VAN KAMPEN MERRITT EQUITY TRUST, N14EL24, 1995-05-25

VAN KAMPEN MERRITT EQUITY TRUST
N14EL24, 1995-05-25

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<PAGE> 1

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

1933 ACT REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-14

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

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

VAN KAMPEN MERRITT
EQUITY TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)

ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(Address of Principal Executive Offices)

TELEPHONE NUMBER: (708) 684-6000

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<TABLE>
<S> <C>
RONALD A. NYBERG, ESQ. COPIES TO:
VAN KAMPEN MERRITT EQUITY TRUST WAYNE W. WHALEN, ESQ.
ONE PARKVIEW PLAZA THOMAS A. HALE, ESQ.
OAKBROOK TERRACE, ILLINOIS 60181 SKADDEN, ARPS, SLATE, MEAGHER & FLOM
(Name and Address of Agent for Service) 333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
</TABLE>

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

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

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

VAN KAMPEN MERRITT EQUITY TRUST

Cross-reference sheet pursuant to rule 481(a) of Regulation C
Under the Securities Act of 1933

<TABLE>
<CAPTION>
FORM N-14 ITEM NO. PROXY STATEMENT/PROSPECTUS CAPTION*
--------------------------------------------- -----------------------------------------------
<S> <C> <C>
PART A INFORMATION REQUIRED IN THE PROSPECTUS
Item 1. Beginning of Registration
Statement and Outside Front Cover
Page of Prospectus............... Outside front cover page of Proxy
Statement/Prospectus
Item 2. Beginning and Outside Back Cover
Page of Proxy
Statement/Prospectus............. Table of Contents
Item 3. Fee Table, Synopsis Information
and Risk Factors................. Summary; Risk Factors; Fee Comparisons
Item 4. Information about the
Transaction...................... Summary; The Proposed Reorganization
Item 5. Information about the
Registrant....................... Outside front cover page of Proxy
Statement/Prospectus; Summary; The Proposed
Reorganization; Other Information; Prospectus
and Statement of Additional Information of the
VK Fund (incorporated by reference)
Item 6. Information about the Company
Being Acquired................... Prospectus and Statement of Additional
Information of the AC Fund (incorporated by
reference)
Item 7. Voting Information............... Voting Information and Requirements
Item 8. Interest of Certain Persons and
Experts.......................... Summary; Reasons for the Proposed
Reorganization; Legal Matters
Item 9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters............... Not applicable

PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

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

PART C OTHER INFORMATION

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

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

DEAR VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND SHAREHOLDER:

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

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

HOW WILL THE REORGANIZATION AFFECT ME?

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

WHY IS THE REORGANIZATION BEING RECOMMENDED?

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

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

The consummation of the Reorganization is subject to the satisfaction of a
number of conditions (including approval by the AC Fund's shareholders), which
are summarized below in "The Proposed Reorganization -- Terms of the Agreement"
section of the Proxy Statement/Prospectus. These conditions are stated in the
Agreement which is attached as Exhibit A to the combined Proxy
Statement/Prospectus.
<PAGE> 4

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

No. The full value of your shares of the AC Fund would be exchanged for
shares of the corresponding class of the VK Fund without any sales load,
commission or other transactional fee being imposed. As more fully discussed in
the combined Proxy Statement/Prospectus, the holding period for shareholders
acquiring Class B or Class C shares in the Reorganization subject to a
contingent deferred sales charge will be measured from the time (i) the holder
purchased Class B or C shares from the AC Fund or (ii) purchased Class B or C
shares of any other Van Kampen American Capital open-end fund and subsequently
exchanged into Class B or C shares of the AC Fund. The VK Fund will bear costs
associated with the Reorganization, such as printing and mailing costs and other
expenses associated with the Special Meeting.

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

It is anticipated that, on a per share basis, the total of the various fees
and expenses incurred by the VK Fund will be less, upon completion of the
Reorganization, than the total of such fees and expenses applicable to the AC
Fund. The fees and expenses actually paid to date by the AC Fund have been less
than the total of such fees and expenses applicable to the AC Fund as a result
of voluntary fee waivers and expense reimbursements made by AC Adviser. However,
if the Reorganization is not consummated, the AC Adviser does not intend to
continue such voluntary fee waivers and expense reimbursements.

