trust (the "VKAC Equity
Trust"), in connection with the issuance of shares of the AC Fund to
shareholders of the VK Fund. This Statement of Additional Information is not a
prospectus. It should be read in conjunction with the Proxy
Statement/Prospectus, into which it has been incorporated by reference and which
may be obtained by contacting the AC Fund located at 2800 Post Oak Boulevard,
Houston, Texas 77056, telephone no. (800) 421-5666 or the VK Fund at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, telephone no. (800) 225-2222.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proposed Reorganization of the VK Fund................................................ 2
Additional Information About the AC Fund.............................................. 2
Additional Information About the VK Fund.............................................. 2
Financial Statements.................................................................. 2
Pro Forma Financial Statements........................................................ 2
</TABLE>

The AC Fund will provide, without charge, upon the written or oral request
of any person to whom this Statement of Additional Information is delivered, a
copy of any and all documents that have been incorporated by reference in the
registration statement of which this Statement of Additional Information is a
part.

1
<PAGE> 106

PROPOSED REORGANIZATION OF THE VK FUND

The shareholders of the VK Fund are being asked to approve an acquisition
of all the assets and liabilities of the VK Fund in exchange for Class A, B and
C Shares of the AC Fund (the "Reorganization").

For detailed information about the Reorganization, shareholders should
refer to the Proxy Statement/ Prospectus.

ADDITIONAL INFORMATION ABOUT THE AC FUND

Incorporated herein by reference in its entirety is the Statement of
Additional Information of the AC Fund, dated August 1, 1995, attached as
Appendix A to this Statement of Additional Information.

ADDITIONAL INFORMATION ABOUT THE VK FUND

Incorporated herein by reference in its entirety is the Statement of
Additional Information of the VK Fund, dated July 31, 1995, attached as Appendix
B to this Statement of Additional Information.

FINANCIAL STATEMENTS

Incorporated herein by reference in their respective entireties are (i) the
audited financial statements of the AC Fund for fiscal year ended November 30,
1994, attached as Appendix C to this Statement of Additional Information, (ii)
the audited financial statements of the VK Fund for fiscal year ended June 30,
1994, attached as Appendix D to this Statement of Additional Information and
(iii) the unaudited semi-annual financial statements of the VK Fund for the six
months ended December 31, 1994, attached as Appendix E to this Statement of
Additional Information.

The unaudited semi-annual financial statements of the VK Fund reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature.

PRO FORMA FINANCIAL STATEMENTS

Set forth below are unaudited pro forma financial statements of the AC Fund
giving effect to the Reorganization, which include (i) Pro Forma Condensed
Statement of Assets and Liabilities at November 30, 1994; (ii) Pro Forma
Condensed Statement of Operations for the twelve months ended November 30, 1994;
and (iii) Pro Forma Portfolio of Investments at November 30, 1994.

2
<PAGE> 107

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AC FUND VK FUND PRO FORMA
- ----------------------------------------------------------------------------------------------------------
Investments, at market value (Cost $223,670,707; $83,228,739;
and $306,899,446, respectively)............................ $228,503,012 $81,999,822 $310,502,834
Other Assets and Liabilities (net)........................... (1,124,264) (1,276,582 ) (2,400,846)
------------ ----------- ------------
Net Assets................................................... $227,378,748 $80,723,240 $308,101,988
============= ============ =============
Net Assets Were Comprised of:
Capital.................................................... $204,845,229 $81,946,606 $286,791,835
Undistributed net realized gain on securities.............. 16,536,382 531,479 17,067,861
Net unrealized appreciation (depreciation)
of securities............................................ 4,666,958 (2,056,461 ) 2,610,497
Undistributed net investment income........................ 1,330,179 301,616 1,631,795
------------ ----------- ------------
Net Assets................................................... $227,378,748 $80,723,240 $308,101,988
============= ============ =============
Class A:
Net asset value and redemption price per share............. $12.26 $17.90 $12.26
Maximum sales charge (5.75%, 4.65% and 5.75%, respectively,
of offering price)....................................... 0.75 0.87 0.75
------------ ----------- ------------
Maximum offering price to public........................... $13.01 $18.77 $13.01
============= ============ =============
Class B:
Net asset value, offering price per share.................. $12.25 $17.90 $12.25
============= ============ =============
Class C:
Net asset value, offering price per share.................. $12.26 $17.90 $12.26
============= ============ =============
Shares Outstanding:
Class A.................................................... 16,756,959 2,756,131 (4) 20,781,835
Class B.................................................... 1,507,551 1,686,254 3,970,700
Class C.................................................... 286,471 67,272 384,701
</TABLE>

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

(1) The pro forma statements are presented as if the Reorganization was
effective November 30, 1994. The pro forma statements give effect to the
proposed exchange of stock for assets with the AC Fund being the surviving
entity. The proposed transaction will be accounted for in accordance with
generally accepted accounting principles as a tax-free Reorganization. The
historical cost basis of the investments is carried over to the surviving
entity.

(2) The pro forma statement presumes the issuance by the AC Fund of 4,024,876
Class A shares, 2,463,149 Class B shares, and 98,230 Class C shares in
exchange for the assets and liabilities of the VK Fund.

(3) In connection with this transaction, the combined Fund will immediately
after the Reorganization incur a non-recurring cost associated with the
merger of approximately $234,500 or $.009 per share.

(4) Includes 110 shares representing Class D shares of the VK Fund.

3
<PAGE> 108

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Twelve Months Ended November 30, 1994 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRO FORMA
AC FUND VK FUND ADJUSTMENTS PRO FORMA
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income......................... $7,594,769 $ 2,021,160 $ 9,615,929
----------- ----------- ------------
Expenses
Management Fees........................... 1,075,607 403,713 $ (134,920)(1) 1,344,400
Service Fees -- Class A................... 364,255 130,203 (22,458)(2) 472,000
Distribution and service fees -- Class
B....................................... 106,450 205,650 312,100
Distribution and service fees -- Class
C....................................... 24,087 4,106 28,193
Other Expenses............................ 1,121,103 449,304 (221,523)(3) 1,348,884
----------- ----------- ----------- ------------
Total Expenses.................. 2,691,502 1,192,976 (378,901) 3,505,577
----------- ----------- ----------- ------------
Net Investment Income........... 4,903,267 828,184 378,901 6,110,352
----------- ----------- ----------- ------------
Realized and Unrealized Gain (Loss) on
Securities
Net realized gain on securities........... 16,532,604 1,003,390 17,535,994
Net unrealized depreciation of securities
during the year......................... (19,651,593) (4,841,131) (24,492,724)
----------- ----------- ------------
Net realized and unrealized loss
on securities................. (3,118,989 ) (3,837,741) (6,956,730)
========== ========== ===========
Increase/Decrease in net assets
resulting from operations..... $1,784,278 $(3,009,557) $ 378,901 $ (846,378)
========== ========== ========= ===========
Average Net Assets (millions)
Class A (includes Class D)...... $209.3 $45.6 $254.9
Class B......................... 10.6 20.2 30.8
Class C......................... 2.4 0.4 2.8
----------- ----------- ------------
$222.3 $66.2 $288.5
========== ========== ===========
</TABLE>

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

(1) Reflects the results of a breakpoint differential in the advisory fee
schedule in effect for the AC Fund.

(2) In connection with this transaction, the Class A Shares Distribution and
Service Plan of the VK Fund will be reduced from a maximum of .30% of
average net assets to .25%.

(3) Reflects the reduction of other operating expenses as a result of the
elimination of certain duplicative expenses and the results of operating a
larger, more efficient Fund rather than two smaller Funds.

4
<PAGE> 109

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($) MARKET
SHARES DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
DOMESTIC COMMON STOCK 71.92%
CONSUMER DISTRIBUTION 4.66%
35,000 American Stores Co................................................ 923,125
30,000 Barnes & Noble, Inc............................................... 821,250
34,000 Dayton Hudson Corp................................................ 2,775,250
45,000 Limited, Inc...................................................... 871,875
44,000 May Department Stores Co.......................................... 1,595,000
27,000 Michael's Stores, Inc............................................. 1,069,875
32,000 Nine West Group, Inc.............................................. 792,000
46,000 Nordstrom, Inc.................................................... 2,219,500
43,000 Sears, Roebuck & Co............................................... 2,031,750
55,000 Wal Mart Stores, Inc.............................................. 1,271,875
------------
14,371,500
------------
CONSUMER DURABLES 2.57%
50,000 Black & Decker Corp............................................... 1,200,000
35,000 Borg Warner Automotive, Inc....................................... 822,500
20,000 Chrysler Corp..................................................... 967,500
47,250 Eastman Kodak Co.................................................. 2,155,781
39,000 Echlin, Inc....................................................... 1,179,750
35,600 Standard Products Co.............................................. 792,100
22,000 Stanley Works..................................................... 786,500
------------
7,904,131
------------
CONSUMER NON-DURABLES 7.65%
30,000 Anheuser Busch Companies, Inc..................................... 1,473,750
23,000 Clorox Co......................................................... 1,339,750
68,000 Dr. Pepper/Seven-Up Companies, Inc................................ 1,683,000
35,000 Heinz (H.J.) Co................................................... 1,273,125
20,000 Hershey Foods Corp................................................ 935,000
25,000 Kellogg Co........................................................ 1,421,875
67,000 Liz Claiborne, Inc................................................ 1,515,875
40,000 Mattel, Inc....................................................... 1,070,000
34,700 Pepsico, Inc...................................................... 1,227,513
68,000 Pet, Inc.......................................................... 1,147,500
62,010 Procter & Gamble Co............................................... 3,875,625
39,000 Ralston Purina Group.............................................. 1,672,125
32,000 Reebok International, Ltd......................................... 1,228,000
</TABLE>

5
<PAGE> 110

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($) MARKET
SHARES DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
43,000 Rubbermaid, Inc................................................... 1,161,000
36,000 Sara Lee Corp..................................................... 877,500
100,000 U.S. Shoe Co...................................................... 1,662,500
------------
23,564,138
------------
CONSUMER SERVICES 4.68%
10,000 Capital Cities ABC, Inc........................................... 817,500
23,400 Carnival Corp..................................................... 1,012,050
29,000 Dun & Bradstreet Corp............................................. 1,533,375
43,400 Gaylord Entertainment Co., Class A................................ 981,925
31,400 International Game Technology..................................... 522,025
55,000 McDonald's Corp................................................... 1,560,625
16,000 Omnicom Group..................................................... 834,000
32,000 Readers Digest Association, Inc................................... 1,480,000
44,000 Service Corp. International....................................... 1,127,500
27,500 Time Warner, Inc.................................................. 928,125
15,000 Tribune Co........................................................ 751,875
41,000 Walt Disney Co.................................................... 1,788,625
78,000 Wendy's International, Inc........................................ 1,092,000
------------
14,429,625
------------
ENERGY 5.19%
26,000 Amoco Corp........................................................ 1,579,500
35,000 Burlington Resources, Inc......................................... 1,251,250
24,000 Exxon Corp........................................................ 1,449,000
23,000 Mobil Corp........................................................ 1,960,750
44,000 Occidental Petroleum Corp......................................... 863,500
125,000 Pacific Enterprises............................................... 2,671,875
35,700 Panhandle Eastern Corp............................................ 754,163
19,000 Sun Co., Inc...................................................... 553,375
22,210 Texaco, Inc....................................................... 1,379,796
30,000 Triton Energy Corp................................................ 1,083,750
72,000 USX-Marathon Group................................................ 1,296,000
42,600 Unocal Corp....................................................... 1,134,225
------------
15,977,184
------------
</TABLE>

6
<PAGE> 111

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($) MARKET
SHARES DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
FINANCE 9.02%
88,300 Ahmanson (H.F.) & Co.............................................. 1,467,988
32,000 American General Corp............................................. 840,000
28,400 American International Group, Inc................................. 2,602,150
47,000 Bank of Boston Corp............................................... 1,257,250
32,000 Bankamerica Corp.................................................. 1,312,000
15,000 Bankers Trust Corp................................................ 888,750
25,000 Chemical Banking Corp............................................. 909,375
14,000 Cigna Corp........................................................ 887,250
22,000 Crestar Financial Corp............................................ 841,500
55,000 DeBartolo Realty Corp............................................. 776,875
23,000 Equity Residential Properties Trust............................... 623,875
10,000 Federal National Mortgage Association............................. 711,250
50,000 Federal Realty Investment Trust................................... 1,050,000
30,000 First Bank System, Inc............................................ 997,500
8,000 General Re Corp................................................... 939,000
14,000 Health Care Property Investments.................................. 374,500
33,000 Liberty Property Trust............................................ 581,625
72,000 Manufactured Home Communities, Inc................................ 1,224,000
15,000 MBIA, Inc......................................................... 787,500
50,750 Mid Ocean, Ltd.................................................... 1,173,594
19,000 Morgan, J.P. & Co................................................. 1,116,250
20,000 Morgan Stanley Group, Inc. -- Pfd................................. 340,000
18,000 NationsBank Corp.................................................. 807,750
15,000 Post Properties, inc.............................................. 433,125
42,000 RFS Hotel Investments, Inc........................................ 588,000
30,000 St. Paul Companies, inc........................................... 1,237,500
33,000 Transamerica Corp................................................. 1,563,375
10,000 Wells Fargo & Co.................................................. 1,445,000
------------
27,776,982
------------
HEALTH CARE 7.88%
28,000 Abbott Laboratories, Inc.......................................... 892,500
15,000 American Home Products Corp....................................... 976,875
31,000 Amgen, Inc........................................................ 1,809,625
68,000 Baxter International, Inc......................................... 1,751,000
35,000 Bristol Myers Squibb Co........................................... 2,021,250
26,700 Eli Lilly & Co.................................................... 1,672,088
</TABLE>

7
<PAGE> 112

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($) MARKET
SHARES DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
26,000 Genetech, Inc..................................................... 1,222,000
24,000 Genetics Institute................................................ 930,000
51,000 Health & Retirement Property Trust................................ 688,500
34,200 Healthcare Realty Trust, Inc...................................... 632,700
46,000 Healthtrust, Inc. -- The Hospital Co.............................. 1,483,500
28,900 Living Centers of America, Inc.................................... 932,025
27,000 Merck & Co., Inc.................................................. 1,005,750
30,000 Nellcor, Inc...................................................... 1,016,250
12,000 Pfizer, Inc....................................................... 928,500
18,100 Schering Plough Corp.............................................. 1,355,238
24,600 Sybron International Corp......................................... 802,575
67,000 Upjohn Co......................................................... 2,152,375
26,000 Warner Lambert Co................................................. 2,011,750
------------
24,284,501
------------
PRODUCER MANUFACTURING 5.52%
47,000 Allied Signal, Inc................................................ 1,533,375
64,000 Browning Ferris Industries, Inc................................... 1,728,000
59,260 Case Equipment Corp............................................... 1,162,977
30,000 Fisher Scientific International, Inc.............................. 768,750
23,000 Fluor Corp........................................................ 986,125
35,000 General Electric Co............................................... 1,610,000
16,200 ITT Corp.......................................................... 1,289,925
26,000 Illinois Tool Works, Inc.......................................... 1,053,000
15,000 United Technologies Corp.......................................... 877,500
30,300 Thermo Electron Corp.............................................. 1,333,200
42,000 Trinity Inds., Inc................................................ 1,375,500
22,000 Varity Corp....................................................... 819,500
95,300 WMX Technologies, Inc............................................. 2,453,975
------------
16,991,827
------------
RAW MATERIALS/PROCESSING INDUSTRIES 5.04%
18,700 Ball Corp......................................................... 525,938
37,000 Bemis, Inc........................................................ 818,625
49,500 Bethlehem Steel Corp.............................................. 878,625
45,000 Cabot Corp........................................................ 1,175,625
39,000 Corning, Inc...................................................... 1,170,000
25,000 Cyprus Amax Minerals Co........................................... 625,000
</TABLE>

8
<PAGE> 113

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($) MARKET
SHARES DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
26,400 Dow Chemical Co................................................... 1,689,600
25,000 DuPont (E.I.) de Nemours & Co..................................... 1,346,875
21,000 Eastman Chemical Co............................................... 989,625
102,000 Ethyl Corp........................................................ 1,045,500
5,000 Hercules, Inc..................................................... 571,875
12,000 International Paper Co............................................ 858,000
30,000 National Gypsum Co................................................ 1,286,250
23,000 Scott Paper Co.................................................... 1,500,750
42,300 Triangle Pacific Corp............................................. 502,669
38,200 WHX Corp.......................................................... 544,350
------------
15,529,307
------------
TECHNOLOGY 9.59%
14,000 AMP, Inc.......................................................... 1,011,500
36,000 Adobe Systems, Inc................................................ 1,188,000
20,700 Automatic Data Processing, Inc.................................... 1,156,612
37,300 Avnet, Inc........................................................ 1,338,137
26,000 Boeing Co......................................................... 1,163,500
37,000 Computer Associates International, Inc............................ 1,683,500
26,000 Compuware Corp.................................................... 962,000
70,000 DSC Communication Corp............................................ 2,187,500
13,050 Exide Electronics Group, Inc...................................... 218,587
68,000 International Business Machines Corp.............................. 4,811,000
31,000 Loral Corp........................................................ 1,228,375
33,000 Lotus Development Corp............................................ 1,476,750
10,000 McDonnell Douglas Corp............................................ 1,395,000
17,000 Microsoft Corp.................................................... 1,068,875
33,100 Motorola, Inc..................................................... 1,866,013
48,625 National Semiconductor Corp....................................... 893,484
33,000 Northern Telecom, Ltd............................................. 1,056,000
25,000 Parametric Technology Corp........................................ 868,750
26,000 Rockwell International Corp....................................... 880,750
23,200 Sybase, Inc....................................................... 1,131,000
20,000 Xerox Corp........................................................ 1,965,000
------------
29,550,333
------------
</TABLE>

9
<PAGE> 114

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($) MARKET
SHARES DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
TRANSPORTATION 0.41%
37,700 Hunt J B Transport Services, Inc.................................. 589,063
37,570 Southern Pacific Rail Corp........................................ 685,652
------------
1,274,715
------------
UTILITIES 9.71%
48,000 AT&T Corp......................................................... 2,358,000
43,700 BellSouth Corp.................................................... 2,266,938
85,000 Duke Power Co..................................................... 3,463,750
38,400 Enron Corp........................................................ 1,036,800
40,000 GTE Corp.......................................................... 1,225,000
32,000 NIPSCO Industries, Inc............................................ 936,000
55,000 NYNEX Corp........................................................ 2,069,375
35,000 Pacific Telesis Group............................................. 1,015,000
135,000 Pacificorp........................................................ 2,497,500
93,000 Peco Energy Co.................................................... 2,243,625
84,000 Rochester Telephone Corp. ........................................ 1,827,000
36,900 Sonat, Inc. ...................................................... 1,037,813
76,300 Southern Co. ..................................................... 1,583,225
115,000 Sprint Corp. ..................................................... 3,435,625
30,000 Tele Communications, Inc. ........................................ 708,750
42,600 Telewest Communications PLC-ADR................................... 1,240,725
30,000 Texas Utilities Co. .............................................. 978,750
------------
29,923,876
------------
TOTAL DOMESTIC COMMON STOCK (COST $217,713,899)................... 221,578,119
------------
FOREIGN COMMON STOCK 6.89%
16,600 Asea AB-ADR (Sweden).............................................. 1,182,750
42,000 British Petroleum Co., PLC, ADR................................... 3,333,750
20,000 Daimier Benz, AG, ADS............................................. 950,000
14,950 Electrolux-ADR (Sweden)........................................... 764,319
23,000 Ericsson (L.M.), Class 8, ADR..................................... 1,276,500
40,000 Halsfund Nycomed-ADR (Norway)..................................... 755,000
103,000 Hanson, PLC, ADR (United Kingdom)................................. 1,879,750
40,000 Hong Kong Telecom, Ltd., ADR...................................... 775,000
51,000 Huaneng Power International, ADR.................................. 879,750
30,000 Nordk Hydro AS-ADR (Norway)....................................... 1,143,750
69,000 Philip N.V., ADR.................................................. 2,087,250
</TABLE>

10
<PAGE> 115

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($) MARKET
SHARES DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
24,000 Royal Dutch Petroleum Corp., ADR.................................. 2,607,000
22,000 Telefonos de Mexico, S.A., ADR.................................... 1,166,000
28,500 Vodafone Group PLC-ADR (United Kingdom)........................... 926,250
50,000 Volvo Aktiebolaget-ADR (Sweden)................................... 959,375
35,200 Waste Management International PLC-ADR (United Kingdom)........... 558,800
------------
TOTAL FOREIGN COMMON STOCK (Cost $19,988,187)..................... 21,245,244
------------
PREFERRED STOCK 4.23%
CONSUMER DURABLES 0.89%
25,000 General Motors Corp. ............................................. 1,393,750
200,000 RJR Nabisco Holdings Corp., Inc., $.60125, conv. ................. 1,350,000
------------
2,743,750
------------
ENERGY 0.96%
40,000 NorAm Energy Corp., $3.00, conv. ................................. 1,250,000
20,000 Occidental Petroleum Corp., $7.75, conv........................... 992,500
18,000 Transco Energy Co., $3.50, conv................................... 729,000
------------
2,971,500
------------
FINANCE 0.67%
18,000 Citicorp, $5.375, conv............................................ 2,065,500
------------
PRODUCER MANUFACTURING 0.74%
56,300 Cooper Industries, Inc., $1.60, conv.............................. 1,203,413
80,000 Westinghouse Electric Co., $1.30, conv............................ 1,060,000
------------
2,263,413
------------
RAW MATERIALS/PROCESSING INDUSTRIES 0.74%
5,000 Alumax, Inc., $4.00, conv......................................... 560,000
12,900 Boise Cascade Corp., $1.58, conv.................................. 288,638
8,600 Cyprus AMAX Minerals Co., $4.00, conv............................. 494,500
45,000 James River Corp., $1.55, conv.................................... 922,500
------------
2,265,638
------------
UTILITIES 0.23%
33,700 Georgia Power Co.................................................. 720,337
------------
TOTAL PREFERRED STOCK (Cost $13,551,250).......................... 13,030,138
------------
</TABLE>

11
<PAGE> 116

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PRINCIPAL ($) MARKET
AMOUNT DESCRIPTIONS VALUE
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE OBLIGATIONS 6.69%
CONSUMER DISTRIBUTION 0.45%
$ 1,500,000 Price Costco., Inc., 6.75%, 3/1/01................................ 1,391,250
------------
CONSUMER SERVICES 1.62%
847,000 Time Warner, Inc. 8.75%, 1/10/15.................................. 804,650
6,900,000 Time Warner, Inc. LYON, Zero Coupon, 12/17/12..................... 2,095,875
5,900,000 Time Warner, Inc. LYON, Zero Coupon, 6/22/13...................... 2,087,125
------------
4,987,650
------------
ENERGY 0.90%
900,000 Amoco CDA Petroleum Co., 7.375%, 9/1/13........................... 1,071,000
1,585,000 Western Co. of North America, 7.25%, 1/15/15...................... 1,695,950
------------
2,766,950
------------
PRODUCER MANUFACTURING 0.84%
1,500,000 Browing Ferris Industries, 6.75%, 7/18/05......................... 1,335,000
4,000,000 Valhi, Inc., LYON Zero Coupon, 10/20/07........................... 1,250,000
------------
2,585,000
------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.02%
1,500,000 Albany International Co., 5.25%, 3/15/02.......................... 1,260,000
76,000 Atlantic Richfield Co., ELKS, 9.00%, 9/15/97...................... 1,878,817
------------
3,138,817
------------
TECHNOLOGY 1.86%
50,000 American Express Co., ELKS, 6.25%, 10/15/96....................... 2,148,145
3,000,000 Automatic Data Processing, Inc., LYON, Zero Coupon, 2/20/12....... 1,207,500
1,000,000 General Instrument Corp., 5.00%, 6/15/00.......................... 1,345,000
20,000 Salomon, Inc., ELKS, 6.50%, 2/1/97................................ 1,029,980
------------
5,730,625
------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS (Cost $21,593,110)........ 20,600,292
------------
</TABLE>

12
<PAGE> 117

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PRO FORMA PORTFOLIO OF INVESTMENTS -- CONTINUED
November 30, 1994 (Unaudited)

13
<PAGE> 118

APPENDIX A

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
AUGUST 1, 1995

This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated August 1,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION........................................................... 2
INVESTMENT OBJECTIVE AND POLICIES............................................. 3
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS................................ 4
INVESTMENT RESTRICTIONS....................................................... 9
TRUSTEES AND EXECUTIVE OFFICERS............................................... 12
INVESTMENT ADVISORY AGREEMENT................................................. 17
DISTRIBUTOR................................................................... 18
DISTRIBUTION PLANS............................................................ 18
TRANSFER AGENT................................................................ 20
PORTFOLIO TURNOVER............................................................ 20
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................... 21
DETERMINATION OF NET ASSET VALUE.............................................. 23
PURCHASE AND REDEMPTION OF SHARES............................................. 23
EXCHANGE PRIVILEGE............................................................ 27
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES.................................... 28
FUND PERFORMANCE.............................................................. 30
OTHER INFORMATION............................................................. 31
FINANCIAL STATEMENTS.......................................................... 31
APPENDIX...................................................................... 32
</TABLE>

1
<PAGE> 119

GENERAL INFORMATION

Van Kampen American Capital Growth and Income Fund (the "Fund") was
originally incorporated in New York on October 21, 1963, as successor to a
Georgia corporation incorporated on May 15, 1946. On July 23, 1990 the Fund's
name was changed from Fund of America, Inc. to American Capital Growth and
Income Fund, Inc. The Fund was reincorporated by merger into a Maryland
corporation on July 6, 1993, and reorganized under the laws of Delaware July 31,
1995.

Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc. a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
VKAC own, in the aggregate, not more than seven percent of the common stock of
VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Advantage Capital Corporation, a retail broker-dealer affiliate of the
Distributor, is a wholly owned subsidiary of VK/AC Holding, Inc.

RIDER 2 [TO COME].

As of July 6, 1995, no person was known by the Fund to own beneficially or
to hold of record as much as five percent of the outstanding Class A, Class B or
Class C shares of the Fund, except as follows:

<TABLE>
<CAPTION>
AMOUNT CLASS
NAME AND ADDRESS OF OWNERSHIP AT OF PERCENTAGE
OF HOLDER JULY 6, 1995 SHARES OWNERSHIP
- ------------------------------------------- ---------------- -------- ----------
<S> <C> <C> <C>
American Capital Trust Company, 3,502,808 shares Class A 18.55%
P.O. Box 1411, 757,385 shares Class B 30.03%
Houston, Texas 77251-1411 66,800 shares Class C 15.52%
Edward D. Jones & Co. 24,363 shares Class C 5.66%
12555 Manchester Road, 9th Floor
St. Louis, MO 63131-3716
Merrill Lynch Pierce Fenner & Smith, Inc., 162,634 shares Class B 6.45%
P.O. Box 45286, 94,887 shares Class C 22.05%
Jacksonville, Florida 32232-5286
Smith Barney Inc., 423,654 shares Class B 16.80%
388 Greenwich Street, 69,656 shares Class C 16.19%
11th Floor
New York, New York 10013-2375
</TABLE>

- ---------------
* All holders were of record.

2
<PAGE> 120

INVESTMENT OBJECTIVE AND POLICIES

The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete
explanation of the matters disclosed. Readers must refer also to this caption in
the Prospectus for a complete presentation of the matters disclosed below.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend an
amount up to ten percent of the value of its total assets to broker-dealers and
other financial institutions provided that such loans are at all times secured
by cash collateral that is at least equal to the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues
to receive the interest or dividends on the loaned securities, while at the same
time earning interest on the collateral which is invested in short-term
obligations. The Fund may pay reasonable finders', administrative and custodial
fees in connection with loans of its securities. There is no assurance as to the
extent to which securities loans can be effected.

A loan may be terminated by the borrower on one business day's notice, or
by the Fund in five business days. If the borrower fails to maintain the
requisite amount of collateral, the loan automatically terminates, and the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's management to be credit worthy and when the
consideration which can be earned from such loans is believed to justify the
attendant risks. On termination of the loan, the borrower is required to return
the securities to the Fund; any gains or loss in the market price during the
loan would inure to the Fund.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities marked to market daily at not less than the repurchase
price. The underlying securities (normally securities of the U.S. Government, or
its agencies and instrumentalities), may have maturity dates exceeding one year.
The Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this

3
<PAGE> 121

period, and (c) expenses of enforcing its rights. As a matter of operating
policy, the Fund does not intend to invest more than five percent of its net
assets in repurchase agreements. See "Investment Practices and
Restrictions -- Repurchase Agreements" in the Prospectus for further
information.

OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS

WRITING CALL AND PUT OPTIONS

Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option writing program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities is likely to result in higher
portfolio turnover.

Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund would write call
options only on a covered basis, which means that, at all times during the
option period, the Fund would own or have the right to acquire securities of the
type that it would be obligated to deliver if any outstanding option were
exercised.

The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash, cash
equivalents or U.S. Government securities in an amount of not less than the
exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.

Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.

The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer of an option only if a liquid secondary
market exists for options of that series, but there is no assurance that such a
market will exist, particularly in the case of over-the-counter options, since
they can be closed out only with the other party to the transaction.
Alternatively, the Fund could purchase an offsetting option, which would not
close out its position as a writer, but would provide an asset of equal value to
its obligation under the option written. If the Fund is not able to enter into a
closing purchase transaction or to purchase an offsetting option with respect to
an option it has written, it will be required to maintain the securities subject
to the call or the collateral underlying the put until a closing purchase
transaction can be entered into (or the option is exercised or expires), even
though it might not be advantageous to do so.

Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.

4
<PAGE> 122

Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others, regardless of whether such options are written on one or
more accounts or through one or more brokers. An exchange may order the
liquidation of positions found to be in violation of those limits, and it may
impose other sanctions or restrictions. These position limits may restrict the
number of options the Fund may be able to write.

PURCHASING CALL AND PUT OPTIONS

The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.

Conversely, put options could be purchased to protect (i.e., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of the Fund's assets generally. Alternatively, put options could be purchased
for capital appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option. The
purchase of put options for capital appreciation involves the same significant
risk of loss as described above for call options.

In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.

OPTIONS ON STOCK INDEXES

Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the exercise
price of the option, multiplied by a specified dollar multiple. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount.

Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges.

Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of

5
<PAGE> 123

individual securities. As with stock options, the Fund may offset its position
in stock index options prior to expiration by entering into a closing
transaction on an exchange, or it may let the option expire unexercised.

FUTURES CONTRACTS

The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund is exempt from
registration as a "commodity pool."

A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made.

An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.

Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalents or liquid high
grade debt securities equal to a percentage (which will normally range between
two and ten percent) of the contract amount. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract margin does
not involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation margin, are made on a daily
basis as the price of the underlying securities or index fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as marking to market.

For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.

At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.

Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the

6
<PAGE> 124

underlying security or index, the sale of futures contracts substantially
reduces the risk to the Fund of a market decline and, by so doing, provides an
alternative to the liquidation of securities positions in the Fund with
attendant transaction costs.

In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased and/or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.

Foreign stock index futures traded outside the United States include the
Nikkei Index of 225 Japanese stocks traded on the Singapore International
Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese stocks traded on
the Osaka Exchange, Financial Times Stock Exchange Index of the 100 largest
stocks on the London Stock Exchange, the All Ordinaries Share Price Index of 307
stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33 stocks on the
Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks on the New
Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto Stock
Exchange. Futures and futures options on the Nikkei Index are traded on the
Chicago Mercantile Exchange and United States commodity exchanges may develop
futures and futures options on other indices of foreign securities. Futures and
options on United States devised index of foreign stocks are also being
developed.

Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts as a hedging device. These
include the risk of imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.

There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.

There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between

7
<PAGE> 125

movements in futures contracts and movements in the securities underlying them,
a correct forecast of general market trends by the Adviser may still not result
in a successful hedging transaction.

There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.

Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.

CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that the Fund not enter
into futures and related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of the Fund's assets. In
order to minimize leverage in connection with the purchase of futures contracts
by the Fund, an amount of cash, cash equivalents or liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian.

OPTIONS ON FUTURES CONTRACTS

The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as, it could sell a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts would be intended to serve the same purpose as the actual
purchase of the futures contracts.

Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less

8
<PAGE> 126

potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). However, there may be
circumstances, such as when there is no movement in the level of the index or in
the price of the underlying security, when the use of an option on a future
would result in a loss to the Fund when the use of a future would not.

ADDITIONAL RISKS TO OPTIONS AND FUTURES TRANSACTIONS

Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An Exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.

Most U.S. futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit. It is possible that futures contract
prices would move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, and in
the event of adverse price movements, the Fund would be required to make daily
cash payments of variation margin. In such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions which, along with its
investment objective, cannot be changed without approval by the holders of a
majority of its outstanding shares. Such majority is defined by the 1940 Act as
the lesser of (i) 67% or more of the voting securities present at the meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. These
restrictions provide that the Fund shall not:

1. Borrow money, except from a bank and then only as a temporary measure
for extraordinary or emergency purposes but not for making additional
investments and not in excess of five percent of the total net assets of
the Fund taken at cost. In connection with any borrowing the Fund may
pledge up to 15% of its total assets taken at cost. Notwithstanding the
foregoing, the Fund may engage in transactions in options, futures
contracts and related options, segregate or deposit assets to cover or
secure options written, and make margin deposits or payments for futures
contracts and related options.

2. Engage in the underwriting or distribution of securities issued by
others. The Fund, however, may acquire portfolio securities under
circumstances where, if resold, it might be deemed an underwriter.

3. Purchase or sell interests in real estate, except readily marketable
securities, including securities of real estate investment trusts.

9
<PAGE> 127

4. Purchase securities on margin, or sell securities short, but the Fund
may enter into transactions in options, futures contracts and related
options and may make margin deposits and payments in connection
therewith.

5. Purchase or sell commodities or commodities contracts, except that the
Fund may enter into transactions in futures contracts and related
options.

6. The Fund may not invest in interests in oil, gas, or other mineral
exploration or development programs, except that the Fund may acquire
securities of public companies which themselves are engaged in such
activities.

7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts and other investment strategies and instruments that would be
considered "senior securities" but for the maintenance by the Fund of a
segregated account with its custodian or some other form of "cover."

8. Purchase securities of a corporation in which a director of the Fund
owns a controlling interest.

9. Permit officers or directors of the Fund to profit by selling
securities to or buying them from the Fund. However, companies with
which the officers and directors of the Fund are connected may enter
into underwriting agreements with the Fund to sell its shares, sell
securities to, and purchase securities from the Fund when acting as
broker or dealer at the customary and usual rates and discounts, to the
extent permitted by the 1940 Act.

10. Invest in or hold the securities of an issuer in which the officers and
directors of the Fund or the Adviser who individually own more than
one-half of one percent of the securities of such issuer together own
more than five percent of such securities.

11. Make loans to other persons except loans of portfolio securities up to
ten percent of the value of the Fund's assets collateralized in cash at
100% each business day, subject to immediate termination if the
collateral is not maintained or on five business days' notice by the
Fund or not less than one business day's notice by the borrower, on
which the Fund will receive all income accruing on the borrowed
securities during the loan. Investments in repurchase agreements and
purchases by the Fund of a portion of an issue of publicly distributed
debt securities shall not be considered the making of a loan.

12. Invest more than 25% of its total net asset value in any one industry
provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's
pro rata portion of the securities and other assets owned by any such
company.

13. Invest more than five percent of the market value of its total assets
at the time of purchase in the securities (except U.S. Government
securities) of any one issuer or purchase more than ten percent of the
outstanding voting securities of such issuer except to acquire shares of
other open-end investment companies to the extent permitted by rule or
order of the Securities and Exchange Commission (the "SEC") exempting
the Fund from the limitations imposed by Section 12(d)(1) of the 1940
Act.

14. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than ten percent of the value of the Fund's net assets would be

10
<PAGE> 128

invested in such securities provided, however, that this limitation
excludes shares of other open-end investment companies owned by the Fund
but includes the Fund's pro rata portion of the securities and other
assets owned by any such company.

15. Invest more than five percent of the market value of its total assets
in companies having a record together with predecessors of less than
three years continuous operation and in securities not having readily
available market quotations; provided, however, that this limitation
excludes shares of other open-end investment companies owned by the Fund
but includes the Fund's pro rata portion of the securities and other
assets owned by any such company.

Consistent with its investment objective, the Fund may make additional
commitments more restrictive than its fundamental policies. Should the Fund
determine in the future that a commitment is no longer in the best interests of
the Fund and its shareholders, it will revoke its commitment by withdrawing its
shares from sale in the state to which the commitment was made. Such withdrawal
may affect the ability of shareholders to make future investments in the Fund.

As a matter of operating policy, which may be changed by the Trustees, the
Fund will not invest more than ten percent of its net assets (determined at the
time of investment) in illiquid securities and repurchase agreements that have a
maturity of longer than seven days.

In addition to the fundamental policies which may only be changed by
shareholders, the Fund has made an undertaking with one state that the Fund may
acquire warrants or other rights to subscribe to securities of companies issuing
such warrants or rights, or of parents or subsidiaries of such companies,
although the Fund may not invest more than five percent of its net assets in
such securities valued at the lower of cost or market, nor more than two percent
of its net assets in such securities (valued on such basis) which are not listed
on the New York or American Stock Exchanges (warrants and rights represent
options, usually for a specified period of time, to purchase a particular
security at a specified price from the issuer). Warrants or rights acquired in
units or attached to other securities are not subject to the foregoing
limitations.

The Fund has made certain undertakings in regard to investments in
investment companies:

1. The Fund will limit its investment in investment companies to that of
Van Kampen American Capital Small Capitalization Fund.

2. The Fund will not invest more than ten percent of its net assets in Van
Kampen American Capital Small Capitalization Fund until it complies with
certain NASAA regulations.

The Fund has also made an undertaking to a certain state not to invest in
real estate limited partnership interests.

11
<PAGE> 129

TRUSTEES AND EXECUTIVE OFFICERS

The Fund's Trustees and executive officers and their principal occupations
for the past five years are listed below.

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall President of MDT Corporation, a company which develops,
Suite 200 manufactures, markets and services medical and scientific
1009 Slater Road equipment. A Trustee of each of the Van Kampen American
Harrisville, NC 27560 Capital Funds.
Age: 62
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Radnor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art. Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing. A
Trustee of each of the Van Kampen American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A Trustee of each of the
Lyme, CT 06371 Van Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. A Trustee
of each of the Van Kampen American Capital Funds.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Co-Chairman of the Board and a trustee of
each of the Van Kampen American Capital Funds.
</TABLE>

12
<PAGE> 130

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser. Director and Executive Vice
President of ACCESS, Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director, Trustee or Managing General Partner of
each of the Van Kampen American Capital Funds and other
open-end investment companies and closed-end investment
companies advised by the Adviser and its affiliates.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A Director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital. A Director and the Second
Vice President of International Institute of Los Angeles.
A Trustee of each of the Van Kampen American Capital
Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. A Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 Fund. Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 63 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A Trustee of each of the Van Kampen American Capital
Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Co-Chairman of the Board and a Trustee of each
Age: 70 of the Van Kampen American Capital Funds.
</TABLE>

13
<PAGE> 131

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A Trustee of each of the Van
Age: 55 Kampen American Capital Funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. A Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>

- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940). Mr. Powell is an interested person of
the Adviser and the Fund by reason of his position with the Adviser. Mr.
Sheehan and Mr. Whalen are interested persons of the Adviser and the Fund by
reason of their firms having acted as legal counsel to the Adviser or an
affiliate thereof.

The Fund's officers other than Messrs. McDonnell and Nyberg are located at
2800 Post Oak Blvd., Houston TX 77056. Messrs. McDonnell and Nyberg are located
at One Parkview Plaza, Oakbrook Terrace, IL 60181.

OFFICERS

Nori L. Gabert........... Vice President and Vice President, Associate General Counsel
Age: 41 Secretary and Corporate Secretary of the Adviser.

James A. Gilligan........ Vice President Vice President -- Portfolio Manager of the
Age: 36 Adviser; formerly, Security Analyst of the
Adviser.

Tanya M. Loden........... Vice President and Vice President and Controller of most of
Age: 35 Controller the investment companies advised by the
Adviser, formerly Tax Manager/Assistant
Controller.
</TABLE>

14
<PAGE> 132

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
Age: 53 Director of the Adviser. Director of VK/AC
Holding, Inc. and Van Kampen American
Capital.

Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 48 Treasurer investment companies advised by the
Adviser.

Ronald A. Nyberg......... Vice President Executive Vice President, General Counsel
Age: 41 and Secretary of Van Kampen American
Capital. Executive Vice President and a
Director of the Distributor. Executive Vice
President of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute.

Alan T. Sachtleben....... Vice President Executive Vice President and Director of
Age: 53 the Adviser, Executive Vice President of
VK/AC Holding, Inc. and Van Kampen American
Capital.

J. David Wise............ Vice President and Vice President, Associate General Counsel
Age: 51 Assistant Secretary and Assistant Corporate Secretary of the
Adviser.

Paul R. Wolkenberg....... Vice President Senior Vice President of the Adviser.
Age: 50 President, Chief Operating Officer and
Director of Van Kampen American Capital
Services, Inc. Executive Vice President,
Chief Operating Officer and Director of Van
Kampen American Capital Trust Company.
Executive Vice President and Director of
ACCESS.
</TABLE>

The Trustees and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. Only Messrs. Branagan, Caruso, Hilsman,
Powell, Rees, Sheehan, Sisto and Woodside served as Trustees of the Fund during
its last fiscal year. During the last fiscal year, the Directors not affiliated
with the Adviser or its parent received as a group $13,259 in directors' fees
from the Fund in addition to certain out-of-pocket expenses. Such Trustees also
received compensation for serving as Trustees of other investment companies
advised by the Adviser. For legal services rendered during the fiscal year, the
Fund paid legal fees of $11,954 to the law firm of O'Melveny & Myers, of which
Mr. Sheehan is Of Counsel. The firm also serves as legal counsel to other Van
Kampen American Capital Funds.

15
<PAGE> 133

Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Directors serve as directors or trustees is
set forth below. The compensation shown for the Fund is for the fiscal year
ended November 30, 1994 and the total compensation shown for the Fund and other
related mutual Funds is for the calendar year ended December 31, 1994. Mr.
Powell is not compensated for his service as Trustee, because of his affiliation
with the Adviser.

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION
OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM
ACCRUED REGISTRANT
AS AND
AGGREGATE PART FUND
COMPENSATION OF COMPLEX
FROM FUND PAID TO
NAME OF PERSON REGISTRANT EXPENSES DIRECTORS(1)(5)
----------------------------------------- ------ ----- -------
<S> <C> <C> <C>
J. Miles Branagan........................ $1,745 -0- $64,000
Dr. Richard E. Caruso(3)................. $1,745(2) -0- $64,000
Dr. Roger Hilsman........................ $1,805 -0- $66,000
David Rees(3)............................ $1,745 -0- $64,000
Lawrence J. Sheehan...................... $1,830 -0- $67,000
Dr. Fernando Sisto(3).................... $2,240(2) -0- $82,000
William S. Woodside(4)................... $ 445 -0- $18,000
</TABLE>

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

(1) Represents 29 investment company portfolios in the fund complex.

(2) Amount reflects deferred compensation of $1,695 and $1,160 for Messrs.
Caruso and Sisto, respectively.

(3) Messrs. Caruso, Rees and Sisto have deferred compensation in the past. The
cumulative deferred compensation accrued by the Fund is as follows: Caruso,
$5,106; Rees, $18,041; Sisto, $7,356.

(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. With respect to the second and fourth columns, $1,045 and $36,000,
respectively, was paid by the Adviser directly.

(5) Includes the following amounts for which the various Funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000 (Mr. Woodside was
paid $36,000 directly by the Adviser as discussed in footnote 4 above).

Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $984 and a
meeting fee of $28 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be caused by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.

16
<PAGE> 134

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory 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 is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of the Fund's
investment objectives. 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, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.

Under the Advisory 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 a Treasurer or other principal
financial officer and the personnel operating under his direction. Payments are
made to the Adviser or its parent in reimbursement of personnel, facilities,
office space, and equipment costs attributable to the provision of accounting
services to the Fund. The services are provided at cost which is allocated among
the investment companies advised by the Adviser in the manner approved by the
Board of Directors from time to time. The Fund also pays shareholder service
agency fees, distribution fees, service fees, custodian fees, legal and auditing
fees, the costs of reports to shareholders and all other ordinary expenses not
specifically assumed by the Adviser.

Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at annual rate
of: 0.50% on the first $150 million of average net assets; 0.45% on the next
$100 million of average net assets; 0.40% on the next $100 million of average
net assets; and 0.35% on the excess over $350 million of average net assets.

The average net asset value for purposes of computing the advisory fees is
determined by taking the average of all of the determinations of net asset value
for each business day during a given calendar month. Such fee is payable for
each calendar month as soon as practicable after the end of that month. The fee
payable to the Adviser is 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 subsidiary of VK/AC Holding, Inc. in
connection with obtaining such payments. 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 under applicable laws
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.

The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitations applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses include the investment advisory fee and other operating costs
paid by the Fund except (1) interest

17
<PAGE> 135

and taxes, (2) brokerage commissions, (3) certain litigation and indemnification
expenses as described in the Advisory Agreement and (4) payments made by the
Fund pursuant to the distribution plan (described herein). The Advisory
Agreement also provides that the Adviser shall not be liable to the Fund for any
actions or omissions if it acted without willful misfeasance, bad faith,
negligence or reckless disregard of its obligations.

Currently, the most restrictive applicable limitations are 2 1/2% of the
first $30 million, 2% of the next $70 million, and 1 1/2% of the remaining
average net assets.

The Advisory 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 such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on not more than 60 days' nor less than 30 days' written notice.

During the fiscal years ended November 30, 1992, 1993 and 1994, the Adviser
received $837,631, $946,101 and $1,075,607, respectively, in advisory fees from
the Fund. For such periods the Fund paid $65,787, $75,664 and $86,186,
respectively, for accounting services. A substantial portion of these amounts
was paid to the Adviser in reimbursement of personnel, facilities and equipment
costs attributable to the provision of accounting services to the Fund.

DISTRIBUTOR

The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
has the exclusive right to distribute shares of the Fund through affiliated and
unaffiliated dealers. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is required to take and pay for
only such shares of the Fund as may be sold to the public. The Distributor is
not obligated to sell any stated number of shares. The Distributor bears the
cost of printing (but not typesetting) prospectuses used in connection with this
offering and the cost and expense of supplemental sales literature, promotion
and advertising. The Underwriting Agreement is renewable from year to year if
approved (a) by the Fund's Trustees or by a vote of a majority of the Fund's
outstanding voting securities and (b) by the affirmative vote of a majority of
Trustees who are not parties to the Underwriting Agreement or interested persons
of any party, by votes cast in person at a meeting called for such purpose. The
Underwriting Agreement provides that it will terminate if assigned, and that it
may be terminated without penalty by either party on 60 days' written notice.

During the fiscal years ended November 30, 1992, 1993 and 1994, total
underwriting commissions on the sale of shares of the Fund were $239,868,
$426,440 and $547,421, respectively. Of such totals, the amount retained by the
Distributor was $29,976, $57,449 and $67,504, respectively. The remainder was
reallowed to dealers. Of such dealer reallowances, $35,643, $71,192 and $48,179,
respectively, was received by Advantage Capital Corporation, an affiliated
dealer of the Distributor.

DISTRIBUTION PLANS

The Fund has adopted a Class A distribution plan, a Class B distribution
plan and a Class C distribution plan (the "Class A Plan", "Class B Plan" and
"Class C Plan", respectively) to permit the Fund directly or indirectly to pay
expenses associated with servicing shareholders and in the case of the Class B
Plan and

18
<PAGE> 136

Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").

The Trustees have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and Class C
Plans, authorized payments by the Fund include payments at an annual rate of up
to 0.25% of the net assets of the shares of the respective class to reimburse
the Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to 4% of the purchase price of Class B shares
purchased by the clients of broker-dealers and other Service Organizations, (2)
out-of-pocket expenses of printing and distributing prospectuses and annual and
semi-annual shareholder reports to other than existing shareholders, (3)
out-of-pocket and overhead expenses for preparing, printing and distributing
advertising material and sales literature, (4) expenses for promotional
incentives to broker-dealers and financial and industry professionals, (5)
advertising and promotion expenses, including conducting and organizing sales
seminars, marketing support salaries and bonuses, and travel-related expenses
and (6) interest expense at the three month LIBOR rate plus 1 1/2% compounded
quarterly on the unreimbursed distribution expenses. With respect to the Class C
Plan, authorized payments by the Fund also include payments at an annual rate of
up to 0.75% of the net assets of the Class C shares to reimburse the Distributor
for (1) upfront commissions and transaction fees of up to 0.75% of the purchase
price of Class C shares purchased by the clients of broker-dealers and other
Service Organizations and ongoing commissions and transaction fees paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature, (4) expenses for promotional incentives to broker-dealers
and financial and industry professionals, (5) advertising and promotion
expenses, including conducting and organizing sales seminars, marketing support
salaries and bonuses, and travel-related expenses and (6) interest expense at
the three month LIBOR rate plus 1 1/2% compounded quarterly on the unreimbursed
distribution expenses. Such reimbursements are subject to the maximum sales
charge limits specified by the NASD for asset-based charges.

Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.

As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements were approved by the Trustees, including a majority of the
Trustees who are not affiliated persons (as defined in the 1940 Act) of the Fund
and who have no direct or indirect financial interest in the operation of any of
the Plans

19
<PAGE> 137

or in any agreements related to each Plan ("Independent Trustees"). In approving
each Plan in accordance with the requirements of Rule 12b-1, the Trustees
determined that there is a reasonable likelihood that each Plan will benefit the
Fund and its shareholders.

Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, the Plans will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.

Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting shares of the Fund.
Any change in any of the Plans that would materially increase the distribution
or service expenses borne by the Fund requires shareholder approval voting
separately by class; otherwise, it may be amended by a majority of the Trustees,
including a majority of the Independent Trustees, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. So long as the
Plan is in effect, the selection or nomination of the Independent Trustees is
committed to the discretion of the Independent Trustees.

For the fiscal year ended November 30, 1994, the Fund's aggregate expenses
under the Class A Plan were $364,255 or .17%, of the Class A shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for
payments made to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the fiscal year ended November 30, 1994, the
Fund's aggregate expenses under the Class B Plan were $106,450 or 1.00% of the
Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $79,838 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in respect of sales
of Class B shares of the Fund and $26,612 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B Plan. For the
fiscal year ended November 30, 1994, the Fund's aggregate expenses under the
Class C Plan were $24,087 or 1.00% of the Class C shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$18,065 for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class C shares of the Fund and
$6,022 for fees paid to Service Organizations for servicing Class C shareholders
and administering the Class C Plan.

TRANSFER AGENT

During the fiscal year ended November 30, 1994, ACCESS, shareholder service
agent and dividend disbursing agent for the Fund, received fees aggregating
$636,148 for these services. These services are provided at cost plus a profit.

PORTFOLIO TURNOVER

The Fund's annual portfolio turnover rate is shown in the table of
Financial Highlights in the Prospectus. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for a fiscal year by the average monthly value of the portfolio securities owned
by the Fund during such fiscal year. The portfolio turnover rate may vary
greatly from year to year and within a year. The annual turnover rate may be
above 100% which is substantially greater than that of most other investment
companies. A 100% turnover rate would occur, for example, if all the securities
in the Fund's portfolio were replaced in a period of one year. Higher portfolio
activity increases the Fund's transaction costs. To the extent short-term
trading results in realization of gains on securities held for one year or less,
shareholders are subject to taxes at ordinary income

20
<PAGE> 138

rates unless such gains are offset by capital loss carryovers. The Fund seeks to
limit portfolio turnover to the extent practicable, although changes are made in
the portfolio whenever such action appears advisable.

PORTFOLIO TRANSACTIONS AND BROKERAGE

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 any
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
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 herein)
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting broker-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. Consistent with the Rules of Fair Practice
of the NASD and subject to seeking best execution and such other policies as the
Trustees may determine, the Adviser may consider sales of shares of the Fund and
of the other Van Kampen American Capital mutual funds as a factor in the
selection of firms to execute portfolio transactions for the Fund.

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 investment advisory 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 investment advisory fee paid by the Fund under the investment
advisory agreement is not reduced as a result of the Adviser's receipt of
research services.

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

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<PAGE> 139

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

The Adviser's brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Fund Trustees who are not affiliated
persons (as defined in the 1940 Act) of the Adviser.

Brokerage commissions paid by the Fund on portfolio transactions for the
fiscal years ended November 30, 1992, 1993 and 1994, totalled $430,525, $723,269
and $695,729, respectively. During the year ended November 30, 1994, the Fund
paid $251,205 in brokerage commissions on transactions totalling $150,197,227 to
brokers selected primarily on the basis of research services provided to the
Adviser. The negotiated commission paid to an affiliated broker on any
transaction would be comparable to that payable to a non-affiliated broker in a
similar transaction.

Prior to December 20, 1994, the Fund placed brokerage transactions with
brokers that were considered affiliated persons of the Adviser's former parent,
The Travelers Inc. Such affiliated persons included Smith Barney Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Effective December
20, 1994, Smith Barney and Robinson Humphrey ceased to be affiliates of the
Adviser. In addition, from December 15, 1988 through February 21, 1992, Dain
Bosworth, Inc. ("Dain Bosworth") and Rauscher Pierce, Refsnes, Inc. ("Rauscher
Pierce") were affiliates of The Travelers Inc.; from September 10, 1987 to March
27, 1992, The Fox-Pitt, Kelton Group S.A. ("Fox-Pitt") was an affiliate of The
Travelers Inc.; and from 1985 through September 30, 1992, Jefferies & Company,
Inc. ("Jefferies") was an affiliate of The Travelers Inc. The negotiated
commission paid to an affiliated broker on any transaction would be comparable
to that payable to a non-affiliated broker in a similar transaction. The Fund
paid the following commissions to these brokers during the periods shown:

<TABLE>
<CAPTION>
RAUSCHER ROBINSON SMITH DAIN
PIERCE HUMPHREY JEFFERIES BARNEY FOX-PITT BOSWORTH
-------- -------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Commissions Paid:
Fiscal 1992 $1,204 $40,512 -- -- -- --
Fiscal 1993 -- $66,185 -- -- -- --
Fiscal 1994 -- -- -- $46,318 -- --

Fiscal 1994 Percentages:
Commissions with affiliates to
total commissions -- -- -- 6.66% -- --
Value of transactions with
affiliates to total transactions -- -- -- 7.47% -- --
</TABLE>

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<PAGE> 140

DETERMINATION OF NET ASSET VALUE

The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time) on each
business day on which the Exchange is open. The Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value of Fund shares is computed by dividing the
value of all securities plus other assets, less liabilities, by the number of
shares outstanding, and adjusting to the nearest cent per share.

Such computation is made by using prices as of the close of trading on the
Exchange and (i) valuing securities 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 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, (iii) valuing all other
over-the-counter securities for which market quotations are available at the
most recent bid price supplied by NASDAQ or broker-dealers, and (iv) valuing any
securities for which market quotations are not readily available, and any other
assets at fair value as determined in good faith by the Board of Directors of
the Fund. Short-term investments are valued in the manner described in the notes
to the financial statements included in this Statement of Additional
Information.

The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the SEC.

PURCHASE AND REDEMPTION OF SHARES

The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."

PURCHASE OF SHARES

Shares of the Fund are sold in continuous offering and may be purchased on
any business day through authorized dealers, including Advantage Capital
Corporation.

ALTERNATIVE SALES ARRANGEMENTS

The Fund issues three classes of shares: Class A shares are subject to an
initial sales charge; Class B shares and Class C shares are sold at net asset
value and are subject to a contingent deferred sales charge. The three classes
of shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B and Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)
resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.

During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the Securities Act of 1933.

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<PAGE> 141

INVESTMENTS BY MAIL

A shareholder investment account may be opened by completing the
application included in the Prospectus and forwarding the application, through
the designated dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of $500 or more, in the form of a check
payable to the Fund, must accompany the application. This minimum may be waived
by the Distributor for plans involving continuing investments. Subsequent
investments of $25 or more may be mailed directly to ACCESS. All such
investments are made at the public offering price of Fund shares next computed
following receipt of payment by ACCESS. Confirmations of the opening of an
account and of all subsequent transactions in the account are forwarded by
ACCESS to the investor's dealer of record, unless another dealer is designated.

In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the prospectus. If ACCESS service
agent ceases to act as such, a successor company named by the Fund will act in
the same capacities so long as the account remains open.

CUMULATIVE PURCHASE DISCOUNT

The reduced sales charge reflected in the sales charge table as shown in
the Prospectus under "Purchase of Shares -- Sales Charge Table" apply to
purchases of Class A shares of the Fund where the aggregate investment is
$50,000 or more. For purposes of determining eligibility for volume discounts,
spouses and their minor children are treated as a single purchaser, as is a
director or other fiduciary purchasing for a single fiduciary account. An
aggregate investment includes all shares of the Fund and all shares of certain
other participating Van Kampen American Capital mutual funds described in the
Prospectus (the "Participating Funds"), which have been previously purchased and
are still owned, plus the shares being purchased. The current offering price is
used to determine the value of all such shares. If, for example, an investor has
previously purchased and still holds Class A shares of the Fund and shares of
other Participating Funds having a current offering price of $25,000 and that
person purchases $30,000 of additional Class A shares of the Fund, the charge
applicable to the $30,000 purchase would be 4.75% of the offering price. The
same reduction is applicable to purchases under a Letter of Intent as described
in the next paragraph. THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE TIME AN
ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED CHARGE ON THE
BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN WRITING WHEN
SUCH AN ORDER IS PLACED BY MAIL. The reduced sales charge will not be applied if
such notification is not furnished at the time of the order. The reduced sales
charge will also not be applied should a review of the records of the
Distributor or ACCESS fail to confirm the representations concerning the
investor's holdings.

