VAN KAMPEN MERRITT TAX FREE FUND /IL/, DEF 14A, 1995-06-02

VAN KAMPEN MERRITT TAX FREE FUND /IL/
DEF 14A, 1995-06-02

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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 Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:

/ /Preliminary Proxy Statement / /Confidential, for Use of the

Commission Only (as permitted

by Rule 14a-6(e)(2))

/X/Definitive Proxy Statement

/ /Definitive Additional Materials

/ /Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

VAN KAMPEN MERRITT TAX FREE FUND

(File Nos. 2-9975 and 811-4386; CIK No. 774556)

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

Payment of Filing Fee (Check the appropriate box):

/ / $125 per Item 22(a)(2) of Schedule 14A.

/X/ Fee paid previously with preliminary materials.

<PAGE> 2

June 2, 1995

Dear Van Kampen Merritt Insured Tax Free Income Fund Shareholder:

As you may know, the merger of The Van Kampen Merritt Companies, Inc., the
parent of your Fund's investment adviser, with American Capital Management &
Research, Inc. was completed in late December 1994 and the combined entity was
renamed Van Kampen American Capital, Inc. As part of our continuing effort to
maximize the merger's benefit to fund shareholders, we are proposing several
items related to your Fund, including board consolidation and a business
reorganization. In addition, we are seeking approval of a material change in the
term of the Fund's investment advisory agreement with Van Kampen American
Capital Investment Advisory Corp. The attached proxy statement seeks shareholder
approval on these items.

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

The proposals have been approved by the Trustees of the Fund, who recommend
you vote "FOR APPROVAL" on these proposals. YOUR IMMEDIATE RESPONSE WILL HELP
SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. PLEASE SIGN AND RETURN YOUR FUND
PROXY FORM. 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 IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

Sincerely,

Don G. Powell
Chief Executive Officer
<PAGE> 3

VAN KAMPEN MERRITT INSURED
TAX FREE INCOME FUND

ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 341-2911

NOTICE OF MEETING OF SHAREHOLDERS

TO BE HELD JULY 21, 1995

TO THE SHAREHOLDERS OF VAN KAMPEN MERRITT INSURED TAX FREE INCOME FUND:

Notice is hereby given to the holders of shares of beneficial interest,
without par value (collectively, the "Shares"), of Van Kampen Merritt Insured
Tax Free Income Fund (the "Fund"), a sub-trust of Van Kampen Merritt Tax Free
Fund, a Massachusetts business trust (the "Trust"), that a Meeting of the
Shareholders of the Fund (the "Meeting") will be held at the Hyatt Regency Oak
Brook, York Room -- Lower Level, 1909 Spring Road, Oak Brook, Illinois 60521, on
Friday, July 21, 1995, at 3:30 p.m., for the following purposes:

1. To approve or disapprove the Fund's reorganization and conversion to a
series of a Delaware business trust;

2. To elect fifteen trustees of the Trust to serve until their respective
successors are duly elected and qualified;

3. To approve or disapprove a material change in the terms of the Fund's
investment advisory agreement with Van Kampen American Capital Investment
Advisory Corp.;

4. To ratify or reject the selection of KPMG Peat Marwick LLP as independent
public accountants for the Fund's fiscal year ending December 31, 1995; and

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

Holders of record of the Shares of the Fund 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 Board of Trustees

RONALD A. NYBERG, Vice President
and Secretary
June 2, 1995
<PAGE> 4

THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT ANNUAL REPORT
TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO VAN KAMPEN
AMERICAN CAPITAL FUNDS BY CALLING (800) 341-2911 OR BY WRITING TO VAN KAMPEN
MERRITT INSURED TAX FREE INCOME FUND, ONE PARKVIEW PLAZA, OAKBROOK TERRACE,
ILLINOIS 60181.

SHAREHOLDERS OF THE FUND 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, DATE AND SIGN IT, AND RETURN SUCH CARD 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 THE FUND RECOMMENDS THAT YOU CAST YOUR VOTE:

- FOR APPROVAL OF THE REORGANIZATION AND CONVERSION OF THE FUND TO A SERIES OF
A DELAWARE BUSINESS TRUST;

- IN FAVOR OF THE NOMINEES FOR THE BOARD OF TRUSTEES LISTED IN THE PROXY
STATEMENT;

- FOR APPROVAL OF A MATERIAL CHANGE IN THE TERMS OF THE INVESTMENT ADVISORY
AGREEMENT BETWEEN THE FUND AND VAN KAMPEN AMERICAN CAPITAL INVESTMENT
ADVISORY CORP.; AND

- FOR THE RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FUND'S FISCAL YEAR ENDING DECEMBER
31, 1995.

YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE> 5

PROXY STATEMENT

VAN KAMPEN MERRITT
INSURED TAX FREE INCOME FUND

ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 341-2911

MEETING OF SHAREHOLDERS

JULY 21, 1995

This Proxy Statement is furnished in connection with the solicitation by the
Board of Trustees (the "Board") of Van Kampen Merritt Tax Free Fund of proxies
to be voted at a Meeting of Shareholders of Van Kampen Merritt Insured Tax Free
Income Fund (the "Meeting") to be held at the Hyatt Regency Oak Brook, York Room
- -- Lower Level, 1909 Spring Road, Oak Brook, Illinois 60521, on Friday, July 21,
1995, at 3:30 p.m. Any and all adjournments of the Meeting will be held at Van
Kampen American Capital, Inc., One Parkview Plaza, Oakbrook Terrace, Illinois
60181. 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 shares of beneficial
interest, without par value (collectively, the "Shares"), of Van Kampen Merritt
Insured Tax Free Income Fund (the "Fund"), a sub-trust of Van Kampen Merritt Tax
Free Fund, a Massachusetts business trust (the "Trust").

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" a
matter and will be disregarded in determining the "votes cast" on an issue.
Broker non-votes (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other person
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.
<PAGE> 6

The 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 the Fund
entitled to vote at the Meeting. Shareholders of the Fund on the Record Date
will be entitled to one vote with respect to each proposal submitted to the
shareholders for each Share of the Fund then held, with no Share having
cumulative voting rights.

At the close of business on May 26, 1995, the Fund had issued and outstanding
63,916,809 Class A Shares, 1,806,442 Class B Shares and 175,880 Class C Shares.
As of May 19, 1995, to the knowledge of management of the Fund, no persons owned
beneficially more than 5% of the Fund's outstanding Class A Shares or Class B
Shares. As of May 19, 1995, the following persons owned beneficially more than
5% of the Fund's outstanding Class C Shares: Richard K. Bolen, 4000 Club House
Drive, Champaign, IL 61821-9281, 27,417 shares or 15%; Robert J. Holuba and
Stanley J. Holuba, Trustees, Angela Holuba Term Trust FBO Angela Holuba DTD
7/28/87, 2 Hackensack Ave., Kearny, NJ 07032-4611, 33,659 shares or 19% and
Donaldson, Lufkin, Jenrette Securities Corporation, Inc., P.O. Box 2052, Jersey
City, NJ 07303-2052, 9,719 shares or 5%.

VOTING

Unless specified otherwise, all Shares of the Fund affected by a proposal will
vote together as a single class on such proposal. The voting requirement for
passage of a particular proposal depends on the nature of the particular
proposal. With respect to Proposal 1, an affirmative vote of a majority of the
Shares of the Fund present in person or by proxy at the Meeting and entitled to
vote on the proposal. With respect to Proposal 2, the Shares of the Fund shall
vote together as a single class together with the Shares of all of the other
sub-trusts of the Trust voting at a separate meeting and an affirmative vote of
a plurality of the Shares of the Trust is required to elect the trustees. With
respect to Proposal 3, a vote of the "majority of the outstanding voting
securities" is required which shall mean the lesser of (i) 67% or more of the
voting securities of the Fund entitled to vote thereon present in person or by
proxy at the Meeting, if holders of more than 50% of the outstanding voting
securities entitled to vote thereon are present in person or represented by
proxy, or (ii) more than 50% of the outstanding voting securities of the Fund
entitled to vote thereon. With respect to Proposal 4, an affirmative vote of a
majority of the Shares

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<PAGE> 7

of the Fund present in person or by proxy is necessary to ratify the selection
of the independent public accountants for the Fund.

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. The Board recommends that you cast your vote:

- FOR APPROVAL of the reorganization and conversion of the Fund to a series of
a Delaware business trust;

- IN FAVOR of the nominees for the Board of Trustees listed in this Proxy
Statement;

- FOR APPROVAL of a material change in the terms of the investment advisory
agreement between the Fund and Van Kampen American Capital Investment
Advisory Corp.; and

- FOR the ratification of the selection of KPMG Peat Marwick LLP as
independent public accountants for the Fund's fiscal year ending December
31, 1995.

Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the 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 Fund knows 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 are not received, the persons named as
proxies may propose one or more adjournments of such Meeting 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.
- ------------------------------------------------------------------------------
BACKGROUND FOR PROPOSALS 1 AND 2
- ------------------------------------------------------------------------------

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. (such transaction being referred to herein as the
"Acquisition"). In connection with the Acquisition, American Capital Management
& Research, Inc.

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was merged into The Van Kampen Merritt Companies, Inc. At the time of the
Acquisition, The Van Kampen Merritt Companies, Inc. was the parent company of
Van Kampen Merritt Investment Advisory Corp., the investment adviser of the
Fund. Immediately after the Acquisition, each of the foregoing surviving
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 Van Kampen
Companies, Inc. American Capital, Inc. American Capital
American Capital Asset Van Kampen American AC Adviser
Management, Inc. Capital Asset
Management, Inc.
Van Kampen Merritt Van Kampen American VK Adviser
Investment Advisory Capital Investment
Corp. Advisory Corp.
</TABLE>

The VK Adviser and the AC Adviser currently are each wholly-owned subsidiaries
of Van Kampen American Capital. Including the Fund, the VK Adviser serves as
investment adviser for twenty open-end investment companies (the "VK Funds") as
well as for other registered 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 "Pennsylvania Fund") is
organized for tax purposes as a Pennsylvania trust. The Board of Trustees of the
Fund and each of the other VK Funds currently consists of the same seven members
(the "VK Board").

The AC Adviser serves as the investment adviser for twenty-nine open-end
investment companies (the "AC Funds") as well as for other registered 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 Board of Directors/Trustees for each of
the AC Funds currently consists of the same eight members (the "AC Board").

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

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<PAGE> 9

The VK Board and the AC Board created a joint committee (the "Joint
Committee") to consider the possible costs and benefits to shareholders
associated with the Consolidation. The Joint Committee met on 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 VK Board and the AC 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 VK Board and the AC 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 VK
Board and the AC Board also considered reorganizing the VK Funds (excluding the
Pennsylvania Fund) and the AC Funds 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 a discussion of such matters and a review of
the additional information provided by Management, the Joint Committee
recommended to the VK Board that it approve each element of the Consolidation,
including: (i) combining the VK Board and the AC Board, (ii) reorganizing each
of the VK Funds (excluding the Pennsylvania Fund) into Delaware business trusts
(or series thereof) in order to facilitate governance of such 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 and (iii) the amendment and restatement of 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. The Joint
Committee also made analogous recommendations to the AC Board.