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

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

WHO WILL ADVISE THE VK FUND AND PROVIDE OTHER SERVICES?

VK Adviser provides advisory services to the VK Fund under an arrangement
that is substantially similar to that currently in effect between the AC Fund
and AC Adviser. The contractual advisory fees payable by the VK Fund are no
higher than the contractual advisory fees applicable to the AC Fund. Van Kampen
American Capital Distributors, Inc. serves as distributor of shares of both the
VK Fund and the AC Fund. In addition, State Street Bank & Trust Company, 225
Franklin Street, P.O. Box 1713, Boston, Massachusetts 02105-1713 is the
custodian of both the VK Fund and the AC Fund. ACCESS Investor Services, Inc.,
P.O. Box 418256, Kansas City, Missouri 64141-9256, serves as the transfer agent
for both the VK Fund and the AC Fund.

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

the shares of the VK Fund in connection with the Reorganization. Additionally,
the AC Fund would not recognize any gain or loss as a result of the transfer of
all of its assets and liabilities solely in exchange for the shares of the VK
Fund or as a result of its liquidation. The VK Fund expects that it will not
recognize any gain or loss as a result of the Reorganization, that it will take
a carryover basis in the assets and liabilities acquired from the AC Fund and
that its holding period of such assets will include the period during which the
assets were held by the AC Fund. See "The Proposed Reorganization -- Federal
Income Tax Consequences" in the Proxy Statement/Prospectus.

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

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

We hope these answers help to clarify the Reorganization proposal for you.
If you still have questions, do not hesitate to call us at 1-800-982-3482.
Please give this matter your prompt attention. We need to receive your proxy
before the shareholder meeting scheduled for September 8, 1995. If shareholders
approve the Reorganization, it is expected to take effect on [MONTH, DAY], 1995.

Thank you for your investment in Van Kampen American Capital Utilities
Income Fund.

Very truly yours,

Van Kampen American Capital Utilities
Income Fund

Don G. Powell
President and Trustee
<PAGE> 6

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
2800 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
(800) 421-5666

NOTICE OF SPECIAL MEETING
SEPTEMBER 8, 1995

A Special Meeting of Shareholders of Van Kampen American Capital Utilities
Income Fund ("AC Fund") will be held at the [Transco Tower Auditorium, Level 2,
2800 Post Oak Boulevard, Houston, Texas 77056,], on September 8, 1995 at [TIME]
(the "Special Meeting"), for the following purposes:

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

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

Shareholders of record as of the close of business on [MONTH, DAY], 1995
are entitled to vote at the Special Meeting or any adjournment thereof.

For the Board of Trustees,

Nori L. Gabert
Secretary

July , 1995

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

PLEASE VOTE PROMPTLY BY SIGNING AND
RETURNING THE ENCLOSED PROXY.

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<PAGE> 7

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND

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

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

The VK Fund is one of three series of the VKAC Equity Trust, an open-end,
diversified management investment company, which is authorized to issue an
unlimited number of shares of beneficial interest, with $.01 par value per
share, for each series authorized by its Board of Trustees. Each series
represents interests in a separate portfolio of securities and other assets,
with its own investment objectives and policies. The investment objective of the
VK Fund is to seek capital appreciation and current income, which is
substantially similar to that of the AC Fund. (See "Summary -- Comparisons of
the VK Fund and AC Fund -- Investment Objective and Policies" below.) There can
be no assurance that the VK Fund will achieve its investment objective. The
address and principal executive office of the VKAC Equity Trust is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181 (telephone no. (708) 684-6000 or (800)
225-2222). The address and principal executive office of the AC Fund is 2800
Post Oak Boulevard, Houston, Texas 77056 (telephone no. (800) 421-5666). The
enclosed proxy and this Proxy Statement/Prospectus are first being sent to AC
Fund shareholders on or about [ , 1995].
------------------------

