AMERICAN CAPITAL RESERVE FUND INC, PRE 14A, 1995-05-19

AMERICAN CAPITAL RESERVE FUND INC
PRE 14A, 1995-05-19

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Co-Registrants /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:

/X/Preliminary Proxy Statement / /Confidential, for Use of the Com-
mission Only (as permitted by Rule
14a-6(e)(2))
/ /Definitive Proxy Statement
/ /Definitive Additional Materials
/ /Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

AMERICAN CAPITAL COMSTOCK FUND, INC.
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
AMERICAN CAPITAL ENTERPRISE FUND, INC.
AMERICAN CAPITAL EQUITY INCOME FUND, INC.
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
AMERICAN CAPITAL GOVERNMENT TARGET SERIES
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
AMERICAN CAPITAL HARBOR FUND, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL LIFE INVESTMENT TRUST
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AMERICAN CAPITAL PACE FUND, INC.
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
AMERICAN CAPITAL RESERVE FUND, INC.
AMERICAN CAPITAL SMALL CAPITALIZATION FUND, INC.
AMERICAN CAPITAL TAX-EXEMPT TRUST
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
AMERICAN CAPITAL WORLD PORTFOLIO SERIES, INC.

(Names of Co-Registrants as Specified in Their Charters)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per each Co-Registrant (an aggregate of $2,875 for the Co-Registrants
listed above) per Item 22(a)(2) of Schedule 14A.
<PAGE> 2

June 2, 1995

Dear American Capital Fund Shareholder:

As you may know, the merger of Van Kampen Merritt and American Capital was
completed in late December 1994. As part of our continuing effort to maximize
the merger's benefit to shareholders, we are proposing several items related to
your Fund(s), including board consolidations and business reorganizations. The
attached proxy statement seeks shareholder approval on these items.

While we encourage you to carefully read the full proxy statement, we have
created a brief question-and-answer section for your convenience.

Your vote is important and your participation in the affairs of your Fund(s)
does make a difference

The proposals have been approved by the Directors of the Fund(s), who
recommend you vote "FOR APPROVAL" on these proposals. YOUR IMMEDIATE RESPONSE
WILL HELP SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. EACH FUND VOTES
SEPARATELY, SO PLEASE SIGN AND RETURN ALL YOUR FUND PROXY FORMS. We look forward
to your participation, and we thank you for your continued confidence in Van
Kampen American Capital.

PLEASE SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.

Sincerely,

Don G. Powell
Chief Executive Officer
<PAGE> 3

INFORMATION ABOUT YOUR PROXY STATEMENT

Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. Federal securities laws require a vote by Fund shareholders whenever there
are fundamental changes in a Fund's business and/or organizational
agreements. Among the proposed items your Fund is seeking shareholder
approval on are:

- consolidation of the Van Kampen and American Capital fund boards
- reorganization and conversion of each of the funds registered as a
Maryland corporation or Massachusetts business trust into a Delaware
business trust.

Please refer to the proxy statement for a detailed explanation of the
proposed items.

Q. HOW WILL THIS AFFECT MY ACCOUNT?
A. Your Fund's investment objective(s) and shares will not change. You can
expect the same management expertise and high quality shareholder service
you've grown accustomed to.

By consolidating the Van Kampen and American Capital fund boards, you will
be able to take advantage of additional shareholder privileges such as
exchangeability of shares between Van Kampen funds and American Capital
funds. Additionally, by reorganizing the funds into Delaware business
trusts, you will benefit from greater protection from certain liabilities
related to the Fund.

Q. WHY DO I NEED TO VOTE?
A. Your vote is intended to ensure that a majority of shareholders is
represented at the shareholder meeting, so that the proposals can be acted
upon. Your immediate response to this proxy will help save on the costs of
any further solicitations for a shareholder vote. We encourage all
shareholders to participate in the affairs of their Fund(s).

Q. HOW DO THE BOARD MEMBERS OF MY FUND SUGGEST THAT I VOTE?
A. After careful consideration, the board members of your Fund recommend that
you vote "FOR APPROVAL" on all the items proposed on the enclosed proxy
card(s).

Q. WHO DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about the proxy solicitation.
Please call us at 1-800-421-5666 between 7 a.m. and 7 p.m. Central time,
Monday through Friday.
<PAGE> 4

AMERICAN CAPITAL COMSTOCK FUND, INC.
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
AMERICAN CAPITAL ENTERPRISE FUND, INC.
AMERICAN CAPITAL EQUITY INCOME FUND, INC.
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
AMERICAN CAPITAL GOVERNMENT TARGET SERIES, PORTFOLIO '97
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
AMERICAN CAPITAL HARBOR FUND, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL COMMON STOCK PORTFOLIO
AMERICAN CAPITAL DOMESTIC STRATEGIC INCOME PORTFOLIO
AMERICAN CAPITAL MONEY MARKET PORTFOLIO
AMERICAN CAPITAL MULTIPLE STRATEGY PORTFOLIO
AMERICAN CAPITAL GOVERNMENT PORTFOLIO
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AMERICAN CAPITAL PACE FUND, INC.
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
AMERICAN CAPITAL RESERVE FUND, INC.
AMERICAN CAPITAL SMALL CAPITALIZATION FUND, INC.
AMERICAN CAPITAL HIGH YIELD MUNICIPAL PORTFOLIO
AMERICAN CAPITAL INSURED MUNICIPAL PORTFOLIO
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
AMERICAN CAPITAL GLOBAL EQUITY FUND
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND

TRANSCO TOWER
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
TELEPHONE (800) 421-5666

NOTICE OF JOINT ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 21, 1995

TO THE SHAREHOLDERS OF THE FUNDS LISTED BELOW:

Notice is hereby given to the holders of common stock or shares of
beneficial interest, as the case may be (collectively, the "Shares"), of: (1)
each of the following nineteen funds (the "Maryland Funds") organized as
Maryland corporations (the "Maryland Corporations") or series thereof: American
Capital Comstock Fund, Inc.; American Capital Corporate Bond Fund, Inc.;
American Capital Emerging Growth Fund, Inc.; American Capital Enterprise Fund,
Inc.; American Capital Equity Income Fund, Inc.; American Capital Global Managed
Assets Fund, Inc.; American Capital Government Securities, Inc.; American
Capital Growth and Income Fund, Inc.; American Capital Harbor Fund, Inc.;
American Capital High Yield Investments, Inc.; American Capital Municipal Bond
Fund, Inc.; American Capital Pace Fund, Inc.; American Capital Real Estate
Securities Fund, Inc.; American Capital Reserve Fund, Inc.; American Capital
Small Capitalization Fund, Inc.; American Capital Texas Municipal Securities,
Inc.; American Capital Utilities Income Fund, Inc.; and American Capital Global
Government Securities Fund and American Capital Global Equity Fund, each of
which is a separate series of American Capital World Portfolio Series, Inc.; and
(2) each of the following ten funds (the "Massachusetts Funds") organized as
Massachusetts business trusts (the "Massachusetts Trusts") or series thereof:
American Capital Government Target Series, Portfolio '97; American Capital
Federal Mortgage Trust; American Capital U.S. Government Trust For
<PAGE> 5

Income; American Capital Common Stock Portfolio; American Capital Domestic
Strategic Income Portfolio; American Capital Money Market Portfolio; American
Capital Multiple Strategy Portfolio; American Capital Government Portfolio; each
of which is a separate series of American Capital Life Investment Trust, and
American Capital High Yield Municipal Portfolio and American Capital Insured
Municipal Portfolio, each of which is a separate series of American Capital
Tax-Exempt Trust (the Maryland Funds and the Massachusetts Funds hereinafter
sometimes are referred to collectively as the "AC Funds")(the Maryland
Corporations and the Massachusetts Trusts hereinafter sometimes are referred to
collectively as the "AC Entities"), that a Joint Annual Meeting of the
Shareholders of the Maryland Funds and Massachusetts Funds (the "Meeting") will
be held at the offices of Van Kampen American Capital, Inc., One Parkview Plaza,
Oakbrook Terrace, IL 60181, on Friday, July 21, 1995, at 1:30 p.m., for the
following purposes:

1. For each Massachusetts Fund to approve or disapprove such
Massachusetts Fund's reorganization and conversion to a Delaware business
trust (or series thereof);

2. For each Maryland Fund to approve or disapprove such Maryland
Fund's reorganization and conversion to a Delaware business trust (or
series thereof);

3. For each AC Entity to elect fourteen directors/trustees to serve
until their respective successors are duly elected and qualified;

4. For each AC Entity, to ratify or reject the selection of Price
Waterhouse LLP as independent accountants for its current fiscal year; and

5. To transact such other business as may properly come before the
Meeting.

Holders of record of the Shares of each AC Entities at the close of
business on May 26, 1995 are entitled to notice of, and to vote at, the Meeting
and any adjournment thereof.

By order of the Boards of
Directors/Trustees

NORI L. GABERT, Secretary
June 2, 1995
<PAGE> 6

EACH OF THE AC FUNDS WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST
RECENT ANNUAL REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE
ANNUAL REPORT, IF ANY) TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE
DIRECTED TO VAN KAMPEN AMERICAN CAPITAL BY CALLING (800) 341-2929 OR BY WRITING
TO THE FUNDS, 2800 POST OAK BOULEVARD, HOUSTON, TEXAS 77056.

SHAREHOLDERS OF EACH OF THE AC FUNDS ARE INVITED TO ATTEND THE MEETING IN
PERSON. IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE INDICATE YOUR VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY CARD WITH RESPECT TO EACH SUCH AC FUND IN
WHICH YOU WERE A SHAREHOLDER AS OF THE RECORD DATE, DATE AND SIGN IT, AND RETURN
SUCH CARD(S) IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE
AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.

IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK
THAT YOU MAIL YOUR PROXY PROMPTLY.

MANAGEMENT OF EACH RESPECTIVE AC FUND RECOMMENDS THAT YOU CAST YOUR VOTE:

- FOR APPROVAL OF THE REORGANIZATION AND CONVERSION OF EACH MASSACHUSETTS
TRUST INTO A DELAWARE BUSINESS TRUST (OR SERIES THEREOF);

- FOR APPROVAL OF THE REORGANIZATION AND CONVERSION OF EACH MARYLAND
CORPORATION INTO A DELAWARE BUSINESS TRUST (OR SERIES THEREOF);

- IN FAVOR OF THE NOMINEES FOR THE BOARD OF DIRECTORS/TRUSTEES OF EACH AC
ENTITY LISTED IN THE PROXY STATEMENT; AND

- FOR THE RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR OF EACH AC
ENTITY.

YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD(S) PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE> 7

PROXY STATEMENT

AMERICAN CAPITAL COMSTOCK FUND, INC.
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
AMERICAN CAPITAL ENTERPRISE FUND, INC.
AMERICAN CAPITAL EQUITY INCOME FUND, INC.
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
AMERICAN CAPITAL GOVERNMENT TARGET SERIES, PORTFOLIO '97
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
AMERICAN CAPITAL HARBOR FUND, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL COMMON STOCK PORTFOLIO
AMERICAN CAPITAL DOMESTIC STRATEGIC INCOME PORTFOLIO
AMERICAN CAPITAL MONEY MARKET PORTFOLIO
AMERICAN CAPITAL MULTIPLE STRATEGY PORTFOLIO
AMERICAN CAPITAL GOVERNMENT PORTFOLIO
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AMERICAN CAPITAL PACE FUND, INC.
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
AMERICAN CAPITAL RESERVE FUND, INC.
AMERICAN CAPITAL SMALL CAPITALIZATION FUND, INC.
AMERICAN CAPITAL HIGH YIELD MUNICIPAL PORTFOLIO
AMERICAN CAPITAL INSURED MUNICIPAL PORTFOLIO
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
AMERICAN CAPITAL GLOBAL EQUITY FUND
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND

TRANSCO TOWER
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
TELEPHONE (800) 421-5666

JOINT ANNUAL MEETING OF SHAREHOLDERS

JULY 21, 1995

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors or Board of Trustees, as the case may be (collectively,
the "AC Board"), of each of the AC Entities (defined below) of proxies to be
voted at a Joint Annual Meeting of Shareholders of the AC Funds (defined below)
and at any and all adjournments thereof (the "Meeting"), to be held at Van
Kampen American Capital, Inc., One Parkview Plaza, Oakbrook Terrace, IL 60181,
on Friday, July 21, 1995, at 1:30 p.m. The approximate mailing date of this
Proxy Statement and accompanying form of proxy is June 2, 1995.

Participating in the Meeting are holders of common stock or shares of
beneficial interest, as the case may be (collectively, the "Shares"), of (1)
each of the following nineteen funds (the "Maryland Funds") organized as
Maryland corporations (the "Maryland Corporations") or series thereof: American
Capital Comstock Fund, Inc. ("Comstock Fund"); American Capital Corporate Bond
Fund, Inc. ("Corporate Bond

1
<PAGE> 8

Fund"); American Capital Emerging Growth Fund, Inc. ("Emerging Growth Fund");
American Capital Enterprise Fund, Inc. ("Enterprise Fund"); American Capital
Equity Income Fund, Inc. ("Equity Income Fund"); American Capital Global Managed
Assets Fund, Inc. ("Global Managed Assets Fund"); American Capital Government
Securities, Inc. ("Government Securities"); American Capital Growth and Income
Fund, Inc. ("Growth and Income Fund"); American Capital Harbor Fund, Inc.
("Harbor Fund"); American Capital High Yield Investments, Inc. ("High Yield
Investments"); American Capital Municipal Bond Fund, Inc. ("Municipal Bond
Fund"); American Capital Pace Fund, Inc. ("Pace Fund"); American Capital Real
Estate Securities Fund, Inc. ("Real Estate Securities Fund"); American Capital
Reserve Fund, Inc. ("Reserve Fund"); American Capital Small Capitalization Fund,
Inc. ("Small Capitalization Fund"); American Capital Texas Municipal Securities,
Inc. ("Texas Municipal Securities"); American Capital Utilities Income Fund,
Inc. ("Utilities Income Fund"); and American Capital Global Government
Securities Fund ("Global Government Fund") and American Capital Global Equity
Fund ("Global Equity Fund"), each of which is a separate series of American
Capital World Portfolio Series, Inc.; and (2) each of the following ten funds
(the "Massachusetts Funds") organized as Massachusetts business trusts (the
"Massachusetts Trusts") or series thereof: American Capital Government Target
Series, Portfolio '97 ("Government Target '97"); American Capital Federal
Mortgage Trust ("Federal Mortgage Trust"); American Capital U.S. Government
Trust For Income ("Government Trust"); American Capital Common Stock Portfolio
("Common Stock Portfolio"), American Capital Domestic Strategic Income Portfolio
("Strategic Income Portfolio"), American Capital Money Market Portfolio ("Money
Market Portfolio"), American Capital Multiple Strategy Portfolio ("Multiple
Strategy Portfolio"), American Capital Government Portfolio ("Government
Portfolio"), each of which is a separate series of American Capital Life
Investment Trust; and American Capital High Yield Municipal Portfolio ("High
Yield Portfolio") and American Capital Insured Municipal Portfolio ("Insured
Municipal Portfolio"), each of which is a separate series of American Capital
Tax-Exempt Trust.

The Maryland Corporations and Massachusetts Trusts sometimes are referred
to herein as the "AC Entities". The Maryland Funds and Massachusetts Funds
sometimes are referred to herein as the "AC Funds".

The Meeting is scheduled as a joint meeting of the shareholders of the
respective AC Funds because the shareholders of each of the AC Funds are
expected to consider and vote on similar matters. The AC Board has determined
that the use of a joint Proxy Statement for the Meeting is in the best interest
of the shareholders of each of the AC Funds. In the event that any shareholder
of any AC Fund present at the Meeting objects to the holding of a joint meeting
and moves for an adjournment of the meeting of such AC Fund to a time
immediately after the Meeting, so that such AC Fund's meeting may be held
separately, the persons named as proxies will vote in favor of such adjournment.
Shareholders of each AC Fund will vote separately with respect to Proposals 1
and 2, and an unfavorable vote on Proposal 1 or 2 by the shareholders of one AC
Fund will not affect the implementation of such a proposal by another AC Fund if
the proposal is approved by shareholders of that AC Fund. Shareholders of each
of the AC Entities will vote separately with respect to Proposals 3 and 4, and
an unfavorable vote on Proposal 3 or 4 by the shareholders of one AC Entity will
not affect the implementation of such a proposal by another AC Entity if the
proposal is approved by the shareholders of that AC Entity.