LETTER OF INTENT

Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount", made pursuant to the Letter of Intent and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal as if it were a single investment. Escrowed
shares totalling five percent of the dollar amount of the Letter of Intent are
held by ACCESS in the name of the shareholder. The Letter of Intent may be
back-dated up to 90 days in order that any investments made during this 90-day
period, valued at the investor's cost, can become subject to the Letter of
Intent. The Letter of Intent does not obligate the investor to purchase the
indicated amount. In the

24
<PAGE> 142

event the Letter of Intent goal is not achieved within the 13-month period, the
investor is required to pay the difference between sales charges otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain such difference.
If the goal is exceeded in an amount which qualifies for a lower sales charge, a
price adjustment is made by refunding to the investor in shares of the Fund, the
amount of excess sales charge, if any, paid during the 13-month period.

REDEMPTION OF SHARES

Redemptions are not made on days during which the New York Stock Exchange
is closed, including those holidays listed under "Determination of Net Asset
Value." The right of redemption may be suspended and the payment therefor may be
postponed for more than seven days during any period when (a) the New York Stock
Exchange is closed for other than customary weekends or holidays; (b) trading on
the New York Stock Exchange is restricted; (c) an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund to fairly determine
the value of its net assets; or (d) the SEC, by order, so permits.

CONTINGENT DEFERRED SALES CHARGE -- CLASS A

For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), the front-end sales charge will be waived and a contingent deferred
sales charge ("CDSC -- Class A") of one percent is imposed in the event of
certain redemptions within one year of the purchase. If a CDSC -- Class A is
imposed upon redemption, the amount of the CDSC -- Class A will be equal to the
lesser of one percent of the net asset value of the shares at the time of
purchase, or one percent of the net asset value of the shares at the time of
redemption.

The CDSC -- Class A will only be imposed if a Qualified Purchaser redeems
an amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one-year period prior to the redemption. The CDSC --
Class A will be waived in connection with redemptions by certain Qualified
Purchasers, (e.g., in retirement plans qualified under Section 401(a) of the
Code and deferred compensation plans under Section 457 of the Code) required to
obtain funds to pay distributions to beneficiaries pursuant to the terms of the
plans. Such payments include, but are not limited to, death, disability,
retirement, or separation from service. No CDSC -- Class A will be imposed on
exchanges between funds. For purposes of the CDSC -- Class A, when shares of one
fund are exchanged for shares of another fund, the purchase date for the shares
of the fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC -- Class A rather than a front-end load sales charge. In determining
whether a CDSC -- Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.

Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of Van Kampen American Capital Reserve
Fund, Van Kampen American Capital Money Market Fund and Van Kampen American
Capital Tax Free Money Fund with shares of other participating funds described
as "Participating Funds" in the Prospectus.

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<PAGE> 143

As described in the Prospectus under "Purchase of Shares," redemption of
Class B and Class C will be subject to a contingent deferred sales charge.

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")

The CDSC -- Class B and C may be waived on redemptions of Class B and Class
C shares in the circumstances described below:

(a) Redemption Upon Disability or Death

The Fund will waive the CDSC -- Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. An individual will be
considered disabled for this purpose if he or she meets the definition thereof
in Section 72(m)(7) of the Code, which in pertinent part defines a person as
disabled if such person "is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long-continued and indefinite
duration." While the Fund does not specifically adopt the balance of the Code's
definition which pertains to furnishing the Secretary of Treasury with such
proof as he or she may require, the Distributor will require satisfactory proof
of death or disability before it determines to waive the CDSC -- Class B and C.

In cases of disability or death, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.

(b) Redemption in Connection with Certain Distributions from Retirement
Plans

The Fund will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of Van Kampen American
Capital Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held onto the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC -- Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also will be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).

The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.

A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be

26
<PAGE> 144

specified by the shareholder upon his or her election to participate in the
Plan. The CDSC -- Class B and C will be waived on redemptions made under the
Plan.

The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.

(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance

The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and C
upon such involuntary redemption.

(e)Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption

A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC -- Class C paid on the redeemed shares,
any portion or all of his or her redemption proceeds (plus that amount necessary
to acquire a fractional share to round off his or her purchase to the nearest
full share) in Class C shares of the Fund, provided that the reinvestment is
effected within 120 days after such redemption and the shareholder has not
previously exercised this reinvestment privilege with respect to Class C shares
of the Fund. Shares acquired in this manner will be deemed to have the original
cost and purchase date of the redeemed shares for purposes of applying the
CDSC -- Class C to subsequent redemptions.

(f) Redemption by Adviser

The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.

EXCHANGE PRIVILEGE

The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:

By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.

For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its

27
<PAGE> 145

predecessors shall be included. If the exchanged security was acquired through
reinvestment, that security is deemed to have been sold with a sales charge rate
equal to the rate previously paid on the security on which the dividend or
distribution was paid. If a shareholder exchanges less than all of his
securities, the security upon which the highest sales charge rate was previously
paid is deemed exchanged first.

Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.

DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES

The Fund's policy is to distribute substantially all of its taxable net
investment income in quarterly dividends to shareholders of Class A, Class B and
Class C shares. Any taxable net realized capital gains are distributed annually.
The per share dividends on Class B and Class C shares will be lower than the per
share dividends on Class A shares as a result of the distribution fee and higher
transfer agency fees applicable to the Class B and Class C shares. Taxable net
realized capital gains are the excess, if any, of the Fund's total profits on
the sale of securities during the year over its total losses on the sale of
securities, including capital losses carried forward from prior years in
accordance with the tax laws. Such capital gains, if any, are distributed at
least once a year. All income dividends and capital gains distributions are
reinvested in shares of the Fund at net asset value without sales charge on the
record date, except that any shareholder may otherwise instruct the shareholder
service agent in writing and receive cash. Shareholders are informed as to the
sources of distributions at the time of payment.

The Fund has elected to be taxed as a regulated investment company under
Sections 851-855 of the Code. This means the Fund must pay all or substantially
all its taxable net investment income and taxable net realized capital gains to
shareholders of Class A, Class B and Class C shares and meet certain
diversification and other requirements. By qualifying as a regulated investment
company, the Fund is not subject to Federal income taxes to the extent it
distributes its taxable net investment income and taxable net realized capital
gains. If for any taxable year the Fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net realized capital gains, would be subject to tax at regular
corporate rates (without any deduction for distributions to shareholders).

The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders at least 98% of its ordinary taxable (net
investment) income for the twelve months ended December 31, plus 98% of its
capital gains net income for the twelve months ended October 31 of such year.
The Fund intends to distribute sufficient amounts to avoid liability for the
excise tax.

Dividends from net investment income and distributions from any short-term
capital gains are taxable to shareholders as ordinary income. To the extent
determined each year, a portion of dividends paid from net investment income
qualifies in the case of corporations, for the 70% dividends received deduction.
To qualify

28
<PAGE> 146

for the dividends received deduction, a corporate shareholder must hold the
shares on which the dividend is paid for more than 45 days.

Dividends and distributions declared payable to shareholders of record
after September 30, of any year and paid before February 1 of the following
year, are considered taxable income to shareholders on the record date even
though paid in the next year.

Distributions from long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held Fund
shares. Such distributions and distributions from short-term capital gains are
not eligible for the dividends received exclusion or deduction referred to
above. Any loss on the sale of Fund shares held for less than six months is
treated as a long-term capital loss to the extent of any long-term capital gain
distribution paid on such shares, subject to an exception for losses incurred
under certain Systematic Withdrawal Plans. All dividends and distributions are
taxable to the shareholder whether or not reinvested in shares. Shareholders are
notified annually by the Fund as to the federal tax status of dividends and
distributions paid by the Fund unless such amount is less than ten dollars, in
which case no notice is provided.

If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.

Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident shareholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.

Dividends and capital gains distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.

BACK-UP WITHHOLDING

The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and that he is not subject to withholding. (An
individual's taxpayer identification number is his social security number.) The
31% "back-up withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.

29
<PAGE> 147

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

The Code includes special rules applicable to certain listed options
(excluding equity options as defined in the Code), futures contracts, and
options on futures contracts which the Fund may write, purchase or sell. Such
options and contracts are classified as Section 1256 contracts under the Code.
The character of gain or loss resulting from the sale, disposition, closing out,
expiration or other termination of Section 1256 contracts is generally treated
as long-term capital gain or loss to the extent of 60% thereof and short-term
capital gain or loss to the extent of 40% thereof ("60/40 gain or loss"). Such
contracts, when held by the Fund at the end of a fiscal year, generally are
required to be treated as sold at market value on the last day of such fiscal
year for Federal income tax purposes ("marked-to-market"). Over-the-counter
options are not classified as Section 1256 contracts and are not subject to the
mark-to-market rule or to 60/40 gain or loss treatment. Any gains or losses
recognized by the Fund from transactions in over-the-counter options generally
constitute short-term capital gains or losses. If over-the-counter call options
written, or over-the-counter put options purchased, by the Fund are exercised,
the gain or loss realized on the sale of the underlying securities may be either
short-term or long-term, depending on the holding period of the securities. In
determining the amount of gain or loss, the sales proceeds are reduced by the
premium paid for over-the-counter puts or increased by the premium received for
over-the-counter calls.

Certain of the Fund's transactions in options, futures contracts, and
options on futures contracts, particularly its hedging transactions, may
constitute "straddles" which are defined in the Code as offsetting positions
with respect to personal property. A straddle in which at least one (but not
all) of the positions are Section 1256 contracts a "mixed straddle" under the
Code if certain identification requirements are met.

The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period and (iii) "short sale" rules which may terminate the holding
period of securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.

The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.

FUND PERFORMANCE

The Fund's average annual total return (computed in the manner described in
the Prospectus) for Class A shares of the Fund for the one-year, five-year and
ten-year periods ended November 30, 1994 was -4.62%, 7.78%, and 10.34%,
respectively. The average annual total return (computed in the manner described
in the Prospectus) for Class B shares of the Fund for the one-year and the
16-month periods ended November 30, 1994 was -4.54% and 0.21%, respectively. The
average annual total return (computed in the manner described in the prospectus)
for Class C shares of the Fund for the one-year and the 16-month periods ended
November 30, 1994 was -1.08% and 2.90%, respectively. These results are based on
historical earnings and asset value fluctuations and are not intended to
indicate future performance. Such information should be considered in light of
the Fund's investment objectives and policies as well as the risks incurred in
the Fund's investment practices.

Total return is computed separately for Class A, Class B and Class C
shares.

30
<PAGE> 148

From time to time VKAC will announce the results of their monthly polls of
U.S. investor intentions -- the Van Kampen American Capital Index of Investor
Intentions and the Van Kampen American Capital Mutual Fund Index -- which polls
measure how Americans plan to use their money.

From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors, and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality
received by Van Kampen American Capital in 1994.

The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Funds.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.

SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.

INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.

FINANCIAL STATEMENTS

The attached financial statements in the form in which they appear in the
Annual Report to Shareholders, including the related Report of Independent
Accountants on the November 30, 1994 financial statements are included in the
Statement of Additional Information.

The following information is not included in the Annual Report. This
example assumes a purchase of Class A shares of the Fund aggregating less than
$50,000 subject to the schedule of sales charges set forth in the Prospectus at
a price based upon the net asset value of Class A shares of the Fund.

<TABLE>
<CAPTION>
NOVEMBER 30,
1994
------------
<S> <C>
Net Asset Value per Class A Share $12.26
Class A Per Share Sales Charge -- 5.75% of offering price (6.10%
of
net asset value per share) $ .75
------------
Class A Per Share Offering Price to the Public $13.01
</TABLE>

31
<PAGE> 149

APPENDIX

RATINGS OF SENIOR SECURITIES

Description of Standard & Poor's Corporation ("S&P") and Moody's Investor
Service ("Moody's") senior securities ratings.

MOODY'S CORPORATE BOND RATINGS:

Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

S&P'S CORPORATE BOND RATINGS:

AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.

A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

Note: Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

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<PAGE> 150

Plus (+) or Minus (-): The ratings from AA to B may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

PREFERRED STOCK RATINGS:

Both Moody's and S&P use the same designations for corporate bonds as they
do for preferred stock except in the case of Moody's preferred stock ratings the
initial letter rating is not capitalized. While the descriptions are tailored
for preferred stocks, the relative quality distinctions are comparable to those
described above for corporate bonds.

33
<PAGE> 151

APPENDIX B

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

Van Kampen Merritt Growth and Income Fund (the "Fund") seeks long term growth
of both capital and dividend income. The Fund will attempt to achieve this
investment objective by investing primarily in a diversified portfolio of
dividend paying common stocks. There is no assurance that the Fund will achieve
its investment objective. The Fund is a mutual fund whose portfolio is advised
by Van Kampen American Capital Investment Advisory Corp. (the "Adviser").

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated July 31, 1995 (the
"Prospectus"). This Statement of Additional Information does not include all of
the information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge by
calling (800) 421-5666. This Statement of Additional Information incorporates by
reference the entire Prospectus.

The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. These items may be obtained
from the Commission upon payment of the fee prescribed, or inspected at the
Commission's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-2
Additional Investment Considerations................................................. B-4
Description of Corporate Securities Ratings.......................................... B-9
Officers and Trustees................................................................ B-16
Legal Counsel........................................................................ B-21
Investment Advisory and Other Services............................................... B-21
Portfolio Transactions and Brokerage Allocation...................................... B-23
Tax Status of the Fund............................................................... B-24
The Distributor...................................................................... B-24
Performance Information.............................................................. B-25
Unaudited Financial Statements....................................................... B-27
Notes to Unaudited Financial Statements.............................................. B-34
Independent Auditors' Report......................................................... B-37
Audited Financial Statements......................................................... B-38
Notes to Audited Financial Statements................................................ B-45
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JULY 31, 1995.

B-1
<PAGE> 152

THE FUND AND THE TRUST

The Fund is a separate diversified series of Van Kampen American Capital
Equity Trust (the "Trust"), an open-end management investment company. At
present, the Fund, Van Kampen American Capital Utility Fund, Van Kampen American
Capital Balanced Fund, Van Kampen American Capital Growth Fund (which has not
commenced investment operations) and Van Kampen American Capital Total Return
Fund (which has not commenced investment operations) are the only series of the
Trust, although other series may be organized and offered in the future.

The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated May 10,
1995 (the "Declaration of Trust"). The Declaration of Trust permits the Trustees
to create one or more separate investment portfolios and issue a series of
Shares for each portfolio. The Trustees can further sub-divide each series of
shares into one or more classes of shares for each portfolio. Each share
represents an equal proportionate interest in the assets of the series with each
other share in such series and no interest in any other series. No series is
subject to the liabilities of any other series. The Declaration of Trust
provides that shareholders are not liable for any liabilities of the Trust or
any of its series, requires inclusion of a clause to that effect in every
agreement entered into by the Trust or any of its series and indemnifies
shareholders against any such liability. The Fund was originally organized in
1986 as a Massachusetts business trust, then reorganized into a sub-trust of the
Van Kampen Merritt Equity Trust, a Massachusetts business trust, as of June 17,
1988. The Fund was reorganized as a series of the Trust as of July 31, 1995.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of a majority of the shares present and voting at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940 (the "1940 Act").

The Trustees may amend the Declaration of Trust (including with respect to any
series) in any manner without shareholder approval, except that the Trustees may
not adopt any amendment adversely affecting the rights of shareholders of any
series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.

Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.

INVESTMENT POLICIES AND RESTRICTIONS

The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objective and Policies." There can be no assurance that the
Fund will achieve its investment objective.

Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:

1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its instrumentalities), if, as a
result, more than 5% of the Fund's total assets (taken at current value)
would then be invested in securities of a single issuer or, if, as a
result, such Fund would hold more than 10% of the outstanding voting
securities of an issuer; except that up to 25% of the Fund's total assets
may be invested without regard to such limitations.

B-2
<PAGE> 153

2. Invest more than 25% of its assets in a single industry. (Neither the U.S.
Government nor any of its agencies or instrumentalities will be considered
an industry for purposes of this restriction.)

3. Borrow money, except for temporary purposes from banks or in reverse
repurchase transactions as described in the Statement of Additional
Information and then in amounts not in excess of 5% of the total asset
value of the Fund, or mortgage, pledge, or hypothecate any assets except
in connection with a borrowing and in amounts not in excess of 10% of the
total asset value of the Fund. Borrowings may not be made for investment
leverage, but only to enable the Fund to satisfy redemption requests where
liquidation of portfolio securities is considered disadvantageous or
inconvenient. In this connection, the Fund will not purchase portfolio
securities during any period that such borrowings exceed 5% of the total
asset value of the Fund.

4. Make loans, except that the Fund may purchase or hold debt obligations in
accordance with the investment restrictions set forth in paragraph 1
above, may enter into repurchase agreements, and may lend its portfolio
securities against collateral consisting of cash or of securities issued
or guaranteed by the U.S. Government or its agencies, which collateral is
equal at all times to at least 100% of the value of the securities loaned,
including accrued interest.

5. Sell any securities "short," unless at all times when a short position is
open the Fund owns an equal amount of the securities or of securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.

6. Write, purchase or sell puts, calls or combinations thereof, or purchase
or sell financial futures contracts or related options, except that the
Fund may write covered call options with respect to its portfolio
securities and enter into closing purchase transactions with respect to
such options, to a maximum of 25% of its net assets and except that the
Fund may engage in hedging transactions as described in the Prospectus and
the Statement of Additional Information from time to time.

7. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

8. Make investments for the purpose of exercising control or management.

9. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition.

10. Invest in interests in oil, gas, or other mineral exploration or
development programs.

11. Purchase or sell real estate, commodities, or commodity contracts, except
for hedging transactions as described in the Prospectus and this Statement
of Additional Information from time to time.

The Fund may not change any of these investment restrictions nor any other
fundamental policy as they apply to the Fund without the approval of the lesser
of (i) more than 50% of the Fund's outstanding shares or (ii) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy. As long as the percentage
restrictions described above are satisfied at the time of the investment or
borrowing, the Fund will be considered to have abided by those restrictions even
if, at a later time, a change in values or net assets causes an increase or
decrease in percentage beyond that allowed.

The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. The Fund may,

B-3
<PAGE> 154

from time to time, adopt a more restrictive limitation with respect to
investment in illiquid and restricted securities in order to comply with the
most restrictive state securities law, currently 10%. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, which the Board of Trustees or the
Fund's investment adviser has determined under Board-approved guidelines to be
liquid. The Fund's policy with respect to investment in illiquid and restricted
securities is not a fundamental policy and may be changed by the Board of
Trustees, in consultation with the adviser, without obtaining shareholder
approval.

From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states. In this
regard, the Fund has committed that it (i) will not utilize the exception in
item 1 above, and (ii) will not invest assets of the Fund in securities of
companies which have a record of less than three years continuous operation.
However, such period of three years may include the operation of any predecessor
business if the company whose securities are proposed as an investment for funds
of the Fund has come into existence as the result of a merger, consolidation,
reorganization or the purchase of substantially all of the assets of such
predecessor business. The Fund may revoke any such commitments at any time so
long as it thereafter ceases to offer its shares in the state or states
involved.

ADDITIONAL INVESTMENT CONSIDERATIONS

REVERSE REPURCHASE AGREEMENTS

The Fund may enter into reverse repurchase agreements with selected commercial
banks or broker-dealers, under which the Fund sells securities and agrees to
repurchase them at an agreed upon time and at an agreed upon price. The
difference between the amount the Fund receives for the securities and the
amount it pays on repurchase is deemed to be a payment of interest by the Fund.
The Fund will maintain, in a segregated account with its custodian, cash,
Treasury bills, or other U.S. Government securities having an aggregate value
equal to the amount of such commitment to repurchase, including accrued
interest, until payment is made. Reverse repurchase agreements are treated as a
borrowing by the Fund and will be used by it as a source of funds on a
short-term basis, in an amount not exceeding 5% of the net assets of the Fund at
the time of entering into any such agreement. The Fund will enter into reverse
repurchase agreements only with commercial banks whose deposits are insured by
the Federal Deposit Insurance Corporation and whose assets exceed $500 million
or broker-dealers who are registered with the SEC. In determining whether to
enter into a reverse repurchase agreement with a bank or broker-dealer, the Fund
will take into account the credit-worthiness of such party and will monitor such
credit-worthiness on an ongoing basis.

BORROWING

The Fund may borrow up to 5% of the value of its assets from a bank, or
through reverse repurchase agreements with broker-dealers or banks meeting the
same qualifications as set forth above. The Fund will use such borrowings only
for temporary emergency purposes such as paying for unexpectedly heavy
redemptions.

STRATEGIC TRANSACTIONS.

The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates and broad or specific market movements) or to manage the effective
maturity or duration of the Fund's fixed-income securities. Such strategies are
generally accepted by modern portfolio managers and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, fixed-income indices and other financial
instruments and purchase and sell financial futures contracts and options
thereon (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets fluctuations, to protect the
Fund's unrealized gains in the

B-4
<PAGE> 155

value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the Fund's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities.

Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.

GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such

B-5
<PAGE> 156

options. The discussion below uses the OCC as a paradigm, but is also applicable
to other financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from Standard &
Poor's Ratings Group ("S&P") or "P-1" from Moody's Investor Services, Inc.
("Moody's") or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that, in general, OTC options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities "covering"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid, and
are subject to the Fund's limitation on investing no more than 10% of its assets
in illiquid securities.

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If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets. All calls sold by the
Fund must be "covered" (i.e., the Fund must own the securities or futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though the Fund will
receive the option premium to help protect it against loss, a call sold by the
Fund exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations and Eurodollar instruments (whether or not it holds the above
securities in its portfolio.) The Fund will not sell put options if, as a
result, more than 50% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that the Fund may be required to buy the underlying security at a
disadvantageous price above the market price.

GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The purchase of a futures contract
creates a firm obligation by the Fund, as purchaser, to take delivery from the
seller the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

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OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions and any combination of futures, options and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid
high-grade assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid high-grade securities
at least equal to the current amount of the obligation must be segregated with
the custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by the Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or to segregate liquid
high-grade securities sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid high-grade assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by the Fund requires the
Fund to segregate liquid, high-grade assets equal to the exercise price.

OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise price in
the case of a non cash-settled put, the same as an OCC guaranteed listed option
sold by the Fund, or the in-the-money amount plus any sell-back formula amount
in the case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is closed
out, cash or cash equivalents equal in value to such excess. OCC issued and
exchange listed options sold by the Fund other than those above generally settle
with physical delivery, and the Fund will segregate an amount of assets equal to
the full value of the option. OTC options settling with physical delivery, or
with an election of either physical delivery or cash settlement, will be treated
the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide

B-8
<PAGE> 159

securities or currencies, or to pay the amount owed at the expiration of an
index- based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets. To the
extent such assets are other than cash or cash equivalents, such assets will be
marked to market on a daily basis. To the extent that the Fund segregates assets
other than cash or cash equivalents in connection with the purchase or sale of a
futures contract or the sale of an option thereon, the Fund will be subject to
market risks with respect to the open futures or option position as well as with
respect to the portfolio securities segregated against such position. To the
extent that the market value of such position and of such portfolio securities
have a high degree of positive correlation, market fluctuations may adversely
affect both the value of such position and the value of such portfolio
securities, which has the effect of leveraging the Fund's portfolio assets and
increasing the Fund's investment risk.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company. See "Tax Status" in the Prospectus.

DESCRIPTION OF CORPORATE SECURITIES RATINGS

STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by Standard & Poor's Ratings Group) follows:

1. DEBT

A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.

INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

B-9
<PAGE> 160

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.

BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.

CCC: Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.

CC: The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.

C: The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI: The rating "CI" is reserved for income bonds on which no interest is being
paid.

D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

C: The letter "c" indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.

I: The letter "i" indicates the rating is implied. Such ratings are assigned
only on request to entities that do not have specific debt issues to be rated.
In addition, implied ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings on governments
represent the sovereign ceiling or upper limit for ratings on specific debt
issues of entities domiciled in the country.

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<PAGE> 161

L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is federally
insured and interest is adequately collateralized. In the case of certificates
of deposit, the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.

P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.

NR: Not rated.

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. COMMERCIAL PAPER

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.

Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.

B Issues rated "B" are regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.

A commercial paper rating is not a recommendation to purchase, sells or hold
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

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<PAGE> 162

3. VARIABLE RATE DEMAND BONDS

Standard & Poor's assigns "dual" ratings to all debt issues that have a put or
demand feature as part of their structure.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, S&P's note rating symbols are
used with the commercial paper rating symbols (for example, "SP-1+/A-1+").

4. NOTES

An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assignment:

-- Amortization schedule (the longer the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).

-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics will be given a plus (+)
designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.

SP-3 Speculative capacity to pay principal and interest.

5. PREFERRED STOCK

A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.

The preferred stock ratings are based on the following considerations:

1. Likelihood of payment--capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.

2. Nature of, and provisions of, the issue.

3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements affecting creditors' rights.

<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
</TABLE>

B-12
<PAGE> 163

<TABLE>
<S> <C>
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
B predominantly speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, the rating from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
</TABLE>

A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the Issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service rating symbols and their meanings (as published by Moody's
Investor Service) follows:

1. LONG-TERM DEBT

AAA: Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA: Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than AAA securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

BAA: Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may by lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA: Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not

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<PAGE> 164

well safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA: Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA: Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published
in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

2. SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:

Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

--Leading market positions in well-established industries.

--High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization

B-14
<PAGE> 165

characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternative liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

AAA: An issue which is rated 'AAA' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.

AA: An issue which is rated 'AA' is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.

A: An issue which is rated 'A' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'AAA' and 'AA' classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.

BAA: An issue which is rated 'BAA' is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.

BA: An issue which is rated 'BA' is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.

B: An issue which is rated 'B' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

CAA: An issue which is rated 'CAA' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.

CA: An issue which is rated 'CA' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.

C: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each rating classification
from "AA" through "BB" in its preferred stock rating system: the modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.

B-15
<PAGE> 166

OFFICERS AND TRUSTEES

The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser" or "Adviser"), Van Kampen American
Capital Asset Management, Inc., (the "AC Adviser"), Van Kampen American Capital
Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van
Kampen American Capital, Inc. ("Van Kampen American Capital") or VK/AC Holding,
Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the VK Adviser (excluding
the Van Kampen Merritt Series Trust) and each of the open-end investment
companies advised by the AC Adviser.

TRUSTEES

<TABLE>
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Randor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art; Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing.
Trustee of each of the Van Kampen American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
</TABLE>

B-16
<PAGE> 167

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.
</TABLE>

B-17
<PAGE> 168

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>

OFFICERS

<TABLE>
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice President
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser.

Ronald A. Nyberg..... Vice President and Executive Vice President, General Counsel and
Age: 41 Secretary Secretary of Van Kampen American Capital.
Executive Vice President and a Director of
the VK Adviser and the Distributor. Executive
Vice President of the AC Adviser. Vice
President and Secretary of each of the Van
Kampen American Capital Funds and closed-end
funds advised by the VK Adviser. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to March 1990,
Secretary of Van Kampen Merritt Inc., the VK
Adviser and McCarthy, Crisanti & Maffei, Inc.

Edward C. Wood III... Vice President, Treasurer Senior Vice President of the VK Adviser. Vice
Age: 39 and Chief Financial President, Treasurer and Chief Financial
Officer Officer of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
</TABLE>

B-18
<PAGE> 169

<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and Attorney of Van
Age: 30 Kampen American Capital. Assistant Secretary
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.

Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy General Counsel
Age: 38 and Assistant Secretary of Van Kampen
American Capital. Senior Vice President,
Deputy General Counsel and Secretary of the
VK Adviser and the Distributor. Assistant
Secretary of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Weston B. Assistant Secretary Vice President, Associate General Counsel and
Wetherell.......... Assistant Secretary of Van Kampen American
Age: 39 Capital, the VK Adviser and the Distributor.
Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end funds advised by the VK Adviser.
John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end funds
advised by the VK Adviser.
</TABLE>

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

* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.

Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.

The Fund will pay trustees who are not affiliated persons of the VK Adviser,
the Distributor or Van Kampen American Capital an annual retainer of $2,500 per
year and $125 per regular quarterly meeting of the Fund, plus expenses. No
additional fees are proposed at the present time to be paid for special
meetings, committee meetings or to the chairman of the board. The trustees have
approved an aggregate annual compensation cap from the combined fund complex of
$84,000 per trustee (excluding any retirement benefits) until December 31, 1996,
based upon the current net assets and the current number of Van Kampen American
Capital funds (except that Mr. Whalen, who is also a trustee of the closed-end
funds advised by the VK Adviser would receive additional compensation for
serving as a trustee of such funds). In addition, the VK Adviser has agreed to
reimburse the Fund through December 31, 1996, for any increase in the aggregate
trustees' compensation over the aggregate compensation paid by the Fund in its
1994 fiscal year.

B-19
<PAGE> 170

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX PAID
NAME FROM REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
- ----------------------------- ------------------ ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............. $7,620 $0 $2,500 $62,362
Philip G. Gaughan............ 7,192 0 2,500 63,250
Donald C. Miller............. 9,841 0 2,500 62,178
Jack A. Nelson............... 9,875 0 2,500 62,362
Jerome L. Robinson........... 9,231 0 2,500 58,475
Wayne W. Whalen.............. 2,031 0 2,500 49,875
</TABLE>

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

(1) Messrs. Powell and McDonnell, Trustees of the Registrant, are affiliated
persons of the Adviser and are not eligible for compensation or retirement
benefits from the Registrant. Messrs. Branagan, Caruso, Hilsman, Rees,
Sheehan, Sisto and Woodside were elected as trustees of the Trust at a
shareholders meeting held on July 21, 1995 and thus received no
compensation or retirement benefits from the Registrant during its 1994
fiscal year.

(2) The Registrant is Van Kampen American Capital Equity Trust (the "Trust")
which currently is comprised of 3 operating series, including the Fund.
The amounts shown in this column are accumulated from the Aggregate
Compensation of each of these 3 series during such series' 1994 fiscal
year. Beginning in October 1994, each Trustee except Messrs. Gaughan and
Whalen, began deferring his entire aggregate compensation paid by the
Registrant. The total combined amount of deferred compensation (including
interest) accrued with respect to each Trustee from the Fund Complex (as
defined herein) as of December 31, 1994 is as follows: Mr. Kennedy,
$14,737; Mr. Miller, $14,553; Mr. Nelson, $14,737 and Mr. Robinson,
$13,725.

(3) The Registrant's last completed fiscal year for which audited financial
statements are available ended June 30, 1994. The Retirement Plan
commenced as of August 1, 1994 for the Registrant.

(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by the Fund
assuming: the Trustee has 10 or more years of service on the Board of the
Fund and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service may receive
reduced retirement benefits from the Fund.

(5) As of December 31, 1994, the Fund Complex consisted of 20 mutual funds
advised by the VK Adviser that had the same members on each funds' Board
of Trustees. The amounts shown in this column are accumulated from the
Aggregate Compensation of each of these 20 mutual funds in the Fund
Complex during the calendar year ended December 31, 1994. The VK Adviser
also serves as investment adviser for other investment companies; however,
with the exception of Messrs. Powell, McDonnell and Whalen, the Trustees
are not trustees of such investment companies. Combining the Fund Complex
with other investment companies advised by the Adviser, Mr. Whalen
received Total Compensation of $161,850 during the calendar year ended
December 31, 1994.

As of July 17, 1995, the trustees and officers as a group own less than 1% of
the Shares of the Fund.

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

To the knowledge of the Fund, as of July 17, 1995, no person owned of record
or beneficially 5% or more of the Fund's Class A Shares or Class B Shares.

As of July 17, 1995 the following persons owned of record or beneficially 5%
or more of the Fund's Class C Shares: Edward D. Jones and Co. F/A/O
International Guards Union, EDJ #790-02335-1-6, P.O. Box 2500, Maryland Heights,
MO, 63043-8500, 5%; and Parker Hunter Incorporated FBO, Frank Esparraguera IRA,
Parker/Hunter Custodian, 9 Glenview Avenue, Oil City, PA 16301-2137, 22%.

B-20
<PAGE> 171

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is controlled, through the ownership of a substantial majority of its
common stock by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of Van Kampen American Capital, Inc.
own, in the aggregate, not more than 7% of the common stock of VK/AC Holding,
Inc. and have the right to acquire, upon exercise of options, approximately an
additional 11% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee owns or
would own 5% or more of VK/AC Holding, Inc.

The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will administer the business affairs of the Fund, supervise the
Fund's overall investment activities in the context of implementing the Fund's
investment objectives, furnish offices, necessary facilities and equipment,
provide administrative services, and permit its officers and employees to serve
without compensation as Trustees of the Trust and officers of the Fund if duly
elected to such positions.

The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.

The Adviser's activities are subject to the review and supervision of the
Trustees to whom the Adviser renders periodic reports of the Fund's investment
activities.

The investment advisory agreement remains in effect from year to year if
specifically approved by the Trustees (including the independent Trustees) on
behalf of the Fund or the Fund's shareholders in compliance with the
requirements of the 1940 Act. The agreement may be terminated without penalty
upon 60 days written notice by either party thereto and will automatically
terminate in the event of assignment.

The Adviser has undertaken to reimburse the Fund for annual expenses of the
Fund which exceed the most stringent limit prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most stringent limit in any
state would require such reimbursement to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.

For the years ended June 30, 1994, 1993 and 1992, the Fund recognized advisory
expenses of $304,973, $188,428 and $164,191, respectively.

B-21
<PAGE> 172

OTHER AGREEMENTS

SUPPORT SERVICES AGREEMENT. Under a support services agreement with the
Distributor, which terminated as of July 10, 1995 concurrent with the Fund's
change in transfer agent, the Fund receives support services for shareholders,
including the handling of all written and telephonic communications, except
initial order entry and other distribution related communications. Payment by
the Fund for such services was made on cost basis for the employment of the
personnel and the equipment necessary to render the support services. At such
time, the Fund, and the other Van Kampen American Capital mutual funds advised
by the VK Adviser and distributed by the Distributor, shared such costs
proportionately among themselves based upon their respective net asset values.

For the years ended June 30, 1994, 1993 and 1992, the Fund recognized expenses
of approximately $25,200, $2,400 and $12,200, respectively, representing the
Distributor's cost of providing certain support services.

FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the VK Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other Van Kampen American Capital mutual funds
advised by the VK Adviser and distributed by the Distributor in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost being paid by the Fund and such other Van Kampen American
Capital funds based proportionally on their respective net assets.

For the years ended June 30, 1994, 1993 and 1992, the Fund recognized expenses
of approximately $3,900, $1,900 and $2,900, respectively, representing the VK
Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreement pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. It is
expected that Van Kampen American Capital can render such legal services on a
more cost effective basis than other providers of such services. Payment by the
Fund for such services is made on a cost basis for the employment of personnel
as well as the overhead and the equipment necessary to render such services.
Other funds distributed by the Distributor also receive legal services from Van
Kampen American Capital. Of the total costs for legal services provided to funds
distributed by the Distributor, one half of such costs are allocated equally to
each fund and the remaining one half of such costs are allocated to specific
funds based on monthly time records.

For the years ended June 30, 1994, 1993 and 1992, the Fund recognized expenses
of approximately $9,200, $8,500 and $0, respectively, representing Van Kampen
American Capital, Inc.'s cost of providing legal services.

CUSTODIAN AND INDEPENDENT AUDITORS

State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.

The independent auditors for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent auditors will be subject to ratification
by the shareholders of the Fund at any annual meeting of shareholders.

B-22
<PAGE> 173

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund or the Adviser, including quotations necessary
to determine the value of the Fund's net assets. Any research benefits derived
are available for all clients of the Adviser. Since statistical and other
research information is only supplementary to the research efforts of the
Adviser to the Fund and still must be analyzed and reviewed by its staff, the
receipt of research information is not expected to materially reduce its
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, the Fund's Adviser may take into
consideration that certain firms have sold or are selling shares of the Fund and
that certain firms provide market, statistical or other research information to
the Fund and the Adviser, and may select firms that are affiliated with the
Fund, its Adviser or its Distributor.

If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a higher
commission (or, if the broker's profit is part of the cost of the security, will
have to pay a higher price for the security) than would be the case if no weight
were given to the broker's furnishing of those research services. This will be
done, however, only if, in the opinion of the Fund's Adviser, the amount of
additional commission or increased cost is reasonable in relation to the value
of such services.

In selecting among the firms believed to meet the criteria for handling a
particular transaction, the Adviser may take into consideration that certain
firms (i) provide market, statistical or other research information such as that
set forth above to the Fund and the Adviser, (ii) have sold or are selling
shares of the Fund and (iii) may select firms that are affiliated with the Fund,
its investment adviser or its distributor and other principal underwriters. If
purchases or sales of securities of the Fund and of one or more other investment
companies or clients supervised by the Fund's Adviser are considered at or about
the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective size of the Fund and other
investment companies and clients and the amount of securities to be purchased or
sold. Although it is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned, it is also possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Fund.

While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the trustees of
the Trust, of which the Fund is a separate series.

The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the Securities and Exchange Commission under the 1940 Act which
requires that the commissions paid to the Distributor and other affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.

Portfolio turnover is calculated by dividing the lesser of purchases or sales
of portfolio securities by the monthly average value of the securities in the
portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less are excluded
from such calculation. The Fund anticipates that the annual portfolio turnover
rate of the Fund's portfolio will generally be less than 100%. If the turnover
rate for the Fund does reach or exceed this percentage, the Fund's brokerage
costs may increase and the Adviser will monitor the Fund's trading practices to
avoid potential adverse tax consequences.

B-23
<PAGE> 174

TAX STATUS OF THE FUND

The Trust and any of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if it fails to distribute net capital gains, or if its annual
distributions, as a percentage of its income, are less than the distributions
required by tax laws.

THE DISTRIBUTOR

The Distributor offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight. Van Kampen American Capital's roots in
money management extend back to 1926. Today, Van Kampen American Capital manages
or supervises more than $50 billion in mutual funds, closed-end funds and unit
investment trusts -- assets which have been entrusted to Van Kampen American
Capital in more than 2 million investor accounts. Van Kampen American Capital
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.

Shares of the Fund are offered continuously through the Distributor, One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. The Distributor is a wholly
owned subsidiary of Van Kampen American Capital, Inc., which is a subsidiary of
VK/AC Holding, Inc., a Delaware corporation that is controlled through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. In addition, certain officers, directors and
employees of Van Kampen American Capital, Inc., and its subsidiaries own, in the
aggregate not more than 7% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
11% of the common stock of VK/AC Holding, Inc. C & D L.P. is managed by Clayton,
Dubilier & Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C &
D Associates L.P.") is the general partner of C & D L.P. Pursuant to a
distribution agreement with the Fund, the Distributor will purchase shares of
the Fund for resale to the public, either directly or through securities dealers
and brokers, and is obligated to purchase only those shares for which it has
received purchase orders. A discussion of how to purchase and redeem shares of
the Fund and how such shares are priced is contained in the Prospectus.

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans." The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Plans are being implemented through an agreement (the
"Distribution and Service Agreement") with the Distributor of each class of the
Fund's shares, sub-agreements between the Distributor and members of the NASD
who are acting as securities dealers and NASD members or eligible non-members
who are acting as brokers or agents and similar agreements between the Fund and
financial intermediaries who are acting as brokers (collectively, "Selling
Agreements") that may provide for their customers or clients certain services or
assistance, which may include, but not be limited to, processing purchase and
redemption transactions, establishing and maintaining shareholder accounts
regarding the Fund, and such other services as may be agreed to from time to
time and as may be permitted by applicable statute, rule or regulation. Brokers,
dealers and financial intermediaries that have entered into sub-agreements with
the Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."

Under the Distribution and Service Agreement and the Selling Agreements,
financial intermediaries that sold shares prior to July 1, 1987, or prior to the
beginning of the calendar quarter in which the Selling Agreement between the
Fund and such financial intermediary was approved by the Fund's Board of
Trustees (an "Implementation Date") are not eligible to receive compensation
pursuant to such Distribution and Service Agreement and/or Selling Agreement. To
the extent that there remain outstanding shares of the Fund that were purchased
prior to all Implementation Dates, the percentage of the total average daily net
asset value of a class of shares that may be utilized pursuant to the
Distribution and Service Agreement will be less

B-24
<PAGE> 175

than the maximum percentage amount permissible with respect to such class of
shares under the Distribution and Service Agreement.

The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. Each of
the Plans may be terminated with respect to either class of shares at any time
by a vote of a majority of the disinterested Trustees or by a vote of a majority
of the outstanding voting shares of such class.

PERFORMANCE INFORMATION

The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum offering price) per share of such class on the last
day of such period. The Fund's net investment income per share is determined by
taking the interest attributable to a given class of shares earned by the Fund
during the period, subtracting the expenses attributable to a given class of
shares accrued for the period (net of any reimbursements), and dividing the
result by the average daily number of shares of each class outstanding during
the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a contingent deferred sales charge in a
maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the then
current net asset value of the shares redeemed or their initial purchase price
from the Fund. Yield quotations do not reflect the imposition of a contingent
deferred sales charge, and if any such contingent deferred sales charge imposed
at the time of redemption were reflected, it would reduce the performance
quoted.

The Fund calculates average compounded total return by determining the
redemption value (less any applicable contingent deferred sales charge) at the
end of specified periods (after adding back all dividends and other
distributions made during the period) of a $1,000 investment in a given class of
shares of the Fund (less the maximum sales charge, if any) at the beginning of
the period, annualizing the increase or decrease over the specified period with
respect to such initial investment and expressing the result as a percentage.
Average compounded total return will be computed separately for each class of
shares.

Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share of a given class can be expected to fluctuate over time, and
accordingly upon redemption a shareholder's shares may be worth more or less
than their original cost.

The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge,

B-25
<PAGE> 176

and if any such contingent deferred sales charge with respect to the CDSC
imposed at the time of redemption were reflected, it would reduce the
performance quoted.

CLASS A SHARES

The average total return with respect to the Class A Shares for (i) the one
year period ended June 30, 1994 was (6.90%), (ii) the five year period ended
June 30, 1994 was 6.73% and (iii) the approximately 92 month period from October
29, 1986 (the commencement of investment operations of the Fund) through June
30, 1994 was 7.77%.

The Fund's cumulative non-standardized total return with respect to the Class
A Shares from their inception through June 30, 1994, (as calculated in the
Prospectus under the heading "Fund Performance") was 86.16%.

CLASS B SHARES

The average total return with respect to the Class B Shares for (i) the one
year period ended June 30, 1994 was (6.65%) and (ii) the approximately 19 month
period from December 1, 1992 (the commencement of operations of the Class B
Shares) through June 30, 1994 was 2.21%.

The Fund's cumulative non-standardized total return with respect to the Class
B Shares from their inception through June 30, 1994, (as calculated in the
Prospectus under the heading "Fund Performance") was 6.79%.

CLASS C SHARES

The average total return with respect to the Class C Shares for the
approximately 11 month period from August 13, 1994 (the commencement of
operations of the Class C Shares) through June 30, 1994 was (4.82%).

The Fund's cumulative non-standardized total return with respect to the Class
C Shares from their inception through June 30, 1994 (as calculated in the
Prospectus under the heading "Fund Performance") was (3.60%).

B-26
<PAGE> 177
Van Kampen Merritt Growth And Income Fund

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

Portfolio of Investments
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
<S> <C> <C>
Common and Preferred Stock 93.6%
Automobile 6.2%
Borg Warner Automotive Inc. ............ 35,000 $ 879,375
Chrysler Corp. .......................... 20,000 980,000
General Motors Corp. - Preferred ........ 25,000 1,434,375
Standard Products Co. ................... 35,600 854,400
Volvo Aktiebolaget - ADR (Sweden) ...... 50,000 937,500
------------
5,085,650
------------
Basic Industries 4.1%
Corning Inc. ............................ 43,475 1,298,816
Cyprus Amax Minerals Co. ................ 31,500 822,937
National Gypsum Co. <F2> ................. 30,000 1,222,500
------------
3,344,253
------------
Beverage, Food & Tobacco 2.3%
Pepsico Inc. ............................ 40,100 1,453,625
Sara Lee Corp. .......................... 16,200 409,050
------------
1,862,675
------------
Buildings & Real Estate 0.6%
Triangle Pacific Corp. <F2> .............. 42,330 518,543
------------
Chemical 2.7%
Hercules Inc. ........................... 10,000 1,153,750
IMC Global Inc. ......................... 24,000 1,038,000
------------
2,191,750
------------
Computers 4.6%
Compuware Corp. <F2> ..................... 26,000 936,000
Parametric Technology Corp. <F2> ......... 25,000 862,500
Platinum Technology Inc. <F2> ............ 32,400 733,050
Sybase Inc. <F2> ......................... 23,200 1,206,400
------------
3,737,950
------------
Consumer Non-Durables 3.0%
Mattel Inc. ............................. 40,000 1,005,000
Procter & Gamble Co. .................... 23,010 1,426,620
------------
2,431,620
------------
Consumer Services 3.2%
Automatic Data Processing Inc. .......... 23,700 1,386,450
Service Corp. International ............. 44,000 1,221,000
------------
2,607,450
------------
Diversified/Conglomerate Manufacturing 8.3%
Asea AB - ADR (Sweden) .................. 16,600 1,197,275
Eastman Kodak Co. ...................... 28,250 1,348,938
Electrolux - ADR (Sweden) ............... 14,950 760,581
</TABLE>

See Notes to Financial Statements

B-27
<PAGE> 178

Van Kampen Merritt Growth And Income Fund

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

Portfolio of Investments (Continued)
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
<S> <C> <C>
Diversified/Conglomerate Manufacturing (Continued)
Hanson PLC - ADR (United Kingdom) .............................. 45,000 $ 810,000
Thermo Electron Corp. <F2> ...................................... 30,300 1,359,712
Trinity Inds Inc. ............................................. 42,000 1,323,000
------------
6,799,506
------------
Diversified/Conglomerate Service 1.8%
ITT Corp. ..................................................... 16,200 1,435,725
------------
Ecological 2.2%
Waste Management International PLC - ADR (United Kingdom) <F2> .. 45,000 511,875
WMX Technologies Inc. .......................................... 47,300 1,241,625
------------
1,753,500
------------
Electronics 2.7%
Avnet Inc. .................................................... 37,300 1,380,100
Intel Corp. .................................................... 12,900 823,988
------------
2,204,088
------------
Energy 7.3%
Burlington Resources Inc. ...................................... 35,000 1,225,000
Norsk Hydro A S - ADR (Norway) ................................. 30,000 1,173,750
Texaco Inc. .................................................... 22,210 1,329,824
Triton Energy Corp. <F2> ....................................... 30,000 1,020,000
Unocal Corp. ................................................... 42,600 1,160,850
------------
5,909,424
------------
Financial Services 2.4%
Capital One Financial Corp. <F2> ................................ 52,750 844,000
Federal Home Loan Mortgage Corp. ............................... 16,340 825,170
Morgan Stanley Group Inc. - Preferred .......................... 20,000 325,000
------------
1,994,170
------------
Healthcare 4.4%
Health & Retirement Property Trust ............................. 59,950 801,831
Healthcare Realty Trust Inc. ................................... 41,100 863,100
Living Centers of America Inc. <F2> ............................. 28,900 964,538
Sybron International Corp. <F2> ................................. 26,900 928,050
Theratx Inc. <F2> ............................................... 2,000 39,000
------------
3,596,519
------------
Insurance 3.7%
American International Group Inc. .............................. 14,400 1,411,200
Mid Ocean Ltd. <F2> ............................................ 50,750 1,382,938
Reliance Group Holdings Inc. ................................... 44,850 229,856
------------
3,023,994
------------
</TABLE>

See Notes to Financial Statements

B-28
<PAGE> 179

Van Kampen Merritt Growth And Income Fund

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

See Notes to Financial Statements

B-29
<PAGE> 180

Van Kampen Merritt Growth And Income Fund

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

Portfolio of Investments (Continued)
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
<S> <C> <C>
Transportation 3.3%
Burlington Northern Inc. .................................................... 10,650 $ 512,531
Burlington Northern Inc. - Preferred ........................................ 14,300 761,475
J B Hunt Transport Services Inc. ............................................ 49,700 757,925
Southern Pacific Rail Corp. <F2> ............................................. 37,570 680,956
----------
2,712,887
----------
Utilities 6.8%
Bellsouth Corp. ............................................................ 23,700 1,282,762
Enron Corp. ................................................................. 45,000 1,372,500
Georgia Power Co. - Preferred ............................................... 33,700 690,850
Nynex Corp. ................................................................. 25,000 918,750
Sonat Inc. ................................................................. 44,500 1,246,000
----------
5,510,862
----------
Total Common and Preferred Stock ....................................................... 76,302,756
Convertible Bonds 0.7%
AMR Corp. ($700,000 par, 6.125% coupon, 11/01/24 maturity, S&P Rating BB-) ............ 560,000
----------
Total Long-Term Investments 94.3%
(Cost $76,979,231) <F1> ................................................................ 76,862,756
----------
Short-Term Investments 9.1%
Mexican Tesobonos, $1,000,000 par, yielding 8.92%, 11/30/95 maturity .................. 899,600
Mexican Tesobonos, $500,000 par, yielding 8.39%, 07/13/95 maturity .................... 469,500
Mexican Tesobonos, $769,000 par, yielding 8.28%, 05/04/95 maturity .................... 738,240
Repurchase Agreement, J.P. Morgan Securities, US T-Note, $5,874,000 par, 5.125% coupon,
due 12/31/98, dated 12/30/94, to be sold on 01/03/95 at $5,373,133 .................... 5,370,000
----------
Total Short-Term Investments (Cost $7,522,071) <F1> .................................... 7,477,340
Liabilities in Excess of Other Assets -3.4%........................................... (2,806,286)
----------
Net Assets 100% ........................................................................ $81,533,810
-----------
<FN>
<F1>At December 31, 1994, cost for federal income tax purposes is $84,501,302;
the aggregate gross unrealized appreciation is $3,285,976 and the aggregate
gross unrealized depreciation is $3,447,182, resulting in net unrealized
depreciation of $161,206.
<F2>Non-income producing security as this stock currently does not declare
dividends.
</FN>

</TABLE>

See Notes to Financial Statements

B-30
<PAGE> 181

Van Kampen Merritt Growth And Income Fund

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

Statement of Assets and Liabilities
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at Market Value (Cost $76,979,231) <F1>......................................... $ 76,862,756
Short-Term Investments (Cost $7,522,071) <F1>................................................ 7,477,340
Cash......................................................................................... 88
Receivables:
Investments Sold............................................................................. 600,070
Fund Shares Sold............................................................................. 299,144
Dividends.................................................................................... 163,108
Interest..................................................................................... 9,152
Other........................................................................................ 3,894
--------------
Total Assets................................................................................. 85,415,552
--------------
Liabilities:
Payables:
Investments Purchased........................................................................ 3,458,900
Fund Shares Repurchased...................................................................... 102,569
Investment Advisory Fee <F2>................................................................. 40,854
Capital Gain Distributions................................................................... 29,493
Income Distributions......................................................................... 26,761
Accrued Expenses............................................................................. 223,165
--------------
Total Liabilities............................................................................ 3,881,742
--------------
Net Assets................................................................................... $ 81,533,810
--------------
Net Assets Consist of:
Paid in Surplus <F3> ........................................................................ $ 82,837,330
Accumulated Equalization Credits <F1>........................................................ 73,248
Accumulated Undistributed Net Investment Income.............................................. 28,366
Net Unrealized Depreciation on Investments................................................... (161,206)
Accumulated Net Realized Loss on Investments ................................................ (1,243,928)
--------------
Net Assets................................................................................... $ 81,533,810
--------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $49,878,068 and
2,792,551 shares of beneficial interest issued and outstanding) <F3>......................... $ 17.86
Maximum sales charge (4.65%* of offering price).............................................. .87
--------------
Maximum offering price to public ............................................................ $ 18.73
--------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $30,236,782 and
1,687,686 shares of beneficial interest issued and outstanding) <F3>......................... $ 17.92
--------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,416,984 and
79,077 shares of beneficial interest issued and outstanding) <F3>............................ $ 17.92
--------------
Class D Shares:
Net asset value and offering price per share (Based on net assets of $1,976 and
111 shares of beneficial interest issued and outstanding) <F3> .............................. $ 17.80
--------------
</TABLE>

*On sales of $100,000 or more, the sales charge will be reduced. Effective
January 16, 1995, the maximum sales charge was changed to 5.75%.

See Notes to Financial Statements

B-31
<PAGE> 182

Van Kampen Merritt Growth And Income Fund

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (Net of foreign withholding taxes of $3,837).......................................... $ 693,015
Interest........................................................................................ 276,661
---------------
Total Income.................................................................................... 969,676
---------------
Expenses:
Investment Advisory Fee <F2> ................................................................... 238,987
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $65,752, $145,392,
$3,749 and $3, respectively) <F6> .............................................................. 214,896
Shareholder Services ........................................................................... 94,862
Custody......................................................................................... 43,345
Legal <F2>...................................................................................... 19,800
Trustees Fees and Expenses <F2>................................................................. 11,200
Other........................................................................................... 41,734
---------------
Total Expenses.................................................................................. 664,824
---------------
Net Investment Income........................................................................... $ 304,852
---------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales............................................................................. $ 56,727,845
Cost of Securities Sold......................................................................... (57,971,773)
---------------
Net Realized Loss on Investments (Including realized loss on closed and expired option
transactions of $646,125 and realized gain on futures transactions of $146,770)................. (1,243,928)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period......................................................................... (3,053,822)
End of the Period .............................................................................. (161,206)
---------------
Net Unrealized Appreciation on Investments During the Period.................................... 2,892,616
---------------
Net Realized and Unrealized Gain on Investments................................................. $ 1,648,688
---------------
Net Increase in Net Assets from Operations...................................................... $ 1,953,540
---------------
</TABLE>

See Notes to Financial Statements

B-32
<PAGE> 183

Van Kampen Merritt Growth And Income Fund

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

Statement of Changes in Net Assets
For the Six Months Ended December 31, 1994
and the Year Ended June 30, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1994 June 30, 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income....................................................... $ 304,852 $ 658,391
Net Realized Gain/Loss on Investments....................................... (1,243,928) 1,407,337
Net Unrealized Appreciation/Depreciation on Investments During the Period... 2,892,616 (5,640,097)
----------------- ---------------
Change in Net Assets from Operations ....................................... 1,953,540 (3,574,369)
----------------- ---------------
Distributions from Net Investment Income:
Class A Shares.............................................................. (733,571) (283,548)
Class B Shares.............................................................. (196,275) (6,360)
Class C Shares.............................................................. (5,002) -0-
Class D Shares.............................................................. (29) -0-
----------------- ---------------
(934,877) (289,908)
----------------- ---------------
Distributions from Net Realized Gain on Investments:
Class A Shares.............................................................. (244,299) (5,555,001)
Class B Shares.............................................................. (148,335) (761,009)
Class C Shares.............................................................. (6,866) (2,518)
Class D Shares.............................................................. (10) -0-
----------------- ---------------
(399,510) (6,318,528)
----------------- ---------------
Total Distributions......................................................... (1,334,387) (6,608,436)
----------------- ---------------
Net Change in Net Assets from Investment Activities......................... 619,153 (10,182,805)
----------------- ---------------
From Capital Transactions <F3>:
Proceeds from Shares Sold................................................... 16,301,451 46,602,308
Net Asset Value of Shares Issued Through Dividend Reinvestment.............. 1,209,754 6,217,989
Cost of Shares Repurchased.................................................. (8,421,148) (8,165,855)
Net Equalization Credits.................................................... 11,051 75,488
----------------- ---------------
Net Change in Net Assets from Capital Transactions ......................... 9,101,108 44,729,930
----------------- ---------------
Total Increase in Net Assets................................................ 9,720,261 34,547,125
Net Assets:
Beginning of the Period..................................................... 71,813,549 37,266,424
----------------- ---------------
End of the Period (Including undistributed net investment income of
$28,366 and $658,391, respectively) ........................................ $ 81,533,810 $ 71,813,549
----------------- ---------------
</TABLE>

See Notes to Financial Statements

B-33
<PAGE> 184

Van Kampen Merritt Growth And Income Fund

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

Notes to Financial Statements
December 31, 1994 (Unaudited)

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

1. Significant Accounting Policies

Van Kampen Merritt Growth and Income Fund (the "Fund") was organized as a
Massachusetts business trust on July 8, 1986, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund commenced investment operations on October
29, 1986 and was reorganized as a subtrust of Van Kampen Merritt Equity Trust
(the "Trust"), a Massachusetts business trust, as of June 17, 1988. The Fund
commenced the distribution of Class B, C and D shares on December 1, 1992,
August 13, 1993, and March 14, 1994, respectively.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation-Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Investments in securities not listed on a securities exchange are valued based
on their last quoted bid price or, if not available, their fair value as
determined by the Board of Trustees. Fixed income investments are stated at
values using market quotations or, if such valuations are not available,
estimates obtained from yield data relating to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Board of Trustees. Short-term securities with remaining maturities of
less than 60 days 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.

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

D. 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 to its shareholders.
Therefore, no provision for federal income taxes is required.

Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.

E. Distribution of Income and Gains-The Fund declares and pays dividends
semi-annually from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes.

F. Equalization-The Fund utilizes an accounting practice known as equalization,
by which a portion of the proceeds from sales and costs of reacquisitions of
capital shares, equivalent on a per share basis to the amount of distributable
net investment income on the date of the transactions, is credited or charged
to an equalization account, which is a component of capital. As a result,
undistributed net investment income per share is unaffected by sales or
reacquisitions of capital shares.

2. Investment Advisory Agreement and Other Transactions with Affiliates Under
the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide facilities and
investment advice to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
- ----------------------------------
<S> <C>
First $500 million... .60 of 1%
Over $500 million.... .50 of 1%
</TABLE>

Certain legal fees are paid to Skadden, Arps, Slate, Meagher & Flom, counsel to
the Fund, of which a trustee of the Fund is an affiliated person.

For the six months ended December 31, 1994, the Fund recognized expenses of
approximately $23,500 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' ("VKAC") cost of providing accounting, legal and
certain shareholder services to the Fund.

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 has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC.

At December 31, 1994, VKAC owned 122, 116 and 100 shares of beneficial interest
of Classes B, C and D, respectively.