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

This Proxy Statement/Prospectus contains information shareholders of the AC
Fund should know before voting on the Reorganization and constitutes an offering
of Class A, B and C Shares of the VK Fund only. Please read it carefully and
retain it for future reference. A Statement of Additional Information dated
[MONTH, DAY,] 1995, relating to this Proxy Statement/Prospectus (the
"Reorganization SAI") has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated herein by reference. A Prospectus and Statement
of Additional Information containing additional information about the VK Fund,
each dated [MONTH, DAY,] 1995, have been filed with the SEC and are incorporated
herein by reference. A copy of the VK Fund Prospectus accompanies this Proxy
Statement/Prospectus. A Prospectus and Statement of Additional Information
containing additional information about the AC Fund, each dated [MONTH, DAY],
1995, have been filed with the SEC and are incorporated herein by reference.
Copies of any of the foregoing may be obtained without charge by calling or
writing to the AC Fund at the telephone number or address shown above. If you
wish to request the Reorganization SAI, please ask for the "Reorganization SAI."
<PAGE> 8

No person has been authorized to give any information or make any
representation not contained in this Proxy Statement/Prospectus and, if so given
or made, such information or representation must not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities in any jurisdiction in
which, or to any person to whom, it is unlawful to make such offer or
solicitation.
------------------------

Each of the VK Fund and the VKAC Equity Trust is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and the Investment Company Act of 1940, as amended, and in accordance therewith
files reports and other information with the SEC. Such reports, other
information and proxy statements filed by the VK Fund and the VKAC Equity Trust
can be inspected and copied at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its Regional Office
at 500 West Madison Street, Chicago, Illinois. Copies of such material can also
be obtained from the SEC's Public Reference Branch, Office of Consumer Affairs
and Information Services, Washington, D.C. 20549, at prescribed rates.

The date of this Proxy Statement/Prospectus is [July] 1995.

2
<PAGE> 9

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
APPROVAL OR DISAPPROVAL OF THE PROPOSED REORGANIZATION................................. 4
A. SUMMARY.......................................................................... 4
The Reorganization............................................................... 4
Comparisons of the VK Fund and AC Fund........................................... 5
Investment Objective and Policies................................................ 6
Advisory and Other Fees.......................................................... 6
Distribution, Purchase, Valuation, Redemption and Exchange of Shares............. 7
Federal Income Tax Consequences.................................................. 11
Reasons For The Proposed Reorganization.......................................... 11
B. RISK FACTORS..................................................................... 13
Nature of Investment............................................................. 13
Changes in Certain Investment Practices.......................................... 14
C. INFORMATION ABOUT THE FUNDS...................................................... 14
D. THE PROPOSED REORGANIZATION...................................................... 15
Terms of the Agreement........................................................... 15
Description of Securities to Be Issued........................................... 16
Shares of Beneficial Interest.................................................... 16
Voting Rights of Shareholders.................................................... 16
Continuation of Shareholder Accounts and Plans; Share Certificates............... 17
Federal Income Tax Consequences.................................................. 17
Capitalization................................................................... 18
Comparative Performance Information.............................................. 19
Ratification of Investment Objective, Policies and Restrictions of
the VK Fund...................................................................... 19
Legal Matters.................................................................... 19
Expenses......................................................................... 19
F. RECOMMENDATIONS OF BOARD OF TRUSTEES............................................. 20
OTHER MATTERS THAT MAY COME BEFORE THE MEETING......................................... 20
OTHER INFORMATION...................................................................... 20
A. SHAREHOLDINGS OF THE AC FUND AND THE VK FUND..................................... 20
B. SHAREHOLDER PROPOSALS............................................................ 20
VOTING INFORMATION AND REQUIREMENTS.................................................... 21
</TABLE>

3
<PAGE> 10

APPROVAL OR DISAPPROVAL OF THE PROPOSED REORGANIZATION

A. SUMMARY

The following is a summary of, and is qualified by references to, the more
complete information contained in this Proxy Statement/Prospectus, including the
Agreement and Plan of Reorganization by and between the AC Fund and the VKAC
Equity Trust attached hereto as Exhibit A (the "Agreement"), the prospectus of
the AC Fund dated [MONTH, DAY], 1995 (the "AC Fund Prospectus") incorporated
herein by reference, and the prospectus of the VK Fund dated [MONTH, DAY], 1995
(the "VK Fund Prospectus") incorporated herein by reference and accompanying
this Proxy Statement/Prospectus. This Proxy Statement/Prospectus constitutes an
offering of Class A, B and C Shares of the VK Fund only.