All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Abstentions do not constitute votes "for" or "against" and
will be disregarded in determining the "votes cast" on an issue. Broker
non-votes (i.e.,

2
<PAGE> 9

proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which the broker or nominees do not have
discretionary power) will be treated the same as abstentions. A majority of the
outstanding Shares entitled to vote on a proposal must be present in person or
by proxy to have a quorum to conduct business at the Meeting. Abstentions and
broker non-votes will be deemed present for quorum purposes. Unless instructions
to the contrary are marked, Shares represented by a proxy will be voted "FOR"
each proposal as to which it is entitled to vote.

The AC Board has fixed the close of business on May 26, 1995, as the record
date (the "Record Date") for the determination of holders of Shares of each AC
Fund entitled to vote at the Meeting. Shareholders of an AC Fund on the Record
Date will be entitled to one vote with respect to each proposal submitted to the
shareholders of such AC Fund for each Share of such AC Fund then held, with no
Share having cumulative voting rights, except that Shares of the Comstock Fund
will have cumulative voting rights with respect to the election of nominees for
the board of directors of the Comstock Fund.

The following summarizes each proposal to be presented at the Meeting and
the AC Funds solicited with respect to such proposal:

<TABLE>
<CAPTION>
PROPOSAL AFFECTED FUNDS
--------------------------------------------------------------- --------------------------
<S> <C> <C>
1. Reorganization and Conversion to a Delaware Business Trust
(or series thereof) Each Massachusetts Fund
2. Reorganization and Conversion to Delaware Business Trust
(or series thereof) Each Maryland Fund
3. Election of Directors/Trustees Each AC Entity(1)
4. Ratification of Independent Public Accountants Each AC Entity(1)
</TABLE>

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

(1) The shareholders of each AC Entity will vote together as a single class of
the respective AC Entity on these proposals.

EACH OF THE AC FUNDS WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST
RECENT ANNUAL REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE
ANNUAL REPORT, IF ANY) TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE
DIRECTED TO VAN KAMPEN AMERICAN CAPITAL BY CALLING (800) 341-2929 OR BY WRITING
TO THE RESPECTIVE AC FUND AT 2800 POST OAK BOULEVARD, HOUSTON, TEXAS 77056.

3
<PAGE> 10

At the close of business on May 26, 1995, there were issued and outstanding
Shares of each of the AC Funds set forth below:

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES TOTAL SHARES
AC FUND NAME OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
- ----------------------------------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Comstock Fund............................
Corporate Bond Fund......................
Emerging Growth Fund.....................
Enterprise Fund..........................
Equity Income Fund.......................
Global Managed Assets Fund...............
Government Securities....................
Growth and Income Fund...................
Harbor Fund..............................
High Yield Investments...................
Municipal Bond Fund......................
Pace Fund................................
Real Estate Securities Fund..............
Reserve Fund.............................
Small Capitalization Fund................
Texas Municipal Securities...............
Utilities Income Fund....................
Global Government Fund...................
Global Equity Fund.......................
Government Target '97....................
Federal Mortgage Trust...................
Government Trust.........................
Common Stock Portfolio...................
Strategic Income Portfolio...............
Money Market Portfolio...................
Multiple Strategy Portfolio..............
Government Portfolio.....................
High Yield Municipal Portfolio...........
Insured Municipal Portfolio..............
</TABLE>

As of May 26, 1995, to the knowledge of management of the AC Funds, the
following persons owned beneficially more than 5% of any class of any AC Fund's
outstanding Shares: [To be determined].

4
<PAGE> 11

VOTING

The voting requirement for passage of a particular proposal depends on the
nature of the particular proposal.

With respect to Proposal 1, the affirmative vote of a majority of the
outstanding Shares of the respective Massachusetts Fund entitled to vote on such
proposal is required to approve the Reorganization of the Massachusetts Fund.

With respect to Proposal 2, the affirmative vote of a majority of the
outstanding Shares of the respective Maryland Fund entitled to vote on such
proposal is required to approve the Reorganization of the Maryland Fund.

With respect to Proposal 3, the affirmative vote of a plurality of the
outstanding Shares of the respective AC Entity present in person or by proxy and
entitled to vote for directors/trustees is required to elect the nominees.

With respect to Proposal 4, the affirmative vote of a majority of the
Shares of the respective AC Entity present in person or by proxy and entitled to
vote on such proposal is necessary to ratify the selection of the independent
public accountants.

On the matters coming before the Meeting as to which a choice has been
specified by the shareholders by means of the ballot on the proxy, the Shares
will be voted accordingly. Management of each respective AC Fund recommends that
you cast your vote:

- FOR APPROVAL of the reorganization and conversion of each Massachusetts
Trust to a Delaware business trust (or series thereof);

- FOR APPROVAL of the reorganization and conversion of each Maryland
Corporation to a Delaware business trust (or series thereof);

- IN FAVOR of the nominees for the board of directors/trustees of each AC
Entity listed in the Proxy Statement; and

- FOR the ratification of the selection of Price Waterhouse LLP as
independent public accountants for the current fiscal year of each AC
Entity.

Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the respective AC Fund a written notice of revocation, by
delivering a duly executed proxy bearing a later date, or by attending the
Meeting and voting in person.

The AC Funds know of no business other than that mentioned in proposals one
through four of the Notice which will be presented for consideration at the
Meeting. If any other matters are properly presented, it is the intention of the
persons named on the enclosed proxy to vote proxies in accordance with their
best judgment. In the event a quorum is present at the Meeting but sufficient
votes to approve any of the proposals with respect to one or more AC Funds or AC
Entities are not received, the persons named as proxies may propose one or more
adjournments of the meeting of the concerned AC Fund or AC Entity to permit
further solicitation of proxies provided they determine that such an adjournment
and additional solicitation is reasonable and in the interest of shareholders
based on a consideration of all relevant factors, including the nature of the
relevant proposal, the percentage of votes then cast, the percentage of negative
votes then cast, the nature of the proposed solicitation activities and the
nature of the reasons for such further solicitation.

5
<PAGE> 12

BACKGROUND FOR PROPOSALS 1, 2 AND 3

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 American Capital Asset
Management, Inc. At the time of the acquisition, The Van Kampen Merritt
Companies, Inc. also was the parent company of Van Kampen Merritt Investment
Advisory Corp. Immediately after the acquisition, each of the foregoing entities
was renamed. The following table sets forth the old name, the new name and the
abbreviated name used in this Proxy Statement to refer to each such entity:

<TABLE>
<CAPTION>
OLD NAME NEW NAME ABBREVIATED NAME
- ---------------------------- ---------------------------------- ----------------------------
<S> <C> <C>
The Van Kampen Merritt Van Kampen American Capital, Inc. Van Kampen American Capital
Companies, Inc.
American Capital Asset Van Kampen American Capital AC Adviser
Management, Inc. Asset Management, Inc.
Van Kampen Merritt Van Kampen American Capital VK Adviser
Investment Advisory Corp. Investment Advisory Corp.
</TABLE>

The AC Adviser and the VK Adviser currently are each wholly-owned
subsidiaries of Van Kampen American Capital. The AC Adviser serves as investment
adviser for each of the AC Funds and also serves as investment adviser for other
open-end and closed-end investment companies. Ten of the AC Funds are organized
as Massachusetts business trusts (or series thereof), and nineteen of the AC
Funds are organized as Maryland corporations (or series thereof). The AC Board,
which supervises the operations of each of the AC Funds, currently consists of
the same eight members for each AC Fund.

The VK Adviser serves as investment adviser for 20 open-end investment
companies that share a common board of trustees (the "VK Funds") and also acts
as investment adviser for other open-end and closed-end investment companies.
Nineteen of the VK Funds are organized as Massachusetts business trusts (or
subtrusts thereof) and the Van Kampen Merritt Pennsylvania Tax Free Income Fund
(the "VK Pennsylvania Fund") is organized for tax purposes as a Pennsylvania
trust. The Board of Trustees for each of the VK Funds currently consists of the
same seven members (the "VK Board") for each VK Fund.

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

The AC Board and the VK Board created a joint committee (the "Joint
Committee") to consider the possible costs and benefits to shareholders
associated with the Consolidation. The Joint Committee met on

6
<PAGE> 13

February 20, 1995 to identify and discuss the possible costs and benefits of the
Consolidation to the shareholders. Following such meeting, the Joint Committee
requested certain additional information from Management with respect to those
possible costs and benefits identified by the Joint Committee.

The AC Board and the VK Board held a joint meeting on March 14, 1995 for
the purpose of, among other things, reviewing the findings of the Joint
Committee and reviewing the additional information requested from Management. At
the meeting, the AC Board and the VK Board each approved in principle certain
elements of the Consolidation, including the combination of the VK Board and the
AC Board, subject to the favorable resolution of certain outstanding
administrative matters with respect to the operation of a combined board and
subject to receiving certain additional information from Management. The AC
Board and the VK Board also considered reorganizing the AC Funds and the VK
Funds (excluding the VK Pennsylvania Fund) in one jurisdiction under
substantially similar charter documents, as part of the Consolidation.

The Joint Committee met again on March 27, 1995 and April 3, 1995 to
address the open administrative matters and to review the additional information
provided by Management. Following discussion of such matters and a review of the
additional information provided by Management, the Joint Committee recommended
to the AC Board that it approve and propose to the shareholders of the AC Funds:
(i) combining the AC Board and the VK Board, and (ii) reorganizing each of the
AC Funds and each of the VK Funds (excluding the VK Pennsylvania Fund) as
Delaware business trusts (or series thereof) in order to facilitate governance
of the AC Funds and the VK Funds under uniform organizational documents
following the Consolidation and in order to take advantage of certain beneficial
aspects of Delaware law with respect to business trusts. The Joint Committee
also made analogous recommendations to the VK Board.

The AC Board and the VK Board held joint meetings on April 6-7, 1995 and
separate meetings on May 11-12, 1995 and May 8-9, 1995, respectively, at which
the AC Board and the VK Board unanimously approved proposals for combining the
AC Board and the VK Board and reorganizing each of the AC Funds and VK Funds
(excluding the VK Pennsylvania Fund) as Delaware business trusts. The VK Board
also unanimously approved amending and restating the Agreement and Declaration
of Trust of the Pennsylvania Fund to conform it to the extent practicable with
the new trust instrument of the Delaware business trusts while maintaining the
tax benefits of operating as a Pennsylvania trust. Each of the AC Board and the
VK Board also approved submitting such proposals to the respective shareholders
of the AC Funds and the VK Funds to obtain the requisite shareholder approvals.
Proposal 1 of this Proxy Statement seeks shareholder approval to reorganize each
of the AC Funds that are organized as Massachusetts business trusts (or series
thereof) into Delaware business trusts (or series thereof). Proposal 2 of this
Proxy Statement seeks shareholder approval to reorganize each of the AC Funds
organized as Maryland corporations (or series thereof) into Delaware business
trusts (or series thereof). Proposal 3 of this Proxy Statement seeks shareholder
approval for each of the AC Entities to expand the number of the trustees or
directors, as the case may be, of each AC Board ("the AC Board Members") from
eight to fourteen and to re-elect to the AC Board the incumbent AC Board Members
and to elect six members of the VK Board to the AC Board. The AC Board has
determined that reorganizing each of the AC Funds into Delaware business trusts
(or series thereof) and consolidating the AC Board and the VK Board are
essential elements of the Consolidation and recommend that shareholders vote FOR
Proposal 1, FOR Proposal 2 and IN FAVOR of each of the nominees named in
Proposal 3.

This Proxy Statement has been prepared and mailed to the shareholders of
each AC Fund to obtain the necessary shareholder approvals for the AC Funds to
complete the Consolidation. A substantially similar

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<PAGE> 14

proxy statement with respect to such proposals has been prepared and mailed to
the shareholders of each VK Fund to obtain the necessary shareholder approvals
for the VK Funds to complete the Consolidation. Certain additional matters not
related to the Consolidation are included in the proxy statements being sent to
the shareholders of the VK Funds, which additional matters are not included in
this Proxy Statement.

PROPOSAL 1: APPROVAL OF THE REORGANIZATION AND CONVERSION OF EACH
MASSACHUSETTS FUND TO A DELAWARE BUSINESS TRUST
(OR SERIES THEREOF)

The AC Board has unanimously approved an Agreement and Plan of
Reorganization and Liquidation (a "Plan of Reorganization") substantially in the
form attached hereto as Appendix A with respect to each AC Fund organized as a
Massachusetts Fund. The Plans of Reorganization provide for the reorganization
(the "Reorganization") of each Massachusetts Fund into a Delaware business trust
(each a "Delaware Trust") or a series thereof (the separate series of the
Delaware Trusts and the Delaware Trusts that are not series companies are
referred to hereinafter as the "Delaware Funds"). Each of the VK Funds
(excluding the VK Pennsylvania Fund) also is seeking approval from their
respective shareholders to reorganize as Delaware Funds.

REASONS FOR THE REORGANIZATIONS

The principal purposes of the Reorganizations are to take advantage of
certain beneficial aspects of Delaware law with respect to business trusts and
to facilitate governance of the AC Funds and the VK Funds under substantially
uniform organizational documents following the Consolidation.

Delaware law provides that the shareholders of a Delaware business trust
shall not be subject to liability for obligations of the trust. Under
Massachusetts law, Massachusetts business trust shareholders are potentially
liable for obligations of the Massachusetts business trust. Although the risk of
such liability is remote, the AC Board has determined that Delaware law affords
greater protection against potential shareholder liability. Similarly, Delaware
law provides that, should the Delaware Funds issue multiple series of shares,
each series shall not be liable for the debts of any other series, which
liability is another potential, although remote, risk in the case of a
Massachusetts business trust.

The AC Board believes that the Delaware business trust form of organization
may enable the Delaware Funds to adopt new methods of operations and employ new
technologies that are expected to reduce costs of operation when, and if,
implemented. Delaware law, for example, explicitly authorizes electronic or
telephonic communications between a Delaware Fund and its shareholders. The AC
Board hopes to take advantage of this provision to improve shareholder voting
procedures and to reduce costs. Under Delaware law and the proposed trust
instrument of the Delaware Trusts, the Delaware Funds may be required to have
fewer shareholder meetings, potentially further reducing costs, although neither
Massachusetts business trusts nor Delaware business trusts are required to hold
annual shareholder meetings. Of course, the investment objectives of each
Massachusetts Fund will remain unchanged. In addition, the fundamental
investment restrictions of both the Massachusetts Funds and the Delaware Funds
will remain fundamental, and may be changed only by shareholder vote.

The AC Board and the VK Board also have determined that substantially
uniform organizational documents will facilitate their ability to jointly govern
the AC Funds and the VK Funds in an efficient and

8
<PAGE> 15

timely manner and will enhance the ability of the AC Funds and the VK Funds to
react in a consistent manner when faced with similar corporate governance
issues.

For a more detailed comparison of the Massachusetts Funds' declarations of
trust and the proposed Delaware trust instrument, see "Certain Comparative
Information About Massachusetts Trusts and Delaware Trusts" below.

PROCEDURES FOR REORGANIZATION

In order to accomplish the Reorganizations, each Massachusetts Trust has
organized a corresponding Delaware Trust. Each Delaware Trust was formed as a
Delaware business trust pursuant to an Agreement and Declaration of Trust (the
"Trust Instrument"). Each Massachusetts Trust that has issued one or more series
of shares has caused its corresponding Delaware Trust to create a series (i.e.,
a Delaware Fund) that corresponds to each series (i.e., each Massachusetts Fund)
of the Massachusetts Trust. The investment objectives and policies of each
Delaware Fund are the same as those of its corresponding Massachusetts Fund.

To facilitate the Reorganizations, one share of each class of each Delaware
Fund will be issued to its corresponding Massachusetts Fund. If the Plan of
Reorganization of a Massachusetts Fund is approved by its shareholders, such
approval shall authorize the Massachusetts Fund, as sole shareholder of the
corresponding Delaware Fund, to (i) elect as trustees of the Delaware Trust the
nominees elected as trustees of the corresponding Massachusetts Trust pursuant
to Proposal 3 hereof, (ii) approve or disapprove the selection of the
independent public accountants described in Proposal 4 hereof, (iii) approve an
investment advisory agreement (a "New Advisory Agreement") between the Delaware
Fund and the AC Adviser substantially identical to the investment advisory
agreement currently in effect between the current fund and the AC Adviser, (iv)
approve, if applicable, a new investment sub-advisory agreement (a "New
Sub-Advisory Agreement") between the AC Adviser and the sub-adviser
substantially identical to the investment sub-advisory agreement currently in
effect and (v) approve, if applicable, Rule 12b-1 plans and service agreements
(each a "New 12b-1 Plan" and a "New Service Agreement", respectively) between
the respective Delaware Fund and Van Kampen American Capital Distributors, Inc.
(the "Distributor") substantially identical to the Rule 12b-1 plans and service
agreements currently in effect between the Massachusetts Fund and the
Distributor.

