AMERICAN CAPITAL GROWTH & INCOME FUND INC, N14EL24, 1995-05-25

AMERICAN CAPITAL GROWTH & INCOME FUND INC
N14EL24, 1995-05-25

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1995

1933 ACT REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM N-14

REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /

---------------------
AMERICAN CAPITAL
GROWTH AND INCOME FUND, INC.
(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
---------------------

RONALD A. NYBERG, ESQ. COPIES TO:
AMERICAN CAPITAL GEORGE M. BARTLETT, ESQ.
GROWTH AND INCOME FUND, INC. 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)

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

PURSUANT TO THE PROVISIONS OF RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF
1940, THE REGISTRANT HAS PREVIOUSLY 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.
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<PAGE> 2

AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.

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*
- ---------- -----------------------------
<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
VK 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 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 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. Holders of Class A shares of
the VK Fund will receive Class A shares of the AC Fund; holders of Class B
shares of the VK Fund will receive Class B shares of the AC Fund; and holders of
Class C shares 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.

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
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 Proxy Statement/Prospectus.
<PAGE> 4

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 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. 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.

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,
respectively, of the VK Fund will be converted automatically into the same class
of shares of the AC 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)(C) 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
<PAGE> 5

VK Fund. See "The Proposed Reorganization -- Federal Income Tax Consequences" in
the 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
redemption 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 8, 1995. If shareholders
approve the Reorganization, it is expected to take effect on [MONTH, DAY], 1995.

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> 6

VAN KAMPEN MERRITT GROWTH AND INCOME FUND
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(800) 341-2911 (EXT. 6504)

NOTICE OF SPECIAL MEETING
SEPTEMBER 8, 1995

A Special Meeting of Shareholders of the Van Kampen Merritt Growth and
Income Fund ("VK Fund") will be held at the [Transco Tower Auditorium, Level 2,
2800 Post Oak Boulevard, Houston, Texas 77056,] on September 8, 1995 at [TIME]
(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.

Shareholders of record as of the close of business on [MONTH, DAY], 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

July , 1995

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

PLEASE VOTE PROMPTLY BY SIGNING AND
RETURNING THE ENCLOSED PROXY.

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<PAGE> 7

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 or 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,
with $.01 par value 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. (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 [MONTH, DAY,] 1995.
---------------------

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.
---------------------

This Proxy Statement/Prospectus contains information shareholders of the VK
Fund should know before voting on the Reorganization (in effect, investing in
Class A, B or C shares, as the case may be, of the AC Fund) 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 [MONTH, DAY,] 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 and Statement of Additional Information containing
additional information about the AC Fund, each dated [MONTH, DAY,] 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 [MONTH, DAY], 1995, have been

1
<PAGE> 8

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.
---------------------

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 [ ], 1995.

2
<PAGE> 9

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.......................................... 6
Advisory and Other Fees.................................................... 6
Distribution, Purchase, Redemption and Exchange of Shares.................. 7
Federal Income Tax Consequences............................................... 10
Reasons for the Proposed Reorganization....................................... 10
B. RISK FACTORS.................................................................... 12
Nature of Investment.......................................................... 12
Comparison of Investment Policies............................................. 12
C. INFORMATION ABOUT THE FUNDS..................................................... 13
D. THE PROPOSED REORGANIZATION..................................................... 13
Terms of the Agreement........................................................ 13
Description of Securities to be Issued........................................ 14
Shares of Beneficial Interest.............................................. 14
Voting Rights of Shareholders.............................................. 15
Continuation of Shareholder Accounts and Plans; Share Certificates............ 15
Federal Income Tax Consequences............................................... 15
Capitalization................................................................ 16
Comparative Performance Information........................................... 17
Ratification of Investment Objective, Policies and Restrictions of the AC
Fund....................................................................... 18
Legal Matters................................................................. 18
Expenses...................................................................... 18
E. RECOMMENDATION OF BOARD OF TRUSTEES............................................. 18
OTHER MATTERS THAT MAY COME BEFORE THE MEETING........................................ 19
OTHER INFORMATION..................................................................... 19
A. SHAREHOLDINGS OF THE VK FUND AND THE AC FUND.................................... 19
B. SHAREHOLDER PROPOSALS........................................................... 19
VOTING INFORMATION AND REQUIREMENTS................................................... 19
</TABLE>

3
<PAGE> 10

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 Van Kampen American
Capital Growth and Income Fund (the "AC Fund") and the Van Kampen Merritt Growth
and Income Fund (the "VK Fund") (the VK Fund is 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 [MONTH, DAY], 1995 (the
"VK Fund Prospectus") incorporated herein by reference, and the prospectus of
the AC Fund dated [MONTH, DAY], 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 following the Closing 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 were 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 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 AC Fund's best interests and that
the interests of existing 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 to
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, including expenses incurred by the VK Fund. Accordingly,
shareholders of the AC Fund after the Reorganization will bear a pro rata
portion of such expenses.

The VK Board is asking shareholders of the VK Fund to approve the
Reorganization at the Special Meeting to be held on September 8, 1995. If
shareholders of the VK Fund approve the Reorganization, it is expected that the
Closing will be on [MONTH, DAY], 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."