THE REORGANIZATION

On May 11, 1995, the Board of Trustees of the AC Fund (the "AC Board")
approved the Agreement. The Agreement provides that the AC Fund will transfer
all of its assets and liabilities to the VK Fund in exchange for Class A, B and
C shares of the VK Fund. At the Closing (as defined herein), the VK Fund will
issue Shares of the VK Fund to the AC Fund, which VK Fund Shares will have an
aggregate net asset value approximately equal in amount to the value of the AC
Fund net assets as of the Closing. The Agreement provides that the AC Fund will
dissolve pursuant to a plan of liquidation and dissolution to be adopted by the
AC Board following the Closing, and as part of such dissolution, will distribute
to each shareholder of the AC Fund Shares of the respective class of the VK Fund
approximately equal in value to their existing shares in the AC Fund. All
members of the AC Board were elected as trustees of the VKAC Equity Trust on
July 21, 1995.

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

The VK Fund has agreed to pay all of the costs of soliciting approval of
the Reorganization by the AC Fund's shareholders and related costs of the
Reorganization, including expenses incurred by the AC Fund. Accordingly,
shareholders of the VK Fund after the Reorganization will bear a pro rata
portion of such expenses.

The AC Board is asking shareholders of the AC Fund to approve the
Reorganization at a Special Meeting called to be held on September 8, 1995. If
shareholders of the AC Fund approve the Reorganization, it is expected that the
Closing will be on [ , 1995], but it may be at a different time as
described herein.

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

4
<PAGE> 11

COMPARISONS OF THE VK FUND AND THE AC FUND

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

(1) The holders of Class A, B and C shares of the AC Fund would become
holders of the same class of Shares, respectively, of the VK Fund. The
AC Fund and the VK Fund have substantially similar investment objectives
and follow similar investment strategies. Under normal market
conditions, the VK Fund will have at least 80% of its assets invested in
common stocks and income securities issued by companies engaged in the
utilities industry ("Utility Securities"), while the percentage of
assets of the AC Fund required to be invested in Utility Securities
under normal market conditions is 65%. Each Fund may invest up to 35% of
their respective assets in securities issued by non-U.S. issuers.

(2) The VK Fund is managed by Van Kampen American Capital Investment
Advisory Corp. ("VK Adviser"), an affiliate of the AC Fund's adviser,
Van Kampen American Capital Asset Management, Inc. ("AC Adviser"). The
annual advisory fee for each of the VK Fund and the AC Fund is 0.65% of
their respective daily net assets. The VK Fund reduces its advisory fee
to 0.60% on assets over $500 million and to 0.55% on assets over $1
billion. As of March 31, 1995, the VK Fund's net assets were
approximately $131.9 million. As of March 31, 1995, the AC Fund's net
assets were approximately $25.2 million.

(3) Both the AC Fund and the VK Fund offer three classes of shares. Class A
Shares of the VK Fund are subject to an initial sales charge of up to
5.75% while Class A shares of the AC Fund are subject to an initial
sales charge of up to 4.75%. Purchases of Class A Shares of the VK Fund
or the AC Fund in amounts of $1,000,000 or more are not subject to an
initial sales charge but a contingent deferred sales charge of 1.00% may
be imposed on certain redemptions made within one year of the purchase.
However, the initial sales charge applicable to Class A Shares of the VK
Fund will be waived for Class A Shares acquired in the Reorganization.
Any subsequent purchases of Class A Shares of the VK Fund will be
subject to a sales charge of up to 5.75%, excluding Class A Shares
purchased through the dividend reinvestment plan. Class B Shares of the
VK Fund and Class B shares of the AC Fund do not incur a sales charge
when they are purchased, but generally are subject to a contingent
deferred sales charge of 4.00% if redeemed within first year of
purchase, and reduced to zero over a six year period in the case of the
VK Fund and a five year period in the case of the AC Fund. However,
Class B Shares of the VK Fund acquired in the Reorganization will remain
subject to the contingent deferred sales charge applicable to Class B
shares of the AC Fund. Class C Shares of the VK Fund and Class C shares
of the AC Fund do not incur a sales charge when they are purchased, but
are subject to a contingent deferred sales charge of 1.00% if redeemed
within the first year after purchase.