B-34
<PAGE> 185

Van Kampen Merritt Growth And Income Fund

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

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)

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

3. Capital Transactions

The Fund has outstanding four classes of common shares, Classes A, B, C and D.
There are an unlimited number of shares of each class without par value
authorized. At December 31, 1994, paid in surplus aggregated $48,959,102,
$32,422,278, $1,453,818 and $2,132, for Classes A, B, C and D, respectively.
For the six months ended December 31, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
Sales:
Class A........................ 358,393 $ 6,488,957
Class B........................ 489,182 8,910,172
Class C........................ 49,779 902,322
Class D........................ -0- -0-
---------- ---------------
Total Sales ................... 897,354 $ 16,301,451
---------- ---------------
Dividend Reinvestment:
Class A........................ 50,517 $ 893,969
Class B........................ 17,224 306,574
Class C........................ 515 9,200
Class D........................ 1 11
---------- ---------------
Total Dividend Reinvestment ... 68,257 $ 1,209,754
---------- ---------------
Repurchases:
Class A........................ (242,721) $ (4,398,548)
Class B........................ (221,683) (4,012,567)
Class C........................ (549) (10,033)
Class D........................ -0- -0-
---------- ---------------
Total Repurchases.............. (464,953) $ (8,421,148)
---------- ---------------
</TABLE>

At June 30, 1994, paid in surplus aggregated $45,974,724, $27,218,099, $552,329
and $2,121, for Classes A , B, C and D, respectively. For the year ended June
30, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 1,040,379 $ 20,367,239
Class B ...................... 1,332,246 25,683,130
Class C....................... 29,202 549,818
Class D....................... 110 2,121
---------- ---------------
Total Sales................... 2,401,937 $ 46,602,308
---------- ---------------
Dividend Reinvestment:
Class A ...................... 286,118 $ 5,506,728
Class B ...................... 36,659 708,750
Class C....................... 130 2,511
Class D....................... -0- -0-
---------- ---------------
Total Dividend Reinvestment... 322,907 $ 6,217,989
---------- ---------------
Repurchases:
Class A ...................... (318,421) $ (6,259,365)
Class B ...................... (98,138) (1,906,490)
Class C....................... -0- -0-
Class D....................... -0- -0-
- ------------------------------ ---------- ---------------
Total Repurchases............. (416,559) $ (8,165,855)
---------- ---------------
</TABLE>

Class B, C and D shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC for Class B, C
and D shares will be imposed on most redemptions made within six years of the
purchase for Class B and one year of the purchase for Classes C and D as
detailed in the following schedule. The Class B, C and D shares bear the
expense of their respective deferred sales arrangements, including higher
distribution and service fees and incremental transfer agency costs.

B-35
<PAGE> 186

Van Kampen Merritt Growth And Income Fund

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

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)

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

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C Class D
- ---------------------------------------------------
<S> <C> <C> <C>
First ................. 4.00% 1.00% 0.75%
Second ................. 3.75% None None
Third .................. 3.50% None None
Fourth ................. 2.50% None None
Fifth ................. 1.50% None None
Sixth .................. 1.00% None None
Seventh and Thereafter . None None None
</TABLE>

For the six months ended December 31, 1994, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$10,000 and CDSC on the redeemed shares of Classes B, C and D of approximately
$83,300. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended December 31, 1994, were $68,721,003
and $57,250,464, respectively.

5. Derivative Financial Instruments

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation on investments.
Upon disposition, a realized gain or loss is recognized accordingly, except for
exercised option contracts where the recognition of gain or loss is postponed
until the disposal of the security underlying the option contract.

Summarized below are the specific types of derivative financial instruments
used by the Fund.

A. Option Contracts An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the
Fund to provide the return of an index without purchasing all of the securities
underlying the index or as a substitute for purchasing specific securities.
Transactions in options for the six months ended December 31, 1994,
were as follows:

<TABLE>
<CAPTION>
Contracts Premium
- -----------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1994....... 972 $ (127,572)
Options Written and
Purchased (Net).................... 14,995 (2,443,748)
Options Terminated in Closing
Transactions (Net)................. (13,577) 2,070,774
Options Expired (Net)............. (2,390) 500,546
--------- -----------
Outstanding at December 31, 1994... -0- $ -0-
--------- -----------
</TABLE>

B. Futures Contracts A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in stock index futures. These contracts are generally
used to provide the return of an index without purchasing all of the
securities underlying the index or as a substitute for purchasing specific
securities.

The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the
contracts are closed or expire.

Transactions in futures contracts for the six months ended December 31, 1994,
were as follows:

<TABLE>
<CAPTION>
Contracts
- ----------------------------------------------
<S> <C>
Outstanding at June 30, 1994....... 36
Futures Opened..................... 341
Futures Closed .................... (377)
------
Outstanding at December 31, 1994... -0-
------
</TABLE>

6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.

Annual fees under the Plans of up to .30% each of Class A and Class D shares
and 1.00% each of Class B and Class C shares are accrued daily. Included in
these fees for the six months ended December 31, 1994, are payments to VKAC of
approximately $111,300.

B-36
<PAGE> 187
Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------

Independent Auditors' Report
- ----------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen Merritt Growth and Income Fund:

We have audited the accompanying statement of assets and liabilities
of Van Kampen Merritt Growth and Income Fund (the "Fund"),
including the portfolio of investments, as of June 30,1994, and the
related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibil-
ity of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based
on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30,1994, by
correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen Merritt Growth and Income Fund as of
June 30,1994, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.

KPMG Peat Marwick
Chicago, Illinois
August 9,1994

B-37
<PAGE> 188

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------

Portfolio of Investments
June 30, 1994
- ----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stock 85.3%
Automobile 8.0%
Borg Warner Automotive Inc............................ 35,000 $ 791,875
Chrysler Corp......................................... 25,800 1,215,825
General Motors Corp................................... 24,000 1,206,000
General Motors Corp. Preferred........................ 20,000 1,127,500
Mascotech Inc......................................... 50,000 662,500
Standard Products Co.................................. 25,000 731,250
------------------
5,734,950
------------------

Basic Industries 3.9%
Corning Inc........................................... 39,000 1,272,375
National Gypsum Co <F2>............................... 30,000 922,500
Wheeling Pittsburgh Corp. <F2>........................ 36,200 633,500
------------------
2,828,375
------------------

Beverage, Food & Tobacco 1.8%
Pepsico Inc........................................... 34,700 1,062,688
RJR Nabisco Holdings Corp. Preferred.................. 35,700 223,125
------------------
1,285,813
------------------

Buildings & Real Estate 3.8%
Masco Corp............................................ 36,000 990,000
Pulte Corp............................................ 32,800 754,400
Toll Brothers Inc..................................... 36,500 465,375
Triangle Pacific Corp. <F2>........................... 42,330 497,377
------------------
2,707,152
------------------

Chemical 6.1%
Dow Chemical Co....................................... 18,700 1,222,512
Goodrich B.F. Co...................................... 21,490 934,815
Methanex Corp. <F2>................................... 40,000 470,000
Praxair Inc........................................... 49,600 967,200
Union Carbide Corp.................................... 29,200 781,100
------------------
4,375,627
------------------

Computers 2.3%
MB Communications Inc................................. 13,000 133,250
Micom Communications <F2>............................. 8,666 97,493
Novell Inc............................................ 27,700 463,975
Oracle Systems Corp................................... 24,700 926,250
------------------
1,620,968
------------------
</TABLE>
See Notes to Financial Statements

B-38

<PAGE> 189

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------

Portfolio of Investments (Continued)
June 30, 1994
- ----------------------------------------------------------------------------

Consumer Non-Durables 4.4%
Mattel Inc............................................ 40,000 1,015,000
Newell Co............................................. 22,600 1,045,250
Procter & Gamble Co................................... 20,000 1,067,500
------------------
3,127,750
------------------

Consumer Services 1.4%
Service Corp. International........................... 38,200 983,650
------------------

Diversified/Conglomerate Manufacturing 3.2%
Eastman Kodak Co...................................... 24,610 1,184,356
Thermo Electron Corp.................................. 30,300 1,128,675
------------------
2,313,031
------------------

Diversified/Conglomerate Service 1.4%
ITT Corp.............................................. 12,000 979,500
------------------

Ecological 1.7%
WMX Technologies Inc.................................. 47,300 1,253,450
------------------

Electrical Supply 1.4%
Avnet Inc............................................. 33,000 1,039,500
------------------

Electronics 4.0%
AMP Inc............................................... 21,000 1,454,250
Cerplex Group Inc. <F2>............................... 24,300 303,750
Polaroid Corp......................................... 17,400 554,625
Westinghouse Electric Corp. Preferred <F4>............ 43,500 554,625
------------------
2,867,250
------------------

Energy 7.2%
Burlington Resources Inc.............................. 25,000 1,034,375
Chevron Corp.......................................... 26,400 1,105,500
Enron Corp............................................ 30,000 982,500
Triton Energy Corp.................................... 26,000 861,250
Unocal Corp........................................... 42,600 1,219,425
------------------
5,203,050
------------------

Financial Services 6.3%
Ahmanson H.F. & Co.................................... 38,300 722,912
American International Group Inc. <F3>................ 14,400 1,247,400
Chubb Corp............................................ 14,000 1,072,750
General Reinsurance Corp.............................. 9,510 1,036,590
MGlC Investment Corp.................................. 10,000 265,000
Morgan Stanley Group Inc. Preferred................... 9,500 180,500
------------------
4,525,152
------------------
</TABLE>
See Notes to Financial Statements

B-39
<PAGE> 190

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------
Portfolio of Investments (Continued)
June 30, 1994
- ----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Healthcare 4.6%
Healthcare Realty Trust............................... 34,200 $ 731,025
Healthtrust Inc. <F2>................................. 36,000 999,000
Living Centers of America Inc. <F2>................... 28,900 830,875
National Health Labs Holdings Inc..................... 60,000 727,500
------------------
3,288,400
------------------
Leisure 1.3%
International Game Technology......................... 50,100 945,638
------------------

Machinery 1.6%
Case Equipment Corp. <F2>............................. 22,000 415,250
Cyprus Amax Minerals Co............................... 25,000 743,750
------------------
1,159,000
------------------
Medical Supplies 1.1%
Merck & Co. Inc. <F2>................................. 27,000 803,250

Packaging & Container 0.7%
Jefferson Smurfit Corp. <F2>.......................... 30,000 483,750
------------------

Printing, Publishing & Broadcasting 2.8%
Comcast Corp.......................................... 60,000 1,080,000
Time Warner Inc....................................... 27,500 965,937
------------------
2,045,937
------------------

Retail 2.3%
TJX Companies Inc..................................... 25,500 557,813
Wal Mart Stores Inc................................... 43,900 1,064,575
------------------
1,622,388
------------------

Technology 2.6%
Motorola Inc.......................................... 23,800 1,059,100
U.S. Robotics Inc. <F2>............................... 30,000 810,000
------------------
1,869,100
------------------
Telecommunications 4.6%
Alcatel Alsthom Compagnie
Generale d' Electricite ADR (France)................ 30,500 663,375
Antec Corp. <F2>...................................... 30,900 726,150
DSC Communications Corp............................... 60,000 1,173,750
Vodafone Group PLC ADR (United Kingdom)............... 9,500 719,625
------------------
3,282,900
------------------
Transportation 4.7%
AMR Corp. <F2>........................................ 14,700 872,812
GATX.................................................. 27,000 1,093,500
Santa Fe Pacific Corp................................. 32,800 684,700
Southern Pacific Rail Corp. <F2>...................... 37,400 733,975
------------------
3,384,987
------------------
</TABLE>
See Notes to Financial Statements

B-40
<PAGE> 191

Total Common and Preferred Stock...................... 61,214,381
------------------

Convertible Bonds 1.4%
Airborne Freight Corp. ($450,000 par, 6.75%
coupon, 08/15/01 maturity, S&P rating BBB)......... 472,500
Champion International Corp. ($500,000 par, 6.50%
coupon, 04/15/11 maturity, S&P rating BBB-).......... 524,375
------------------

Total Convertible Bonds............................... 996,875
------------------

Other 0.3%
Morgan Stanley Group Inc, 42,500 Japan Index
Callable Warrants Expiring 05/28/96................ 244,375
------------------

Total Long-Term Investments 87.0%
(Cost $65,508,969) <F1>............................. 62,455,631
------------------

Short-Term Investments at Amortized Cost 14.3%
Repurchase Agreement, UBS Securities, U.S. T-Note,
$8,430,000 par, 6.50% coupon, due 05/15/97, dated
06/30/94, to be sold on 07/01/94 at $8,336,973 8,336,000
Other.............................................. 1,939,247
------------------

Total Short-Term Investments at Amortized Cost........ 10,275,247

Liabililies in Excess of Other Assets (1.3%)......... (917,329)
------------------

Net Assets 100%....................................... $ 71,813,549
------------------

<FN>
<F1> At June 30,1994, cost for federal income tax purposes is
$65,508,969: the aggregate gross unrealized appreciation is
$1,765,839 and the aggregate gross unrealized depreciation
is $4,819,661, resulting in net unrealized depreciation
including open option and futures transactions of $3,053,822.

<F2> Non-income producing security as this stock currently does
not declare dividends.

<F3> Assets segregated as collateral for open option and futures
transactions.

<F4> Restricted security.
</TABLE>

See Notes to Financial Statements

B-41

<PAGE> 192

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------

Statement of Assets and Liabilities
June 30, 1994
- ----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $65,508,969) (Note 1)............................................. $ 62,455,631
Short-Term Investments (Note 1)...................................................................... 10,275,247
Cash................................................................................................. 478
Receivables:
Investments Sold.................................................................................... 4,653,092
Dividends........................................................................................... 500,271
Fund Shares Sold.................................................................................... 305,608
Margin on Futures................................................................................... 67,500
Interest............................................................................................ 19,525
Options at Market Value (Net premiums paid of $127,572).............................................. 413
Other................................................................................................ 4,324
------------
Total Assets........................................................................................ 78,282,089
------------

Liabilities:
Payables:
Investments Purchased............................................................................... 6,077,363
Fund Shares Repurchased............................................................................. 160,223
Investment Advisory Fee (Note 2).................................................................... 35,942
Accrued Expenses..................................................................................... 195,012
------------
Total Liabilities................................................................................... 6,468,540
------------
Net Assets........................................................................................... $ 71,813,549
------------

Net Assets Consist of:
Paid in Surplus (Note 3)............................................................................. $ 73,747,273
Accumulated Undistributed Net Investment Income...................................................... 658,391
Accumulated Net Realized Gain on Investments......................................................... 399,510
Accumulated Equalization Credits (Note 1)............................................................ 62,197
Net Unrealized Depreciation on Investments........................................................... (3,053,822)
------------
Net Assets........................................................................................... $ 71,813,549
------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (based on net assets of $46,482,036 and
2,626,362 shares of beneficial interest issued and outstanding) (Note 3)............................ $ 17.70
------------
Maximum sales charge (4.65% of offering price)...................................................... .86
Maximum offering price to public.................................................................... $ 18.56
------------
Class B Shares:
Net asset value and offering price per share (based on net assets of $24,810,677 and
1,402,963 shares of beneficial interest issued and outstanding) (Note 3)............................ $ 17.68
------------
Class C Shares:
Net asset value and offering price per share (based on net assets of $518,898 and
29,332 shares of beneficial interest issued and outstanoing) (Note 3)............................ $ 17.69
------------
Class D Shares:
Net asset value and offering price per share (based on net assets of $1,938 and
110 shares of beneficial interest issued and outstanding) (Note 3)............................... $ 17.62
------------
*0n sales of $100,000 or more, the offering price will be reduced.

</TABLE>
See Notes to Financial Statements

B-42

<PAGE> 193

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------

Statement of Operations
For the Year Ended June 30, 1994
- ----------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends (Net of foreign withholding taxes of $7,508)............................................... $ 1,360,648
Interest............................................................................................. 200,390
------------
Total Income........................................................................................ 1,561,038
------------

Expenses:
Investment Advisory Fee (Note 2)..................................................................... 304,973
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $113,468, $99,797,
$1,426 and $2, respectively) (Note 5).............................................................. 214,693
Shareholder Services................................................................................. 122,798
Custody.............................................................................................. 90,042
Printing............................................................................................. 61,600
Legal (Note 2)....................................................................................... 27,720
Trustees Fees and Expenses (Note 2).................................................................. 27,182
Other................................................................................................ 53,639
------------
Total Expenses...................................................................................... 902,647
------------

Net Investment Income................................................................................ $ 658,391
------------

Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales................................................................................. $ 90,944,864
Cost of Securities Sold............................................................................. (89,537,527)
------------
Net Realized Gain on Investments (Including realized loss on closed and expired option
transactions of $1,243,287 and realized gain on futures transactions of $255,523).................. 1,407,337
------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period............................................................................ 2,586,275
End of the Period (Including unrealized depreciation on open option transactions of $127,159
and unrealized appreciation on open futures transactions of $126,675)............................. (3,053,822)
------------
Net Unrealized Depreciation on Investments During the Period......................................... (5,640,097)
------------
Net Realized and Unrealized Loss on Investments...................................................... $(4,232,760)
------------
Net Decrease in Net Assets from Operations........................................................... $(3,574,369)
------------

</TABLE>
See Notes to Financial Statements

B-43

<PAGE> 194

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Years Ended June 30, 1994 and 1993
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1994 June 30, 1993
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................................................. $ 658,391 $ 550,320
Net Realized Gain on Investments.................................................................. 1,407,337 5,545,152
Net Unrealized Depreciation on Investments During the Period...................................... (5,640,097) (1,456,804)
------------ -----------
Change in Net Assets from Operations.............................................................. (3,574,369) 4,638,668
------------ -----------

Distributions from Net Investment Income:
Class A Shares................................................................................... (283,548) (491,270)
Class B Shares................................................................................... (6,360) (139)
------------ -----------
(289,908) (491,409)
------------ -----------

Distributions from Net Realized Gain on Investments:
Class A Shares................................................................................... (5,555,001) (1,497,079)
Class B Shares................................................................................... (761,009) (12,763)
Class C Shares................................................................................... (2,518) -0-
------------ -----------
(6,318,528) (1,509,842)
------------ -----------
Total Distributions.............................................................................. (6,608,436) (2,001,251)
------------ -----------
Net Change in Net Assets from Investment Activities...............................................(10,182,805) 2,637,417
------------ -----------

From Capital Transactions (Note 3):
Proceeds from Shares Sold......................................................................... 46,602,308 10,281,518
Net Asset Value of Shares Issued Through Dividend Reinvestment.................................... 6,217,989 1,880,352
Cost of Shares Repurchased........................................................................ (8,165,855) (5,933,712)
Net Equalization Credits.......................................................................... 75,488 16,785
------------ -----------
Net Change in Net Assets from Capital Transactions................................................ 44,729,930 6,244,943
------------ -----------
Total Increase in Net Assets...................................................................... 34,547,125 8,882,360

Net Assets:
Beginning of the Period........................................................................... 37,266,424 28,384,064
------------ -----------
End of the Period (Including undistributed net investment income
of $658,391 and $301,180, respectively).........................................................$ 71,813,549 $ 37,266,424
------------ -----------
</TABLE>
See Notes to Financial Statements

B-44

<PAGE> 195

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------
Notes to Financial Statements
June 30, 1994
- ----------------------------------------------------------------------------

1. Significant Accounting Policies
Van Kampen Merritt Growth and Income Fund (the "Fund") was
organized as a Massachusetts business trust on July 8,1986, and is
registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund
commenced investment operations on October 29,1986 and was
reorganized as a subtrust of Van Kampen Merritt Equity Trust (the
"Trust"), a Massachusetts business trust, as of June 17,1988. On
December 1,1992, the Fund commenced the distribution of Class B
shares. The distribution of the Fund's Class C shares, which were
initially introduced as Class D shares and subsequently renamed
Class C shares on March 7,1994, commenced on August 13,1993.
The distribution of the Fund's fourth class of shares, Class D shares,
commenced on March 14,1994.

The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.

A. Security Valuation-Investments in securities listed on a
securities exchange are valued at their sale price as of the close of
such securities exchange. Investments in securities not listed on a
securities exchange are valued based on their last quoted bid price
or, if not available, their fair value as determined by the Board of
Trustees. Fixed income investments are stated at values using market
quotations or, if such valuations are not available, estimates obtained
from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining
maturities of less than 60 days 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.

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

D. 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 to its shareholders. Therefore, no provision for
federal income taxes is required.

Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses
which are not recognized for tax purposes until the first day of the
following fiscal year.

E. Distribution of Income and Gains-The Fund declares
and pays dividends semi-annually from net investment income. Net
realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains
and gains on option and futures transactions. All short-term capital
gains and a portion of option and futures gains are included in
ordinary income for tax purposes.

During the current period, the Fund adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distribu-
tions by Investment Companies." Accordingly, cumulative permanent
book and tax basis differences relating to shareholder distributions
totaling ($11,272), ($498,780) and $510,052 have been reclassified
between accumulated undistributed net investment income, accumu-
lated net realized gain/loss on investments and Class A share paid in
surplus, respectively. Net investment income, net realized gains, and
net assets were not affected by this change.

F. Equalization-The Fund utilizes an accounting practice known
as equalization, by which a portion of the proceeds from sales and
costs of reacquisitions of capital shares, equivalent on a per share
basis to the amount of distributable net investment income on the date
of the transactions, is credited or charged to an equalization account, which
is a component of capital. As a result, undistributed net investment income
per share is unaffected by sales or reacquisitions of capital shares.

G. Option and Futures Transactions-Premiums received
from call options written are recorded as deferred credits. The posi-
tion is marked to market daily with any difference between the
options' current market value and premiums received recorded as an
unrealized gain or loss. If the options are not exercised, premiums
received are realized as a gain at expiration date. If the position is
closed prior to expiration, a gain or loss is realized based on
premiums received less the cost of the closing transaction. When
options are exercised, premiums received are added to the proceeds
from the sale of the underlying securities and a gain or loss is
realized accordingly. These same principles apply to the sale of put
options.

B-45

<PAGE> 196

Van Kampen Merritt Growth And Income Fund
- ----------------------------------------------------------------------------
Notes to Financial Statements (Continued)
June 30, 1994
- ----------------------------------------------------------------------------

Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through
the exercise of call options is increased by premiums paid. The pro-
ceeds from securities sold through the exercise of put options are
decreased by premiums paid.

Futures contracts are marked to market daily with fluctuations in
value settled daily in cash through a margin account. Gains or losses
are realized at the time the position is closed out or the contract
expires.

2. Investment Advisory Agreement and Other Transactions
with Affiliates
Under the terms of the Fund's Investment Advisory Agreement,
Van Kampen Merritt Investment Advisory Corp. (the "Adviser") will
provide facilities and investment advice to the Fund for an annual fee
payable monthly as follows:

Average Net Assets % Per Annum
- ----------------------------------------------------------------------------
First $500 million................................... .60 of 1%
Over $500 million.................................... .50 of 1%

Certain legal fees are paid to Skadden, Arps, Slate, Meagher &
Flom, counsel to the Fund, of which a trustee of the Fund is an
affiliated person.

For the year ended June 30,1994, the Fund recognized expenses
of approximately $38,300, representing Van Kampen Merritt's or the
Adviser's cost of providing accounting, legal and certain shareholder
services to the Fund.

Certain officers and trustees of the Fund are also officers and
directors of the Adviser and Van Kampen Merritt. The Fund does not
compensate its officers or trustees who are officers of the Adviser or
Van Kampen Merritt.

At June 30,1994, Van Kampen Merritt owned 122,116 and
100 shares of beneficial interest of Classes B, C and D, respectively.

3. Capital Transactions
The Fund has outstanding four classes of common shares, Classes
A, B, C and D. There are an unlimited number of shares of each
class without par value authorizcd. At June 30,1994. paid in surplus
aggregated $45,974,724, $27,218,099, $552,329 and $2,121, for
Classes A, B, C and D, respectively. For the year ended June 30,
1994, transactions were as follows:

Shares Value
- ----------------------------------------------------------------------------
Sales:
Class A..................... 1,040,379 $ 20,367,239
Class B..................... 1,332,246 25,683,130
Class C..................... 29,202 549,818
Class D..................... 110 2,121
---------- -------------
Total Sales 2,401,937 $ 46,602,308
---------- -------------

Dividend Reinvestment:
Class A..................... 286,118 $ 5,506,728
Class B..................... 36,659 708,750
Class C..................... 130 2,511
Class D..................... 0 0
---------- -------------
Total Dividend Reinvestment 322,907 $ 6,217,989
---------- -------------

Repurchases:
Class A..................... (318,421) $ (6,259,365)
Class B..................... (98,138) (1,906,490)
Class C..................... 0 0
Class D..................... 0 0
---------- -------------
Total Repurchases (416,559) $ (8,165,855)
---------- -------------

At June 30,1993, paid in surplus aggregated $25,850,070 and
$2,732,709 for Classes A and B, respectively. For the year ended
June 30,1993, transactions were as follows:

Shares Value
- ----------------------------------------------------------------------------
Sales:
Class A...................... 366,085 $ 7,355,797
Class B...................... 141,339 2,925.721
---------- -------------
Total Sales 507,424 $ 10,281,518
---------- -------------

Dividend Reinvestment:
Class A...................... 95,297 $ 1,870,438
Class B...................... 500 9,914
---------- -------------
Total Dividend Reinvestment 95,797 $ 1,880,352
---------- -------------

Repurchases:
Class A...................... (284,423) $ (5,730,786)
Class B...................... (9,643) (202,926)
---------- -------------
Total Repurchases (294,066) $ (5,933,712)
---------- -------------

B-46
<PAGE> 197

Class B, C and D shares are offered without a front end sales
charge, but are subject to a contingent deferred sales charge (CDSC).
The CDSC for Class B, C and D shares will be imposed on most
redemptions made within six years of the purchase for Class B and
one year of the purchase for Classes C and D as detailed in the
following schedule. The Class B, C and D shares bear the expense
of their respective deferred sales arrangements, including higher
distribution and service fees and incremental transfer agency costs.

Contingent Deferred
Sales Charge
Year of Redemption Class B Class C Class D
- ----------------------------------------------------------------------------
First........................... 4.00% 1.00% 0.75%
Second.......................... 3.75% None None
Third........................... 3.50% None None
Fourth.......................... 2.50% None None
Fifth........................... 1.50% None None
Sixth........................... 1.00% None None
Seventh and Thereafter.......... None None None

For the year ended June 30, 1994, Van Kampen Merritt, as
Distributor for the Fund, received net commissions on sales of the
Fund's Class A shares of $132 and CDSC on the redeemed shares
of Classes B, C and D of approximately $25,000. Sales charges do
not represent expenses of the Fund.

4. Inveqtment Transactions
Aggregate purchases and cost of sales of investment securities,
excluding short-term notes, for the year ended June 30,1994, were
$120,943,402 and $89,537,527, respectively.

Transactions in options for the year ended June 30,1994, were
as follows:
Contracts Premium
- ----------------------------------------------------------------------------
Outstanding at June 30,1993...... 600 $ (89,821)
Options Written and
Purchased (Net)................ 12,182 (2,423,651)
Options Expired (Net)............ (745) 224,360
Options Terminated in
Closing Transactions (Net)....... (11,065) 2,161,540
---------- -------------
Outstanding at June 30,1994...... 972 $ (127,572)
---------- -------------

The related futures contracts of the outstanding option trans-
actions at June 30,1994, and the descriptions and market values are
as follows:
Expiration
Month/ Market
Exercise Value of
Contracts Price Option
- ----------------------------------------------------------------------------
S&P 500 Index
Purchased Call........................ 300 July/455 $ 24,375
Purchased Call........................ 136 July/445 57,800
S&P 500 Index
Written Put........................... 136 July/445 (65,450)
Novel Inc.
Written Call.......................... 10 July/17-1/2 (375)
Written Call.......................... 250 July/17-1/2 (9,375)
Merck & Co.
Written Call.......................... 140 July/30 (6,562)
----- --------
972 $ 413
----- --------

The futures contracts outstanding at June 30,1994, and the
description and unrealized appreciation is as follows:

Unrealized
Contracts Appreciation
- ----------------------------------------------------------------------------
S&P 500 Index Futures
Sept 1994-Sell to Open............... 36 $126,675
---- ----------

5. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 and a service plan (the "Service Plan," collec-
tively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of
shareholder accounts.

Annual fees under the Plans of up to .30% each of Class A and
Class D shares and 1.00% each of Class B and Class C shares are
accrued daily. Included in these fees for the year ended June 30,
1994, are payments to Van Kampen Merritt of approximately $94,000.

B-47
<PAGE> 198

APPENDIX C

AMERICAN CAPITAL GROWTH AND INCOME FUND

INVESTMENT PORTFOLIO
November 30, 1994

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NUMBER
OF SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC COMMON STOCK 69.8%
CONSUMER DISTRIBUTION 4.3%
35,000 American Stores Co................................................ $ 923,125
20,000 Dayton Hudson Corp................................................ 1,632,500
45,000 Limited, Inc...................................................... 871,875
44,000 May Department Stores Co.......................................... 1,595,000
*27,000 Michael's Stores, Inc............................................. 1,069,875
*32,000 Nine West Group, Inc.............................................. 792,000
21,000 Nordstrom, Inc.................................................... 1,013,250
43,000 Sears, Roebuck & Co............................................... 2,031,750
------------
TOTAL CONSUMER DISTRIBUTION....................................... 9,929,375
------------
CONSUMER DURABLES 1.8%
50,000 Black & Decker Corp............................................... 1,200,000
19,000 Eastman Kodak Co.................................................. 866,875
39,000 Echlin, Inc....................................................... 1,179,750
22,000 Stanley Works..................................................... 786,500
------------
TOTAL CONSUMER DURABLES........................................... 4,033,125
------------
CONSUMER NON-DURABLES 8.7%
30,000 Anheuser Busch Companies, Inc..................................... 1,473,750
23,000 Clorox Co......................................................... 1,339,750
*68,000 Dr. Pepper/Seven-Up Companies, Inc................................ 1,683,000
35,000 Heinz (H.J.) Co................................................... 1,273,125
20,000 Hershey Foods Corp................................................ 935,000
25,000 Kellogg Co........................................................ 1,421,875
67,000 Liz Claiborne, Inc................................................ 1,515,875
68,000 Pet, Inc.......................................................... 1,147,500
39,000 Procter & Gamble Co............................................... 2,437,500
39,000 Ralston Purina Group.............................................. 1,672,125
32,000 Reebok International, Ltd......................................... 1,228,000
43,000 Rubbermaid, Inc................................................... 1,161,000
36,000 Sara Lee Corp..................................................... 877,500
100,000 U.S. Shoe Co...................................................... 1,662,500
------------
TOTAL CONSUMER NON-DURABLES....................................... 19,828,500
------------
</TABLE>

C-1
<PAGE> 199

AMERICAN CAPITAL GROWTH AND INCOME FUND

INVESTMENT PORTFOLIO -- CONTINUED
November 30, 1994

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NUMBER
OF SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES 4.8%
10,000 Capital Cities ABC, Inc........................................... $ 817,500
29,000 Dun & Bradstreet Corp............................................. 1,533,375
43,400 Gaylord Entertainment Co., Class A................................ 981,925
55,000 McDonald's Corp................................................... 1,560,625
16,000 Omnicom Group..................................................... 834,000
32,000 Readers Digest Association, Inc................................... 1,480,000
15,000 Tribune Co........................................................ 751,875
41,000 Walt Disney Co.................................................... 1,788,625
78,000 Wendy's International, Inc........................................ 1,092,000
------------
TOTAL CONSUMER SERVICES........................................... 10,839,925
------------
ENERGY 4.9%
26,000 Amoco Corp........................................................ 1,579,500
24,000 Exxon Corp........................................................ 1,449,000
23,000 Mobil Corp........................................................ 1,960,750
44,000 Occidental Petroleum Corp......................................... 863,500
125,000 Pacific Enterprises............................................... 2,671,875
35,700 Panhandle Eastern Corp............................................ 754,163
19,000 Sun Co., Inc...................................................... 553,375
72,000 USX-Marathon Group................................................ 1,296,000
------------
TOTAL ENERGY...................................................... 11,128,163
------------
FINANCE 10.2%
50,000 Ahmanson (H.F.) & Co.............................................. 831,250
32,000 American General Corp............................................. 840,000
14,000 American International Group, Inc................................. 1,282,750
47,000 Bank of Boston Corp............................................... 1,257,250
32,000 Bankamerica Corp.................................................. 1,312,000
15,000 Bankers Trust Corp................................................ 888,750
25,000 Chemical Banking Corp............................................. 909,375
14,000 Cigna Corp........................................................ 887,250
22,000 Crestar Financial Corp............................................ 841,500
55,000 DeBartolo Realty Corp............................................. 776,875
23,000 Equity Residential Properties Trust............................... 623,875
10,000 Federal National Mortgage Association............................. 711,250
50,000 Federal Realty Investment Trust................................... 1,050,000
30,000 First Bank System, Inc............................................ 997,500
</TABLE>

C-2
<PAGE> 200

AMERICAN CAPITAL GROWTH AND INCOME FUND

INVESTMENT PORTFOLIO -- CONTINUED
November 30, 1994

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NUMBER
OF SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
8,000 General Re Corp................................................... $ 939,000
14,000 Health Care Property Investments.................................. 374,500
33,000 Liberty Property Trust............................................ 581,625
72,000 Manufactured Home Communities, Inc................................ 1,224,000
15,000 MBIA, Inc......................................................... 787,500
18,000 NationsBank Corp.................................................. 807,750
15,000 Post Properties, Inc.............................................. 433,125
42,000 RFS Hotel Investments, Inc........................................ 588,000
30,000 St. Paul Companies, Inc........................................... 1,237,500
33,000 Transamerica Corp................................................. 1,563,375
10,000 Wells Fargo & Co.................................................. 1,445,000
------------
TOTAL FINANCE..................................................... 23,191,000
------------
HEALTH CARE 8.9%
28,000 Abbott Laboratories, Inc.......................................... 892,500
15,000 American Home Products Corp....................................... 976,875
*31,000 Amgen, Inc........................................................ 1,809,625
68,000 Baxter International, Inc......................................... 1,751,000
35,000 Bristol Myers Squibb Co........................................... 2,021,250
26,700 Eli Lilly & Co.................................................... 1,672,088
*26,000 Genetech, Inc..................................................... 1,222,000
*24,000 Genetics Institute................................................ 930,000
*46,000 Healthtrust, Inc. -- The Hospital Co.............................. 1,483,500
*30,000 Nellcor, Inc...................................................... 1,016,250
12,000 Pfizer, Inc....................................................... 928,500
18,100 Schering Plough Corp.............................................. 1,355,238
67,000 Upjohn Co......................................................... 2,152,375
26,000 Warner Lambert Co................................................. 2,011,750
------------
TOTAL HEALTH CARE................................................. 20,222,951
------------
PRODUCER MANUFACTURING 4.3%
47,000 Allied Signal, Inc................................................ 1,533,375
64,000 Browning Ferris Industries, Inc................................... 1,728,000
23,000 Fluor Corp........................................................ 986,125
35,000 General Electric Co............................................... 1,610,000
26,000 Illinois Tool Works, Inc.......................................... 1,053,000
15,000 United Technologies Corp.......................................... 877,500
*22,000 Varity Corp....................................................... 819,500
</TABLE>

C-3
<PAGE> 201

AMERICAN CAPITAL GROWTH AND INCOME FUND

INVESTMENT PORTFOLIO -- CONTINUED
November 30, 1994

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NUMBER
OF SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
48,000 WMX Technologies, Inc............................................. $ 1,236,000
------------
TOTAL PRODUCER MANUFACTURING...................................... 9,843,500
------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.0%
18,700 Ball Corp......................................................... 525,938
37,000 Bemis, Inc........................................................ 818,625
45,000 Cabot Corp........................................................ 1,175,625
12,000 Dow Chemical Co................................................... 768,000
25,000 DuPont (E.I.) de Nemours & Co..................................... 1,346,875
21,000 Eastman Chemical Co............................................... 989,625
102,000 Ethyl Corp........................................................ 1,045,500
12,000 International Paper Co............................................ 858,000
23,000 Scott Paper Co.................................................... 1,500,750
------------
TOTAL RAW MATERIALS/PROCESSING MATERIALS.......................... 9,028,938
------------
TECHNOLOGY 8.0%
36,000 Adobe Systems, Inc................................................ 1,188,000
26,000 Boeing Co......................................................... 1,163,500
37,000 Computer Associates International, Inc............................ 1,683,500
*30,000 DSC Communication Corp............................................ 937,500
68,000 International Business Machines Corp.............................. 4,811,000
31,000 Loral Corp........................................................ 1,228,375
10,000 McDonnell Douglas Corp............................................ 1,395,000
*17,000 Microsoft Corp.................................................... 1,068,875
15,000 Motorola, Inc..................................................... 845,625
33,000 Northern Telecom, Ltd............................................. 1,056,000
26,000 Rockwell International Corp....................................... 880,750
20,000 Xerox Corp........................................................ 1,965,000
------------
TOTAL TECHNOLOGY.................................................. 18,223,125
------------
UTILITIES 9.9%
24,000 AT&T Corp......................................................... 1,179,000
20,000 Bellsouth Corp.................................................... 1,037,500
85,000 Duke Power Co..................................................... 3,463,750
40,000 GTE Corp.......................................................... 1,225,000
32,000 NIPSCO Industries, Inc............................................ 936,000
30,000 NYNEX Corp........................................................ 1,128,750
35,000 Pacific Telesis Group............................................. 1,015,000
135,000 Pacificorp........................................................ 2,497,500
93,000 Peco Energy Co.................................................... 2,243,625
</TABLE>

C-4
<PAGE> 202

AMERICAN CAPITAL GROWTH AND INCOME FUND

INVESTMENT PORTFOLIO -- CONTINUED
November 30, 1994

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NUMBER
OF SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
84,000 Rochester Telephone Corp.......................................... $ 1,827,000
76,300 Southern Co....................................................... 1,583,225
115,000 Sprint Corp....................................................... 3,435,625
30,000 Texas Utilities Co................................................ 978,750
------------
TOTAL UTILITIES................................................... 22,550,725
------------
TOTAL DOMESTIC COMMON STOCK (Cost $153,783,590)................... 158,819,327
------------
FOREIGN COMMON STOCK 6.2%
42,000 British Petroleum Co., PLC, ADR................................... 3,333,750
20,000 Daimler Benz, AG, ADS............................................. 950,000
23,000 Ericsson (L.M.), Class B, ADR..................................... 1,276,500
58,000 Hanson, PLC, ADR.................................................. 1,058,500
40,000 Hong Kong Telecom, Ltd., ADR...................................... 775,000
*51,000 Huaneng Power International, ADR.................................. 879,750
69,000 Phillip N.V., ADR................................................. 2,087,250
24,000 Royal Dutch Petroleum Corp., ADR.................................. 2,607,000
22,000 Telefonos de Mexico, S.A., ADR.................................... 1,166,000
------------
TOTAL FOREIGN COMMON STOCK (Cost $12,957,563)..................... 14,133,750
------------
CONVERTIBLE PREFERRED STOCK 4.8%
CONSUMER DURABLES 1.9%
40,000 NorAm Energy Corp., $3.00......................................... 1,250,000
20,000 Occidental Petroleum Corp., $7.75................................. 992,500
200,000 RJR Nabisco Holdings Corp., Inc., $.60125......................... 1,350,000
18,000 Transco Energy Co., $3.50......................................... 729,000
------------
TOTAL CONSUMER DURABLES........................................... 4,321,500
------------
FINANCE 0.9%
18,000 Citicorp, $5.375.................................................. 2,065,500
------------
PRODUCER MANUFACTURING 1.0%
56,300 Cooper Industries, Inc., $1.60.................................... 1,203,413
80,000 Westinghouse Electric Co., $1.30.................................. 1,060,000
------------
TOTAL PRODUCER MANUFACTURING...................................... 2,263,413
------------
RAW MATERIALS/PROCESSING MATERIALS 1.0%
5,000 Alumax, Inc., $4.00............................................... 560,000
12,900 Boise Cascade Corp., $1.58........................................ 288,638
</TABLE>

C-5
<PAGE> 203

AMERICAN CAPITAL GROWTH AND INCOME FUND

INVESTMENT PORTFOLIO -- CONTINUED
November 30, 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NUMBER
OF SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
8,600 Cyprus AMAX Minerals Co., $4.00................................... $ 494,500
45,000 James River Corp., $1.55.......................................... 922,500
------------
TOTAL RAW MATERIALS/PROCESSING MATERIALS.......................... 2,265,638
------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $11,302,852).............. $ 10,916,051
============

<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<S> <C> <C>
CONVERTIBLE CORPORATE OBLIGATIONS 9.1%
CONSUMER DISTRIBUTION 0.6%
$ 1,500,000 Price Costco., Inc., 6.75%, 3/1/01................................ $ 1,391,250
------------
CONSUMER SERVICES 2.2%
Time Warner, Inc.
847,000 8.75%, 1/10/15.................................................. 804,650
6,900,000 LYON, Zero Coupon, 12/17/12..................................... 2,095,875
5,900,000 LYON, Zero Coupon, 6/22/13...................................... 2,087,125
------------
TOTAL CONSUMER SERVICES........................................... 4,987,650
------------
ENERGY 1.2%
900,000 Amoco CDA Petroleum Co., 7.375%, 9/1/13........................... 1,071,000
1,585,000 Western Co. of North America, 7.25%, 1/15/15...................... 1,695,950
------------
TOTAL ENERGY...................................................... 2,766,950
------------
PRODUCER MANUFACTURING 1.2%
1,500,000 Browning Ferris Industries, 6.75%, 7/18/05........................ 1,335,000
4,000,000 Valhi, Inc., LYON, Zero Coupon, 10/20/07.......................... 1,250,000
------------
TOTAL PRODUCER MANUFACTURING...................................... 2,585,000
------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.4%
1,500,000 Albany International Co., 5.25%, 3/15/02.......................... 1,260,000
76,000 Atlantic Richfield Co., ELKS, 9.00%, 9/15/97...................... 1,878,817
------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES......................... 3,138,817
------------
TECHNOLOGY 2.5%
50,000 American Express Co., ELKS, 6.25%, 10/15/96....................... 2,148,145
3,000,000 Automatic Data Processing, Inc., LYON, Zero Coupon, 2/20/12....... 1,207,500
*1,000,000 General Instrument Corp., 5.00%, 6/15/00.......................... 1,345,000
20,000 Salomon, Inc., ELKS, 6.50%, 2/1/97................................ 1,029,980
------------
TOTAL TECHNOLOGY.................................................. 5,730,625
------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS (Cost $21,593,110)........ 20,600,292
------------
</TABLE>

C-6
<PAGE> 204

AMERICAN CAPITAL GROWTH AND INCOME FUND

INVESTMENT PORTFOLIO -- CONTINUED
November 30, 1994

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS 10.6%
$ 4,000,000 Federal Home Loan Mortgage Corp., 5.62%, 1/18/95.................. $ 3,969,674
9,110,000 General Electric Capital Corp., 5.70%, 12/1/94.................... 9,108,558
#11,000,000 United States Treasury Bills, 4.91% to 5.11%, 12/22/94 to
1/5/95............................................................ 10,955,360
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $24,033,592)................... 24,033,592
------------
TOTAL INVESTMENTS (Cost $223,670,707) 100.5%..................... 228,503,012
Other assets and liabilities, net (0.5%)......................... (1,124,264)
------------
NET ASSETS 100%.................................................. $227,378,748
============
</TABLE>

ELKS -- Equity-linked securities, traded in shares
LYON -- Liquid yield option note
# Securities with a market value of approximately $9.1 million were placed as
collateral for futures contracts (Note 1B).
* Non-income producing security

See Notes to Financial Statements.

C-7
<PAGE> 205

AMERICAN CAPITAL GROWTH AND INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994

<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $223,670,707)............................... $228,503,012
Cash........................................................................... 2,875
Receivable for investments sold................................................ 6,083,461
Interest and dividends receivable.............................................. 928,684
Receivable for Fund shares sold................................................ 310,702
Other assets................................................................... 2,310
------------
TOTAL ASSETS................................................................... 235,831,044
------------
LIABILITIES
Payable for investments purchased.............................................. 7,762,573
Payable for Fund shares redeemed............................................... 306,946
Accrued expenses............................................................... 101,590
Due to Adviser................................................................. 92,696
Due to Distributor............................................................. 86,491
Due to shareholder service agent............................................... 56,000
Due to broker-variation margin................................................. 46,000
------------
TOTAL LIABILITIES.............................................................. 8,452,296
------------
NET ASSETS equivalent to $12.26 per share for Class A shares, $12.25 per share
for Class B shares and $12.26 per share for Class C shares................... $227,378,748
============
NET ASSETS WERE COMPRISED OF:
Shares of capital stock, at par; 16,756,959 Class A, 1,507,551 Class B and
286,471 Class C shares outstanding........................................... $ 185,510
Capital surplus................................................................ 204,659,719
Undistributed net realized gain on securities.................................. 16,536,382
Net unrealized appreciation (depreciation) of securities
Investments.................................................................. 4,832,305
Futures contracts............................................................ (165,347)
Undistributed net investment income............................................ 1,330,179
------------
NET ASSETS at November 30, 1994................................................ $227,378,748
============
</TABLE>

See Notes to Financial Statements.

C-8
<PAGE> 206

AMERICAN CAPITAL GROWTH AND INCOME FUND

STATEMENT OF OPERATIONS
Year Ended November 30, 1994

<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 5,824,023
Interest....................................................................... 1,770,746
------------
Investment income............................................................ 7,594,769
------------
EXPENSES
Management fees................................................................ 1,075,607
Shareholder service agent's fees and expenses.................................. 729,635
Service fees -- Class A........................................................ 364,255
Distribution and service fees -- Class B....................................... 106,450
Distribution and service fees -- Class C....................................... 24,087
Reports to shareholders........................................................ 110,988
Registration and filing fees................................................... 109,958
Accounting services............................................................ 86,186
Audit fees..................................................................... 29,273
Directors' fees and expenses................................................... 15,355
Custodian fees................................................................. 12,594
Legal fees..................................................................... 11,954
Miscellaneous.................................................................. 15,160
------------
Total expenses................................................................. 2,691,502
------------
Net investment income.......................................................... 4,903,267
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments.................................................................. 16,623,357
Futures contracts............................................................ (114,500)
Written options.............................................................. 23,747
Net unrealized depreciation of securities during the year
Investments.................................................................. (19,556,746)
Futures contracts............................................................ (94,847)
------------
Net realized and unrealized loss on securities................................. (3,118,989)
------------
Increase in net assets resulting from operations............................... $ 1,784,278
============
</TABLE>

See Notes to Financial Statements.

C-9
<PAGE> 207

AMERICAN CAPITAL GROWTH AND INCOME FUND

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of year..................................... $206,581,841 $177,797,185
------------ ------------
OPERATIONS
Net investment income........................................... 4,903,267 4,153,117
Net realized gain on securities................................. 16,532,604 26,384,165
Net unrealized depreciation of securities during the year....... (19,651,593) (4,852,142)
------------ ------------
Increase in net assets resulting from operations................ 1,784,278 25,685,140
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A...................................................... (4,309,919) (3,978,392)
Class B...................................................... (108,041) (217)
Class C...................................................... (25,543) (104)
------------ ------------
(4,443,503) (3,978,713)
------------ ------------
Net realized gains on securities
Class A...................................................... (25,694,707) (11,319,982)
Class B...................................................... (386,769) --
Class C...................................................... (125,403) --
------------ ------------
(26,206,879) (11,319,982)
------------ ------------
Total dividends and distributions....................... (30,650,382) (15,298,695)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold
Class A...................................................... 33,007,147 33,951,048
Class B...................................................... 19,553,051 1,834,091
Class C...................................................... 3,427,062 573,119
------------ ------------
55,987,260 36,358,258
------------ ------------
Proceeds from shares issued for dividends and distributions
reinvested
Class A...................................................... 26,960,817 13,773,306
Class B...................................................... 435,522 108
Class C...................................................... 81,960 104
------------ ------------
27,478,299 13,773,518
------------ ------------
Cost of shares redeemed
Class A...................................................... (31,138,841) (31,634,743)
Class B...................................................... (2,333,888) (96,634)
Class C...................................................... (329,819) (2,188)
------------ ------------
(33,802,548) (31,733,565)
------------ ------------
Increase in net assets resulting from Fund share transactions... 49,663,011 18,398,211
------------ ------------
INCREASE IN NET ASSETS............................................ 20,796,907 28,784,656
------------ ------------
NET ASSETS, END OF YEAR........................................... $227,378,748 $206,581,841
============ ============
</TABLE>

See Notes to Financial Statements.

C-10
<PAGE> 208

AMERICAN CAPITAL GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

American Capital Growth and Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.

A. Investment Valuations

Short-term investments with a maturity of 60 days or less when purchased
are valued at amortized cost, which approximates market value. Short-term
investments with a maturity of more than 60 days when purchased are valued based
on market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, investments are valued at amortized cost.

B. Options and Futures Contracts

Transactions in options and futures contracts are utilized in strategies to
manage the market risk of the Fund's investments by increasing or decreasing the
percentage of assets effectively invested. The purchase of a futures contract or
call option (or the writing of a put option) increases the impact of changes in
the market price of investments on net asset value. There is also a risk that
the market movement of such instruments may not be in the direction forecasted.

Options purchased are recorded as investments; options written (sold) are
accounted for as liabilities. When an option expires the premium (original
option value) is realized as a gain if the option was written or realized as a
loss if the option was purchased. When the exercise of an option results in a
cash settlement, the difference between the premium and the settlement proceeds
is realized as a gain or loss. When an option is closed, the difference between
the premium and the cost to close the position is realized as a gain or loss.

Upon entering into futures contracts the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. A portion of these funds is held as collateral in
an account in the name of the broker, the Fund's agent in acquiring the futures
position. During the period the futures contract is open, changes in the value
of the contract ("variation margin") are recognized by marking the contract to
market on a daily basis. As unrealized gains or losses are incurred, variation
margin payments are received from or made to the broker. Upon the closing or
cash settlement of a contract, gains or losses are realized. The cost of
securities acquired through delivery under a contract is adjusted by the
unrealized gain or loss on the contract.

C. Federal Income Taxes

No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification

C-11

<PAGE> 209

AMERICAN CAPITAL GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

by annually distributing all of its taxable net investment income and taxable
net realized gains to its shareholders.

D. Investment Transactions and Related Investment Income

Investment transactions are accounted for on the trade date. Realized gains
and losses are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.

E. Dividends and Distributions

Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the minimum
distribution requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such dividends or distributions may
exceed financial statement earnings.

F. Debt Discount or Premium

The Fund accounts for discounts and premiums on the same basis as is used
for federal income tax reporting. Accordingly, original issue discounts on debt
securities purchased are amortized over the life of the security. Premiums on
debt securities are not amortized. Market discounts are recognized at the time
of sale as realized gains for book purposes and ordinary income for tax
purposes.

NOTE 2 -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Van Kampen American Capital Asset Management, Inc. (the "Adviser") serves
as investment manager of the Fund. Management fees are paid monthly, based on
the average daily net assets of the Fund at an annual rate of .50% of the first
$150 million, .45% of the next $100 million, .40% of the next $100 million, and
.35% of the amount in excess of $350 million.

Accounting services include the salaries and overhead expenses of the
Fund's Treasurer and the personnel operating under his direction. Charges are
allocated among all investment companies advised or sub-advised by the Adviser.
For the year ended November 30, 1994, these charges included $8,638 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services to the Fund. The services are provided by
the Adviser at cost.

Van Kampen American Capital Shareholder Services, Inc., an affiliate of the
Adviser, serves as the Fund's shareholder service agent. These services are
provided at cost plus a profit. For the year ended November 30, 1994, the fees
for such services aggregated $636,148.

The Fund was advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor"), and Advantage Capital Corporation (the "Retail Dealer"),
both affiliates of the Adviser, received $67,504 and $48,179, respectively, as
their portion of the commissions charged on sales of Fund shares during the
year.

C-12
<PAGE> 210

AMERICAN CAPITAL GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Fund paid brokerage commissions of $46,318 to a company which is deemed
to be an affiliate of the Adviser's parent because it owns more than 5% of the
Company's outstanding voting securities.

Under the Distribution Plans, each class of shares pays up to .25% per
annum of its average net assets to reimburse the Distributor for expenses and
service fees incurred. Class B shares and Class C shares pay an additional
distribution fee of up to .75% per annum of their average net assets to
reimburse the Distributor for its distribution expenses. Actual distribution
expenses incurred by the Distributor for Class B shares and Class C shares may
exceed the amounts reimbursed to the Distributor by the Fund. At November 30,
1994, the unreimbursed expenses incurred by the Distributor under the Class B
and Class C plans aggregated approximately $738,000 and $54,000, respectively,
and may be carried forward and reimbursed through either the collection of the
contingent deferred sales charges from share redemptions or, subject to the
annual renewal of the plans, future Fund reimbursements of distribution fees.

Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.

Certain officers and directors of the Fund are officers and directors of
the Adviser, the Distributor, the Retail Dealer and the shareholder service
agent.

NOTE 3 -- INVESTMENT ACTIVITY

During the year, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $225,330,231 and
$212,237,065, respectively.

For federal income tax purposes, the identified cost of investments owned
at November 30, 1994 was $223,838,066. Net unrealized appreciation of
investments aggregated $4,664,946, gross unrealized appreciation of investments
aggregated $14,620,177 and gross unrealized depreciation of investments
aggregated $9,955,231. Approximately $77,000 in capital losses are deferred to
the following fiscal year.

At November 30, 1994, the Fund held 40 long Standard & Poor's 500-Index
futures contracts expiring in December, 1994. The market value of such contracts
was $9,079,000 and the unrealized depreciation was $165,347.

During the year, the Fund wrote 230 option contracts with a premium value
of $23,747. The contracts expired unexercised.

NOTE 4 -- DIRECTOR COMPENSATION

Fund directors who are not affiliated with the Adviser are compensated by
the Fund at the annual rate of $1,060 plus a fee of $25 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $400. During the year, such fees aggregated $13,259.

The directors may participate in a voluntary Deferred Compensation Plan
(the "Plan"). The Plan is not funded, and obligations under the Plan will be
paid solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payments of its obligations under the Plan by any form of
trust or escrow. At November 30, 1994, the liability for the Plan aggregated
$42,887. Each director covered by the Plan elects

C-13
<PAGE> 211

AMERICAN CAPITAL GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

to be credited with an earnings component on amounts deferred equal to the
income earned by the Fund on its short-term investments or equal to the total
return of the Fund.

NOTE 5 -- CAPITAL

The Fund offers three classes of shares at their respective net asset
values per share, plus a sales charge which is imposed either at the time of
purchase (the Class A shares) or at the time of redemption on a contingent
deferred basis (the Class B shares and Class C shares). All classes of shares
have the same rights, except that Class B shares and Class C shares bear the
cost of distribution fees and certain other class specific expenses. Class B
shares and Class C shares automatically convert to Class A shares six years and
ten years after purchase, respectively, subject to certain conditions. Realized
and unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. The Fund has 200 million of
each class of $.01 par value capital stock authorized. Transactions in shares of
capital stock were as follows:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Shares sold
Class A................................................... 2,576,390 2,490,649
Class B................................................... 1,537,292 129,655
Class C................................................... 265,742 40,582
---------- ----------
4,379,424 2,660,886
---------- ----------
Shares issued for dividends reinvested
Class A................................................... 2,116,024 1,073,608
Class B................................................... 34,072 8
Class C................................................... 6,406 7
---------- ----------
2,156,502 1,073,623
---------- ----------
Shares redeemed
Class A................................................... (2,440,283) (2,310,230)
Class B................................................... (186,624) (6,852)
Class C................................................... (26,112) (154)
---------- ----------
(2,653,019) (2,317,236)
---------- ----------
Increase in shares outstanding.............................. 3,882,907 1,417,273
========= =========
</TABLE>

NOTE 6 -- SUBSEQUENT DIVIDENDS AND DISTRIBUTIONS

The Board of Directors of the Fund declared dividends from net investment
income and distributions from capital gains payable December 30, 1994 to
shareholders of record on December 15, 1994 as follows:

<TABLE>
<CAPTION>
CLASS INCOME DIVIDEND CAPITAL GAINS
- ------ --------------- -------------
<S> <C> <C>
A $ .09 $ .86
B .07 .86
C .07 .86
</TABLE>

C-14
<PAGE> 212

AMERICAN CAPITAL GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------
YEAR ENDED NOVEMBER 30
---------------------------------------------
1994 1993 1992 1991 1990
-------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year................. $ 14.08 $ 13.42 $11.69 $ 9.93 $11.71
-------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income.................................. .43 .42 .46 .52 .45
Expenses........................................... (.14) (.15) (.145) (.13) (.12)
-------- ------- ------ ------ ------
Net investment income.............................. .29 .27 .315 .39 .33
Net realized and unrealized gains or losses on
securities....................................... (.1025) 1.52 1.785 1.73 (1.12)
-------- ------- ------ ------ ------
Total from investment operations................... .1875 1.79 2.10 2.12 (.79)
-------- ------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income............... (.27) (.2825) (.37) (.36) (.3125)
Distributions from net realized gains on
securities....................................... (1.7375) (.8475) -- -- (.6775)
-------- ------- ------ ------ ------
Total distributions................................ (2.0075) (1.13) (.37) (.36) (.99)
-------- ------- ------ ------ ------
Net asset value, end of year....................... $ 12.26 $ 14.08 $13.42 $11.69 $ 9.93
======== ======= ====== ====== ======
TOTAL RETURN(1).................................... 1.21% 14.34% 18.25% 21.59% (7.29%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions)................. $ 205.4 $ 204.3 $177.8 $157.1 $143.6
Average net assets (millions)...................... $ 209.3 $ 193.4 $169.5 $157.3 $156.3
Ratios to average net assets
Expenses......................................... 1.16% 1.16% 1.15% 1.14% 1.13%
Net investment income............................ 2.25% 2.15% 2.46% 3.40% 3.08%
Portfolio turnover rate............................ 102% 134% 78% 89% 111%
</TABLE>

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

(1) Total return does not consider the effect of sales charges.

See Notes to Financial Statements.