4
<PAGE> 11

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 shareholders of the Shares
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 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 charge 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 charge 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

5
<PAGE> 12

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.

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 income securities,
although the VK Fund generally may invest in 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, 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 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. As of March 31, 1995, VK Adviser, AC Adviser and their affiliates
managed or supervised approximately $51.7 billion of assets, including assets of
65 open-end investment companies and 38 closed-end investment companies. 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 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

6
<PAGE> 13

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
fiscal year 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 "The Fund and its
Management" and "Investment Advisory Agreement."

In addition, the VK Fund also has adopted the Distribution Plan with
respect to each class of its 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 in 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

7
<PAGE> 14

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 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 with respect to each class of
shares 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
"Purchasing Shares of the Fund." For a complete description of these
arrangements in 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 carry exchange privileges [among all]
other Van Kampen American Capital open-end mutual funds distributed by VKAC
Distributors.

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 by check, or electronic
transfer). If a shareholder of either fund attempts to redeem shares shortly
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

8
<PAGE> 15
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 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
FUND** FUND* PRO FORMA
------ ----- ---------
<S> <C> <C> <C>
CLASS A SHARES
--------------
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%
CLASS B SHARE
-------------
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%
</TABLE>

9
<PAGE> 16

<TABLE>
<CAPTION>
AC VK
FUND** FUND* PRO FORMA
------ ----- ---------
<S> <C> <C> <C>
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>

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

FEDERAL INCOME TAX CONSEQUENCES

The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1)(C) 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

10
<PAGE> 17

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) merging
certain funds advised by the VK Adviser and the AC Adviser, including the VK
Fund and the AC Fund, in order 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 merger 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 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 approved each element of the Consolidation, including
the merger 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 merger 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 merger into 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) 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 may eliminate the duplication of services that currently exists
as a result of their separate operations. For

11
<PAGE> 18

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.

(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.

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 and
practices, see the

12
<PAGE> 19

sections in the AC Fund Prospectus entitled "Investment Objective and Policies"
and "Investment Practices and Restrictions" and the section of the AC Fund's
Statement of Additional Information entitled "Additional Investment
Considerations."

C. INFORMATION ABOUT THE FUNDS

AC Fund. Information about the AC Fund is included in its current
Prospectus dated [ ], 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.

VK Fund. Information about the VK Fund is included in its current
Prospectus dated [ ]. 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) 225-2222, ext. 5504.
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.

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

13
<PAGE> 20

the AC Fund as of the date of Closing as determined in accordance with the
valuation method described in the AC Fund's then current prospectus.

The VK Fund expects to distribute the Class A, B and C Shares,
respectively, 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 legal, administrative or other proceedings
seeking to restrain or otherwise prohibit the transactions contemplated by
the Agreement instituted or pending between the date of the Agreement and
the date of Closing;

3. the receipt of all necessary approvals, registrations and
exemptions under federal and state securities 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,
objectives and covenants required by the agreements;

5. the effectiveness under applicable law of the registration
statement of the AC Fund of which this Proxy Statement/Prospectus forms a
part and obtaining of any approvals, registrations or exemptions under
federal and state securities laws; and

6. receipt of opinions of counsel.

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 Agreement, as it
believes the Reorganization is in the best interest of the VK Fund's
shareholders 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.

14
<PAGE> 21

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 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. In the case of shares of the VK Fund
held in IRA accounts, the corresponding Shares of the AC Fund will be credited
to a new IRA account maintained in the name of the shareholder by Van Kampen
American Capital Trust Company, an affiliate of VKAC that acts as the custodian
of IRA accounts for VKAC Distributors-sponsored open-end management mutual
funds. 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

15
<PAGE> 22

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)(C) 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 to the effect that, for federal income tax purposes:

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

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

3. The AC Fund's basis of the VK Fund's assets received in the
Reorganization 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 to the shareholders 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 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 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 the shareholders of the VK Fund will include the holding period
of the shares of the VK Fund surrendered in exchange therefor.

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.

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.

16
<PAGE> 23

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) $276,952,715
Class B Shares................................ 25,284,809 31,789,728 57,035,160
Class C Shares................................ 4,280,090 1,391,689 5,667,865
------------ ----------- ------------
Total................................. $256,598,085 $83,292,155 $339,655,740
=========== ========== ===========
Net asset value per share
Class A Shares................................ $12.35 $18.99 $12.34
Class B Shares................................ 12.35 19.01 12.34
Class C Shares................................ 12.36 19.00 12.35
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 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

17
<PAGE> 24

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
Prospectus of the AC Fund 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
partner of O'Melveny & Myers and currently of counsel with 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, 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,
shareholders of the AC Fund after the Reorganization will bear a pro rata
portion of such expenses. 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 BOARD OF TRUSTEES

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.

18
<PAGE> 25

OTHER MATTERS THAT MAY COME BEFORE THE 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 [ ], 1995, the record date (the
"Record Date") for the Special Meeting, there were [ ] Class A,
[ ] Class B and [ ] Class C Shares, respectively of the VK
Fund outstanding and entitled to vote at the meeting. As of the Record Date, no
person was known by the VK Fund to own of record or "beneficially" five percent
or more of the outstanding shares of the VK Fund as determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934. At the close of
business on [ ], 1995, there were [ ] Class A,
[ ] Class B and [ ] Class C Shares, respectively of the AC
Fund outstanding. As of that date, no person was known by the AC Fund to own of
record or "beneficially" five percent or more of the outstanding shares of the
AC Fund as determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934.