(4) Both the AC Fund and the VK Fund have adopted distribution plans (the
"Distribution Plans") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), and have adopted service
agreements or plans (the "Service Plans"). Both the VK Fund and the AC
Fund can charge up to 0.75% of their respective average daily net assets
attributable to Class B and C shares for reimbursement of certain
distribution-related expenses. In addition, both the VK Fund and the AC
Fund can charge up to 0.25% of the their respective average daily net
assets attributable to Class A, B and C shares for the provision of
ongoing services to shareholders. Class B Shares of the VK Fund
automatically convert to Class A Shares after seven years, while Class B
shares of the AC Fund automatically convert to Class A shares after six
years. Unlike Class C Shares of the VK Fund, Class C shares of the AC
Fund automatically convert to Class A shares after ten years.

5
<PAGE> 12

However, Class B and C Shares of the VK Fund acquired in the
Reorganization will automatically convert to Class A Shares in
accordance with the same conversion schedule applicable to Class B and C
shares of the AC Fund, respectively.

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

INVESTMENT OBJECTIVE AND POLICIES

The VK Fund and the AC Fund have substantially similar investment
objectives and also share similar investment practices, but there are also
certain differences in their investment policies, practices and restrictions.
The investment objective of the VK Fund is to seek to provide its shareholders
capital appreciation and current income. The primary investment objective of the
AC Fund is to seek current income, while capital appreciation is a secondary
objective which is sought only when consistent with the primary objective. Both
funds invest principally in a diversified portfolio of Utility Securities.

The portfolios of the VK Fund and the AC Fund have a similar emphasis on
credit quality. Both the VK Fund's and the AC Fund's investments in income
securities must be rated, at the time of investment, at least BBB by Standard
and Poor's ("S&P"), Baa by Moody's Investors Service, Inc. ("Moody's"), or
comparably rated by any other nationally recognized statistical rating
organization or if unrated, determined by the respective adviser to be of
comparable quality. However, the VK Fund may invest up to 20% of its assets in
income securities that are rated BB or B by S&P or Ba or B by Moody's, or
comparably rated by any other nationally recognized statistical rating
organization or if unrated, determined by the VK Fund's adviser to be of
comparable quality.

In addition, the VK Fund may lend its portfolio securities to selected
banks or broker-dealers up to a maximum of 50% of its assets, while the AC Fund
may lend up to 33 1/3% of its assets. Further, the VK Fund may borrow money from
banks and enter into reverse repurchase agreements with banks in an amount up to
33 1/3% of its assets, while the AC Fund may not borrow in excess of 5% of its
assets. The VK Fund also has more flexibility to invest in securities of
unseasoned issuers, including their predecessors or sponsors, which have been in
operation for less than three years, while the AC Fund is limited to 5% of its
assets in such securities. With respect to 75% of its assets, the VK Fund may
not invest more than 5% of such assets in the securities of any one issuer
(except the U.S. Government, its agencies and instrumentalities) or purchase
more than ten percent of the outstanding voting securities of any issuer; the AC
Fund has the same restriction with respect to 100% of its assets.

The VK Fund is managed by VK Adviser while the AC Fund is managed by AC
Adviser. VK Adviser and AC Adviser are wholly-owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which has been developing investment strategies
and products for individuals, businesses and institutions since 1974. VK Adviser
and AC Adviser are the primary investment advisers to the Van Kampen American
Capital funds. As of March 31, 1995, VK Adviser, AC Adviser and their affiliates
managed or supervised approximately $51.7 billion of assets, including assets of
65 open-end investment companies and 38 closed-end investment companies. The
business address of VK Adviser is One Parkview Plaza, Oakbrook Terrace, Illinois
60181. VK Adviser and its investment advisory agreement with the VK Fund are
more fully described in the VK Fund Prospectus and Statement of Additional
Information.

ADVISORY AND OTHER FEES

The AC Fund pays AC Adviser a monthly fee based on its average daily net
asset value at the annual rate of 0.65%. However, such fee has historically been
reduced to zero as a result of voluntary fee waivers and

6
<PAGE> 13

expense reimbursement by AC Adviser. In addition, the AC Fund bears most
expenses associated with its operation and the issuance and repurchase or
redemption of its securities, except for the compensation of trustees affiliated
with VKAC, and officers of the AC Fund who are interested persons of VKAC or its
subsidiaries. The total operating expenses of the AC Fund for the period ended
March 31, 1995 were 1.42%, 2.28% and 2.27% with respect to Class A, B and C
shares, respectively, after giving effect to voluntary expense reimbursement by
AC Adviser. Absent such voluntary expense reimbursement, such total operating
expenses would have been 2.31% for Class A, 3.17% for Class B and 3.16% for
Class C. However, if the Reorganization is not consummated, AC Adviser does not
intend to continue the aforementioned voluntary fee waivers and expense
reimbursements.