On the effective date of each Reorganization approved by shareholders, each
Massachusetts Fund will transfer all of its assets and liabilities to its
corresponding Delaware Fund in exchange for shares of such Delaware Fund having
an equal net asset value. The Massachusetts Fund will then be liquidated and
each shareholder of the Massachusetts Fund will receive for his or her Shares of
the Massachusetts Fund an equal number of shares of the corresponding Delaware
Fund. A shareholder's investment in the Massachusetts Fund will remain exactly
the same after the Reorganization and the corresponding Delaware Fund will
operate with the same investment objectives, policies and restrictions as the
corresponding Massachusetts Fund had in the past.

If shareholders of a Massachusetts Fund do not approve its Reorganization,
the Massachusetts Fund will continue in business as a Massachusetts business
trust (or series thereof, as applicable). The consummation of the Reorganization
of any one Massachusetts Fund is not contingent upon the consummation of the
Reorganization of any other AC Funds or VK Funds, individually or as a group.

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<PAGE> 16

It will not be necessary for holders of certificates of the Massachusetts
Funds to exchange their certificates for new certificates of the corresponding
Delaware Funds following consummation of the Reorganizations. Certificates for
shares of the Massachusetts Funds issued prior to the Reorganizations shall
represent outstanding shares of the corresponding Delaware Funds after the
Reorganizations. New certificates will not be issued by the Delaware Funds after
the Reorganizations to shareholders of the Delaware Funds unless specifically
requested in writing. Shareholders of the Massachusetts Funds who have not been
issued certificates and whose shares are held in an open account will
automatically have those shares designated similarly as shares of the
corresponding Delaware Fund.

Each Reorganization approved by shareholders will become effective as soon
as practicable following receipt of such approval, taking into consideration all
of the elements of the Consolidation. At such time as a Reorganization becomes
effective, the respective New Advisory Agreement, New Sub-Advisory Agreement, if
applicable, New Rule 12b-1 Plan and New Service Agreement also will become
effective, and will continue thereafter if approved as required by the
Investment Company Act of 1940, as amended (the "1940 Act").

CERTAIN COMPARATIVE INFORMATION ABOUT MASSACHUSETTS TRUSTS AND DELAWARE TRUSTS

Summary of the Trust Instrument. Each Delaware Trust has been established
pursuant to a Trust Instrument under the laws of the State of Delaware. The
Trust Instrument of each Delaware Trust created in connection with the
Reorganizations of the AC Funds is identical, except for the name of the
respective Delaware Trusts. The investment objectives, policies and limitations
of each Delaware Fund after the Reorganization will be the same as those of its
corresponding Massachusetts Fund. Prior to the Reorganizations, each Delaware
Fund will not have any material assets or liabilities. During the
Reorganization, the Massachusetts Fund will be the sole shareholder of its
corresponding Delaware Fund immediately prior to the distribution of Delaware
Fund shares to Massachusetts Fund shareholders.

As a Delaware business trust, each Delaware Trust's operations will be
governed by its Trust Instrument, its By-Laws and applicable Delaware law rather
than by the Massachusetts Fund's Declaration of Trust, By-Laws and applicable
Massachusetts law. The operations of each Delaware Trust will continue to be
subject to the provisions of the 1940 Act, the rules and regulations of the
Securities and Exchange Commission (the "SEC") thereunder, and applicable state
securities law. The By-Laws of each Delaware Trust would include new provisions
requiring that the chairman of the board be a trustee who is not an interested
person of the AC Adviser or the respective Delaware Trust and that the number of
Trustees shall be fourteen, provided that such number shall be reduced over time
until the number of trustees is eight. In addition, a provision would be added
to the By-Laws of each Delaware Trust requiring the affirmative vote of at least
two-thirds of the trustees to amend such new provisions of the By-Laws and to
amend the provisions of such By-Laws relating to: (i) the mandatory retirement
age of the trustees, (ii) nominating or electing new trustees, (iii) adopting a
retirement plan other than a deferred compensation plan or (iv) amending this
supermajority provision of the By-Laws.

Trustees of the Delaware Trusts. Subject to the provisions of the Trust
Instrument, the business of each Delaware Trust is supervised by its trustees.
The responsibilities, powers, and fiduciary duties of the trustees of the
Delaware Trusts will be substantially the same as those of trustees of the
Massachusetts Trusts. The Declarations of Trust of the Massachusetts Trusts
permit the AC Board to remove a trustee with or without cause by action of
two-thirds of the trustees. The provisions of the Trust Instruments of each
Delaware Trust

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<PAGE> 17

would permit the AC Board to remove a trustee for cause by action of two-thirds
of the trustees. The Delaware Trust Instrument also would require a
supermajority vote of 80% of the trustees or the vote of a majority of the
outstanding Shares of the respective Delaware Trust to amend such removal
provision. The trustees of each Delaware Trust would be all of the incumbent
trustees of each current Massachusetts Trust plus, if the respective
Consolidation is approved by shareholders of the respective Massachusetts Trust,
the members of the VK Board nominated below in Proposal 3; provided that such
nominees are elected by shareholders at the Meeting.

Series of Delaware Trusts and Massachusetts Trusts. The Trust Instrument of
each Delaware Trust would permit the trustees thereof to create one or more
series of the Delaware Trust and, with respect to each series, to issue an
unlimited number of full or fractional shares of that series or of one or more
of the classes of shares of that series. The trustees of each Massachusetts
Trust have identical rights under the Massachusetts Declaration of Trust. Each
share of a series of a Delaware Trust, like each share of a series of a
Massachusetts Trust, represents an equal proportionate interest with each other
share in that series, none having priority or preference over another.

Delaware Trust Shareholder Liability and Massachusetts Trust Shareholder
Liability. One area of difference between Delaware business trusts and
Massachusetts business trusts is the potential liability of shareholders.
Generally, shareholders of a Delaware business trust are not personally liable
for obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act (the "Delaware Act") provides that a shareholder of a
Delaware business trust shall be entitled to the same limitation of liability
extended to shareholders of private, for profit corporations. However, no
similar statutory or other authority limiting business trust shareholder
liability applies in many other states, including Massachusetts. As a result, to
the extent that the Delaware Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Delaware Trust shareholders to liability. To guard
against this risk, the Trust Instrument (i) contains an express disclaimer of
shareholder liability for acts or obligations of the Delaware Trust and requires
that notice of such disclaimer be given in each agreement, obligation and
instrument entered into by the Delaware Trust or its trustees and (ii) provides
for indemnification out of the series or fund property of any shareholder held
personally liable for the obligations of the Delaware Trust. Thus, the risk of a
Delaware Trust shareholder incurring financial loss beyond his or her investment
because of shareholder liability is limited to circumstances in which (1) a
court refused to apply Delaware law, (2) no contractual limitation of liability
was in effect, and (3) the series itself would be unable to meet its
obligations. In light of Delaware law, the nature of the Delaware Trust's
business, and the nature of its assets, the AC Adviser believes that the risk of
personal liability to a Delaware Trust shareholder is extremely remote.

Shareholders of a Massachusetts business trust may, in certain
circumstances, be held personally liable under Massachusetts law for the
obligations of the Massachusetts Trust. The Massachusetts Declaration of Trust,
like the Delaware Trust Instrument, contains an express disclaimer of
shareholder liability and requires that notice of such disclaimer be given in
each agreement entered into or executed by the Massachusetts Trusts or the
trustees. The Massachusetts Declaration of Trust also provides for
indemnification out of the respective Massachusetts Fund's property. Thus, the
AC Adviser believes the risk of shareholder liability is also remote for
shareholders of Massachusetts business trusts. Shareholders of a Massachusetts
business trust, however, do not benefit from a statutory limitation of liability
that is available to shareholders of a Delaware business trust.

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<PAGE> 18

Liability of Trustees. The Delaware Trust Instrument provides that the
trustees shall not be liable to any person other than the Delaware Trust or a
shareholder thereof and that a trustee shall not be liable for any act as a
trustee; but nothing in the Delaware Trust Instrument protects a trustee against
any liability to the Delaware Trust or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The Massachusetts Declaration of Trust provides substantially similar
protections to trustees of the Massachusetts Trusts.

Voting Rights of Massachusetts and Delaware Trust Shareholders. Neither
Massachusetts business trusts nor Delaware business trusts are required to hold
annual meetings. The Declaration of Trust of each Massachusetts Trust requires
the affirmative vote of two-thirds of the shares of each series of a
Massachusetts Trust to remove a trustee of such Massachusetts Trust. The Trust
Instrument of a Delaware Trust would require the affirmative vote of a majority
of the shares of each series of a Delaware Trust to remove a trustee. The
Delaware Trust Instrument also would require a supermajority vote of 80% of the
trustees or the vote of a majority of the outstanding shares of the respective
Delaware Trust to amend such removal provision. The Declaration of Trust and
Trust Instrument each, in substance, provide that a special meeting of
shareholders may be called by the holders of 10% or more of the shares, and that
10 or more holders of record (who have been holders of record for six months),
and who hold in the aggregate either shares having net asset value of at least
$25,000 or at least 1% of the shares, whichever is greater, may apply to the
trustees stating that they wish to communicate with shareholders in order to
obtain the call by 10% of the outstanding shares, in which case the trustees
shall cooperate with such shareholders as required under Section 16(c) of the
1940 Act.

Each Delaware Trust, like its corresponding Massachusetts Trust, will
operate as an open-end management investment company registered with the SEC
under the 1940 Act. Shareholders of each Delaware Fund will, therefore, have the
power to vote at special meetings with respect to, among other things, changes
in fundamental investment policies and limitations of their respective Delaware
Fund; ratification of the selection by the trustees of the independent public
accountants for the Delaware Fund; and such additional matters relating to the
Delaware Fund as may be required by law, or which the trustees consider
desirable. If, at any time, less than two-thirds of the trustees holding office
have been elected by shareholders, the trustees then in office will promptly
call a meeting of shareholders of the affected Delaware Trust for the purpose of
electing a board of trustees. Each Massachusetts Trust intends to notify the SEC
that its corresponding Delaware Trust will succeed to the Shares registered by
the Massachusetts Trust under the Securities Act of 1933.

The Delaware Trust Instrument, like the Massachusetts Declaration of Trust,
provides that shareholders shall have the power to vote only with respect to
(i) the election or removal of trustees as provided therein, (ii) the approval
or termination of investment advisory or distribution contracts, or, (iii) the
termination or reorganization of the Delaware Trust or any series of the
Delaware Trust, and (iv) with respect to such additional matters as may be
required by law or the trustees may consider desirable. The Delaware Trust
Instrument also permits the trustees to amend the Delaware Trust Instrument,
except that shareholders shall have the right to vote on any amendment adversely
affecting their rights, on any amendment required by law or the Delaware Trust's
registration statement, or on any matter submitted to shareholders by the
trustees. The Massachusetts Declaration of Trust generally gives shareholders
substantially similar voting rights. Both the Delaware Trust Instrument and the
Massachusetts Declaration of Trust requires a majority of shares to establish
quorum for a meeting.

The foregoing is only a summary of certain of the differences between the
Massachusetts Funds, their Declarations of Trust and By-laws and Massachusetts
law and the Trust Instruments of the Delaware Funds,

12
<PAGE> 19

their By-laws and Delaware law. It is not a complete list of differences.
Shareholders should refer to the provisions of such Declarations of Trust,
By-laws and Massachusetts law, and the Trust Instrument, By-laws and Delaware
law directly for a more thorough comparison.

TEMPORARY AMENDMENT TO INVESTMENT LIMITATIONS

During the period prior to its Reorganization, each Massachusetts Fund will
own the only outstanding share of its corresponding Delaware Fund. By acquiring
a nominal share of its corresponding Delaware Trust, the Massachusetts Trust can
then elect as trustees of such Delaware Trust, the nominees named in Proposal 3
below, provided that shareholders of the Massachusetts Trust elect such nominees
at the Meeting, approve the New Investment Advisory Agreement, approve the New
Sub-Advisory Agreement, if applicable, approve the New Distribution Plan and New
Service Agreement and ratify the selection of independent public accountants, in
order to comply with the provisions of the 1940 Act requiring such shareholder
approvals.

Certain of the Massachusetts Funds have investment restrictions which
require shareholder approval before they can be changed and which might
otherwise preclude such Massachusetts Fund from completing the Reorganization
including (for example) restrictions which prohibit such Massachusetts Fund from
purchasing any securities (other than tax-exempt obligations issued or
guaranteed by the United States Government or by its agencies or
instrumentalities), if, as a result, more than 5% of the Massachusetts Fund's
total assets (taken at current value) would then be invested in securities of a
single issuer or, if, as a result, such Fund would hold more than 10% of the
outstanding voting securities of an issuer, or a prohibition against making
investments for the purpose of exercising control or participating in
management. By approving the Reorganizations, the shareholders will be
authorizing a suspension of any and all of these restrictions only to the extent
necessary to permit the Reorganizations to take place.

FEDERAL INCOME TAX CONSEQUENCES

It is anticipated that the transactions contemplated by the Plans of
Reorganization will be tax-free. Consummation of each Reorganization is subject
to receipt of an opinion of O'Melveny & Myers, counsel to each Massachusetts
Fund, that, under the Internal Revenue Code of 1986, as amended (the "Code"),
the Reorganization of the respective Massachusetts Fund into a Delaware Fund
pursuant to a Plan of Reorganization will not give rise to the recognition of
income, gain or loss for federal income tax purposes to the Massachusetts Fund,
the Massachusetts Trust or the shareholders of the Massachusetts Fund. A
shareholder's adjusted basis for tax purposes in shares of a Delaware Fund after
the Reorganizations will be the same as his adjusted basis for tax purposes in
the shares of the corresponding Massachusetts Fund immediately before the
Reorganizations. Each shareholder should consult his own tax adviser with
respect to the state and local tax consequences of the proposed transaction.

EXPENSES

The expenses related to the Reorganization of each Massachusetts Fund into
a Delaware Fund will be borne by Van Kampen American Capital and each respective
Massachusetts Fund as set forth under "EXPENSES" below.

RECOMMENDATION OF TRUSTEES

The AC Board has unanimously approved the proposed Reorganization of each
Massachusetts Fund and has determined that participation in such Reorganization
is in the best interests of each Massachusetts Fund

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<PAGE> 20

and that the interests of existing shareholders of each Massachusetts Fund will
not be diluted as a result of the Reorganization. The AC Board recommends that
shareholders of each Massachusetts Fund vote FOR Proposal 1.

REQUIRED VOTE

In accordance with the Declaration of Trust of each Massachusetts Fund, an
affirmative vote of a majority of the outstanding Shares of the respective
Massachusetts Fund entitled to vote on the proposal is required to approve the
respective Reorganization and subsequent liquidation and dissolution of the
respective Massachusetts Fund.

PROPOSAL 2: APPROVAL OF REORGANIZATION AND CONVERSION OF EACH
MARYLAND FUND TO A DELAWARE BUSINESS TRUST (OR SERIES THEREOF)

The AC Board has unanimously approved an Agreement and Plan of
Reorganization and Liquidation (a "Plan of Reorganization") substantially in the
form attached hereto as Appendix B with respect to each AC Fund organized as a
Maryland Fund. The Plans of Reorganization provide for the reorganization (the
"Reorganization") of each Maryland Fund into a Delaware business trust (each a
"Delaware Trust") or a series thereof (the separate series of the Delaware
Trusts and the Delaware Trusts that are not series companies are referred to
hereinafter as "Delaware Funds"). Each of the VK Funds (excluding the VK
Pennsylvania Fund) also is seeking approval from their respective shareholders
to reorganize as Delaware Funds.

REASONS FOR THE REORGANIZATIONS

Delaware law provides that the trustees of a Delaware business trust may
authorize for issuance an unlimited number of shares. Maryland corporate law
provides that the Articles of Incorporation of a Maryland corporation must set
forth the number of shares for issuance. In addition, Delaware law with respect
to business trusts has been specifically drafted to accommodate the unique
corporate governance needs of investment companies and provides that its policy
is to give maximum freedom of contract to the trust instrument of a Delaware
business trust. Maryland corporate law, although it contains many provisions
specifically applicable to investment companies, is less customized for use by
investment companies.