The amount of the VK Fund shares owned by the trustees and officers of the
VKAC Equity Trust as a group as of [ ], 1995 was [ ]
Class A, [ ] Class B and [ ] Class C Shares, respectively,
or [ ]% of Class A, [ ]% of Class B and [ ]% of Class C Shares of the VK
Fund's outstanding shares. No trustee or officer of the VKAC Equity Trust owned
in excess of 1% of the VK Fund shares as of such date. The amount of the AC Fund
shares owned by the trustees and officers of the AC Fund as a group as of
[ ], 1995 was [ ] Shares. No trustee or officer of the
AC Fund owned in excess of 1% of the AC Fund Shares.

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 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

19
<PAGE> 26

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 Proposal 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 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.
Additional solicitation may be made by mail, personal interview, telephone,
facsimile and telegraph by personnel of the VK Fund or VK Adviser who will not
be additionally compensated therefor.

[ ], 1995

PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY.

20
<PAGE> 27

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

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

STATEMENT OF ADDITIONAL INFORMATION
DATED [ ], 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 ], 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> 28

PROPOSED REORGANIZATION OF THE VK FUND

The shareholders of the VK Fund are being asked to approve the sale of all
the assets and liabilities of the VK Fund in exchange for 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 [ ], 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 [ ], 1995, attached
as Appendix B to this Statement of Additional Information.

FINANCIAL STATEMENTS

Incorporated herein by reference in its entirety is (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> 29
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>
- -------------------------------------------------------------------------------------------------------------
PRO FORMA
AC FUND VK FUND ADJUSTMENTS PRO FORMA
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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) (234,500)(2) (2,635,346)
------------ ----------- ---------- ------------
Net Assets..................................... $227,378,748 $80,723,240 $ (234,500) $307,867,488
============ =========== ========== ============
Net Assets Were Comprised of:
Capital...................................... $204,845,229 $81,946,606 $ (234,500)(2) $286,557,335
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 $ (234,500) $307,867,488
============ =========== ========== ============
Class A:
Net asset value and redemption price per
share...................................... $12.26 $17.90 $12.25
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 $13.00
============ ========== ============
Class B:
Net asset value, offering price per share.... $12.25 $17.90 $12.24
============ ========== ============
Class C:
Net asset value, offering price per share.... $12.26 $17.90 $12.25
============ ========== ============
Shares Outstanding:
Class A...................................... 16,756,959 2,756,131 (3) 20,781,835
Class B...................................... 1,507,551 1,686,254 3,970,700
Class C...................................... 286,471 67,272 384,701
</TABLE>

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

* On sales of $100,000 or more, the sales charge will be reduced.
(1) Pro forma statements give effect to the proposed exchange of stock for
assets with Van Kampen American Capital Growth & Income Fund as the
surviving entity.
(2) In connection with the transaction, the combined Fund will incur
non-recurring cost associated with the merger of approximately $234,500 or
$.009 per share.
(3) Includes 110 shares representing Class D shares of the VK Fund.

3
<PAGE> 30

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)a 1,344,400
Service Fees -- Class A................... 364,255 130,203 (22,458)a 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)b 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>

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

(a) Adjustment to reflect reduction of certain expenses.
(b) Adjustment to reflect elimination of duplicative expenses.

4
<PAGE> 31

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
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC COMMON STOCK 71.97%
CONSUMER DISTRIBUTION 4.67%
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> 32

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
- -----------------------------------------------------------------------------------------------
<S> <C> <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 4.69%
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> 33

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
- -----------------------------------------------------------------------------------------------
<S> <C> <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 7.89%
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> 34

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
- -----------------------------------------------------------------------------------------------
<S> <C> <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> 35

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
- -----------------------------------------------------------------------------------------------
<S> <C> <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 9.60%
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> 36

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
- -----------------------------------------------------------------------------------------------
<S> <C> <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 9.72%
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 6.90%
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> 37

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)

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 0.97%
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> 38

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)

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> 39

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
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS 11.06%
$ 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 U.S. Treasury Bills, 4.91% to 5.11%, 12/22/94 to 1/5/95........... 10,955,360
2,000,000 Mexican Tesobono, 1/12/95 to 7/13/95.............................. 1,935,449
8,080,000 Repurchase Agreement with J.P. Morgan, 5.70%, 12/01/94............ 8,080,000
------------
Total Short-Term Investments (Cost $34,053,000)................... 34,049,041
------------
TOTAL INVESTMENTS (Cost $306,899,446) 100.86%..................... 310,502,834
Other Assets and Liabilities, Net (0.86%)......................... (2,635,346)
------------
NET ASSETS 100.00%................................................ $307,867,488
============
</TABLE>

13
<PAGE> 40

APPENDIX A

VAN KAMPEN AMERICAN CAPITAL
GROWTH AND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1995

[TO COME]

A-1
<PAGE> 41

APPENDIX B

VAN KAMPEN MERRITT
GROWTH AND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1995

[TO COME]

B-1
<PAGE> 42

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> 43

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> 44

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> 45

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> 46

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> 47

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> 48

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> 49

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> 50

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> 51

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> 52

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

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 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> 53

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> 54

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> 55

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> 56

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> 57

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> 58

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> 59
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 <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

D-1

<PAGE> 60

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

D-2
<PAGE> 61

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

D-3
<PAGE> 62

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

D-4

<PAGE> 63

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

D-5

<PAGE> 64

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

D-6

<PAGE> 65

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

D-7

<PAGE> 66

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 0 0 .170 .026 0
Return of capital
distribution............... 0 0 0 .077 0 0 .197 0
------- ------- ------- ------- ------- ------- ------- --------
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-8
<PAGE> 67

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
------- -------
New 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-9
<PAGE> 68

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
--------
New 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-10
<PAGE> 69

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-11
<PAGE> 70

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.