The VK Fund pays VK Adviser a monthly fee based on its average daily net
asset value at the annual rates of 0.65% of the first $500 million; 0.60% of the
next $500 million; and 0.55% thereafter. The effective advisory fee for the
period ended December 31, 1994 was 0.65% of the VK Fund's average daily net
asset value. Similar to the AC Fund, the VK Fund also bears most expenses
associated with its operation and the issuance and repurchase or redemption of
its securities, except for the compensation of trustees affiliated with VKAC,
and officers of the VK Fund who are interested persons of VKAC or its
subsidiaries. The total operating expenses of the VK Fund for the period ended
December 31, 1994 were 1.38%, 2.09% and 2.14% of the average daily net assets
attributable to Class A, B and C Shares, respectively, which are significantly
lower than the total operating expenses of the AC Fund before giving effect to
voluntary expense reimbursements. For a complete description of the VK Fund's
advisory services, see the respective sections in the VK Fund's Prospectus and
Statement of Additional Information entitled "Investment Advisory Services" and
"Investment Advisory and Other Services -- Investment Advisory Agreement." For a
complete description of the AC Fund's advisory services, see the respective
sections in the AC Fund's Prospectus and Statement of Additional Information
entitled "The Fund and its Management" and "Investment Advisory Agreement."

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

DISTRIBUTION, PURCHASE, VALUATION, REDEMPTION AND EXCHANGE OF SHARES

Generally, Class A Shares of the VK Fund are sold at net asset value
applicable at the time of such sale, plus a sales charge of up to 5.75% of the
offering price (which percentage is reduced on investments of $50,000 or more),
and are redeemable at their net asset value applicable at the time of
redemption. Class A shares of the AC Fund are sold at net asset value applicable
at the time of such sale, plus a sales charge of up to 4.75%

7
<PAGE> 14

of the offering price (which percentage is reduced on investments of $100,000 or
more), and are redeemable at their net asset value applicable at the time of
redemption. Purchases of Class A shares of the VK Fund or the AC Fund in amounts
of $1,000,000 or more are not subject to an initial sales charge but a
contingent deferred sales charge of 1% may be imposed on certain redemptions
made within one year of the purchase. Class A Shares of the VK Fund acquired in
the Reorganization will not be subject to a sales charge.

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

Generally, Class C shares do not incur a sales charge if redeemed after the
first year of purchase. Both Class C Shares of the VK Fund and Class C shares of
the AC Fund are subject to a contingent deferred sales charge equal to 1.00% of
the lesser of the then current net asset value or the original purchase price on
such shares redeemed during the first year after purchase and do not incur a
sales charge if redeemed after the first year from the date of purchase. Class C
Shares of the AC Fund automatically convert to Class A Shares after ten years.
Class C Shares of the VK Fund have no such automatic conversion feature. See
"Fee Comparisons" below.

With respect to fixed income securities, the VK Fund and the AC Fund use
different pricing methodologies in calculating net asset value per share, each
of which is widely used and generally accepted in the mutual fund industry. In
determining net asset value per share, the VK Fund generally values fixed income
portfolio securities once daily by using prices equal to the mean of the last
reported bid and ask price of such securities as of 5:00 p.m. Eastern time. When
calculating the net assets of the AC Fund in accordance with this pricing
methodology, the net asset value per share would have been $ on July
, 1995. The AC Fund, however, generally computes net asset value per share
by valuing fixed income securities using the last reported bid price. When
calculating the net assets of the AC Fund in accordance with this pricing
methodology, the net asset value per share was $ on July , 1995.
In connection with the Reorganization, the net assets of the AC Fund will be
calculated using the current pricing methodology of the VK Fund.