C-15
<PAGE> 213

AMERICAN CAPITAL GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS -- (CONTINUED)

<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------- ---------------------------
YEAR AUGUST 2, YEAR AUGUST 2,
ENDED 1993(1) TO ENDED 1993(1) TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1994 1993(2) 1994 1993(2)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year............ $ 14.07 $ 13.64 $ 14.07 $ 13.64
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................. .40 .14 .40 .14
Expenses...................................... (.23) (.08) (.23) (.08)
-------- -------- -------- --------
Net investment income......................... .17 .06 .17 .06
Net realized and unrealized gains or losses on
securities.................................... (.1025) .4175 (.0925) .4175
-------- -------- -------- --------
Total from investment operations.............. .0675 .4775 .0775 .4775
-------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income.......... (.15) (.0475) (.15) (.0475)
Distributions from net realized gains on
securities.................................. (1.7375) -- (1.7375) --
-------- -------- -------- --------
Total distributions........................... (1.8875) (.0475) (1.8875) (.0475)
-------- -------- -------- --------
Net asset value, end of year.................. $ 12.25 $ 14.07 $ 12.26 $ 14.07
======== ======== ======== ========
TOTAL RETURN(3)............................... .36% 3.50% .36% 3.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions)............ $ 18.5 $ 1.7 $ 3.5 $ 0.6
Average net assets (millions)................. $ 10.6 $ 0.4 $ 2.4 $ 0.2
Ratios to average net assets
Expenses.................................... 2.02% 2.02%(4) 2.01% 2.00%(4)
Net investment income....................... 1.51% 1.51%(4) 1.50% 1.56%(4)
Portfolio turnover rate....................... 102% 134% 102% 134%
</TABLE>

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

(1) Commencement of offering of shares.
(2) Based on average month-end shares outstanding.
(3) Total return for periods of less than one year are not annualized. Total
return does not consider the effect of sales charges.
(4) Annualized.

See Notes to Financial Statements.

C-16
<PAGE> 214

AMERICAN CAPITAL GROWTH AND INCOME FUND

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
American Capital Growth and Income Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, 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 American Capital Growth and Income
Fund, Inc. at November 30, 1994, and the results of its operations, the changes
in its net assets and the selected per share data and ratios for each of the
fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and ratios
(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 November 30, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Houston, Texas
January 16, 1995

C-17
<PAGE> 215

APPENDIX D

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS
JUNE 30, 1994

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
COMMON AND PREFERRED STOCK 85.3%
AUTOMOBILE 8.0%
Borg Warner Automotive Inc. ........................................ 35,000 791,875
Chrysler Corp. ..................................................... 25,800 1,215,825
General Motors Corp. ............................................... 24,000 1,206,000
General Motors Corp. Preferred...................................... 20,000 1,127,500
Mascotech Inc. ..................................................... 50,000 662,500
Standard Products Co. .............................................. 25,000 731,250
---------------
5,734,950
---------------

BASIC INDUSTRIES 3.9%
Corning Inc. ....................................................... 39,000 1,272,375
National Gypsum Co.(2).............................................. 30,000 922,500
Wheeling Pittsburgh Corp.(2)........................................ 36,200 633,500
---------------
2,828,375
---------------

BEVERAGE, FOOD & TOBACCO 1.8%
Pepsico Inc. ....................................................... 34,700 1,062,688
RJR Nabisco Holdings Corp. Preferred................................ 35,700 223,125
---------------
1,285,813
---------------

BUILDINGS & REAL ESTATE 3.8%
Masco Corp. ........................................................ 36,000 990,000
Pulte Corp. ........................................................ 32,800 754,400
Toll Brothers Inc. ................................................. 36,500 465,375
Triangle Pacific Corp.(2)........................................... 42,330 497,377
---------------
2,707,152
---------------

CHEMICAL 6.1%
Dow Chemical Co. ................................................... 18,700 1,222,512
Goodrich B.F. Co. .................................................. 21,490 934,815
Methanex Corp.(2)................................................... 40,000 470,000
Praxair Inc. ....................................................... 49,600 967,200
Union Carbide Corp. ................................................ 29,200 781,100
---------------
4,375,627
---------------
</TABLE>

D-1
<PAGE> 216

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
JUNE 30, 1994

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
COMPUTERS 2.3%
MB Communications Inc. ............................................. 13,000 133,250
Micom Communications(2)............................................. 8,666 97,493
Novell Inc. ........................................................ 27,700 463,975
Oracle Systems Corp. ............................................... 24,700 926,250
---------------
1,620,968
---------------

CONSUMER DURABLES 1.6%
Whirlpool Corp. .................................................... 21,600 1,134,000
---------------

CONSUMER NON-DURABLES 4.4%
Mattel Inc. ........................................................ 40,000 1,015,000
Newell Co. ......................................................... 22,600 1,045,250
Procter & Gamble Co. ............................................... 20,000 1,067,500
---------------
3,127,750
---------------

CONSUMER SERVICES 1.4%
Service Corp. International......................................... 38,200 983,650
---------------

DIVERSIFIED/CONGLOMERATE MANUFACTURING 3.2%
Eastman Kodak Co. .................................................. 24,610 1,184,356
Thermo Electron Corp. .............................................. 30,300 1,128,675
---------------
2,313,031
---------------

DIVERSIFIED/CONGLOMERATE SERVICE 1.4%
ITT Corp. .......................................................... 12,000 979,500
---------------

ECOLOGICAL 1.7%
WMX Technologies Inc. .............................................. 47,300 1,253,450
---------------

ELECTRICAL SUPPLY 1.4%
Avnet Inc. ......................................................... 33,000 1,039,500
---------------

ELECTRONICS 4.0%
AMP Inc. ........................................................... 21,000 1,454,250
Cerplex Group Inc.(2)............................................... 24,300 303,750
Polaroid Corp. ..................................................... 17,400 554,625
Westinghouse Electric Corp. Preferred(4)............................ 43,500 554,625
---------------
2,867,250
---------------
</TABLE>

D-2
<PAGE> 217

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
JUNE 30, 1994

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
ENERGY 7.2%
Burlington Resources Inc. .......................................... 25,000 1,034,375
Chevron Corp. ...................................................... 26,400 1,105,500
Enron Corp. ........................................................ 30,000 982,500
Triton Energy Corp. ................................................ 26,000 861,250
Unocal Corp. ....................................................... 42,600 1,219,425
---------------
5,203,050
---------------

FINANCIAL SERVICES 6.3%
Ahmanson H.F. & Co. ................................................ 38,300 722,912
American International Group Inc.(3)................................ 14,400 1,247,400
Chubb Corp. ........................................................ 14,000 1,072,750
General Reinsurance Corp. .......................................... 9,510 1,036,590
MGlC Investment Corp. .............................................. 10,000 265,000
Morgan Stanley Group Inc. Preferred................................. 9,500 180,500
---------------
4,525,152
---------------

HEALTHCARE 4.6%
Healthcare Realty Trust............................................. 34,200 731,025
Healthtrust Inc.(2)................................................. 36,000 999,000
Living Centers of America Inc.(2)................................... 28,900 830,875
National Health Labs Holdings Inc. ................................. 60,000 727,500
---------------
3,288,400
---------------

LEISURE 1.3%
International Game Technology....................................... 50,100 945,638
---------------

MACHINERY 1.6%
Case Equipment Corp.(2)............................................. 22,000 415,250
Cyprus Amax Minerals Co. ........................................... 25,000 743,750
---------------
1,159,000
---------------

MEDICAL SUPPLIES 1.1%
Merck & Co. Inc.(2)................................................. 27,000 803,250
---------------

PACKAGING & CONTAINER 0.7%
Jefferson Smurfit Corp.(2).......................................... 30,000 483,750
---------------
</TABLE>

D-3
<PAGE> 218

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
JUNE 30, 1994

RETAIL 2.3%
TJX Companies Inc. ................................................. 25,500 557,813
Wal Mart Stores Inc. ............................................... 43,900 1,064,575
---------------
1,622,388
---------------

TECHNOLOGY 2.6%
Motorola Inc. ...................................................... 23,800 1,059,100
U.S. Robotics Inc.(2)............................................... 30,000 810,000
---------------
1,869,100
---------------

TELECOMMUNICATIONS 4.6%
Alcatel Alsthom Compagnie Generale d' Electricite ADR (France)...... 30,500 663,375
Antec Corp.(2)...................................................... 30,900 726,150
DSC Communications Corp. ........................................... 60,000 1,173,750
Vodafone Group PLC ADR (United Kingdom)............................. 9,500 719,625
---------------
3,282,900
---------------

TRANSPORTATION 4.7%
AMR Corp.(2)........................................................ 14,700 872,812
GATX................................................................ 27,000 1,093,500
Santa Fe Pacific Corp. ............................................. 32,800 684,700
Southern Pacific Rail Corp.(2)...................................... 37,400 733,975
---------------
3,384,987
---------------

UTILITIES 0.5%
Georgia Power Co. Preferred......................................... 14,500 $ 349,813
---------------

TOTAL COMMON AND PREFERRED STOCK.................................... 61,214,381
---------------

CONVERTIBLE BONDS 1.4%
Airborne Freight Corp. ($450,000 par, 6.75% coupon, 08/15/01
maturity, S&P rating BBB)......................................... 472,500
Champion International Corp. ($500,000 par, 6.50% coupon, 04/15/11
maturity, S&P rating BBB-)........................................ 524,375
---------------

TOTAL CONVERTIBLE BONDS............................................. 996,875
---------------
</TABLE>

D-4
<PAGE> 219

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
JUNE 30, 1994

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
OTHER 0.3%
Morgan Stanley Group Inc, 42,500 Japan Index
Callable Warrants Expiring 05/28/96............................... 244,375
---------------
TOTAL LONG-TERM INVESTMENTS 87.0% (COST $65,508,969)(1)............. 62,455,631
---------------

SHORT-TERM INVESTMENTS AT AMORTIZED COST 14.3%
Repurchase Agreement, UBS Securities, U.S. T-Note, $8,430,000 par,
6.50% coupon, due 05/15/97, dated 06/30/94, to be sold on 07/01/94
at $8,336,973..................................................... 8,336,000
Other............................................................... 1,939,247
---------------

TOTAL SHORT-TERM INVESTMENTS AT AMORTIZED COST...................... 10,275,247

LIABILITIES IN EXCESS OF OTHER ASSETS (1.3%)........................ (917,329)
---------------

NET ASSETS 100%..................................................... $71,813,549
---------------
</TABLE>

- ---------------
(1) At June 30, 1994, cost for federal income tax purposes is $65,508,969: the
aggregate gross unrealized appreciation is $1,765,839 and the aggregate
gross unrealized depreciation is $4,819,661, resulting in net unrealized
depreciation including open option and futures transactions of $3,053,822.

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

(3) Assets segregated as collateral for open option and futures transactions.

(4) Restricted security.

See Notes to Financial Statements.

D-5
<PAGE> 220

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES
June 30, 1994

<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $65,508,969) (Note 1)....................... $62,455,631
Short-term investments (Note 1)................................................ 10,275,247
Cash........................................................................... 478
Receivables:
Investments sold............................................................. 4,653,092
Dividends.................................................................... 500,271
Fund shares sold............................................................. 305,608
Margin on futures............................................................ 67,500
Interest..................................................................... 19,525
-----------
Options at market value (Net premiums paid of $127,572)........................ 413
Other.......................................................................... 4,324
-----------
TOTAL ASSETS................................................................... 78,282,089
-----------
LIABILITIES
Payables:
Investments purchased........................................................ 6,077,363
Fund shares repurchased...................................................... 160,223
Investment advisory fee (Note 2)............................................. 35,942
Accrued expenses............................................................... 195,012
-----------
TOTAL LIABILITIES.............................................................. 6,468,540
-----------
NET ASSETS..................................................................... $71,813,549
-----------
NET ASSETS CONSIST OF
Paid in Surplus (Note 3)....................................................... $73,747,273
Accumulated undistributed net investment income................................ 658,391
Accumulated net realized gain on investments................................... 399,510
Accumulated equalization credits (Note 1)...................................... 62,197
Net unrealized depreciation on investments..................................... (3,053,822)
-----------
NET ASSETS..................................................................... $71,813,549
-----------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$46,482,036 and 2,626,362 shares of beneficial interest issued and
outstanding) (Note 3).................................................... $ 17.70
-----------
Maximum sales charge (4.65% of offering price)............................ .86
Maximum offering price to public.......................................... $ 18.56
-----------
Class B Shares:
Net asset value and offering price per share (based on net assets of
$24,810,677 and 1,402,963 shares of beneficial interest issued and
outstanding) (Note 3).................................................... $ 17.68
-----------
Class C Shares:
Net asset value and offering price per share (based on net assets of
$518,898 and 29,332 shares of beneficial interest issued and outstanding)
(Note 3)................................................................. $ 17.69
-----------
Class D Shares:
Net asset value and offering price per share (based on net assets of
$1,938 and 110 shares of beneficial interest issued and outstanding)
(Note 3)................................................................. $ 17.62
-----------
</TABLE>

- ---------------
* On sales of $100,000 or more, the offering price will be reduced.
See Notes to Financial Statements.

D-6
<PAGE> 221

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

STATEMENT OF OPERATIONS
For the Year Ended June 30, 1994

<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (Net of foreign withholding taxes of $7,508)......................... $ 1,360,648
Interest....................................................................... 200,390
------------
Total income................................................................. 1,561,038
------------
EXPENSES
Investment advisory fee (Note 2)............................................... 304,973
Distribution (12b-1) and service fees (Allocated to Classes A, B, C and D of
$113,468, $99,797, $1,426 and $2, respectively) (Note 5)..................... 214,693
Shareholder services........................................................... 122,798
Custody........................................................................ 90,042
Printing....................................................................... 61,600
Legal (Note 2)................................................................. 27,720
Trustees fees and expenses (Note 2)............................................ 27,182
Other.......................................................................... 53,639
------------
Total expenses............................................................... 902,647
------------
Net investment income.......................................................... $ 658,391
------------
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS
Realized gain/loss on investments
Proceeds from sales.......................................................... $ 90,944,864
Cost of securities sold...................................................... (89,537,527)
------------
Net realized gain on investments (Including realized loss on closed and expired
option transactions of $1,243,287 and realized gain on futures transactions
of $255,523)................................................................. 1,407,337
------------
Unrealized appreciation/depreciation on investments:
Beginning of the period...................................................... 2,586,275
End of the period (Including unrealized depreciation on open option
transactions of $127,159 and unrealized appreciation on open futures
transactions of $126,675)................................................. (3,053,822)
------------
Net unrealized depreciation on investments during the period................... (5,640,097)
------------
Net realized and unrealized loss on investments................................ $ (4,232,760)
------------
Net decrease in net assets from operations..................................... $ (3,574,369)
===========
</TABLE>

See Notes to Financial Statements.

D-7
<PAGE> 222

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1994 and 1993

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1993
------------- -------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
OPERATIONS
Net investment income........................................... $ 658,391 $ 550,320
Net realized gain on investments................................ 1,407,337 5,545,152
Net unrealized depreciation on investments during the period.... (5,640,097) (1,456,804)
------------- -------------
Change in net assets from operations............................ (3,574,369) 4,638,668
------------- -------------
DISTRIBUTIONS FROM NET INVESTMENT INCOME
Class A Shares.................................................. (283,548) (491,270)
Class B Shares.................................................. (6,360) (139)
------------- -------------
(289,908) (491,409)
------------- -------------
DISTRIBUTIONS FROM NET REALIZED GAIN ON INVESTMENTS
Class A Shares.................................................. (5,555,001) (1,497,079)
Class B Shares.................................................. (761,009) (12,763)
Class C Shares.................................................. (2,518) --
------------- -------------
(6,318,528) (1,509,842)
------------- -------------
Total distributions............................................. (6,608,436) (2,001,251)
------------- -------------
Net change in net assets from investment activities............... (10,182,805) 2,637,417
------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 3)
Proceeds from shares sold......................................... 46,602,308 10,281,518
Net asset value of shares issued through dividend reinvestment.... 6,217,989 1,880,352
Cost of shares repurchased........................................ (8,165,855) (5,933,712)
Net equalization credits.......................................... 75,488 16,785
------------- -------------
Net change in net assets from capital transactions................ 44,729,930 6,244,943
------------- -------------
Total increase in net assets.................................... 34,547,125 8,882,360
NET ASSETS
Beginning of the period........................................... 37,266,424 28,384,064
------------- -------------
End of the period (Including undistributed net investment income
of $658,391 and $301,180, respectively)......................... $ 71,813,549 $ 37,266,424
------------- -------------
</TABLE>

See Notes to Financial Statements.

D-8
<PAGE> 223

VAN KAMPEN MERRITT GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
The following schedule presents selected per share data and related ratios for
one share of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
CLASS A SHARES
-----------------------------------------------------------------------------------
FROM OCT. 29,
1986
(COMMENCEMENT
OF INVESTMENT
OPERATIONS) TO
1994 1993 1992 1991 1990 1989 1988 JUNE 30, 1987
------- ------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $21.286 $19.693 $17.937 $16.697 $16.545 $15.227 $16.750 $ 14.265
------- ------- ------- ------- ------- ------- ------- --------------
Net investment income...... .199 .355 .367 .370 .586 .497 .459 .284
Net realized and unrealized
gain/loss on
investments.............. (.455) 2.596 1.685 1.350 .146 1.461 (1.172) 2.301
------- ------- ------- ------- ------- ------- ------- --------------
Total from investment
operations................. (.256) 2.951 2.052 1.720 .732 1.958 (.713) 2.585
------- ------- ------- ------- ------- ------- ------- --------------
LESS:
Distributions from net
investment income.......... .175 .340 .199 .403 .580 .470 .587 .100
Distributions from net
realized gain on
investments................ 3.157 1.018 .097 -- -- .170 .026 --
Return of capital
distribution............... -- -- -- .077 -- -- .197 --
------- ------- ------- ------- ------- ------- ------- --------------
Total distributions.......... 3.332 1.358 .296 .480 .580 .640 .810 .100
------- ------- ------- ------- ------- ------- ------- --------------
Net asset value, end of
period..................... $17.698 $21.286 $19.693 $17.937 $16.697 $16.545 $15.227 $ 16.750
------- ------- ------- ------- ------- ------- ------- --------------

TOTAL RETURN
(ANNUALIZED)............... (2.36%) 15.60% 11.42% 10.64% 4.37% 13.04% (4.01%) 28.40%

Net assets at end of period
(in millions).............. $ 46.5 $ 34.4 $ 28.4 $ 25.6 $ 26.2 $ 36.0 $ 38.1 $ 31.0
Ratio of expenses to average
net assets (annualized).... 1.61% 1.47% 1.71% 1.84% 1.58% 1.50% 1.28% 1.40%
Ratio of net investment
income to average net
assets (annualized)........ 1.32% 1.77% 1.93% 2.19% 3.08% 3.02% 3.13% 2.47%
Portfolio turnover........... 190.93% 111.39% 90.48% 48.38% 45.57% 29.46% 29.00% 1.43%
</TABLE>

See Notes to Financial Statements.

D-9
<PAGE> 224

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents selected per share data and related ratios for
one share of the Fund outstanding throughout the period indicated.

<TABLE>
<CAPTION>
CLASS B SHARES
--------------------------------------
FROM DECEMBER 1, 1992
(COMMENCEMENT OF
YEAR ENDED DISTRIBUTION) TO
JUNE 30, 1994 JUNE 30, 1993
------------- ---------------------
<S> <C> <C>
Net asset value, beginning of period......................... $21.331 $20.351
------------- ----------
Net investment income...................................... .095 .054
Net realized and unrealized gain/loss on investments....... (.535) 1.955
------------- ----------
Total from investment operations............................. (.440) 2.009
------------- ----------
LESS:
Distributions from net investment income..................... .050 .011
Distributions from net realized gain on investments.......... 3.157 1.018
------------- ----------
Total distributions.......................................... 3.207 1.029
========== =================
Net asset value, end of period............................... $17.684 $21.331
========== =================
TOTAL RETURN (ANNUALIZED).................................... (3.34%) 18.63%
Net assets at end of period (in millions).................... $ 24.8 $ 2.8
Ratio of expenses to average net assets (annualized)......... 2.46% 2.28%
Ratio of net investment income to average net assets
(annualized)............................................... 1.22% .83%
Portfolio turnover........................................... 190.93% 111.39%
</TABLE>

See Notes to Financial Statements.

D-10
<PAGE> 225

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents selected per share data and related ratios for
one share of the Fund outstanding throughout the period indicated.

<TABLE>
<CAPTION>
CLASS C SHARES
--------------------
FROM AUGUST 13, 1993
(COMMENCEMENT OF
DISTRIBUTION) TO
JUNE 30, 1994
--------------------
<S> <C>
Net asset value, beginning of period...................................... $ 21.350
----------
Net investment income................................................... .084
Net realized and unrealized loss on investments......................... (.586)
----------
Total from investment operations.......................................... (.502)
----------
Less distributions from net realized gain on investments.................. 3.157
----------
Net asset value, end of period............................................ $ 17.691
================
TOTAL RETURN (ANNUALIZED)................................................. (3.92%)
Net assets at end of period (in millions)................................. $ 0.5
Ratio of expenses to average net assets (annualized)...................... 2.46%
Ratio of net investment income to average net assets (annualized)......... 1.70%
Portfolio turnover........................................................ 190.93%
</TABLE>

See Notes to Financial Statements.

D-11
<PAGE> 226

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents selected per share data and related ratios for
one share of the Fund outstanding throughout the period indicated.

<TABLE>
<CAPTION>
CLASS D SHARES
----------------
FROM
MARCH 14,
1994
(COMMENCEMENT OF
DISTRIBUTION) TO
JUNE 30,
1994
----------------
<S> <C>
Net asset value, beginning of period........................................ $ 19.210
----------------
Net investment income..................................................... .136
Net realized and unrealized loss on investments........................... (1.728)
----------------
Total from investment operations............................................ (1.592)
----------------
Net asset value, end of period.............................................. $ 17.618
----------------
TOTAL RETURN (ANNUALIZED)................................................... (22.83%)
Net assets at end of period (in thousands).................................. $ 1.9
Ratio of expenses to average net assets (annualized)........................ 1.65%
Ratio of net investment income to average net assets (annualized)........... 2.51%
Portfolio turnover.......................................................... 190.93%
</TABLE>

See Notes to Financial Statements.

D-12
<PAGE> 227

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

Van Kampen Merritt Growth and Income Fund (the "Fund") was organized as a
Massachusetts business trust on July 8, 1986, and is registered as a diversified
open-end management investment company under the Investment Company Act of 1940,
as amended. The Fund commenced investment operations on October 29, 1986 and was
reorganized as a subtrust of Van Kampen Merritt Equity Trust (the "Trust"), a
Massachusetts business trust, as of June 17, 1988. On December 1, 1992, the Fund
commenced the distribution of Class B shares. The distribution of the Fund's
Class C shares, which were initially introduced as Class D shares and
subsequently renamed Class C shares on March 7, 1994, commenced on August 13,
1993. The distribution of the Fund's fourth class of shares, Class D shares,
commenced on March 14, 1994.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation

Investments in securities listed on a securities exchange are valued at
their sale price as of the close of such securities exchange. Investments in
securities not listed on a securities exchange are valued based on their last
quoted bid price or, if not available, their fair value as determined by the
Board of Trustees. Fixed income investments are stated at values using market
quotations or, if such valuations are not available, estimates obtained from
yield data relating to instruments or securities with similar characteristics in
accordance with procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of less than 60 days 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.

C. Investment Income

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

D. 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 to its shareholders. Therefore, no
provision for federal income taxes is required.

D-13
<PAGE> 228

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1994

E. Distribution of Income and Gains

The Fund declares and pays dividends semi-annually from net investment
income. Net realized gains, if any, are distributed annually. Distributions from
net realized gains for book purposes may include short-term capital gains and
gains on option and futures transactions. All short-term capital gains and a
portion of option and futures gains are included in ordinary income for tax
purposes.

During the current period, the Fund adopted Statement of Position 93-2
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies."
Accordingly, cumulative permanent book and tax basis differences relating to
shareholder distributions totaling ($11,272), ($498,780) and $510,052 have been
reclassified between accumulated undistributed net investment income,
accumulated net realized gain/loss on investments and Class A share paid in
surplus, respectively. Net investment income, net realized gains, and net assets
were not affected by this change.

F. Equalization

The Fund utilizes an accounting practice known as equalization, by which a
portion of the proceeds from sales and costs of reacquisitions of capital
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transactions, is credited or charged to an
equalization account, which is a component of capital. As a result,
undistributed net investment income per share is unaffected by sales or
reacquisitions of capital shares.

G. Option and Futures Transactions

Premiums received from call options written are recorded as deferred
credits. The position is marked to market daily with any difference between the
options' current market value and premiums received recorded as an unrealized
gain or loss. If the options are not exercised, premiums received are realized
as a gain at expiration date. If the position is closed prior to expiration, a
gain or loss is realized based on premiums received less the cost of the closing
transaction. When options are exercised, premiums received are added to the
proceeds from the sale of the underlying securities and a gain or loss is
realized accordingly. These same principles apply to the sale of put options.

Put and call options purchased are accounted for in the same manner as
portfolio securities. The cost of securities acquired through the exercise of
call options is increased by premiums paid. The proceeds from securities sold
through the exercise of put options are decreased by premiums paid.

Futures contracts are marked to market daily with fluctuations in value
settled daily in cash through a margin account. Gains or losses are realized at
the time the position is closed out or the contract expires.

D-14
<PAGE> 229

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1994

NOTE 2 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Merritt Investment Advisory Corp. (the "Adviser") will provide facilities and
investment advice to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -------------------------------------------------------------------------------- ------------
<S> <C>
First $500 million.............................................................. .60 of 1%
Over $500 million............................................................... .50 of 1%
</TABLE>

Certain legal fees are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.

For the year ended June 30,1994, the Fund recognized expenses of
approximately $38,300, representing Van Kampen Merritt's or the Adviser's cost
of providing accounting, legal and certain shareholder services to the Fund.

Certain officers and trustees of the Fund are also officers and directors
of the Adviser and Van Kampen Merritt. The Fund does not compensate its officers
or trustees who are officers of the Adviser or Van Kampen Merritt.

At June 30, 1994, Van Kampen Merritt owned 122,116 and 100 shares of
beneficial interest of Classes B, C and D, respectively.

NOTE 3 -- CAPITAL TRANSACTIONS

The Fund has outstanding four classes of common shares, Classes A, B, C and
D. There are an unlimited number of shares of each class without par value
authorized. At June 30, 1994, paid in surplus aggregated

D-15
<PAGE> 230

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1994

$45,974,724, $27,218,099, $552,329 and $2,121, for Classes A, B, C and D,
respectively. For the year ended June 30, 1994, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C>
Sales:
Class A............................................................ 1,040,379 $20,367,239
Class B............................................................ 1,332,246 25,683,130
Class C............................................................ 29,202 549,818
Class D............................................................ 110 2,121
--------- -----------
Total Sales..................................................... 2,401,937 $46,602,308
--------- -----------
Dividend Reinvestment:
Class A............................................................ 286,118 $ 5,506,728
Class B............................................................ 36,659 708,750
Class C............................................................ 130 2,511
Class D............................................................ -- --
--------- -----------
Total Dividend Reinvestment..................................... 322,907 $ 6,217,989
--------- -----------
Repurchases:
Class A............................................................ (318,421) $(6,259,365)
Class B............................................................ (98,138) (1,906,490)
Class C............................................................ -- --
Class D............................................................ -- --
--------- -----------
Total Repurchases............................................... (416,559) $(8,165,855)
--------- -----------
</TABLE>

At June 30,1993, paid in surplus aggregated $25,850,070 and $2,732,709 for
Classes A and B, respectively. For the year ended June 30, 1993, transactions
were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C>
Sales:
Class A............................................................ 366,085 $ 7,355,797
Class B............................................................ 141,339 2,925,721
--------- -----------
Total Sales..................................................... 507,424 $10,281,518
--------- -----------
Dividend Reinvestment:
Class A............................................................ 95,297 $ 1,870,438
Class B............................................................ 500 9,914
--------- -----------
Total Dividend Reinvestment..................................... 95,797 $ 1,880,352
--------- -----------
Repurchases:
Class A............................................................ (284,423 ) $(5,730,786)
Class B............................................................ (9,643 ) (202,926)
--------- -----------
Total Repurchases............................................... (294,066 ) $(5,933,712)
--------- -----------
</TABLE>

D-16
<PAGE> 231

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1994

Class B, C and D shares are offered without a front end sales charge, but
are subject to a contingent deferred sales charge (CDSC). The CDSC for Class B,
C and D shares will be imposed on most redemptions made within six years of the
purchase for Class B and one year of the purchase for Classes C and D as
detailed in the following schedule. The Class B, C and D shares bear the expense
of their respective deferred sales arrangements, including higher distribution
and service fees and incremental transfer agency costs.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------------
YEAR OF REDEMPTION CLASS B CLASS C CLASS D
- -------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
First............................................................... 4.00% 1.00% 0.75%
Second.............................................................. 3.75% None None
Third............................................................... 3.50% None None
Fourth.............................................................. 2.50% None None
Fifth............................................................... 1.50% None None
Sixth............................................................... 1.00% None None
Seventh and Thereafter.............................................. None None None
</TABLE>

For the year ended June 30, 1994, Van Kampen Merritt, as Distributor for
the Fund, received net commissions on sales of the Fund's Class A shares of $132
and CDSC on the redeemed shares of Classes B, C and D of approximately $25,000.
Sales charges do not represent expenses of the Fund.

NOTE 4 -- INVESTMENT TRANSACTIONS

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended June 30, 1994, were $120,943,402 and
$89,537,527, respectively.

Transactions in options for the year ended June 30,1994, were as follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
--------- -----------
<S> <C> <C>
Outstanding at June 30, 1993.......................................... 600 $ (89,821)
Options Written and Purchased (Net)................................... 12,182 (2,423,651)
Options Expired (Net)................................................. (745) 224,360
Options Terminated in Closing Transactions (Net)...................... (11,065) 2,161,540
--------- -----------
Outstanding at June 30, 1994.......................................... 972 $ (127,572)
--------- -----------
</TABLE>

D-17
<PAGE> 232

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1994

The related futures contracts of the outstanding option transactions at
June 30, 1994, and the descriptions and market values are as follows:

<TABLE>
<CAPTION>
EXPIRATION
MONTH/ MARKET
EXERCISE VALUE OF
CONTRACTS PRICE OPTION
--------- ---------- --------
<S> <C> <C> <C>
S&P 500 Index
Purchased Call.............................................. 300 July/455 $ 24,375
Purchased Call.............................................. 136 July/445 57,800
S&P 500 Index
Written Put................................................. 136 July/445 (65,450)
Novel Inc.
Written Call................................................ 10 July/17 1/2 (375)
Written Call................................................ 250 July/17 1/2 (9,375)
Merck & Co.
Written Call................................................ 140 July/30 (6,562)
--- --------
972 $ 413
--- --------
</TABLE>

The futures contracts outstanding at June 30, 1994, and the description and
unrealized appreciation is as follows:

<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
--------- ------------
<S> <C> <C>
S&P 500 Index Futures
Sept 1994 -- Sell to Open............................................. 36 $126,675
------------
--
</TABLE>

NOTE 5 -- DISTRIBUTION AND SERVICE PLANS

Annual fees under the Plans of up to .30% each of Class A and Class D
shares and 1.00% each of Class B and Class C shares are accrued daily. Included
in these fees for the year ended June 30, 1994, are payments to Van Kampen
Merritt of approximately $94,000.

D-18
<PAGE> 233

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholders of
Van Kampen Merritt Growth and Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Growth and Income Fund (the "Fund"), including the portfolio of
investments, as of June 30,1994, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Merritt Growth and Income Fund as of June 30, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Chicago, Illinois
August 9, 1994

D-19
<PAGE> 234

APPENDIX E

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
COMMON AND PREFERRED STOCK 93.6%
AUTOMOBILE 6.2%
Borg Warner Automotive Inc. ........................................ 35,000 879,375
Chrysler Corp. ..................................................... 20,000 980,000
General Motors Corp. -- Preferred................................... 25,000 1,434,375
Standard Products Co. .............................................. 35,600 854,400
Volvo Aktiebolaget -- ADR (Sweden).................................. 50,000 937,500
---------------
5,085,650
---------------
BASIC INDUSTRIES 4.1%
Corning Inc. ....................................................... 43,475 1,298,816
Cyprus Amax Minerals Co. ........................................... 31,500 822,937
National Gypsum Co.(2).............................................. 30,000 1,222,500
---------------
3,344,253
---------------
BEVERAGE, FOOD & TOBACCO 2.3%
PepsiCo Inc. ....................................................... 40,100 1,453,625
Sara Lee Corp. ..................................................... 16,200 409,050
---------------
1,862,675
---------------
BUILDINGS & REAL ESTATE 0.6%
Triangle Pacific Corp.(2)........................................... 42,330 518,543
---------------
CHEMICAL 2.7%
Hercules Inc. ...................................................... 10,000 1,153,750
IMC Global Inc. .................................................... 24,000 1,038,000
---------------
2,191,750
---------------
COMPUTERS 4.6%
Compuware Corp.(2).................................................. 26,000 936,000
Parametric Technology Corp.(2)...................................... 25,000 862,500
Platinum Technology Inc.(2)......................................... 32,400 733,050
Sybase Inc.(2)...................................................... 23,200 1,206,400
---------------
3,737,950
---------------
</TABLE>

E-1
<PAGE> 235

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
CONSUMER NON-DURABLES 3.0%
Mattel Inc. ........................................................ 40,000 1,005,000
Procter & Gamble Co. ............................................... 23,010 1,426,620
---------------
2,431,620
---------------
CONSUMER SERVICES 3.2%
Automatic Data Processing Inc. ..................................... 23,700 1,386,450
Service Corp. International......................................... 44,000 1,221,000
---------------
2,607,450
---------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 8.3%
Asea AB -- ADR (Sweden)............................................. 16,600 1,197,275
Eastman Kodak Co. .................................................. 28,250 1,348,938
Electrolux -- ADR (Sweden).......................................... 14,950 760,581
Hanson PLC -- ADR (United Kingdom).................................. 45,000 810,000
Thermo Electron Corp.(2)............................................ 30,300 1,359,712
Trinity Inds Inc. .................................................. 42,000 1,323,000
---------------
6,799,506
---------------
DIVERSIFIED/CONGLOMERATE SERVICE 1.8%
ITT Corp. .......................................................... 16,200 1,435,725
---------------
ECOLOGICAL 2.2%
Waste Management International PLC -- ADR (United Kingdom)(2)....... 45,000 511,875
WMX Technologies Inc. .............................................. 47,300 1,241,625
---------------
1,753,500
---------------
ELECTRONICS 2.7%
Avnet Inc. ......................................................... 37,300 1,380,100
Intel Corp. ........................................................ 12,900 823,988
---------------
2,204,088
---------------
ENERGY 7.3%
Burlington Resources Inc. .......................................... 35,000 1,225,000
Norsk Hydro A S -- ADR (Norway)..................................... 30,000 1,173,750
Texaco Inc. ........................................................ 22,210 1,329,824
Triton Energy Corp.(2).............................................. 30,000 1,020,000
Unocal Corp. ....................................................... 42,600 1,160,850
---------------
5,909,424
---------------
</TABLE>

E-2
<PAGE> 236

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
FINANCIAL SERVICES 2.4%
Capital One Financial Corp.(2)...................................... 52,750 844,000
Federal Home Loan Mortgage Corp. ................................... 16,340 825,170
Morgan Stanley Group Inc. -- Preferred.............................. 20,000 325,000
---------------
1,994,170
---------------
HEALTHCARE 4.4%
Health & Retirement Property Trust.................................. 59,950 801,831
Healthcare Realty Trust Inc. ....................................... 41,100 863,100
Living Centers of America Inc.(2)................................... 28,900 964,538
Sybron International Corp.(2)....................................... 26,900 928,050
Theratx Inc.(2)..................................................... 2,000 39,000
---------------
3,596,519
---------------
INSURANCE 3.7%
American International Group Inc. .................................. 14,400 1,411,200
Mid Ocean Ltd.(2)................................................... 50,750 1,382,938
Reliance Group Holdings Inc. ....................................... 44,850 229,856
---------------
3,023,994
---------------
LEISURE 2.5%
Carnival Corp. ..................................................... 71,500 1,519,375
International Game Technology....................................... 31,400 486,700
---------------
2,006,075
---------------
MACHINERY 1.6%
Case Equipment Corp.(2)............................................. 59,260 1,274,090
---------------
MEDICAL SUPPLIES 2.3%
Hafslund Nycomed -- ADR (Norway).................................... 40,000 825,000
Merck & Co. Inc. ................................................... 27,000 1,029,375
---------------
1,854,375
---------------
MINING & STEEL 1.7%
Bethleham Steel Corp.(2)............................................ 49,500 891,000
WHX Corp. .......................................................... 38,200 506,150
---------------
1,397,150
---------------
PAPER 1.2%
James River Corp.................................................... 49,600 1,004,400
---------------
</TABLE>

E-3
<PAGE> 237

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
- -------------------------------------------------------------------- ------ ---------------
<S> <C> <C>
PRINTING, PUBLISHING & BROADCASTING 1.2%
Time Warner Inc. ................................................... 27,500 965,938
---------------
RETAIL 5.5%
Barnes & Noble Inc.(2).............................................. 30,000 937,500
Dayton Hudson Corp. ................................................ 14,000 990,500
Nordstrom Inc. ..................................................... 25,000 1,050,000
Tractor Supply Co.(2)............................................... 16,400 344,400
Wal Mart Stores Inc. ............................................... 55,000 1,168,750
---------------
4,491,150
---------------
TECHNOLOGY 2.4%
Motorola Inc. ...................................................... 18,100 1,047,537
National Semiconductor Corp.(2)..................................... 48,625 948,188
---------------
1,995,725
---------------
TELECOMMUNICATIONS 5.6%
AT&T Corp. ......................................................... 24,000 1,206,000
DSC Communications Corp.(2)......................................... 40,000 1,435,000
Tele Communications Inc.(2)......................................... 45,700 993,975
Vodafone Group PLC -- ADR (United Kingdom).......................... 28,500 958,312
---------------
4,593,287
---------------
TRANSPORTATION 3.3%
Burlington Northern Inc. ........................................... 10,650 512,531
Burlington Northern Inc. -- Preferred............................... 14,300 761,475
J B Hunt Transport Services Inc. ................................... 49,700 757,925
Southern Pacific Rail Corp.(2)...................................... 37,570 680,956
---------------
2,712,887
---------------
UTILITIES 6.8%
Bellsouth Corp. .................................................... 23,700 1,282,762
Enron Corp. ........................................................ 45,000 1,372,500
Georgia Power Co. -- Preferred...................................... 33,700 690,850
Nynex Corp. ........................................................ 25,000 918,750
Sonat Inc. ......................................................... 44,500 1,246,000
---------------
5,510,862
---------------
TOTAL COMMON AND PREFERRED STOCK............................................. 76,302,756
CONVERTIBLE BONDS 0.7%
AMR Corp. ($700,000 par, 6.125% coupon, 11/01/24 maturity, S&P Rating BB-)... 560,000
---------------
</TABLE>

E-4
<PAGE> 238

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION MARKET VALUE
- -------------------------------------------------------------------- ---------------
<S> <C> <C>
TOTAL LONG-TERM INVESTMENTS 94.3%
(Cost $76,979,231)(1)...................................................... $76,862,756
---------------
SHORT-TERM INVESTMENTS 9.1%
Mexican Tesobonos, $1,000,000 par, yielding 8.92%, 11/30/95 maturity......... 899,600
Mexican Tesobonos, $500,000 par, yielding 8.39%, 07/13/95 maturity........... 469,500
Mexican Tesobonos, $769,000 par, yielding 8.28%, 05/04/95 maturity........... 738,240
Repurchase Agreement, J.P. Morgan Securities, US T-Note, $5,874,000 par,
5.125% coupon, due 12/31/98, dated 12/30/94, to be sold on 01/03/95 at
$5,373,133................................................................. 5,370,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $7,522,071)(1)............................ 7,477,340
LIABILITIES IN EXCESS OF OTHER ASSETS -3.4%.................................. (2,806,286)
---------------
NET ASSETS 100%.............................................................. $81,533,810
============
</TABLE>

- ---------------
(1) At December 31, 1994, cost for federal income tax purposes is $84,501,302;
the aggregate gross unrealized appreciation is $3,285,976 and the aggregate
gross unrealized depreciation is $3,447,182, resulting in net unrealized
depreciation of $161,206.

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

See Notes to Financial Statements.

E-5
<PAGE> 239

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (Unaudited)

<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $76,979,231)(Note 1).................................. $ 76,862,756
Short-term investments (Cost $7,522,071)(Note 1)......................................... 7,477,340
Cash..................................................................................... 88
Receivables:
Investments sold......................................................................... 600,070
Fund shares sold......................................................................... 299,144
Dividends................................................................................ 163,108
Interest................................................................................. 9,152
Other.................................................................................... 3,894
------------
TOTAL ASSETS............................................................................. 85,415,552
------------
LIABILITIES:
Payables:
Investments purchased.................................................................... 3,458,900
Fund shares repurchased.................................................................. 102,569
Investment advisory fee (Note 2)......................................................... 40,854
Capital gain distributions............................................................... 29,493
Income distributions..................................................................... 26,761
Accrued expenses......................................................................... 223,165
------------
TOTAL LIABILITIES........................................................................ 3,881,742
------------
NET ASSETS............................................................................... $ 81,533,810
------------
NET ASSETS CONSIST OF:
Paid in surplus (Note 3)................................................................. $ 82,837,330
Accumulated equalization credits (Note 1)................................................ 73,248
Accumulated undistributed net investment income.......................................... 28,366
Net unrealized depreciation on investments............................................... (161,206)
Accumulated net realized loss on investments............................................. (1,243,928)
------------
NET ASSETS............................................................................... $ 81,533,810
=============
MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net asset value and redemption price per share (Based on net assets of $49,878,068 and
2,792,551 shares of beneficial interest issued and outstanding)(Note 3)................ $ 17.86
Maximum sales charge (4.65%* of offering price).......................................... .87
------------
Maximum offering price to public......................................................... $ 18.73
------------
CLASS B SHARES:
Net asset value and offering price per share (Based on net assets of $30,236,782 and
1,687,686 shares of beneficial interest issued and outstanding)(Note 3)................ $ 17.92
------------
CLASS C SHARES:
Net asset value and offering price per share (Based on net assets of $1,416,984 and
79,077 shares of beneficial interest issued and outstanding)(Note 3)................... $ 17.92
------------
CLASS D SHARES:
Net asset value and offering price per share (Based on net assets of $1,976 and 111
shares of beneficial interest issued and outstanding)(Note 3).......................... $ 17.80
------------
</TABLE>

- ---------------
* On sales of $100,000 or more, the sales charge will be reduced. Effective
January 16, 1995, the maximum sales charge was changed to 5.75%.

See Notes to Financial Statements.

E-6
<PAGE> 240

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1994 (Unaudited)

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $3,837)........................ $ 693,015
Interest...................................................................... 276,661
------------
Total income.................................................................. 969,676
------------
EXPENSES:
Investment advisory fee (Note 2).............................................. 238,987
Distribution (12b-1) and service fees (Allocated to Classes A, B, C and D of
$65,752, $145,392, $3,749 and $3, respectively)(Note 6)..................... 214,896
Shareholder services.......................................................... 94,862
Custody....................................................................... 43,345
Legal (Note 2)................................................................ 19,800
Trustees fees and expenses (Note 2)........................................... 11,200
Other......................................................................... 41,734
------------
Total expenses................................................................ 664,824
------------
Net investment income......................................................... $ 304,852
------------
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
REALIZED GAIN/LOSS ON INVESTMENTS:
Proceeds from sales........................................................... $ 56,727,845
Cost of securities sold....................................................... (57,971,773)
------------
Net realized loss on investments (Including realized loss on closed and
expired option transactions of $646,125 and realized gain on futures
transactions of $146,770)................................................... (1,243,928)
------------
UNREALIZED APPRECIATION/DEPRECIATION ON INVESTMENTS:
Beginning of the period....................................................... (3,053,822)
End of the period............................................................. (161,206)
------------
Net unrealized appreciation on investments during the period.................. 2,892,616
------------
Net realized and unrealized gain on investments............................... $ 1,648,688
------------
Net increase in net assets from operations.................................... $ 1,953,540
===========
</TABLE>

See Notes to Financial Statements.

E-7
<PAGE> 241

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1994
and the Year Ended June 30, 1994 (Unaudited)

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income......................................... $ 304,852 $ 658,391
Net realized gain/loss on investments......................... (1,243,928) 1,407,337
Net unrealized appreciation/depreciation on investments during
the period................................................. 2,892,616 (5,640,097)
----------------- -------------
Change in net assets from operations.......................... 1,953,540 (3,574,369)
----------------- -------------
DISTRIBUTIONS FROM NET INVESTMENT INCOME:
Class A Shares................................................ (733,571) (283,548)
Class B Shares................................................ (196,275) (6,360)
Class C Shares................................................ (5,002) --
Class D Shares................................................ (29) --
----------------- -------------
(934,877) (289,908)
----------------- -------------
DISTRIBUTIONS FROM NET REALIZED GAIN ON INVESTMENTS:
Class A Shares................................................ (244,299) (5,555,001)
Class B Shares................................................ (148,335) (761,009)
Class C Shares................................................ (6,866) (2,518)
Class D Shares................................................ (10) --
----------------- -------------
(399,510) (6,318,528)
----------------- -------------
Total distributions...................................... (1,334,387) (6,608,436)
----------------- -------------
Net change in net assets from investment activities............. 619,153 (10,182,805)
----------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from shares sold..................................... 16,301,451 46,602,308
Net asset value of shares issued through dividend
reinvestment............................................... 1,209,754 6,217,989
Cost of shares repurchased.................................... (8,421,148) (8,165,855)
Net equalization credits...................................... 11,051 75,488
----------------- -------------
Net change in net assets from capital transactions.............. 9,101,108 44,729,930
----------------- -------------
Total increase in net assets.................................... 9,720,261 34,547,125
NET ASSETS:
Beginning of the period....................................... 71,813,549 37,266,424
----------------- -------------
End of the period (Including undistributed net investment
income of $28,366 and $658,391, respectively).............. $81,533,810 $ 71,813,549
============= ===========
</TABLE>

See Notes to Financial Statements.

E-8
<PAGE> 242

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

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

<TABLE>
<CAPTION>
CLASS A SHARES
----------------------------------------------------------------------------------------------
FROM
OCT. 29,
1986
(COMMENCEMENT
SIX OF INVESTMENT
MONTHS OPERATIONS)
ENDED YEAR ENDED JUNE 30 TO
DEC. 31, -------------------------------------------------------------------- JUNE 30,
1994 1994 1993 1992 1991 1990 1989 1988 1987
-------- ------- ------- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 17.698 $21.286 $19.693 $17.937 $16.697 $16.545 $15.227 $16.750 $14.265
-------- ------- ------- ------- ------- ------- ------- ------- -------------
Net investment
income............... .094 .199 .355 .367 .370 .586 .497 .459 .284
Net realized and
unrealized gain/loss
on investments....... .432 (.455) 2.596 1.685 1.350 .146 1.461 (1.172) 2.301
-------- ------- ------- ------- ------- ------- ------- ------- -------------
Total from investment
operations............. .526 (.256) 2.951 2.052 1.720 .732 1.958 (.713) 2.585
-------- ------- ------- ------- ------- ------- ------- ------- -------------
LESS:
Distributions from net
investment income...... .274 .175 .340 .199 .403 .580 .470 .587 .100
Distributions from net
realized gain on
investments.............. .089 3.157 1.018 .097 -- -- .170 .026 --
Return of Capital
Distribution............. -- -- -- -- .077 -- -- .197 --
-------- ------- ------- ------- ------- ------- ------- ------- -------------
Total distributions...... .363 3.332 1.358 .296 .480 .580 .640 .810 .100
-------- ------- ------- ------- ------- ------- ------- ------- -------------
Net asset value,
end of period.......... $ 17.861 $17.698 $21.286 $19.693 $17.937 $16.697 $16.545 $15.227 $16.750
======== ======== ======== ======== ======== ======== ======== ======== =============
TOTAL RETURN
(NON-ANNUALIZED)....... 2.98% (2.36%) 15.60% 11.42% 10.64% 4.37% 13.04% (4.01%) 18.13%

Net assets at end of
period (in millions)... $ 49.9 $ 46.5 $ 34.4 $ 28.4 $ 25.6 $ 26.2 $ 36.0 $ 38.1 $ 31.0
Ratio of expenses to
average net assets
(annualized)........... 1.39% 1.61% 1.47% 1.71% 1.84% 1.58% 1.50% 1.28% 1.40%
Ratio of net investment
income to average net
assets (annualized).... 1.07% 1.32% 1.77% 1.93% 2.19% 3.08% 3.02% 3.13% 2.47%
Portfolio turnover....... 81.80% 190.93% 111.39% 90.48% 48.38% 45.57% 29.46% 29.00% 1.43%
</TABLE>

See Notes to Financial Statements.

E-9
<PAGE> 243

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
CLASS B SHARES
--------------------------------------------------
FROM
DECEMBER 1, 1992
(COMMENCEMENT OF
SIX MONTHS ENDED YEAR ENDED DISTRIBUTION) TO
DECEMBER 31, JUNE 30, JUNE 30,
1994 1994 1993
---------------- ---------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period.............. $ 17.684 $ 21.331 $ 20.351
---------------- ---------- ----------------
Net investment income........................... .029 .095 .054
Net realized and unrealized gain/loss on
investments.................................. .428 (.535) 1.955
---------------- ---------- ----------------
Total from investment operations.................. .457 (.440) 2.009
---------------- ---------- ----------------
LESS:
Distributions from net investment income.......... .136 .050 .011
Distributions from net realized gain on
investments..................................... .089 3.157 1.018
---------------- ---------- ----------------
Total distributions............................... .225 3.207 1.029
---------------- ---------- ----------------
Net asset value, end of period.................... $ 17.916 $ 17.684 $ 21.331
============= ======== ==============
TOTAL RETURN (NON-ANNUALIZED)..................... 2.64% (3.34%) 10.48%
Net assets at end of period (in millions)......... $ 30.2 $ 24.8 $ 2.8
Ratio of expenses to average net assets
(annualized).................................... 2.18% 2.46% 2.28%
Ratio of net investment income to average net
assets (annualized)............................. .28% 1.22% .83%
Portfolio turnover................................ 81.80% 190.93% 111.39%
</TABLE>

See Notes to Financial Statements.

E-10
<PAGE> 244

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
CLASS C SHARES
------------------------------------
FROM
AUGUST 13,
1993
(COMMENCEMENT OF
SIX MONTHS ENDED DISTRIBUTION) TO
DECEMBER 31, JUNE 30,
1994 1994
---------------- ----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 17.691 $ 21.350
---------------- ----------------
Net investment income..................................... .031 .084
Net realized and unrealized gain/loss on investments...... .422 (.586)
---------------- ----------------
Total from investment operations............................ .453 (.502)
---------------- ----------------
LESS:
Distributions from net investment income.................... .136 --
Distributions from net realized gain on investments......... .089 3.157
---------------- ----------------
Total distributions......................................... .225 3.157
---------------- ----------------
Net asset value, end of period.............................. $ 17.919 $ 17.691
============= ==============
TOTAL RETURN (NON-ANNUALIZED)............................... 2.58% (3.60%)

Net assets at end of period (in millions)................... $ 1.4 $ 0.5
Ratio of expenses to average net
assets (annualized)....................................... 2.15% 2.46%
Ratio of net investment income to average net assets
(annualized).............................................. .24% 1.70%
Portfolio turnover.......................................... 81.80% 190.93%
</TABLE>

See Notes to Financial Statements.

E-11
<PAGE> 245

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

FINANCIAL HIGHLIGHTS -- (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
CLASS D SHARES
-------------------------------------
FROM
MARCH 14,
1994
(COMMENCEMENT OF
DISTRIBUTION) TO
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, 1994 1994
----------------- ----------------
<S> <C> <C>
Net asset value, beginning of period........................ $17.618 $ 19.210
----------------- ----------------
Net investment income..................................... .093 .136
Net realized and unrealized loss on investments........... .445 (1.728)
----------------- ----------------
Total from investment operations............................ .538 (1.592)
----------------- ----------------
LESS:
Distributions from net investment income.................... .265 --
Distributions from net realized gain on investments......... .089 --
----------------- ----------------
Total distributions......................................... .354 --
----------------- ----------------
Net asset value, end of period.............................. $17.802 $ 17.618
============= ==============
TOTAL RETURN (NON-ANNUALIZED)............................... 3.05% (8.28%)
Net assets at end of period (in thousands).................. $ 2.0 $ 1.9
Ratio of expenses to average net assets (annualized)........ 1.40% 1.65%
Ratio of net investment income to average net assets
(annualized).............................................. 1.00% 2.51%
Portfolio turnover.......................................... 81.80% 190.93%
</TABLE>

See Notes to Financial Statements.

E-12
<PAGE> 246

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS
December 31, 1994 (Unaudited)

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

Van Kampen Merritt Growth and Income Fund (the "Fund") was organized as a
Massachusetts business trust on July 8, 1986, and is registered as a diversified
open-end management investment company under the Investment Company Act of 1940,
as amended. The Fund commenced investment operations on October 29, 1986 and was
reorganized as a subtrust of Van Kampen Merritt Equity Trust (the "Trust"), a
Massachusetts business trust, as of June 17, 1988. The Fund commenced the
distribution of Class B, C and D shares on December 1, 1992,August 13, 1993, and
March 14, 1994, respectively.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation

B. Security Transactions

Security transactions are recorded on a trade date basis. Realized gains
and losses are determined on an identified cost basis.

C. Investment Income

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

D. Federal Income Taxes

E. Distribution of Income and Gains

E-13
<PAGE> 247

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)

capital gains and gains on option and futures transactions. All short-term
capital gains and a portion of option and futures gains are included in ordinary
income for tax purposes.

F. Equalization

NOTE 2 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
facilities and investment advice to the Fund for an annual fee payable monthly
as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
-------------------------------------------------------- -----------
<S> <C>
First $500 million...................................... .60 of 1%
Over $500 million....................................... .50 of 1%
</TABLE>

Certain legal fees are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.

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.

At December 31, 1994, VKAC owned 122, 116 and 100 shares of beneficial
interest of Classes B, C and D, respectively.

NOTE 3 -- CAPITAL TRANSACTIONS

E-14
<PAGE> 248

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)

aggregated $48,959,102, $32,422,278, $1,453,818 and $2,132, for Classes A, B, C
and D, respectively. For the six months ended December 31, 1994, transactions
were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C>
Sales:
Class A............................................................ 358,393 $ 6,488,957
Class B............................................................ 489,182 8,910,172
Class C............................................................ 49,779 902,322
Class D............................................................ -- --
--------- -----------
Total Sales..................................................... 897,354 $16,301,451
--------- -----------
Dividend Reinvestment:
Class A............................................................ 50,517 $ 893,969
Class B............................................................ 17,224 306,574
Class C............................................................ 515 9,200
Class D............................................................ 1 11
--------- -----------
Total Dividend Reinvestment..................................... 68,257 $ 1,209,754
--------- -----------
Repurchases:
Class A............................................................ (242,721 ) $(4,398,548)
Class B............................................................ (221,683 ) (4,012,567)
Class C............................................................ (549 ) (10,033)
Class D............................................................ -- --
--------- -----------
Total Repurchases............................................... (464,953 ) $(8,421,148)
======== ==========
</TABLE>

E-15
<PAGE> 249

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)

At June 30, 1994, paid in surplus aggregated $45,974,724, $27,218,099,
$552,329 and $2,121, for Classes A, B, C and D, respectively. For the year ended
June 30, 1994, transactions were as follows:

Class B, C and D shares are offered without a front end sales charge, but
are subject to a contingent deferred sales charge (CDSC). The CDSC for Class B,
C and D shares will be imposed on most redemptions made within six years of the
purchase for Class B and one year of the purchase for Classes C and D as
detailed in the following schedule. The Class B, C and D shares bear the expense
of their respective deferred sales arrangements, including higher distribution
and service fees and incremental transfer agency costs.

E-16
<PAGE> 250

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)

For the six months ended December 31, 1994, VKAC, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $10,000 and CDSC on the redeemed shares of Classes B, C and D of
approximately $83,300. Sales charges do not represent expenses of the Fund.

NOTE 4 -- INVESTMENT TRANSACTIONS

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended December 31, 1994, were $68,721,003
and $57,250,464, respectively.

NOTE 5 -- DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a
security whose value is "derived" from the value of an underlying asset,
reference rate or index.

Summarized below are the specific types of derivative financial instruments
used by the Fund.

A. Option Contracts

An option contract gives the buyer the right, but not the obligation to buy
(call) or sell (put) an underlying item at a fixed exercise price during a
specified period. These contracts are generally used by the Fund to provide the
return of an index without purchasing all of the securities underlying the index
or as a substitute for purchasing specific securities. Transactions in options
for the six months ended December 31, 1994, were as follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
--------- -----------
<S> <C> <C>
Outstanding at June 30, 1994.......................................... 972 $ (127,572)
Options Written and Purchased (Net)................................... 14,995 (2,443,748)
Options Terminated in Closing Transactions (Net)...................... (13,577) 2,070,774
Options Expired (Net)................................................. (2,390) 500,546
--------- -----------
Outstanding at December 31, 1994...................................... -- $ --
--------- -----------
</TABLE>

B. Futures Contracts

A futures contract is an agreement involving the delivery of a particular
asset on a specified future date at an agreed upon price. The Fund generally
invests in stock index futures. These contracts are generally used to

E-17
<PAGE> 251

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 (Unaudited)

provide the return of an index without purchasing all of the securities
underlying the index or as a substitute for purchasing specific securities.

The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.

Transactions in futures contracts for the six months ended December 31,
1994, were as follows:

<TABLE>
<CAPTION>
CONTRACTS
---------
<S> <C>
Outstanding at June 30, 1994....................................................... 36
Futures Opened..................................................................... 341
Futures Closed..................................................................... (377)
---------
Outstanding at December 31, 1994................................................... --
---------
</TABLE>

NOTE 6 -- DISTRIBUTION AND SERVICE PLANS

Annual fees under the Plans of up to .30% each of Class A and Class D
shares and 1.00% each of Class B and Class C shares are accrued daily. Included
in these fees for the six months ended December 31, 1994, are payments to VKAC
of approximately $111,300.