D-12

<PAGE> 71

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)
---------- -------------

D-13
<PAGE> 72
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.

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. 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:
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.

D-14
<PAGE> 73
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 LLP
Chicago, Illinois
August 9,1994

D-15
<PAGE> 74
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. <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

E-1
<PAGE> 75

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

E-2
<PAGE> 76

Van Kampen Merritt Growth And Income Fund

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

See Notes to Financial Statements

E-3
<PAGE> 77

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

E-4
<PAGE> 78

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

E-5
<PAGE> 79

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

E-6
<PAGE> 80

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

E-7
<PAGE> 81

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 0 0 .170 .026 0
Return of Capital
Distribution............. 0 0 0 0 .077 0 0 .197 0
-------- ------- ------- ------- ------- ------- ------- ------- -------
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-8
<PAGE> 82

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-9
<PAGE> 83

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 0
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 (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-10
<PAGE> 84

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 0
Distributions from net realized gain on investments......... .089 0
------- --------
Total distributions......................................... .354 0
------- --------
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-11
<PAGE> 85

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.

E-12
<PAGE> 86

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.

E-13
<PAGE> 87

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.

E-14
<PAGE> 88
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

1 -- Agreement and Declaration of Trust -- AC Fund+
2 -- Bylaws -- AC Fund+
4 -- Form of Agreement and Plan of Reorganization*
5 -- Specimen Share Certificate for Class A, B and C shares -- AC Fund+
6 -- Form of Investment Advisory Agreement -- AC Fund+
7 -- (a) Form of Underwriting Agreement+
-- (b) Form of Selling Agreement+
-- (c) Form of Selling Group Agreement+
9 -- (a) Form of Custodian Agreement -- AC Fund+
-- (b) Form of Transfer Agency Agreement -- AC Fund+
10 -- (a) Form of Distribution Plan Pursuant to Rule 12b-1
(i) Class A Plan of Distribution+
(ii) Class B Plan of Distribution+
(iii) Class C Plan of Distribution+
-- (b) Form of Servicing Agreement with Brokers+
-- (c) Form of Servicing Agreement with Financial Institutions+
11 -- Form of Opinion of O'Melveny & Myers+

C-1
<PAGE> 89

<TABLE>
<C> <C> <S>
12 -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom+
13 -- (a) Form of Support Service Agreement+
-- (b) Form of Fund Pricing Agreement+
-- (c) Form of Accounting Service Agreement+
14 -- (a) Consent of Price Waterhouse LLP*
-- (b) Consent of KPMG Peat Marwick LLP*
16 -- Powers of Attorney*
17 -- (a) Copy of 24f-2 Election of Registrant+
-- (b) Form of proxy card*
27 -- (a) Financial Data Schedule for Van Kampen American Capital Growth and Income Fund*
-- (b) Financial Data Schedule for the Van Kampen Merritt Growth and Income Fund*
</TABLE>

- ---------------
* Filed herewith.

+ To be filed by pre-effective amendment.

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> 90

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 23RD THE DAY OF MAY, 1995.

AMERICAN CAPITAL GROWTH
AND INCOME FUND, INC.

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 AND ON THE DATE INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------

/s/ FERNANDO SISTO* Chairman of the Board May 23, 1995
- ---------------------------------------------
Fernando Sisto

/s/ J. MILES BRANAGAN* Director May 23, 1995
- ---------------------------------------------
J. Miles Branagan

/s/ RICHARD E. CARUSO* Director May 23, 1995
- ---------------------------------------------
Richard E. Caruso

/s/ ROGER HILSMAN* Director May 23, 1995
- ---------------------------------------------
Roger Hilsman

/s/ DON G. POWELL* President and Director May 23, 1995
- ---------------------------------------------
Don G. Powell

/s/ DAVID REES* Director May 23, 1995
- ---------------------------------------------
David Rees

/s/ LAWRENCE J. SHEEHAN* Director May 23, 1995
- ---------------------------------------------
Lawrence J. Sheehan

/s/ WILLIAM S. WOODSIDE* Director May 23, 1995
- ---------------------------------------------
William S. Woodside

/s/ CURTIS W. MORELL* Vice President and May 23, 1995
- --------------------------------------------- Treasurer
Curtis W. Morell
</TABLE>

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

* Signed by Ronald A. Nyberg pursuant to a power of attorney filed herewith.

<TABLE>
<S> <C> <C>
/s/ RONALD A. NYBERG
- ---------------------------------------------
Ronald A. Nyberg
Attorney-in-fact
</TABLE>

C-3
<PAGE> 91

AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.