The AC Board believes that the Delaware business trust form of organization
may enable the Delaware Funds to adopt new methods of operation and employ new
technologies that are expected to reduce costs of operation when, and if,
implemented. Delaware law, for example, explicitly authorizes electronic or
telephonic communications between shareholders and the Delaware Funds. The AC
Board hopes to take advantage of this provision to improve shareholder voting
procedures and reduce costs. Under Delaware law and the proposed trust
instruments of the Delaware Trusts, the Delaware Funds may be required to have
fewer shareholder meetings, potentially further reducing costs, although neither
Maryland corporations nor Delaware business trusts are required to hold annual
shareholder meetings. Of course, the investment objectives of

14
<PAGE> 21

each Maryland Fund will remain unchanged. In addition, the fundamental
investment restrictions of both the Maryland Funds and Delaware Funds will
remain fundamental, and may be changed only by shareholder vote.

The AC Board and the VK Board also have determined that uniform charter
documents will facilitate their ability to jointly govern the Funds and the VK
Funds in an efficient and timely manner and will enhance the ability of the AC
Funds and the VK Funds to react in a consistent manner when faced with similar
corporate governance issues.

For a more detailed comparison of the Maryland Fund's articles of
incorporation and the proposed Delaware trust instrument, see "Certain
Comparative Information About Maryland Funds and Delaware Funds" below.

PROCEDURES FOR REORGANIZATION

In order to accomplish the Reorganizations, each Maryland Corporation has
organized a corresponding Delaware Trust. Each Delaware Trust was formed as a
Delaware business trust pursuant to an Agreement and Declaration of Trust (the
"Trust Instrument"). Each Maryland Corporation that has issued one or more
series of shares has caused its corresponding Delaware Trust to create a series
(i.e., a Delaware Fund) that corresponds to each series (i.e. each Maryland
Fund) of the Maryland Corporation. The investment objectives and policies of
each Delaware Fund are the same as those of its corresponding Maryland Fund.

To facilitate the Reorganizations, one share of each Delaware Fund has been
issued to its corresponding Maryland Fund. If the Plan of Reorganization of a
Maryland Fund is approved by its shareholders, such approval shall authorize the
Maryland Fund, as sole shareholder of the corresponding Delaware Fund, to (i)
elect as trustees of the Delaware Trust the nominees elected as directors of the
corresponding Maryland Corporation pursuant to Proposal 3 hereof, (ii) approve
or disapprove the selection of the independent public accountants described in
Proposal 4 hereof, (iii) approve an investment advisory agreement (a "New
Advisory Agreement") between the Delaware Fund and the AC Adviser substantially
identical to the investment advisory agreement currently in effect between the
current fund and the AC Adviser (iv) approve, if applicable, a new investment
sub-advisory agreement (a "New Sub-Advisory Agreement") between the AC Adviser
and a sub-adviser substantially identical to the investment sub-advisory
agreement currently in effect, and (v) approve, if applicable, a Rule 12b-1 plan
and a service agreement (a "New 12b-1 Plan" and a "New Service Agreement",
respectively) between the respective Delaware Fund and the Distributor
substantially identical to the Rule 12b-1 plan and service agreement currently
in effect between the Maryland Fund and the Distributor.

On the effective date of each Reorganization approved by shareholders, each
Maryland Fund will transfer all of its assets and liabilities to its
corresponding Delaware Fund in exchange for shares of such Delaware Fund having
an equal net asset value. The Maryland Fund will then be liquidated and each
shareholder of the Maryland Fund will receive for his or her Shares an equal
number of full and fractional shares of the corresponding Delaware Fund. A
shareholder's investment in the Maryland Fund will remain exactly the same after
the Reorganization and the corresponding Delaware Fund will operate with the
same investment objectives, policies and restrictions as the corresponding
Maryland Fund had in the past.

If shareholders of a Maryland Fund do not approve its Reorganization, the
Maryland Fund will continue in business as a Maryland corporation (or series
thereof, as applicable.) The consummation of the

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<PAGE> 22

Reorganization of any one Maryland Fund is not contingent upon the consummation
of the Reorganization of any other AC Funds or VK Funds, individually or as a
group.

It will not be necessary for holders of certificates of the Maryland Funds
to exchange their certificates for new certificates following consummation of
the Reorganizations. Certificates for shares of the Maryland Funds issued prior
to the Reorganizations shall represent outstanding shares of the corresponding
Delaware Funds after the Reorganizations. New certificates will not be issued by
the Delaware Funds after the Reorganizations to shareholders of the Delaware
Funds unless specifically requested in writing. Shareholders of the Maryland
Funds who have not been issued certificates and whose shares are held in an open
account will automatically have those shares designated similarly as shares of
the corresponding Delaware Fund.

Each Reorganization approved by shareholders will become effective as soon
as practicable following receipt of such approval, taking into consideration all
of the elements of the Consolidation. At such time as a Reorganization becomes
effective, the respective New Advisory Agreement, New Sub-Advisory Agreement, if
applicable, New 12b-1 Plan and New Service Agreement also will become effective
and will continue thereafter if approved as required by the 1940 Act.

CERTAIN COMPARATIVE INFORMATION ABOUT MARYLAND FUNDS AND DELAWARE FUNDS

Summary of the Trust Instrument. Each Delaware Trust has been established
pursuant to a Trust Instrument under the laws of the State of Delaware. The
Trust Instrument of each Delaware Trust created in connection with the
Reorganizations of the AC Funds is identical, except for the name of the
respective Delaware Trusts. The investment objectives, policies and limitations
of each Delaware Fund after the Reorganization will be the same as those of its
corresponding Maryland Fund. Prior to the Reorganizations, each Delaware Fund
will not have any assets or liabilities. During the Reorganization, the Maryland
Fund will be the sole shareholder of its corresponding Delaware Fund immediately
prior to the distribution of Delaware Fund shares to Maryland Fund shareholders.

As a Delaware business trust, each Delaware Trust's operations will be
governed by its Trust Instrument, its By-Laws and applicable Delaware law rather
than by the Current Maryland Fund's Articles of Incorporation, By-Laws and
applicable Maryland law. The operations of each Delaware Trust will continue to
be subject to the provisions of the 1940 Act, the rules and regulations of the
SEC thereunder, and applicable state securities law. The By-Laws of each
Delaware Trust would include new provisions requiring that the chairman of the
board be a trustee who is not an interested person of the AC Adviser or the
respective Delaware Fund and that the number of Trustees shall be fourteen,
provided that such number shall be reduced over time until the number of
trustees is eight. In addition, a provision would be added to the By-Laws of
each Delaware Trust requiring the affirmative vote of at least two-thirds of the
Trustees to amend such new provisions of the By-Laws and to amend the provisions
of such By-Laws relating to: (i) the mandatory retirement age of the trustees,
(ii) nominating or electing new trustees, (iii) adopting a retirement plan other
than a deferred compensation plan or (iv) amending this supermajority provision
of the By-Laws.

Trustees of the Delaware Trusts. Subject to the provisions of the Trust
Instrument, the business of each Delaware Trust is supervised by its Trustees.
The responsibilities, powers, and fiduciary duties of the Trustees of the
Delaware Trusts will be substantially the same as those of the Directors of the
Maryland corporations. Under Maryland law, a director of the Maryland Funds may
be removed with or without cause only by the affirmative vote of a majority of
Shares entitled to vote for the election of directors. The provisions of the
Trust

16
<PAGE> 23

Instrument would permit the AC Board to remove a Trustee for cause by action of
two-thirds of the Trustees. The Trust Instrument also would require a
supermajority vote of 80% of the Trustees or the vote of a majority of the
outstanding shares of the respective Delaware Trust to amend such removal
provision. The trustees of each Delaware Trust would be all of the incumbent
directors of each current Maryland Corporation plus, if the respective
Consolidation is approved by shareholders of the respective Maryland Fund, the
members of the VK Board set forth below in Proposal 3.

Series of Delaware Trusts and Maryland Corporations. The Trust Instrument
of each Delaware Trust permits the Trustees thereof to create one or more series
of the Delaware Trust and, with respect to each series, to issue an unlimited
number of full or fractional shares of that series or of one or more classes of
shares of that series. The Directors of each Maryland Corporation have identical
rights under their Articles of Incorporation, except that they are required to
specify a fixed number of shares authorized for issuance. Each share of a series
of a Delaware Trust like each share of a series of a Maryland corporation,
represents an equal proportionate interest with each other share in that series,
none having priority or preference over another.

Delaware Trust Shareholder Liability and Maryland Corporation Shareholder
Liability. One area of difference between the two forms of organizations is the
potential liability of shareholders. Generally, shareholders of a Delaware
business trust are not personally liable for obligations of the Delaware Trust
under Delaware law. The Delaware Business Trust Act (the Delaware Act) provides
that a shareholder of a Delaware business trust shall be entitled to the same
limitation of liability extended to shareholders of private, for profit
corporations. However, no similar statutory or other authority limiting business
trust shareholder liability applies in many other states. As a result, to the
extent that the Delaware Trust or a shareholder is subject to the jurisdiction
of courts in those states, the courts may not apply Delaware law, and may
thereby subject the Delaware Trust shareholders to liability. To guard against
this risk, the Trust Instrument (i) contains an express disclaimer of
shareholder liability for acts or obligations of the Delaware Trust and requires
that notice of such disclaimer be given in each agreement, obligation and
instrument entered into by the Delaware Trust or its Trustees and (ii) provides
for indemnification out of the series or fund property of any shareholder held
personally liable for the obligations of the Delaware Trust. Thus, the risk of a
Delaware Trust shareholder incurring financial loss beyond his or her investment
because of shareholder liability is limited to circumstances in which (1) a
court refused to apply Delaware law, (2) no contractual limitation of liability
was in effect, and (3) the series or fund itself would be unable to meet its
obligations. In light of Delaware law, the nature of the Delaware Trust's
business, and the nature of its assets, the Adviser believes that the risk of
personal liability to a Delaware Trust shareholder is extremely remote.

Shareholders of a Maryland corporation currently have no personal liability
for the corporation's acts or obligations, except that a shareholder may be
liable to the extent that: (1) the dividends he receives exceed the amount which
properly could have been paid under Maryland law, (2) the consideration paid to
him by the Maryland corporation for his stock was paid in violation of Maryland
law or (3) he otherwise receives any distribution, payment or release which
exceeds the amount which he could properly receive under Maryland law.

Liability of Trustees. Maryland law provides that in addition to any other
liability imposed by law, the Directors may be liable to a Maryland corporation:
(1) for voting or assenting to the declaration of any dividend or other
distribution of assets to shareholders which is contrary to Maryland law, (2)
for voting or

17
<PAGE> 24

assenting to certain distributions of assets to shareholders during liquidation
of the corporation and (3) for voting or assenting to a repurchase of the shares
of a Maryland corporation in violation of Maryland law. In the event of any
litigation against the Directors or officers of a Maryland Fund, Maryland law
permits such fund to indemnify a Director or officer for certain expenses and to
advance money for such expenses only if he demonstrates that he acted in good
faith and reasonably believed that his conduct was in the best interest of such
fund. The Delaware Trust Instrument provides that the Trustees shall not be
liable to any person other than the Delaware Trust or a shareholder thereof and
that a Trustee shall not be liable for any act as a Trustee; nothing in the
Delaware Trust Instrument protects a Trustee against any liability to the
Delaware Trust or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.

Voting Rights of Maryland Corporation and Delaware Trust Shareholders.
Neither Maryland corporations nor Delaware business trusts are required to hold
annual meetings. The Articles of Incorporation or By-laws of the Maryland Funds
and Trust Instrument of the Delaware Trusts each, in substance, provide that a
special meeting of shareholders may be called by the holders of 10% or more of
the shares, and, for each of the Government Securities, and , 10
or more holders of record (who have been holders of record for six months), and
who hold in the aggregate either shares having net asset value of at least
$25,000 or at least 1% of the shares, whichever is less, may apply to their
respective board of directors stating that they wish to communicate with
shareholders to request a meeting to remove any director, in which case the
board shall either provide the applicants with a list of the names and addresses
of all the respective shareholders or inform the applicants of the approximate
number of shareholders and the approximate cost of mailing the proposed request
to them.

Each Delaware Trust, like its corresponding Maryland Corporation, will
operate as an open-end management investment company registered with the SEC
under the 1940 Act. Shareholders of each Delaware Fund will, therefore, have the
power to vote at special meetings with respect to, among other things, changes
in fundamental investment policies and limitations of their respective Delaware
Fund; ratification of the selection by the trustees of the independent public
accountants for the Delaware Fund; and such additional matters relating to the
Delaware Fund as may be required by law, or which the trustees consider
desirable. If, at any time, less than two-thirds of the trustees holding office
have been elected by shareholders, the trustees then in office will promptly
call a meeting of shareholders of the affected Delaware Trust for the purpose of
electing a board of trustees. Each Maryland Corporation intends to notify the
SEC that its corresponding Delaware Trust will succeed to the Shares registered
by the Maryland Corporation under the Securities Act of 1933.

The Trust Instrument provides that shareholders shall have the power to
vote only with respect to (i) the election or removal of Trustees as provided
therein, (ii) the approval or termination of investment advisory agreements or
distribution contracts, (iii) the termination or reorganization of the Trust or
any series of the Trust, (iv) with respect to any amendment of the Trust
Instrument, (v) to the same extent as the stockholders of a Delaware business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Delaware Trust or any series or the shareholders thereof, and (vi) with
respect to such additional matters as may be required by law, the Trust
Instrument, By-Laws or as the trustees may consider necessary or desirable. The
Trust Instrument also permits the trustees to amend the Trust Instrument, except
that shareholders shall have the right to vote on any amendment adversely
affecting their rights, on any amendment required by law or the Trust's
registration

18
<PAGE> 25

statement, or on any matter submitted to shareholders by the trustees. The
Maryland Articles of Incorporation generally give shareholders substantially
similar voting rights. Both the Delaware Trust Instrument and the Maryland
Articles of Incorporation requires a majority of shares to establish quorum for
a meeting and requires the vote of a majority of the shares present in person or
by proxy at the meeting to constitute shareholder action.

Shares of the Comstock Fund have cumulative voting rights, which means that
only with regard to the election of directors, each shareholder of the Comstock
Fund has the right to cast a number of votes equal to the number of Shares owned
multiplied by the number of directors to be elected, and each shareholder may
cast the whole number of votes for one candidate or distribute such votes among
two or more candidates. Under the proposed Delaware Trust Instrument Shares of
the Comstock Fund would not have cumulative voting rights, which means with
respect to the election of trustees, each shareholder could cast a number of
votes for each nominee equal to the number of shares owned.

Right of Inspection. Maryland law provides that persons who have been
shareholders of record for six months or more and who own at least five percent
of the shares of a Current Maryland Fund may inspect the books of account and
stock ledger of the Current Maryland Fund. [Delaware Fund shareholders have the
same rights to inspect the records, accounts and books of the Delaware Fund as
are permitted shareholders of a Delaware business corporation. Currently, each
shareholder of a Delaware business corporation is permitted to inspect the
records, accounts and books of a business corporation for any legitimate
business purpose.]

The foregoing is only a summary of certain of the differences between the
Current Maryland Funds, their Articles of Incorporation and by-laws and Maryland
law and the Trust Instruments of the Delaware Funds, their By-laws and Delaware
law. It is not a complete list of differences. Shareholders should refer to the
provisions of such Articles of Incorporation, By-laws and Maryland law and the
Trust Instrument, By-laws and Delaware law directly for a more thorough
comparison.

TEMPORARY AMENDMENT TO INVESTMENT LIMITATIONS

During the period prior to its Reorganization, each Maryland Fund will own
the only outstanding share of its corresponding Delaware Fund. By acquiring a
nominal share of its corresponding Delaware Fund, the Maryland Fund can then
vote to elect as Trustees of such Delaware Fund the nominees named in Proposal 3
below, provided that shareholders of the Maryland Corporation elect such
nominees at the Meeting, approve the New Investment Advisory Agreement, approve
the New Sub-Advisory Agreement, if applicable, approve the New Distribution Plan
and New Service Agreement and ratify the selection of independent public
accountants, in order to comply with the provisions of the 1940 Act requiring
such shareholder approvals.

Certain of the Maryland Funds have investment restrictions which require
shareholder approval before they can be changed and which might otherwise
preclude such Maryland Fund from completing the Reorganization including (for
example) restrictions which prohibit such Maryland Fund from purchasing any
securities (other than tax-exempt obligations issued or guaranteed by the United
States Government or by its agencies or instrumentalities), if, as a result,
more than 5% of the Maryland Fund's total assets (taken at current value) would
then be invested in securities of a single issuer or, if, as a result, such Fund
would hold more than 10% of the outstanding voting securities of an issuer, or a
prohibition against making investments for the purpose of exercising control or
participating in management. By approving the Reorganizations, the

19
<PAGE> 26

shareholders will be authorizing a suspension of any and all of these
restrictions only to the extent necessary to permit the Reorganizations to take
place.