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

8
<PAGE> 15

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

Shares of the VK Fund and the AC Fund properly presented for redemption may
be redeemed or exchanged at the next determined net asset value per share
(subject to any applicable deferred sales charge). Shares of either the AC Fund
or the VK Fund may be redeemed or exchanged by mail or by special redemption
privileges (telephone exchange, telephone redemption by check, or electronic
transfer). If a shareholder of either fund attempts to redeem shares within 15
days after they have been purchased by check, the respective fund may delay
payment of the redemption proceeds until such fund can verify that payment for
the purchase of the shares has been (or will be) received. No further purchases
of the shares of the AC Fund may be made after the date on which the
shareholders of the AC Fund approve the Reorganization, and the stock transfer
books of the AC Fund will be permanently closed as of the date of Closing. Only
redemption requests and transfer instructions received in proper form by the
close of business on the day prior to the date of Closing will be fulfilled by
the AC Fund. Redemption requests or transfer instructions received by the AC
Fund after that date will be treated by the AC Fund as requests for the
redemption or instructions for transfer of the shares of the VK Fund credited to
the accounts of the shareholders of the AC Fund. Redemption requests or transfer
instructions received by the AC Fund after the close of business on the day
prior to the date of Closing will be forwarded to the VK Fund. For a complete
description of these redemption arrangements, see the section in the VK Fund's
Prospectus entitled "Redemption of Shares," and the sections in the AC Fund's
Prospectus and Statement of Additional Information entitled "Redemption of
Shares" and "Purchase and Redemption of Shares."

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

9
<PAGE> 16
FEE COMPARISONS

<TABLE>
<CAPTION>
VK AC
CLASS A SHARES FUND* FUND** PRO FORMA
-------------- --------- ------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS A SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price).......................... 5.75%(1) 4.75% 5.75%(1)
Maximum Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds).......... None None None
ANNUAL FUND OPERATING EXPENSES FOR CLASS A SHARES
(as a percentage of average net assets)
Management Fees................................................ 0.65% 0.65%(2) 0.65%
Rule 12b-1 Fees................................................ 0.30%(5) 0.15% 0.25%
Other Expenses................................................. 0.43% 1.51%(2) 0.42%
Total Fund Operating Expenses (before waivers
and reimbursements).......................................... 1.38% 2.31%(2) 1.32%
Total Fund Operating Expenses (after waivers
and reimbursements).......................................... 1.38% 1.42% 1.32%
</TABLE>

<TABLE>
<CAPTION>
CLASS B SHARES
--------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS B SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price)....................... None None None
Maximum Deferred Sales Charge (as a percentage of the lower
of the original purchase price or redemption proceeds).... 4.00%(4) 4.00%(3) 4.00%(4)
ANNUAL FUND OPERATING EXPENSES FOR CLASS B SHARES
(as a percentage of average net assets)
Management Fees............................................. 0.65% 0.65%(2) 0.65%
Rule 12b-1 Fees............................................. 1.00% 1.00% 1.00%
Other Expenses.............................................. 0.44% 1.52%(2) 0.43%
Total Fund Operating Expenses (before waivers
and reimbursements)....................................... 2.09% 3.17%(2) 2.08%
Total Fund Operating Expenses (after waivers
and reimbursements)....................................... 2.09% 2.28% 2.08%
</TABLE>

<TABLE>
<CAPTION>
CLASS C SHARES
--------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS C SHARES
Maximum Sales Load Imposed on Purchase of a Share
(as a percentage of Offering Price)....................... None None None
Maximum Deferred Sales Charge
(as a percentage of the lower of the original purchase
price or redemption proceeds)............................. 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES FOR CLASS C SHARES
(as a percentage of average net assets)
Management Fees............................................. 0.65% 0.65%(2) 0.65%
Rule 12b-1 Fees............................................. 1.00% 1.00% 1.00%
Other Expenses.............................................. 0.49% 1.51%(2) 0.48%
</TABLE>

10
<PAGE> 17

<TABLE>
<CAPTION>
CLASS C SHARES
------------------------------------------------------------
<S> <C> <C> <C>
Total Fund Operating Expenses (before waivers
and reimbursements)....................................... 2.14% 3.16%(2) 2.13%
Total Fund Operating Expenses (after waivers
and reimbursements)....................................... 2.14% 2.27% 2.13%
</TABLE>