FORM N-14

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE
DESCRIPTION NUMBER
------------------------------------------------------------------------------- ------
<C> <C> <S> <C>
1 -- Agreement and Declaration of Trust -- AC Fund+
2 -- Bylaws -- AC Fund+
4 -- Form of Agreement and Plan of Reorganization*
5 -- Specimen Share Certificate for Class A, B and C shares -- AC Fund+
6 -- Form of Investment Advisory Agreement -- AC Fund+
7 -- (a) Form of Underwriting Agreement+
-- (b) Form of Selling Agreement+
-- (c) Form of Selling Group Agreement+
9 -- (a) Form of Custodian Agreement -- AC Fund+
-- (b) Form of Transfer Agency Agreement -- AC Fund+
10 -- (a) Form of Distribution Plan Pursuant to Rule 12b-1
(i) Class A Plan of Distribution+
(ii) Class B Plan of Distribution+
(iii) Class C Plan of Distribution+
-- (b) Form of Servicing Agreement with Brokers+
-- (c) Form of Servicing Agreement with Financial Institutions+
11 -- Form of Opinion of O'Melveny & Myers+
12 -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom+
13 -- (a) Form of Support Service Agreement+
-- (b) Form of Fund Pricing Agreement+
-- (c) Form of Accounting Service Agreement+
14 -- (a) Consent of Price Waterhouse LLP*
-- (b) Consent of KPMG Peat Marwick LLP*
16 -- Powers of Attorney*
17 -- (a) Copy of 24f-2 Election of Registrant+
-- (b) Form of proxy card*
27 -- (a) Financial Data Schedule for Van Kampen American Capital Growth and Income
Fund*
-- (b) Financial Data Schedule for the Van Kampen Merritt Growth and Income Fund*
</TABLE>

- ---------------
* Filed herewith.

+ To be filed by pre-effective amendment.

<PAGE> 1
EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION

This Agreement and Plan of Reorganization (the "Agreement") is made as of
July ____, 1995, by and between the 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 Merritt 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 its 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 [July _____, 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 dated [July ___, 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 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> 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.

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 the liabilities
(collectively, the "AC Fund Shares") and (ii) assume all of VK Fund's
liabilities calculated as provided in Section 3A and more fully described in
Section 3E hereof (the "Liabilities"). All AC Fund Shares delivered to the AC
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 proportion and amounts equal to the total net asset values
represented by the Class A, Class B and Class C shares of the VKM Fund then
outstanding 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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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 stock of the
VKM Fund shall become null and void.

E. LIABILITIES. The Liabilities shall include all of the VKM Fund
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.

VKM Trust, on behalf of the VKM Fund, hereby represents and warrants to the
AC Fund and agrees with the AC Fund, which representations and warranties are
true and correct on the date hereof 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> 4

The VKM Trust has all material federal, state and local authorization 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 (the "1940 Act") as an open-end, diversified management company and
such registration has not been revoked or rescinded. 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 (subject to the matters set forth in the Opinion of Counsel
dated [ ], from Skadden, Arps, Slate, Meagher & Flom, to the VKM
Trust contained in the VKM Trust's registration statement on form N1-A, a copy
of which opinion letter has been tendered to the AC 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 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. 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 its 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> 5

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 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.

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, (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 an adverse material 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> 6

(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 delivery 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;

5. THE AC FUND'S REPRESENTATIONS AND WARRANTIES.

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

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 July 31, 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 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's
Prospectus and Statement of Additional Information, 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 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.

I. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the AC Fund does not and will not (i) violate
any provision of the Certificate of Incorporation of the AC Fund, or any
amendment thereto, (ii) violate 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
6 to this Agreement, (i) no consent, approval,

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<PAGE> 8

authorization, order of 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 an
adverse material 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 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 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> 9

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 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's prospectus and Statement of
Additional Information, copies of which have 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> 10

said shares so as to cause a violation of Section 12(d)(1) of the Investment
Company 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 (including, without limitation, the execution of any documents,
agreements or certificates or any other additional actions reasonably requested
with respect to the non-assumption of the liabilities and obligations of the
VKM Fund by the AC Fund), 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> 11

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 Internal Revenue Code of 1986, as amended,
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 attached as Annex B to
the effect that: (i) the AC Fund is duly formed and in good standing 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 Securities Act of 1933
and the 1940 Act; (iii) 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 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 the best of their knowledge, violate any provision of any statute, or
any published regulation or any judgment or order disclosed to us by the AC
Fund as being applicable to the AC Fund; (v) to the best of their knowledge
based solely on the certificate of an appropriate officer of the AC Fund
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 AC Fund or
might have a material adverse effect on the value of any assets of the AC Fund;
(vi) the AC Fund's Shares 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 the best of their
knowledge and information 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
States of Texas or 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; of (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 this opinion, (b) laws of the States
of Texas and 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 us by the AC Fund
in connection with the opinion. In addition, although counsel need not
specifically considered the possible applicability to the AC Fund of any other
laws, orders or judgments, nothing has come to their attention in connection
with our representations of the AC Fund in this transaction that has caused
them to conclude that any other consent, approval, authorization, registration,
qualification, order or filing is required.