FEDERAL INCOME TAX CONSEQUENCES

It is anticipated that the transactions contemplated by the Plans of
Reorganization will be tax-free. Consummation of each Reorganization is subject
to receipt of an opinion of O'Melveny & Myers, counsel to each Maryland Fund,
that, under the Code, the Reorganization of the respective Maryland Fund into a
Delaware Fund pursuant to a Plan of Reorganization will not give rise to the
recognition of income, gain or loss for federal income tax purposes to the
Current Maryland Fund, the Maryland Corporation or the shareholders of the
Maryland Fund. A shareholder's adjusted basis for tax purposes in shares of a
Delaware Fund after the Reorganizations will be the same as his adjusted basis
for tax purposes in the shares of the corresponding Maryland Fund immediately
before the Reorganizations. Each shareholder should consult his own tax adviser
with respect to the state and local tax consequences of the proposed
transaction.

EXPENSES

The expenses related to the Reorganization of each Maryland Fund into a
Delaware Fund will be borne by Van Kampen American Capital and each respective
Maryland Fund as set forth under "EXPENSES" below.

RECOMMENDATION OF DIRECTORS

The AC Board has unanimously approved the proposed Reorganization of each
Maryland Fund and has determined that participation in such Reorganization is in
the best interests of each Maryland Fund and that the interests of existing
shareholders of each Maryland Fund will not be diluted as a result of the
Reorganization. The AC Board recommends that shareholders of each Maryland Fund
vote FOR Proposal 2.

REQUIRED VOTE

In accordance with the Articles of Incorporation of each Maryland Fund, an
affirmative vote of a majority of the Shares of the respective Maryland Fund
entitled to vote on the proposal is required to approve the respective
Reorganization and subsequent liquidation and dissolution of the respective
Maryland Fund.

PROPOSAL 3: ELECTION OF DIRECTORS OR TRUSTEES

At meetings held on April 6 and 7, 1995 and May 11 and 12, 1995, the AC
Board unanimously approved increasing the number of trustees for each AC Entity
from eight to fourteen and nominated each of the incumbent trustees or
directors, as the case may be, to stand for re-election and also nominated
Messrs. Philip P. Gaughan, R. Craig Kennedy, Donald C. Miller, Jack E. Nelson,
Jerome L. Robinson and Wayne W. Whalen to fill the new trustee positions. Each
of the new nominees currently serves on the VK Board. The VK Board has also
unanimously approved increasing the number of members of the VK Board from seven
to fifteen and nominated each of its incumbent trustees for re-election and each
of the members of the AC Board to fill the new positions.

20
<PAGE> 27

The AC Board together with the VK Board evaluated the benefits to
shareholders resulting from the proposed combination of the AC Board and the VK
Board. Each of the AC Board and the VK Board determined that a combined board
could more effectively seek to maximize the benefits of a unified fund complex
including: implementation of exchangeability of shares among the AC Funds and
the VK Funds; positioning the unified fund complex to maximize benefits for
marketing; more effective supervision the implementation of improved shareholder
service programs across the combined fund complex; combining historical
knowledge and experience of the two-fund complexes; more effective evaluation
potential mergers of similar funds thereby achieving economies of scale for
shareholders; and the elimination of overlapping expenses and demands on
Management's attention from two separate boards.

The AC Board also evaluated the costs to shareholders of the AC Funds
resulting from the combination of the AC Board and the VK Board. The principal
cost associated with the combination of the two boards would be the added
expense to each AC Fund of compensating five of the six additional trustees who
are not affiliated persons of the AC Adviser. In order to alleviate such
additional expense, the trustees approved a reduction in the compensation per
trustee paid by each AC Fund. Because the number of members of the AC Board will
increase from eight to fourteen, the aggregate trustee compensation paid by each
AC Fund will increase, except that the AC Adviser has agreed to reimburse each
AC Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation over such funds 1994 fiscal year aggregate compensation. It is
anticipated that by December 31, 1996, reductions in the number of trustees on
the combined board is expected to reduce the aggregate compensation of the
combined board to approximately the current aggregate compensation of the AC
Board. Because each trustee will serve on the boards of more funds after the
combination of the boards, each trustee's aggregate compensation from all of the
AC Funds and the VK Funds will increase. A comparison of each trustee's
compensation for the 1994 calendar year (prior to the consolidation of the
boards) and his pro forma compensation following the combination of the boards
is presented below in the 1994 Compensation Table and the Pro Forma Compensation
Table and is discussed in the text preceding such tables.

THE DIRECTORS/TRUSTEES

The following schedule sets forth the initial election or appointment of
each incumbent director/trustee of each AC Entity listed below:

AC ENTITIES -- BEGINNING SERVICE AS A DIRECTOR/TRUSTEE

<TABLE>
<CAPTION>
AC FUND BRANAGAN CARUSO HILSMAN POWELL REES SHEEHAN SISTO WOODSIDE
- ----------------------------------------------------- -------- ------ ------- ------ ---- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock............................................. 1991 1991 1979 1987 1968 1991 1979 1986
Corporate Bond....................................... 1991 1991 1978 1987 1980 1991 1978 1986
Emerging Growth...................................... 1991 1991 1978 1987 1980 1991 1978 1986
Enterprise........................................... 1991 1991 1980 1987 1962 1991 1980 1986
Equity Income........................................ 1991 1991 1978 1987 1979 1991 1978 1986
Federal Mortgage..................................... 1991 1991 1985 1987 1985 1991 1985 1986
*Global Managed...................................... 1993 1993 1993 1993 1993 1993 1993 1993
Government Securities................................ 1991 1991 1984 1987 1984 1991 1984 1986
Government Target.................................... 1991 1991 1990 1990 1990 1991 1990 1990
Growth & Income...................................... 1991 1991 1969 1987 1979 1991 1973 1986
Harbor............................................... 1991 1991 1979 1987 1980 1991 1979 1986
High Yield........................................... 1991 1991 1979 1987 1980 1991 1979 1986
</TABLE>

21
<PAGE> 28

<TABLE>
<CAPTION>
AC FUND BRANAGAN CARUSO HILSMAN POWELL REES SHEEHAN SISTO WOODSIDE
- ----------------------------------------------------- -------- ------ ------- ------ ---- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life Investment Trust
Government Portfolio............................... 1991 1991 1985 1987 1985 1991 1985 1986
Common Stock Portfolio............................. 1991 1991 1985 1987 1985 1991 1985 1986
Money Market Portfolio............................. 1991 1991 1985 1987 1985 1991 1985 1986
Multiple Strategy Portfolio........................ 1991 1991 1985 1987 1985 1991 1985 1986
Domestic Income Portfolio.......................... 1991 1991 1985 1987 1985 1991 1985 1986
Municipal Bond....................................... 1991 1991 1979 1987 1980 1991 1979 1986
Pace................................................. 1991 1991 1980 1987 1968 1991** 1980 1986
*Real Estate......................................... 1994 1994 1994 1994 1994 1994 1994 1994
*Small Capitalization................................ 1993 1993 1993 1993 1993 1993 1993 1993
Tax Exempt Trust
High Yield Portfolio............................... 1991 1991 1984 1987 1984 1991 1984 1986
Insured Portfolio.................................. 1991 1991 1984 1987 1984 1991 1984 1986
Texas Municipal...................................... 1991 1991 1991 1991 1991 1991 1991 1991
*U.S. Government Trust............................... 1992 1992 1992 1992 1992 1992 1992 1992
Utilities Income..................................... 1993 1993 1993 1993 1993 1993 1993 1993
World Portfolio Series
Global Equity Fund................................. 1991 1991 1991 1991 1991 1991 1991 1991
Global Government Fund............................. 1991 1991 1991 1991 1991 1991 1991 1991
</TABLE>

- ---------------
* Not yet elected by shareholders.
** Mr. Sheehan also served as a director of Pace Fund from 1972 to 1980.

With respect to each AC Fund, fourteen directors/trustees are to be elected
at the Meeting to serve until reaching their designated retirement age or until
their successors are duly elected and qualified. The election of each nominee
requires an affirmative vote of a plurality of the Shares entitled to vote
present at the Meeting in person or by proxy. Shareholders of each AC Entity
will vote together as a single class on the election of nominees for the
respective AC Entity; thus, shareholders of Global Government Fund and Global
Equity Fund will vote together as a single class to elect directors on behalf of
the American Capital World Portfolio Series, Inc., shareholders of the Common
Stock Portfolio, Strategic Income Portfolio, Money Market Portfolio, Multiple
Strategy Portfolio and Government Portfolio will vote together with the other
series of such corporation or trust as a single class to elect trustees of the
American Capital Life Investment Trust, and shareholders of the High Yield
Municipal Portfolio and Insured Municipal Portfolio will vote together as a
single class to elect trustees of the American Capital Tax-Exempt Trust. In
addition, the Comstock Fund's Shares have cumulative voting rights, which means
that each shareholder of the Comstock Fund has the right to cast a number of
votes equal to the number of Shares owned multiplied by the number of directors
to be elected, and each shareholder may cast the whole number of votes for one
candidate or distribute such votes among two or more candidates, as he or she
chooses. Unless otherwise instructed, the proxy holders intend to vote proxies
received by them for the fourteen nominees named below, reserving the right,
however, to cumulate the votes of shareholders of the Comstock Fund and
distribute them among the nominees for the Comstock Fund at the discretion of
the proxy holders. It is the intention of the persons named in the enclosed
proxy to vote the Shares represented by them for the election of the nominees
listed below unless the proxy is marked otherwise.

The proposed Delaware Trust Instrument (as discussed in Proposals 1 and 2)
provides that the combined board shall consist of not more than fourteen
trustees. In the event a vacancy occurs on the combined board, the By- Laws of
each Delaware Trust provide that the size of the combined board will be reduced
over time

22
<PAGE> 29

until the number of trustees is eight. Thereafter, subject to the provisions of
the 1940 Act, the remaining trustees shall appoint a person to fill any vacancy
for the entire unexpired term.

Following the Meeting, the AC Funds do not contemplate holding regular
meetings of shareholders to elect trustees or otherwise. When an investment
company does not hold regular annual meetings, it is the position of the staff
of the SEC and a policy of each AC Fund that holders of record of not less than
two-thirds of the outstanding shares of the investment company may file a
declaration in writing or may vote at a special meeting for the purpose of
removing a board member. The combined board will be required to promptly call a
meeting of shareholders for the purpose of voting upon the question of removal
of any such board member when requested in writing to do so by the record
holders of not less than 10% of the total outstanding shares of such AC Fund. In
addition, the combined board will comply with the requirements of Section 16(c)
of the 1940 Act with respect to communications with shareholders.

Each of the nominees named below has agreed to serve as a director/trustee,
as the case may be, if elected; however, should any nominee become unable or
unwilling to accept nomination or election, the proxies will be voted for one or
more substitute nominees designated by the AC Board.

The following sets forth the names, ages, principal occupations and other
information respecting the nominees:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------------------- -----------------------------------------------------------
<S> <C>
J. Miles Branagan................ Co-founder, Chairman, Chief Executive Officer and President
2300 205th Street of MDT Corporation, a company which develops, manufactures,
Torrance, CA 90501 markets and services medical and scientific equipment. A
Age: 62 director or trustee of the AC Funds.
Richard E. Caruso................ Chairman and Chief Executive Officer, Integra Life Sciences
Two Randor Station, Suite 314 Corporation, a firm specializing in biotechnology and life
King of Prussia Road sciences. Trustee of Susquehanna University; Trustee and
Radnor, PA 19087 First Vice President, The Baum School of Art; Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board of
Business Performance Group, London School of Economics. A
director or trustee of each of the AC Funds. Prior to
[ ], Director of First Sterling Bank, and prior
to [ ], Executive Vice President and a director of
LFC Financial Corporation, a provider of leasing financing.
</TABLE>

23
<PAGE> 30

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------------------- -----------------------------------------------------------
<S> <C>
Philip P. Gaughan................ Trustee of each of the VK Funds. Prior to February, 1989,
9615 Torresdale Avenue Managing Director and Manager of Municipal Bond Department,
Philadelphia, PA 19114 W. H. Newbold's Sons & Co.
Age: 66
Roger Hilsman.................... A director or trustee of the AC Funds. Professor of
251-1 Hamburg Cove Government and International Affairs Emeritus, Columbia
Lyme, CT 06371 University.
Age: 75
R. Craig Kennedy................. Advisor to the Dennis Trading Group Inc. Prior to 1993,
1341 East 50th Street President and Chief Executive Officer, Director and member
Chicago, IL 60615 of the Investment Committee of the Joyce Foundation, a
Age: 43 private foundation. Trustee of each of the VK Funds.
Donald C. Miller................. Chairman and Trustee of each of the VK Funds. Prior to
415 North Adams 1992, Director of Royal Group, Inc., a company in insurance
Hinsdale, IL 60515 related businesses.
Age:
Jack E. Nelson................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company. Trustee of each of the VK
Winter Park, FL 32789 Funds.
Age: 75
Don G. Powell*................... President, Chief Executive Officer and Director of VK/AC
2800 Post Oak Road Holding, Inc., Van Kampen American Capital, the AC Adviser,
Houston, TX 77056 the VK Adviser and the Distributor. Mr. Powell is also a
Age: 55 director of McCarthy, Crisanti & Maffei, Inc. and a
director or trustee of the AC Funds and various other
investment companies advised by the VK Adviser.
David Rees....................... Contributing Columnist and, prior to 1995, Senior Editor of
1601 Country Club Drive Los Angeles Business Journal. A director or trustee of the
Glendale, CA 91208 AC Funds. A director of Source Capital, Inc., a closed end
Age: 71 investment company unaffiliated with Van Kampen American
Capital, a director and the second vice president of
International Institute of Los Angeles.
Jerome L. Robinson............... President of Robinson Technical Products Corporation, a
115 River Road processor and distributor of welding alloys, supplies and
Edgewater, NJ 07020 equipment. Director of Pacesetter Software, a software
Age: 72 programming company specializing in white collar
productivity. Director and majority shareholder Hilarius
Haarlem B.V., Haarlem, Holland, a manufacturer and
distributor of welding alloys. Trustee of each of the VK
Funds.
</TABLE>

24
<PAGE> 31

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------------------- -----------------------------------------------------------
<S> <C>
Lawrence J. Sheehan*............. Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the AC
Suite 700 Funds. A director or trustee of the AC Funds. Director, FPA
Los Angeles, CA 90067 Capital Fund, Inc.; FPA New Income Fund, Inc.; FPA
Age: 62 Perennial Fund, Inc.; Source Capital, Inc.; and TCW
Convertible Security Fund, Inc.
Fernando Sisto................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Technology of Graduate School and Chairman, Department of Mechanical
Castle Point Station Engineering, Stevens Institute of Technology. Director of
Hoboken, NJ 07030 Dynalysis of Princeton, a firm engaged in engineering
Age: 70 research. Chairman of the Board and a director or trustee
of the AC Funds.
Wayne W. Whalen*................. Partner in the law firm of Skadden, Arps, Slate, Meagher &
333 West Wacker Drive Flom, counsel to the Fund. Trustee of each of the VK Funds,
Chicago, IL 60606 Van Kampen Merritt Series Trust and each of the 34
Age: 55 closed-end investment companies advised by the VK Adviser.
William S. Woodside.............. Vice Chairman of the Board of Sky Chefs, Inc., a caterer of
712 Fifth Avenue airline food. Prior to [ ], Director of
40th Floor Primerica Corporation (currently known as Travelers). Prior
New York, NY 10019 to [ ], Director of James River Corporation, [a
Age: 73 producer of] paper products. Trustee, and prior to
[ ] President, of Whitney Museum of American
Art. Chairman of Institute for Educational Leadership,
Inc., Board of Visitors, Graduate School of The City
University of New York, Academy of Political Science.
[Member of?] Committee for Economic Development. Director
of Public Education Fund Network, Fund for New York City
Public Education. Trustee of Barnard College. Member of
Dean's Council, Harvard School of Public Health. [Member
of?] Mental Health Task Force, Carter Center. A director or
trustee of the AC Funds.
</TABLE>

- ---------------
* Such nominees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Powell is an interested person of the AC Adviser and
each AC Fund by reason of his position with the AC Adviser. Mr. Sheehan and
Mr. Whalen are interested persons of the AC Adviser and each AC Fund by reason
of their respective firms having acted as legal counsel to the AC Adviser or
its direct or indirect parent corporation.