E-18
<PAGE> 252

PART C: OTHER INFORMATION

ITEM 15. INDEMNIFICATION

The AC Fund's trustees and officers are covered by an Errors and Omissions
Policy. The investment advisory agreement between the AC Fund and Van Kampen
American Capital Asset Management, Inc. ("AC Adviser") provides that, in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the obligations or duties under the investment advisory agreement
on the part of AC Adviser, AC Adviser shall not be liable to the AC Fund or to
any shareholder for any act or omission in the course of or connected in any way
with rendering services or for any losses that may be sustained in the purchase,
holding or sale of any security. The underwriting agreement provides that the AC
Fund shall indemnify Van Kampen American Capital Distributors, Inc. and certain
persons related thereto for any loss or liability arising from any alleged
misstatement of a material fact (or alleged omission to state a material fact)
contained in, among other things, registration statements or prospectuses except
to the extent the misstated fact or omission was made in reliance upon
information provided by or on behalf of Van Kampen American Capital
Distributors, Inc.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to trustees,
directors, officers and controlling persons of the AC Fund and AC Adviser and
Van Kampen American Capital Distributors, Inc. pursuant to the foregoing
provisions or otherwise, the AC Fund has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the AC Fund
of expenses incurred or paid by a trustee, director, officer, or controlling
person of the AC Fund and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted against the AC
Fund by such trustee, director, officer or controlling person or Van Kampen
American Capital Distributors, Inc. in connection with the shares being
registered, the AC Fund 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 Securities Act and will be governed by the final
adjudication of such issue.

ITEM 16. EXHIBITS

<TABLE>
<C> <C> <S> <C>
1.1 -- Form of First Amended and Restated Agreement and Declaration of Trust+
1.2 -- Form of Certificate of Designation+
2 -- Form of Amended and Restated Bylaws+
4 -- Form of Agreement and Plan of Reorganization+
5.1 -- Specimen Share Certificate for Class A shares+
5.2 -- Specimen Share Certificate for Class B shares+
5.3 -- Specimen Share Certificate for Class C shares+
6 -- Form of Investment Advisory Agreement+
7.1 -- Form of Underwriting Agreement+
7.2 -- Form of Selling Group Agreement(1)
7.3 -- Form of Selling Agreement for banks and bank affiliated brokers/dealers(1)
9.1 -- Form of Custodian Agreement(2)
9.2 -- Form of Transfer Agency and Service Agreement+
9.3 -- Data Access Services Agreement(3)
10.1 -- Form of Distribution Plan for Class A shares+
10.2 -- Form of Distribution Plan for Class B shares+
10.3 -- Form of Distribution Plan for Class C shares+
</TABLE>

C-1
<PAGE> 253

<TABLE>
<C> <C> <S> <C>
10.4 -- Form of Servicing Agreement+
10.5 -- Form of Servicing Agreement for banks and bank affiliated brokers/dealers+
11 -- Form of Opinion of O'Melveny & Myers+
12 -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom+
14.1 -- Consent of Price Waterhouse LLP+
14.2 -- Consent of KPMG Peat Marwick LLP+
16 -- Power of Attorney+
17.1 -- Copy of 24f-2 Election of Registrant+
17.2 -- Form of proxy card+
17.3 -- Prospectus of Van Kampen Merritt Growth and Income Fund+
</TABLE>

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

+ Filed herewith.

(1) Incorporated by reference from Registrant's Registration Statement on Form
N-1A, Registration No. 2-21657, Post-Effective Amendment No. 62, filed March
25, 1992.

(2) Incorporated by reference from American Capital Global Managed Assets Fund,
Inc.'s Registration Statement on Form N-1A, Registration No. 33-74024,
Post-Effective Amendment No. 2, filed May 6, 1994.

(3) Incorporated by reference from American Capital Utilities Income Fund,
Inc.'s Registration Statement on Form N-1A, Registration No. 33-68452,
Post-Effective Amendment No. 1, filed May 19, 1994.

ITEM 17. UNDERTAKINGS.

(1) The undersigned registrant agrees that prior to any public re-offering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offerings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.

(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.

C-2
<PAGE> 254

SIGNATURES

AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED ON BEHALF OF THE REGISTRANT IN THE CITY OF HOUSTON AND STATE OF
TEXAS, ON THE 28TH THE DAY OF JULY, 1995.

VAN KAMPEN AMERICAN CAPITAL

GROWTH AND INCOME FUND

By: /s/ NORI L. GABERT
------------------------------------
Nori L. Gabert
Secretary

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 25, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

/s/ DONALD C. MILLER* Trustee
- ---------------------------------------------
Donald C. Miller

/s/ DON G. POWELL* President, Principal Executive Officer
- --------------------------------------------- and Trustee
Don G. Powell

Trustee
- ---------------------------------------------
R. Craig Kennedy

/s/ PHILIP P. GAUGHAN* Trustee
- ---------------------------------------------
Philip P. Gaughan

/s/ JACK E. NELSON* Trustee
- ---------------------------------------------
Jack E. Nelson

/s/ JEROME L. ROBINSON* Trustee
- ---------------------------------------------
Jerome L. Robinson

/s/ WAYNE W. WHALEN* Trustee
- ---------------------------------------------
Wayne W. Whalen

/s/ CURTIS W. MORELL* Principal Financial and
- --------------------------------------------- Accounting Officer
Curtis W. Morell

/s/ J. MILES BRANAGAN* Trustee
- ---------------------------------------------
J. Miles Branagan

/s/ RICHARD E. CARUSO* Trustee
- ---------------------------------------------
Richard E. Caruso

/s/ ROGER HILSMAN* Trustee
- ---------------------------------------------
Roger Hilsman

/s/ DAVID REES* Trustee
- ---------------------------------------------
David Rees
</TABLE>

C-3
<PAGE> 255

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ LAWRENCE J. SHEEHAN* Trustee
- ---------------------------------------------
Lawrence J. Sheehan

Chairman and Trustee
- ---------------------------------------------
Fernando Sisto

Trustee
- ---------------------------------------------
William S. Woodside
</TABLE>

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

* Signed by Ronald A. Nyberg pursuant to a power of attorney filed herewith.

/s/ RONALD A. NYBERG
- ---------------------------------------------
Ronald A. Nyberg
Attorney-in-fact

C-4
<PAGE> 256

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

FORM N-14

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE
DESCRIPTION NUMBER
----------------------------------------------------------------------------- ------
<S> <C> <C>
1.1 -- Form of First Amended and Restated Agreement and Declaration of Trust+
1.2 -- Form of Certificate of Designation+
2 -- Form of Amended and Restated Bylaws+
4 -- Form of Agreement and Plan of Reorganization+
5.1 -- Specimen Share Certificate for Class A shares+
5.2 -- Specimen Share Certificate for Class B shares+
5.3 -- Specimen Share Certificate for Class C shares+
6 -- Form of Investment Advisory Agreement+
7.1 -- Form of Underwriting Agreement+
7.2 -- Form of Selling Group Agreement(1)
7.3 -- Form of Selling Agreement for banks and bank affiliated brokers/dealers(1)
9.1 -- Form of Custodian Agreement(2)
9.2 -- Form of Transfer Agency and Service Agreement+
9.3 -- Data Access Services Agreement(3)
10.1 -- Form of Distribution Plan for Class A shares+
10.2 -- Form of Distribution Plan for Class B shares+
10.3 -- Form of Distribution Plan for Class C shares+
10.4 -- Form of Servicing Agreement+
10.5 -- Form of Servicing Agreement for banks and bank affiliated brokers/dealers+
11 -- Form of Opinion of O'Melveny & Myers+
12 -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom+
14.1 -- Consent of Price Waterhouse LLP+
14.2 -- Consent of KPMG Peat Marwick LLP+
16 -- Power of Attorney+
17.1 -- Copy of 24f-2 Election of Registrant+
17.2 -- Form of proxy card+
17.3 -- Prospectus of Van Kampen Merritt Growth and Income Fund+
</TABLE>

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

+ Filed herewith.

(1) Incorporated by reference from Registrant's Registration Statement on Form
N-1A, Registration No. 2-21657, Post-Effective Amendment No. 62, filed March
25, 1992.

(3) Incorporated by reference from American Capital Utilities Income Fund,
Inc.'s Registration Statement on Form N-1A, Registration No. 33-68452,
Post-Effective Amendment No. 1, filed May 19, 1994.

<PAGE> 1
EXHIBIT 1.1

FORM OF AMERICAN CAPITAL FUNDS

FIRST AMENDED AND RESTATED

AGREEMENT AND DECLARATION OF TRUST

FIRST AMENDED AND RESTATED

AGREEMENT AND DECLARATION OF TRUST

Dated: June __, 1995

<PAGE> 2

FIRST AMENDED AND RESTATED

AGREEMENT AND DECLARATION OF TRUST

Index

RECITALS ........................................................... 1

ARTICLE I THE TRUST ................................................. 2

SECTION 1.1 Name ...................................................... 2

SECTION 1.2. Location .................................................. 2

SECTION 1.3. Nature of Trust ........................................... 2

SECTION 1.4. Definitions ............................................... 2

SECTION 1.5. Real Property to be Converted into Personal Property ...... 5

ARTICLE 2 PURPOSE OF THE TRUST ...................................... 5

ARTICLE 3 POWERS OF THE TRUSTEES .................................... 6

SECTION 3.1. Powers in General ......................................... 6
(a) Investments ....................................................... 6
(b) Disposition of Assets ............................................. 7
(c) Ownership Powers .................................................. 7
(d) Form of Holding ................................................... 7
(e) Reorganization, etc. .............................................. 7
(f) Voting Trusts, etc. ............................................... 7
(g) Contracts, etc. ................................................... 7
(h) Guarantees, etc. .................................................. 7
(i) Partnerships, etc. ................................................ 8
(j) Insurance ......................................................... 8
(k) Pensions, etc. .................................................... 8
(I) Power of Collection and Litigation ................................ 8
(m) Issuance and Repurchase of Shares ................................. 8
(n) Offices ........................................................... 8
(o) Expenses .......................................................... 9
(p) Agents, etc. ...................................................... 9
(q) Accounts .......................................................... 9
(r) Valuation ......................................................... 9
(s) Indemnification ................................................... 9
(t) General ........................................................... 9

SECTION 3.2. Borrowings; Financings; Issuance of Securities ............ 9

i
<PAGE> 3
SECTION 3.3. Deposits ................................................... 9

SECTION 3.4. Allocations ................................................ 10

SECTION 3.5. Further Powers; Limitations ................................ 10

ARTICLE 4 TRUSTEES AND OFFICERS ...................................... 10

SECTION 4.1. Number, Designation, Election, Term, etc. .................. 10
(a) Initial Trustee .................................................... 10
(b) Number ............................................................. 10
(c) Election and Term .................................................. 11
(d) Resignation and Retirement ......................................... 11
(e) Removal ............................................................ 11
(f) Vacancies .......................................................... 11
(g) Acceptance of Trusts ............................................... 12
(h) Effect of Death, Resignation, etc. ................................. 12
(i) Conveyance ......................................................... 12
(j) No Accounting ...................................................... 12

SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc. ....... 12

SECTION 4.3. Committees; Delegation ..................................... 13

SECTION 4.4. Officers ................................................... 13

SECTION 4.5. Compensation of Trustees and Officers ...................... 13

SECTION 4.6. Ownership of Shares and Securities of the Trust ............ 13

SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage
in Business; Authority of Trustees to Permit Others to Do
Likewise ................................................... 13

SECTION 4.8. Reliance on Experts ........................................ 14

SECTION 4.9. Surety Bonds ............................................... 14

SECTION 4.10. Apparent Authority of Trustees and Officers ................ 14

SECTION 4.11. Other Relationships Not Prohibited ......................... 14

SECTION 4.12. Payment of Trust Expenses .................................. 15

SECTION 4.13. 0wnership of the Trust Property ............................ 15

ii
<PAGE> 4
SECTION 4.14. By-Laws .................................................... 15

ARTICLE 5 DELEGATION OF MANAGERIAL RESPONSIBILITIES .................. 15

SECTION 5.1. Appointment; Action by Less than All Trustees .............. 15

SECTION 5.2. Certain Contracts .......................................... 16
(a) Advisory ........................................................... 16
(b) Administration ..................................................... 16
(c) Underwriting ....................................................... 16
(d) Custodian .......................................................... 17
(e) Transfer and Dividend Disbursing Agent ............................. 17
(f) Shareholder Servicing .............................................. 17
(g) Accounting ......................................................... 17

Section 5.3. Distribution Arrangements .................................. 17

Section 5.4. Service Arrangements ....................................... 17

ARTICLE 6 SERIES AND SHARES .......................................... 18

SECTION 6.1. Description of Series and Shares ........................... 18
(a) General ............................................................ 18
(b) Establishment, etc. of Series; Authorization of Shares ............. 18
(c) Character of Separate Series and Shares Thereof .................... 18
(d) Consideration for Shares ........................................... 19
(e) Assets Belonging to Series ......................................... 19
(f) Liabilities of Series .............................................. 19
(g) Dividends .......................................................... 19
(h) Liquidation ........................................................ 20
(i) Voting ............................................................. 20
(j) Redemption by Shareholder .......................................... 20
(k) Redemption at the Option of the Trust .............................. 21
(I) Net Asset Value .................................................... 21
(m) Transfer ........................................................... 22
(n) Equality ........................................................... 22
(o) Rights of Fractional Shares ........................................ 22
(p) Conversion Rights .................................................. 22

SECTION 6.2. Ownership of Shares .......................................... 23

SECTION 6.3. Investments in the Trust ..................................... 23

SECTION 6.4. No Pre-emptive Rights ........................................ 23

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SECTION 6.5. Status of Shares ........................................... 23

ARTICLE 7 SHAREHOLDERS' VOTING POWERS AND MEETINGS ................... 23

SECTION 7.1. Voting Powers .............................................. 23

SECTION 7.2. Number of Votes and Manner of Voting; Proxies .............. 24

SECTION 7.3. Meetings ................................................... 24

SECTION 7.4. Record Dates ............................................... 25

SECTION 7.5. Quorum and Required Vote ................................... 25

SECTION 7.6. Action by Written Consent .................................. 25

SECTION 7.7. Inspection of Records ...................................... 25

SECTION 7.8. Additional Provisions ...................................... 25

ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION ................... 26

SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable; Notice.. 26

SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond
or Surety ................................................. 26

SECTION 8.3. Indemnification of Shareholders ............................ 27

SECTION 8.4. Indemnification of Trustees, Officers, etc. ................ 27

SECTION 8.5. Compromise Payment ......................................... 28

SECTION 8.6. Indemnification Not Exclusive, etc. ........................ 28

SECTION 8.7. Liability of Third Persons Dealing with Trustees ........... 28

ARTICLE 9 DURATION; REORGANIZATION; INCORPORATION; AMENDMENTS ........ 28

SECTION 9.1. Duration of Trust .......................................... 28

SECTION 9.2. Termination of Trust ....................................... 28

SECTION 9.3. Reorganization ............................................. 29

SECTION 9.4. Incorporation ............................................. 29

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<PAGE> 6
SECTION 9.5. Amendments; etc. ............................................. 30

SECTION 9.6. Filing of Copies of Declaration and Amendments ............... 30

ARTICLE 10 MISCELLANEOUS ................................................ 30

SECTION 10.1. Notices ...................................................... 30

SECTION 10.2. Governing Law ................................................ 30

SECTION 10.3. Counterparts ................................................ 30

SECTION 10.4. Reliance by Third Parties .................................... 31

SECTION 10.5. References; Headings ......................................... 31

SECTION 10.6. Provisions in Conflict With Law or Regulation ................ 31

SECTION 10.7. Use of the Name "Van Kampen American Capital" ................ 31

Signature ................................................................. 32

Acknowledgments ........................................................... 33

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<PAGE> 7
FIRST AMENDED AND RESTATED

AGREEMENT AND DECLARATION OF TRUST

_____________________ FUND

As amended and restated as of June __, 1995

This CONSENT TO AMENDMENT AND RESTATMENT, made as of this __ day of
June, 1995, by the Trustees whose signatures are set forth below:

W I T N E S S E T H T H A T:

WHEREAS, the AGREEMENT AND DECLARATION OF TRUST of
____________________, a trust organized as a business trust under Delaware law
(the "Trust"), was signed and delivered on May 10, 1995, by Van Kampen American
Capital, Inc. as Settlor (the "Settlor"), and Ronald A. Nyberg as trustee (the
"Initial Trustee"), in the city of Oakbrook Terrace, Illinois; and

WHEREAS, a Certificate of Trust relating to the Trust was thereafter
filed in the offices of the Secretary of State of the State of Delaware; and

WHEREAS, Article IX, Sections 9.5 and 9.6 of the Declaration provide
certain procedures for the amendment and restatement thereof; and

WHEREAS, the Trustees have determined that it is desirable and in the
best interests of the Trust and the Shareholders that the Declaration be
amended and restated as herein provided.

NOW, THEREFORE, the undersigned, being at least a Majority of the
Trustees, do hereby consent, pursuant to Section 9.5 of the Declaration, to the
first amendment and restatement of the Agreement and Declaration of Trust, and
hereby declare, for the benefit of all Persons who shall hereafter become
holders of Shares of the Trust (or of any Series thereof), that the Trustees
will hold the sum delivered to the Initial Trustee upon his execution of the
Declaration, and all other and further cash, securities and other property of
every type and description which they may in any way acquire in their capacity
as such Trustees, together with the income therefrom and the proceeds thereof,
IN TRUST NEVERTHELESS, to manage and dispose of the same for the benefit of the
holders from time to time of the Shares being issued and to be issued hereunder
and in the manner and subject to the provisions hereof, to wit:

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<PAGE> 8
ARTICLE I

THE TRUST

SECTION 1.1 Name. The name of the Trust shall be

"____________________________________________"

and so far as may be practicable, the Trustees shall conduct the
Trust's activities, execute all documents and sue or be sued under that name,
which name (and the word "Trust" wherever used in this Agreement and
Declaration of Trust, except where the context otherwise requires) shall refer
to the Trustees in their capacity as Trustees, and not individually or
personally, and shall not refer to the officers, agents or employees of the
Trust or of such Trustees, or to the holders of the Shares of the Trust or any
Series. If the Trustees determine that the use of such name is not practicable,
legal or convenient at any time or in any jurisdiction, or if the Trust is
required to discontinue the use of such name pursuant to Section 10.7 hereof,
then subject to that Section, the Trustees may use such other designation, or
they may adopt such other name for the Trust as they deem proper, and the Trust
may hold property and conduct its activities under such designation or name.

SECTION 1.2. Location. The Trust shall maintain a registered office in
the State of Delaware and may have such other offices or places of business as
the Trustees may from time to time determine to be necessary or expedient.

SECTION 1.3. Nature of Trust. The Trust shall be a trust with
transferable shares under the laws of The State of Delaware, of the type
defined in Title 12, Chapter 38, Section 3801 of the Delaware Code as a
business trust. The Trust is not intended to be, shall not be deemed to be, and
shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder.

SECTION 1.4. Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:

"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.

"Administrator" shall have the meaning designated in Section 5.2(b)
hereof.

"Affiliated Person" shall have the meaning assigned to it in the 1940
Act.

"By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time.

"Certificate of Designation" shall have the meaning designated in
Section 6.1 hereof.

"Certificate of Termination" shall have the meaning designated in
Section 6.1 hereof.

"Class" or "Classes" shall mean, with respect to the Trust (of any
Series thereof), any unissued Shares of the Trust (or such Series) in respect
of which the Trustees shall from time to time fix and determine any special
provisions relating to sales charges, any rights of redemption and the price,
terms and manner of redemption, special and relative rights as to dividends and
other distributions and on

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<PAGE> 9
liquidation, sinking or purchase fund provisions, conversion rights,
and conditions under which the Shareholders of such Class shall have separate
voting rights or no voting rights.

"Commission" shall have the same meaning as in the 1940 Act.

"Contracting Party" shall have the meaning designated in the preamble
to Section 5.2 hereof.

"Conversion Date" shall mean with respect to Shares of any Class that
are convertible automatically into Shares of any other Class of the Trust (or
Series thereof) the date fixed by the Trustees for such conversion.

"Covered Person" shall have the meaning designated in Section 8.4
hereof.

"Custodian" shall have the meaning designated in Section 5.2(d) hereof.

"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as from time
to time in effect. This Agreement and Declaration of Trust is the "governing
instrument" of the Trust within the meaning of the laws of the State of
Delaware with respect to Delaware Business Trusts. References in this
Agreement and Declaration of Trust to "hereof", "herein" and "hereunder" shall
be deemed to refer to the Declaration of Trust generally, and shall not be
limited to the particular text, Article or Section in which such words appear.

"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.

"Distributor" shall have the meaning designated in Section 5.2(c)
hereof.

"Dividend Disbursing Agent" shall have the meaning designated in
Section 5.2(e) hereof.

"General Items" shall have the meaning defined in Section 6.2(a)
hereof.

"Initial Trustee" shall have the meaning defined in the preamble
hereto.

"Investment Advisor" shall have the meaning defined in Section 5.2(a)
hereof.

"Majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question. At any time at which there shall be only one
(1) Trustee in office, such term shall mean such Trustee.

"Majority Shareholder Vote," as used with respect to (a) the election
of any Trustee at a meeting of Shareholders, shall mean the vote for the
election of such Trustee of a plurality of all outstanding Shares of the Trust,
without regard to Series, represented in person or by proxy and entitled to
vote thereon, provided that a quorum (as determined in accordance with the
By-Laws) is present, (b) any other action required or permitted to be taken by
Shareholders, shall mean the vote for such action of the holders of that
majority of all outstanding Shares (or, where a separate vote of Shares of any
particular Series is to be taken, the affirmative vote of that majority of the
outstanding Shares of that Series) of the Trust which consists of: (i) a
majority of all Shares (or of Shares of the particular Series) represented in
person or by proxy and entitled to vote on such action at the meeting of
Shareholders at which such action is to be taken, provided that a quorum (as
determined in accordance with the By-Laws) is present; or (ii) if such action
is to be taken by written consent of Shareholders, a majority of all Shares (or
of Shares of the particular Series) issued and outstanding and entitled to vote
on such action; provided that (iii) as used

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<PAGE> 10
with respect to any action requiring the affirmative vote of "a
majority of the outstanding voting securities," as the quoted phrase is defined
in the 1940 Act, of the Trust or of any Series, "Majority Shareholder Vote"
means the vote for such action at a meeting of Shareholders of the smallest
majority of all outstanding Shares of the Trust (or of Shares of the particular
Series) entitled to vote on such action which satisfies such 1940 Act voting
requirement.

"1940 Act" shall mean the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to the Trust.

"Person" shall mean and include individuals, as well as corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, banks, trust companies, land trusts, business trusts or
other organizations established under the laws of any jurisdiction, whether or
not considered to be legal entities, and governments and agencies and political
subdivisions thereof.

"Principal Underwriter" shall have the meaning designated in Section
5.2(c) hereof.

"Prospectus," as used with respect to the Trust (or the Shares of a
particular Series), shall mean the prospectus relating to the Trust (or such
Series) which constitutes part of the currently effective Registration
Statement of the Trust under the Securities Act of 1933, as such prospectus may
be amended or supplemented from time to time.

"Securities" shall have the same meaning ascribed to that term in the
Securities Act of 1993.

"Series" shall mean one or more of the series of Shares authorized by
the Trustees to represent the beneficial interest in one or more separate
components of the assets of the Trust which are now or hereafter established
and designated under or in accordance with the provisions of Article 6 hereof.

"Settlor" shall have the meaning defined in the preamble hereto.

"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of outstanding Shares
of any Series, and shall include a pledgee into whose name any such Shares are
transferred in pledge.

"Shareholder Servicing Agent" shall have the meaning designated in
Section 5.2(f) hereof.

"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Series of the Trust (as the context may require)
shall be divided from time to time, and includes fractions of Shares as well as
whole Shares. All references herein to "Shares" which are not accompanied by a
reference to any particular Series or Class shall be deemed to apply to
outstanding Shares without regard to Series or Class.

"Single Class Voting," as used with respect to any matter to be acted
upon at a meeting or by written consent of Shareholders, shall mean a style of
voting in which each holder of one or more Shares shall be entitled to one vote
on the matter in question for each Share standing in his name on the records of
the Trust, irrespective of Series or Class of a Series, and all outstanding
Shares of all Series vote as a single class.

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<PAGE> 11
"Statement of Additional Information," as used with respect to the
Trust (or any Series), shall mean the statement of additional information
relating to the Trust (or such Series) which constitutes part of the currently
effective Registration Statement of the Trust under the Securities Act of 1933,
as such statement of additional information may be amended or supplemented from
time to time.

"Transfer Agent" shall have the meaning defined in Section 5.2(e)
hereof.

"Trust" shall mean the trust named in Section 1.1 hereof.

"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the Trust or
the Trustees, and all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and which at
such time is owned or held by, or for the account of, the Trust or the
Trustees, without regard to the Series to which such property is allocated.

"Trustees" shall mean, collectively, the Initial Trustee, so long as he
shall continue in office, and all other individuals who at the time in question
have been duly elected or appointed as Trustees of the Trust in accordance with
the provisions hereof and who have qualified and are then in office. At any
time at which there shall be only one (I) Trustee in office, such term shall
mean such single Trustee.

SECTION 1.5. Real Property to be Converted into Personal Property.
Notwithstanding any other provision hereof, any real property at any time
forming part of the Trust Property shall be held in trust for sale and
conversion into personal property at such time or times and in such manner and
upon such terms as the Trustees shall approve, but the Trustees shall have
power until the termination of this Trust to postpone such conversion as long
as they in their uncontrolled discretion shall think fit, and for the purpose
of determining the nature of the interest of the Shareholders therein, all such
real property shall at all times be considered as personal property.

ARTICLE 2

PURPOSE OF THE TRUST

The purpose of the Trust shall be to (a) manage, conduct, operate and
carry on the business of an investment company; (b) subscribe for, invest in,
reinvest in, purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise deal in or dispose of any and all
sorts of property, tangible or intangible, including but not limited to
Securities of any type whatsoever, whether equity or nonequity, of any issuer,
evidences of indebtedness of any person and any other rights, interest,
instruments or property of any sort to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investment
of every kind and description, including without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect
of any of said investments. The Trustees shall not be limited by any law
limiting the investments which may be made by fiduciaries.

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<PAGE> 12
ARTICLE 3

POWERS OF THE TRUSTEES

SECTION 3.1. Powers in General. The Trustees shall have, without other
or further authorization, full, entire, exclusive and absolute power, control
and authority over, and management of, the business of the Trust and over the
Trust Property, to the same extent as if the Trustees were the sole owners of
the business and property of the Trust in their own right, and with such powers
of delegation as may be permitted by this Declaration, subject only to such
limitations as may be expressly imposed by this Declaration of Trust or by
applicable law. The enumeration of any specific power or authority herein shall
not be construed as limiting the aforesaid power or authority or any specific
power or authority. Without limiting the foregoing; they may select, and from
time to time change, the fiscal year of the Trust; they may adopt and use a
seal for the Trust, provided that unless otherwise required by the Trustees, it
shall not be necessary to place the seal upon, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust; they may from time to time in accordance with the
provisions of Section 6.1 hereof establish one or more Series to which they may
allocate such of the Trust Property, subject to such liabilities, as they shall
deem appropriate, each such Series to be operated by the Trustees as a separate
and distinct investment medium and with separately defined investment
objectives and policies and distinct investment purposes, all as established by
the Trustees, or from time to time changed by them; they may as they consider
appropriate elect and remove officers and appoint and terminate agents and
consultants and hire and terminate employees, any one or more of the foregoing
of whom may be a Trustee; they may appoint from their own number, and
terminate, any one or more committees consisting of one or more Trustees,
including without implied limitation an Executive Committee, which may, when
the Trustees are not in session and subject to the 1940 Act, exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
in accordance with Section 5.2 they may employ one or more Investment Advisers,
Administrators and Custodians and may authorize any such service provider to
employ one or more other or service providers and to deposit all or any part of
such assets in a system or systems for the central handling of Securities,
retain Transfer, Dividend Disbursing, Accounting or Shareholder Servicing
Agents or any of the foregoing, provide for the distribution of Shares by the
Trust through one or more Distributors, Principal Underwriters or otherwise,
set record dates or times for the determination of Shareholders entitled to
participate in, benefit from or act with respect to various matters; and in
general they may delegate to any officer of the Trust, to any Committee of the
Trustees and to any employee, Investment Adviser, Administrator, Distributor,
Custodian, Transfer Agent, Dividend Disbursing Agent, or any other agent or
consultant of the Trust, such authority, powers, functions and duties as they
consider desirable or appropriate for the conduct of the business and affairs
of the Trust, including without implied limitation the power and authority to
act in the name of the Trust and of the Trustees, to sign documents and to act
as attorney-in-fact for the Trustees. Without limiting the foregoing and to the
extent not inconsistent with the 1940 Act or other applicable law, the Trustees
shall have power and authority:

(a) Investments. To subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
or otherwise deal in or dispose of any and all sorts of property, tangible or
intangible, including but not limited to Securities of any type whatsoever,
whether equity or nonequity, of any issuer, evidences of indebtedness of any
person and any other rights, interest, instruments or property of any sort, to
exercise any and all rights, powers and privileges of ownership or

<PAGE> 13
interest in respect of any and all such investments of every kind and
description, including without limitation the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons to
exercise any of said rights, powers and privileges in respect of any of said
investments, in every case without being limited by any law limiting the
investments which may be made by fiduciaries;

(b) Disposition of Assets. Upon such terms and conditions as they deem
best, to lend, sell, exchange, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer or otherwise dispose of,
and to trade in, any and all of the Trust Property, free and clear of all
trusts, for cash or on terms, with or without advertisement, and on such terms
as to payment, security or otherwise, all as they shall deem necessary or
expedient;

(c) Ownership Powers. To vote or give assent, or exercise any and all
other rights, powers and privileges of ownership with respect to, and to
perform any and all duties and obligations as owners of, any Securities or
other property forming part of the Trust Property, the same as any individual
might do; to exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of Securities, and to receive powers of
attorney from, and to execute and deliver proxies or powers of attorney to,
such Person or Persons as the Trustees shall deem proper, receiving from or
granting to such Person or Persons such power and discretion with relation to
Securities or other property of the Trust, all as the Trustees shall deem
proper;

(d) Form of Holding. To hold any Security or other property in a form
not indicating any trust, whether in bearer, unregistered or other negotiable
form, or in the name of the Trustees or of the Trust, or of the Series to which
such Securities or property belong, or in the name of a Custodian, subcustodian
or other nominee or nominees, or otherwise, upon such terms, in such manner or
with such powers, as the Trustees may determine, and with or without indicating
any trust or the interest of the Trustees therein;

(e) Reorganizations etc. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or issuer, any
Security of which is or was held in the Trust or any Series; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to any Security forming
part of the Trust Property;

(f) Voting Trusts, etc. To join with other holders of any Securities in
acting through a committee, depository, voting trustee or otherwise, and in
that connection to deposit any Security with, or transfer any Security to, any
such committee, depository or trustee, and to delegate to them such power and
authority with relation to any Security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depository or trustee as the Trustees shall deem proper;

(g) Contracts. etc. To enter into, make and perform all such
obligations, contracts, agreements and undertakings of every kind and
description, with any Person or Persons, as the Trustees shall in their
discretion deem expedient in the conduct of the business of the Trust, for such
terms as they shall see fit, whether or not extending beyond the term of office
of the Trustees, or beyond the possible expiration of the Trust; to amend,
extend, release or cancel any such obligations, contracts, agreements or
understandings; and to execute, acknowledge, deliver and record all written
instruments which they may deem necessary or expedient in the exercise of their
powers;

(h) Guarantees. etc. To endorse or guarantee the payment of any notes
or other obligations of any Person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;

7
<PAGE> 14
and to mortgage and pledge the Trust Property or any part thereof to secure any
of or all such obligations;

(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships and any other combinations or association;

(j) Insurance. To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, Investment Advisers, managers,
Administrators, Distributors, Principal Underwriters, or other independent
contractors, or any thereof (or any Person connected therewith), of the Trust,
individually, against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such Person
in any such capacity, whether or not the Trust would have the power to
indemnify such Person against such liability;

(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit sharing, share bonus, share purchase, savings, thrift, deferred
compensation and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust;

(I) Power of Collection and Litigation. To collect, sue for and receive
all sums of money coming due to the Trust, to employ counsel, and to commence,
engage in, prosecute, intervene in, join, defend, compound, compromise, adjust
or abandon, in the name of the Trust, any and all actions, suits, proceedings,
disputes, claims, controversies, demands or other litigation or legal
proceedings relating to the Trust, the business of the Trust, the Trust
Property, or the Trustees, officers, employees, agents and other independent
contractors of the Trust, in their capacity as such, at law or in equity, or
before any other bodies or tribunals, and to compromise, arbitrate or otherwise
adjust any dispute to which the Trust may be a party, whether or not any suit
is commenced or any claim shall have been made or asserted. Except to the
extent required for a Delaware Business Trust, the Shareholders shall have no
power to vote as to whether or not a court action, legal proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders.

(m) Issuance and Repurchase of Shares. To authorize, issue, sell,
repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in Shares of any Series, and, subject to Article 6
hereof, to apply to any such repurchase, redemption, retirement, cancellation
or acquisition of Shares of any Series, any of the assets belonging to the
Series to which such Shares relate, whether constituting capital or surplus or
otherwise, to the full extent now or hereafter permitted by applicable law;
provided that any Shares belonging to the Trust shall not be voted, directly or
indirectly;

(n) Offices. To have one or more offices, and to carry on all or any of
the operations and business of the Trust, in any of the States, Districts or
Territories of the United States, and in any and all foreign countries, subject
to the laws of such State, District, Territory or country;

8
<PAGE> 15
(o) Expenses. To incur and pay any and all such expenses and charges as
they may deem advisable (including without limitation appropriate fees to
themselves as Trustees), and to pay all such sums of money for which they may
be held liable by way of damages, penalty, fine or otherwise;

(p) Agents, etc. To retain and employ any and all such servants,
agents, employees, attorneys, brokers, Investment Advisers, accountants,
architects, engineers, builders, escrow agents, depositories, consultants,
ancillary trustees, custodians, agents for collection, insurers, banks and
officers, as they think best for the business of the Trust or any Series, to
supervise and direct the acts of any of the same, and to fix and pay their
compensation and define their duties;

(q) Accounts. To determine, and from time to time change, the method or
form in which the accounts of the Trust or any Series shall be kept;

(r) Valuation. Subject to the requirements of the 1940 Act, to
determine from time to time the value of all or any part of the Trust Property
and of any services, Securities, property or other consideration to be
furnished to or acquired by the Trust, and from time to time to revalue all or
any part of the Trust Property in accordance with such appraisals or other
information as is, in the Trustees' sole judgment, necessary and satisfactory;

(s) Indemnification. In addition to the mandatory indemnification
provided for in Article 8 hereof and to the extent permitted by law, to
indemnify or enter into agreements with respect to indemnification with any
Person with whom this Trust has dealings, including, without limitation, any
independent contractor, to such extent as the Trustees shall determine; and

(t) General. Subject to the fundamental policies in effect from time to
time with respect to the Trust, to do all such other acts and things and to
conduct, operate, carry on and engage in such other lawful businesses or
business activities as they shall in their sole and absolute discretion
consider to be incidental to the business of the Trust or any Series as an
investment company, and to exercise all powers which they shall in their
discretion consider necessary, useful or appropriate to carry on the business
of the Trust or any Series, to promote any of the purposes for which the Trust
is formed, whether or not such things are specifically mentioned herein, in
order to protect or promote the interests of the Trust or any Series, or
otherwise to carry out the provisions of this Declaration.

SECTION 3.2. Borrowings; Financings: Issuance of Securities. The
Trustees have power, subject to the fundamental policies in effect from time to
time with respect to the Trust, to borrow or in any other manner raise such sum
or sums of money, and to incur such other indebtedness for goods or services,
or for or in connection with the purchase or other acquisition of property, as
they shall deem advisable for the purposes of the Trust, in any manner and on
any terms, and to evidence the same by negotiable or nonnegotiable Securities
which may mature at any time or times, even beyond the possible date of
termination of the Trust; to issue Securities of any type for such cash,
property, services or other considerations, and at such time or times and upon
such terms, as they may deem advisable; and to reacquire any such Securities.
Any such Securities of the Trust may, at the discretion of the Trustees, be
made convertible into Shares of any Series, or may evidence the right to
purchase, subscribe for or otherwise acquire Shares of any Series, at such
times and on such terms as the Trustees may prescribe.

SECTION 3.3. Deposits. Subject to the requirements of the 1940 Act, the
Trustees shall have power to deposit any moneys or Securities included in the
Trust Property with any one or more banks, trust companies or other banking
institutions, whether or not such deposits will draw interest. Such deposits

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are to be subject to withdrawal in such manner as the Trustees may
determine, and the Trustees shall have no responsibility for any loss which may
occur by reason of the failure of the bank, trust company or other banking
institution with which any such moneys or Securities have been deposited,
except as provided in Section 8.2 hereof.

SECTION 3.4. Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a discount,
as income or capital, or to apportion the same between income and capital, to
apportion the sale price of any asset between income and capital, and to
determine in what manner any expenses or disbursements are to be borne as
between income and capital, whether or not in the absence of the power and
authority conferred by this Section 3.4 such assets would be regarded as income
or as capital or such expense or disbursement would be charged to income or to
capital; to treat any dividend or other distribution on any investment as
income or capital, or to apportion the same between income and capital; to
provide or fail to provide reserves, including reserves for depreciation,
amortization or obsolescence in respect of any Trust Property in such amounts
and by such methods as they shall determine; to allocate less than all of the
consideration paid for Shares of any Series to surplus with respect to the
Series to which such Shares relate and to allocate the balance thereof to
paid-in capital of that Series, and to reallocate such amounts from time to
time; all as the Trustees may reasonably deem proper.

SECTION 3.5. Further Powers: Limitations. The Trustees shall have power
to do all such other matters and things, and to execute all such instruments,
as they deem necessary, proper or desirable in order to carry out, promote or
advance the interests of the Trust, although such matters or things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration of Trust, the presumption shall
be in favor of a grant of power to the Trustees. The Trustees shall not be
required to obtain any court order to deal with the Trust Property. The
Trustees may limit their right to exercise any of their powers through express
restrictive provisions in the instruments evidencing or providing the terms for
any Securities of the Trust or in other contractual instruments adopted on
behalf of the Trust.

ARTICLE 4

TRUSTEES AND OFFICERS

SECTION 4.1. Number. Designation, Election. Term, etc.

(a) Initial Trustee. Upon his execution of this Agreement and
Declaration of Trust dated May 10, 1995 or a counterpart hereof or some other
writing in which he accepted such Trusteeship and agreed to the provisions
hereof, the individual whose signature is affixed thereto as Initial Trustee
became the Initial Trustee thereof.

(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase (to not more than fourteen (14)) or
decrease the number of Trustees to a number other than the number theretofore
determined by a written instrument signed by a Majority

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(or a supermajority if required by the By-Laws) of the Trustees). No
decrease in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term, but the number of
Trustees may be decreased in conjunction with the removal of a Trustee pursuant
to subsection (e) of this Section 4.1.

(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the first meeting of Shareholders immediately
prior to the initial issuance of shares of the Trust in a public offering and
the term of office of any Trustees in office before such election shall
terminate at the time of such election. Subject to Section 16(a) of the 1940
Act and to the preceding sentence of this subsection (c) and to any
requirements specified in the By-Laws, the Trustees shall have the power to set
and alter the terms of office of the Trustees, and at any time to lengthen or
shorten their own terms or make their terms of unlimited duration, to elect
their own successors and, pursuant to subsection (f) of this Section 4.1, to
appoint Trustees to fill vacancies; provided that Trustees shall be elected by
a Majority Shareholder Vote at any such time or times as the Trustees shall
determine that such action is required under Section 16(a) of the 1940 Act or,
if not so required, that such action is advisable; and further provided that,
after the initial election of Trustees by the Shareholders, the term of office
of any incumbent Trustee shall continue until the termination of this Trust or
his earlier death, resignation, retirement, bankruptcy, adjudicated
incompetency or other incapacity or removal, or if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this subsection (c).

(d) Resignation and Retirement. Any Trustee may resign his trust or
retire as a Trustee, by a written instrument signed by him and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument.

(e) Removal. Any Trustee may be removed: (i) with cause at any time by
written instrument, signed by at least two thirds (2/3) of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding a majority of
the Shares of the Trust then outstanding, cast in person or by proxy at any
meeting called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than a majority of the Shares of the Trust then
outstanding. Notwithstanding any other provisions set forth in this Declaration
of Trust, this Section 4.1(e) may not be amended (either directly or indirectly
through a reorganization) without the approval of (i) 80% of the Trustees then
in office or (ii) by vote of Shareholders holding a majority of the Shares of
the Trust then outstanding.

(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including an increase in the number of Trustees, may (but need not
unless required by the 1940 Act) be filled by a Majority (or a supermajority if
required by the By-Laws) of the Trustees, subject to the provisions of Section
16(a) of the 1940 Act, through the appointment in writing of such other
individual as such remaining Trustees in their discretion shall determine;
provided that if there shall be no Trustees in office, such vacancy or
vacancies shall be filled by Majority Shareholders Vote. Any such appointment
or election shall be effective upon such individual's written acceptance of his
appointment as a Trustee and his agreement to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of
a vacancy to occur by reason of retirement, resignation or increase in the
number of Trustees to be effective at a later date shall become effective only
at or after the effective date of said retirement, resignation or increase in
the number of Trustees.

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(g) Acceptance of Trusts. Whenever any conditions to the appointment or
election of any individual as a Trustee hereunder who was not, immediately
prior to such appointment or election, acting as a Trustee shall have been
satisfied, such individual shall become a Trustee and the Trust estate shall
vest in the new Trustee, together with the continuing Trustees, without any
further act or conveyance. Such new Trustee shall accept such appointment or
election in writing and agree in such writing to be bound by the provisions
hereof, but the execution of such writing shall not be requisite to the
effectiveness of the appointment or election of a new Trustee.

(h) Effect of Death. Resignation, etc. No vacancy, whether resulting
from the death, resignation, retirement, bankruptcy, adjudicated incompetency,
incapacity, or removal of any Trustee, an increase in the number of Trustees or
otherwise, shall operate to annul or terminate the Trust hereunder or to revoke
or terminate any existing agency or contract created or entered into pursuant
to the terms of this Declaration of Trust. Until such vacancy is filled as
provided in this Section 4.1, the Trustees in office (if any), regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration. Upon
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require in
order to effect the purpose of this Paragraph.

(i) Convevance. In the event of the resignation or removal of a
Trustee or his otherwise ceasing to be a Trustee, such former Trustee or his
legal representative shall, upon request of the continuing Trustees, execute
and deliver such documents as may be required for the purpose of consummating
or evidencing the conveyance to the Trust or the remaining Trustees of any
Trust Property held in such former Trustee's name, but the execution and
delivery of such documents shall not be requisite to the vesting of title to
the Trust Property in the remaining Trustees, as provided in subsection (g) of
this Section 4.1 and in Section 4.13 hereof.

(j) No Accounting. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no Person
ceasing to be a Trustee (nor the estate of any such Person) shall be required
to make an accounting to the Shareholders or remaining Trustees upon such
cessation.

SECTION 4.2. Trustees' Meetings: Participation by Telephone. etc.
Annual and special meetings may be held from time to time, in each case, upon
the call of such officers as may be thereunto authorized by the By-Laws or vote
of the Trustees, or by any three (3) Trustees, or pursuant to a vote of the
Trustees adopted at a duly constituted meeting of the Trustees, and upon such
notice as shall be provided in the By-Laws. Any such meeting may be held within
or without the state of Delaware. The Trustees may act with or without a
meeting, and a written consent to any matter, signed by all of the Trustees,
shall be equivalent to action duly taken at a meeting of the Trustees, duly
called and held. Except as otherwise provided by the 1940 Act or other
applicable law, or by this Declaration of Trust or the By-Laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees (a quorum, consisting of at least a Majority of the
Trustees, being present), within or without Delaware. If authorized by the
By-Laws, all or any one or more Trustees may participate in a meeting of the
Trustees or any Committee thereof by means of conference telephone or similar
means of communication by means of which all Persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
means of communication shall constitute presence in person at such meeting. The
minutes of any meeting thus held shall be prepared in the same manner as a
meeting at which all participants were present in person.

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SECTION 4.3. Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to one or more other Committees, or to any
single Trustee, the doing of such things and the execution of such deeds or
other instruments, either in the name of the Trust or the names of the Trustees
or as their attorney or attorneys in fact, or otherwise as the Trustees may
from time to time deem expedient, and any agreement, deed, mortgage, lease or
other instrument or writing executed by the Trustee or Trustees or other Person
to whom such delegation was made shall be valid and binding upon the Trustees
and upon the Trust.

SECTION 4.4. Officers. The Trustees shall annually elect such officers
or agents, who shall have such powers, duties and responsibilities as the
Trustees may deem to be advisable, and as they shall specify by resolution or
in the By-Laws. Except as may be provided in the By-Laws, any officer elected
by the Trustees may be removed at any time with or without cause. Any two (2)
or more offices may be held by the same individual.

SECTION 4.5. Compensation of Trustees and Officers. The Trustees shall
fix the compensation of all officers and Trustees. Without limiting the
generality of any of the provisions hereof, the Trustees shall be entitled to
receive reasonable compensation for their general services as such, and to fix
the amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal, accounting,
or other professional services, as they in good faith may deem reasonable. No
Trustee or officer resigning (except where a right to receive compensation for
a definite future period shall be expressly provided in a written agreement
with the Trust, duly approved by the Trustees) and no Trustee or officer
removed shall have any right to any compensation as such Trustee or officer for
any period following his resignation or removal, or any right to damages on
account of his removal, whether his compensation be by the month, or the year
or otherwise.

SECTION 4.6. Ownership of Shares and Securities of the Trust. Any
Trustee, and any officer, employee or agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of any Series and other Securities of the Trust for his or its
individual account, and may exercise all rights of a holder of such Shares or
Securities to the same extent and in the same manner as if such Person were not
such a Trustee, officer, employee or agent of the Trust; subject, in the case
of Trustees and officers, to the same limitations as directors or officers (as
the case may be) of a Delaware business corporation; and the Trust may issue
and sell or cause to be issued and sold and may purchase any such Shares or
other Securities from any such Person or any such organization, subject only to
the general limitations, restrictions or other provisions applicable to the
sale or purchase of Shares of such Series or other Securities of the Trust
generally.

SECTION 4.7. Right of Trustees and Officers to Own Property or to
Engage in Business; Authority of Trustees to Permit Others to Do Likewise. The
Trustees, in their capacity as Trustees, and (unless otherwise specifically
directed by vote of the Trustees) the officers of the Trust in their capacity
as such, shall not be required to devote their entire time to the business and
affairs of the Trust. Except as otherwise specifically provided by vote of the
Trustees, or by agreement in any particular case, any Trustee or officer of the
Trust may acquire, own, hold and dispose of, for his own individual account,
any property, and acquire, own, hold, carry on and dispose of, for his own
individual account, any business entity or business activity, whether similar
or dissimilar to any property or business entity or business activity invested
in or carried on by the Trust, and without first offering the same as an
investment opportunity to the Trust, and may exercise all rights in respect
thereof as if he were not a Trustee or officer of the Trust. The Trustees shall
also have power, generally or in specific cases, to permit

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employees or agents of the Trust to have the same rights (or lesser
rights) to acquire, hold, own and dispose of property and businesses, to carry
on businesses, and to accept investment opportunities without offering them to
the Trust, as the Trustees have by virtue of this Section 4.7.

SECTION 4.8. Reliance on Experts. The Trustees and officers may consult
with counsel, engineers, brokers, appraisers, auctioneers, accountants,
investment bankers, securities analysts or other Persons (any of which may be a
firm in which one or more of the Trustees or officers is or are members or
otherwise interested) whose profession gives authority to a statement made by
them on the subject in question, and who are reasonably deemed by the Trustees
or officers in question to be competent, and the advice or opinion of such
Persons shall be full and complete personal protection to all of the Trustees
and officers in respect of any action taken or suffered by them in good faith
and in reliance on or in accordance with such advice or opinion. In discharging
their duties, Trustees and officers, when acting in good faith, may rely upon
financial statements of the Trust represented to them to be correct by any
officer of the Trust having charge of its books of account, or stated in a
written report by an independent certified public accountant fairly to present
the financial position of the Trust. The Trustees and officers may rely, and
shall be personally protected in acting, upon any instrument or other document
believed by them to be genuine.

SECTION 4.9. Surety Bonds. No Trustee, officer, employee or agent of
the Trust shall, as such, be obligated to give any bond or surety or other
security for the performance of any of his duties, unless required by
applicable law or regulation, or unless the Trustees shall otherwise determine
in any particular case.

SECTION 4.10. Apparent Authority of Trustees and Officers. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by such
officer, or to make inquiry concerning or be liable for the application of
money or property paid, loaned or delivered to or on the order of the Trustees
or of such officer.

SECTION 4.11. Other Relationships Not Prohibited. The fact that:

(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party (as defined in Section 5.2 hereof), or of or
for any parent or affiliate of any Contracting Party, or that the
Contracting Party or any parent or affiliate thereof is a Shareholder
or has an interest in the Trust or any Series, or that

(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships
or other organizations, or have other business or interests,

shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust
and/or the Trustees or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or to the holders of Shares of any Series; provided
that, in the case of any relationship or interest referred to in the preceding
clause (i) on the part of any Trustee or officer of the Trust, either (x) the
material facts as to such relationship or interest have been disclosed to or
are known by the Trustees not having any such relationship or interest and the
contract involved is approved in good faith by a majority

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of such Trustees not having any such relationship or interest (even
though such unrelated or disinterested Trustees are less than a quorum of all
of the Trustees), (y) the material facts as to such relationship or interest
and as to the contract have been disclosed to or are known by the Shareholders
entitled to vote thereon and the contract involved is specifically approved in
good faith by vote of the Shareholders, or (z) the specific contract involved
is fair to the Trust as of the time it is authorized, approved or ratified by
the Trustees or by the Shareholders.

SECTION 4.12. Payment of Trust Expenses. The Trustees are authorized to
pay or to cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, and according to any
allocation to a particular Series and Class made by them pursuant to Section
6.1(f) hereof, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the business and affairs of the Trust or in
connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, Investment Adviser, Administrator, Distributor,
Principal Underwriter, auditor, counsel, Custodian, Transfer Agent, Dividend
Disbursing Agent, Accounting Agent, Shareholder Servicing Agent, and such other
agents, consultants, and independent contractors and such other expenses and
charges as the Trustees may deem necessary or proper to incur.

SECTION 4.13. Ownership of the Trust Property. Legal title to all the
Trust Property shall be vested in the Trustees as joint tenants, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or of any particular Series, or in the name of any other Person as
nominee, on such terms as the Trustees may determine; provided that the
interest of the Trust and of the respective Series therein is appropriately
protected. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee.
Upon the termination of the term of office of a Trustee as provided in Section
4.1(c), (d) or (e) hereof, such Trustee shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to Section 4.1(i) hereof.

SECTION 4.14. By-Laws. The Trustees may adopt and from time to time
amend or repeal By-Laws for the conduct of the business of the Trust.

ARTICLE 5

DELEGATION OF MANAGERIAL RESPONSIBILITIES

SECTION 5.1. Appointment; Action by Less than All Trustees. The
Trustees shall be responsible for the general operating policy of the Trust and
for the general supervision of the business of the Trust conducted by officers,
agents, employees or advisers of the Trust or by independent contractors, but
the Trustees shall not be required personally to conduct all the business of
the Trust and, consistent with their ultimate responsibility as stated herein,
the Trustees may appoint, employ or contract with one or more officers,
employees and agents to conduct, manage and/or supervise the operations of the
Trust, and may grant or delegate such authority to such officers, employees
and/or agents as the Trustees may, in their sole discretion, deem to be
necessary or desirable, without regard to whether such authority is normally
granted or delegated by trustees. With respect to those matters of the
operation and business of

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the Trust which they shall elect to conduct themselves, except as
otherwise provided by this Declaration or the By-Laws, if any, the Trustees may
authorize any single Trustee or defined group of Trustees, or any committee
consisting of a number of Trustees less than the whole number of Trustees then
in office without specification of the particular Trustees required to be
included therein, to act for and to bind the Trust, to the same extent as the
whole number of Trustees could do, either with respect to one or more
particular matters or classes of matters, or generally.

SECTION 5.2. Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time in their discretion and
without limiting the generality of their powers and authority otherwise set
forth herein, enter into one or more contracts with any one or more
corporations, trusts, associations, partnerships, limited partnerships or other
types of organizations, or individuals ("Contracting Party"), to provide for
the performance and assumption of some or all of the following services, duties
and responsibilities to, for or on behalf of the Trust and/or any Series,
and/or the Trustees, and to provide for the performance and assumption of such
other services, duties and responsibilities in addition to those set forth
below, as the Trustees may deem appropriate:

(a) Advisory. An investment advisory or management agreement whereby
the agent shall undertake to furnish the Trust (or any Series thereof) such
management, investment advisory or supervisory, statistical and research
facilities and services, and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable, all upon such terms and
conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
or any applicable provisions of the By-Laws (any such agent being herein
referred to as an "Investment Adviser"). To the extent required by the 1940
Act, any such advisory or management agreement and any amendment thereto shall
be subject to approval by a Majority Shareholder Vote at a meeting of the
Shareholders of the Trust (or applicable Series). Notwithstanding any
provisions of this Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
securities of the Trust on behalf of the Trustees or may authorize any officer
or employee of the Trust or any Trustee to effect such purchases, sales, loans
or exchanges pursuant to recommendations of the Investment Adviser (and all
without further action by the Trustees). Any such purchases, sales, loans and
exchanges shall be deemed to have been authorized by all of the Trustees. The
Trustees may, in their sole discretion, call a meeting of Shareholders in order
to submit to a vote of Shareholders of the Trust (or applicable Series) at such
meeting the approval of continuance of any such investment advisory or
management agreement.

(b) Administration. An agreement whereby the agent, subject to the
general supervision of the Trustees and in conformity with any policies of the
Trustees with respect to the operations of the Trust and each Series thereof,
will supervise all or any part of the operations of the Trust (or any Series
thereof), and will provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for the
efficient administration and operations of the Trust (or any Series thereof)
(any such agent being herein referred to as an "Administrator").

(c) Underwriting. An agreement providing for the sale of Shares of the
Trust (or any Series thereof) to net the Trust not less than the net asset
value per Share (as described in Section 6.1(l) hereof) and pursuant to which
the Trust may appoint the other party to such agreement as its principal
underwriter or sales agent for the distribution of such Shares. The agreement
shall contain such terms and

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conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
and any applicable provisions of the By-Laws (any such agent being herein
referred to as a "Distributor" or a "Principal Underwriter," as the case may
be).

(d) Custodian. The appointment of an agent meeting the requirements for
a custodian for the assets of Investment Companies contained in the 1940 Act
as custodian of the Securities and cash of the Trust (or any Series thereof)
and of the accounting records in connection therewith (any such agent being
herein referred to as a "Custodian").

(e) Transfer and Dividend Disbursing Agent. An agreement with an agent
to maintain records of the ownership of outstanding Shares, the issuance and
redemption and the transfer thereof (any such agent being herein referred to
as a "Transfer Agent"), and to disburse any dividends declared by the
Trustees and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such dividends
(any such agent being herein referred to as a "Dividend Disbursing Agent").

(f) Shareholder Servicing. An agreement with an agent to provide
service with respect to the relationship of the Trust and its Shareholders,
records with respect to Shareholders and their Shares, and similar matters
(any such agent being herein referred to as a "Shareholder Servicing Agent").

(g) Accounting. An agreement with an agent to handle all or any part of
the accounting responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise (any such agent being herein referred
to as an "Accounting Agent").

In addition, the Trustees may from time to time cause the Trust (or any
Series thereof) to enter into agreements with respect to such other services
and upon such other terms and conditions as they may deem necessary,
appropriate or desirable. The same Person may be the Contracting Party for
some or all of the services, duties and responsibilities to, for and of the
Trust and/or the Trustees, and the contracts with respect thereto may contain
such terms interpretive of or in addition to the delineation of the services,
duties and responsibilities provided for, including provisions that are not
inconsistent with the 1940 Act relating to the standard of duty of and the
rights to indemnification of the Contracting Party and others, as the Trustees
may determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into subcontractual arrangements relative to
any of the matters referred to in subsections (a) through (g) of this Section
5.2.

Section 5.3. Distribution Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more plans of distribution pursuant to Rule 12b-1 of the 1940
Act which plan(s) will provide for the payment of specified marketing,
distribution and shareholder relations expenses of the Trust and any or all
Series and their agents and the agents of such agents.

Section 5.4. Service Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more service plans which plans will provide for the payment of
ongoing services to holders of the shares of such Trust (or any Series thereof)
and in connection with the maintenance of such shareholders' accounts.

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ARTICLE 6

SERIES AND SHARES

SECTION 6.1. Description of Series and Shares.

(a) General. The beneficial interest in the Trust shall be divided into
Shares (either full or fractional) with $.01 par value per Share, of which an
unlimited number may be issued. The Trustees shall have the authority from time
to time to establish and designate one or more separate, distinct and
independent Series of Shares (each of which Series shall represent interests
only in the asset attributed by the Trustees to such Series), and to authorize
separate Classes of Shares of the Trust (or any such Series), as they deem
necessary or desirable. All Shares shall be of one class, provided that the
Trustees shall have the power to classify or reclassify any unissued Shares of
any Series into any number of additional Classes of such Series.

(b) Establishment. etc. of Series; Authorization of Shares. The
establishment and designation of any Series and the authorization of the Shares
thereof shall be effective upon the execution by a Majority of the Trustees (or
by an officer of the Trust pursuant to the vote of a Majority of the Trustees)
of an instrument setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series and the manner in
which the same may be amended (a "Certificate of Designation"), and may provide
that the number of Shares of such Series which may be issued is unlimited, or
may limit the number issuable. At any time that there are no Shares outstanding
of any particular Series previously established and designated, the Trustees
may by an instrument executed by a Majority of the Trustees (or by an officer
of the Trust pursuant to the vote of a Majority of the Trustees) terminate such
Series and the establishment and designation thereof and the authorization of
its Shares (a "Certificate of Termination"). Each Certificate of Designation,
Certificate of Termination and any instrument amending a Certificate of
Designation shall have the status of an amendment to this Declaration of Trust.