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 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> 13

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 attached
hereto as Annex C 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 Securities Act of 1933 and 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 us 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 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 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
you

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 our experience, are normally applicable to transactions of the type
provided for in the Agreement and (c) court orders and judgments disclosed to
us 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 our representation of the VKM Trust in this
transaction that has caused them to conclude that any other consent, approval,
authorization, registration, qualification, order or filing is required.

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

I. 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.

J. 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.

K. 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 or Directors, as the case may be, amend this
Agreement at any time before or after approval thereof by the shareholders of
the VKM Fund; provided, however, that (i) after such 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.

(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> 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; or

(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; or

(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); or

(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.

(B) INDEMNIFICATION. The VKM Trust shall indemnify and defend the AC Fund,
their officers, trustees, agents and persons controlled by or controlling any
of them and hold them 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

15
<PAGE> 16

penalties, and counsel fees reasonably incurred by such indemnitee 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 indemnitee may be or may have been involved as
a party or otherwise or with which such indemnitee may be or may have been
threatened, (collectively, the "Losses") resulting from or arising out of any
of the following:

(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.

(C) REPRESENTATIONS AND WARRANTIES. In addition to the indemnities provided
in Section 11(B) above, 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 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.

(D) 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> 17

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 Illinois without regard
to principles of conflicts or choice of law.

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<PAGE> 18

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.

AMERICAN CAPITAL GROWTH & INCOME
FUND, a Delaware business trust

By: _____________________________

Title: __________________________

Attest: _________________________

Title: _________________________

VAN KAMPEN MERRITT 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

ANNEX A [TAX FREE OPINION: SKADDEN, ARPS, SLATE, MEAGHER & FLOM]

<PAGE> 22

ANNEX B [OPINION OF COUNSEL - O'MELVENY & MYERS FOR THE AC FUND]

<PAGE> 23

ANNEX C [OPINION OF COUNSEL - SKADDEN, ARPS, SLATE, MEAGHER & FLOM
FOR THE VKM TRUST]

<PAGE> 1
EXHIBIT 14(a)

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,
which appears in such Statement of Additional Information.

Price Waterhouse LLP

PRICE WATERHOUSE LLP

Houston, Texas
May 25, 1995

<PAGE> 1
EXHIBIT 14(b)
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
May 23, 1995

<PAGE> 1

EXHIBIT 16

POWER OF ATTORNEY

The undersigned, being officers and directors of American Capital Growth
and Income Fund, Inc., a Maryland corporation (the "Fund"), do hereby, in the
capacities shown below, individually appoint each of Ronald A. Nyberg of
Oakbrook Terrace, Illinois and Nori L. Gabert of Houston, Texas as the agent and
attorney-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 Registration Statement on Form N-14 ("Registration Statement") to be filed
with the Securities and Exchange Commission on or about May 24, 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 Fund 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: May 19, 1995

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------

/s/ FERNANDO SISTO Director 5/22/95
- ---------------------------------------------
Fernando Sisto

/s/ DON G. POWELL President (Chief Executive 5/22/95
- --------------------------------------------- Officer) and Director
Don G. Powell

/s/ J. MILES BRANAGAN Director 5/22/95
- ---------------------------------------------
J. Miles Branagan

/s/ RICHARD E. CARUSO Director 5/22/95
- ---------------------------------------------
Richard E. Caruso

/s/ ROGER HILSMAN Director 5/22/95
- ---------------------------------------------
Roger Hilsman

/s/ DAVID REES Director 5/22/95
- ---------------------------------------------
David Rees

/s/ LAWRENCE J. SHEEHAN Director 5/22/95
- ---------------------------------------------
Lawrence J. Sheehan

/s/ WILLIAM S. WOODSIDE Director 5/22/95
- ---------------------------------------------
William S. Woodside

/s/ CURTIS W. MORELL Vice President and 5/22/95
- --------------------------------------------- Treasurer (Chief
Curtis W. Morell Financial and Accounting
Officer)
</TABLE>

<PAGE> 1

EXHIBIT 17(B)

PROXY

VAN KAMPEN MERRITT GROWTH AND INCOME FUND

SPECIAL MEETING OF SHAREHOLDERS

[ ], 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
[Dennis J. McDonnell] and [Ronald A. Nyberg], 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 [Transco Tower Auditorium,
Level 2, 2800 Post Oak Boulevard, Houston, Texas 77056,]on [day], September 8,
1995 at [TIME]], 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 August , 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.