25
<PAGE> 32

As of May 26, 1995, certain nominees owned, directly or beneficially, the
number of Class A Shares of each Fund as set forth in the table below. As of May
26, 1995, no nominee owns any Class B Shares or Class C Shares of any AC Fund.

CLASS A SHARES OWNED(1)

[Delete Funds and Trustees to the extent possible if no shares are owned.]

<TABLE>
<CAPTION>
FUND NAME MR. POWELL MR. BRANAGAN MR. CARUSO MR. GAUGHAN MR. HILSMAN MR. KENNEDY MR. MILLER
- ----------------------------------- ---------- ------------ ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Comstock Fund......................
Corporate Bond Fund................
Emerging Growth Fund...............
Enterprise Fund....................
Equity Income Fund.................
Global Managed Assets Fund.........
Government Securities..............
Growth and Income Fund.............
Harbor Fund........................
High Yield Investments.............
Municipal Bond Fund................
Pace Fund..........................
Real Estate Securities
Fund.............................
Reserve Fund.......................
Small Capitalization
Fund.............................
Texas Municipal
Securities.......................
Utilities Income Fund..............
Global Government Fund.............
Global Equity Fund.................
Government Target '97..............
Federal Mortgage Trust.............
Government Trust...................
Common Stock Portfolio.............
Strategic Income Portfolio.........
Money Market Portfolio.............
Multiple Strategy
Portfolio........................
Government Portfolio...............
High Yield Municipal Portfolio.....
Insured Municipal Portfolio........
</TABLE>

26
<PAGE> 33

<TABLE>
<CAPTION>
FUND NAME MR. NELSON MR. REES MR. ROBINSON MR. SHEEHAN MR. SISTO MR. WHALEN MR. WOODSIDE
- ----------------------------- ---------- --------- ------------ ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund...........
Global Managed Assets Fund...
Government Securities........
Growth and Income Fund.......
Harbor Fund..................
High Yield Investments.......
Municipal Bond Fund..........
Pace Fund....................
Real Estate Securities
Fund.......................
Reserve Fund.................
Small Capitalization Fund....
Texas Municipal Securities...
Utilities Income Fund........
Global Government Fund.......
Global Equity Fund...........
Government Target '97........
Federal Mortgage Trust.......
Government Trust.............
Common Stock Portfolio.......
Strategic Income Portfolio...
Money Market Portfolio.......
Multiple Strategy
Portfolio..................
Government Portfolio.........
High Yield Municipal
Portfolio..................
Insured Municipal
Portfolio..................
</TABLE>

- ---------------
(1)Ownership constitutes less than 1% of the outstanding Shares of the
respective Fund.

Mr. Powell owns, or has the opportunity to purchase, an equity interest in
VK/AC Holding, Inc., the parent company of Van Kampen American Capital
Companies, and has entered into an employment contract (for a term of five
years) with Van Kampen American Capital.

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

Each of the AC Funds currently has an Executive Committee, a Nominating
Committee and an Audit Committee.

The Executive Committee, consisting of Messrs. Powell, Sheehan, Sisto and
Hilsman, may act for the board of directors between board meetings except where
board action is required by law.

The functions of the Nominating Committee are (1) selecting and
recommending to the full board of directors nominees for election as directors
and (2) proposing and recommending to the full board of directors the terms of
compensation for directors. The committee presently consists of all members of
the AC Board except Mr. Powell. The committee held two meetings during the last
fiscal year. The committee is prepared to review nominations from shareholders
to fill directorships in written communications addressed to the committee at
the respective AC Fund's headquarters, although the committee expects to be able
to identify from its own resources an ample number of qualified candidates.

27
<PAGE> 34

The Audit Committee makes recommendations to the AC Board concerning the
selection of the AC Funds' independent public accountants, reviews with such
accountants the scope and results of the annual audit and considers any comments
which the accountants may have regarding the Fund's financial statement or books
of account. The committee presently consists of all members of the AC Board
except Mr. Powell.

The Brokerage Committee monitors the AC Adviser's brokerage practices. The
committee presently consists of all members of the AC Board except Mr. Powell.

If the consolidation is approved at the Meeting, the combined board will
have two standing committees: an Audit Committee and a Brokerage Review
Committee. The AC Board anticipates that such Audit Committee and Brokerage
Review Committee will have similar responsibilities as each such committee had
prior to the Reorganizations. Each trustee not affiliated with the AC Funds or
the VK Funds will serve on one of the committees, but no trustee would serve on
more than one committee and would not receive additional compensation for
serving on a committee.

The Disinterested Trustees of each AC Entity are required to select and
nominate Disinterested Trustees and are prepared to review nominations from
shareholders to fill any vacancies in trusteeships. Nominations from
shareholders should be in writing and addressed to the Disinterested Trustees at
the respective AC Entity's office. The Disinterested Trustees of each AC Entity
expect to be able to identify from their own resources an ample number of
qualified candidates.

The compensation of directors/trustees who are affiliated persons (as
defined in the 1940 Act) of the AC Adviser, the Distributor or Van Kampen
American Capital is paid by the respective entity. Each of the AC Entities pay
compensation to the non-affiliated directors/trustees. During each AC Fund's
1994 fiscal year, each director/trustee who was not affiliated with the AC
Adviser, Distributor or Van Kampen American Capital received a retainer of
$40,000 and a meeting fee of $1,000 per meeting, plus expenses. Members of the
Audit Committee, the Brokerage Review Committee, the Executive Committee and the
Nominating Committee received $1,000 for each meeting of the respective
committee. The chairman of the board received additional fees at the annual rate
of $15,000. Retainers, meeting fees, chairman's fees and expenses were allocated
among the AC Funds based on the number of AC Funds and on each AC Fund's
respective assets. The AC Funds anticipate that, after the Meeting, each trustee
who is not affiliated with the AC Adviser, Distributor or Van Kampen American
Capital will receive a retainer of $35,000 and a meeting fee of $1,000 per
meeting of the combined board, plus expenses. These retainers, meeting fees and
expenses will be allocated among the AC Funds based on the number of AC Funds
and on each AC Fund's respective assets. No additional fees are proposed to be
paid for committee meetings or to the chairman of the board. Under each AC
Fund's deferred compensation plan, each trustee who is not affiliated with the
Adviser, the Distributor or Van Kampen American Capital can elect to defer
receipt of all or a portion of such trustee's fees earned until such trustee's
retirement. Each trustee of an AC Fund that defers compensation elects to be
credited with an earnings component on amounts deferred equal to the income
earned by the respective AC Fund on its short-term investments or equal to the
total return of the respective AC Fund. The deferred compensation plan is not
funded and obligations thereunder represent general unsecured claims against the
general assets of respective AC Fund.

28
<PAGE> 35

The following table provides summary compensation information for each of
the incumbent trustees of each Fund:

1994 COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED TOTAL
BENEFITS ACCRUAL ANNUAL COMPENSATION
AGGREGATE PER FUND BENEFITS FROM THE FUND
COMPENSATION AS PART PER FUND COMPLEX PAID
FROM EACH OF FUND UPON TO
DIRECTOR/TRUSTEE FUND EXPENSES RETIREMENT TRUSTEES(2),(3)
- -------------------------------------------------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
J. Miles Branagan........................... (4) 0 0 $64,000
Dr. Richard E. Caruso....................... (4) 0 0 $64,000
Dr. Roger Hilsman........................... (4) 0 0 $66,000
David Rees.................................. (4) 0 0 $64,000
Lawrence J. Sheehan......................... (4) 0 0 $67,000
Dr. Fernando Sisto.......................... (4) 0 0 $72,000
William S. Woodside......................... (4) 0 0 $ 9,865(5)
</TABLE>

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

(1)Mr. Powell was an affiliated person of the AC Adviser during fiscal year 1994
and did not receive compensation directly from the AC Funds.

(2)In 1994, the Fund Complex consisted of the 29 funds advised by the AC Adviser
that are supervised by the AC Board. The amounts shown in this column are
based on the Aggregate Compensation of these Funds in the Fund Complex
during the calendar year ended December 31, 1994. The AC Adviser also serves
as investment adviser for other open-end and closed-end investment
companies; however, with the exception of Mr. Powell, the trustees are not
trustees of such investment companies.

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

(4)The Aggregate Compensation from each Fund during its 1994 fiscal year is
shown in Appendix C.

(5)The total compensation paid to Mr. Woodside by the Fund Complex and the AC
Adviser was $54,000. The amount of his compensation that was paid by the AC
Funds is shown above. Prior to October 6, 1994, Mr. Woodside's compensation
was paid directly by the AC Adviser.

29
<PAGE> 36

The following table provides pro forma compensation information assuming
the election of each nominee to all of the AC Funds and the VK Funds:

JOINT PRO FORMA COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUAL ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION PER FUND BENEFITS FROM THE FUND
FROM EACH AS PART OF FUND PER FUND UPON COMPLEX PAID
TRUSTEE FUND EXPENSES RETIREMENT TO TRUSTEES(2)
- ------------------------------------ ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
J. Miles Branagan................... (3) 0 0 [$84,000]
Dr. Richard E. Caruso............... (3) 0 0 [$84,000]
Philip P. Gaughan................... (3) 0 0 [$84,000]
Dr. Roger Hilsman................... (3) 0 0 [$84,000]
R. Craig Kennedy.................... (3) 0 0 [$84,000]
Donald C. Miller.................... (3) 0 0 [$84,000]
Jack E. Nelson...................... (3) 0 0 [$84,000]
David Rees.......................... (3) 0 0 [$84,000]
Jerome L. Robinson.................. (3) 0 0 [$84,000]
Lawrence J. Sheehan................. (3) 0 0 [$84,000]
Dr. Fernando Sisto.................. (3) 0 0 [$84,000]
Wayne W. Whalen..................... (3) 0 0 [$84,000]
William S. Woodside................. (3) 0 0 [$84,000]
</TABLE>

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

(1)Mr. Powell is an affiliated person of the VK Adviser and the AC Adviser and
will not receive compensation or retirement benefits directly from the VK
Funds or the AC Funds.

(2)The combined Fund Complex will consist of 49 mutual funds advised by the VK
Adviser and the AC Adviser that have the same members on such funds' Boards
of Trustees who are not affiliated with the AC Adviser or the VK Adviser. The
amounts shown in this column are accumulated from the anticipated Aggregate
Compensation of these funds in the combined Fund Complex during such funds'
next full calendar year after the date of this Joint Proxy. The VK Adviser
and the AC Adviser also serve as investment adviser for other open-end and
closed-end investment companies; however, with the exception of Messrs.
Powell and Whalen, the members of the combined board will not be trustees of
such investment companies. Combining the Fund Complex with the other
investment companies advised by the VK Adviser and the AC Adviser, Mr. Whalen
would receive Total Compensation of $ during such funds' next full
calendar year after the date of this Joint Proxy Statement.

(3)The anticipated Aggregate Compensation from each individual fund during its
next full fiscal year is shown in Appendix D. [Each Trustee will defer his
aggregate compensation paid by the funds, except that Mr. Gaughan, Mr. Whalen
and will defer $ , $ and ,respectively.]

30
<PAGE> 37

SHAREHOLDER APPROVAL

The affirmative vote of a plurality of the outstanding Shares of an AC
Entity present in person or by proxy and entitled to vote for directors/trustees
is required to elect the nominees for such AC Entity. THE BOARD OF EACH AC
ENTITY RECOMMENDS A VOTE IN FAVOR OF ALL OF THE NOMINEES.

PROPOSAL 4: RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The board of each AC Entity, including a majority of the directors/trustees
who are not "interested persons" of each AC Entity, have selected the firm of
Price Waterhouse LLP, independent public accountants, to examine the financial
statements for the current fiscal year of each AC Fund. Each AC Entity knows of
no direct or indirect financial interest of such firm in such AC Entity. Such
appointment is subject to ratification or rejection by the shareholders of each
AC Entity with shareholders of each AC Entity voting as a single class. Unless a
contrary specification is made, the accompanying proxy will be voted in favor of
ratifying the selection of such accountants.

Representatives of Price Waterhouse LLP are expected to be present at the
Meeting and will be available to respond to questions from shareholders and will
have the opportunity to make a statement if they so desire.

SHAREHOLDER APPROVAL

The shareholders of each AC Entity, voting with respect to each AC Entity
as a single class, are entitled to vote on this issue. An affirmative vote of a
majority of the Shares entitled to vote present in person or by proxy and voting
is required to ratify the selection of the accountants. THE BOARD OF EACH AC
ENTITY RECOMMENDS A VOTE "FOR" RATIFICATION OF PRICE WATERHOUSE LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR OF EACH AC ENTITY.

OFFICERS

The following table sets forth certain information concerning the principal
executive officers of the AC Funds (other than information concerning Mr.
Powell, which is set forth above), each of which holds the same office with each
of the AC Funds.

The officers of the AC Funds serve for one year or until their respective
successors are chosen and qualified. The officers of the AC Funds receive no
compensation from the AC Funds, but are also officers of the AC Adviser, the
Distributor or Van Kampen American Capital and receive compensation in such
capacities. Unless otherwise specified, the address for each officer is 2800
Post Oak Boulevard, Houston, Texas 77056.

31
<PAGE> 38

<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH PRINCIPAL OCCUPATION DURING
AND AGE THE AC FUNDS PAST 5 YEARS
- ----------------------- --------------------- -----------------------------------------------
<S> <C> <C>
Cindee Burkitt......... Vice President Associate Portfolio Manager of the Adviser.
Age: Formerly, Senior Securities Analyst.
Nori L. Gabert......... Vice President and Associate General Counsel and Corporate
Age: Secretary Secretary of the Adviser.
Tanya M. Loden......... Vice President and Vice President and Controller of most of the
Age: Controller investment companies advised by the Adviser;
formerly Tax Manager/Assistant Controller.
Dennis J. McDonnell*... Vice President President, Chief Operating Officer and a
One Parkview Plaza Director of the VK Adviser, the AC Adviser and
Oakbrook Terrace, IL Van Kampen American Capital Management, Inc.
60181 Director of VK/AC Holding, Inc. and Van Kampen
Age: 52 American Capital. Director of McCarthy,
Crisanti & Maffei, Inc. and Chairman and a
Director of MCM Asia Pacific Company, Ltd.
President, Chief Executive Officer and a
Trustee of each of the VK Funds. He is also a
trustee of the Van Kampen Merritt Series Trust
and closed-end investment companies advised by
the VK Adviser. Prior to December, 1991, Senior
Vice President of Van Kampen Merritt Inc.
Curtis W. Morell....... Vice President and Vice President and Treasurer of most of the
Age: Treasurer investment companies advised by the Adviser.
Ronald A. Nyberg....... Vice President Executive Vice President, General Counsel and
One Parkview Plaza Secretary of Van Kampen American Capital;
Oakbrook Terrace Executive Vice President and a Director of the
Illinois 60181 VK Adviser and the Distributor. [Other
Age: 41 offices]. Vice President and Secretary of
closed-end investment companies advised by the
VK Adviser. Director of ICI Mutual Insurance
Co., a provider of insurance to members of the
Investment Company Institute. Prior to March
1990, Secretary of Van Kampen Merritt Inc., the
VK Adviser and McCarthy, Crisanti & Maffei,
Inc.
Robert C. Peck, Jr. ... Vice President Senior Vice President -- Chief Investment
Age: Officer/Fixed Income Department and Director of
the Adviser; Executive Vice President and
Director, ACMR.
</TABLE>

32
<PAGE> 39

<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH PRINCIPAL OCCUPATION DURING
AND AGE THE AC FUNDS PAST 5 YEARS
- ----------------------- --------------------- -----------------------------------------------
<S> <C> <C>
John R. Reynoldson..... Vice President Senior Vice President of the Adviser; also
Age: serves as Vice President of Common Sense Trust
-- Government Portfolio, American Capital
Government Securities, Inc., the '97 and '98
Portfolios of American Capital Government
Target Series; American Capital World Portfolio
Series, Inc. -- Global Government Securities
Fund; and American Capital U.S. Government
Trust for Income.
Alan T. Sachtleben..... Vice President Senior Vice President -- Chief Investment
Age: Officer/Equity and Director of the Adviser;
Executive Vice President and Director, AMCR.
Walter W. Stabell, III. Vice President Investment Vice President/Associate Portfolio
Age: Manager of the Adviser; formerly Senior
Securities Analyst.
David R. Troth......... Vice President Senior Investment Vice President of the
Age: Adviser; Vice President of American Capital
Bond Fund, Inc., American Capital Corporate
Bond Fund, Inc.; American Capital Reserve Fund,
Inc. and Common Sense Trust -- Money Market
Fund.
J. David Wise.......... Vice President and Vice President, Associate General Counsel,
Age: Assistant Secretary Compliance Review Officer and Assistant
Corporate Secretary of the Adviser.
Paul R. Wolkenberg..... Vice President Senior Vice President and Director, ACMR;
Age: Senior Vice President of the Adviser; Executive
Vice President and Chief Operating Officer of
American Capital Services, Inc. and American
Capital Trust Company; Vice President and
Director of the Distributor.
</TABLE>

With respect to the AC Funds, as of May 26, 1995, the trustees and officers
as a group ( persons) owned less than 1% of the outstanding Shares of each AC
Fund. At such date, the "interested persons" of the AC Funds as a group owned an
aggregate of less than 5% of the outstanding Shares of each AC Fund.