The VK Board and the AC Board held a joint meeting on April 6-7, 1995 to
review the findings and recommendations of the Joint Committee. The VK Board
unanimously approved each element of the Consolidation on April 7, 1995, subject
to the approval of the AC Board of analogous proposals, including proposals for
combining the VK Board and the AC Board, reorganizing each of the VK Funds
(excluding the Pennsylvania Fund) as Delaware business trusts (or series
thereof) and amending and restating the Agreement and Declaration of Trust for
the Pennsylvania Fund to conform it to the extent practicable with the new trust

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instrument of the Delaware business trusts, while maintaining the tax benefits
of operating as a Pennsylvania Trust. The AC Board unanimously approved each
element of the Consolidation on May 11, 1995. Each of the VK Board and the AC
Board also approved submitting such proposals to the respective shareholders of
the VK Funds and the AC Funds for the requisite shareholder approvals. Proposal
1 of this Proxy Statement seeks shareholder approval to reorganize the Fund into
a series of a Delaware business trust. Proposal 2 of this Proxy Statement seeks
shareholder approval for the Trust to expand the number of its trustees from
seven to fifteen, to re-elect to the Board each of the incumbent trustees and to
elect to the VK Board each of the eight current members of the AC Board. The
Board has determined that reorganizing the Fund into a series of a Delaware
business trust and combining the VK Board and the AC Board are essential
elements of the Consolidation and recommend that shareholders vote FOR Proposal
1 and IN FAVOR of each of the nominees in Proposal 2.

This Proxy Statement has been prepared and mailed to the shareholders of the
Fund to obtain the necessary shareholder approvals for the Fund to complete the
Consolidation. A substantially similar proxy statement with respect to such
proposals has been prepared and mailed to the shareholders of each of the other
VK Funds and each of the AC Funds to obtain the necessary shareholder approvals
for such other VK Funds and such AC Funds to complete the Consolidation as
described above. The proxy mailed to the other VK Funds and the AC Funds does
not include a proposal substantially similar to Proposal 3 of this Proxy
Statement. Certain additional proposals not related to the Consolidation are
included in the proxy statement sent to the other VK Funds and the AC Fund,
which additional matters differ among the Insured Fund, other VK Funds and the
AC Funds and are not included herein.

- ------------------------------------------------------------------------------
PROPOSAL 1: APPROVAL OF THE REORGANIZATION AND CONVERSION OF THE FUND TO A
SERIES OF A DELAWARE BUSINESS TRUST
- ------------------------------------------------------------------------------

The VK 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 the Fund. The Plan of Reorganization
provides for the reorganization (the "Reorganization") of the Fund into a series
(the "Proposed Delaware Fund") of a Delaware business trust (the "Proposed
Delaware Trust"). Each of the other VK Funds (excluding the Pennsylvania Fund)
and the AC Funds also are seeking approval from their respective shareholders to
reorganize as Delaware business trusts (or series thereof).

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REASONS FOR THE REORGANIZATION

The principal purpose of the Reorganization is to take advantage of certain
beneficial aspects of Delaware law with respect to business trusts and to
facilitate governance of the VK Funds and the AC Funds under 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, the Fund's shareholders are potentially liable for obligations of the Fund.
Although the risk of such liability is remote, the VK Board has determined that
Delaware law affords greater protection against potential shareholder liability.
Similarly, Delaware law provides that, should the Proposed Delaware Fund 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 VK Board believes that the Delaware business trust form of organization
may enable the Proposed Delaware Fund 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 VK
Board hopes to take advantage of this provision to improve shareholder voting
procedures and reduce costs. Under Delaware law and the proposed trust
instrument of the Proposed Delaware Trust, the Proposed Delaware Fund 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
objective and the fundamental investment restrictions of both the Fund and
Proposed Delaware Fund will remain fundamental, and may be changed only by
shareholder vote. The VK Board and the AC Board also have determined that
substantially uniform organizational documents will facilitate their ability to
jointly govern the VK Funds, including the Fund, and the AC Funds in an
efficient and timely manner and will enhance the ability of the VK Funds and the
AC Funds to react in a consistent manner when faced with similar corporate
governance issues.

For a more detailed comparison of the Fund's current Declaration of Trust and
the proposed Delaware trust instrument, see "Certain Comparative Information
About the Fund and the Proposed Delaware Fund" below.

PROCEDURES FOR REORGANIZATION

In order to accomplish the Reorganization, the Trust has organized the
Proposed Delaware Trust. The Proposed Delaware Trust was formed as a Delaware
business trust pursuant to an Agreement and Declaration of Trust (the "Delaware
Trust

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Instrument") which authorizes the issuance of shares in different series. The
Trust has caused its Proposed Delaware Trust to create a series (i.e., the
Proposed Delaware Fund) that corresponds to the Fund. The investment objectives
and policies of the Proposed Delaware Fund are the same as those of the Fund.

To facilitate the Reorganization, one share of each class of the Proposed
Delaware Fund will be issued to the Fund. If the Reorganization of the Fund is
approved by its shareholders, such approval shall authorize the Fund, as sole
shareholder of the Proposed Delaware Fund, to (i) elect as trustees of the
Proposed Delaware Trust the nominees elected as trustees of the Trust pursuant
to Proposal 2 hereof, (ii) approve an investment advisory agreement between the
Proposed Delaware Fund and the VK Adviser substantially identical to the
investment advisory agreement described in Proposal 3 hereof, assuming
shareholders approve such agreement at the Meeting, (iii) approve or disapprove
the selection of the independent public accountants described in Proposal 4
hereof, and (iv) approve a Rule 12b-1 plan and a service plan between the
Proposed Delaware Fund and Van Kampen American Capital Distributors, Inc. (the
"Distributor") substantially identical to the plans currently in effect between
the Fund and the Distributor.

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

If shareholders of the Fund do not approve the Reorganization, the Fund will
continue in business as a sub-trust of a Massachusetts business trust. The
consummation of the Reorganization of the Fund is not contingent upon the
consummation of the Reorganization of any of the other VK Funds or the AC Funds,
individually or as a group.

It will not be necessary for holders of certificates of the Fund to exchange
their certificates for new certificates of the Proposed Delaware Fund following
consummation of the Reorganization. Certificates for shares of the Fund issued
prior to the Reorganization shall represent outstanding shares of the Proposed
Delaware Fund after the Reorganization. New certificates will not be issued by
the Proposed Delaware Fund after the Reorganization to shareholders of the
Proposed Delaware Fund unless specifically requested in writing. Shareholders of
the Fund 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 Proposed Delaware Fund.

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<PAGE> 13

Assuming approval by shareholders of the Fund, it is currently contemplated
that the Reorganization of the Fund will become effective at the later of August
1, 1995 or as soon as practicable following receipt of such approval, taking
into consideration all of the elements of the Consolidation. At such time, the
new advisory agreement, new Rule 12b-1 plan and new service plan will become
effective and will continue thereafter if approved as required by the Investment
Company Act of 1940, as amended ("1940 Act").

CERTAIN COMPARATIVE INFORMATION ABOUT THE FUND AND THE PROPOSED
DELAWARE FUND

Summary of the Delaware Trust Instrument. The Proposed Delaware Trust has been
established pursuant to the Delaware Trust Instrument under the laws of the
State of Delaware. The investment objectives, policies and limitations of the
Proposed Delaware Fund after the reorganization will be the same as those of the
current Fund. Prior to the Reorganization, the Proposed Delaware Fund will not
have any material assets or liabilities. During the Reorganization, the Fund
will be the sole shareholder of the Proposed Delaware Fund immediately prior to
the distribution of the Proposed Delaware Fund shares to shareholders of the
Fund. It is anticipated that the name of the Fund will be changed following the
Reorganization to "Van Kampen American Capital Insured Tax Free Income Fund."

As a Delaware business trust, the Proposed Delaware Trust's operations will be
governed by the Delaware Trust Instrument, its Bylaws and applicable Delaware
law rather than by the Trust's current Declaration of Trust, Bylaws and
applicable Massachusetts law. The operations of the Proposed 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.

Trustees and Officers of the Delaware Trust. Subject to the provisions of the
Delaware Trust Instrument, the business of the Proposed Delaware Trust is
supervised by its trustees. The responsibilities, powers, and fiduciary duties
of the trustees of the Proposed Delaware Trust will be substantially the same as
those of the trustees of the Trust, except that Delaware trustees would have the
additional authority to remove a trustee from office without cause upon the
approval of two-thirds of the trustees in office prior to such removal. The
trustees of the Proposed Delaware Trust will be all of the trustees elected by
the Trust pursuant to Proposal 2.

Series of Massachusetts Trusts and Delaware Trusts. The Delaware Trust
Instrument of the Proposed Delaware Trust permits the trustees to create one or
more series of the Proposed 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 trustees of the Trust have
identical rights under

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the Trust's current Declaration of Trust. Each share of a series of the Proposed
Delaware Trust, like each share of a series of the 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 a Delaware business trust and a
Massachusetts business trust is the potential liability of shareholders.
Generally, shareholders of the Proposed Delaware Trust will not be 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 corporations for profit. However, no similar
statutory or other authority limiting shareholder liability of a business trust
applies in many other states, including Massachusetts. As a result, to the
extent that the Proposed 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 Proposed Delaware Trust shareholders to liability.
To guard against this risk, the Delaware Trust Instrument (i) contains an
express disclaimer of shareholder liability for acts or obligations of the
Proposed Delaware Trust and requires that notice of such disclaimer be given in
each agreement, obligation, and instrument entered into as executed by the
Proposed 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 Proposed Delaware Trust. Thus, the risk of a Proposed
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 Proposed Delaware
Trust's business, and the nature of its assets, the VK Board believes that the
risk of personal liability to a Proposed 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 such
Massachusetts business trust. The Trust's current 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 Trust or the trustees. The Trust's current
Declaration of Trust also provides for indemnification out of Trust property.
Thus, the VK Board believes the risk of shareholder liability is also remote for
shareholders of a Massachusetts business trust. 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.

10
<PAGE> 15

Liability of Trustees. The Delaware Trust Instrument provides that the
trustees shall not be liable to any person in connection with the assets or
affairs of the Proposed Delaware Trust and that a trustee shall not be liable
for any errors of judgement or mistakes of fact or law; but nothing in the
Delaware Trust Instrument protects a trustee against any liability to the
Proposed Delaware Trust or its shareholders to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office. The
current Declaration of Trust provides substantially similar protections for the
trustees of the Trust.

Voting Rights of Massachusetts and Delaware Trust Shareholders. The Proposed
Delaware Fund, like the Fund, will operate as an open-end management investment
company registered with the SEC under the 1940 Act. Shareholders of the Proposed
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 the Proposed Delaware Fund, ratification of the selection of the
independent public accountants for the Proposed Delaware Fund, and such
additional matters relating to the Proposed 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
Proposed Delaware Fund for the purpose of electing a board of trustees. The
Fund's current Declaration of Trust provides that a meeting of shareholders may
be called by the holders of 51% or more of the outstanding shares; however, if
the meeting is called for the purpose of voting on the question whether to
remove a trustee, only the holders of 10% of the outstanding shares of the Fund
need request to hold a shareholders meeting. The Trust Instrument of the
Proposed Delaware Fund would permit shareholders to call a special meeting only
for the purpose of removing a trustee and would require a request by 10% of the
outstanding shares to call such a meeting. Neither Massachusetts business trusts
nor Delaware business trusts are required to hold annual meetings.

The proposed Delaware Trust Instrument, like the current 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, distribution or shareholder services
contracts, (iii) the termination or reorganization of the Proposed Delaware
Trust or any series of the Proposed Delaware Trust, (iv) with respect to any
amendment of the Delaware Trust Instrument that adversely affects shareholders,
(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
Proposed Delaware Trust or any series, and (vi) with respect to such additional
matters relating to the Proposed Delaware Trust as may be required by the 1940
Act, the Delaware Trust Instrument, the Bylaws or any registration of the
Proposed Delaware Trust with the SEC. Each of

11
<PAGE> 16

the Delaware Trust Instrument and the Trust's current Declaration of Trust
requires a majority of shares to establish a quorum for a meeting.