<ARTICLE> 6
<CIK> 0000039451
<NAME> AC GROWTH & INCOME-A
<SERIES>
<NUMBER> 1
<NAME> CLASS A SHARES
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 223,670,707
<INVESTMENTS-AT-VALUE> 228,503,012
<RECEIVABLES> 7,322,847
<ASSETS-OTHER> 2,310
<OTHER-ITEMS-ASSETS> 2,875
<TOTAL-ASSETS> 235,831,044
<PAYABLE-FOR-SECURITIES> 7,762,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 689,723
<TOTAL-LIABILITIES> 8,452,296
<SENIOR-EQUITY> 185,510
<PAID-IN-CAPITAL-COMMON> 204,659,719
<SHARES-COMMON-STOCK> 16,756,959
<SHARES-COMMON-PRIOR> 14,504,828
<ACCUMULATED-NII-CURRENT> 1,330,179
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,536,382
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,666,958
<NET-ASSETS> 227,378,748
<DIVIDEND-INCOME> 5,824,023
<INTEREST-INCOME> 1,770,746
<OTHER-INCOME> 0
<EXPENSES-NET> 2,691,502
<NET-INVESTMENT-INCOME> 4,903,267
<REALIZED-GAINS-CURRENT> 16,532,604
<APPREC-INCREASE-CURRENT> (19,651,593)
<NET-CHANGE-FROM-OPS> 1,784,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,309,919
<DISTRIBUTIONS-OF-GAINS> 25,694,707
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,576,390
<NUMBER-OF-SHARES-REDEEMED> 2,440,283
<SHARES-REINVESTED> 2,116,024
<NET-CHANGE-IN-ASSETS> 20,796,907
<ACCUMULATED-NII-PRIOR> 870,415
<ACCUMULATED-GAINS-PRIOR> 26,210,657
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,075,607
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,691,502
<AVERAGE-NET-ASSETS> 209,303,516
<PER-SHARE-NAV-BEGIN> 14.08
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.103)
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 1.737
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000039451
<NAME> AC GROWTH & INCOME-B
<SERIES>
<NUMBER> 2
<NAME> CLASS B SHARES
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,507,551
<SHARES-COMMON-PRIOR> 122,811
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 108,041
<DISTRIBUTIONS-OF-GAINS> 386,769
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,537,292
<NUMBER-OF-SHARES-REDEEMED> 186,624
<SHARES-REINVESTED> 34,072
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 10,644,968
<PER-SHARE-NAV-BEGIN> 14.07
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.103)
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 1.737
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.25
<EXPENSE-RATIO> 2.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000039451
<NAME> AC GROWTH & INCOME-C
<SERIES>
<NUMBER> 3
<NAME> CLASS C SHARES
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 286,471
<SHARES-COMMON-PRIOR> 40,435
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,543
<DISTRIBUTIONS-OF-GAINS> 125,403
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 265,742
<NUMBER-OF-SHARES-REDEEMED> 26,112
<SHARES-REINVESTED> 6,406
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,408,713
<PER-SHARE-NAV-BEGIN> 14.07
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.093)
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 1.737
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> GROWTH & INCOME FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 84,501,302<F1>
<INVESTMENTS-AT-VALUE> 84,340,096<F1>
<RECEIVABLES> 1,071,474<F1>
<ASSETS-OTHER> 3,894<F1>
<OTHER-ITEMS-ASSETS> 88<F1>
<TOTAL-ASSETS> 85,415,552<F1>
<PAYABLE-FOR-SECURITIES> 3,458,900<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 422,842<F1>
<TOTAL-LIABILITIES> 3,881,742<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 48,959,102
<SHARES-COMMON-STOCK> 2,792,551
<SHARES-COMMON-PRIOR> 2,626,362
<ACCUMULATED-NII-CURRENT> 28,366<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,243,928)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (161,206)<F1>
<NET-ASSETS> 49,878,068<F1>
<DIVIDEND-INCOME> 693,015<F1>
<INTEREST-INCOME> 276,661<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 664,824<F1>
<NET-INVESTMENT-INCOME> 304,852<F1>
<REALIZED-GAINS-CURRENT> (1,243,928)<F1>
<APPREC-INCREASE-CURRENT> 2,892,616<F1>
<NET-CHANGE-FROM-OPS> 1,953,540<F1>
<EQUALIZATION> 11,051<F1>
<DISTRIBUTIONS-OF-INCOME> (733,571)
<DISTRIBUTIONS-OF-GAINS> (244,299)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 358,393
<NUMBER-OF-SHARES-REDEEMED> (242,721)
<SHARES-REINVESTED> 50,517
<NET-CHANGE-IN-ASSETS> 3,396,032
<ACCUMULATED-NII-PRIOR> 658,391<F1>
<ACCUMULATED-GAINS-PRIOR> 399,510<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 238,987<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 664,824<F1>
<AVERAGE-NET-ASSETS> 49,441,113
<PER-SHARE-NAV-BEGIN> 17.698
<PER-SHARE-NII> .094
<PER-SHARE-GAIN-APPREC> .432
<PER-SHARE-DIVIDEND> (.274)
<PER-SHARE-DISTRIBUTIONS> (.089)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.861
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the fund on a composite basis and not on a class
basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> GROWTH & INCOME FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 84,501,302<F1>