EXPENSES

Van Kampen American Capital will initially bear the expense of the
Reorganization of each AC Fund into a Delaware Fund and of preparing, printing
and mailing the enclosed form of proxy, the accompanying Notice, this Proxy
Statement and all other related costs in connection with the solicitation of
proxies with respect to the Consolidation, which shall include reimbursement to
banks, brokers and others for their reasonable expenses in forwarding proxy
solicitation material to the beneficial owners of the Shares of each AC Fund
(the "Proxy Expense"). During the five-year period ending on the fifth
anniversary of the

33
<PAGE> 40

consummation of the Consolidation, if an AC Fund realizes a benefit resulting
from the Consolidation, the AC Fund will reimburse Van Kampen American Capital
in an amount equal to the lesser of (i) the amount of such benefit or (ii) such
AC Fund's pro rata share of the Proxy Expense. In no event shall the
unreimbursed Proxy Expense born by Van Kampen American Capital accrue interest
or bear any other type of carrying charge. No AC Fund shall reimburse Van Kampen
American Capital from any benefit received after the fifth anniversary of the
consummation of the Consolidation.

In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph, facsimile, or personal
interview by representatives of each of the AC Funds, the AC Adviser or Van
Kampen American Capital, or by dealers or their representatives or by Applied
Mailing Systems, a solicitation firm located in [ .]

SHAREHOLDER PROPOSALS

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

GENERAL

Management of each AC Fund does not intend to present and does not have
reason to believe that others will present any other items of business at the
Meeting. However, if other matters are properly presented to the Meeting for a
vote, the proxies will be voted upon such matters in accordance with the
judgment of the persons acting under the proxies.

A list of shareholders of each AC Fund entitled to be present and vote at
the Meeting will be available at the offices of the AC Funds, 2800 Post Oak
Blvd., Houston, Texas 77056, for inspection by any shareholder during regular
business hours for ten days prior to the date of the Meeting.

Failure of a quorum to be present at the Meeting will necessitate
adjournment and will subject each AC Fund to additional expense.

IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.

NORI L. GABERT, Secretary

June 2, 1995

34
<PAGE> 41

APPENDIX A

FORM OF PLAN OF REORGANIZATION
FOR MASSACHUSETTS FUNDS

AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION

AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
, 1995 (the "Agreement") between AMERICAN CAPITAL ,
a Massachusetts business trust (the "Fund"), AMERICAN CAPITAL , a
Delaware business trust (the "New Trust") on behalf of its series, and AMERICAN
CAPITAL Fund (the "New Fund").

WHEREAS the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and

WHEREAS the Fund is authorized to issue an unlimited number of shares of
beneficial interest, $ par value;

WHEREAS the New Trust was organized pursuant to an Agreement and
Declaration of Trust dated May , 1995, and is presently authorized to
establish and designate separate series thereof which may issue shares of
beneficial interest, without par value, including shares of a series such as the
New Fund;

WHEREAS, for good and sufficient business reasons the parties desire to
change the place of organization of the Fund; and

WHEREAS, the parties intend that this transaction (the "Reorganization")
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 herein contained,
the parties hereto agree as follows:

1. Plan of Reorganization. The Fund shall, prior to the Effective Time of
the Reorganization, as defined below, transfer all of its business and assets
and assign all of its liabilities to the New Fund, and the New Fund shall
acquire all such business and assets and shall assume all such liabilities of
the Fund in exchange for delivery to the Fund of a number of shares of the New
Fund (both full and fractional) equivalent to the number of shares of the Fund
outstanding immediately prior to the Effective Time of the Reorganization. All
debts, liabilities, obligations and duties of the Fund, to the extent that they
exist at or after the Effective Time of the Reorganization, shall after the
Effective Time of the Reorganization attach to the New Fund and may be enforced
against the New Fund to the same extent as if the same had been incurred by the
New Fund.

2. Liquidation and Dissolution of the Fund. At the Effective Time of the
Reorganization, the Fund will liquidate and the shares of the New Fund (both
full and fractional) received by the Fund will be distributed to the
shareholders of the Fund in exchange for their shares of the Fund, each
shareholder to receive a number of shares of the New Fund equal to the number of
shares of the Fund held by such person. Such liquidation and distribution will
be accompanied by the establishment of an open account on the share records of
the New Fund in the name of each shareholder of the Fund and representing the
respective pro rata number of shares of the New Fund due such shareholder.
Certificates for shares of the Fund issued prior to the Reorganization shall
represent outstanding shares of the New Fund after the Effective Time of the
Reorganization. As soon as

A-1
<PAGE> 42

practicable after the Effective Time of the Reorganization, the Fund shall file
with the Trust Division of the Secretary of State of the Commonwealth of
Massachusetts (the "Division") a copy of the resolutions of its Trustees to
terminate the Fund, in such form as shall be satisfactory to the Division, and
which resolutions shall include the exact date of the Fund's termination and
shall take, in accordance with Massachusetts law and any other applicable state
law all other steps as shall be necessary and proper to effect a complete
dissolution of the Fund.

3. Issued Share. Prior to the Effective Time of the Reorganization and
after the Fund has taken the actions authorized by shareholders of the Fund
pursuant to Section 4(f) hereof, the single share of the New Fund heretofore
held by the Fund shall be redeemed and canceled by the New Fund.

4. Conditions Precedent. The obligations of the Fund, the New Trust and the
New Fund to effectuate the Plan of Reorganization and Liquidation hereunder
shall be subject to the satisfaction of each of the following conditions:

(a) Such authority, including "no-action" letters and orders from the
Securities and Exchange Commission (the "Commission") and state securities
commissions as may be necessary to permit the parties to carry out the
transactions contemplated by this Agreement, shall have been received.

(b) One or more post-effective amendments to the Registration
Statement of the Fund on Form N-1A under the Securities Act of 1933 and the
1940 Act, containing (i) such amendments to such Registration Statement as
are determined by the Board of Trustees of the Fund to be necessary and
appropriate as a result of the Plan of Reorganization and Liquidation and
(ii) the adoption by the New Trust of such Registration Statement as its
own, on behalf of the New Fund, shall have been filed with the Commission
and such post-effective amendment or amendments to the Registration
Statement shall have become effective, and no stop-order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened by the
Commission (and not withdrawn or terminated).

(c) Each party shall have received an opinion of Skadden, Arps, Slate,
Meagher & Flom that both the New Trust and New Fund are duly formed and
existing under the laws of the State of Delaware and that the shares of the
New Trust to be issued pursuant to the terms of this Agreement have been
duly authorized, and, when issued and delivered as provided in this
Agreement, will have been validly issued, fully paid and nonassessable.

(d) Each party shall have received an opinion of O'Melveny & Myers to
the effect that the reorganization contemplated by this Agreement qualifies
as a "reorganization" under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), and each party shall have received an
opinion of O'Melveny & Myers to the effect that each series established
pursuant to the Agreement and Declaration of Trust of the New Trust will be
treated as a separate association taxable as a corporation for federal
income tax purposes which potentially qualifies as a regulated investment
company under the Code to the extent that the New Fund complies with the
requirements of Section 851 of the Code.

(e) The shares of the New Fund shall have been duly qualified for
offering to the public in all states of the United States, the Commonwealth
of Puerto Rico and the District of Columbia (except where such
qualifications are not required) so as to permit the transfers contemplated
by this Agreement to be consummated.

A-2
<PAGE> 43

(f) A vote approving this Agreement and the reorganization
contemplated hereby shall have been adopted by at least a majority of the
outstanding shares of beneficial interest of the Fund entitled to vote at
an annual or special meeting and the shareholders of the Fund shall have
voted at such meeting to direct the Fund to vote, and the Fund shall have
voted, as the sole shareholder of the New Fund to:

(1) elect the Nominees set forth in the Proxy Statement delivered
to the shareholders of the Fund as Trustees of the New Trust;

(2) approve an Investment Advisory Agreement (the "Advisory
Agreement") between the New Fund and Van Kampen American Capital Asset
Management, Inc.;

(3) approve a Plan or Plans of Distribution under Rule 12b-1 with
respect to each class of shares of the New Fund (the "Plans of
Distribution"); and

(4) ratify the selection of Price Waterhouse LLP as the New Fund's
independent auditors for the fiscal year ending .

(g) The Trustees of the New Trust shall have taken the following
actions at a meeting duly called for such purposes:

(1) approval of the Advisory Agreement;

(2) approval of an Underwriting Agreement between the New Fund and
Van Kampen American Capital Distributors, Inc.;

(3) approval of the Plans of Distribution;

(4) selection of Price Waterhouse LLP as the New Fund's independent
auditors for the fiscal year ending ;

(5) authorization of the issuance by the New Trust, prior to the
Effective Time of the Reorganization, of one share of the New Fund to
the Fund in consideration for the payment of [$15.00] for the purpose of
enabling the Fund to vote on the matters referred to in paragraph (f) in
this Section 4;

(6) submission of the matters referred to in paragraph (f) of this
Section 4 to the Fund as the sole shareholder of the New Fund; and

(7) authorization of the issuance by the New Trust of shares of the
New Fund at the Effective Time of the Reorganization in exchange for the
assets of the Fund pursuant to the terms and provisions of this
Agreement.

At any time prior to the Effective Time of the Reorganization, any of the
foregoing conditions may be waived by the Board of Trustees of the Fund if, in
the judgment of such Board, such waiver will not have a material adverse effect
on the benefits intended under this Agreement to the shareholders of the Fund.

5. Effective Time of the Reorganization. The exchange of the Fund's
business and assets for shares of the New Fund shall be effective as of 5:00
P.M., Delaware Time on , 1995 or at such other time and date
as fixed by the mutual consent of the parties (the "Effective Time of the
Reorganization").

A-3
<PAGE> 44

6. Termination. The Trustees of the Fund and the Trustees of the New Trust
may terminate this Agreement and abandon the reorganization contemplated hereby,
notwithstanding approval thereof by the shareholders of the Fund at any time
prior to the Effective Time of the Reorganization, if circumstances should
develop that, in their judgment, make proceeding with this Agreement
inadvisable.

7. Limitation of Liability of the Trustees and Shareholders. Each of the
Fund and the New Trust acknowledge and agree that, pursuant to the Agreement and
Declaration of Trust of both the Fund and the New Trust, shareholders, trustees,
officers, employees or agents of the Trust shall not personally be bound by or
liable under this Agreement, nor shall resort be had to their private property
for the satisfaction of any obligation or claim hereunder.

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.

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

By:
---------------------------------

Its:
---------------------------------

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

By:
---------------------------------

Its:
---------------------------------

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

By:
---------------------------------

Its:
---------------------------------

A-4
<PAGE> 45

APPENDIX B

FORM OF PLAN OF REORGANIZATION
FOR MARYLAND CORPORATIONS

AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION

AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
, 1995 (the "Agreement") between AMERICAN CAPITAL
, a Maryland corporation (the "New Fund"), AMERICAN CAPITAL
, a Delaware business trust (the "New Trust") on behalf of its series,
and AMERICAN CAPITAL Fund (the "New Fund").

WHEREAS the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and

WHEREAS the Fund has authorized capital stock consisting of shares
of common stock, $ par value;

WHEREAS, for good and sufficient business reasons the parties desire to
change the place of organization of the Fund; and

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

1. Plan of Reorganization. Prior to the Effective Time of the
Reorganization, as defined below, the Fund and New Trust shall file Articles of
Transfer with respect to the transactions contemplated hereby with the
Department of Assessments and Taxation of the State of Maryland (the
"Department"). The Fund shall, prior to the Effective Time of the
Reorganization, transfer all of its business and assets and assign all of its
liabilities to the New Fund, and the New Fund shall acquire all such business
and assets and shall assume all such liabilities of the Fund in exchange for
delivery to the Fund of a number of shares of the New Fund (both full and
fractional) equivalent to the number of shares of the Fund outstanding
immediately prior to the Effective Time of the Reorganization. All debts,
liabilities, obligations and duties of the Fund, to the extent that they exist
at or after the Effective Time of the Reorganization, shall after the Effective
Time of the Reorganization attach to the New Fund and may be enforced against
the New Fund to the same extent as if the same had been incurred by the New
Fund.

B-1
<PAGE> 46

Fund in the name of each shareholder of the Fund and representing the respective
pro rata number of shares of the New Fund due such shareholder. Certificates for
shares of the Fund issued prior to the Reorganization shall represent
outstanding shares of the New Fund after the Effective Time of the
Reorganization. As soon as practicable after the Effective Time of the
Reorganization, the Fund shall file Articles of Dissolution for record with the
Department and with the Secretary of State of the State of Texas, and shall
take, in accordance with Maryland General Corporation Law and the Texas Business
Corporations Act, all other steps as shall be necessary and proper to effect a
complete dissolution of the Fund.

3. Issued Shares. Prior to the Effective Time of the Reorganization and
after the Fund has taken the actions authorized by shareholders of the Fund
pursuant to Section 4(f) hereof, the single share of the New Fund heretofore
held by the Fund shall be redeemed and canceled by the New Fund.

4. Conditions Precedent. The obligations of the Fund, the Trust and the New
Fund to effectuate the Plan of Reorganization and Liquidation hereunder shall be
subject to the satisfaction of each of the following conditions:

(b) One or more post-effective amendments to the Registration
Statement of the Fund on Form N-1A under the Securities Act of 1933 and the
1940 Act, containing (i) such amendments to such Registration Statement as
are determined by the Board of Directors of the Fund to be necessary and
appropriate as a result of the Plan of Reorganization and Liquidation and
(ii) the adoption by the New Trust of such Registration Statement as its
own, on behalf of the New Fund, shall have been filed with the Commission
and such post-effective amendment or amendments to the Registration
Statement shall have become effective, and no stop-order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened by the
Commission (and not withdrawn or terminated).

(d) Each party shall have received an opinion of O'Melveny & Myers to
the effect that the reorganization contemplated by this Agreement qualifies
as a "reorganization" under Section 368(a)(1) of the Code, and each party
shall have received an opinion of O'Melveny & Myers to the effect that each
series established pursuant to the Agreement and Declaration of Trust of
the New Trust will be treated as a separate association taxable as a
corporation for federal income tax purposes which potentially qualifies as
a regulated investment company under the Code to the extent that the New
Fund complies with the requirements of Section 851 of the Code.

(e) The shares of the New Fund shall have been duly qualified for
offering to the public in all states of the United States, the Commonwealth
of Puerto Rico and the District of Columbia (except where

B-2
<PAGE> 47

such qualifications are not required) so as to permit the transfers
contemplated by this Agreement to be consummated.

(f) A vote approving this Agreement and the reorganization
contemplated hereby shall have been adopted by at least a majority of the
outstanding shares of common stock of the Fund entitled to vote at an
annual or special meeting and the shareholders of the Fund shall have voted
at such meeting to direct the Fund to vote, and the Fund shall have voted,
as the sole shareholder of the New Fund to:

(1) elect the Nominees set forth in the Proxy Statement delivered
to the shareholders of the Fund as Trustees of the New Trust;

(2) approve an Investment Advisory Agreement (the "Advisory
Agreement") between the New Fund and Van Kampen American Capital Asset
Management, Inc.;

(3) approve a Plan or Plans of Distribution under Rule 12-1 with
respect to each class of shares of the New Fund (the "Plans of
Distribution"); and

(4) ratify the selection of Price Waterhouse LLP as the New Fund's
independent auditors for the fiscal year ending .