Each of the Fund and the Proposed Delaware Fund generally requires the
approval of a majority of the shares present at a meeting at which there is a
quorum to approve a proposal presented to shareholders for a vote. The following
shareholder voting requirements will change if the Reorganization is approved.
The Fund currently requires a majority of its shares present at a meeting at
which there is a quorum to terminate the Fund or merge the Fund into another
fund. The Proposed Delaware Fund would require a majority of its outstanding
shares to terminate such fund or merge such fund into another fund. The current
Declaration of Trust requires the approval of two-thirds of the outstanding
shares of the Fund with respect to any amendment of the Declaration of Trust
that would reduce the amount payable to shareholders upon liquidation of the
Fund. The Delaware Trust Instrument would permit such an amendment if approved
by a majority of the shares present at a meeting.

The foregoing is only a summary of certain differences between the Fund, the
current Declaration of Trust, current Bylaws and Massachusetts law and the
Proposed Delaware Fund, Delaware Trust Instrument, Bylaws and Delaware law. It
is not a complete list of differences. Shareholders should refer to the
provisions of such documents and laws for a more thorough comparison.
Shareholders on the Record Date may obtain copies of the Fund's current and
proposed organizational documents by calling the telephone number set forth on
the first page of this Proxy Statement.

TEMPORARY AMENDMENT TO INVESTMENT LIMITATIONS

During the period prior to the Reorganization, the Fund will own the only
outstanding share of each class of the Proposed Delaware Fund. By acquiring a
nominal share of each class of the Proposed Delaware Fund, the Fund can then
vote to elect as trustees of the Proposed Delaware Trust those nominees elected
in Proposal 2 below, approve a new investment advisory agreement substantially
identical to the investment advisory agreement submitted for shareholder
approval in Proposal 3 hereof, approve a substantially identical but new
distribution plan and service plan and ratify the selection of independent
accountants in order to comply with provisions of the 1940 Act requiring such
shareholder approvals.

The Fund has investment restrictions which require shareholder approval before
they can be changed and which might otherwise preclude the Fund from completing
the Reorganization including, for example, restrictions which prohibit the 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 Fund's total assets
(taken at current value) would then be invested in securities of a single issuer
or, if, as a result, the Fund

12
<PAGE> 17

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

FEDERAL INCOME TAX CONSEQUENCES

It is anticipated that the transaction contemplated by the Plan of
Reorganization will be tax-free. Consummation of the Reorganization is subject
to receipt of an opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to the
Fund that, under the Internal Revenue Code of 1986 (the "Code"), the
reorganization of the Fund into a series of the Proposed Delaware Trust pursuant
to the Plan of Reorganization will not give rise to the recognition of income,
gain or loss for federal income tax purposes to the Fund, the Trust or the
shareholders of the Fund. A shareholder's adjusted basis for tax purposes in
shares of the Proposed Delaware Fund after the Reorganization will be the same
as his adjusted basis for tax purposes in the shares of the Fund immediately
before the Reorganization. Each shareholder should consult his or her own tax
adviser with respect to the state and local tax consequences of the proposed
transaction.

EXPENSES

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

RECOMMENDATION OF TRUSTEES

The Board has unanimously approved the proposed Reorganization of the Fund,
has determined that participation in the Reorganization is in the best interests
of the Fund and that the interests of existing shareholders of the Fund will not
be diluted as a result of the Reorganization. THE BOARD RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE "FOR APPROVAL" OF PROPOSAL 1.

REQUIRED VOTE

An affirmative vote of a majority of the shares of the Fund present in person
or by Proxy at the Meeting and entitled to vote on the proposal is required to
approve the Reorganization and subsequent liquidation and dissolution of the
Fund.

- ------------------------------------------------------------------------------
PROPOSAL 2: ELECTION OF TRUSTEES
- ------------------------------------------------------------------------------

At a meeting held on April 6-7, 1995, the VK Board unanimously approved
increasing the number of trustees for the Trust from seven to fifteen and
nominated

13
<PAGE> 18

each of the incumbent trustees for re-election and also nominated Messrs. J.
Miles Branagan, Dr. Richard E. Caruso, Dr. Roger Hilsman, Don G. Powell, David
Rees, Lawrence J. Sheehan, Dr. Fernando Sisto and William S. Woodside to fill
the new trustee positions. Each of the new nominees currently serves on the AC
Board. On May 11, 1995, the AC Board unanimously approved increasing the members
of the AC Board from eight to fourteen and nominated each of the incumbent
trustees for re-election and also nominated each of the trustees of the VK
Board, except for Mr. McDonnell, to fill such new positions. Mr. McDonnell, an
interested person of the VK Adviser and the AC Adviser, will not join the AC
Board so that the AC Board will remain in compliance with Section 15(f) of the
1940 Act.

The VK Board together with the AC Board evaluated the benefits to shareholders
resulting from the proposed combination of the VK Board and the AC Board. Each
of the VK Board and the AC 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 VK Funds and the AC Funds;
positioning the unified fund complex to maximize benefits for marketing; more
effectively supervise the implementation of improved shareholder service
programs across the unified fund complex; combining historical knowledge and
experience of the two fund complexes; more effectively evaluate potential
combinations 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 VK Board also evaluated the costs to shareholders of the Fund and the
other VK Funds resulting from the combination of the VK Board and the AC Board.
The principal cost associated with the combination of the two boards would be
the added expense of compensating the additional trustees. Seven of the eight
additional trustees are not affiliated persons of the VK Adviser, the
Distributor or Van Kampen American Capital and such persons are eligible for
compensation from the Fund. In order to alleviate such additional expense, the
trustees approved a reduction in the compensation per trustee and agreed to an
aggregate annual compensation cap from the combined fund complex of $84,000 per
trustee until December 31, 1996 based upon the current net assets and the
current number of Van Kampen American Capital funds. In addition, the VK Adviser
has agreed to reimburse the Fund through December 31, 1996, for any increase in
the aggregate trustees' compensation paid by the Fund after the Reorganization
over the aggregate compensation paid by the Fund in its 1994 fiscal year. It is
anticipated that reductions in the number of trustees on the combined board will
reduce the aggregate compensation paid by the Fund to the combined board to
approximately the current amount. 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.

14
<PAGE> 19

THE TRUSTEES

Messrs. McDonnell, Miller, Nelson and Whalen were initially elected to the
board of trustees of the Trust in 1985. Mr. Gaughan was first elected to the
board of trustees of the Trust in 1989. Mr. Robinson was first elected to the
board of trustees of the Trust in 1992. Mr. Kennedy was appointed by the
trustees to the board of trustees of the Trust in 1993, in order to fill a
vacancy created by the resignation of John Dailey and has not previously been
elected by the shareholders. Each of the incumbent trustees, except Mr. Kennedy,
was last approved by shareholders of the Trust at a joint meeting of
shareholders held on January 14, 1993.

With respect to the Trust, fifteen trustees are to be elected at the Meeting
to serve until reaching their designated retirement ages or their successors are
duly elected and qualified. The election of each nominee to the board of the
Trust requires the affirmative vote of a plurality of all Shares of the Trust
present in person or by proxy. The shareholders of the Fund will vote together
as a single class to elect the trustees of the Trust, together with the
shareholders of the other sub-trusts of the Trust, who are voting at a separate
meeting. 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 Trust Instrument of the Proposed Delaware Trust provides that the board
shall consist of not more than twenty trustees. In the event a vacancy occurs on
the board, the trustees currently intend that the number of trustees will be
reduced over time from fifteen to eight. Thereafter, subject to the provisions
of the 1940 Act, the remaining trustees shall appoint a person to fill the
vacancy for the entire unexpired term. Following the Meeting, the Fund does 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 the Trust and will be a
policy of the Proposed Delaware Trust that holders of record of two-thirds of
the outstanding shares of such trust may file a declaration in writing or may
vote at a special meeting for the purpose of removing a trustee. The board will
be required to promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any trustee when requested in writing to do so
by the record holders of not less than 10% of the total outstanding shares of
such trust. In addition, the board will comply with the requirements of Section
16(c) of the 1940 Act with respect to communications with shareholders.

Each nominee named below has agreed to serve as a trustee if elected; however,
should any nominee(s) become unable or unwilling to accept nomination or
election, the proxies will be voted for one or more substitute nominee(s)
designated by the present VK Board.

15
<PAGE> 20

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

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ---------------------------- ------------------------------------------
<S> <C>
J. Miles Branagan........... Co-founder, Chairman, Chief Executive
2300 205th Street Officer and President of MDT Corporation,
Torrance, CA 90501 a company which develops manufactures,
Age: 62 markets and services medical and
scientific equipment. A director or
trustee of each of the AC Funds.
Richard E. Caruso........... Founder, Chairman and Chief Executive
Two Randor Station, Suite Officer, Integra Life Sciences
314 Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna
Radnor, PA 19087 University and First Vice President, The
Age: 52 Baum School of Art; Founder and Director
of Uncommon Individual Foundation, a youth
development foundation. Director of
International Board of Business
Performance Group, London School of
Economics. Formerly, Director of First
Sterling Bank, and Executive Vice
President and a Director of LFC Financial
Corporation, a provider of lease and
project financing. A director or trustee
of each of the AC Funds.
Philip P. Gaughan........... Prior to February, 1989, Managing Director
9615 Torresdale Avenue and Manager of Municipal Bond Department,
Philadelphia, PA 19114 W. H. Newbold's Sons & Co. A trustee of
Age: 66 each of the VK Funds.
Roger Hilsman............... Professor of Government and International
251-1 Hamburg Cove Affairs Emeritus, Columbia University. A
Lyme, CT 06371 director or trustee of each of the AC
Age: 75 Funds.
R. Craig Kennedy............ President and Director, German Marshall
1341 E. 50th Street Fund of the United States. Formerly,
Chicago, IL 60615 advisor to the Dennis Trading Group Inc.
Age: 43 Prior to 1992, President and Chief
Executive Officer, Director and member of
the Investment Committee of the Joyce
Foundation, a private foundation. A
trustee of each of the VK Funds.
</TABLE>

16
<PAGE> 21

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ---------------------------- ------------------------------------------
<S> <C>
Dennis J. McDonnell*........ President, Chief Operating Officer and a
One Parkview Plaza Director of the VK Adviser, the AC Adviser
Oakbrook Terrace, IL 60181 and Van Kampen American Capital
Age: 53 Management, Inc. Director of VK/AC
Holding, Inc. and Van Kampen 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 also
is President, Chief Executive Officer and
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.
Donald C. Miller............ Prior to 1992, Director of Royal Group,
415 North Adams Inc., a company in insurance related
Hinsdale, IL 60521 businesses. Formerly Vice Chairman and
Age: 75 Director of Continental Illinois National
Bank and Trust Company of Chicago and
Continental Illinois Corporation. Chairman
of the Board and a trustee of each of the
VK Funds.
Jack E. Nelson.............. President of Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning
Winter Park, FL 32789 company and registered investment adviser.
Age: 59 President of Nelson Investment Brokerage
Services Inc., a member of the National
Association of Securities Dealers, Inc.
(NASD) and Securities Investors Protection
Corp. (SIPC). A trustee of each of the VK
Funds.
</TABLE>

17
<PAGE> 22

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ---------------------------- ------------------------------------------
<S> <C>
Don G. Powell*.............. President, Chief Executive Officer and a
2800 Post Oak Blvd. Director of VK/AC Holding, Inc. and Van
Houston, TX 77056 Kampen American Capital and Chairman,
Age: 55 Chief Executive Officer and a Director of
Van Kampen American Capital Distributors,
Inc., the VK Adviser, the AC Adviser and
Van Kampen American Capital Management,
Inc. Director, President and Chief
Executive Officer of Van Kampen American
Capital Advisers, Inc. and Van Kampen
American Capital Exchange Corp.; Director
and Executive Vice President of Advantage
Capital Corporation, ACCESS Investor
Services, Inc., Van Kampen American
Capital Services, Inc. and Van Kampen
American Capital Trust Company; Director
of McCarthy, Crisanti & Maffei, Inc.;
Director, Trustee or Managing General
Partner of each of the AC Funds and other
open-end investment companies and
closed-end investment companies advised by
the AC Adviser. He is also Chairman of the
Board and a trustee of the Van Kampen
Merritt Series Trust and closed-end
investment companies advised by the VK
Adviser.
David Rees.................. Contributing Columnist and, prior to 1995,
1601 Country Club Drive Senior Editor of Los Angeles Business
Glendale, CA 91208 Journal. A director of Source Capital,
Age: 71 Inc., a closed-end investment company
unaffiliated with Van Kampen American
Capital, a director and the second vice
president of International Institute of
Los Angeles. A director or trustee of each
of the AC Funds.
Jerome L. Robinson.......... President of Robinson Technical Products
115 River Road Corporation, a manufacturer and processor
Edgewater, NJ 07020 of welding alloys, supplies and equipment.
Age: 72 Director of Pacesetter Software, a
software programming company specializing
in white collar productivity. Director of
Panasia Bank. A trustee of each of the VK
Funds.
</TABLE>

18
<PAGE> 23

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

- ---------------
* Such nominees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by

19
<PAGE> 24

reason of his firm having acted as legal counsel to the VK Adviser. Mr. Whalen
is an interested person of the Fund by reason of his firm acting as legal
counsel for the Fund.