(c) Character of Separate Series and Shares Thereof. Each Series
established hereunder shall represent beneficial interests in a separate
component of the assets of the Trust. Holders of Shares of a Series shall be
considered Shareholders of such Series, but such Shareholders shall also be
considered Shareholders of the Trust for purposes of receiving reports and
notices and, except as otherwise provided herein or in the Certificate of
Designation of a particular Series, or as required by the 1940 Act or other
applicable law, the right to vote, all without distinction by Series. The
Trustees shall have exclusive power without the requirement of Shareholder
approval to establish and designate such separate and distinct Series, and to
fix and determine the relative rights and preferences as between the shares of
the respective Series, and as between the Classes of the Trust (or any Series
thereof), as to rights of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the Shareholders of the several Series or the several
Classes of any Series of Shares shall have separate voting rights or no voting
rights. Except as otherwise provided as to a particular Series herein, or in
the Certificate of Designation therefor, the Trustees shall have all the rights
and powers, and be subject to all the duties and obligations, with respect to
each such Series and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
Separate and distinct records shall be maintained for each Series of Shares and
the assets and liabilities attributable thereto.

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(d) Consideration for Shares. The Trustees may issue Shares of the
Trust (or any Series thereof) for such consideration (which may include
property subject to, or acquired in connection with the assumption of,
liabilities) and on such terms as they may determine (or for no consideration
if pursuant to a Share dividend or split-up), all without action or approval of
the Shareholders. All Shares when so issued on the terms determined by the
Trustees shall be fully paid and nonassessable (but may be subject to mandatory
contribution back to the Trust (or applicable Series) as provided in Section
6.1(l) hereof. The Trustees may classify or reclassify any unissued Shares, or
any Shares of the Trust (or any Series thereof) previously issued and
reacquired by the Trust, into Shares of the Trust or one or more other Series
that may be established and designated from time to time.

(e) Assets Belonging to Series. Any portion of the Trust Property
allocated to a particular Series, and all consideration received by the Trust
for the issue or sale of Shares of such Series, together with all assets in
which such consideration is invested or reinvested, all interest, dividends,
income, earnings, profits and gains therefrom, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series and shall irrevocably belong to
that Series for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of such Series shall not have, and
shall be conclusively deemed to have waived, any claims to the assets of any
Series of which they are not Shareholders. Such consideration, assets,
interest, dividends, income, earnings, profits, gains and proceeds, together
with any General Items allocated to that Series as provided in the following
sentence, are herein referred to collectively as assets "belonging to" that
Series. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series (collectively, "General Items"), the
Trustees shall allocate such General Items to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable; and any
General Items so allocated to a particular Series shall belong to and be part
of the assets belonging to that Series. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.

(f) Liabilities of Series. The assets belonging to each particular
Series shall be charged with the liabilities in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which
are not readily identifiable as pertaining to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
indebtedness, expenses, costs, charges and reserves allocated and so charged to
a particular Series are herein referred to as "liabilities of" that Series.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all Series
for all purposes. Any creditor of any Series may look only to the assets
belonging to that Series to satisfy such creditor's debt.

(g) Dividends. Dividends and distributions on Shares of a particular
Series may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the
Shareholders of that Series, from such of the income, accrued or realized, and
capital gains,

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<PAGE> 26
realized or unrealized, and out of the assets belonging to that Series,
as the Trustees may determine, after providing for actual and accrued
liabilities of that Series. All dividends and distributions on Shares of a
particular Series shall be distributed pro rata to the Shareholders of that
Series in proportion to the number of such Shares held by such holders at the
date and time of record established for the payment of such dividends or
distributions, except that the dividends and distributions of investment income
and capital gains with respect to each Class of Shares of a particular Series
shall be in such amount as may be declared from time to time by the Trustees,
and such dividends and distributions may vary as between such Classes to
reflect differing allocations of the expenses of the Series between the
Shareholders of such several Classes and any resultant differences between the
net asset value of such several Classes to such extent and for such purposes as
the Trustees may deem appropriate and further except that, in connection with
any dividend or distribution program or procedure, the Trustees may determine
that no dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the time
or times established by the Trustees under such program or procedure, or that
dividends or distributions shall be payable on Shares which have been tendered
by the holder thereof for redemption or repurchase, but the redemption or
repurchase proceeds of which have not yet been paid to such Shareholder. Such
dividends and distributions may be made in cash, property or Shares of any
Class of that Series or a combination thereof as determined by the Trustees, or
pursuant to any program that the Trustees may have in effect at the time for
the election by each Shareholder of the mode of the making of such dividend or
distribution to that Shareholder. Any such dividend or distribution paid in
Shares will be paid at the net asset value thereof as determined in accordance
with subsection (l) of this Section 6.1.

(h) Liquidation. In the event of the liquidation or dissolution of the
Trust (or any particular Series), the Shareholders of the Trust (or that
Series) shall be entitled to receive, when and as declared by the Trustees, the
excess of the assets belonging to the Trust (or that Series) over the
liabilities of such Series. The assets so distributable to the Shareholders of
the Trust (or that Series) shall be distributed among such Shareholders in
proportion to the number of Shares of the Trust (or that Series) held by them
and recorded on the books of the Trust. The liquidation of the Trust (or any
particular Series) may be authorized by vote of a Majority of the Trustees,
subject to the affirmative vote of "a majority of the outstanding voting
securities" of that Series, as the quoted phrase is defined in the 1940 Act,
determined in accordance with clause (iii) of the definition of "Majority
Shareholder Vote" in Section 1.4 hereof.

(i) Voting. The Shareholders shall have the voting rights set forth in
or determined under Article 7 hereof.

(j) Redemption by Shareholder. Each holder of Shares of the Trust (or a
particular Series thereof) shall have the right at such times as may be
permitted by the Trust, but no less frequently than required by the 1940 Act,
to require the Trust (or such Series) to redeem all or any part of his Shares of
the Trust (or such Series) at a redemption price equal to the net asset value
per Share of the Trust (or Series) next determined in accordance with
subsection (l) of this Section 6.1 after the Shares are properly tendered for
redemption; provided, that the Trustees may from time to time, in their
discretion, determine and impose a fee for such redemption and that the
proceeds of the redemption of Shares (including a fractional Share) of any
Class of the Trust (or any Series thereof) shall be reduced by the amount of
any applicable contingent deferred sales charge or other sales charge, if any,
payable on such redemption to the distributor of Shares of such Class pursuant
to the terms of

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<PAGE> 27
the initial issuance of the Shares of such Class (to the extent
consistent with the 1940 Act or regulations or exemptions thereunder) and the
Trust shall promptly pay to such distributor the amount of such deferred sales
charge. Payment of the redemption price shall be in cash; provided, however,
that if the Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable, the
Trust may make payment wholly or partly in Securities or other assets belonging
to such Series at the value of such Securities or assets used in such
determination of net asset value. Notwithstanding the foregoing, the Trust may
postpone payment of the redemption price and may suspend the right of the
holders of Shares of the Trust (or any Series thereof) to require the Trust to
redeem Shares of the Trust (or such Series) during any period or at any time
when and to the extent permissible under the 1940 Act.

(k) Redemption at the Option of the Trust. The Trustees shall have the
power to redeem Shares of the Trust (or any Series thereof) at a redemption
price determined in accordance with Section 6.1(j), if at any time (i) the
total investment in such account does not have a value of at least such minimum
amount as may be specified in the Prospectus for the Trust (or such Series)
from time to time (ii) the number of Shares held in such account is equal to or
in excess of a specified percentage of Shares of the Trust or any Series as set
forth from time to time in the applicable Prospectus. In the event the Trustees
determine to exercise their power to redeem Shares provided in this Section
6.1(k), the Shareholder shall be notified that the value of his account is less
than the applicable minimum amount and shall be allowed 30 days to make an
appropriate investment before redemption is processed.

(I) Net Asset Value. The net asset value per Share of the Trust (or any
Series or Class) at any time shall be the quotient obtained by dividing the
value of the net assets of the Trust (or such Series or Class) at such time
(being the current value of the assets belonging to the Trust (or such Series
or Class), less its then existing liabilities) by the total number of Shares of
the Trust (or such Series or Class) then outstanding, all determined in
accordance with the methods and procedures, including without limitation those
with respect to rounding, established by the Trustees from time to time in
accordance with the requirements of the 1940 Act. The net asset value of the
several Classes of the Trust (or a particular Series) shall be separately
computed, and may vary from one another. The Trustees shall establish
procedures for the allocation of investment income or capital gains and
expenses and liabilities of a particular Series between the several Classes of
the Trust (or such Series). The Trustees may determine to maintain the net
asset value per Share of the Trust or any Series or Class at a designated
constant dollar amount and in connection therewith may adopt procedures not
inconsistent with the 1940 Act for the continuing declaration of income
attributable to the Trust or such Series or Class as dividends payable in
additional Shares of the Trust or such Series or Class at the designated
constant dollar amount and for the handling of any losses attributable to the
Trust or such Series or Class. Such procedures may provide that in the event of
any loss each Shareholder shall be deemed to have contributed to the shares of
beneficial interest account of the Trust or such Series or Class his pro rata
portion of the total number of Shares required to be canceled in order to
permit the net asset value per Share of the Trust or such Series or Class to be
maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have expressly agreed,
by his investment in the Trust (or any Series thereof) with respect to which
the Trustees shall have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such loss.

(m) Transfer. All Shares of the Trust and each Series shall be
transferable, but transfers of Shares of the Trust or a particular Series will
be recorded on the Share transfer records of the Trust

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applicable to the Trust or such Series only at such times as
Shareholders shall have the right to require the Trust to redeem Shares of the
Trust or such Series and at such other times as may be permitted by the
Trustees.

(n) Equality. All Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities of that Series), and each Share of any particular Series shall
be equal to each other Share thereof; but the provisions of this sentence shall
not restrict any distinctions between the several Classes of a Series
permissible under this Section 6.1 or under Section 7. 1 hereof nor any
distinctions permissible under subsection (g) of this Section 6.1 that may
exist with respect to dividends and distributions on Shares of the same Series.
The Trustees may from time to time divide or combine the Shares of any class of
particular Series into a greater or lesser number of Shares of that class of a
Series without thereby changing the proportionate beneficial interest in the
assets belonging to that Series or in any way affecting the rights of the
holders of Shares of any other Series.

(o) Rights of Fractional Shares. Any fractional Share of the Trust (or
any Series thereof) shall carry proportionately all the rights and obligations
of a whole Share of the Trust (or such Series), including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust or of the Series to which
they pertain.

(p) Conversion Rights. (i) Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to provide that holders
of Shares of any Series shall have the right to convert said Shares into Shares
of one or more other Series, that holders of any Class of the Trust or a Series
of Shares shall have the right to convert said Shares of such Class into Shares
of one or more other Classes of the Trust or such Series, and that Shares of
any Class of the Trust or a Series shall be automatically converted into Shares
of another Class of the Trust or such Series, in each case in accordance with
such requirements and procedures as the Trustees may establish.

(ii) The number of Shares of into which a convertible Share shall
convert shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share for purposes of sales
and redemptions of the converting Share on the Conversion Date by the net asset
value per Share for purposes of sales and redemptions of the Class of Shares
into which it is converting on the Conversion Date.

(iii) On the Conversion Date, the Share converting into another
share will cease to accrue dividends and will no longer be deemed
outstanding and the rights of the holders thereof (except the right to receive
the number of target Shares into which the converting Shares have been
converted and declared but unpaid dividends to the Conversion Date) will cease.
Certificates representing Shares resulting from the conversion need not be
issued until certificates representing Shares converted, if issued, have been
received by the Trust or its agent duly endorsed for transfer.

(vi) The Trust will appropriately reflect the conversion of Shares
of one Class of the Trust (or a Series thereof) into Shares of another
Class of the Trust (or such Series) on the first periodic statements of account
sent to Shareholders of record affected which provide account information with
respect to a reporting period which includes the date such conversion occurred.

SECTION 6.2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a Transfer Agent or similar agent for
the Trust, which books shall be maintained

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separately for the Shares of each Series that has been authorized.
Certificates evidencing the ownership of Shares need not be issued except as
the Trustees may otherwise determine from time to time, and the Trustees shall
have power to call outstanding Share certificates and to replace them with book
entries. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the use of facsimile signatures, the transfer
of Shares and similar matters. The record books of the Trust as kept by the
Trust or any Transfer Agent or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders and as to the number of Shares of the
Trust and, if designated, each Series thereof held from time to time by each
such Shareholder.

The holders of Shares of the Trust and, if designated, each Series
thereof shall upon demand disclose to the Trustees in writing such information
with respect to their direct and indirect ownership of Shares of the Trust or,
if designated, such Series as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code, or to comply with the requirements of
any other authority.

SECTION 6.3. Investments in the Trust. The Trustees may accept
investments in any Series of the Trust from such Persons and on such terms and
for such consideration, not inconsistent with the provisions of the 1940 Act,
as they from time to time authorize. The Trustees may authorize any
Distributor, Principal Underwriter, Custodian, Transfer Agent or other Person
to accept orders for the purchase of Shares that conform to such authorized
terms and to reject any purchase orders for Shares, whether or not conforming
to such authorized terms.

SECTION 6.4. No Preemptive Rights. No Shareholder, by virtue of holding
Shares of the Trust or, if designated, any Series thereof, shall have any
preemptive or other right to subscribe to any additional Shares of the Trust or
such Series, or to any shares of any other Series, or any other Securities
issued by the Trust.

SECTION 6.5. Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to
the terms hereof and to have become a party hereto. Shares shall be deemed to
be personal property, giving only the rights provided herein. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust Property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Series, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Declaration of Trust.

ARTICLE 7

SHAREHOLDERS' VOTING POWERS AND MEETINGS

SECTION 7.1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Sections 4.1(c)
and (e) hereof, (ii) with respect to the approval or termination in accordance
with the 1940 Act of any contract with a Contracting Party as provided in
Section 5.2 hereof as to which Shareholder approval is required by the 1940
Act, (iii) with respect to any termination or reorganization of the Trust or
any Series to the extent and as provided in Sections 9.2, 9.3 and 9.4 hereof,
(iv) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Section 9.5 hereof, (v) to the same extent as the
stockholders of a Delaware business

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corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or any Series, or the Shareholders of any of them
(provided. however, that a Shareholder of a particular Series shall not in any
event be entitled to maintain a derivative or class action on behalf of any
other Series or the Shareholders thereof), and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any State, or as the Trustees may
consider necessary or desirable. If and to the extent that the Trustees shall
determine that such action is required by law or by this Declaration, they
shall cause each matter required or permitted to be voted upon at a meeting or
by written consent of Shareholders to be submitted to a separate vote of the
outstanding Shares of each Series entitled to vote thereon; provided, that (i)
when expressly required by the 1940 Act or by other law, actions of
Shareholders shall be taken by Single Class Voting of all outstanding Shares
whose holders are entitled to vote thereon; and (ii) when the Trustees
determine that any matter to be submitted to a vote of Shareholders affects
only the rights or interests of Shareholders of one or more but not all Series
or of one or more but not all Classes of the Trust or a single Series
(including without limitation any distribution plan pursuant to Rule 12b-1 of
the 1940 Act applicable to such Class), then only the Shareholders of the
Series or Classes so affected shall be entitled to vote thereon. Any matter
required to be submitted to shareholders and affecting one or more Series shall
require separate approval by the required vote of Shareholders of the Trust or
each affected Series; provided, however, that to the extent required by the
1940 Act, there shall be no separate Series votes on the election or removal of
Trustees, the selection of auditors for the Trust and its Series or approval of
any agreement or contract entered into by the Trust or any Series. Shareholders
of a particular Series shall not be entitled to vote on any matter that affects
only one or more other Series.

SECTION 7.2. Number of Votes and Manner of Voting: Proxies. On each
matter submitted to a vote of the Shareholders, each holder of Shares of the
Trust or, if applicable, any Series shall be entitled to a number of votes
equal to the number of Shares of the Trust or such Series standing in his name
on the books of the Trust. There shall be no cumulative voting in the election
or removal of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two (2) or more Persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.

SECTION 7.3. Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided, or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven (7) days before such
meeting, postage prepaid, stating the time, place and purpose of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records
of the Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than ten
percent (10%) of the Shares then outstanding. If the Trustees shall fail to
call or give notice of any meeting of Shareholders for a period of thirty (30)
days after written application by Shareholders holding at least ten percent
(10%) of the Shares then outstanding requesting that a

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meeting be called for any other purpose requiring action by the
Shareholders as provided herein or in the By-Laws, then Shareholders holding at
least ten percent (10%) of the Shares then outstanding may call and give notice
of such meeting, and thereupon the meeting shall be held in the manner provided
for herein in case of call thereof by the Trustees. Any meetings may be held
within or without The State of Delaware. Shareholders may only act with
respect to matters set forth in the notice to Shareholders.

SECTION 7.4. Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding thirty (30) days (except at
or in connection with the termination of the Trust), as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
and time not more than ninety (90) days prior to the date of any meeting of
Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.

SECTION 7.5. Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice. A Majority Shareholder Vote at a meeting of which a quorum is
present shall decide any question, except when a different vote is required or
permitted by any provision of the 1940 Act or other applicable law or by this
Declaration of Trust or the By-Laws, or when the Trustees shall in their
discretion require a larger vote or the vote of a majority or larger fraction
of the Shares of one or more particular Series.

SECTION 7.6. Action By Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof or of the Shares of any particular
Series as shall be required by the 1940 Act or by any express provision of this
Declaration of Trust or the By-Laws or as shall be permitted by the Trustees)
consent to the action in writing and if the writings in which such consent is
given are filed with the records of the meetings of Shareholders, to the same
extent and for the same period as proxies given in connection with a
Shareholders' meeting. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.

SECTION 7.7. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Delaware business corporation under the Delaware business
corporation law.

SECTION 7.8. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.

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ARTICLE 8

LIMITATION OF LIABILITY: INDEMNIFICATION

SECTION 8.1. Trustees. Shareholders. etc. Not Personally Liable;
Notice. The Trustees, officers, employees and agents of the Trust, in incurring
any debts, liabilities or obligations, or in limiting or omitting any other
actions for or in connection with the Trust, are or shall be deemed to be
acting as Trustees, officers, employees or agents of the Trust and not in their
own capacities. No Shareholder shall be subject to any personal liability
whatsoever in tort, contract or otherwise to any other Person or Persons in
connection with the assets or the affairs of the Trust or of any Series, and
subject to Section 8.4 hereof, no Trustee, officer, employee or agent of the
Trust shall be subject to any personal liability whatsoever in tort, contract,
or otherwise, to any other Person or Persons in connection with the assets or
affairs of the Trust or of any Series, save only that arising from his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office or the discharge of his functions.
The Trust (or if the matter relates only to a particular Series, that Series)
shall be solely liable for any and all debts, claims, demands, judgments,
decrees, liabilities or obligations of any and every kind, against or with
respect to the Trust or such Series in tort, contract or otherwise in
connection with the assets or the affairs of the Trust or such Series, and all
Persons dealing with the Trust or any Series shall be deemed to have agreed
that resort shall be had solely to the Trust Property of the Trust or the
Series Assets of such Series, as the case may be, for the payment or
performance thereof.

The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that a Certificate of
Trust in respect of the Trust is on file with the Secretary of the state of
Delaware and shall recite to the effect that the same was executed or made by
or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer, and not individually, and that the obligations of such instrument are
not binding upon any of them or the Shareholders individually but are binding
only upon the assets and property of the Trust, or the particular Series in
question, as the case may be, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually, or to subject the Series Assets of any Series to the
obligations of any other Series.

SECTION 8.2. Trustees' Good Faith Action; Expert Advice: No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to Section 8.4 hereof, a
Trustee shall be liable for his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. Subject to the foregoing, (i) the Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing
of any officer, agent, employee, consultant, Investment Adviser, Administrator,
Distributor or Principal Underwriter, Custodian or Transfer Agent, Dividend
Disbursing Agent, Shareholder Servicing Agent or Accounting Agent of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant, and (with respect to the subject matter of the contract
involved) any officer, partner or

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responsible employee of a Contracting Party appointed by the Trustees
pursuant to Section 5.2 hereof. The Trustees as such shall not be required to
give any bond or surety or any other security for the performance of their
duties.

SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being
or having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request
by the Shareholder) may assume the defense against such charge and satisfy any
judgment thereon or may reimburse the Shareholders for expenses, and the
Shareholder or former Shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled (but solely
out of the assets of the Series of which such Shareholder or former Shareholder
is or was the holder of Shares) to be held harmless from and indemnified
against all loss and expense arising from such liability.

SECTION 8.4. Indemnification of Trustees. Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 8.4, the
Trust shall indemnify (from the assets of one or more Series to which the
conduct in question relates) each of its Trustees, officers, employees and
agents (including Persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise (hereinafter, together with
such Person's heirs, executors, administrators or personal representative,
referred to as a "Covered Person")) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel
fees, incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such Covered Person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or officer,
director or trustee, except with respect to any matter as to which it has been
determined that such Covered Person (i) did not act in good faith in the
reasonable belief that such Covered Person's action was in or not opposed to
the best interests of the Trust; (ii) had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (iii) for a criminal proceeding, had
reasonable cause to believe that his conduct was unlawful (the conduct
described in (i), (ii) and (iii) being referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that the Covered Person to be
indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum
of Trustees who are neither "interested persons" of the Trust as defined in
Section 2(a)(19) of the 1940 Act nor parties to the proceeding (the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments,
in compromise or as fines or penalties), may be paid from time to time by one
or more Series to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided that the Covered
Person shall have undertaken to repay the amounts so paid to such Series if it
is ultimately determined that indemnification of such expenses is not
authorized under this Article 8 and (i) the Covered Person shall

27
<PAGE> 34
have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the Disinterested Trustees, or an independent legal
counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial type inquiry), that there
is reason to believe that the Covered Person ultimately will be found entitled
to indemnification.

SECTION 8.5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 8.4
hereof, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent
legal counsel pursuant to clause (ii) shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with
either of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office.

SECTION 8.6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article 8 shall not be exclusive of or affect
any other rights to which any such Covered Person or shareholder may be
entitled. As used in this Article 8, a "disinterested" Person is one against
whom none of the actions, suits or other proceedings in question, and no other
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this Article 8 shall affect
any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person.

SECTION 8.7. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.

ARTICLE 9

DURATION: REORGANIZATION: INCORPORATION; AMENDMENTS

SECTION 9.1. Duration of Trust. Unless terminated as provided herein,
the Trust shall have perpetual existence.

SECTION 9.2. Termination of Trust. The Trust may be terminated at any
time by a Majority of the Trustees, subject to the favorable vote of the
holders of not less than a majority of the Shares outstanding and entitled to
vote of each Series of the Trust, or by an instrument or instruments in writing
without a meeting, consented to by the holders of not less than a majority of
such Shares, or by such greater or different vote of Shareholders of any Series
as may be established by the Certificate of Designation by which such Series
was authorized. Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated
as may be

28
<PAGE> 35
determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, Securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with
the provisions of Section 6.1(h) hereof. After termination of the Trust or any
Series and distribution to the Shareholders as herein provided, a majority of
the Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination. Upon
termination of the Trust, the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease. Upon termination of any Series, the
Trustees shall thereupon be discharged from all further liabilities and duties
with respect to such Series, and the rights and interests of all Shareholders
of such Series shall thereupon cease.

SECTION 9.3. Reorganization. The Trustees may sell, convey and transfer
all or substantially all of the assets of the Trust, or the assets belonging to
any one or more Series, to another trust, partnership, association, corporation
or other entity organized under the laws of any state of the United States, or
may transfer such assets to another Series of the Trust, in exchange for cash,
Shares or other Securities (including, in the case of a transfer to another
Series of the Trust, Shares of such other Series), or to the extent permitted
by law then in effect may merge or consolidate the Trust or any Series with any
other Trust or any corporation, partnership, or association organized under the
laws of any state of the United States, all upon such terms and conditions and
for such consideration when and as authorized by vote or written consent of a
Majority of the Trustees and approved by the affirmative vote of the holders of
not less than a majority of the Shares outstanding and entitled to vote of each
Series whose assets are affected by such transaction, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than a majority of such Shares, and/or by such other vote of any Series as
may be established by the Certificate of Designation with respect to such
Series. Following such transfer, the Trustees shall distribute the cash, Shares
or other Securities or other consideration received in such transaction (giving
due effect to the assets belonging to and indebtedness of, and any other
differences among, the various Series of which the assets have so been
transferred) among the Shareholders of the Series of which the assets have been
so transferred; and if all of the assets of the Trust have been so transferred,
the Trust shall be terminated. Nothing in this Section 9.3 shall be construed
as requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or
other organizations, and to sell, convey or transfer less than substantially
all of the Trust Property or the assets belonging to any Series to such
organizations or entities.

SECTION 9.4. Incorporation. Upon approval by Majority Shareholder
Vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization, in
exchange for the shares or securities thereof, or otherwise, and to lend money
to, subscribe for the shares of securities of, and enter into any contracts
with any such corporation, trust, partnership, association or organization in
which the Trust holds or is about to acquire shares or any other interests. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided under the
law then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporation, trusts,

29
<PAGE> 36
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.

SECTION 9.5. Amendments; etc. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any Shareholder
or Trustee or the prohibition of assessment upon the Shareholders (otherwise
than as permitted under Section 6.1(l)) without the express consent of each
Shareholder or Trustee involved. Subject to the foregoing, the provisions of
this Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does not
adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument in
writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees). Any amendment to this
Declaration of Trust that adversely affects the rights of all Shareholders may
be adopted at any time by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.I
hereof of Shareholders holding a majority of all the Shares outstanding and
entitled to vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the Series, by the
vote of the holders of a majority of all the Shares entitled to vote of each
Series so affected. Notwithstanding any other provisions set forth in this
Declaration of Trust, a provision in this Declaration of Trust requiring
shareholder approval of any action may be amended only with like shareholder
approval.

SECTION 9.6. Filing of Copies of Declaration and Amendments. The
original or a copy of this Declaration and of each amendment hereto (including
each Certificate of Designation and Certificate of Termination) shall be kept
at the office of the Trust where it may be inspected by any Shareholder. A
restated Declaration, integrating into a single instrument all of the
provisions of this Declaration which are then in effect and operative, may be
executed from time to time by a Majority of the Trustees and shall, upon
execution, be conclusive evidence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration and the various
amendments thereto. A Certificate of Trust shall be filed in the office of the
Secretary of State of the State of Delaware.

ARTICLE 10

MISCELLANEOUS

SECTION 10.1. Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the applicable register of the
Trust.

SECTION 10.2. Governing Law. This Declaration of Trust is, with
reference to the laws thereof, and the rights of all parties and the
construction and effect of every provision hereof shall be, subject to and
construed according to the laws of said The State of Delaware.

SECTION 10.3. Counterparts. This Declaration of Trust and any amendment
thereto may be simultaneously executed in several counterparts, each of which
so executed shall be deemed to be an

30
<PAGE> 37
original, and such counterparts, together, shall constitute but one and
the same instrument, which shall be sufficiently evidenced by any such original
counterpart.

SECTION 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust is a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form
of any vote passed at a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust, (e)
the form of any By-Law adopted, or the identity of any officers elected, by the
Trustees, (f) the existence or nonexistence of any fact or facts which in any
manner relate to the affairs of the Trust, or (g) the name of the Trust or the
establishment of a Series shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees, or any of them, and
the successors of such Person.

SECTION 10.5. References; Headings. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part of this Declaration or control
or affect the meaning, construction or effect hereof.

SECTION 10.6. Provisions in Conflict With Law or Regulation. (a)
The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986 or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of
this Declaration; provided, however, that such determination shall not affect
any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.

(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.

SECTION 10.7. Use of the Name "Van Kampen American Capital". Van Kampen
American Capital, Inc. ("Van Kampen American Capital") has consented to the use
by the Trust and by each Series and each Series thereof to the identifying
words "Van Kampen" or "Van Kampen Merritt" or any combination thereof in the
name of the Trust and of each Series and Series thereof. Such consent is
conditioned upon the Trust's employment of Van Kampen American Capital, its
successors or a subsidiary or affiliate thereof as investment adviser to the
Trust and to each Series and each Series thereof. As between Van Kampen
American Capital and the Trust, Van Kampen American Capital shall control the
use of such name insofar as such name contains the identifying words "Van
Kampen" or "Van Kampen Merritt". Van Kampen American Capital may from time to
time use the identifying words "American Capital," "Van Kampen" or "Van Kampen
Merritt" in other connections and for other purposes, including without
limitation in the names of other investment companies, corporations or
businesses that it may manage, advise, sponsor or own or in which it may have a
financial interest. Van Kampen American Capital may require the Trust or any
Series or Series thereof to cease using the identifying words "Van Kampen" or
"Van Kampen Merritt" in the name of the Trust or any Series or any Series
thereof if the Trust or any Series or Series thereof ceases to employ Van
Kampen American Capital, its successors or a subsidiary or affiliate thereof as
investment adviser.

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<PAGE> 38
IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees of the Trust, have set their hands and seal, for themselves and their
assigns, unto this First Amended and Restated Agreement and Declaration of
Trust of Van Kampen American Capital ___________, as of the day and year first
above written.

___________________________________ ___________________________________
J. Miles Branagan Richard E. Caruso

___________________________________ ___________________________________
Roger Hilsman Don G. Powell

___________________________________ ___________________________________
David Rees Lawrence J. Sheehan

___________________________________ ___________________________________
Fernando Sisto William S. Woodside

32
<PAGE> 39

A C K N O W L E D G M E N T

STATE OF )
) ss
COUNTY OF )

______________________
(Date)

Then personally appeared the above named [ ] and acknowledged the
foregoing instrument to be his free act and deed.

Before me,

_______________________________
(Notary Public)

My commission expires:___________

<PAGE> 1
EXHIBIT 1.2
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
Certificate of Designation
of
Van Kampen American Capital Growth and Income Fund

The undersigned, being the Secretary of Van Kampen American Capital Growth and
Income Fund, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's First
Amended and Related Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby establish and
designate the following classes of Shares of the Trust with following the
rights, preferences and characteristics:

1. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.

2. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.

3. Conversion. Each Class B and Class C Share of the Trust shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Trust at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Trust's Prospectus.

4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.

5. Special Meetings. A special meeting of Shareholders of a Class of the Trust
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.

6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust, or with respect to any Class of Shares set forth in the
Declaration shall apply to

1
<PAGE> 2

Shares of the Trust unless otherwise specified in this Certificate of
Designation, in which case this Certificate of Designation shall govern.

7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.

8. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

June _____, 1995

_________________________
Nori L. Gabert,
Secretary

<PAGE> 1
EXHIBIT 2

FORM OF VAN KAMPEN AMERICAN CAPITAL FUNDS DELAWARE TRUST
AMENDED AND RESTATED BYLAWS

VAN KAMPEN AMERICAN CAPITAL
[TRUST]

AMENDED AND RESTATED BYLAWS

<PAGE> 2

[TRUST]
Bylaws

Index

<TABLE>
<S> <C> <C>
ARTICLE 1 SHAREHOLDERS AND SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . 1

Section 1.1. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 1.2. Presiding Officer; Secretary . . . . . . . . . . . . . . . . . . . . . . 1

Section 1.3. Authority of Chairman of Meeting to Interpret Declaration and Bylaws . . 1

Section 1.4. Voting; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 1.5. Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Section 1.6 Records at Shareholder Meetings . . . . . . . . . . . . . . . . . . . . 2

Section 1.7. Shareholders Action in Writing . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE 2 TRUSTEES AND TRUSTEES' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Section 2.1. Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Section 2.2. Regular Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 2

Section 2.3. Special Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 2

Section 2.4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.5. Quorum; Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.6. Participation by Telephone . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.7. Location of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.8. Actions by Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.9. Rulings of Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . 4

Section 2.10. Trustees' Action in Writing . . . . . . . . . . . . . . . . . . . . . . 4

Section 2.11. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Section 2.12. Tenure of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>

<PAGE> 3

<TABLE>
<S> <C> <C>
ARTICLE 3 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Section 3.1. Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . 4

Section 3.2. Time and Terms of Election . . . . . . . . . . . . . . . . . . . . . . . 4

Section 3.3. Resignation and Removal . . . . . . . . . . . . . . . . . . . . . . . . 5

Section 3.4. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Section 3.5. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Section 3.6. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Section 3.7. Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . 5

Section 3.8. Controller and Assistant Controllers . . . . . . . . . . . . . . . . . . 6

Section 3.9. Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . 6

Section 3.10. Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 3.11. Execution of Deeds, etc. . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 3.12. Power to Vote Securities . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE 4 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 4.1. Power of Trustees to Designate Committees . . . . . . . . . . . . . . . 7

Section 4.2. Rules for Conduct of Committee Affairs . . . . . . . . . . . . . . . . 7

Section 4.3. Trustees May Alter, Abolish, etc., Committees . . . . . . . . . . . . . 7

Section 4.4. Minutes; Review by Trustees . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE 5 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE 6 SHARES .......................................... . . . . . . . . . . . . . . . . . 7

Section 6.1. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 6.2. Uncertificated Shares . . . . . . . . . . . . . . . . . . . . . . . . . 8

Section 6.3. Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Section 6.4. Lost, Stolen, etc., Certificates . . . . . . . . . . . . . . . . . . . 8
</TABLE>

<PAGE> 4

<TABLE>
<S> <C> <C>
ARTICLE 7 STOCK TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Section 7.1. Transfer Agents, Registrars, etc. . . . . . . . . . . . . . . . . . . . 8

Section 7.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Section 7.3. Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE 8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Section 8.1. Bylaws Subject to Amendment . . . . . . . . . . . . . . . . . . . . . 9

Section 8.2. Notice of Proposal to Amend Bylaws Required . . . . . . . . . . . . . . 9
</TABLE>

<PAGE> 5

[TRUST]

BYLAWS

These are the Bylaws of [TRUST], a trust with transferable shares
established under the laws of The State of Delaware (the "Trust"), pursuant to
an Agreement and Declaration of Trust of the Trust (the "Declaration") made the
10th day of May, 1995, and a Certificate of Trust filed in the office of the
Secretary of State pursuant to Section 3810 of The Delaware Business Trust Act,
Title 12, Chapter 38 of the Delaware Code. These Bylaws have been adopted by
the Trustees pursuant to the authority granted by Section 4.14 of the
Declaration.

All words and terms capitalized in these Bylaws, unless
otherwise defined herein, shall have the same meanings as they have in the
Declaration.

ARTICLE 1

SHAREHOLDERS AND SHAREHOLDERS' MEETINGS

SECTION 1.1. Meetings. A meeting of the Shareholders of the Trust
shall be held whenever called by the Chairman, the President or a majority of
the Trustees and whenever election of a Trustee or Trustees by Shareholders is
required by the provisions of the 1940 Act. Meetings of Shareholders shall
also be called by the Trustees when requested in writing by Shareholders
holding at least ten percent (10%) of the Shares then outstanding for the
purpose of voting upon removal of any Trustee, or if the Trustees shall fail to
call or give notice of any such meeting of Shareholders for a period of thirty
(30) days after such application, then Shareholders holding at least ten
percent (10%) of the Shares then outstanding may call and give notice of such
meeting. Notice of Shareholders' meetings shall be given as provided in the
Declaration.

SECTION 1.2. Presiding Officer; Secretary. The President shall
preside at each Shareholders' meeting as chairman of the meeting, or in the
absence of the President, the Trustees present at the meeting shall elect one
of their number as chairman of the meeting. Unless otherwise provided for by
the Trustees, the Secretary of the Trust shall be the secretary of all meetings
of Shareholders and shall record the minutes thereof.

SECTION 1.3. Authority of Chairman of Meeting to Interpret
Declaration and Bylaws. At any Shareholders' meeting the chairman of the
meeting shall be empowered to determine the construction or interpretation
of the Declaration or these Bylaws, or any part thereof or hereof, and their
ruling shall be final.

SECTION 1.4. Voting; Quorum. At each meeting of Shareholders, except
as otherwise provided by the Declaration, every holder of record of Shares
entitled to vote shall be entitled to a number of votes equal to the number of
Shares standing in his name on the Share register of the Trust on the record
date of the meeting. Shareholders may vote by proxy and the form of any such
proxy may be prescribed from time to time by the Trustees. A quorum shall
exist if the holders of a majority of the outstanding Shares of the Trust
entitled to vote are present in person or by proxy, but any lesser

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<PAGE> 6

number shall be sufficient for adjournments. At all meetings of the
Shareholders, votes shall be taken by ballot for all matters which may be
binding upon the Trustees pursuant to Section 7.1 of the Declaration. On other
matters, votes of Shareholders need not be taken by ballot unless otherwise
provided for by the Declaration or by vote of the Trustees, or as required by
the 1940 Act, but the chairman of the meeting may in his discretion authorize
any matter to be voted upon by ballot.

SECTION 1.5. Inspectors. At any meeting of Shareholders, the chairman
of the meeting may appoint one or more Inspectors of Election or Balloting to
supervise the voting at such meeting or any adjournment thereof. If Inspectors
are not so appointed, the chairman of the meeting may, and on the request of
any Shareholder present or represented and entitled to vote shall, appoint one
or more Inspectors for such purpose. Each Inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of Inspector of Election or Balloting, as the case may be, at such
meeting with strict impartiality and according to the best of his
ability. If appointed, Inspectors shall take charge of the polls and, when the
vote is completed, shall make a certificate of the result of the vote taken and
of such other facts as may be required by law.

SECTION 1.6. Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last
previous Meeting of Shareholders of the Trust and a list of the Shareholders of
the Trust, certified to be true and correct by the Secretary or other proper
agent of the Trust, as of the record date of the meeting or the date of closing
of transfer books, as the case may be. Such list of Shareholders shall contain
the name of each Shareholder. Shareholders shall have such other rights and
procedures of inspection of the books and records of the Trust as are granted
to shareholders of a Delaware corporation.

SECTION 1.7. Shareholders' Action in Writing. Nothing in this Article
1 shall limit the power of the Shareholders to take any action by means of
written instruments without a meeting, as permitted by Section 7.6 of the
Declaration.

ARTICLE 2

TRUSTEES AND TRUSTEES' MEETINGS

SECTION 2.1. Number of Trustees. The number of Trustees shall be
eight (8) until such time as additional trustees are elected by the
Shareholders pursuant to Section 4.1(e) hereof and the meeting of shareholders
called for July 21, 1995 of the Trust's predecessor. Thereafter, the number of
Trustees shall be fourteen (14), provided that such number shall be
automatically reduced upon the death, resignation or retirement of any Trustee
until the number of Trustees is eight (8). The number of Trustees shall
thereafter be such number, authorized by the Declaration, as from time to time
shall be fixed by a vote of the Trustees in accordance with Section 2.8 hereof.

SECTION 2.2. Regular Meetings of Trustees. Regular meetings of the
Trustees may be held without call or notice at such places and at such times as
the Trustees may from time to time determine; provided, that notice of such
determination, and of the time and place of the first regular meeting
thereafter, shall be given to each absent Trustee in accordance with Section
2.4 hereof.

SECTION 2.3. Special Meetings of Trustees. Special meetings of the
Trustees may be held at any time and at any place when called by the President
or the Treasurer or by three (3) or more

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<PAGE> 7

Trustees, or if there shall be less than three (3) Trustees, by any Trustee;
provided, that notice of the time and place thereof is given to each Trustee
in accordance with Section 2.4 hereof by the Secretary or an Assistant
Secretary or by the officer or the Trustees calling the meeting.

SECTION 2.4. Notice of Meetings. Notice of any regular or special
meeting of the Trustees shall be sufficient if given in writing to each
Trustee, and if sent by mail at least five (5) days, by a nationally recognized
overnight delivery service at least two (2) days or by facsimile at least
twenty-four (24) hours, before the meeting, addressed to his usual or last
known business or residence address, or if delivered to him in person at least
twenty-four (24) hours before the meeting. Notice of a special meeting need
not be given to any Trustee who was present at an earlier meeting, not more
than thirty-one (31) days prior to the subsequent meeting, at which the
subsequent meeting was called. Unless statute, these bylaws or a resolution of
the Trustees might otherwise dictate, notice need not state the business to be
transacted at or the purpose of any meeting of the Board of Trustees. Notice
of a meeting may be waived by any Trustee by written waiver of notice, executed
by him or her before or after the meeting, and such waiver shall be filed with
the records of the meeting. Attendance by a Trustee at a meeting shall
constitute a waiver of notice, except where a Trustee attends a meeting for the
purpose of protesting prior thereto or at its commencement the lack of notice.
No notice need be given of action proposed to be taken by unanimous written
consent.

SECTION 2.5. Quorum: Presiding Trustee. At any meeting of the
Trustees, a Majority of the Trustees shall constitute a quorum. Any meeting may
be adjourned from time to time by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice. Unless the Trustees shall otherwise elect,
generally or in a particular case, the Chairman shall be the presiding Trustee
at each meeting of the Trustees or in the absence of the Chairman, the
President shall preside over the meeting. In the absence of both the Chairman
and the President, the Trustees present at the meeting shall elect one of their
number as presiding Trustee of the meeting.

SECTION 2.6. Participation by Telephone. One or more of the Trustees
may participate in a meeting thereof or of any Committee of the Trustees by
means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.

SECTION 2.7. Location of Meetings. Trustees' meetings may be held at
any place, within or without the State of Delaware.

SECTION 2.8. Actions by Trustees. Unless statute, the declaration
or these bylaws requires a greater proportion, action of a majority of the
Trustees present at a meeting at which a quorum is present is action of the
Board of Trustees. Notwithstanding the preceding sentence, a vote of not less
than two-thirds (2/3) of the Trustees then in office shall be required to
(directly or indirectly through a reorganization or an amendment to the
Declaration) (i) amend Section 2.1, 2.12 or 2.13 of these By-Laws, (ii)
nominate or elect a new Trustee, (iii) adopt a retirement plan other than a
deferred compensation plan or (iv) amend this supermajority provision of the
By-Laws. Voting at Trustees' meetings may be conducted orally, by show of
hands, or, if requested by any Trustee, by written ballot. The results of
all voting shall be recorded by the Secretary in the minute book.

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<PAGE> 8

SECTION 2.9. Rulings of Presiding Trustee. All other rules of conduct
adopted and used at any Trustees' meeting shall be determined by the presiding
Trustee of such meeting, whose ruling on all procedural matters shall be
final.

SECTION 2.10. Trustees' Action in Writing. Nothing in this Article 2
shall limit the power of the Trustees to take action by means of a written
instrument without a meeting, as provided in Section 4.2 of the Declaration.

SECTION 2.11. Resignations. Any Trustee may resign at any time by
written instrument signed by him and delivered to the Chairman, the President
or the Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.

SECTION 2.12. Tenure of Trustees. Notwithstanding any other
provision herein to the contrary, through June 30, 1996, the term of office of
each Trustee shall end at the time such Trustee reaches the age of seventy-six
and one-half years (76 1/2) or seventy-four and one-half years (74 1/2) for
each person who had not been elected before January 1, 1986 as a trustee or
director of any open end investment company managed by Van Kampen American
Capital Asset Management, Inc. (formerly American Capital Asset Management,
Inc. and, prior thereto, American General Capital Management, Inc.) and on and
after July 1, 1996, the term of office of each Trustee shall end at the time
such Trustee reaches the age of seventy-six and one-half years (76 1/2) or
seventy-two and one-half years (72 1/2) for each person who had not been
elected before January 1, 1986 as a trustee or director of any open end
investment company managed by Van Kampen American Capital Asset Management,
Inc.; provided that the term of office of each Trustee shall end on December
31st of the year in which such Trustee reaches the age of seventy-five years
(75) for each person first elected on or after July 1, 1995 and prior to
December 1, 1995 as a Trustee who was over the age of seventy-two and one half
(72 1/2) and under the age of seventy-five (75) at the time of such election;
and further provided that the term of office of each Trustee first elected on
or after July 1, 1995 and prior to December 1, 1995 who is seventy-five years
(75) of age at the time of such election shall expire as of the date such
Trustees reaches the age of seventy-six years (76).

SECTION 2.13. Chairman of the Board. The Trustees shall from time to
time elect one of the Trustees to serve as Chairman of the Board of Trustees,
provided that the chairman shall be a Trustee who is not an "interested person"
of the Trust or the Trust's investment adviser, within the meaning of the 1940
Act.

ARTICLE 3

OFFICERS

SECTION 3.1. Officers of the Trust. The officers of the Trust shall
consist of a President, a Treasurer and a Secretary, and may include a
Controller and one or more Vice Presidents, Assistant Treasurers and Assistant
Secretaries, and such other officers as the Trustees may designate. Any person
may hold more than one office.

SECTION 3.2. Time and Terms of Election. The President, the Treasurer
and the Secretary shall be elected by the Trustees at their first meeting and
thereafter at the annual meeting of the Trustees, as provided in Section 4.2 of
the Declaration. Such officers shall hold office until the next

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<PAGE> 9

annual meeting of the Trustees and until their successors shall have been duly
elected and qualified, and may be removed at any meeting by the affirmative
vote of a Majority of the Trustees. All other officers of the Trust may be
elected or appointed at any meeting of the Trustees. Such officers shall hold
office for any term, or indefinitely, as determined by the Trustees, and shall
be subject to removal, with or without cause, at any time by the Trustees.

SECTION 3.3. Resignation and Removal. Any officer may resign at any
time by giving written notice to the Trustees. Such resignation shall take
effect at the time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective. If the office of any officer or agent becomes vacant by reason
of death, resignation, retirement, disqualification, removal from office or
otherwise, the Trustees may choose a successor, who shall hold office for the
unexpired term in respect of which such vacancy occurred. Except to the extent
expressly provided in a written agreement with the Trust, no officer resigning
or removed shall have any right to any compensation for any period following
such resignation or removal, or any right to damage on account of such removal.

SECTION 3.4. Fidelity Bond. The Trustees may, in their discretion,
direct any officer appointed by them to furnish at the expense of the Trust a
fidelity bond approved by the Trustees, in such amount as the Trustees may
prescribe.

SECTION 3.5. President. The President shall be the chief executive
officer of the Trust and, subject to the supervision of the Trustees, shall
have general charge and supervision of the business, property and affairs of
the Trust and such other powers and duties as the Trustees may prescribe.

SECTION 3.6. Vice Presidents. In the absence or disability of the
President, the Vice President or, if there shall be more than one, the Vice
Presidents in the order of their seniority or as otherwise designated by the
Trustees, shall exercise all of the powers and duties of the President. The
Vice Presidents shall have the power to execute bonds, notes, mortgages and
other contracts, agreements and instruments in the name of the Trust, and shall
do and perform such other duties as the Trustees or the President shall direct.

SECTION 3.7. Treasurer and Assistant Treasurers. The Treasurer shall
be the chief financial officer of the Trust, and shall have the custody of the
Trust's funds and Securities, and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys, and other valuable effects in the name and to the credit of the
Trust, in such depositories as may be designated by the Trustees, taking
proper vouchers for such disbursements, shall have such other duties and
powers as may be prescribed from time to time by the Trustees, and shall
render to the Trustees, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the Trust. If no
Controller is elected, the Treasurer shall also have the duties and powers
of the Controller, as provided in these Bylaws. Any Assistant Treasurer shall
have such duties and powers as shall be prescribed from time to time by the
Trustees or the Treasurer, and shall be responsible to and shall report to the
Treasurer. In the absence or disability of the Treasurer, the Controller shall
have the powers and duties of the Treasurer. If no Controller is elected, the
Assistant Treasurer or, if there shall be more than one, the Assistant
Treasurers in the order of their seniority or as otherwise designated by the
Trustees or the Chairman, shall have the powers and duties of the Treasurer.

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<PAGE> 10

SECTION 3.8. Controller and Assistant Controllers. If a Controller
is elected, the Controller shall be the chief accounting officer of the Trust
and shall be in charge of its books of account and accounting records and of
its accounting procedures, and shall have such duties and powers as are
commonly incident to the office of a controller, and such other duties and
powers as may be prescribed from time to time by the Trustees. The Controller
shall be responsible to and shall report to the Trustees, but in the
ordinary conduct of the Trust's business, shall be under the supervision of
the Treasurer. Any Assistant Controller shall have such duties and powers as
shall be prescribed from time to time by the Trustees or the Controller, and
shall be responsible to and shall report to the Controller. In the absence or
disability of the Controller, the Assistant Controller or, if there shall be
more than one, the Assistant Controllers in the order of their seniority or as
otherwise designated by the Trustees, shall have the powers and duties of the
Controller.

SECTION 3.9. Secretary and Assistant Secretaries. The
Secretary shall, if and to the extent requested by the Trustees, attend all
meetings of the Trustees, any Committee of the Trustees and/or the Shareholders
and record all votes and the minutes of proceedings in a book to be kept for
that purpose, shall give or cause to be given notice of all meetings of the
Trustees, any Committee of the Trustees, and of the Shareholders and shall
perform such other duties as may be prescribed by the Trustees. The Secretary,
or in his absence any Assistant Secretary, shall affix the Trust's seal to any
instrument requiring it, and when so affixed, it shall be attested by the
signature of the Secretary or an Assistant Secretary. The Secretary shall be
the custodian of the Share records and all other books, records and papers of
the Trust (other than financial) and shall see that all books, reports,
statements, certificates and other documents and records required by law are
properly kept and filed. In the absence or disability of the Secretary, the
Assistant Secretary or, if there shall be more than one, the Assistant
Secretaries in the order of their seniority or as otherwise designated by the
Trustees, shall have the powers and duties of the Secretary.

SECTION 3.10. Substitutions. In case of the absence or disability
of any officer of the Trust, or for any other reason that the Trustees may deem
sufficient, the Trustees may delegate, for the time being, the powers or
duties, or any of them, of such officer to any other officer, or to any
Trustee.

SECTION 3.11. Execution of Deeds, etc. Except as the Trustees may
generally or in particular cases otherwise authorize or direct, all deeds,
leases, transfers, contracts, proposals, bonds, notes, checks, drafts and other
obligations made, accepted or endorsed by the Trust shall be signed or endorsed
on behalf of the Trust by its properly authorized officers or agents as
provided in the Declaration.

SECTION 3.12. Power to Vote Securities. Unless otherwise ordered by
the Trustees, the Treasurer shall have full power and authority on behalf of
the Trust to give proxies for, and/or to attend and to act and to vote at, any
meeting of stockholders of any corporation in which the Trust may hold stock,
and at any such meeting the Treasurer or his proxy shall possess and may
exercise any and all rights and powers incident to the ownership of such stock
which, as the owner thereof, the Trust might have possessed and exercised if
present. The Trustees, by resolution from time to time, or, in the absence
thereof, the Treasurer, may confer like powers upon any other person or persons
as attorneys and proxies of the Trust.

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ARTICLE 4

COMMITTEES

SECTION 4.1. Power of Trustees to Designate Committees. The Trustees,
by vote of a Majority of the Trustees, may elect from their number an Executive
Committee and any other Committees and may delegate thereto some or all of
their powers except those which by law, by the Declaration or by these
Bylaws may not be delegated; provided, that an Executive Committee shall not
be empowered to elect the President, the Treasurer or the Secretary, to amend
the Bylaws, to exercise the powers of the Trustees under this Section 4.1 or
under Section 4.3 hereof, or to perform any act for which the action of a
Majority of the Trustees is required by law, by the Declaration or by these
Bylaws. The members of any such Committee shall serve at the pleasure of the
Trustees.

SECTION 4.2. Rules for Conduct of Committee Affairs. Except as
otherwise provided by the Trustees, each Committee elected or appointed
pursuant to this Article 4 may adopt such standing rules and regulations for
the conduct of its affairs as it may deem desirable, subject to review and
approval of such rules and regulations by the Trustees at the next succeeding
meeting of the Trustees, but in the absence of any such action or any contrary
provisions by the Trustees, the business of each Committee shall be conducted,
so far as practicable, in the same manner as provided herein and in the
Declaration for the Trustees.

SECTION 4.3. Trustees May Alter, Abolish, etc., Committees Trustees
may at any time alter or abolish any Committee, change membership of any
Committee, or revoke, rescind, waive or modify action of any Committee or the
authority of any Committee with respect to any matter or class of matters;
provided, that no such action shall impair the rights of any third parties.

SECTION 4.4. Minutes: Review by Trustees. Any Committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees.

ARTICLE 5

SEAL

The seal of the Trust, if any, may be affixed to any instrument, and
the seal and its attestation may be lithographed, engraved or otherwise printed
on any document with the same force and effect as if had been imprinted and
affixed manually in the same manner and with the same force and effect as if
done by a Delaware corporation. Unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.

ARTICLE 6

SECTION 6.1. Issuance of Shares. The Trustees may issue an unlimited
number of Classes of Shares of any or all Series either in certificated or
uncertificated form, they may issue certificates to the

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<PAGE> 12

holders of a Class of Shares of a Series which was originally issued in
uncertificated form, and if they have issued Shares of any Series in
certificated form, they may at any time discontinue the issuance of Share
certificates for such Series and may, by written notice to such Shareholders of
such Series require the surrender of their Share certificates to the Trust for
cancellation, which surrender and cancellation shall not affect the ownership
of Shares for such Series.

SECTION 6.2. Uncertificated Shares. For any Class of Shares for which
the Trustees issue Shares without certificates, the Trust or the Transfer Agent
may either issue receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such Shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of such Shares as if they
had received certificates therefor and shall be held to have expressly assented
and agreed to the terms hereof and of the Declaration.

SECTION 6.3. Share Certificates. For any Class of Shares for which
the Trustees shall issue Share certificates, each Shareholder of such Class
shall be entitled to a certificate stating the number of Shares owned by him in
such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the President or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Trust. Such signatures may be facsimiles if the certificate
is countersigned by a Transfer Agent, or by a Registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he were such officer at the time of its issue.

SECTION 6.4. Lost, Stolen, etc., Certificates. If any
certificate for certificated Shares shall be lost, stolen, destroyed or
mutilated, the Trustees may authorize the issuance of a new certificate of the
same tenor and for the same number of Shares in lieu thereof. The Trustees
shall require the surrender of any mutilated certificate in respect of which a
new certificate is issued, and may, in their discretion, before the issuance of
a new certificate, require the owner of a lost, stolen or destroyed
certificate, or the owner's legal representative, to make an affidavit or
affirmation setting forth such facts as to the loss, theft or destruction as
they deem necessary, and to give the Trust a bond in such reasonable sum as the
Trustees direct, in order to indemnify the Trust.

ARTICLE 7

TRANSFER OF SHARES

SECTION 7.1. Transfer Agents, Registrars, etc. As approved in Section
5.2(e) of the Declaration, the Trustees shall have the authority to employ and
compensate such transfer agents and registrars with respect to the Shares of
the Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have the power to employ and compensate such dividend dispersing
agents, warrant agents and agents for reinvestment of dividends as they shall
deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.

SECTION 7.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section
6.1(m) of the Declaration. The Trust, or its transfer agents, shall be
authorized to

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<PAGE> 13
refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.

SECTION 7.3 Registered Shareholders. The Trust may deem and treat
the holder of record of any Shares the absolute owner thereof for all purposes
and shall not be required to take any notice of any right or claim of right of
any other person.

ARTICLE 8

AMENDMENTS

SECTION 8.1. Bylaws Subject to Amendment. These Bylaws may be
altered, amended or repealed, in whole or in part, at any time by vote of the
holders of a majority of the Shares issued, outstanding and entitled to vote.
The Trustees, by vote of a Majority of the Trustees (unless a greater vote is
required by Section 2.8 hereof), may alter, amend or repeal these Bylaws, in
whole or in part, including Bylaws adopted by the Shareholders, except with
respect to any provision hereof which by law, the Declaration or these Bylaws
requires action by the Shareholders. Bylaws adopted by the Trustees may be
altered, amended or repealed by the Shareholders.

SECTION 8.2. Notice of Proposal to Amend Bylaws Required. No proposal
to amend or repeal these Bylaws or to adopt new Bylaws shall be acted upon at a
meeting unless either (i) such proposal is stated in the notice or in the
waiver of notice, as the case may be, of the meeting of the Trustees or
Shareholders at which such action is taken, or (ii) all of the Trustees or
Shareholders, as the case may be, are present at such meeting and all agree to
consider such proposal without protesting the lack of notice.

<PAGE> 1
EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION

W I T N E S S E T H:

WHEREAS, American Capital and TVKMC, through their affiliated companies,
sponsor and manage a number of registered investment companies; and

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<PAGE> 2
WHEREAS, the parties intend that this transaction qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code");

NOW, THEREFORE, in consideration of the mutual promises contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:

1. PLAN OF TRANSACTION.

2. CLOSING OF THE TRANSACTION.

3. PROCEDURE FOR REORGANIZATION.

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<PAGE> 3

accompanied by all necessary state stock transfer stamps, the cost of which
shall be borne by the VKM Fund.

4. VKM TRUST'S REPRESENTATIONS AND WARRANTIES.

The VKM Trust, on behalf of the VKM Fund, hereby represents and warrants to
the AC Fund which representations and warranties are true and correct on the
date hereof, and agrees with the AC Fund that:

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<PAGE> 4

H. RESTRICTED SECURITIES. None of the securities comprising the assets of
the VKM Fund at the date hereof are, or on the Closing Date or any subsequent
delivery date will be, "restricted securities"

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<PAGE> 5

L. ABSENCE OF CHANGES. From the date of this Agreement through the Closing
Date, there shall not have been:

(3) any entering into, amendment or termination of any contract or
agreement with respect to the VKM Fund by the VKM Trust, except as otherwise
contemplated by this Agreement;

(5) any amendment of the Declaration of Trust of the VKM Trust or of the
Designation of Series of the VKM Fund; or

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<PAGE> 6

O. BROKERS. There are no brokers or finders fees payable by VKM Trust or
VKM Fund in connection with the transactions provided for herein.

Q. FAIR MARKET VALUE. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by the AC Fund and
those to which the Assets are subject;

5. THE AC FUND'S REPRESENTATIONS AND WARRANTIES.

The AC Fund, hereby represents and warrants to the VKM Trust which
representations and warranties are true and correct on the date hereof and
agrees with the VKM Trust that:

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<PAGE> 7

outstanding shares of the AC Fund have been duly authorized and are validly
issued, fully paid and non-assessable and not subject to pre-emptive
dissenters' rights.