(g) The Trustees of the New Trust shall have taken the following
actions at a meeting duly called for such purposes:

(1) approval of the Advisory Agreement;

(2) approval of an Underwriting Agreement between the New Fund and
Van Kampen American Capital Distributors, Inc.;

(3) approval of the Plans of Distribution;

(4) selection of Price Waterhouse LLP as the New Fund's independent
auditors for the fiscal year ending ;

(5) authorization of the issuance by the New Trust, prior to the
Effective Time of the Reorganization, of our share of the New Fund to
the Fund in consideration for the payment of [$15.00] for the purpose of
enabling the Fund to vote on the matters referred to in paragraph (f) in
this Section 4;

(6) submission of the matters referred to in paragraph (f) of this
Section 4 to the Fund as the sole shareholder of the New Fund; and

At any time prior to the Effective Time of the Reorganization, any of the
foregoing conditions may be waived by the Board of Directors of the Fund if, in
the judgment of such Board, such waiver will not have a material adverse effect
on the benefits intended under this Agreement to the shareholders of the fund.

B-3
<PAGE> 48

5. Effective Time of the Reorganization. The exchange of the Fund's
business and assets for shares of the New Fund shall be effective as of 5:00
P.M., Delaware Time on , 1995 or at such other time and date as
fixed by the mutual consent of the parties (the "Effective Time of the
Reorganization").

6. Termination. The Directors of the Fund and the Trustees of the New Trust
may terminate this Agreement and abandon the reorganization contemplated hereby,
notwithstanding approval thereof by the shareholders of the Fund at any time
prior to the Effective Time of the Reorganization, if circumstances should
develop that, in their judgment, make proceeding with this Agreement
inadvisable.

7. Limitation of Liability of the Trustees and Shareholders. The Fund
acknowledges and agrees that, pursuant to Article 8, Section 8.1 of the
Agreement and Declaration of Trust of the New Trust dated May , 1995,
shareholders, trustees, officers, employees or agents of the Trust shall not
personally be bound by or liable under this Agreement, nor shall resort be had
to their private property for the satisfaction of any obligation or claim
hereunder.

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.

---------------------------------
By:
---------------------------------
Its:
---------------------------------

B-4
<PAGE> 49

APPENDIX C
1994 AGGREGATE COMPENSATION FROM EACH AC FUND(1)

The following schedule sets forth certain information regarding compensation
paid to each incumbent trustee by or on behalf of each AC Fund during its
respective 1994 fiscal year. There is no Pension or Retirement Plan in effect
with respect to the Trustees of the AC Fund. Information is provided below for
the Trustees' Deferred Compensation Plan.
<TABLE>
<CAPTION>

DEFERRED
TOTAL COMPEN-
COMPENSATION SATION
AGGREGATE COMPENSATION FROM PAID BY FUND FOR MOST
EACH AC FUND AND OTHER RECENT
FOR MOST RECENT FISCAL YEAR(2) PERSONS FISCAL YEAR
--------------------------------------------------------------------- ------------ --------------
FUND NAME BRANAGAN CARUSO HILSMAN REES SHEEHAN SISTO WOODSIDE WOODSIDE(3) CARUSO SISTO
- -------------------------- -------- ------ ------- ------ ------- ------ ----------- ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Fund............. 3,510 3,510 3,625 3,510 3,680 4,525 915 3,000 3,400 2,330
Corporate Bond Fund....... 1,605 1,630 1,675 1,605 1,700 2,120 0 1,255 1,580 1,050
Emerging Growth Fund...... 3,045 3,100 3,135 3,045 3,190 3,935 0 2,435 2,990 2,105
Enterprise Fund........... 3,265 3,265 3,370 3,265 3,420 4,205 870 2,800 3,165 2,160
Equity Income Fund........ 2,210 2,205 2,280 2,210 2,315 2,840 645 1,910 2,135 1,415
Global Managed Assets
Fund.................... 800 780 820 800 820 890 300 300 780 0
Government Securities..... 9,665 9,675 9,980 9,665 10,130 12,440 2,400 8,240 9,375 6,520
Growth and Income Fund.... 1,745 1,745 1,805 1,745 1,830 2,240 445 1,490 1,695 1,160
Harbor Fund............... 2,410 2,415 2,485 2,410 2,525 3,095 610 2,050 2,335 1,595
High Yield Investments.... 2,390 2,430 2,470 2,390 2,510 3,085 0 1,910 2,350 1,605
Municipal Bond Fund....... 2,050 2,080 2,125 2,050 2,155 2,660 0 1,650 2,020 0
Pace Fund................. 6,885 6,765 7,230 6,765 7,230 9,090 0 5,370 6,765 4,785
Real Estate Securities
Fund.................... 800 780 820 800 820 885 300 300 780 0
Reserve Fund.............. 1,940 1,910 2,040 1,910 2,040 2,560 0 1,520 1,910 0
Small Capitalization
Fund.................... 335 610 315 335 335 760 295 545 570 265
Texas Municipal
Securities.............. 1,250 1,270 1,290 1,250 1,310 1,620 0 1,010 1,230 0
Utilities Income Fund..... 295 310 280 295 295 370 0 235 280 265
Global Government Fund.... 1,570 1,545 1,650 1,545 1,650 2,075 0 1,230 1,545 1,110
Global Equity Fund........ 1,260 1,240 1,320 1,240 1,320 1,665 0 1,000 1,240 905
Government Target '97..... 1,220 1,260 1,260 1,220 1,280 1,585 0 1,000 1,220 0
Federal Mortgage Trust.... 1,410 1,410 1,460 1,410 1,480 1,820 340 1,200 1,370 960
Government Trust.......... 2,100 2,130 2,175 2,100 2,205 2,725 0 1,700 2,070 1,440
Common Stock Portfolio.... 1,355 1,355 1,400 1,355 1,420 1,745 340 1,160 1,315 920
Strategic Income
Portfolio............... 1,260 1,260 1,300 1,260 1,320 1,615 320 1,080 1,220 850
Money Market Portfolio.... 1,270 1,270 1,310 1,270 1,330 1,635 320 1,090 1,230 865
Multiple Strategy
Portfolio............... 1,355 1,3550 1,400 1,355 1,420 1,735 340 1,160 1,315 915
Government Portfolio...... 1,380 1,380 1,430 1,380 1,450 1,780 340 1,170 1,340 925
High Yield Municipal
Portfolio............... 2,550 2,550 2,630 2,550 2,670 3,280 690 2,190 2,470 0
Insured Municipal
Portfolio............... 1,515 1,515 1,565 1,515 1,590 1,940 395 1,290 1,465 0

CUMULATIVE DEFERRED
COMPENSATION AS OF MOST
RECENT FISCAL YEAR
END(4)
------------------------
FUND NAME CARUSO REESE SISTO
- -------------------------- ------ ------ ------
<S> <C> <C> <C>
Comstock Fund............. 10,213 34,751 14,507
Corporate Bond Fund....... 3,669 17,227 6,322
Emerging Growth Fund...... 5,809 32,377 11,266
Enterprise Fund........... 9,465 36,352 13,654
Equity Income Fund........ 5,803 17,270 7,265
Global Managed Assets
Fund.................... 803 0 0
Government Securities..... 30,046 81,518 38,464
Growth and Income Fund.... 5,082 18,041 7,356
Harbor Fund............... 6,508 21,181 8,838
High Yield Investments.... 5,910 28,585 10,891
Municipal Bond Fund....... 4,786 7,466 3,037
Pace Fund................. 17,480 58,728 25,499
Real Estate Securities
Fund.................... 0 0 0
Reserve Fund.............. 4,791 29,858 5,612
Small Capitalization
Fund.................... 561 0 259
Texas Municipal
Securities.............. 2,410 0 1,301
Utilities Income Fund..... 0 0 0
Global Government Fund.... 3,103 0 2,410
Global Equity Fund........ 2,880 0 2,223
Government Target '97..... 2,920 0 386
Federal Mortgage Trust.... 4,291 5,378 4,236
Government Trust.......... 2,592 0 2,032
Common Stock Portfolio.... 3,898 5,198 3,994
Strategic Income
Portfolio............... 3,647 3,370 3,634
Money Market Portfolio.... 3,720 5,252 3,843
Multiple Strategy
Portfolio............... 3,794 4,103 3,250
Government Portfolio...... 3,888 5,761 4,028
High Yield Municipal
Portfolio............... 6,448 0 1,525
Insured Municipal
Portfolio............... 4,054 0 1,086
</TABLE>

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

(1) Mr. Powell is an affiliated person of the AC Adviser and does not receive
compensation directly from the AC Funds.
(2) Includes amounts shown under column captioned "Deferred Compensation as of
Most Recent Fiscal Year End".
(3) Prior to October 6, 1994, Mr. Woodside's compensation was paid directly by
the AC Adviser. This column sets forth the total amount of his compensation
that was paid by or on behalf the AC Funds and by the AC Adviser for each AC
Fund's most recent fiscal year.
(4) Includes interest and profits earned on deferred amounts.

C-1
<PAGE> 50

APPENDIX D

PRO FORMA AGGREGATE COMPENSATION FROM EACH AC FUND AND VK FUND

The following schedule sets forth the pro forma aggregate compensation
anticipated to be paid to each nominee by each AC Fund and VK Fund during its
respective 1995 fiscal year.

<TABLE>
<CAPTION>
TRUSTEE
----------------------------------------------------------------------------------------------------------------
FUND BRANAGAN CARUSO GAUGHAN HILSMAN KENNEDY MILLER NELSON REES ROBINSON SHEEHAN SISTO WHALEN WOODSIDE
- ---------------- -------- ------ ------- ------- ------- ------ ------ ------ -------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Fund...
Corporate Bond
Fund..........
Emerging Growth
Fund..........
Enterprise
Fund..........
Equity Income
Fund..........
Global Managed
Assets Fund...
Government
Securities....
Growth and
Income Fund...
Harbor Fund.....
High Yield
Investments...
Municipal Bond
Fund..........
Pace Fund.......
Real Estate
Securities
Fund..........
Reserve Fund....
Small
Capitalization
Fund..........
Texas Municipal
Securities....
Utilities Income
Fund..........
Global
Government
Fund..........
Global Equity
Fund..........
Government
Target '97....
Federal Mortgage
Trust.........
Government
Trust.........
Common Stock
Portfolio.....
Strategic Income
Portfolio.....
Money Market
Portfolio.....
Multiple
Strategy
Portfolio.....
Government
Portfolio.....
High Yield
Municipal
Portfolio.....
Insured
Municipal.....
[VK Funds to
follow].......
</TABLE>

D-1
<PAGE> 51

FORM OF PROXY CARD FOR EACH MASSACHUSETTS FUND:
----------------------------------------------------------------------------

AMERICAN CAPITAL
FEDERAL MORTGAGE TRUST
JOINT MEETING OF SHAREHOLDERS -- JULY 21, 1995
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of common shares of AMERICAN CAPITAL FEDERAL MORTGAGE
TRUST (the "Fund"), a Massachusetts business trust, hereby appoints Nori L.
Gabert and Curtis W. Morell, and each of them, with full power of substitution
and revocation, as proxies to represent the undersigned at the Meeting of
Shareholders to be held at the offices of Van Kampen American Capital, Inc., One
Parkview Plaza, Oakbrook Terrace, IL 60181, on Friday, July 21, 1995 at 1:30
p.m., and at any and all adjournments thereof (the "Meeting"), and thereat to
vote all common shares of the Fund which the undersigned would be entitled to
vote, with all powers the undersigned would possess if personally present, in
accordance with the following instructions.

If more than one of the proxies, or their substitutes, are present at the
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.

The undersigned hereby acknowledges receipt of the accompanying Notice of
Meeting and Proxy Statement for the meeting to be held on July 21, 1995.

<TABLE>
<S> <C>
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.

Please sign this proxy exactly as your name appears on the books of the Fund. Joint owners should each sign personally.
Trustees and other fiduciaries should indicate the capacity in which they sign, and where more than one name appears, a
majority must sign. If a corporation, this signature should be that of an authorized officer who should state his or her
title.
</TABLE>

HAS YOUR ADDRESS CHANGED?

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

-----------------------------------
<PAGE> 52

<TABLE>
<C> <S>
- ------- PLEASE MARK VOTES
X AS IN THIS EXAMPLE
- -------

For Against Abstain
1.) As to the proposal to approve ---- ---- ----
the Fund's reorganization and
conversion to a series of a ---- ---- ----
Delaware business trust:

2.) Not Applicable to the Fund.

For
For Withhold All
All Except
3.) Authority to vote to elect ---- ---- ----
fourteen trustees of the Fund to
serve until their respective ---- ---- ----
successors are duly elected and
qualified:
INSTRUCTION: TO WITHHOLD
AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE(S), CHECK THE
"FOR ALL EXCEPT" BOX AND STRIKE
A LINE THROUGH THE NAME(S) OF
SUCH NOMINEE(S) FOR WHICH YOU
WITHHOLD AUTHORITY. YOUR SHARES
WILL BE VOTED FOR THE REMAINING
NOMINEE(S).
J. Miles Branagan Don G. Powell
Dr. Richard E. Caruso David Rees
Philip P. Gaughan Jerome L. Robinson
Dr. Roger Hilsman Lawrence J. Sheehan
R. Craig Kennedy Dr. Fernando Sisto
Donald C. Miller Wayne W. Whalen
Jack E. Nelson William S. Woodside
Mark box at right if comments or ----
address change have been noted
on the reverse side of this ----
card.

For Against Abstain
4.) As to the proposal to ratify the ---- ---- ----
selection of KPMG Peat Marwick
LLP as independent public ---- ---- ----
accountants for the current
fiscal year of the Fund:

The undersigned hereby acknowledges receipt of the
accompanying Notice of Joint Meeting and Proxy Statement
for the Joint Meeting to be held on July 21, 1995.
-------------------
PLEASE BE SURE TO SIGN AND DATE Date
THIS PROXY.

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

- ------------------------------------------------------
</TABLE>

SHAREHOLDER SIGN HERE CO-OWNER SIGN HERE
<PAGE> 53

FORM OF PROXY CARD FOR EACH MARYLAND FUND:
-------------------------------------------------------------------------

AMERICAN CAPITAL COMSTOCK FUND, INC.
JOINT MEETING OF SHAREHOLDERS -- JULY 21, 1995
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of common shares of AMERICAN CAPITAL COMSTOCK FUND,
INC. (the "Fund"), a Maryland corporation, hereby appoints Nori L. Gabert and
Curtis W. Morell, and each of them, with full power of substitution and
revocation, as proxies to represent the undersigned at the Meeting of
Shareholders to be held at the offices of Van Kampen American Capital, Inc., One
Parkview Plaza, Oakbrook Terrace, IL 60181, on Friday, July 21, 1995 at 1:30
p.m., and at any and all adjournments thereof (the "Meeting"), and thereat to
vote all common shares of the Fund which the undersigned would be entitled to
vote, with all powers the undersigned would possess if personally present, in
accordance with the following instructions.

The undersigned hereby acknowledges receipt of the accompanying Notice of
Meeting and Proxy Statement for the meeting to be held on July 21, 1995.

<TABLE>
<S> <C>
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.

HAS YOUR ADDRESS CHANGED?

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

-----------------------------------
<PAGE> 54

<TABLE>
<C> <S>
- ------- PLEASE MARK VOTES
X AS IN THIS EXAMPLE
- -------

1.) Not Applicable to the Fund.

For Against Abstain
2.) As to the proposal to approve ---- ---- ----
the Fund's reorganization and
conversion to a series of a ---- ---- ----
Delaware business trust:

For
For Withhold All
All Except
3.) Authority to vote to elect ---- ---- ----
fourteen directors of the Fund
to serve until their respective ---- ---- ----
successors are duly elected and
qualified:
INSTRUCTION: TO WITHHOLD
AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE(S) CHECK THE
"FOR ALL EXCEPT" BOX AND STRIKE
A LINE THROUGH THE NAME(S) OF
SUCH NOMINEE(S) FOR WHICH YOU
WITHHOLD AUTHORITY. YOUR SHARES
WILL BE VOTED FOR THE REMAINING
NOMINEE(S).
J. Miles Branagan Don G. Powell
Dr. Richard E. Caruso David Rees
Philip P. Gaughan Jerome L. Robinson
Dr. Roger Hilsman Lawrence J. Sheehan
R. Craig Kennedy Dr. Fernando Sisto
Donald C. Miller Wayne W. Whalen
Jack E. Nelson William S. Woodside
Mark box at right if comments or ----
address change have been noted
on the reverse side of this
card. ----
For Against Abstain
4.) As to the proposal to ratify the ---- ---- ----
selection of KPMG Peat Marwick
LLP as independent public ---- ---- ----
accountants for the current
fiscal year of the Fund:

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

- ------------------------------------------------------
</TABLE>

SHAREHOLDER SIGN HERE CO-OWNER SIGN HERE