As of May 19, 1995, certain nominees owned, directly or beneficially, the
number of Class A Shares of the Fund as follows: Mr. Gaughan, 116 shares; Mr.
McDonnell, 226 Shares; Mr. Miller, 403 shares; Mr. Robinson, 505 shares; and Mr.
Whalen, 1,535 shares. As of May 19, 1995, no nominee owned any Class B Shares or
Class C Shares of the Fund. Such ownership constitutes less than 1% of the
outstanding Shares of the Fund.

Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.

During the Fund's fiscal year ended in 1994, the board of trustees of the
Trust held nine meetings. All of the trustees of the Fund, including former
trustee John C. Merritt who resigned from the VK Board on January 28, 1995,
attended at least 75% of the meetings of the board and all committee meetings
thereof of which such trustee was a member during such fiscal year. During the
Trust's 1994 fiscal year, the Trust had no standing committees with the
exception of an audit committee. Mr. Merritt, who had been a trustee and
chairman of the Fund, the VK Funds, Van Kampen Merritt Series Trust and
closed-end investment companies advised by the VK Adviser, also resigned as the
chairman of the board, chief executive officer and a director of the VK Adviser,
Van Kampen Merritt Management Inc., Van Kampen Merritt Inc., and chairman, chief
executive officer, president, chief operating officer and director of The Van
Kampen Merritt Companies, Inc. and VKM Holding, Inc. Mr. Merritt's resignation
from these Van Kampen Merritt-related entities was related to the Acquisition.
At or subsequent to the closing of the Acquisition, Mr. Merritt exercised
options and sold approximately 49,740 shares of the common stock of Van Kampen
American Capital at a price of $200 per share. In addition, Mr. Merritt has a
severance agreement with Van Kampen American Capital entitling him to
approximately $550,000 payable during 1995. Mr. Merritt was also a Director of
McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company, Limited, a limited
partner of R.L. Renck & Co., Inc., and Vice Chairman of the Municipal Securities
Rulemaking Board.

As of the end of the Trust's 1994 fiscal year, the Trust's audit committee
consisted of Messrs. Kennedy, Gaughan, Miller and Nelson (collectively, the
"Disinterested Trustees"). The audit committee makes recommendations to the
board concerning the selection of the Fund's independent accountants, reviews
with such accountants the scope and results of the Fund's annual audit and
considers any comments that the accountants may have regarding the Fund's
financial statements

20
<PAGE> 25

or books of account. The Disinterested Trustees also are responsible for the
annual review of the Fund's investment advisory agreement and any other matters
requiring the approval of the Disinterested Trustees under the 1940 Act. During
the Fund's 1994 fiscal year, the audit committee of the Fund held two meetings.

If the Consolidation is approved at the Meeting, it is anticipated that the
combined board will have two standing committees: an Audit Committee and a
Brokerage Review Committee. It is anticipated that the Audit Committee will make
recommendations to the combined board concerning the selection of 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 financial statements or books of account, and that the Brokerage Review
Committee will monitor the respective adviser's brokerage practices. It is
anticipated that each trustee not affiliated with the Fund will serve on one of
the committees, but no trustee shall serve on more than one committee and not
receive additional compensation for serving on a committee.

The Disinterested Trustees 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 Trust's office. The
Disinterested Trustees expect to be able to identify from their own resources an
ample number of qualified candidates.

The compensation of trustees who are affiliated persons (as defined in the
1940 Act) of the VK Adviser, the Distributor or Van Kampen American Capital is
paid by the respective entity. The Fund pays compensation to the non-affiliated
trustees. During the Trust's 1994 fiscal year, the Trust paid trustees who were
not affiliated persons of the VK Adviser, the Distributor or Van Kampen American
Capital, $2,500 per year, and $250 per meeting of the Board, plus expenses.
Members of the Audit Committee received $250 for each meeting of such committee.
Under the Fund's retirement plan, trustees who are not affiliated with the VK
Adviser, the Distributor or Van Kampen American Capital, have at least ten years
of service and retire at or after attaining the age of 60 are eligible to
receive a retirement benefit equal to $2,500 per year for each of the ten years
following such trustee's retirement. Under certain conditions, reduced benefits
are available for early retirement. Under the Fund's deferred compensation plan,
a trustee who is not affiliated with the VK Adviser, the Distributor or Van
Kampen American Capital can elect to defer receipt of all or a portion of the
trustee's fees earned by such trustee until such trustee's retirement. The
deferred compensation earns a rate of return determined by reference to the
Fund's return or the return of other VK Funds as selected by the trustee. To the
extent permitted by the 1940 Act, the Fund may invest in securities of other VK
Funds in order to match the deferred compensation obligation. The deferred
compensation plan is not funded

21
<PAGE> 26

and obligations thereunder represent general unsecured claims against the
general assets of the Fund.

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

1994 COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ACCRUED ANNUAL FROM THE FUND
COMPENSATION AS PART BENEFITS COMPLEX PAID
FROM THE OF FUND UPON TO
TRUSTEE REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TRUSTEES(5)
- ----------------------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
R. Craig Kennedy....... $ 21,968 $ 45 $ 2,500 $62,362
Philip P. Gaughan...... 21,928 996 2,500 63,250
Donald C. Miller....... 23,768 2,017 2,500 62,178
Jack E. Nelson......... 23,858 520 2,500 62,362
Jerome L. Robinson..... 23,801 832 2,500 58,475
Wayne W. Whalen........ 17,553 339 2,500 49,875
</TABLE>

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

(1) Messrs. Merritt and McDonnell, members of the Board of the Trust during
fiscal year 1994, were affiliated persons of the VK Adviser and did not
receive compensation or retirement benefits directly from the Fund.

(2) The Registrant is the Trust, which currently is comprised of 8 sub-trusts
including the Fund. The amounts shown in this column are accumulated from
the Aggregate Compensation of each of these 8 sub-trusts during such sub-
trusts' 1994 fiscal year. Beginning in September 1994, each trustee, except
Messrs. Gaughan and Whalen, began deferring his compensation paid by the
Fund. The total amount of deferred compensation (including interest) accrued
with respect to each trustee from the Fund Complex (as defined herein) as of
December 31, 1994 is as follows: Mr. Kennedy $14,737; Mr. Miller $14,553;
Mr. Nelson $14,737; and Mr. Robinson $13,725. Beginning on January 1, 1995,
Messrs. Gaughan and Whalen began deferring all of their compensation.
Compensation deferred by a trustee is invested in one or more VK Funds,
including the Fund, until it is distributed to the trustee.

(3) The Retirement Plan commenced as of August 1, 1994 for the Fund. The amounts
shown in this column are the expenses accrued for retirement benefits as of
December 31, 1994 for the Fund.

(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by the Fund
assuming: the trustee has 10 or more years of service on the board of the
Fund, and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer

22
<PAGE> 27

than 10 years of service for the Fund may receive reduced retirement
benefits from the Fund.

(5) Prior to the Consolidation, the "Fund Complex" consisted of the 20 VK Funds.
The amounts shown in this column are accumulated from the Aggregate
Compensation of such funds in the Fund Complex during the calendar year
ended December 31, 1994. The VK Adviser also serves as investment adviser
for other investment companies; however, with the exception of Messrs.
McDonnell and Whalen, the trustees of the Board are not trustees of such
investment companies. Combining the Fund Complex with the other investment
companies advised by the VK Adviser, Mr. Whalen received Total Compensation
of $161,850 during the calendar year ended December 31, 1994.

If the combination of the boards is approved by shareholders, the Fund
anticipates certain changes in the compensation for trustees. The Fund will pay
trustees who are not affiliated persons of the VK Adviser, the Distributor or
Van Kampen American Capital an annual retainer of $2,500 per year and $125 per
regular quarterly meeting of the Fund, plus expenses. No additional fees are
proposed at the present time to be paid for special meetings, committee meetings
or to the chairman of the board. The principal cost associated with the
combination of the two boards would be the added expense of compensating the
additional trustees. Seven of the eight additional trustees are not affiliated
persons of the VK Adviser, the Distributor or Van Kampen American Capital and
such persons are eligible for compensation from the Fund. In order to alleviate
such additional expense, the trustees approved a reduction in the compensation
per trustee and agreed to an aggregate annual compensation cap from the combined
fund complex of $84,000 per trustee until December 31, 1996, based upon the
current net assets and the current number of Van Kampen American Capital funds
(except that Mr. Whalen, who is also a trustee of 34 closed-end funds advised by
the VK Adviser would receive an additional $119,000 for serving as a trustee of
such funds). In addition, the VK Adviser has agreed to reimburse the Fund
through December 31, 1996, for any increase in the aggregate trustees'
compensation over the aggregate compensation paid by the Fund in its 1994 fiscal
year. It is anticipated that reductions in the number of trustees on the
combined board will reduce the aggregate compensation paid by the Fund to the
combined board to approximately the current amount.

SHAREHOLDER APPROVAL

The affirmative vote of a plurality of the Shares of the Trust present in
person or by proxy is required to elect the nominees to the Trust. THE BOARD OF
TRUSTEES OF THE TRUST RECOMMEND A VOTE "IN FAVOR" OF EACH OF THE NOMINEES.

23
<PAGE> 28

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

PROPOSAL 3: APPROVAL OF A MATERIAL CHANGE IN THE

TERMS OF THE INVESTMENT ADVISORY

AGREEMENT OF THE FUND

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

THE CURRENT INVESTMENT ADVISORY AGREEMENT

The VK Adviser has acted as investment adviser and manager for the Fund since
the commencement of the Fund's operations in December, 1984. The current
investment advisory agreement (the "Current Agreement") between the Fund and the
VK Adviser was last approved by a majority of the trustees and by a majority of
the Disinterested Trustees, voting in person at a meeting called for that
purpose on May 8-9, 1995 to continue the Current Agreement for a period of one
year. The Current Agreement was last approved by the shareholders of the Fund at
a meeting held on January 14, 1993 relating to the acquisition of the VK
Adviser's corporate parent by CDV Acquisition Corporation from Xerox Financial
Services, Inc. A copy of the Current Agreement is attached hereto as Appendix B.
The Current Agreement may be terminated by either party, at any time, without
penalty, upon 60 days written notice, and will automatically terminate in the
event of its assignment.