C. AUDITED FINANCIAL STATEMENTS. The statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets of the AC Fund audited as of and for the year ended
November 30, 1994, true and complete copies of which have been heretofore
furnished to the VKM Trust, fairly represent the financial condition and the
results of operations of the AC Fund as of and for their respective dates and
periods in conformity with generally accepted accounting principles applied on
a consistent basis during the periods involved.

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<PAGE> 8

J. ABSENCE OF PROCEEDINGS. There are no legal, administrative or other
proceedings pending or, to its knowledge, threatened against the AC Fund which
would materially affect its financial condition.

K. SHARES OF THE AC FUND: REGISTRATION. The AC Fund Shares to be issued
pursuant to Section 1 hereof will be duly registered under the Securities Act
and all applicable state securities laws.

6. COVENANTS.

During the period from the date of this Agreement and continuing until the
Closing Date the VKM Trust and AC Fund each agrees that (except as expressly
contemplated or permitted by this Agreement):

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<PAGE> 9

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<PAGE> 10

7. CONDITIONS TO OBLIGATIONS OF THE VKM TRUST

The obligations of the VKM Trust hereunder with respect to the consummation
of the Reorganization are subject to the satisfaction, or written waiver by the
VKM Trust, of the following conditions:

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<PAGE> 11

C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.

D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.

F. TAX OPINION. The VKM Trust and the VKM Fund shall and the VKM Fund have
obtained an opinion from Skadden, Arps, Slate, Meagher & Flom, counsel for the
VKM Trust and the VKM Fund, dated as of the Closing Date, addressed to the VKM
Trust and the VKM Fund, that the consummation of the transactions set forth in
this Agreement comply with the requirements of a reorganization as described in
Section 368(a) of the Code substantially in the form attached as Annex A.

G. OPINION OF COUNSEL. The VKM Trust shall have received the opinion
of O'Melveny & Myers, counsel for AC Fund, dated as of the Closing Date,
addressed to the VKM Trust and VKM Fund, substantially in the form of and to the
effect that: (i) the AC Fund is duly formed and existing as a trust under the
laws of the State of Delaware; (ii) the AC Fund is registered as an open-end,
diversified management company under the 1940 Act; (iii) this Agreement and
the reorganization provided for herein and the execution of this Agreement have
been duly authorized by all necessary trust action of the AC Fund and this
Agreement has been duly executed and delivered by the AC Fund and (assuming the
Agreement is a valid and binding obligation of the other parties thereto) is a
valid and binding obligation of the AC Fund; (iv) neither the execution or
delivery by the AC Fund of this Agreement nor the consummation by the AC Fund
of the transactions contemplated thereby contravene the AC Fund's Declaration
of Trust or, to their knowledge, violate any provision of any statute, or any
published regulation or any judgment or order disclosed to them by the AC Fund
as being applicable to the AC Fund; (v) to their knowledge based solely on the
certificate of an appropriate officer of the AC Fund attached thereto, there is
no pending, or threatened litigation involving the AC Fund except as disclosed
therein (vi) the AC Fund's Shares being issued pursuant to this Agreement have
been duly authorized and upon issuance thereof in accordance with this
Agreement will be validly issued, fully paid and non-assessable; (vii) except
as to financial statements and schedules and other financial and statistical
data included or incorporated by reference therein and subject to usual and
customary qualifications with respect to Rule 10b-5 type opinions as of the
effective date of the Registration Statement filed pursuant to the Agreement,
the portions thereof pertaining to the AC Fund comply as to form in all
material respects with their requirements of the Securities Act, the Securities
Exchange Act and the 1940 Act and the rules and regulations of the Commission
thereunder and no facts have come to counsel's attention which cause them to
believe that as of the effectiveness of the

11
<PAGE> 12
portions of the Registration Statement applicable to the AC Fund, the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; and (viii) to their knowledge
and subject to the qualifications set forth below, the execution and delivery
by the AC Fund of the Agreement and the consummation of the transactions
therein contemplated do not require, under the laws of the State of
Delaware, or the federal laws of the United States, the consent, approval,
authorization, registration, qualification or order of, or filing with, any
court or governmental agency or body (except such as have been obtained under
the Securities Act, the 1940 Act or the rules and regulations thereunder.)
Counsel need express no opinion, however, as to any such consent, approval,
authorization, registration, qualification, order or filing (a) which may be
required as a result of the involvement of other parties to the Agreement in
the transactions contemplated by the Agreement because of their legal or
regulatory status or because of any other facts specifically pertaining to
them; (b) the absence of which does not deprive the VKM Trust or VKM Fund of
any material benefit under such agreements; or (c) which can be readily
obtained without significant delay or expense to the VKM Trust or VKM Fund,
without loss to the VKM Trust or VKM Fund of any material benefit under the
Agreement and without any material adverse effect on them during the period
such consent, approval authorization, registration, qualification or order was
obtained. The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications, orders or fillings under (a)
laws which are specifically referred to in the opinion, (b) laws of the State
of Delaware and the United States of America which, in our experience, are
normally applicable to transactions of the type provided for in the Agreement
and (c) court orders and judgments disclosed to them by the AC Fund in
connection with the opinion. Counsel's opinion as to the validity and binding
nature of this Agreement may be limited to the present law of the State of
Delaware. Counsel's other opinions may be limited to the present Federal law of
the United States and the present general corporation and trust laws of the
State of Delaware.

8. CONDITIONS TO OBLIGATIONS OF THE AC FUND

The obligations of the AC Fund hereunder with respect to the consummation of
the Reorganization are subject to the satisfaction, or written waiver by the AC
Fund of the following conditions:

C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.

12
<PAGE> 13
D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.

13
<PAGE> 14
during the period such consent, approval, authorization, registration,
qualification or order was obtained. The foregoing opinion relates only to
consents, approvals, authorizations, registrations, qualifications, orders or
filings under (a) laws which are specifically referred to in this opinion, (b)
laws of the States of Delaware and Illinois and the United States of America
which, in counsel's experience, are normally applicable to transactions of the
type provided for in the Agreement and (c) court orders and judgments disclosed
to them by the VKM Trust in connection with this opinion. In addition,
although counsel need not specifically considered the possible applicability to
the VKM Trust of any other laws, orders or judgments, nothing has come to their
attention in connection with their representation of the VKM Trust and the VKM
Fund in this transaction that has caused them to conclude that any other
consent, approval, authorization, registration, qualification, order or filing
is required.

9. AMENDMENT, WAIVER AND TERMINATION.

(C) This Agreement may be terminated, and the transactions contemplated
herein may be abandoned at any time prior to the Closing Date:

(i) by the mutual consents of the Board of Trustees of the VKM Trust and
the AC Fund;

14
<PAGE> 15

(ii) by the VKM Trust, if the AC Fund breaches in any material respect
any of its representations, warranties, covenants or agreements contained in
this Agreement;

(iii) by the AC Fund, if the VKM Trust breaches in any material respect
any of its representations, warranties, covenants or agreements contained in
this Agreement;

10. REMEDIES

11. SURVIVAL OF WARRANTIES AND INDEMNIFICATION.

15
<PAGE> 16

(ii) taxes of any kind in respect of the VKM Fund whether imposed on the VKM
Fund or on any shareholder of the VKM Fund.

12. SURVIVAL

The provisions set forth in Sections 10, 11 and 16 hereof shall survive the
termination of this Agreement for any cause whatsoever.

13. NOTICES.

16
<PAGE> 17

14. SUCCESSORS AND ASSIGNS.

15. BOOKS AND RECORDS.

The VKM Trust and the AC Fund agree that copies of the books and records of
the VKM Fund relating to the Assets including, but not limited to all files,
records, written materials; e.g., closing transcripts, surveillance files and
credit reports shall be delivered by the VKM Trust to the AC Fund at the
Closing Date. In addition to, and without limiting the foregoing, the VKM Trust
and the AC Fund agree to take such action as may be necessary in order that the
AC Fund shall have reasonable access to such other books and records as may be
reasonably requested, all for three years after the Closing Date for the three
tax years ending December 31, 1992, December 31, 1993 and December 31, 1994
namely, general ledger, journal entries, voucher registers; distribution
journal; payroll register; monthly balance owing report; income tax returns;
tax depreciation schedules; and investment tax credit basis schedules.

16. GENERAL.

17
<PAGE> 18

17. LIMITATION OF LIABILITY.

IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.

VAN KAMPEN AMERICAN CAPITAL GROWTH
AND INCOME FUND, a Delaware business
trust

By: _____________________________

Title: __________________________

Attest: _________________________

Title: _________________________

VAN KAMPEN AMERICAN CAPITAL EQUITY
TRUST, a Delaware business trust

By: _____________________________

Title: __________________________

Attest: ________________________

Title: ________________________

<PAGE> 19

SCHEDULE 1 [LIST OF MARKETABLE SECURITIES] [AS AMENDED AT CLOSING]

<PAGE> 20

SCHEDULE 2 [VKM TRUST CONSENTS]

<PAGE> 21
SCHEDULE 3

[AC Fund Consents]
<PAGE> 22

ANNEX A [TAX FREE OPINION: SKADDEN, ARPS, SLATE, MEAGHER & FLOM]

<PAGE> 1
EXHIBIT 5.1

NUMBER SHARES

__________ __________

VAN KAMPEN AMERICAN CAPITAL ________ FUND

CLASS A

ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES that is the owner of

*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________

CUSIP 024904 30 2
_________________

fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital ________ Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.

WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.

Dated

[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]

NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT

KC 002717

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

COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256

TRANSFER AGENT

By
----------------------------------------------------
AUTHORIZED OFFICER

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

PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED

VAN KAMPEN AMERICAN CAPITAL ________ FUND

NUMBER CLASS A SHARES
KC

ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.

TRADE DATE CONFIRM DATE BATCH I.D. NO.

CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:

ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256

----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------

REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:

A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.

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

For value received, hereby sell, assign and transfer unto

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby

irrevocably constitute and appoint _____________________________________________

_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with

full power of substitution in the premises.

Dated, _________________________________________ 19 ______

__________________________________________________________________
Owner

__________________________________________________________________
Signature of Co-Owner, if any

IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.

SIGNATURE(S) guaranteed by:

________________________________________________________________________________

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

*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common

Additional abbreviations may also be used though not in the above list

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

________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY

<PAGE> 1
EXHIBIT 5.2

NUMBER SHARES

__________ __________

VAN KAMPEN AMERICAN CAPITAL ________ FUND

CLASS B

ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES that is the owner of

*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________

CUSIP 024904 30 2
_________________

WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.

Dated

[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]

NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT

KC 002717

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

COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256

TRANSFER AGENT

By
----------------------------------------------------
AUTHORIZED OFFICER

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

PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED

VAN KAMPEN AMERICAN CAPITAL ________ FUND

NUMBER CLASS B SHARES
KC

ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.

TRADE DATE CONFIRM DATE BATCH I.D. NO.

CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:

ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256

THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:

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

For value received, hereby sell, assign and transfer unto

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby

irrevocably constitute and appoint _____________________________________________

_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with

full power of substitution in the premises.

Dated, _________________________________________ 19 ______

__________________________________________________________________
Owner

__________________________________________________________________
Signature of Co-Owner, if any

IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.

SIGNATURE(S) guaranteed by:

________________________________________________________________________________

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

*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list

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

________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY

<PAGE> 1
EXHIBIT 5.3

NUMBER SHARES

__________ __________

VAN KAMPEN AMERICAN CAPITAL ________ FUND

CLASS C

ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES that is the owner of

*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________

CUSIP 024904 30 2
_________________

WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.

Dated

[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]

NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT

KC 002717

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

COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256

TRANSFER AGENT

By
----------------------------------------------------
AUTHORIZED OFFICER

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

PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED

VAN KAMPEN AMERICAN CAPITAL ________ FUND

NUMBER CLASS C SHARES
KC

ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.

TRADE DATE CONFIRM DATE BATCH I.D. NO.

CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:

ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256

THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:

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

For value received, hereby sell, assign and transfer unto

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby

irrevocably constitute and appoint _____________________________________________

_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with

full power of substitution in the premises.

Dated, _________________________________________ 19 ______

__________________________________________________________________
Owner

__________________________________________________________________
Signature of Co-Owner, if any

IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.

SIGNATURE(S) guaranteed by:

________________________________________________________________________________

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

*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list

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

________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY

<PAGE> 1
EXHIBIT 6

INVESTMENT ADVISORY AGREEMENT

AGREEMENT (herein so called) made this ____ day of __________, 1995, by and
between VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME 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

<PAGE> 2

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 directors 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 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.

(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

2
<PAGE> 3

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, the ADVISER shall not 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.

(3) Compensation Payable to ADVISER

The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed
at the following annual rates:

.50% on the first $150 million of the FUND's average daily net assets; .45% on
the next $100 million of the FUND's average daily net assets; .40% on the next
$100 million of the FUND's average daily net assets; and .35% of any excess
over $350 million.

Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.

The fees payable to the ADVISER by the FUND pursuant to this Section 3 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 recapture all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the 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 transactions or other arrangements which may benefit the
FUND.

3
<PAGE> 4

In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed 1.5% of the first $30 million of the FUND's average daily
net assets plus 1% of any excess over $30 million, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to Van Kampen American Capital Distributors, Inc., the distributor
of the FUND's shares, in connection with a distribution plan adopted by the
FUND's Trustees pursuant to Rule 12b-1 under the Investment Company Act of
1940.

If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.

(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 have an initial term of 2 years from the date hereof, and
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

4
<PAGE> 5

FUND's Trustees, by vote of a majority of the FUND's outstanding voting
securities, or by the ADVISER, on 60 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 property of the FUND. A Certificate of Trust in respect of the Fund
is on file with the Secretary of State of Delaware.

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 GROWTH AND INCOME FUND

By:________________________________________

Name:______________________________________

Its:_______________________________________

VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.

By:________________________________________

Name:______________________________________

Its:_______________________________________

<PAGE> 1
EXHIBIT 7.1

UNDERWRITING AGREEMENT
between
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
and
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

THIS AGREEMENT made this ___ day of ___________, 1995 by and between VAN KAMPEN
AMERICAN CAPITAL GROWTH AND INCOME FUND, a Delaware business trust, hereinafter
referred to as the "Fund" and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., a
Delaware corporation, hereinafter referred to as the "Underwriter".

WHEREAS, the Fund proposes to issue its shares in three classes: Class A,
Class B and Class C, all as described in the Fund's current prospectus at the
time of sale;

W I T N E S S E T H:

In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:

FIRST: The Fund hereby appoints the Underwriter as its exclusive agent for the
sale of shares of the Fund to the public through investment dealers in the
United States and throughout the world.

SECOND: The Fund shall not sell any of its shares except through the
Underwriter and under the terms and conditions set forth in paragraph FOURTH
below. Notwithstanding the provisions of the foregoing sentence, however,

(A) the Fund may issue its shares to any other investment company or personal
holding company, or to the shareholders thereof, in exchange for all or a
majority of the shares or assets of any such company;

(B) the Fund may issue its shares at net asset value to any shareholder of the
Fund purchasing such shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders; and

THIRD: The Underwriter hereby accepts appointment as exclusive agent for the
sale of all classes of shares of the Fund and agrees that it will use its best
efforts to sell such shares; provided, however, that:

(A) the Underwriter may, and when requested by the Fund shall, suspend its
efforts to effectuate sales for any or all classes of shares of the Fund or
limit such sales efforts to existing shareholders of the Fund at any time when,
in the opinion of the Underwriter, after consultation with the investment
adviser to the Fund, or in the opinion of the Fund, sales efforts should be

<PAGE> 2

limited or suspended because of market or other economic considerations
(including a determination by the Fund's investment adviser that it would be in
the best interests of existing shareholders of the Fund to suspend sales of
shares of the Fund or limit such sales to existing shareholders of the Fund) or
abnormal circumstances of any kind;

(B) upon the limiting or suspension of sales efforts by the Underwriter
pursuant to clause (A) above, the Fund may in its discretion suspend the sale
of shares through the Underwriter or limit such sales to existing shareholders
of the Fund; and

(C) the Fund may withdraw the offering of its shares (i) at any time with the
consent of the Underwriter, or (ii) without such consent when so required by
the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction. It is mutually understood and agreed
that the Underwriter does not undertake to sell any specific amount of shares
of the Fund. The Fund shall have the right to specify minimum amounts for
initial and subsequent orders for the purchase of shares.

FOURTH: The offering price of shares of the Fund (the "offering price") shall
be the net asset value per share plus, in the case of Class A shares, any
applicable initial sales charge. Net asset value per share shall be determined
in the manner provided in the then current prospectus of the Fund. The sales
charge for shares shall be established by the Underwriter. The Underwriter may
designate a scale of reducing sales charges on the basis of the value of shares
purchased or owned in accordance with Rule 22d-1 under the Investment Company
Act of 1940 (the "Act"). Included in the scale of reducing sales charges may
be a level at which no sales charges are added to the net asset value in
computing the public offering price. The Underwriter may also designate
eliminations of sales charges to particular classes of investors or
transactions in accordance with Rule 22d-1, provided such eliminations are
approved by the Fund and described in the prospectus. The Fund shall allow,
directly to investment dealers through whom shares of the Fund are sold, such
portion of the sales charge as may be payable to them and specified by the
Underwriter up to, but not exceeding, the amount of the total sales charge.
The difference between any portion of the sales charge so payable to investment
dealers and the total sales charges included in the offering price shall be
paid to the Underwriter.

The offering price of Class B and Class C shares of the Fund shall be the net
asset value per share without an initial sales charge. However, the Fund
agrees that the Underwriter shall impose certain contingent deferred sales
charges in connection with the redemption of Class B and Class C shares of the
Fund, not to exceed a specified percentage of the original purchase price of
the shares as from time to time set forth in the prospectus of the Fund. The
Underwriter may retain (or receive from the Fund, as the case may be) all of
such contingent deferred sales charges. Net asset value per share shall be
determined in the manner provided in the then

2
<PAGE> 3

current prospectus of the Fund. The Underwriter may designate eliminations of
contingent deferred sales charges to particular classes of investors or
transactions in accordance with Rule 22d-1 provided such eliminations are
approved by the Fund and described in the prospectus. The Underwriter proposes
to pay to investment dealers through whom Class B and Class C shares of the
Fund are sold a dealer commission of a specified percentage of the purchase
price of Class B and Class C shares purchased through them and as from time to
time set forth in the prospectus of the Fund.

The Underwriter shall act as agent of the Fund in connection with the sale and
repurchase of shares of the Fund. Except with respect to such sales and
repurchases, the Underwriter shall act as principal in all matters relating to
the promotion of the sale of shares of the Fund and shall enter into all of its
own engagements, agreements and contracts as principal on its own account. The
Underwriter shall enter into selling group agreements with investment dealers
selected by the Underwriter, authorizing such investment dealers to offer and
sell shares of the Fund to the public upon the terms and conditions set forth
therein, which shall not be inconsistent with the provisions of this Agreement.
Each selling group agreement shall provide that the investment dealer shall act
as a principal, and not as an agent of the Fund.

FIFTH: The Underwriter shall bear:

(A) the expenses of printing from the final proof and distributing
registration statements and prospectuses relating to public offerings made by
the Underwriter pursuant to this Agreement and annual and semi-annual
shareowner reports used as sales literature (not, however, including
typesetting costs), as well as all printing and distribution costs of any other
sales literature used by the Underwriter or furnished by the Underwriter to
dealers in connection with such public offerings except as otherwise agreed by
the Trustees;

(B) expenses of advertising in connection with such public offerings except as
otherwise agreed by the Trustees; and

SIXTH: The Underwriter will accept orders for shares of the Fund only to the
extent of purchase orders actually received and not in excess of such orders,
and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders.

SEVENTH:

(A) The Fund and the Underwriter shall each comply with all applicable
provisions of the Act, the Securities Act of 1933 (the "Securities Act") and of
all other federal and state laws, rules and regulations governing the issuance
and sale of shares of the Fund.

3
<PAGE> 4

(B) The Fund agrees to indemnify the Underwriter against any and all claims,
demands, liabilities and expenses which the Underwriter may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.

(C) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of or
based upon any act or deed of the Underwriter or its sales representatives
which has not been authorized by the Fund in its prospectus or in this
Agreement. The Underwriter agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.

(D) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur under the Securities
Act, or common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in any prospectus of the Fund
prepared for use under Rule 482 of the Securities Act, or any omission to state
a material fact therein.

EIGHTH: Nothing herein contained shall require the Fund to take any action
contrary to any provision of its Articles of Incorporation or to any applicable
statute or regulation.

NINTH: This Agreement shall become effective on the date hereof, shall have an
initial term of two years from the date hereof, and shall continue in force and
effect from year to year thereafter, provided, that such continuance is
specifically approved at least annually (a)(i) by the Trustees of the Fund, or
(ii) by vote of a majority of the Fund's outstanding voting securities (as
defined in Section 2(a)(42) of the Act); and (b) by vote of a majority of the
Fund's Trustees who are not parties to this Agreement or interested persons (as
defined in Section 2(a)(19) of the Act) of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval.

TENTH:

(A) This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Trustees of the Fund or by vote of a majority of the
outstanding voting securities of the

4
<PAGE> 5

Fund, or by the Underwriter, on sixty days written notice to the other party.

(B) This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the Act).

ELEVENTH: Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed, postage paid, 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 party, it is agreed that the address of the Fund shall be
2800 Post Oak Boulevard, Houston, Texas 77056 and the address of the
Underwriter shall be One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

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

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate on the day and year first above written.

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

By:__________________________________________

Name:________________________________________

Its:_________________________________________

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

By:__________________________________________

Name:________________________________________

Its:_________________________________________

<PAGE> 1
EXHIBIT 9.2
TRANSFER AGENCY AND SERVICE AGREEMENT

AGREEMENT made as of the ___ day of _______, 1995 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, having their principal office and place of
business at Houston, Texas (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation, having its principal office at Houston,
Texas, and its principal place of business at Kansas City, Missouri ("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 In order to assure compliance with section 1.03 and to
implement a cooperative effort to improve the quality of transfer agency and
shareholder services received by each of the Funds and its shareholders,

1
<PAGE> 2
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 or Board of
Directors 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 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 the states of
Texas and Missouri.

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

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<PAGE> 3
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 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 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 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 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 and fee

3
<PAGE> 4
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 that would
otherwise require a payment 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 any other Funds that 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 or Articles of Incorporation 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, diversified, management investment company
registered under the Investment Company Act of 1940, as amended.

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 arising out of or attributable to:

4
<PAGE> 5
(a) All actions of ACCESS required to be taken by ACCESS
for the benefit of such Fund pursuant to this Agreement, provided
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.

5.02 ACCESS shall indemnify and hold each of the Funds harmless
from and against any and all losses, damages, costs, charges, reasonable
counsel fees, payments, expenses and liability arising out of or attributable
to ACCESS' refusal or failure to comply with the terms of this Agreement, or
ACCESS' lack of good faith, 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

5
<PAGE> 6
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 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 for damages 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. 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.

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<PAGE> 7
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.

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 This Agreement shall remain in effect from the date hereof
through June 30, 1995; provided, however, that this Agreement may be terminated
by any party with respect to that party for good and reasonable

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<PAGE> 8
cause at any time by giving written notice to the other party at least 120 days
prior to the date on which such termination is to be effective. Any unpaid
fees or reimbursable expenses payable to ACCESS shall be due on any such
termination date. ACCESS agrees to use its best efforts to cooperate with each
of the Funds and the successor transfer agent or agents in accomplishing an
orderly transition.

7.02 Subject to the prior approval of the Board, this Agreement
shall be renewed and extended for periods of not more than one year each,
unless and until this Agreement is terminated in accordance with section 7.01
above.

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.

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 ACCESS may, without further consent on the part of any of the
Funds, provide services to its affiliated companies. Such services may be
provided at cost.

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 that the obligations of this Agreement are not binding upon
any of

8
<PAGE> 9
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 Secretary of the State of
Delaware.

8.07 For each of those Funds that 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.

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<PAGE> 10
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:____________________________________
Vice President

ATTEST:

____________________________
Secretary

ACCESS INVESTOR SERVICES, INC.

BY:____________________________________
President

ATTEST:

____________________________
Secretary

10
<PAGE> 11
SCHEDULE "A"

VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS

<TABLE>
<CAPTION>
Type
[Corporation "C"/
Fund Name State of Business Trust "T"/
(including Portfolios) Organization Partnership "P"]
===============================================================================================================
<S> <C> <C>

[TO BE PROVIDED]
</TABLE>

11
<PAGE> 12
PRICING SCHEDULE

PRICE PER ACCOUNT PLUS OUT-OF-POCKET

______________, 1995

[TO BE PROVIDED]

<PAGE> 1
EXHIBIT 10.1
CLASS A
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

Section 1. Van Kampen American Capital Growth and Income Fund, (the "Fund")
may act as a distributor of securities of which it is the issuer, pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act"), according to
the terms of this Distribution Plan (the "Plan").

Section 2. The Fund may incur as a distributor of securities of which it is
the issuer, expenses of up to twenty-five one-hundredths of one percent (.25%)
per annum of the Fund's average daily net assets.

Section 3. Amounts set forth in Section 2 may be expended when and if
authorized in advance by the Fund's Trustees. Such amounts may be used to
finance any activity which is primarily intended to result in the sale of the
Fund's shares or the retention of shares by investors, including but not
limited to expenses of organizing and conducting sales seminars, printing of
prospectuses and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental
payments to dealers under a dealer incentive program to be established by Van
Kampen American Capital Dirstributors, Inc. ("VKAC") as the Fund's Distributor,
in accordance with Section 4, and the costs of administering such a program.
All amounts expended pursuant to the Plan shall be paid to VKAC. VKAC shall be
required to use such amounts exclusively to finance those activities set forth
in Sections 3 and 4 of the Plan.

Section 4. (a) Amounts expended by the Fund under the Plan shall be used
primarily for the implementation by VKAC of a dealer incentive program and to
pay the costs of administering the calculation of payment under such program.

(b) Pursuant to this program, VKAC may enter into agreements ("Servicing
Agreements") with such broker/dealers ("Dealers") as may be selected from time
to time by VKAC for the provision of distribution assistance in connection with
the sale of shares of the Fund ("Shares") to the Dealers' clients and customers
("Customers") and for the provision of administrative support services to
Customers who may from time to time directly or beneficially own Shares. The
distribution assistance and administrative support services to be rendered by
Dealers under the Servicing Agreements may include, but shall not be limited
to, the following: distributing sales literature; answering routine Customer
inquiries concerning the Fund; assisting Customers in changing dividend
options, account designations and addresses, and in enrolling into the
pre-authorized check plan, systematic

<PAGE> 2

withdrawal plan or any of several tax sheltered retirement plans offered in
connection with the purchase of Shares; assisting in the establishment and
maintenance of Customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and capital gains distributions
automatically in Shares and providing such other information and services as the
Fund or the Customer may reasonably request.

Section 5. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding voting
securities of the Fund.

Section 6. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority of both (a) the
Trustees of the Fund and (b) those Trustees of the Fund who are not "interested
persons" of the Fund (as defined in the Act) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to
it (the "Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.

Section 7. Unless sooner terminated pursuant to Section 9, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 6.

Section 8. VKAC shall provide to the Fund's Board and the Board shall review,
at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.

Section 9. This Plan may be terminated, without payment of any penalty, at any
time by vote of a majority of the Disinterested Trustees, or by vote of a
majority of the Fund's outstanding voting securities.

Section 10. Any agreement related to this Plan shall be in writing, and shall
provide:

(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the Fund's outstanding voting securities, on not more than sixty days written
notice to any other party to the agreement; and

(b) That such agreement shall terminate automatically in the event of its
assignment.

Section 11. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 5 hereof, and no material amendment
to the Plan shall be

2
<PAGE> 3

made unless approved in the manner provided for in Section 6 hereof.

Section 12. The execution of this Plan has been authorized by the Fund's
Trustees and by the sole shareholder of the Class A shares of the Fund. This
Plan is executed on behalf of the Fund or the Trustees of the Fund as Trustees
and not individually and that the obligations of this Plan are not binding upon
any of the Trustees, officers or shareholders of the Fund individually but are
binding only upon the assets and property of the Fund. A Certificate of Trust
in respect of the Fund is on file with the Secretary of the State of Delaware.

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

By: _________________________
Name: Nori L. Gabert
Its: Vice President

Plan effective as of: ______________________, 1995

<PAGE> 1
EXHIBIT 10.2
CLASS B
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

WHEREAS, Van Kampen American Capital Growth and Income Fund, (the
"Fund"), engaged in business as an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"Act");

WHEREAS, the Fund proposes to commence an offering of Class B shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");

WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class B shares, to make payments
in connection with the distribution of its Class B shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class B shares, and desires to adopt
a Class B Shares Distribution Plan pursuant to Rule 12b-1 under the Act;

WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class B shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class B shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");

WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by VKAC to such Service Organizations;

WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class B shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;

WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class B Distribution

<PAGE> 2

Plan will benefit the Fund and its Class B shareholders;

NOW, THEREFORE, the Fund hereby adopts this Class B Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:

1. Subject to the supervision of the Trustees of the Fund, VKAC will provide
the Fund with such distribution services and facilities as the Fund may from
time to time consider necessary to enhance the sale of its Class B shares.

2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class B shares rendered by VKAC, the
Fund shall pay VKAC out of the assets attributable to the Class B shares an
annual distribution fee and service fee ("Distribution Fee and Service Fee")
calculated daily and payable weekly. The combined Distribution Fee and Service
Fee shall equal on an annual basis 1.00% of that portion of the Fund's net
assets attributable to Class B shares. Only distribution expenditures of a
type and amount authorized in advance by the Fund's Trustees and properly
attributable to the sale of Class B shares will be used to justify any fee paid
pursuant to this Plan.

3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class B shares of
the Fund.

4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.

5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees then in office
who are not "interested persons" of the Fund.

6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class B shares, provided
that the conditions of Sections 3 and 4 above have been met).

7. VKAC shall provide to the Fund's Trustees and the Trustees shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.

2
<PAGE> 3

8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the Fund.

9. Any agreement related to this Plan shall be in writing, and shall provide:

(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and

(b) That such agreement shall terminate automatically in the event of its
assignment.

10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.

11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.

12. The execution of this Plan has been authorized by the Fund's Trustees and
by the sole shareholder of the Class B shares of the Fund. This Plan is
executed on behalf of the Fund or the Trustees of the Fund as Trustees and not
individually and that the obligations of this Plan are not binding upon any of
the Trustees, officers or shareholders of the Fund individually but are binding
only upon the assets and property of the Fund. A Certificate of Trust in
respect of the Fund is on file with the Secretary of the State of Delaware.

Van Kampen American Capital Growth and Income Fund

By:
-------------------------------
Name: Nori L. Gabert
Its: Vice President

Plan effective as of: __________, 1995

<PAGE> 1
EXHIBIT 10.3
CLASS C
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND

WHEREAS, Van Kampen American Capital Growth and Income Fund, (the "Fund"),
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act");

WHEREAS, the Fund proposes to commence an offering of Class C shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");

WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class C shares, to make payments
in connection with the distribution of its Class C shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class C shares, and desires to adopt
a Class C Shares Distribution Plan pursuant to Rule 12b-1 under the Act;

WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class C shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class C shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");

WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class C shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;

WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class C Distribution

<PAGE> 2

Plan will benefit the Fund and its Class C shareholders;

NOW, THEREFORE, the Fund hereby adopts this Class C Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the following
terms and conditions:

2. In consideration of the Transactional Compensation and Service Fees paid and
the other distribution services for Class C shares rendered by VKAC, the Fund
shall pay VKAC out of the assets attributable to the Class C shares an annual
distribution fee and service fee ("Distribution Fee and Service Fee") calculated
daily and payable weekly. The combined Distribution Fee and Service Fee shall
equal on an annual basis up to 1.00% of the average daily net assets of the
Funds' Class C shares. Only distribution expenditures of a type and amount
authorized in advance by the Fund's Trustees and properly attributable to the
sale of Class C shares will be used to justify any fee paid pursuant to this
Plan.

3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class C shares of
the Fund.

4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of the
Fund and (b) those Trustees of the Fund who are not "interested persons" of the
Fund (as defined in the Act) and have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.

5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of the
Fund shall be committed to the discretion of the Trustees then in office who are
not "interested persons" of the Fund.

6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class C shares, provided
that the conditions of Sections 3 and 4 above have been met).

2
<PAGE> 3

9. Any agreement related to this Plan shall be in writing, and shall provide:

(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of the
outstanding voting securities of the Fund, on not more than sixty days' written
notice to any other party to this agreement; and

(b) That such agreement shall terminate automatically in the event of its
assignment.

12. The execution of this Plan has been authorized by the Fund's Trustees and by
the sole shareholder of the Class C shares of the Fund. This Plan is executed
on behalf of the Fund or the Trustees of the Fund as Trustees and not
individually and that the obligations of this Plan are not binding upon any of
the Trustees, officers or shareholders of the Fund individually but are binding
only upon the assets and property of the Fund. A Certificate of Trust in
respect of the Fund is on file with the Secretary of the State of Delaware.

Van Kampen American Capital Growth and Income Fund

By: _________________________
Name: Nori L. Gabert
Its: Vice President

Plan effective as of: _____________________, 1995

<PAGE> 1

EXHIBIT 10.4

SERVICING AGREEMENT RELATING TO SHARES OF
CERTAIN AMERICAN CAPITAL MUTUAL FUNDS

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

Dear Sir:

This Service Agreement (the "Agreement") between Van Kampen American Capital
Distributors, Inc. ("VKAC") and the undersigned authorized dealer defines the
services to be provided by the authorized dealer for which it may receive
payment pursuant to Distribution Plans (hereinafter severally referred to as the
"Plan") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Act") by certain mutual funds for which VKAC serves as distributor (the
"Funds"). Each such fund has acted severally and not jointly in adopting the
Plan and the agreement and hereinafter is referred to severally as the "Fund".
The Plan and the Agreement have been approved by a majority of the Trustees of
the Fund including a majority of the Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan or any related agreements (the "non-interested Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan. Such approval
included a determination that in the exercise of their reasonable business
judgement and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders. The Plan
has also been approved by a vote of a majority of the Fund's outstanding voting
securities, as defined in the Act.

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

1 To the extent you provide distribution assistance and administrative support
services to Customers who may from time to time, directly or beneficially own
shares, including but not limited to, distributing prospectuses and sales
literature, answering routine Customer inquiries regarding the Fund, assisting
Customers in changing divided options, account designations and addresses, and
in enrolling into the pre-authorized check plan, systematic withdrawal plan or
any of several tax sheltered retirement plans offered in connection with the
purchase of shares in the case of those Funds offering such Plans, assisting in
the establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions, investing dividends and
capital gains distributions automatically in shares and providing such other
services as the Fund or the Customer may reasonably request, we shall pay you
quarterly a fee as indicated in each Fund's then current prospectus based on the
net asset value of Fund shares owned shareholders whose shares are owned of
record by your firm as nominee for your Customers or which are owned by those
Customers of your firm whose records, as maintained by the Fund or its Agents,
designate your firm as the Customer's dealer of record. No such quarterly fee
will be paid to you with respect to shares purchased by you and redeemed or
repurchased by the Fund or by us as Agent within seven (7) business days after
the date of our confirmation of such purchase. No such fee shall be payable with
respect to shares purchased at net asset value without a sales charge by
investors of the classes described in the Fund's Prospectus pursuant to Rule
22d-1 under the Act, other than classes of net asset value categories pursuant
to Rule 22d-1 as may from time to time be approved by the Fund.

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

<PAGE> 2

2 By accepting such fee you agree to assign a representative to each account, to
require such representative to contact the Customer regularly and to pay at
least a portion of such fee to such representative. Additionally, you understand
that VKAC will monitor service levels which you provide to your Customers
pursuant to this agreement and that consistently low levels of service will
result in non-payment of the fee.

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

3 In accordance with your agreement to provide distribution assistance, you
agree to use your best efforts to support the asset value of the Fund to the
extent consistent with the suitability requirements of your Customer. You
understand that VKAC will monitor levels of redemption and that redemption
levels consistently above those dictated by market conditions will result in
non-payment of the fee.

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

4 This Agreement does not require any authorized dealer to hold Fund shares in
street name or to provide shareholder accounting and record keeping services for
any Customers who are beneficial owners of Fund shares.

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

5 You shall furnish us and the Fund with such information as shall reasonably be
requested by either the Trustees of the Fund or by us with respect to the fees
paid to you pursuant to this Agreement.

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

6 We shall furnish to the Trustees of the Fund, for their review on a quarterly
basis, a written report of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.

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

7 Neither you nor any of your employees or agents are authorized to make any
representation concerning shares of the Fund except those contained in the then
current Prospectus for the Fund, and you shall have no authority to act as Agent
for the Fund or for VKAC.

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

8 We may enter into other similar Servicing Agreements with any other person
without your consent.

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

9 This Agreement may be terminated with respect to any Fund at any time without
payment of any penalty by the vote of a majority of the non-interested Trustees
or by a vote of a majority of the Fund's outstanding shares, on sixty (60) days
written notice. It will be terminated by any act which terminates either the
Fund's Underwriting Agreement with us or the Selling Group Agreement between
your firm and us and shall terminate automatically in the event of its
<PAGE> 3

assignment as that term is defined in the Act.

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

10 The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Plan, are incorporated herein by reference. This Agreement
shall become effective upon execution and delivery hereof and shall continue in
full force and effect so long as the continuance of the Plan and this related
Agreement are approved at least annually by a vote of the Fund's Trustees,
including a majority of the non-interested Trustees, cast in person at a meeting
called for the purpose of voting thereon. All communications to us should be
sent to the foregoing address. Any notice to you shall be duly given if mailed
or telegraphed to you at the address specified by you below.

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

11 As described in the prospectus of each Fund which is organized as a trust,
the Agreement and Declaration of Trust ("Declaration") establishing such Trust,
provides that the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder or officer of said Trust shall be held to any personal liability,
nor shall resort be had to their private property for satisfaction of any
obligation or claim or otherwise in connection with the affairs of said Trust,
but only the assets and property of the Trust, or of the particular series of
the Trust in question, as the case may be, shall be liable. In the case of each
Fund comprised of series, all obligations of such Fund under this Agreement
shall apply only on a series by series basis and the assets of one series shall
not be liable for the obligations of any other series.

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

12 This Agreement shall be construed in accordance with the laws of the State of
Texas.

Van Kampen American Capital Distributors, Inc.

Dated_______________19____ By:_____________________________
Accepted:
_____________________________
Please sign both copies and return to:
Van Kampen American Capital Distributors, Inc. _____________________________
P.O. Box 1411
Houston, TX 77251-1411

By:_____________________________

Title:__________________________

<PAGE> 1

EXHIBIT 10.5

SERVICING AGREEMENT RELATING TO SHARES OF
CERTAIN AMERICAN CAPITAL MUTUAL FUNDS FOR
BANKS AND BANK AFFILIATED BROKER / DEALERS

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

Dear Sir:

This Servicing Agreement (the "Agreement") between Van Kampen American Capital
Distributors, Inc. ("VKAC") and the undersigned authorized bank or bank
affiliated dealer defines the services to be provided by the authorized bank or
bank affiliated dealer for which it may receive payment pursuant to Distribution
Plans (hereinafter severally referred to as the "Plan") adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by certain mutual
funds for which VKAC serves as distributor (the "Funds"). Each such fund has
acted severally and not jointly in adopting the Plan and the Agreement and
hereinafter is referred to severally as the "Fund". The Plan and the Agreement
have been approved by a majority of the Trustees of the Fund including a
majority of Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or any
related agreements (the "non-interested Trustees"), cast in person at a meeting
called for the purpose of voting on the Plan. Such approval included a
determination that in the exercise of their reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders. The Plan has also been approved by a
vote of a majority of the Fund's outstanding voting securities, as defined in
the Act.

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

1 To the extent you provide administrative support services to your agency
clients who may from time to time, directly or beneficially own shares,
including but not limited to, distributing prospectuses, performing
sub-accounting, answering routine shareholder inquiries regarding the Fund,
assisting shareholders in changing dividend options, account designations and
addresses, and in enrolling into the pre-authorized check plan, systematic
withdrawal plan or any of several tax sheltered retirement plans offered in
connection with the purchase of shares in the case of those Funds offering such
Plans, assisting in the establishment and maintenance of customer accounts and
records and in the processing of purchase and redemption transaction, investing
dividends and capital gains distributions automatically in shares and providing
such other services as the Fund or your client may reasonably request, to the
extent you are permitted by applicable statute, rule or regulation to provide
such services, we shall pay you quarterly a fee as indicated in each Fund's then
current prospectus based on the net asset value of Fund shares owned by
shareholders whose shares are owned of record by your bank or bank affiliated
dealer as nominee for your clients or which are owned by your agency clients
whose records, as maintained by the Fund or its Agent, designate your bank or
bank affiliated dealer as the shareholder's dealer of record. No such quarterly
fee will be paid to you with respect to shares purchased by your agency client
and redeemed or repurchased by the Fund or by us as Agent within seven (7)
<PAGE> 2

business days after the date of our confirmation of such purchase. No such fee
shall be payable with respect to shares purchased at net asset value without a
sales charge by investors of the classes described in the Fund's Prospectus
pursuant to Rule 22d-1 under the Act, other than classes of net asset value
categories pursuant to Rule 22d-1 as may from time to time be approved by the
Board.

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

2 By accepting such fee you agree to contact your client regularly.
Additionally, you understand that VKAC will monitor service levels which you
provide to your Customers pursuant to this agreement and that consistently low
levels of service will result in non-payment of the fee.

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

3 This Agreement does not require any authorized bank or bank affiliated dealer
to hold Fund shares in street name or to provide shareholder accounting and
record keeping services for any clients who are beneficial owners of Fund
shares.

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

4 You shall furnish us and the Fund with such information as shall reasonably be
requested by either the Trustees of the Fund or by us with respect to the fees
paid to you pursuant to this Agreement.

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

5 We shall furnish to the Trustees of the Fund, for their review on a quarterly
basis, a written report of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.

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

6 Neither you nor any of your employees or agents are authorized to make any
representation concerning shares of the Fund except those contained in the then
current prospectus for the Fund, and you shall have no authority to act as agent
for the Fund or for VKAC.

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

7 We may enter into other similar Servicing Agreements with any other person
without your consent.

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

8 This Agreement may be terminated with respect to any Fund at any time without
payment of any penalty by the vote of a majority of the non-interested Trustees
or by a vote of a majority of the Fund's outstanding shares on sixty (60) days
written notice. It will be terminated by any act
<PAGE> 3

which terminates either the Fund's Underwriting Agreement with us or the Selling
Group Agreement between you and us and shall terminate automatically in the
event of its assignment as that term is defined in the Act.

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

9 The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Plan, are incorporated herein by reference. This Agreement
shall become effective upon execution and delivery hereof and shall continue in
full force and effect so long as the continuance of the Plan and this related
Agreement are approved at least annually by a vote of the Fund's Trustees,
including a majority of the non-interested Trustees, cast in person at a meeting
called for the purpose of voting thereon. All communications to us should be
sent to the foregoing address. Any notice to you shall be duly given if mailed
or telegraphed to you at the address specified by you below.

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

10 As described in the prospectus of each Fund which is organized as a trust,
the Agreement and Declaration of Trust ("Declaration") establishing such Trust,
provides that the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder or officer of said Trust shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of said Trust,
but only the assets and property of the Trust, or of the particular series of
the Trust in question, as the case may be, shall be liable. In the case of each
Fund comprised of series, all obligations of such Fund under this Agreement
shall apply only on a series by series basis and the assets of one series shall
not be liable for the obligations of any other series.

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

11 This Agreement shall be construed in accordance with the laws of the State of
Texas.

Van Kampen American Capital Distributors, Inc.

Dated _____________19___ By:____________________________________________
Accepted:
____________________________________________
Bank or Dealer's Name
____________________________________________
Address

By:____________________________________________

Title:_________________________________________

<PAGE> 1

EXHIBIT 11

[LETTERHEAD OF O'MELVENY & MYERS]

July 31, 1995

Van Kampen American Capital Growth and

Income Fund, a Delaware business trust

2800 Post Oak Boulevard

Houston, Texas 77056

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form N-14
(the "Registration Statement") filed by your predecessor, American Capital
Growth and Income Fund, Inc., a Maryland corporation, on May 25, 1995 with the
Securities and Exchange Commission ("SEC") and the form of Amendment No. 1 to
the Registration Statement to be filed with the SEC in connection with the
proposed acquisition by you of the assets of Van Kampen Merritt Growth and
Income Fund (the "Disappearing Fund"), a series of Van Kampen American Capital
Equity Trust, a Delaware business trust. Pursuant to the acquisition, the assets
and liabilities of the Disappearing Fund will be transferred to you in exchange
for your shares of beneficial interest, $0.01 par value (the "Shares"), which
will be distributed to the shareholders of the Disappearing Fund. We are
familiar with the proceedings taken and proposed to be taken by you in
connection with the authorization, issuance and sale of the Shares.

Based upon our examination and upon our knowledge of your business trust
activities, and assuming that you adopt as your own the Registration Statement,
as amended, it is our opinion that the Shares will, when issued and sold in the
manner described in Amendment No. 1 to the Registration Statement, be validly
issued, fully paid and nonassessable.

In rendering this opinion, we have relied in part as to matters of Delaware
law upon the opinion of Skadden, Arps, Slate, Meagher & Flom of even date
herewith, a copy of which has been delivered to you. We consent to the filing of
this opinion as an exhibit to Amendment No. 1 to the Registration Statement.

Respectfully submitted,

O'MELVENY & MYERS

<PAGE> 1

EXHIBIT 12

[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGER & FLOM]

July , 1995

Van Kampen Merritt Growth

and Income Fund

One Parkview Plaza

Oak Brook Terrace, Illinois 60181

Van Kampen American Capital Growth

and Income Fund

2800 Post Oak Boulevard

Houston, Texas 77056

Ladies and Gentlemen:

You have requested our opinion as to certain Federal income tax
consequences of the acquisition by the Van Kampen American Capital Growth and
Income Fund (the "AC Fund"), a Delaware business trust, of all of the assets of
the Van Kampen Merritt Growth and Income Fund (the "VK Fund"), a series of Van
Kampen American Capital Equity Trust, a Delaware business trust (the "VKAC
Trust"), solely in exchange for full and fractional Class A, Class B and Class C
voting shares of beneficial interest of the AC Fund and the assumption by the AC
Fund of the liabilities of the VK Fund and the subsequent liquidation of the VK
Fund (the "Acquisition"), pursuant to the Agreement and Plan of Reorganization
dated as of [July , 1995], by and between the AC Fund and VKAC Trust on behalf
of the VK Fund (the "Agreement"). Specifically, you have requested our opinion
as to whether for Federal income tax purposes the Acquisition will qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").

In connection with rendering our opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of the Agreement, the Registration Statement of the AC Fund on Form N-14, as
filed with the Securities and Exchange Commission on May 25, 1995 (the
"Registration Statement") and such other records and documents as we have deemed
necessary or appropriate as a basis for the opinions set forth below. We have
assumed the genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all records and documents submitted to us as
originals, the conformity to original records and documents of all records
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to this
opinion that we did not independently establish or verify, we have relied upon
statements and representations of officers and other representatives of the AC
Fund, the VKAC Trust and VK Fund. In rendering this opinion, we have assumed
that the transactions will be consummated in accordance with the descriptions
thereof set forth in such records and documents and that such records and
documents accurately reflect the material facts of the transactions. Our opinion
is limited to legal rather than factual matters.

In rendering our opinion, we have relied upon the Code, Treasury
Regulations, legislative history, judicial authorities, published positions of
the Internal Revenue Service and such other authorities as we have considered
relevant, all in effect as of the date hereof and all of which are subject to
change or differing interpretation (possibly on a retroactive basis).

<PAGE> 2

On the basis of and subject to the foregoing, we are of the opinion that:

(1) The Acquisition by the AC Fund of all of the assets of the VK Fund in
exchange solely for Class A, B and C Shares of the AC Fund and the assumption by
the AC Fund of the liabilities of the VK Fund and the subsequent liquidation of
the VK Fund will qualify as a reorganization within the meaning of Section
368(a)(1) of the Code.

(2) No gain or loss will be recognized by the VK Fund or the AC Fund upon
the transfer to the AC Fund of the assets of the VK Fund in exchange solely for
the Class A, B and C Shares of the AC Fund and the assumption by the AC Fund of
the liabilities of the VK Fund, or on the distribution of such Class A, B and C
Shares of the AC Fund by the VK Fund to its shareholders.

(3) The AC Fund's basis in the VK Fund assets received in the Acquisition
will, in each instance, equal the basis of such assets in the hands of the VK
Fund immediately prior to the transfer, and the AC Fund's holding period of such
assets will, in each instance, include the period during which the assets were
held by the VK Fund.

(4) No gain or loss will be recognized by any shareholder of the VK Fund
upon the exchange of their shares of the VK fund solely for the Class A, B or C
Shares, respectively, of the AC Fund.

(5) The aggregate tax basis of the Class A, B and C Shares of the AC Fund
received by the shareholders of the VK Fund will be the same as the aggregate
tax basis of the shares of the VK Fund surrendered in exchange therefor.

(6) The holding period of the Class A, B and C Shares of the AC Fund
received by a shareholder of the VK Fund will include the holding period of the
shares of the VK Fund surrendered in exchange therefor if such surrendered
shares are held as capital assets by such shareholder on the date of the
exchange.

We express no opinion as to any Federal tax consequences other than as set
forth in this letter or as to any tax consequences under state, local or foreign
law. We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement. In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations promulgated thereunder.

Very truly yours,

<PAGE> 1
EXHIBIT 14.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of the registration statement on Form N-14 (the "Registration
Statement") of our report dated January 16, 1995, relating to the financial
statements and financial highlights of American Capital Growth and Income Fund
Inc., which appears in such Statement of Additional Information.

Price Waterhouse LLP

PRICE WATERHOUSE LLP

Houston, Texas
July 26, 1995

<PAGE> 1
EXHIBIT 14.2
CONSENT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Van Kampen Merritt Growth and Income Fund:

We consent to the use of our report included herein.

KPMG Peat Marwick LLP

Chicago, Illinois
July 26, 1995

<PAGE> 1

EXHIBIT 16

POWER OF ATTORNEY

The undersigned, being officers and trustees of Van Kampen American Capital
Growth and Income Fund, a Delaware business trust (the "Trust"), do hereby, in
the capacities shown below, individually appoint Dennis J. McDonnell and Ronald
A. Nyberg, each of Oakbrook Terrace, Illinois, and each of them, as the agents
and attorneys-in-fact with full power of substitution and resubstitution, for
each of the undersigned, to execute and deliver, for and on behalf of the
undersigned, the amendment to the Registration Statement on Form N-14
("Registration Statement") to be filed with the Securities and Exchange
Commission on or about July 31, 1995, pursuant to the provisions of the
Securities Act of 1933, and any and all amendments to the Registration Statement
which may be filed by the Trust with the Securities and Exchange Commission.

This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.

Dated: July 25, 1995

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ DONALD C. MILLER Trustee
- ---------------------------------------------
Donald C. Miller

/s/ DON G. POWELL President, Principal Executive Officer
- --------------------------------------------- and Trustee
Don G. Powell

Trustee
- ---------------------------------------------
R. Craig Kennedy

/s/ PHILIP P. GAUGHAN Trustee
- ---------------------------------------------
Philip P. Gaughan

/s/ JACK E. NELSON Trustee
- ---------------------------------------------
Jack E. Nelson

/s/ JEROME L. ROBINSON Trustee
- ---------------------------------------------
Jerome L. Robinson

/s/ WAYNE W. WHALEN Trustee
- ---------------------------------------------
Wayne W. Whalen

/s/ CURTIS W. MORELL Principal Financial and
- --------------------------------------------- Accounting Officer
Curtis W. Morell

/s/ J. MILES BRANAGAN Trustee
- ---------------------------------------------
J. Miles Branagan
</TABLE>

<PAGE> 2

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ RICHARD E. CARUSO Trustee
- ---------------------------------------------
Richard E. Caruso

/s/ ROGER HILSMAN Trustee
- ---------------------------------------------
Roger Hilsman

/s/ DAVID REES Trustee
- ---------------------------------------------
David Rees

/s/ LAWRENCE J. SHEEHAN Trustee
- ---------------------------------------------
Lawrence J. Sheehan

Chairman and Trustee
- ---------------------------------------------
Fernando Sisto

Trustee
- ---------------------------------------------
William S. Woodside
</TABLE>

<PAGE> 1
EXHIBIT 17.1

AS FILED WITH THE SECURITIES EXCHANGE COMMISSION JULY 14, 1995
REGISTRATION NOS. 2-21657
811-1228
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 72 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 26 /X/
</TABLE>

VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2800 POST OAK BLVD., HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 993-0500

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)
---------------------
COPY TO:
GEORGE BARTLETT, ESQ.
O'MELVENY & MYERS
400 SOUTH HOPE STREET
LOS ANGELES, CA 90071

It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/X/ on July 31, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following:

/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Exhibit Index required by Rule 483(a) under the Securities act of 1933
is located at page of the manually signed copy of this Registration Statement.

DECLARATION PURSUANT TO RULE 24F-2

REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, AND
PURSUANT TO PARAGRAPH (B)(2). REGISTRANT DID NOT FILE A RULE 24F-2 NOTICE FOR
ITS LAST FISCAL YEAR BECAUSE IT DID NOT SELL ANY SECURITIES PURSUANT TO SUCH
DECLARATIONS DURING SUCH FISCAL YEAR.

PURSUANT TO A MERGER SCHEDULED TO BE EFFECTIVE JULY 31, 1995, AMERICAN CAPITAL
GROWTH AND INCOME FUND, INC., A MARYLAND CORPORATION, WILL BE MERGED INTO VAN
KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND, A DELAWARE BUSINESS TRUST. UPON
EFFECTIVENESS OF THE MERGER AND PURSUANT TO RULE 414 UNDER THE SECURITIES ACT OF
1933, VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND ("SUCCESSOR
REGISTRANT") ADOPTS AND SUCCEEDS TO THE REGISTRATION STATEMENT OF AMERICAN
CAPITAL GROWTH AND INCOME FUND, INC. AMERICAN CAPITAL GROWTH AND INCOME FUND,
INC. HAS IN THE PAST REGISTERED AN INDEFINITE NUMBER OF SHARES OF COMMON STOCK
UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT
COMPANY ACT OF 1940. UPON THE EFFECTIVE DATE OF THE MERGER, SUCCESSOR REGISTRANT
HEREBY ADOPTS AND SUCCEEDS TO ANY PRIOR RULE 24F-2 NOTICES OF AMERICAN CAPITAL
GROWTH AND INCOME FUND, INC. SUCCESSOR REGISTRANT PROPOSES TO FILE ANY NOTICE
REQUIRED BY RULE 24F-2.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE> 1

EXHIBIT 17.2

PROXY

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

SPECIAL MEETING OF SHAREHOLDERS

August 1, 1995

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE VAN KAMPEN MERRITT GROWTH AND
INCOME FUND.

The undersigned holder of common shares of beneficial interest, $.01 par value
(the "Shares"), of the Van Kampen Merritt Growth and Income Fund (the "VK
Fund"), a series of the Van Kampen American Capital Equity Trust, hereby appoint
Ronald A. Nyberg, Don G. Powell, Dennis J. McDonnell and Nori L. Gabert, and
each of them, with full power of substitution and revocation, as proxies to
represent the undersigned at the Special Meeting of Shareholders to be held at
the Hyatt Regency Oak Brook, 1909 Spring Road, Oak Brook, Illinois 60521, on
Friday, September 15, 1995 at 2:00 p.m., and any and all adjournments thereof
(the "Special Meeting"), and thereat to vote all Shares which the undersigned
would be entitled to vote, with all powers the undersigned would possess if
personally present, in accordance with the following instructions:

<TABLE>
<S> <C> <C> <C> <C> <C>
1. FOR AGAINST ABSTAIN
------ ------ ------ The proposal to approve the Reorganization pursuant to
which the VK Fund would transfer substantially all of its
------ ------ ------ assets to the Van Kampen American Capital Growth and
Income Fund in exchange for shares of the Van Kampen
American Capital Growth and Income Fund which shares
would be distributed to each shareholder of the VK Fund
and the VK Fund would be terminated, as more fully
described in the Proxy Statement/Prospectus.
2. FOR AGAINST ABSTAIN
------ ------ ------ To act upon any and all other business which may come
before the Special Meeting or any adjournment thereof.
------ ------ ------
</TABLE>

If more than one of the proxies, or their substitutes, are present at the
Special Meeting or any adjournment thereof, they jointly (or, if only one
is present and voting then that one) shall have authority and may exercise
all powers granted hereby. This Proxy, when properly executed, will be
voted in accordance with the instructions marked hereon by the undersigned.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
PROPOSALS DESCRIBED ABOVE AND IN THE DISCRETION OF THE PROXIES UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.

Account No. No. of Shares Class of Shares Proxy No.

The undersigned hereby acknowledges receipt of the accompanying Notice of
Special Meeting and Proxy Statement/Prospectus for the Special Meeting to
be held on September 15, 1995.

Dated
------------------------ , 1995

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

- ------------------------------------------------------------------------
Signature(s)

Please sign exactly as your name or names appear on this Proxy. When signing as
attorney, trustee, executor, administrator, custodian, guardian or corporate
officer, please give full title. If shares are held jointly, each holder should
sign.

<PAGE> 1
EXHIBIT 17.3

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

VAN KAMPEN MERRITT

GROWTH AND INCOME FUND

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

Van Kampen Merritt Growth and Income Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Equity Trust, an open-end
management investment company commonly known as a mutual fund. The Fund's
investment objective is to seek long-term growth of both capital and dividend
income. The Fund will attempt to achieve its investment objective by investing
primarily in a diversified portfolio of dividend paying common stocks. There is
no assurance that the Fund will achieve its investment objective.

The Fund's current shareholders are considering a proposal to reorganize the
Fund into the Van Kampen American Capital Growth and Income Fund. See "The
Fund."

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth certain information about the Fund
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.

The Fund currently offers three classes of its shares (the "Alternative
Sales Arrangements") which may be purchased at a price equal to their net asset
value per share, plus sales charges which, at the election of the investor, may
be imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share accounts over $1 million, "Class B
Shares" and "Class C Shares"). The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances.
(Continued on next page.)
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information, dated July 31, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference into this
prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or for Telecommunication Device For the
Deaf at (800) 772-8889.