<INVESTMENTS-AT-VALUE> 84,340,096<F1>
<RECEIVABLES> 1,071,474<F1>
<ASSETS-OTHER> 3,894<F1>
<OTHER-ITEMS-ASSETS> 88<F1>
<TOTAL-ASSETS> 85,415,552<F1>
<PAYABLE-FOR-SECURITIES> 3,458,900<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 422,842<F1>
<TOTAL-LIABILITIES> 3,881,742<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 32,422,278
<SHARES-COMMON-STOCK> 1,687,686
<SHARES-COMMON-PRIOR> 1,402,963
<ACCUMULATED-NII-CURRENT> 28,366<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,243,928)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (161,206)<F1>
<NET-ASSETS> 30,236,782<F1>
<DIVIDEND-INCOME> 693,015<F1>
<INTEREST-INCOME> 276,661<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 664,824<F1>
<NET-INVESTMENT-INCOME> 304,852<F1>
<REALIZED-GAINS-CURRENT> (1,243,928)<F1>
<APPREC-INCREASE-CURRENT> 2,892,616<F1>
<NET-CHANGE-FROM-OPS> 1,953,540<F1>
<EQUALIZATION> 11,051<F1>
<DISTRIBUTIONS-OF-INCOME> (196,275)
<DISTRIBUTIONS-OF-GAINS> (148,335)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 489,182
<NUMBER-OF-SHARES-REDEEMED> (221,683)
<SHARES-REINVESTED> 17,224
<NET-CHANGE-IN-ASSETS> 5,426,105
<ACCUMULATED-NII-PRIOR> 658,391<F1>
<ACCUMULATED-GAINS-PRIOR> 399,510<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 238,987<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 664,824<F1>
<AVERAGE-NET-ASSETS> 28,731,970
<PER-SHARE-NAV-BEGIN> 17.684
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> .428
<PER-SHARE-DIVIDEND> (.136)
<PER-SHARE-DISTRIBUTIONS> (.089)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.916
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> GROWTH & INCOME FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 84,501,302<F1>
<INVESTMENTS-AT-VALUE> 84,340,096<F1>
<RECEIVABLES> 1,071,474<F1>
<ASSETS-OTHER> 3,894<F1>
<OTHER-ITEMS-ASSETS> 88<F1>
<TOTAL-ASSETS> 85,415,552<F1>
<PAYABLE-FOR-SECURITIES> 3,458,900<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 422,842<F1>
<TOTAL-LIABILITIES> 3,881,742<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 1,453,818
<SHARES-COMMON-STOCK> 79,077
<SHARES-COMMON-PRIOR> 29,332
<ACCUMULATED-NII-CURRENT> 28,366<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,243,928)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (161,206)<F1>
<NET-ASSETS> 1,416,984<F1>
<DIVIDEND-INCOME> 693,015<F1>
<INTEREST-INCOME> 276,661<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 664,824<F1>
<NET-INVESTMENT-INCOME> 304,852<F1>
<REALIZED-GAINS-CURRENT> (1,243,928)<F1>
<APPREC-INCREASE-CURRENT> 2,892,616<F1>
<NET-CHANGE-FROM-OPS> 1,953,540<F1>
<EQUALIZATION> 11,051<F1>
<DISTRIBUTIONS-OF-INCOME> (5,002)
<DISTRIBUTIONS-OF-GAINS> (6,866)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49,779
<NUMBER-OF-SHARES-REDEEMED> (549)
<SHARES-REINVESTED> 515
<NET-CHANGE-IN-ASSETS> 898,086
<ACCUMULATED-NII-PRIOR> 658,391<F1>
<ACCUMULATED-GAINS-PRIOR> 399,510<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 238,987<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 664,824<F1>
<AVERAGE-NET-ASSETS> 746,460
<PER-SHARE-NAV-BEGIN> 17.691
<PER-SHARE-NII> .031
<PER-SHARE-GAIN-APPREC> .422
<PER-SHARE-DIVIDEND> (.136)
<PER-SHARE-DISTRIBUTIONS> (.089)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.919
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> GROWTH & INCOME FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 84,501,302<F1>
<INVESTMENTS-AT-VALUE> 84,340,096<F1>
<RECEIVABLES> 1,071,474<F1>
<ASSETS-OTHER> 3,894<F1>
<OTHER-ITEMS-ASSETS> 88<F1>
<TOTAL-ASSETS> 85,415,552<F1>
<PAYABLE-FOR-SECURITIES> 3,458,900<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 422,842<F1>
<TOTAL-LIABILITIES> 3,881,742<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 2,132
<SHARES-COMMON-STOCK> 111
<SHARES-COMMON-PRIOR> 110
<ACCUMULATED-NII-CURRENT> 28,366<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,243,928)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (161,206)<F1>
<NET-ASSETS> 1,976<F1>
<DIVIDEND-INCOME> 693,015<F1>
<INTEREST-INCOME> 276,661<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 664,824<F1>
<NET-INVESTMENT-INCOME> 304,852<F1>
<REALIZED-GAINS-CURRENT> (1,243,928)<F1>
<APPREC-INCREASE-CURRENT> 2,892,616<F1>
<NET-CHANGE-FROM-OPS> 1,953,540<F1>
<EQUALIZATION> 11,051<F1>
<DISTRIBUTIONS-OF-INCOME> (29)
<DISTRIBUTIONS-OF-GAINS> (10)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 38
<ACCUMULATED-NII-PRIOR> 658,391<F1>
<ACCUMULATED-GAINS-PRIOR> 399,510<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 238,987<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 664,824<F1>
<AVERAGE-NET-ASSETS> 2,001
<PER-SHARE-NAV-BEGIN> 17.618
<PER-SHARE-NII> .093
<PER-SHARE-GAIN-APPREC> .445
<PER-SHARE-DIVIDEND> (.265)
<PER-SHARE-DISTRIBUTIONS> (.089)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.802
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the fund on a composite basis and not on a class basis.
</FN>

</TABLE>