The VK Adviser is a wholly-owned subsidiary of Van Kampen American Capital,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is controlled, through the ownership of a substantial majority of its
common stock, by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of Van Kampen American Capital own, in
the aggregate, not more than 6% of the common stock of VK/AC Holding, Inc. and
have the right to acquire, upon the exercise of options, approximately an
additional 10% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee of the Fund
owns or would own 5% or more of the common stock of VK/AC Holding, Inc.

The Current Agreement provides that the VK Adviser will supply investment
research and portfolio management, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through which the
Fund's portfolio transactions are executed. The VK Adviser also administers the
business affairs of the Fund, furnishes offices, necessary facilities and
equipment,

24
<PAGE> 29

provides administrative services, and permits its officers and employees to
serve without compensation as trustees and officers of the Fund if duly elected
to such positions.

The Current Agreement provides that the VK Adviser shall not be liable for any
error of judgment or of law, or for any loss suffered by the Fund in connection
with the matters to which the Current Agreement relates, except a loss resulting
from willful misfeasance, bad faith, or gross negligence on the part of the VK
Adviser in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the Current Agreement.

The VK Adviser's activities are subject to the review and supervision of the
Board to whom the VK Adviser renders regular periodic reports of the Fund's
investment activities.

For the services provided by the VK Adviser under the Current Agreement, the
Fund pays the VK Adviser a fee (accrued daily and paid monthly) based on a
percentage of the average daily net assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY FEE AS A PERCENT
NET ASSETS OF AVERAGE DAILY
(MILLIONS) NET ASSETS
------------ ----------------
<S> <C> <C>
First $100....................... 0.500%
Next $150....................... 0.450%
Next $250....................... 0.425%
Over $500....................... 0.400%
</TABLE>

For the fiscal year ended December 31, 1994, advisory fees paid to the VK
Adviser by the Fund were $5,028,401. For the fiscal year ended December 31,
1994, the Fund paid no brokerage commissions to any broker-dealer affiliated
with the Fund, the VK Adviser or the Fund's administrator.

Under the Current Agreement, the Fund pays all other expenses incurred in the
operation of the Fund including, but not limited to, direct charges relating to
the purchase and sale of its portfolio securities, interest charges, fees and
expenses of legal counsel and independent auditors, taxes and governmental fees,
cost of share certificates and any other expenses (including clerical expenses)
of issuance, sale or repurchase of the Fund's common shares, expenses in
connection with the Fund's dividend reinvestment plan, membership fees in trade
associations, expenses of registering and qualifying shares of the Fund for sale
under federal and state securities laws, expenses related to printing and
distribution, expenses of filing reports and other documents filed with
governmental agencies, expenses of annual and special meetings of trustees and
shareholders, fees and disbursements of the transfer agents, custodians and
sub-custodians, expenses of disbursing dividends and distributions, fees and
out-of-pocket costs of the trustees, insurance premiums,

25
<PAGE> 30

indemnification and other expenses not expressly provided for in the Current
Agreement, and any extraordinary expenses of a nonrecurring nature. The Fund
also compensates the VK Adviser, the Distributor and Van Kampen American Capital
for certain non-advisory services provided pursuant to agreements discussed
below.

THE NEW INVESTMENT ADVISORY AGREEMENT

The VK Board approved a proposed new investment advisory agreement (the "New
Agreement") between the Fund and the VK Adviser on May 8-9, 1995, the form of
which is attached hereto as Appendix C. The form of the New Agreement is
substantially identical to the Current Agreement, except that the investment
advisory fee would be based on a percentage of the average daily net assets of
the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY FEE AS A PERCENT
NET ASSETS OF AVERAGE DAILY
(MILLIONS) NET ASSETS
- -------------------- ----------------
<S> <C>
First $500 million.................... 0.525%
Next $500 million..................... 0.500%
Next $500 million..................... 0.475%
Over $1,500 million................... 0.450%
</TABLE>

If the investment advisory fee proposed under the New Agreement had been in
effect for the fiscal year ended December 31, 1994, advisory fees paid to the VK
Adviser by the Fund would have been $6,067,039, which is an increase of 20.7%
over the amount actually paid for such fiscal year. The table below sets forth
the expenses incurred by the Fund for its fiscal year ended December 31, 1994
and also

26
<PAGE> 31

sets forth pro forma expenses of the Fund assuming the New Agreement is approved
by shareholders:

ANNUAL FUND OPERATING EXPENSES

<TABLE>
<CAPTION>
1994 EXPENSES PRO FORMA EXPENSES
----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (as a
percentage of
average daily net
assets)............. 0.42% 0.42% 0.42% 0.51% 0.51% 0.51%
12b-1 Fees (as a
percentage of
average daily net
assets)............. 0.24% 1.00% 1.00% 0.24% 1.00% 1.00%
Other expenses (as a
percentage of
average daily net
assets)............. 0.22% 0.29% 0.28% 0.22% 0.29% 0.28%
Total (as a percentage
of average daily net
assets)............. 0.88% 1.71% 1.70% 0.97% 1.80% 1.79%
</TABLE>

EXAMPLES

You would pay the following expenses on a $1,000 investment in the Fund,
assuming (i) an operating expense ratio of 0.88% for Class A Shares, 1.71% for
Class B Shares and 1.70% for Class C Shares, for the 1994 Examples, and 0.97%
for Class A Shares, 1.80% for Class B Shares and 1.79% for Class C Shares for
the Pro Forma Examples, (ii) 5.00% annual return and (iii) redemption at the end
of each time period. The Fund does not charge a fee for redemptions (other than
any applicable contingent deferred sales charge):

<TABLE>
<CAPTION>
1994 EXAMPLES PRO FORMA EXAMPLES
---------------------------- ----------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares.......... $56 $74 $ 94 $151 $57 $77 $ 99 $161
Class B Shares.......... 57 89 108 170 58 92 112 180
Class C Shares.......... 27 54 92 201 28 56 97 211
</TABLE>

27
<PAGE> 32

An investor would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of each period:

<TABLE>
<CAPTION>
1994 EXAMPLES PRO FORMA EXAMPLES
---------------------------- ----------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares........... $56 $74 $94 $151 $57 $77 $99 $161
Class B Shares........... 17 54 93 170 18 57 97 180
Class C Shares........... 17 54 92 201 18 56 97 211
</TABLE>

The "Examples" reflect expenses based on the "Annual Fund Operating Expenses"
table as shown above carried out to future years. Due to the incremental
"phase-in" of the Fund's 12b-1 plan and service plan, it is anticipated 12b-1
and service fees applicable to the Fund will increase in accordance with such
plans to a maximum amount of 0.30% of the Fund's net assets. In addition, in
connection with the Consolidation, the Board has sought a decrease in the 12b-1
fees and service fees for Class A Shares from 0.30% of the Fund's net assets to
0.25% of the Fund's net assets. Accordingly, it is unlikely that future expenses
as projected will remain consistent with those determined based on the table of
the "Annual Fund Operating Expenses." The ten year amount with respect to the
Class B Shares of the Fund reflects the lower aggregate 12b-1 and service fees
applicable to such shares after conversion to Class A Shares. THE INFORMATION
CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.

Background. The VK Adviser submitted a proposal to the Board to increase the
advisory fee on March 13, 1995. The proposal set forth, among other things, a
proposed modification to the advisory fee structure, information concerning the
VK Adviser, some comparative information with respect to advisory fees paid by
other investment companies and information with respect to recent developments
and trends with respect to mutual funds investing in municipal securities and
insured municipal securities.

After considering the factors they deemed appropriate to their deliberations,
the Disinterested Trustees decided, pending further study and analysis, to defer
the proposal and to retain a nationally recognized analytical services
consultant to prepare a report evaluating the proposed fee increase based on
publicly available industry data as an aid to the Board in its deliberations.

On April 12, 1995, the Disinterested Trustees, together with the Fund's
counsel, delivered to the VK Adviser a response to its proposal, which response
requested additional information with respect to the proposed advisory fee
increase.

The Board met on May 8-9, 1995 in order to consider, among other things, the
report of the analytical services consultant. Prior to the meeting, the VK
Adviser

28
<PAGE> 33

presented for the Board's consideration materials in response to the
Disinterested Trustees' request for additional information, including, among
other things, materials with respect to: conditions and trends relating to the
municipal securities market; fees and expenses, other than the advisory fee,
payable by the Fund to the VK Adviser and its affiliates, including distribution
expenses and expenses incurred under the non-advisory agreements discussed
below; the profitability of the VK Adviser's mutual fund operations with respect
to the Fund on a historical and pro forma basis; and the rationale underlying
the proposed advisory fee structure. Representatives of the VK Adviser were
present at the meeting to discuss the information provided to the trustees and
answer such questions as were raised. After the Board discussed the materials
provided by the VK Adviser in response to the Disinterested Trustee's request,
the Disinterested Trustees caucused, with counsel, to further consider the
proposed advisory fee increase. The report compared the Fund's current and
historical expenses, advisory fees, performance and other indicia to a set of
mutual funds selected by the analytical services consultant based on their
similarity to the Fund with respect to asset size and portfolio strategy. These
comparisons were made based on an analysis of the current advisory fee, other
expenses and performance levels of the Fund and on a pro forma basis to reflect
the VK Adviser's proposed fee structure. Representatives of the VK Adviser were
present at the meeting to discuss the report with the Board and answer such
questions as were raised.

Trustees' Approval of the New Agreement. Based on its evaluation of the
materials presented by the VK Adviser and the report of the independent
analytical services consultant and assisted by the advice of counsel, the
Disinterested Trustees approved the fee structure proposed by the VK Adviser in
the New Agreement. Thereafter, on May 8-9, 1995, the Board, including the
Disinterested Trustees, approved the terms of the New Agreement and the Trustees
approved submitting the New Agreement for the consideration of the shareholders
of the Fund.

In reaching their decision to approve the New Agreement, the Board considered
many factors including among others: the findings of the report from the
independent analytical services consultant that the Fund's current management
fee structure and total expense ratio were less than most comparable funds; an
analysis of the Fund's pro forma advisory fee, total expense ratio and
performance data; the increased complexity and sophistication of the securities
which comprise a significant portion of the Fund's investment portfolio; the
need of the VK Adviser to devote additional personnel and resources to managing
the Fund and to retain key personnel currently employed by the VK Adviser in
order to continue providing a comparable level of investment management services
and that the short and long term record of investment performance under the VK
Adviser were among the best in the industry.

29
<PAGE> 34

Shareholder Approval of the New Agreement. To become effective, the New
Agreement must be approved by a majority of the outstanding voting securities of
the Fund. The vote of a majority of the outstanding voting securities means the
lesser of the vote of (i) 67% or more of the Shares entitled to vote thereon
present at the Meeting if the holders of more than 50% of such outstanding
Shares are present in person or represented by proxy; or (ii) more than 50% of
such outstanding Shares. If the New Agreement is approved, it will be effective
as of August 1, 1995 and will continue until July 30, 1997 and thereafter on an
annual basis if specifically approved by the board of trustees of the Fund or
the Shareholders and by the Disinterested Trustees in compliance with the
requirements of the 1940 Act. If the New Agreement is not approved at the
Meeting, the Current Agreement will remain in effect until April 30, 1996 and
thereafter on an annual basis if specifically approved by the board of trustees
of the Fund or the shareholders and by the Disinterested Trustees in compliance
with the requirements of the 1940 Act.