------------------
VAN KAMPEN AMERICAN CAPITAL(SM)

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

THIS PROSPECTUS IS DATED JULY 31, 1995.

<PAGE> 2

(Continued from previous page.)

Each class of shares pays ongoing distribution and service fees at an
aggregate annual rate of (i) for Class A Shares, up to 0.25% of the Fund's
average daily net assets attributable to the Class A Shares, (ii) for Class B
Shares, up to 1.00% of the Fund's average daily net assets attributable to the
Class B Shares and (iii) for Class C Shares up to 1.00% of the Fund's average
daily net assets attributable to the Class C Shares. Investors should understand
that the purpose and function of the deferred sales charge and the distribution
and service fees with respect to the Class A Share accounts over $1 million,
Class B Shares and the Class C Shares are the same as those of the initial sales
charge and the distribution and service fees with respect to the Class A Shares
below $1 million. Each share of the Fund represents an identical interest in the
investment portfolio of the Fund and has the same rights, except that (i) each
class of shares bears those distribution fees, service fees and administrative
expenses applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have different
expense ratios and to pay different rates of dividends, (ii) each class has
exclusive voting rights with respect to those provisions of the Fund's Rule
12b-1 distribution plan which relate only to such class and (iii) the different
classes have different exchange privileges. Class B Shares automatically will
convert to Class A Shares six years after the end of the calendar month in which
the investor's order to purchase was accepted, in the circumstances and subject
to the qualifications described in this Prospectus. See "Alternative Sales
Arrangements" and "Purchase of Shares."

2
<PAGE> 3

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 4
Shareholder Transaction Expenses................................ 7
Annual Fund Operating Expenses and Example...................... 8
Financial Highlights............................................ 10
The Fund........................................................ 12
Investment Objective and Policies............................... 13
Investment Practices............................................ 15
Investment Advisory Services.................................... 19
Alternative Sales Arrangements.................................. 20
Purchase of Shares.............................................. 22
Shareholder Services............................................ 32
Redemption of Shares............................................ 36
The Distribution and Service Plans.............................. 39
Distributions from the Fund..................................... 41
Tax Status...................................................... 42
Fund Performance................................................ 44
Description of Shares of the Fund............................... 44
Additional Information.......................................... 45
</TABLE>

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.

3
<PAGE> 4

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

PROSPECTUS SUMMARY

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

THE FUND. Van Kampen Merritt Growth and Income Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Equity Trust, an open-end
management investment company which is a Delaware business trust. See "The
Fund."

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").

INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
growth of both capital and dividend income.

INVESTMENT POLICY. The Fund will attempt to achieve its investment objective by
investing primarily in a diversified portfolio of dividend paying common stocks.
There is no assurance that the Fund will achieve its investment objective. The
net asset value per share of the Fund may increase or decrease depending on
changes in the securities markets, and other factors affecting the issuers of
securities in which the Fund may invest. See "Investment Objective and
Policies."

INVESTMENT PRACTICES. The Fund may hold cash and money market securities and
invest up to 35% of its assets in fixed income securities (and may temporarily
invest a greater portion of its assets in this manner for defensive purposes),
and may invest up to 35% of its assets in foreign securities of the same types
as its investment objective permits. Subject to certain limitations, the Fund
may sell covered call options, enter into strategic transactions, lend its
portfolio securities, and enter into repurchase agreements with selected
commercial banks and broker-dealers. These investment practices entail certain
risks. See "Investment Practices."

ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.

The Fund currently offers three classes of its shares which may be purchased
at a price equal to their net asset value per share plus sales charges which, at
the election of the investor, may be imposed either (i) at the time of the
purchase ("Class A Shares") or (ii) on a contingent deferred basis (Class A
Share accounts

4
<PAGE> 5

over $1 million, "Class B Shares" and "Class C Shares"). Class A Share accounts
over $1 million or otherwise subject to a contingent deferred sales charge
("CDSC"), Class B Shares and Class C Shares sometimes are referred to herein
collectively as "CDSC Shares".

Class A Shares. Class A Shares are subject to an initial sales charge equal to
5.75% of the public offering price (6.10% of the net amount invested), reduced
on investments of $50,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.

Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within six years of
purchase. Class B Shares are subject to a CDSC equal to 4.00% of the lesser of
the then current net asset value or the original purchase price on Class B
Shares redeemed during the first year after purchase, which charge is reduced
each year thereafter. Class B Shares are subject to ongoing distribution and
service fees at an aggregate annual rate of up to 1.00% of the Fund's average
daily net assets attributable to the Class B Shares. Class B Shares
automatically will convert to Class A Shares six years after the end of the
calendar month in which the investor's order to purchase was accepted, in the
circumstances and subject to the qualifications described in this Prospectus.

Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a CDSC equal to 1.00% of the
lesser of the then current net asset value or the original purchase price on
Class C Shares redeemed during the first year after purchase. Class C Shares are
subject to ongoing distribution and service fees at an aggregate annual rate of
up to 1.00% of the Fund's average daily net assets attributable to the Class C
Shares.

REDEMPTION. Class A Shares may be redeemed at net asset value, without charge
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary among each class of CDSC
Shares and with the length of time a redeeming shareholder has owned such
shares. CDSC Shares redeemed after the expiration of the CDSC period, applicable
to the respective class of CDSC Shares, will not be subject to a deferred sales
charge. See "Redemption of Shares."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the Fund's investment adviser. The annual advisory fee for the Fund is 0.60% of
average daily net assets, reduced on net assets over $500 million. See
"Investment Advisory Services."

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income are
declared and paid semi-annually. Capital gains, if any, are distributed
annually.

5
<PAGE> 6

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount except that the
different distribution and service fees and administrative expenses relating to
each class of shares will be borne exclusively by the respective class of
shares. See "Distributions from the Fund."

The above is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

6
<PAGE> 7

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

SHAREHOLDER TRANSACTION EXPENSES

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------------ ------------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as a
percentage
of the offering price)...... 5.75%(1) None None
Maximum sales charge imposed
on reinvested dividends
(as a percentage of the
offering price)............. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
the original purchase price
or redemption proceeds)..... None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................... None None None
Exchange fees................. None None None
</TABLE>

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

(1) Reduced on investments of $50,000 or more. See "Purchase of Shares -- Class
A Shares."

(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a contingent deferred sales charge of 1.00% may be
imposed on redemptions made within one year of the purchase.

(3) CDSC Shares received as reinvested dividends are subject to a 12b-1 fee, a
portion of which may indirectly pay for the initial sales commission
incurred on behalf of the investor. See "The Distribution and Service
Plans."

7
<PAGE> 8

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

ANNUAL FUND OPERATING EXPENSES AND EXAMPLE

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- --------- ---------
<S> <C> <C> <C>
Management fees (as a percentage of
average daily net assets)............. .60% .60% .60%
12b-1 fees(1) (as a percentage of
average daily net assets)............. .28%(2) 1.00% 1.00%
Other expenses (as a percentage of
average daily net assets)............. .50% .50% .54%
Total expenses (as a percentage of
average daily net assets)............. 1.38% 2.10% 2.14%
</TABLE>

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

(1) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund to the selling broker as compensation for ongoing services
rendered to investors. With respect to each class of shares, amounts in
excess of 0.25%, if any, represent an asset based sales charge. The asset
based sales charge with respect to Class C Shares includes 0.75% (as a
percentage of net asset value) paid to investors' broker-dealers as sales
compensation.

(2) The Fund's distribution and service plans with respect to Class A Shares
provide that 12b-1 and service fees are charged only with respect to Class A
Shares of the Fund sold after the implementation date of such plans. Due to
the incremental "phase-in" of the Fund's 12b-1 and service plans with
respect to Class A Shares, it is anticipated that 12b-1 and service fees
attributable to Class A Shares will increase in accordance with such plans
to a maximum aggregate amount of 0.25% (formerly 0.30%) of the net assets
attributable to the Fund's Class A Shares. As of June 30, 1995, the Board of
Trustees of the Trust reduced 12b-1 and service fees for the Fund's Class A
Shares to 0.25%. Accordingly, it is unlikely that future expenses will
remain consistent with those disclosed in the fee table. See "The
Distribution and Service Plans."

8
<PAGE> 9

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.38% for
Class A Shares, 2.10% for Class B Shares
and 2.14% for Class C Shares, (ii) 5%
annual return and (iii) redemption at the
end of each time period:
Class A Shares........................... $71 $ 99 $ 129 $ 214
Class B Shares........................... $61 $ 101 $ 128 $ 208*
Class C Shares........................... $32 $ 67 $ 115 $ 247
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of each
period:
Class A Shares........................... $71 $ 99 $ 129 $ 214
Class B Shares........................... $21 $ 66 $ 113 $ 208*
Class C Shares........................... $22 $ 67 $ 115 $ 247
</TABLE>

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

* Based upon conversion to Class A Shares after six years.

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. Due to the
incremental "phase-in" of the Fund's 12b-1 plan, it is anticipated that 12b-1
expenses with respect to Class A Shares will increase in accordance with such
plan to a maximum amount of 0.25% of the Fund's net assets. Accordingly, it is
unlikely that future expenses as projected with respect to Class A Shares will
remain consistent with those determined based on the table of the "Annual Fund
Operating Expenses." The ten year amount with respect to Class B Shares of the
Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A Shares. THE INFORMATION CONTAINED IN THE
ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more
complete description of such costs and expenses, see "Investment Advisory
Services" and "The Distribution and Service Plans."

9
<PAGE> 10

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (for a share outstanding throughout the period)
- --------------------------------------------------------------------------------

The following schedule presents financial highlights for one Class A Share, one
Class B Share and one Class C Share of the Fund throughout the periods
indicated. The financial highlights have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, for each of the periods unless
otherwise indicated, and their report thereon appears in the Fund's related
Statement of Additional Information. This information should be read in
conjunction with the financial statements and related notes thereto included in
the Statement of Additional Information.

<TABLE>
<CAPTION>
CLASS A SHARES
----------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JUNE 30
DECEMBER 31, -------------------------------------
1994 1994 1993 1992 1991
------------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................................... $ 17.698 $21.286 $19.693 $17.937 $16.697
------- ------- ------- ------- -------
Net Investment Income................................................... .094 .199 .355 .367 .370
Net Realized and Unrealized Gain/Loss on Investments.................... .432 (.455) 2.596 1.685 1.350
------- ------- ------- ------- -------
Total from Investment Operations......................................... .526 (.256) 2.951 2.052 1.720
------- ------- ------- ------- -------
Less:
Distributions from Net Investment Income................................ .274 .175 .340 .199 .403
Distributions from Net Realized Gain on Investments..................... .089 3.157 1.018 .097 --0--
Return of Capital Distribution.......................................... --0-- --0-- --0-- --0-- .077
------- ------- ------- ------- -------
Total Distributions...................................................... .363 3.332 1.358 .296 .480
------- ------- ------- ------- -------
Net Asset Value, End of Period........................................... $17.861 $17.698 $21.286 $19.693 $17.937
======= ======= ======= ======= =======
Total Return (Non-annualized)............................................ 2.98% (2.36%) 15.60% 11.42% 10.64%
Net Assets at End of Period (in millions)................................ $49.9 $46.5 $34.4 $28.4 $25.6
Ratio of Expenses to Average Net Assets (annualized)..................... 1.39% 1.61% 1.47% 1.71% 1.84%
Ratio of Net Investment Income to Average Net Assets (annualized)........ 1.07% 1.32% 1.77% 1.93% 2.19%
Portfolio Turnover....................................................... 81.80% 190.93% 111.39% 90.48% 48.38%

FROM
OCTOBER 29, 1986
(COMMENCEMENT
OF INVESTMENT
OPERATIONS) TO
1990 1989 1988 JUNE 30, 1987
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................................... $16.545 $15.227 $16.750 $14.265
------- ------- ------- ------
Net Investment Income................................................... .586 .497 .459 .284
Net Realized and Unrealized Gain/Loss on Investments.................... .146 1.461 (1.172) 2.301
------- ------- ------- ------
Total from Investment Operations......................................... .732 1.958 (.713) 2.585
------- ------- ------- ------
Less:
Distributions from Net Investment Income................................ .580 .470 .587 .100
Distributions from Net Realized Gain on Investments..................... --0-- .170 .026 --0--
Return of Capital Distribution.......................................... --0-- --0-- .197 --0--
------- ------- ------- ------
Total Distributions...................................................... .580 .640 .810 .100
------- ------- ------- ------
Net Asset Value, End of Period........................................... $16.697 $16.545 $15.227 $16.750
======= ======= ======= =======
Total Return (Non-annualized)............................................ 4.37% 13.04% (4.01%) 18.13%
Net Assets at End of Period (in millions)................................ $26.2 $36.0 $38.1 $31.0
Ratio of Expenses to Average Net Assets (annualized)..................... 1.58% 1.50% 1.28% 1.40%
Ratio of Net Investment Income to Average Net Assets (annualized)........ 3.08% 3.02% 3.13% 2.47%
Portfolio Turnover....................................................... 45.57% 29.46% 29.00% 1.43%
</TABLE>

See Financial Statements and Notes Thereto

10
<PAGE> 11

<TABLE>
<CAPTION>
CLASS B SHARES
------------------------------------------
FROM
DECEMBER 1, 1992
SIX MONTHS YEAR (COMMENCEMENT OF
ENDED ENDED DISTRIBUTION)
DECEMBER 31, JUNE 30, TO JUNE 30,
1994 1994 1993
------------ -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................................................. $ 17.684 $21.331 $ 20.351
------ -------- ------
Net Investment Income............................................................... .029 .095 .054
Net Realized and Unrealized Gain/Loss on Investments................................ .428 (.535) 1.955
------ -------- ------
Total from Investment Operations..................................................... .457 (.440) 2.009
------ -------- ------
Less:
Distributions from Net Investment Income............................................ .136 .050 .011
Distributions from Net Realized Gain on Investments................................. .089 3.157 1.018
Return of Capital Distribution...................................................... --0-- --0-- --0--
------ -------- ------
Total Distributions.................................................................. .225 3.207 1.029
------ -------- ------
Net Asset Value, End of Period....................................................... $ 17.916 $17.684 $ 21.331
======== ======== ========
Total Return (Non-annualized)........................................................ 2.64% (3.34%) 10.48%
Net Assets at End of Period (In millions)............................................ $30.2 $24.8 $2.8
Ratio of Expenses to Average Net Assets (Annualized)................................. 2.18% 2.46% 2.28%
Ratio of Net Investment Income to Average Net Assets (Annualized).................... .28% 1.22% .83%
Portfolio Turnover................................................................... 81.80% 190.93% 111.39%

<CAPTION>
CLASS C SHARES
-------------------------------
FROM
AUGUST 13, 1993
SIX MONTHS (COMMENCEMENT OF
ENDED DISTRIBUTION)
DECEMBER 31, TO JUNE 30,
1994 1994
------------ ----------------
(UNAUDITED)
<S> <C> <C>
Net Asset Value, Beginning of Period................................................. $ 17.691 $ 21.350
------ ------
Net Investment Income............................................................... .031 .084
Net Realized and Unrealized Gain/Loss on Investments................................ .422 (.586)
------ ------
Total from Investment Operations..................................................... .453 (.502)
------ ------
Less:
Distributions from Net Investment Income............................................ .136 --0--
Distributions from Net Realized Gain on Investments................................. .089 3.157
Return of Capital Distribution...................................................... --0-- --0--
------ ------
Total Distributions.................................................................. .225 3.157
------ ------
Net Asset Value, End of Period....................................................... $ 17.919 $ 17.691
======== ========
Total Return (Non-annualized)........................................................ 2.58% (3.60%)
Net Assets at End of Period (In millions)............................................ $1.4 $0.5
Ratio of Expenses to Average Net Assets (Annualized)................................. 2.15% 2.46%
Ratio of Net Investment Income to Average Net Assets (Annualized).................... .24% 1.70%
Portfolio Turnover................................................................... 81.80% 190.93%
</TABLE>

See Financial Statements and Notes Thereto.

11
<PAGE> 12

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

THE FUND

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

Van Kampen Merritt Growth and Income Fund (the "Fund") is a mutual fund, which
pools shareholders' money to seek to achieve a specified investment objective.
In technical terms, the Fund is a separate diversified series of Van Kampen
American Capital Equity Trust (the "Trust"), an open-end management investment
company organized as a Delaware business trust. Mutual funds sell their shares
to investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also manage other mutual funds distributed by Van Kampen American
Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses and other
information on any of these other funds, please call the telephone number on the
cover page of the Prospectus.

On May 11, 1995, the Board of Trustees of the Trust approved an Agreement and
Plan of Reorganization between the Fund and the Van Kampen American Capital
Growth and Income Fund (the "AC Fund"), a fund advised by Van Kampen American
Capital Asset Management, Inc., providing for the transfer of assets and
liabilities of the Fund to the AC Fund in exchange for shares of beneficial
interest of the AC Fund at its net asset value per share (the "Reorganization").

Van Kampen American Capital Asset Management, Inc. and the Adviser are wholly
owned subsidiaries of Van Kampen American Capital, Inc., which is a wholly owned
subsidiary of VK/AC Holding, Inc.

The Reorganization is subject to approval by the holders of a majority of the
outstanding shares of the Fund. Further details of the proposed Reorganization
will be contained in the proxy statement/prospectus expected to be mailed to
shareholders of the Fund in August, 1995.

The Fund had net assets of $83.3 million on March 31, 1995. Its investment
objective is to seek long-term growth of both capital and dividend income. The
AC Fund had net assets of $256.6 million as of March 31, 1995. Its investment
objective is to provide income and long-term growth of capital. The Fund and AC
Fund both principally invest in income-producing equity securities.

The Fund will continue its normal operations prior to the Reorganization.

12
<PAGE> 13

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

INVESTMENT OBJECTIVE AND POLICIES

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

The investment objective of the Fund is to seek long-term growth of both
capital and dividend income. This objective is fundamental and cannot be changed
without approval of the shareholders of the Fund. There can be no assurance that
the Fund will achieve its investment objective. An investment in the Fund may
not be appropriate for all investors. The Fund is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision with respect to the
Fund. An investment in the Fund is intended to be a long-term investment and
should not be used as a trading vehicle.

The Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of dividend paying common stocks of large established
companies which are considered by the Adviser, to have potential for both
capital appreciation and dividend growth. The stocks in the Fund's portfolio are
actively traded in U.S. domestic markets, primarily on national securities
exchanges, and are selected principally on the basis of fundamental investment
values as determined by the Adviser. The Fund's investments are normally viewed
by the Adviser as having comparatively low price-earning ratios and anticipated
dividends higher than the S & P 500 average and, at the time of purchase, are
considered by the Adviser to be undervalued in the marketplace. Except when the
Fund is in a temporary defensive posture, at least 65% of its net assets will be
invested in common stocks. The Fund may invest up to 35% (or a higher percentage
when in a temporary defensive posture) of its assets in fixed income securities
and money market securities described below and may invest up to 35% of its
assets in foreign securities of the same types as its investment objective
permits.

COMMON STOCK. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and frequently an
exclusive right to do so. In selecting common stocks for investment, the Fund
will focus both on the security's potential for appreciation and on its dividend
paying capacity.

FIXED INCOME SECURITIES. Subject to the percentage limitations described
above, the Fund may invest its assets in fixed income securities, which include
preferred stocks and debt securities of various maturities. The Fund will make
these investments in investment grade securities, that is, securities which, at
the time of purchase, are rated at least BBB by Standard & Poor's Ratings Group
("S&P"), or at least Baa by Moody's Investors Services, Inc. ("Moody's"), or if
unrated, are considered by the Adviser to be of comparable quality to securities
having one of the above ratings. Securities in the top categories (e.g., AAA,
AA, and A by S&P or Aaa, Aa, and A by Moody's) are generally regarded as high
grade and have a strong to outstanding capacity to pay interest or dividends and
repay principal or

13
<PAGE> 14

capital. Medium grade securities (e.g., BBB by S&P or Baa by Moody's) are
regarded as having an adequate capacity to pay interest or dividends, and repay
principal, although adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make such payments. Securities
rated Baa are regarded by Moody's as having some speculative characteristics.
For a description of such ratings see the Statement of Additional Information
incorporated by reference into this Prospectus. The Fund may invest in
securities convertible into, or ultimately exchangeable for, common stock (e.g.,
convertible debentures or convertible preferred stock) consistent with its
investment objective.

MONEY MARKET SECURITIES. Money Market securities include (a) obligations of or
guaranteed by the U.S. government, its agencies or instrumentalities
("Government Money Market Securities"), (b) obligations of banks subject to U.S.
government regulation as well as such other bank obligations as are insured by a
U.S. government agency ("Bank Obligations"), (c) commercial paper (including
variable amount master demand notes) rated at least A-2 by S&P or Prime-2 by
Moody's, or, if not so rated, issued by a corporation which has outstanding debt
obligations rated at least AA by S&P or Aa by Moody's and (d) debt obligations
(other than commercial paper) of corporate issuers which obligations are rated
at least AA by S&P or Aa by Moody's. Money Market Securities are subject,
however, to the limitation that they mature within one year of the date of their
purchase or are subject to repurchase agreements maturing within one year.
Government Money Market Securities include Treasury bills, notes and bonds
issued by the U.S. government and backed by the full faith and credit of the
United States, as well as securities issued or guaranteed as to principal and
interest by agencies and instrumentalities of the U.S. government. Bank
Obligations include certificates of deposit and banker's acceptances of domestic
banks (or Euro-dollar obligations of foreign branches of such domestic banks)
subject to U.S. government regulation and time deposits of federal and state
banks whose accounts are insured by a government agency as well as such accounts
themselves.

FOREIGN SECURITIES. Investments in foreign securities will generally be
limited to securities issued by foreign companies in developed countries with at
least three years of operations or by foreign governments. The Fund has no
current intention that these investments will exceed 20% of the Fund's assets,
although it may invest up to 35% of its assets in such securities. Investments
in foreign securities present certain risks not ordinarily found in investments
in securities of U.S. issuers. These risks include fluctuations in foreign
exchange rates, political and economic developments (including war or other
instability, expropriation of assets, nationalization, and confiscatory
taxation), the imposition of foreign exchange control regulation or a currency
blockage which would prevent cash from being brought back to the United States,
withholding taxes on income or capital transactions or other restrictions,
higher transaction costs and difficulty in taking judicial action. Generally, a
significant factor affecting the performance of the Fund's investments in
foreign securities is fluctuation in values of the currencies in which they are
denominated relative to the U.S. dollar. In addition, there is less publicly
available

14
<PAGE> 15

information about many foreign issuers and auditing, accounting and financial
reporting requirements are less stringent and less uniform in many foreign
countries and their securities markets are less liquid than those in the U.S.
Because there is usually less supervision and governmental regulation of
exchanges, brokers, and dealers than there is in the U.S., the Fund may
experience settlement difficulties or delays not usually encountered in the U.S.
- ------------------------------------------------------------------------------

INVESTMENT PRACTICES

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

In connection with the investment policies described above, the Fund may also
lend its portfolio securities, sell call options on portfolio securities, enter
into repurchase agreements and engage in strategic transactions, in each case
subject to the limitations set forth below. These investments entail risks. The
investment practices described below are not fundamental and can be changed
without a vote of the shareholders of the Fund.

LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to selected commercial
banks or broker-dealers up to a maximum of 50% of the assets of the Fund. Such
loans must be callable at any time and be continuously secured by collateral
deposited by the borrower in a segregated account with the Fund's custodian
consisting of cash or of securities issued or guaranteed by the U.S. Government
or its agencies, which collateral is equal at all times to at least 100% of the
value of the securities loaned, including accrued interest. The Fund will
receive amounts equal to earned income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term instruments.
The Fund is the beneficial owner of the loaned securities in that any gain or
loss in the market price during the loan inures to the Fund and its
shareholders. Thus, when the loan is terminated, the value of the securities may
be more or less than their value at the beginning of the loan. In determining
whether to lend its portfolio securities to a bank or broker-dealer, the Fund
will take into account the credit-worthiness of such borrower and will monitor
such credit-worthiness on an ongoing basis in as much as default by the other
party may cause delays or other collection difficulties. The Fund may pay
finders' fees in connection with loans of its portfolio securities.

COVERED CALL OPTIONS. The Fund may sell options on up to 25% of the securities
the Fund owns or has the right to purchase without additional payments. A person
buying a call option on a security has the right to buy the security for a
specified period of time at a fixed price, which may limit the Fund's ability to
dispose of the underlying security during the term of the option. If the
underlying securities do not reach a price level that would make the exercise of
the option profitable to the holder of the option, the option will generally
expire without being exercised and the Fund will realize a gain equal to the
premium received on the expired option. Whenever an option is exercised, the
Fund will not participate in any increase in the price of the underlying
securities beyond the exercise price of that option. When the

15
<PAGE> 16

Fund sells covered call options, it receives a cash premium. The Fund may use
covered call option strategies as a means of increasing the earnings on the
portfolio and also as a means of providing limited protection against decreases
in market value, but the Fund forgoes appreciation above the strike prices in
doing so.

In order to avoid the sale of a security on which the Fund has sold a call
option, the Fund will generally seek to cancel its obligation under the call
option by entering into an offsetting transaction for the same security. The
premium which the Fund will pay in executing a closing purchase transaction may
be higher than the premium received when the option was written, depending in
large part upon the relative price of the underlying security at the time of
each transaction. The Fund may, however, not be able to enter into a closing
transaction. The Securities and Exchange Commission ("SEC") requires that the
obligations of mutual funds, such as the Fund, under option sale positions must
be "covered." The methods by which the Fund may cover its option sale positions
is more fully described in the Statement of Additional Information. To the
extent options sold by the Fund are exercised and the Fund delivers portfolio
securities to the holder of a call option, the Fund's portfolio turnover rate
may increase, resulting in a possible increase in short-term capital gains and a
possible decrease in long-term capital gains.

REPURCHASE AGREEMENTS. The Fund may use up to 25% of its assets to enter into
repurchase agreements with selected commercial banks and broker-dealers, under
which the Fund acquires securities and agrees to resell the securities at an
agreed upon time and at an agreed upon price. The Fund accrues as interest the
difference between the amount it pays for the securities and the amount it
receives upon resale. At the time the Fund enters into a repurchase agreement,
the value of the underlying security including accrued interest will be equal to
or exceed the value of the repurchase agreement and, for repurchase agreements
that mature in more than one day, the seller will agree that the value of the
underlying security including accrued interest will continue to be at least
equal to the value of the repurchase agreement. The Adviser will monitor the
value of the underlying security in this regard. The Fund will enter into
repurchase agreements only with commercial banks whose deposits are insured by
the Federal Deposit Insurance Corporation and whose assets exceed $500 million
or broker-dealers who are registered with the SEC. In determining whether to
enter into a repurchase agreement with a bank or broker-dealer, the Fund will
take into account the credit-worthiness of such party and will monitor its
credit-worthiness on an ongoing basis. In the event of default by such party,
the delays and expenses potentially involved in establishing the Fund's rights
to, and in liquidating, the security may result in loss to the Fund. The Fund's
ability to invest in repurchase agreements that mature in more than seven days
is subject to an investment restriction that limits the Fund's investment in
"illiquid" securities, including such repurchase agreements, to 10% of the
Fund's net assets.

STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, fixed-income indices and other financial instruments and
purchase

16
<PAGE> 17

and sell financial futures contracts. Collectively, all of the above are
referred to as "Strategic Transactions." Strategic Transactions may be used to
attempt to protect against possible changes in the market value of securities
held in or to be purchased for the Fund's portfolio resulting from securities
markets, to protect the Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective maturity or duration of the Fund's portfolio, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. To the extent that a futures contract or an option thereon is used to
protect against possible changes in the market value of securities that the Fund
anticipates acquiring and the Fund subsequently does not acquire such
securities, the Fund will have incurred the transactional expenses associated
with entering into such transaction and will be subject to the risks inherent in
an unhedged purchase of such futures contract or option. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options,

17
<PAGE> 18

where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of Strategic Transactions would reduce net asset value,
and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.

Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable income of the Fund. See "Tax Status."

In addition to the above described Strategic Transactions, when, in the
judgment of the Fund's Adviser, economic and market conditions warrant, the Fund
may invest temporarily for defensive purposes in high grade corporate and
government securities of various maturities, preferred stocks, convertible
bonds, banker's acceptances and certificates of deposit.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser is responsible
for decisions to buy and sell securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of prices and any
brokerage commissions. The securities in which the Fund invests are traded
principally in the over-the-counter market. In the over-the-counter market,
securities generally are traded on a net basis with dealers acting as principal
for their own accounts without a stated commission, although the price of the
security usually includes a mark-up to the dealer. Securities purchased in
underwritten offerings generally include, in the price, a fixed amount of
compensation for the managers, underwriters and dealers. The Fund may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. Purchases and sales of bonds on a stock
exchange are effected through brokers who charge a commission for their
services.

The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. The Adviser's primary considerations in
selecting the manner of executing securities transactions for the Fund will be
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity and financial condition and execution capability of
the firm, the size of and difficulty in executing the order, and the best net
price. There are many instances when, in the judgment of the Adviser, more than
one firm can offer comparable execution services. In selecting among such firms,
consideration is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.

In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a particular transaction, the
Adviser and the Fund

18
<PAGE> 19

may take into account whether the firm has sold or is selling shares of the
Fund. See "Portfolio Transactions and Brokerage Allocation" in the Statement of
Additional Information for more information.

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

INVESTMENT ADVISORY SERVICES

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

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for 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 over $50 billion under management or supervision.
Van Kampen American Capital's more than 40 open-end and 38 closed-end funds and
more than 2,700 unit investment trusts are professionally distributed by leading
financial advisers nationwide.

Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital. VK/AC Holding, Inc. is controlled, through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. C & D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C & D
Associates L.P.") is the general partner of C & D L.P. The general partners of C
& D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 7% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own 5% or more of the common stock of VK/AC
Holding, Inc.

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Trustees of the Trust, of which the Fund is a series.
Subject to the Trustees' authority, the Adviser and the officers of the Fund
will supervise and implement the Fund's investment activities and will be
responsible for overall management of the Fund's business affairs. The Fund will
pay the Adviser a fee

19
<PAGE> 20

(accrued daily and paid monthly) equal to a percentage of the average daily net
assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
- ---------------------------------------------------- --------------------
<S> <C>
First $500 million.................................. 0.60 of 1%
Over $500 million................................... 0.50 of 1%
</TABLE>

Under its investment advisory agreement, the Adviser has agreed to furnish
without charge all offices, facilities, equipment and personnel necessary to
manage the Fund, and the Fund has agreed to assume and pay the charges and
expenses of the Fund's operations, including: the compensation of the Trustees
of the Trust (other than those who are affiliated persons, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), of the Adviser, the
Distributor or Van Kampen American Capital), the charges and expenses of
independent accountants, counsel, transfer and dividend disbursing agents, and
the custodian (including fees for safekeeping of securities); costs of
calculating net asset value; costs of acquiring and disposing of portfolio
securities; interest (if any) on obligations incurred by the Fund; costs of
share certificates; costs of membership dues in the Investment Company Institute
or any similar organization; costs of reports and notices to shareholders; costs
of registering shares of the Fund under federal securities laws; miscellaneous
expenses and all taxes and fees to federal, state or other governmental
agencies, excluding state securities registration expenses.

The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.

PERSONAL INVESTING POLICIES The Fund and 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 trustees/directors, officers and
employees to buy and sell securities for their personal accounts subject to
procedures designed to prevent conflicts of interest including, in some
instances, preclearance of trades.

PORTFOLIO MANAGEMENT. Mr. James Gilligan is primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Gilligan has been
primarily responsible for managing the Fund's investment portfolio since May
1995. Mr. Gilligan has been Vice President -- Portfolio Manager of Van Kampen
American Capital Asset Management, Inc. since March 1990. Prior to that time, he
was a securities analyst with Van Kampen American Capital Asset Management, Inc.

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

ALTERNATIVE SALES ARRANGEMENTS

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

The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider

20
<PAGE> 21

such factors together with the amount of sales charges and aggregate
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.

The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (the
"Class A Shares") or (b) on a contingent deferred basis (Class A Share accounts
over $1 million, "Class B Shares" and "Class C Shares"). Class A Share accounts
over $1 million or otherwise subject to a contingent deferred sales charge
("CDSC"), Class B Shares and Class C Shares sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares or Class C Shares in an amount of $1 million or more because it
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A Shares.

An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
accounts under $1 million, a purchaser of such Class A Shares would not have all
of his or her funds invested initially and, therefore, would initially own fewer
shares than if Class B Shares or Class C Shares had been purchased. On the other
hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC period may wish to defer the sales charge and
have all his or her funds initially invested in Class B Shares or Class C
Shares. If such an investor anticipates that he or she will redeem such shares
prior to the expiration of the CDSC period applicable to Class B Shares, the
investor may wish to acquire Class C Shares (discussed below). Investors who
intend to hold their shares for a significantly long time may not wish to
continue to bear the ongoing distribution and service expenses of Class C
Shares, which, in the aggregate, eventually would exceed the aggregate amount of
the initial sales charge and distribution and service expenses applicable to
Class A Shares, irrespective of the fact that a CDSC would eventually not apply
to a redemption of such Class C Shares.

21
<PAGE> 22

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the Fund's Rule 12b-1 distribution plan which relate only to such class and
(iii) has a different exchange privilege. Only the Class B Shares are subject to
a conversion feature (discussed below). Generally, a class of shares subject to
a higher ongoing distribution fee, service fee or, where applicable, the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution fee, service fee or
not subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset values of the classes may differ. The
net asset value per share of each class of shares of the Fund will be determined
as described in this Prospectus under "Purchase of Shares -- Net Asset Value."

The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares
that shall be approved by the SEC pursuant to an amended exemptive order. All
such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").

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

PURCHASE OF SHARES

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

The Fund offers shares for sale to the public on a continuous basis through
Van Kampen American Capital Distributors, Inc. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Shares also are offered through members of the National Association of
Securities Dealers, Inc. ("NASD") acting as securities dealers ("dealers") and
through NASD members acting as brokers for investors ("brokers") or eligible
non-NASD members acting as agents for investors ("financial intermediaries").
The Fund reserves the right to suspend or terminate the continuous public
offering at any time and without prior notice.

22
<PAGE> 23

The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer, or
financial intermediary or directly with the Distributor, plus any applicable
sales charge. Sales personnel or brokers, dealers and financial intermediaries
distributing the Fund's shares may receive differing compensation for selling
different classes of shares. It is the responsibility of the investor's broker,
dealer or financial intermediary to transmit the order to the Distributor.
Because the Fund generally determines net asset value once each business day as
of the close of business, purchase orders placed through an investor's broker,
dealer, or financial intermediary must be transmitted to the Distributor by such
broker, dealer or financial intermediary prior to such time in order for the
investor's order to be fulfilled on the basis of the net asset value to be
determined that day. Any change in the purchase price due to the failure of the
Distributor to receive a purchase order prior to such time must be settled
between the investor and the broker, dealer or financial intermediary submitting
the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Such fees paid for such
services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. The Distributor may provide additional compensation to Edward D. Jones &
Co. or an affiliate thereof based on a combination of its sales of shares and
increases in assets under management. Such payments to brokers, dealers and
financial intermediaries for sales contests, other sales programs and seminars
are made by the Distributor out of its own assets and not out of the assets of
the Fund. These programs will not change the price an investor pays for shares
or the amount that the Fund will receive from such sale.

23
<PAGE> 24

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between an investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
brokers, dealers and financial intermediaries who receive more than 90% or more
of the sales charge may be deemed to be "underwriters" as that term is defined
in the Securities Act of 1933.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.75 4.99 4.00
$100,000 but less than $250,000...... 3.75 3.90 3.00
$250,000 but less than $500,000...... 2.75 2.83 2.25
$500,000 but less than $1,000,000.... 2.00 2.04 1.75
$1,000,000 or more*.................. * * *
</TABLE>

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

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on redemptions made within one year of the
purchase. A commission will be paid to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million, plus 0.20% on the next $2 million
and 0.08% on the excess over $5 million. See "Purchase of Shares -- Deferred
Sales Charge Alternatives" for additional information with respect to
contingent deferred sales charges.

QUANTITY DISCOUNTS

Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.

24
<PAGE> 25

may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their broker, dealer or financial
intermediary or the Distributor.

As used herein, "any person" eligible for a reduced sales charge includes an
individual, their spouse and minor children (and any trust or custodial accounts
for their benefit) and any corporation, partnership, or sole proprietorship
which is 100% owned, either alone or in combination, by any of the foregoing; a
trustee or other fiduciary purchasing for a single fiduciary account; or a
"company" as defined is section 2(a)(8) of the 1940 Act.

As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Money Market Fund ("Money Market Fund"), Van Kampen American Capital Tax Free
Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve Fund
("Reserve Fund") and The Govett Funds, Inc.

VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person at any one time in Class
A Shares of the Fund alone, or in combination with other shares of the Fund and
shares of other Participating Funds although other Participating Funds may have
different sales charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in Class A
Shares of the Fund with other shares of the Fund and shares of Participating
Funds plus the current offering price of all shares of the Fund and other
Participating Funds which have been previously purchased and are still owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table includes the amount
of intended purchases of Class A Shares of the Fund with other shares of the
Fund and shares of the Participating Funds plus the value of all shares of the
Fund and other Participating Funds previously purchased during such 13-month
period and still owned. An investor may elect to compute the 13-month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If trades not initially made under a
Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provision, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. If the goal is not
achieved within the 13-month period, the investor must pay the difference
between the charges applicable to the purchases made and the charges previously
paid. When an investor signs a Letter of Intent, shares equal to at least 5% of
the total purchase amount of the level selected will be restricted from sale or
redemption by the investor until the Letter of Intent is

25
<PAGE> 26

satisfied or any additional sales charges have been paid; if the Letter of
Intent is not satisfied by the investor and any additional sales charges are not
paid, sufficient restricted shares will be redeemed by the Fund to pay such
charges. Additional information is contained in the application accompanying
this Prospectus.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.

UNIT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund with no minimum initial or subsequent investment requirement, and
with a lower sales charge if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all investments made from
unit trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer or financial intermediary or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide the Fund's transfer agent with
appropriate backup data for each participating investor in a computerized format
fully compatible with the transfer agent's processing system.

NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment

26
<PAGE> 27

purposes and that the shares will not be resold except through redemption by the
Fund, by:

(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Asset Management, Inc. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or in
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a twelve-month
period following such transaction.

(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.

27
<PAGE> 28

purchase other than redemptions required to make payments to participants
under the terms of the plan. The contingent deferred sales charge incurred
upon certain redemptions is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for such purchases as follows: 1.00% on sales
to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the excess
over $10 million.

The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with the Fund's transfer agent, the investment adviser, trust company
or bank trust department, provided that the Fund's transfer agent receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized broker, dealer or financial
intermediary may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. The Fund may terminate, or amend the terms of, offering shares
of the Fund at net asset value to such groups at any time.

DEFERRED SALES CHARGE ALTERNATIVES

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Fund may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Funds, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate is equal to (i) with respect to Class A Shares, 1.00% on
sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next $2
million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares; and (iii) 1.00% with respect to Class C Shares. Such
compensation will not change the price an investor will pay for CDSC Shares or
the amount that the Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a contingent deferred sales charge at the rates set forth below. The
amount of the contingent deferred sales charge will vary depending on (i) the
class of CDSC Shares to which such shares belong and (ii) the number of years
from the time of payment for the purchase of the CDSC Shares until the time of
their redemption. The charge will be assessed on an amount equal to the lesser
of the then current market value or the original purchase price of the CDSC
Shares being

28
<PAGE> 29

redeemed. Accordingly, no sales charge will be imposed on increases in net asset
value above the initial purchase price. In addition, no contingent deferred
sales charge will be assessed on CDSC Shares derived from reinvestment of
dividends or capital gains distributions. Solely for purposes of determining the
number of years from the time of any payment for the purchase of CDSC Shares,
all payments during a month will be aggregated and deemed to have been made on
the last day of the month.

Proceeds from the contingent deferred sales charge applicable to a class of
CDSC Shares are paid to the Distributor and are used by the Distributor to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of shares of such class of CDSC Shares, such as
the payment of compensation to selected dealers and agents for selling such
shares. The combination of the contingent deferred sales charge and the
distribution fee facilitates the ability of the Fund to sell such CDSC Shares
without a sales charge being deducted at the time of purchase.

In determining whether a contingent deferred sales charge is applicable to a
redemption of shares from a class of CDSC Shares, it will be assumed that the
redemption is made first of any CDSC Shares acquired pursuant to reinvestment of
dividends or distributions, second of CDSC Shares that have been held for a
sufficient period of time such that the contingent deferred sales charge no
longer is applicable to such shares, third of Class A Shares in the
shareholder's Fund account that have converted from Class B Shares, if any, and
fourth of CDSC Shares held longest during the period of time that a contingent
deferred sales charge is applicable to such CDSC Shares. The charge will not be
applied to dollar amounts representing an increase in the net asset value per
share since the time of purchase.

To provide an example, assume an investor purchased 100 Class B Shares (as set
forth below) at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B Shares upon dividend reinvestment.
If at such time the investor makes his first redemption of 50 shares (proceeds
of $600), 10 shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 shares, the charge is applied
only to the original cost of $10 per share and not to the increase in net asset
value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.75% (the applicable rate in the second year after
purchase).

CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments of $1 million or more, although for such
investments the Fund imposes a contingent deferred sales charge of 1.00% on
redemptions made within one year of the purchase. A commission will be paid to
dealers who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next million, plus
0.20% on the next $2 million and 0.08% on the excess over $5 million.

29
<PAGE> 30

CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a contingent deferred sales charge at the rates set forth
below, charged as a percentage of the dollar amount subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ----------------------------------------------------- -------------------
<S> <C>
First................................................ 4.00%
Second............................................... 3.75%
Third................................................ 3.50%
Fourth............................................... 2.50%
Fifth................................................ 1.50%
Sixth................................................ 1.00%
Seventh and after.................................... 0.00%
</TABLE>

The contingent deferred sales charge generally is waived on redemptions of
Class B Shares made pursuant to the Systematic Withdrawal Plan. See "Shareholder
Services -- Systematic Withdrawal Plan."

Conversion Feature. Six years after the end of the month in which a
shareholder's order to purchase a Class B Share was accepted, such Class B Share
automatically will convert to Class A Shares and will no longer be subject to
the higher aggregate distribution and service fees applicable to Class B Shares.
The purpose of the conversion feature is to relieve the holders of Class B
Shares that have been outstanding for a period of time sufficient for the
Distributor to have been compensated for distribution expenses related to the
Class B Shares from most of the burden of such distribution and service
expenses. The Fund does not expect to issue any stock certificates upon
conversion.

For purposes of conversion to Class A Shares, Class B Shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
Shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account also will convert to Class A
Shares. The holding period applicable to a Class B Share acquired through the
use of the exchange privilege (discussed below) shall be the holding period
applicable to the Class B Shares of such Fund acquired other than through use of
the exchange privilege. For purposes of calculating the holding period
applicable to a Class B Share of the Fund prior to conversion, a Class B Share
of the Fund issued in connection with an exercise of the exchange privilege, or
a series of exchanges, shall be deemed to have been issued on the date on which
the investor's order to purchase the exchanged Class B Share was accepted or, in
the case of a series of exchanges, when the investor's order to purchase the
original Class B Share was accepted.

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<PAGE> 31

The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution and service fees and transfer agency costs
with respect to Class B Shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Code and (ii) that
the conversion of Class B Shares does not constitute a taxable event under
federal income tax law. The conversion of Class B Shares to Class A Shares may
be suspended if such an opinion is no longer available. In that event, no
further conversions of Class B Shares would occur, and Class B Shares might
continue to be subject to the higher aggregate distribution and service fees for
an indefinite period.

CLASS C SHARES. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a contingent deferred sales charge of
1.00% of the dollar amount subject thereto. Class C Shares redeemed thereafter
will not be subject to a contingent deferred sales charge. Class C Shares of the
Fund do not convert to Class A Shares.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales
charge is waived on redemptions of Class B Shares and Class C Shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with certain distributions from an IRA or other retirement
plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The contingent deferred sales charge is also waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 120 days after
redemption. See "Shareholder Services" and "Redemption of Shares" for further
discussion of the waiver provisions.

NET ASSET VALUE

The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares and dividing the result by the number of
shares of such class of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, Monday through Friday, except on customary business
holidays, or except on any day on which no purchase or redemption orders are
received, or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund reserves the right to calculate the net asset value and to
adjust the public offering price based thereon more frequently than once a day
if deemed desirable. The net asset value per share of the different classes of
shares are

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<PAGE> 32

expected to be substantially the same; from time to time, however, the per share
net asset value of the different classes of shares may differ.

The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if not available, on any valuation date are valued at the mean of the
bid and asked prices. Unlisted securities in the portfolio are primarily valued
based on their latest quoted bid price or, if not available, are valued by a
method determined by or under the direction of the Trustees to accurately
reflect fair value.

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SHAREHOLDER SERVICES

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

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which shares are held by ACCESS. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.

SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate a fee for replacing the lost certificate equal to no more
than 2.00% of the net asset

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<PAGE> 33

value of the issued shares and bill the party to whom the replacement
certificate was mailed.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired) or in writing to ACCESS. The investor may, on the initial application
or prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.

RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. American
Capital Trust Company serves as custodian under the IRA, 403(b)(7) and Keogh
plans. Details regarding fees, as well as full plan administration for profit
sharing, pension and 401(k) plans, are available from the Distributor.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any other
Participating Fund, Money Market Fund, Tax Free Money Fund or Reserve Fund so
long as a pre-existing account for such class of shares exists for such
shareholder.

If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Money Market Fund, the Tax Free Money Fund or the
Reserve Fund, subject to certain limitations herein or in such other fund's
prospectus. Before effecting an exchange, shareholders in the Fund should obtain
and read a current prospectus of the fund into which the exchange is to be made.

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<PAGE> 34

SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE
FOR SALE IN THEIR STATE.

In general, shares of the Fund must have been registered in the shareholder's
name for at least 15 days prior to an exchange. Shares of the Fund registered in
a shareholder's name for less than 15 days may only be exchanged upon receipt of
prior approval of the Adviser; however, under normal circumstances, it is the
policy of the Adviser not to approve such requests. Upon 60 days after the date
of this prospectus, the Fund will increase the number of days shares must be
registered in a shareholder's name prior to an exchange to 30 days.

Exchanges of Class A Shares of the Fund that have been charged a sales charge
lower than the sales charge applicable to the other fund will have the sales
charge differential imposed upon the exchange into such fund. Similarly,
exchanges of any Class A Shares of other funds that have been charged a sales
charge lower than the sales charge applicable to the Fund will have the sales
charge differential imposed upon exchange into the Fund. Shares of other funds
which have not previously been charged a sales charge (except for shares
purchased via the reinvestment option) will be charged the sales charge
differential applicable to Class A Shares of the Fund upon exchange into the
Fund.

No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. Upon redemption of Class B Shares and Class C Shares from the Van Kampen
American Capital family of funds, Class B Shares and Class C Shares which have
been exchanged are subject to the contingent deferred sales charge imposed by
the initial Van Kampen American Capital fund purchased by the investor prior to
any exchanges. The holding period requirements for the contingent deferred sales
charge, and the conversion privilege for Class B Shares of the Fund, are
determined by the date of purchase into the initial Van Kampen American Capital
fund purchased by the investor prior to any exchanges.

Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such

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<PAGE> 35

procedures include requiring certain personal identification information prior
to acting upon telephone instructions, tape recording telephone communications,
and providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, a shareholder agrees that neither VKAC nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
may restrict or terminate the exchange privilege at any time on 60 days' notice
to its shareholders of any termination or material amendment.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."

Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment in the Fund at the time the
election to participate in the plan is made. See "Purchase of Shares -- Deferred
Sales Charge Alternatives -- Waiver of Contingent Deferred Sales Charge."

Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Fund reserves the right to amend or

35
<PAGE> 36

terminate the systematic withdrawal program on thirty days' notice to its
shareholders.

SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.

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REDEMPTION OF SHARES

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

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would exceed $50,000, or
if the proceeds are not to be paid to the record owner at the record address, or
if the record address has changed within the previous 30 days, signature(s) must
be guaranteed by one of the following: a bank or trust company; a broker-dealer;
a credit union; a national securities exchange, registered securities
association or clearing agency; a savings and loan association; or a federal
savings bank. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 60 days must accompany the redemption request. The
redemption price is the net asset value per share next

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<PAGE> 37

determined after the request is received by ACCESS in proper form. Payment for
shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.

DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.

TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
and the Fund employ procedures considered by them to be reasonable to confirm
that instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Fund's other redemption
procedures previously described. Requests received by ACCESS prior to 4:00 p.m.,
New York time, on a regular business day will be

37
<PAGE> 38

processed at the net asset value per share determined that day. These privileges
are available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS may rely on the instructions of any one
owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.

REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of holders of Class B Shares and
Class C Shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B Shares and Class C Shares.

In cases of disability, the contingent deferred sales charges on Class B
Shares and Class C Shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
Shares and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.

GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given

38
<PAGE> 39

an opportunity to purchase the required value of additional shares at the next
determined net asset value without sales charge. Any applicable contingent
deferred sales charge will be deducted from the proceeds of this redemption. Any
involuntary redemption may only occur if the shareholder account is less than
the minimum investment due to shareholder redemptions.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value next determined after the order is
received, which must be within 120 days after the date of the redemption. See
"Purchase of Shares -- Waiver of Contingent Deferred Sales Charge."
Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.

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THE DISTRIBUTION AND SERVICE PLANS

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CLASS A SHARES. The Fund may spend an aggregate amount of up to 0.25% per year
of the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and the Service Plan. From such amount, the
Fund may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution related expense.

CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the

39
<PAGE> 40

Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of the 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.

The Distributor's actual expenses with respect to a class of CDSC Shares for
any given year may exceed the amounts payable to the Distributor with respect to
such class of CDSC Shares under the Distribution Plan, the Service Plan and
payments received pursuant to the contingent deferred sales charge. In such
event, with respect to any such class of CDSC Shares, any unreimbursed expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of December 31, 1994, there were $27,924
and $72 of unreimbursed distribution expenses with respect to Class B Shares and
Class C Shares respectively, representing 0.03% and less than 0.01%,
respectively of the Fund's total net assets. If the

40
<PAGE> 41

Distribution Plan was terminated or not continued, the Fund would not be
contractually obligated to pay the Distributor for any expenses not previously
reimbursed by the Fund or recovered through contingent deferred sales charges.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of CDSC Shares to defray distribution related expenses
attributable to any other class of CDSC Shares. Various federal and state laws
prohibit national banks and some state-chartered commercial banks from
underwriting or dealing in the Fund's shares. In addition, state securities laws
on this issue may differ from the interpretations of federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
law. In the unlikely event that a court were to find that these laws prevent
such banks from providing such services described above, the Fund would seek
alternate providers and expects that shareholders would not experience any
disadvantage.

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DISTRIBUTIONS FROM THE FUND

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

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to semiannually declare dividends to holders of each class of
shares from net investment income and net short-term capital gains attributable
to each respective class. The Fund also presently intends to make distributions
of net long-term capital gains, if any, annually. Semiannual dividends are
composed of all or a portion of investment income earned by each class of shares
of the Fund plus all or a portion of net short-term capital gains by the Fund on
transactions in securities and futures and options hedging transactions, less
the expenses attributable to the respective class. Long-term capital gains
distributions consist of the Fund's gain on transactions in securities and
futures and options hedging transactions, net of any realized capital losses,
less any carryover capital losses from previous years.

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.

Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Shareholders wishing to utilize this service
should complete the appropriate section of the account application accompanying
this

41
<PAGE> 42

Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS,
P.O. Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this
completed form, distribution checks will be sent to the bank or other person so
designated by such shareholder.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit semi-annual distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without sales charge. Unless the Shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ( (800) 772-8889 for the hearing impaired)
or in writing to ACCESS.

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TAX STATUS

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

The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, the Fund
must comply with certain requirements of the Code relating to, among other
things, the source of its income and the diversification of its assets. If the
Fund so qualifies and if it distributes to its shareholders at least 90% of its
net investment income (which includes net short-term capital gains, but not net
capital gains, which are the excess of net long-term capital gains over net
short-term capital losses), it will not be required to pay federal income taxes
on any income distributed to shareholders. The Fund intends to distribute at
least the minimum amount of net investment income required to satisfy the 90%
distribution requirement. The Fund will not be subject to federal income tax on
any net capital gains distributed to its shareholders.

Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income whether received in shares or cash. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each share equal to the value thereof on the distribution
date. Distributions of the Fund's net capital gains ("capital gain dividends"),
if any, are taxable to shareholders as long-term capital gains regardless of the
length of time the Fund shares have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of the shares held by the shareholders and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
shareholder (assuming such shares are held as a capital asset). The Fund will
inform shareholders of the source and tax status of such distributions promptly
after the close of each calendar year. Some portion of the distributions made by
the Fund generally will be eligible for the dividends received deduction for
corporations if the Fund receives qualifying dividends during the year and if
certain other requirements of the Code are satisfied.

Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize gain or loss
in

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<PAGE> 43

an amount equal to the difference between their basis in such redeemed shares of
the Fund and the amount received. If such shares are held as a capital asset,
the gain or loss will be a capital gain or loss and will generally be long-term
if such shareholders have held their shares for more than one year. Any loss
realized upon a taxable disposition of shares held for six months or less will
be treated as long-term capital loss to the extent of any capital gain dividends
received with respect to such shares. For purposes of determining whether shares
have been held for six months or less, the holding period is suspended for any
periods during which the shareholder's risk of loss is diminished as a result of
holding one or more other positions in substantially similar or related property
or through certain options or short sales.

Some of the Fund's investment practices are subject to special provisions of
the Code that may, among other things, defer the use of losses of the Fund and
affect the holding period of securities held by the Fund and the character of
the gains or losses realized by the Fund. These provisions may also require the
Fund to mark-to-market some of the positions in its portfolio (i.e., treat them
as if they were closed out), which may cause the Fund to recognize income
without receiving the cash with which to make distributions in amounts necessary
to satisfy the distribution requirements for avoiding federal income and, as
described below, excise taxes. The Fund will monitor its transactions and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.

The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.

Income from investments in foreign securities may be subject to foreign
taxation imposed by withholding. Shareholders of the Fund will not be able to
claim any deduction or foreign tax credit with respect to such foreign taxes.

In order to avoid a 4% excise tax, the Fund will be required to distribute by
December 31 of each year at least 98% of its ordinary income for such year and
at least 98% of its capital gain net income (computed on the basis of the
one-year period ending on October 31 of such year), plus any amounts that were
not distributed in previous taxable years. For purposes of the excise tax, any
ordinary income or capital gain net income retained by and subject to federal
income tax in the hands of the Fund will be treated as having been distributed.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid in January of the following
year, will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year in which the dividend was declared.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as having been paid by the Fund
(except for purposes of

43
<PAGE> 44

the 4% excise tax) during such taxable year. In such case, shareholders will be
treated as having received such dividends in the taxable year in which the
distribution is actually made.

The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) or who are otherwise subject
to backup withholding. Foreign shareholders, including shareholders who are
non-resident aliens, may be subject to U.S. withholding tax on certain
distributions (whether received in cash or in shares) at a rate of 30% or such
lower rate as prescribed by any applicable treaty.

The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own advisors regarding the
specific federal tax consequences of holding and disposing of shares, as well as
the effects of state, local and foreign tax laws and any proposed tax law
changes.

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FUND PERFORMANCE

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

From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such total return will be
calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. In lieu of or in addition to
total return calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., Business Week, Forbes or other industry publications. In
addition, from time to time the Fund may compare its performance to certain
securities and unmanaged indices which may have different risk/reward
characteristics than the Fund. Such characteristics may include, but are not
limited to, tax features, guarantees, insurance and the fluctuation of principal
and/or return. In addition, from time to time sales materials and advertisements
for the Fund may include hypothetical information.

Further information about the Fund's performance is contained in its Annual
Report and its Statement of Additional Information each of which can be obtained
without charge by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired).

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DESCRIPTION OF SHARES OF THE FUND

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

The Fund is a series of the Van Kampen American Capital Equity Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1986 as a Massachusetts business trust, was reorganized
in 1988 as a sub-trust of Van Kampen Merritt Equity Trust, a Massachusetts
business

44
<PAGE> 45

trust, and was reorganized as a series of the Trust as of July 31, 1995. Shares
of the Trust entitle their holders to one vote per share; however, separate
votes are taken by each series on matters affecting an individual series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes, designated Class A Shares, Class B Shares and
Class C Shares. Each class of shares represents an interest in the same assets
of the Fund and are identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee.

Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of classes of shares. Each class of shares is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. There are no conversion,
preemptive or other subscription rights, except with respect to the conversion
of Class B Shares into Class A Shares as described above. In the event of
liquidation, each of the shares of the Fund is entitled to its portion of all of
the Fund's net assets after all debt and expenses of the Fund have been paid.
Since Class B Shares and Class C Shares pay higher distribution expenses, the
liquidation proceeds to holders of Class B Shares and Class C Shares are likely
to be lower than to other shareholders.

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares present and voting at
such meeting. The Trust will assist such holders in communicating with other
shareholders of the Fund to the extent required by the 1940 Act. More detailed
information concerning the Trust is set forth in the Statement of Additional
Information.

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ADDITIONAL INFORMATION

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

The Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by the Fund's
independent auditors, is sent to shareholders each year. After the end of each
year, shareholders will receive federal income tax information regarding
dividends and capital gains distributions.

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<PAGE> 46

Shareholder inquiries should be directed to the Van Kampen Merritt Growth and
Income Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence.

For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial (800) 421-5666. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
772-8889.

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<PAGE> 47

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE

NUMBER (800) 421-5666.

PROSPECTIVE INVESTORS--CALL

YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE

NUMBER (800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 772-8889

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 421-5666

VAN KAMPEN MERRITT

GROWTH AND INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

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

Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent

ACCESS INVESTOR SERVICES, INC.

P.O. Box 418256

Kansas City, MO 64141-9256

Attn: Van Kampen American Capital Funds

Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105

Attn: Van Kampen American Capital Funds

Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, IL 60606

Independent Auditors
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 48

VAN KAMPEN MERRITT

GROWTH AND

INCOME FUND

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P R O S P E C T U S

JULY 31, 1995

- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------