The New Agreement was approved by the Board after consideration of all factors
which they determined to be relevant to their deliberations, including those
discussed above. The Board also determined to submit the New Agreement for
consideration by the shareholders. THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS
A VOTE "FOR APPROVAL" OF THE NEW AGREEMENT.

NON-ADVISORY AGREEMENTS

The Fund has entered into certain other agreements with the VK Adviser, the
Distributor or Van Kampen American Capital, as the case may be, as follows:

Fund Accounting Agreement. The Fund has entered into an accounting services
agreement with the VK Adviser pursuant to which the VK Adviser provides
accounting services supplementary to those provided by the custodian of the
Fund's assets. The VK Adviser believes that such services enable the Fund to
more closely monitor and maintain its accounts and records. The Fund shares
equally, together with the other mutual funds advised and distributed by the VK
Adviser and the Distributor, respectively, in 25% of the cost of providing such
services, with the remaining 75% of such cost being paid by the Fund and such
other funds based proportionally based upon their respective net assets. Under
the Fund Accounting Agreement, the Fund paid the VK Adviser $31,650 for the
fiscal year ended December 31, 1994.

Support Services Agreement. Under a support services agreement with the
Distributor, the Fund receives support services for shareholders, including the
handling of all written and telephonic communications, except initial order
entry and other distribution related communications. Upon entering into such
agreement, the Fund realized a reduction in the fee which would have been paid
by the Fund to

30
<PAGE> 35

its transfer agent if the transfer agent had provided such services. Payment by
the Fund for such services is made on a cost basis for the employment of the
personnel and the equipment necessary to render the support services. The Fund
and the other mutual funds advised and distributed by the VK Adviser and the
Distributor, respectively, share such costs proportionately among themselves
based upon their respective net asset values. Under the Support Services
Agreement, the Fund paid the Distributor $597,765 for the fiscal year ended
December 31, 1994. In connection with the Consolidation, it is anticipated that
the support services agreement will be terminated and the Fund will contract
with ACCESS, Inc., a subsidiary of Van Kampen American Capital, for transfer
agency and other comparable services.

Legal Services Agreement. The Fund has entered into a Legal Services Agreement
pursuant to which Van Kampen American Capital provides legal services, including
without limitation maintenance of the Fund's minute books and records,
preparation and oversight of the Fund's regulatory reports, and other
information provided to shareholders, as well as responding to day-to-day legal
issues on behalf of the Fund. Management believes that Van Kampen American
Capital can render such legal services on a more cost effective basis than other
providers of such services. Payment by the Fund for such services is made on a
cost basis for the employment of personnel as well as the overhead and equipment
necessary to render such services. The Fund, and the other mutual funds advised
and distributed by the VK Adviser and the Distributor, respectively, currently
share 50% of such costs equally. The remaining 50% of such costs are allocated
to specific funds based on specific time allocations, or in the event services
are attributable only to types of funds (i.e. closed-end or open-end), the
relative amount of time spent on each type of fund and then further allocated
among funds of that type based upon their respective net asset values. Under the
Legal Services Agreement, the Fund paid Van Kampen American Capital $25,100 for
the fiscal year ended December 31, 1994.

Distribution Agreement, Distribution Plan and Service Plan. The Fund has
executed a distribution agreement with the Distributor pursuant to which the
Distributor, as principal underwriter, purchases shares for resale to the
public, either directly or through securities dealers, and is obligated to
purchase only those shares for which it has received purchase orders. Under the
Distribution Agreement, the Fund paid the Distributor $512,700 for the fiscal
year ended December 31, 1994. The Fund has adopted a distribution plan (the
"Distribution Plan") with respect to each class of its shares pursuant to Rule
12b-1 under the 1940 Act. The Fund also has adopted a service plan (the "Service
Plan") with respect to each class of its shares. The Distribution Plan and the
Service Plan provide that the Fund may spend a portion of the Fund's average
daily net assets attributable to each class of shares in connection with
distribution of the respective class of shares and in connection with the
provision of ongoing services to shareholders of each class. The Distribution
Plan and the Service Plan are being implemented through an

31
<PAGE> 36

agreement with the Distributor, sub-agreements between the Distributor and
members of the NASD who are acting as securities dealers, NASD members or
eligible non-members who are acting as brokers or agents and similar agreements
between the Fund and financial intermediaries who are acting as brokers
(collectively, "Selling Agreements") that may provide for their customers or
clients certain services or assistance. Brokers, dealers and financial
intermediaries that have entered into Selling Agreements with the Distributor
and sell shares of the Fund are referred to herein as "financial
intermediaries."

The Fund may spend an aggregate amount of up to 0.30% per year of the average
daily net assets attributable to the Class A Shares of the Fund pursuant to the
Distribution Plan and the Service Plan. From such amount, the Fund may spend up
to 0.25% per year of its average daily net assets attributable to the Class A
Shares pursuant to the Service Plan in connection with the ongoing provision of
services to holders of such shares by the Distributor and by financial
intermediaries and in connection with the maintenance of shareholders' accounts.
The Fund pays the Distributor the lesser of the balance of the 0.30% not paid to
such financial intermediaries or the amount of the Distributor's actual
distribution related expenses. In connection with the Consolidation, the
Distributor has agreed to reduce the maximum amount of the average daily net
assets attributable to the Class A Shares of the Fund pursuant to the
Distribution Plan and the Service Plan to 0.25% per year.

The Fund may spend up to 0.75% per year of its average daily net assets
attributable to the Class B Shares pursuant to the Distribution Plan. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class B Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by financial intermediaries and in connection with the
maintenance of such shareholders' accounts.

The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class C Shares of the Fund pursuant to the Distribution
Plan. From such amount, the Fund, or the Distributor as agent for the Fund, pays
financial intermediaries in connection with the distribution of the Class C
Shares up to 0.75% of the Fund's average daily net assets attributable to Class
C Shares maintained in the Fund more than one year by such financial
intermediary's customers. In addition, the Fund may spend up to 0.25% per year
of the Fund's average daily net assets attributable to the Class C Shares
pursuant to the Service Plan in connection with the ongoing provision of
services to holders of such shares by the Distributor and by financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.

Amounts payable to the Distributor with respect to the Class A Shares under
the Distribution Plan in a given year may not fully reimburse the Distributor
for its

32
<PAGE> 37

actual distribution-related expenses during such year. In such event, with
respect to the Class A Shares, there is no carryover of such reimbursement
obligations to succeeding years.

The Distributor's actual expenses with respect to Class B Shares and Class C
Shares sold subject to a contingent deferred sales charge ("CDSC Shares") for
any given year may exceed the amounts payable to the Distributor with respect to
the CDSC Shares under the Distribution Plan, the Service Plan and payments
received pursuant to the contingent deferred sales charge. In such event, with
respect to the CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the Fund (up to the amount of the actual expenses incurred) in
future years so long as such Distribution Plan is in effect. Except as mandated
by applicable law, the Fund does not impose any limit with respect to the number
of years into the future that such unreimbursed distribution expenses may be
carried forward (on a Fund level basis). Because such expenses are accounted on
a particular CDSC Share may be greater or less than the amount of the initial
commission (including carrying cost) paid by the Distributor with respect to
such CDSC Share.

OFFICERS OF THE FUND

The following table sets forth certain information concerning the principal
executive officers of each of the VK Funds and certain closed-end investment
companies advised by the VK Adviser (other than information concerning Messrs.
McDonnell and Powell, which is set forth above). The officers of the Fund serve
for one year or until their respective successors are chosen and qualified. The
Fund's officers receive no compensation from the Fund but are also officers of
the VK Adviser, the Distributor or Van Kampen American Capital (the
Distributor's parent) and receive compensation in such capacities. Unless
otherwise specified, the address of each of the following persons is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181.

<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- -------------------------------
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and
Age: 38 Portfolio Manager of the
Adviser. Executive Vice
President of the AC Adviser.
Vice President of each of the
VK Funds and Closed End Funds.
</TABLE>

33
<PAGE> 38

<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- -------------------------------
<S> <C> <C>
Ronald A. Nyberg..... Vice President and Sec- Executive Vice President,
Age: 41 retary General Counsel and Secretary
of Van Kampen American Capital;
Executive Vice President and a
Director of the Adviser and the
Distributor. Executive Vice
President of the AC Adviser.
Vice President and Secretary of
each of the VK Funds and Closed
End Funds. 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
Adviser and McCarthy, Crisanti
& Maffei, Inc.

Edward C. Wood III... Vice President, Treasurer Senior Vice President of the
Age: 39 and Chief Financial Of- Adviser. Vice President,
ficer Treasurer and Chief Financial
Officer of each of the VK Funds
and Closed End Funds.

Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and
Age: 30 Attorney of Van Kampen American
Capital. Assistant Secretary of
each of the VK Funds and Closed
End Funds. Prior to May 1992,
attorney for Cantwell &
Cantwell, a Chicago law firm.

Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy
Age: 38 General Counsel and Assistant
Secretary of Van Kampen
American Capital. Senior Vice
President, Deputy General
Counsel and Secretary of the
Adviser and the Distributor.
Assistant Secretary of each of
the VK Funds and Closed End
Funds.
</TABLE>

34
<PAGE> 39

<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- -------------------------------
<S> <C> <C>
Weston B. Assistant Secretary Vice President, Associate
Wetherell.......... General Counsel and Assistant
Age: 38 Secretary of Van Kampen
American Capital, the Adviser
and the Distributor and an
Assistant Secretary of
McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of
each of the VK Funds and Closed
End Funds.
John L. Sullivan..... Controller First Vice President of the
Age: 39 Adviser. Controller of each of
the VK Funds and Closed End
Funds.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the
Age: 30 Adviser. Assistant Treasurer of
each of the VK Funds and Closed
End Funds.
</TABLE>

With respect to the Fund, as of May 19, 1995, the trustees and officers as a
group owned less than 1% of the outstanding shares of the Fund. At such date the
"interested persons" of the Fund as a group owned an aggregate of less than 5%
of the outstanding shares of the Fund.

SHAREHOLDER APPROVAL

The vote of a majority of the outstanding voting securities of the Fund is
required for approval of this Proposal 3. The affirmative vote of a majority of
the outstanding voting securities is defined in the 1940 Act as the lesser of
(i) 67% or more of the voting securities entitled to vote thereon present in
person or by proxy at a meeting, if holders of more than 50% of the outstanding
voting securities are present in person or represented by proxy at such meeting,
or (ii) more than 50% of the outstanding voting securities of a fund. The
holders of Class A Shares, Class B Shares and Class C Shares of the Fund will
vote together as a single class for this Proposal 3. THE BOARD OF TRUSTEES OF
THE FUND RECOMMENDS A VOTE "IN FAVOR" OF THIS PROPOSAL 3.

- ------------------------------------------------------------------------------
PROPOSAL 4: RATIFICATION OF INDEPENDENT

PUBLIC ACCOUNTANTS

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

The Board, including a majority of the Disinterested Trustees, have selected
the firm of KPMG Peat Marwick LLP, independent certified public accountants, to
examine the financial statements for the current fiscal year of the Fund. The
Fund knows of no direct or indirect financial interest of such firm in the Fund.
Such appointment is subject to ratification or rejection by the shareholders of
the Fund.

35
<PAGE> 40

Unless a contrary specification is made, the accompanying proxy will be voted in
favor of ratifying the selection of such accountants. It is expected that KPMG
Peat Marwick LLP will also act as independent certified public accountants for
VK/AC Holding, Inc., Van Kampen American Capital, the VK Adviser and the
Distributor.

Representatives of KPMG Peat Marwick 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, voting as a single class, are entitled to vote on this
issue. An affirmative vote of a majority of the Shares of the Fund present in
person or by proxy and voting is required to ratify the selection of the
accountants for the Fund. THE VK BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF
KPMG PEAT MARWICK LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR OF
THE FUND ENDING DECEMBER 31, 1995.

- ------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------

Van Kampen American Capital will initially bear the expense 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 the Fund (the
"Proxy Expense"). During the five-year period ending on the fifth anniversary of
the consummation of the Consolidation, if the Fund realizes a benefit resulting
from the Consolidation, the Fund will reimburse Van Kampen American Capital in
an amount equal to the lesser of (i) the amount of such benefit or (ii) the
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. The Fund shall not 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 or personal interview by
representatives of the Fund, the VK Adviser or Van Kampen American Capital, or
by dealers or their representatives or by Applied Mailing Systems, a
solicitation firm located in Boston, Massachusetts.

36
<PAGE> 41

- ------------------------------------------------------------------------------
SHAREHOLDER PROPOSALS
- ------------------------------------------------------------------------------

As a general matter, the Fund does not hold regular annual meetings of
shareholders. Any shareholder who wishes to submit proposals for consideration
at a meeting of the Fund should send such proposal to the Fund at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. To be considered for presentation at a
shareholders' meeting, rules promulgated by the SEC require that, among other
things, a shareholder's proposal must be received at the offices of the Fund a
reasonable time before a solicitation is made. Timely submission of a proposal
does not necessarily mean that such proposal will be included.

- ------------------------------------------------------------------------------
GENERAL
- ------------------------------------------------------------------------------

Management of the 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 the Fund entitled to be present and vote at the
Meeting will be available at the offices of the Fund, One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, 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 may necessitate adjournment
and subject the 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.

RONALD A. NYBERG,
Vice President and Secretary

June 2, 1995

37
<PAGE> 42

APPENDIX A

AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION

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

WHEREAS the Van Kampen 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 Van Kampen Trust is authorized to issue an unlimited number of
shares of beneficial interest without 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 Van Kampen Trust and Van Kampen 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 Van Kampen 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 Van Kampen Fund in exchange for delivery to the Van Kampen Fund of a number
of shares of the New Fund (both full and fractional) equivalent to the number of
shares of the Van Kampen Fund outstanding immediately prior to the Effective
Time of the Reorganization. All debts, liabilities, obligations and duties of
the Van Kampen 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.

A-1
<PAGE> 43

2. Liquidation and Dissolution of the Van Kampen Fund. At the Effective Time
of the Reorganization, the Van Kampen Fund will liquidate and the shares of the
New Fund (both full and fractional) received by the Van Kampen Fund will be
distributed to the shareholders of the Van Kampen Fund in exchange for their
shares of the Van Kampen Fund, each shareholder to receive a number of shares of
the New Fund equal to the number of shares of the Van Kampen 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 Van Kampen Fund and representing the respective
pro rata number of shares of the New Fund due such shareholder. Certificates for
shares of the Van Kampen 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 Van Kampen Trust 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 Van Kampen Trust, in such
form as shall be satisfactory to the Division, and which resolutions shall
include the exact date of the Van Kampen Trust's termination and shall take, in
accordance with Massachusetts law, all other steps as shall be necessary and
proper to effect a complete dissolution of the Van Kampen Trust and the Van
Kampen Fund.

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

4. Conditions Precedent. The obligations of the Van Kampen 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 Van Kampen Trust 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 Van Kampen Trust 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

A-2
<PAGE> 44

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 Skadden, Arps, Slate,
Meagher & Flom 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 Skadden, Arps, Slate, Meagher
& Flom 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.

(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 Van Kampen Fund entitled to vote at an
annual or special meeting and the shareholders of the Van Kampen Fund shall
have voted at such meeting to direct the Van Kampen 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 Van Kampen Fund as Trustees of the Trust;

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

(3) approve a Plan 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 KPMG Peat Marwick LLP as the New Fund's
independent auditors for the fiscal year ending .

A-3
<PAGE> 45

(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 KPMG Peat Marwick 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 Van Kampen
Fund in consideration for the payment of [$15.00] for the purpose of
enabling the Van Kampen 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 Van Kampen 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 Van Kampen
Trust 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 Van Kampen Fund.

5. Effective Time of the Reorganization. The exchange of the Van Kampen 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 Trustees of the Van Kampen Trust 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
Van Kampen 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 Van
Kampen Trust and the New Trust acknowledge and agree that, pursuant to the
Agreement and Declaration of Trust of both the Van Kampen Trust and the New

A-4
<PAGE> 46

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-5
<PAGE> 47

APPENDIX B

FORM OF CURRENT INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT dated as of , by and
between VAN KAMPEN MERRITT TAX FREE FUND, a Massachusetts business trust (the
"Trust"), on behalf of its sub-trust, the VAN KAMPEN MERRITT INSURED TAX FREE
INCOME FUND (the "Fund") and VAN KAMPEN MERRITT INVESTMENT ADVISORY CORP. (the
"Adviser"), a Delaware corporation.

1. (a) Retention of Adviser by Fund. The Fund hereby employs the Adviser to
act as the investment adviser for and to manage the investment and reinvestment
of the assets of the Fund in accordance with the Fund's investment objective and
policies and limitations, and to administer its affairs to the extent requested
by, and subject to the review and supervision of, the Board of Trustees of the
Fund for the period and upon the terms herein set forth. The investment of funds
shall be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Adviser.

(b) Adviser's Acceptance of Employment. The Adviser accepts such employment
and agrees during such period to render such services, to supply investment
research and portfolio management (including without limitation the selection of
securities for the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed, in accordance with
the policies adopted by the Fund and its Board of Trustees), to administer the
business affairs of the Fund, to furnish offices and necessary facilities and
equipment to the Fund, to provide administrative services for the Fund, to
render periodic reports to the Board of Trustees of the Fund, and to permit any
of its officers or employees to serve without compensation as trustees or
officers of the Fund if elected to such positions.

(c) Independent Contractor. The Adviser shall be deemed to be an independent
contractor under this Agreement and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund in any way
or otherwise be deemed as agent of the Fund.

(d) Non-Exclusive Agreement. The services of the Adviser to the Fund under
this Agreement are not to be deemed exclusive, and the Adviser shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.

2. (a) Fee. For the services and facilities described in Section 1, the Fund
will pay to the Adviser at the end of each calendar month an investment
management

B-1
<PAGE> 48

fee equal to a percentage of the average daily net assets of the Fund of as set
forth below:

0.500 of 1% for the first $100 Million

0.450 of 1% for the next $150 Million

0.425 of 1% for the next $250 Million

0.400 thereafter

(b) Expense Limitation. The Adviser's compensation for any fiscal year of the
Fund shall be reduced by the amount, if any, by which the Fund's expense for
such fiscal year exceed the most restrictive applicable expense jurisdiction in
which the Fund's shares are qualified for offer and sale, as such limitations
set forth in the most recent notice thereof furnished by the Adviser to the
Fund. For purposes of this paragraph there shall be excluded from computation of
the Fund's expenses any amount borne directly or indirectly by the Fund which is
permitted to be excluded from the computation of such limitation by such statute
or regulatory authority. If for any month expenses of the Fund properly included
in such calculation exceed 1/12 of the amount permitted annually by the most
restrictive applicable expense limitation, the payment to the Adviser for that
month shall be reduced, and, if necessary, the Adviser shall make a refund
payment to the Fund, so that the total net expense for the month will not exceed
1/12 of such amount. As of the end of the Fund's fiscal year, however, the
computations and payments shall be readjusted so that the aggregate compensation
payable to the Adviser for the year is equal to the fee set forth in subsection
(a) of this Section 2, diminished to the extent necessary so that the expenses
for the year do not exceed those permitted by the applicable expense limitation.

(c) Determination of Net Asset Value. The net asset value of the Fund shall
be calculated as of the close of the New York Stock Exchange on each day the
Exchange is open for trading or such other time or times as the trustees may
determine in accordance with the provisions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as from time to time in force. For the purpose of the
foregoing computations, on each day when net asset value is not calculated, the
net asset value of a share of beneficial interest of the Fund shall be deemed to
be the net asset value of such share as of the close of business of the last day
on which such calculation was made.

(d) Proration. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in effect
during such month and year, respectively.

3. Expenses. In addition to the fee of the Adviser, the Fund shall assume and
pay any expenses for services rendered by a custodian for the safekeeping of the

B-2
<PAGE> 49

Fund's securities or other property, for keeping its books of account, for any
other charges of the custodian and for calculating the net asset value of the
Fund as provided above. The Adviser shall not be required to pay, and the Fund
shall assume and pay, the charges and expenses of its operations, including
compensation of the trustees (other than those who are interested persons of the
Adviser and other than those who are interested persons of the distributor of
the Fund but not of the Adviser, if the distributor has agreed to pay such
compensation), charges and expenses of independent accountants, of legal counsel
and of any transfer or dividend disbursing agent, costs of acquiring and
disposing of portfolio securities, cost of listing shares on the New York Stock
Exchange or other exchange interest (if any) on obligations incurred by the
Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, costs of reports and notices to
shareholders, costs of registering shares of the Fund under the federal
securities laws, miscellaneous expenses and all taxes and fees to federal, state
or other governmental agencies on account of the registration of securities
issued by the Fund, filing of corporate documents or otherwise. The Fund shall
not pay or incur any obligation for any management or administrative expenses
for which the Fund intends to seek reimbursement from the Adviser without first
obtaining the written approval of the Adviser. The Adviser shall arrange, if
desired by the Fund, for officers or employees of the Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of the Fund if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law.

4. Interested Persons. Subject to applicable statutes and regulations, it is
understood that trustees, officers, shareholders and agents of the Fund are or
may be interested in the Adviser as directors, officers, shareholders, agents or
otherwise and that the directors, officers, shareholders and agents of the
Adviser may be interested in the Fund as trustees, officers, shareholders,
agents or otherwise.

5. Liability. The Adviser shall not be liable for any error of judgment or of
law, or for any loss suffered by the Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser in the performance of
its obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.

6. (a) Term. This Agreement shall become effective on the date hereof and
shall remain in full force until the second anniversary of the date hereof
unless sooner terminated as hereinafter provided. This Agreement shall continue
in force from year to year thereafter, but only as long as such continuance is
specifically approved at least annually in the manner required by the Investment
Company Act of 1940, as amended.

B-3
<PAGE> 50

(b) Termination. This Agreement shall be submitted to the shareholders of the
Fund for approval at the first shareholders meeting and shall automatically
terminate if not approved by a majority of the shares of the Fund present and
voting at such meeting. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty days' written
notice to the other party. The Fund may effect termination by action of the
Board of Trustees or by vote of a majority of the outstanding shares of stock of
the Fund, accompanied by appropriate notice. This Agreement may be terminated at
any time without the payment of any penalty and without advance notice by the
Board of Trustees or by vote of a majority of the outstanding shares of the Fund
in the event that it shall have been established by a court of competent
jurisdiction that the Adviser or any officer or director of the Adviser has
taken any action which results in a breach of the covenants of the Adviser set
forth herein.

(c) Payment Upon Termination. Termination of this Agreement shall not affect
the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.

7. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder shall not
be thereby affected.

8. Notices. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.

9. Disclaimer. The Adviser acknowledges and agrees that, as provided by
Section 5.5 of the Declaration of Trust of the Trust, the shareholders,
trustees, officers, employees and other agents of the Trust and the Fund shall
not personally be bound by or liable hereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim hereunder.

B-4
<PAGE> 51

IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be
executed on the day and year first above written.

VAN KAMPEN MERRITT
INVESTMENT
ADVISORY CORP.

By:
----------------------------------
President

VAN KAMPEN MERRITT
[ ], on behalf of its
sub-trust Van Kampen
Merritt [ ] Fund

By:
----------------------------------
President

B-5
<PAGE> 52

APPENDIX C

FORM OF NEW INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT dated as of , by and
between VAN KAMPEN AMERICAN CAPITAL TAX FREE FUND, a Delaware business trust
(the "Trust"), on behalf of its series, the VAN KAMPEN AMERICAN CAPITAL INSURED
TAX FREE INCOME FUND (the "Fund") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT
ADVISORY CORP. (the "Adviser"), a Delaware corporation.

C-1
<PAGE> 53

2. (a) Fee. For the services and facilities described in Section 1, the Fund
will pay to the Adviser at the end of each calendar month an investment
management fee equal to a percentage of the average daily net assets of the Fund
as set forth below:

0.525 of 1% for the first $500 million
0.500 of 1% for the next $500 million
0.475 of 1% for the next $500 million
0.450 of 1% thereafter

C-2
<PAGE> 54

3. Expenses. In addition to the fee of the Adviser, the Fund shall assume and
pay any expenses for services rendered by a custodian for the safekeeping of the
Fund's securities or other property, for keeping its books of account, for any
other charges of the custodian and for calculating the net asset value of the
Fund as provided above. The Adviser shall not be required to pay, and the Fund
shall assume and pay, the charges and expenses of its operations, including
compensation of the trustees (other than those who are interested persons of the
Adviser and other than those who are interested persons of the distributor of
the Fund but not of the Adviser, if the distributor has agreed to pay such
compensation), charges and expenses of independent accountants, of legal counsel
and of any transfer or dividend disbursing agent, costs of acquiring and
disposing of portfolio securities, cost of listing shares on the New York Stock
Exchange or other exchange interest (if any) on obligations incurred by the
Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, costs of reports and notices to
shareholders, costs of registering shares of the Fund under the federal
securities laws, miscellaneous expenses and all taxes and fees to federal, state
or other governmental agencies on account of the registration of securities
issued by the Fund, filing of corporate documents or otherwise. The Fund shall
not pay or incur any obligation for any management or administrative expenses
for which the Fund intends to seek reimbursement from the Adviser without first
obtaining the written approval of the Adviser. The Adviser shall arrange, if
desired by the Fund, for officers or employees of the Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of the Fund if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law.

C-3
<PAGE> 55

approved at least annually in the manner required by the Investment Company Act
of 1940, as amended.

7. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder shall not
be thereby affected.

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

C-4
<PAGE> 56

IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be
executed on the day and year first above written.

VAN KAMPEN AMERICAN
CAPITAL INVESTMENT
ADVISORY CORP.

By:
-------------------------------------
President

VAN KAMPEN AMERICAN
CAPITAL TAX FREE FUND,
on behalf of its series Van Kampen
American Capital Insured Tax Free
Income Fund

By:
-------------------------------------
President

C-5
<PAGE> 57

APPENDIX D

The investment objective of the Fund is to seek high current income. The table
below sets forth, for each investment company advised by the VK Adviser, such
fund's net assets as of December 31, 1994 and the rate at which it compensates
the VK Adviser for investment advisory services. Funds for which the VK Adviser
has waived or reduced its compensation are marked by an "*".

<TABLE>
<CAPTION>
NET ASSETS
AS OF
DECEMBER 31,
FUNDS 1994 ADVISORY FEE SCHEDULE
----- -------------- ---------------------
<S> <C> <C> <C>
A. Insured Tax Free Income $1,187,494,291 First $100 Million .500 of 1%
Fund Next $150 Million .450 of 1%
California Insured Tax $ 155,323,062 Next $250 Million .425 of 1%
Free Fund* Over $500 Million .400 of 1%

B. Tax Free High Income $ 750,230,018 First $500 Million .500 of 1%
Fund Over $500 Million .450 of 1%
Municipal Income Fund* $ 683,883,431
Limited Term Municipal $ 38,345,567
Income Fund*
Florida Insured Tax Free $ 20,375,201
Income Fund*

C. New Jersey Tax Free $ 10,374,185 First $500 Million .600 of 1%
Income Fund* Over $500 Million .500 of 1%
New York Tax Free Income $ 11,816,338
Fund*
Growth & Income Fund $ 83,025,763
Pennsylvania Tax Free $ 253,627,524
Income Fund*

D. High Yield Fund $ 290,747,895 First $500 Million .750 of 1%
Over $500 Million .650 of 1%

E. Short Term Global Income $ 257,777,895 .55 of 1% of Average Daily Net Assets
Fund

F. Adjustable Rate U.S. $ 30,909,390 First $500 Million .600%
Government Fund* Next $500 Million .550%
Next $2 Billion .500%
Next $2 Billion .475%
Next $2 Billion .450%
Next $2 Billion .425%
Thereafter .400%

G. Strategic Income Fund $ 72,864,155 First $500 Million .750 of 1%
Next $500 Million .700 of 1%
Over $1 Billion .650 of 1%

H. Utility Fund $ 133,558,947 First $500 Million .650 of 1%
Next $500 Million .600 of 1%
Over $1 Billion .550 of 1%
</TABLE>

D-1
<PAGE> 58

J. Money Market Fund* $ 32,611,331 First $250 Million .500 of 1%
Next $250 Million .475 of 1%
Next $250 Million .425 of 1%
Over $750 Million .275 of 1%

K. U.S. Government Fund $3,388,147,431 First $500 Million .550 of 1%
Next $500 Million .525 of 1%
Next $2 Billion .500 of 1%
Next $2 Billion .475 of 1%
Next $2 Billion .450 of 1%
Next $2 Billion .425 of 1%
Thereafter .400 of 1%

L. Tax Free Money Fund* $ 34,699,898 First $500 Million .500 of 1%
Next $500 Million .475 of 1%
Next $500 Million .425 of 1%
Over $1.5 Billion .375 of 1%

M. Emerging Markets Income $ 7,680,115 First $500 Million 1.00%
Fund
Next $500 Million .950%
Thereafter .900%

N. Investment Grade Munici- $ 75,001,835 .60% Average Daily Managed Assets of the Fund
pal Trust
Trust for Insured $ 232,632,425
Municipals
Municipal Income Trust $ 422,761,959
California Municipal $ 50,724,719
Trust
</TABLE>

D-2
<PAGE> 59

<TABLE>
<CAPTION>
NET ASSETS
AS OF
DECEMBER 31,
FUNDS 1994 ADVISORY FEE SCHEDULE
------------------------ -------------- ----------------------------------------------
<S> <C> <C> <C>
O. Trust for Investment $ 666,109,053 .65% Average Daily Managed Assets of the Fund
Grade Municipals
Trust for Investment $ 110,766,654
Grade California
Municipals
Trust for Investment $ 149,880,448
Grade New York
Municipals
Trust for Investment $ 181,362,001
Grade Pennsylvania
Municipals
Trust for Investment $ 103,260,638
Grade Florida
Municipals
Trust for Investment $ 98,343,596
Grade New Jersey
Municipals
Municipal Opportunity $ 369,598,387
Trust
Advantage Municipal $ 455,248,392
Income Trust
Advantage Pennsylvania $ 103,700,247
Municipal Income Trust
New Jersey Value $ 55,022,867
Municipal Income Trust
Ohio Value Municipal $ 35,843,288
Income Trust
Massachusetts Value $ 57,243,992
Municipal Income Trust
Strategic Sector $ 227,469,820
Municipal Trust
California Value $ 135,203,312
Municipal Income Trust
Pennsylvania Value $ 101,016,406
Municipal Income Trust
Value Municipal Income $ 527,021,241
Trust
Florida Municipal $ 35,984,381
Opportunity Trust
Municipal Opportunity $ 255,910,631
Trust II
Advantage Municipal $ 455,248,392
Income Trust II

P. Municipal Trust $ 825,303,513 .70% Average Daily Managed Assets of the Fund
California Quality $ 213,117,943
Municipal Trust
New York Quality $ 129,938,058
Municipal Trust
Pennsylvania Quality $ 187,828,498
Municipal Trust
Florida Quality $ 48,708,725
Municipal Trust
Ohio Quality Municipal $ 97,774,889
Trust
Select Sector Municipal $ 87,468,074
Trust
</TABLE>

D-3
<PAGE> 60

<TABLE>
<CAPTION>
NET ASSETS
AS OF
DECEMBER 31,
FUNDS 1994 ADVISORY FEE SCHEDULE
------------------------ -------------- ----------------------------------------------
<S> <C> <C> <C>
Q. Intermediate Term High $ 135,890,291 .75% Average Weekly Managed Assets of the Fund
Income Trust
Limited Term High Income $ 104,361,283
Trust

R. Prime Rate Income Trust $1,627,722,767 .95% Average Weekly Managed Assets of the Fund
</TABLE>

D-4
<PAGE> 61

------

VKITF

------
<PAGE> 62
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.

Please be sure to sign and date this Proxy.

Please return the proxy card in the enclosed envelope.

Please detach at perforation before mailing.
- -------------------------------------------------------------------------------

VAN KAMPEN MERRITT INSURED TAX FREE INCOME FUND
A SUB-TRUST OF VAN KAMPEN MERRITT TAX FREE FUND
PROXY SOLICITED BY THE TRUSTEES

The undersigned holder of shares of beneficial interest, without par value, of
the above referenced fund (the "Fund"), hereby appoints Ronald A. Nyberg and
Edward C. Wood, III, 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 Hyatt Regency Oak Brook, York Room - Lower
Level, 1909 Spring Road, Oak Brook, IL 60521, on Friday, July 21, 1995 at 3:30
p.m., and at any and all adjournments thereof (the "Meeting"), and thereat to
vote all shares of beneficial interest 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 instructions specified on the
reverse side. The undersigned hereby acknowledges receipt of the accompanying
Notice of Meeting and Proxy Statement for the Meeting to be held on July 21,
1995.

DATE:_____________________________________,1995

Please sign this proxy in the box below 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.
<PAGE> 63
<TABLE>
<S><C>

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 BELOW AND IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING.

Please vote by filling in the appropriate boxes below, as shown, using blue or black ink or dark pencil. Do not use red ink. / /

Please detach at perforation before mailing.
- -----------------------------------------------------------------------------------------------------------------------------------

1. As to the proposal to approve the Fund's reorganization and FOR AGAINST ABSTAIN
conversion to a series of a Delaware business trust: / / / / / /

2. Authority to vote to elect fifteen trustees of the Trust to
serve until their respective successors are duly elected and FOR ALL WITHHOLD FOR ALL EXCEPT
qualified: / / / / / /

J. Miles Branagan, Dr. Richard E. Caruso, Philip P. Gaughan,
Dr. Roger Hilsman, R. Craig Kennedy, Dennis J. McDonnell,
Donald C. Miller, Jack E. Nelson, Don G. Powell, David Rees,
Jerome L. Robinson, Lawrence J. Sheehan, Dr. Fernando Sisto,
Wayne W. Whalen, William S. Woodside ____________________________________________________________

INSTRUCTION: To withhold authority to vote for one or more ____________________________________________________________
of the nominees, check FOR ALL EXCEPT and write the nominee's
name(s) on the lines to the right. ____________________________________________________________

3. As to the proposal to approve a material change in the terms FOR AGAINST ABSTAIN
of the Fund's investment advisory agreement with Van Kampen / / / / / /
American Capital Investment Advisory Corp:

4. As to the proposal to ratify the selection of KPMG Peat FOR AGAINST ABSTAIN
Marwick LLP as independent public accountants for the current / / / / / /
fiscal year of the Fund:
L L L

</TABLE>