(1) Class A shares of the VK Fund received pursuant to the Reorganization will
not be subject to a sales charge upon purchase.
(2) Before voluntary expense waiver. After application of the expense waiver,
Management Fees, Other Expenses, and Total Fund Operating Expenses would be
0.00%, 1.27% and 1.42% for Class A shares, 0.00%, 1.28% and 2.28% for Class
B shares and 0.00%, 1.27% and 2.27% for Class C shares, respectively.
(3) Class B shares of the AC Fund are subject to a contingent deferred sales
charge equal to 4.00% of the lesser of the then current net asset value or
the original purchase price on Class B shares redeemed during the first year
after purchase, which charge is reduced each year thereafter to 0.00% over a
five year period as follows: Year 1 -- 4.00%; Year 2 -- 4.00%; Year 3 --
3.00%; Year 4 -- 2.50%; Year 5 -- 1.50%.
(4) Class B Shares of the VK Fund are subject to a contingent deferred sales
charge equal to 4.00% of the lesser of the then current net asset value or
the original purchase price on Class B Shares redeemed during the first year
after purchase, which charge is reduced thereafter to 0.00% over a six year
period as follows: Year 1 -- 4.00%; Year 2 -- 3.75%; Year 3 -- 3.50%; Year 4
-- 2.50%; Year 5 -- 1.50%; Year 6 -- 1.00%. However, Class B Shares acquired
in the Reorganization will be subject to the contingent deferred sales
charge schedule applicable to Class B shares of the AC Fund.
(5) As of July , 1995, the Rule 12b-1 fees for the VK Fund's Class A Shares
was reduced from 0.30% to 0.25%.
* For the semi-annual period ended December 31, 1994 on an annualized basis.
** For the semi-annual period ended March 31, 1995 on an annualized basis.

FEDERAL INCOME TAX CONSEQUENCES

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

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

REASONS FOR THE PROPOSED REORGANIZATION

On December 20, 1994, The Van Kampen Merritt Companies, Inc. acquired from
The Travelers Inc. all of the outstanding capital stock of American Capital
Management & Research, Inc., the parent company of the AC Adviser. Immediately
after the acquisition, American Capital Management & Research, Inc. was merged
into The Van Kampen Merritt Companies, Inc. and the combined entity was renamed
Van Kampen

11
<PAGE> 18

American Capital, Inc. ("VKAC"). The VK Adviser and the AC Adviser currently are
each wholly-owned subsidiaries of VKAC.

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

The VK Board and the AC Board created a joint committee (the "Joint
Committee") to consider the possible costs and benefits to shareholders
associated with the proposed Consolidation, including the merger of the VK Fund
and the AC Fund. The Joint Committee held meetings on February 20, 1995, March
27, 1995 and April 3, 1995 to consider issues relating to the Consolidation,
review information requested from and provided by Management and review
information requested from and provided by third-party analytical services.

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

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

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

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

(1) ELIMINATION OF SEPARATE OPERATIONS. Consolidating the AC Fund and the
VK Fund may eliminate the duplication of services that currently exists
as a result of their separate operations. For example,

12
<PAGE> 19

currently the AC Fund and the VK Fund are managed separately by
different affiliated investment advisers. Consolidating the separate
operations of the AC Fund with those of the VK Fund should promote more
efficient operations on a more cost-effective basis.

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

(3) BENEFITS TO THE PORTFOLIO MANAGEMENT PROCESS. Higher net asset levels
also may enable the VK Fund to purchase larger individual portfolio
investments that may result in reduced transaction costs and/or other
more favorable pricing and provide the opportunity for greater portfolio
diversity.

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

B. RISK FACTORS

NATURE OF INVESTMENT

Each of the VK Fund and the AC Fund invest primarily in Utility Securities.
Because of the policy of concentrating their respective investments in Utility
Securities, the Funds may be more susceptible than an investment company without
such a policy to any single economic, political or regulatory occurrence
affecting issuers of Utility Securities. Investment in either of the VK Fund or
the AC Fund may not be appropriate for all investors.

Unlike the AC Fund, the VK Fund may invest up to 20% of its assets in
income securities that are rated BB or B by S&P or Ba or B by Moody's, or
comparably rated by any other nationally recognized statistical rating
organization or if unrated, determined by VK Adviser to be of comparable
quality. Such lower rated or unrated income securities are commonly referred to
as "junk bonds" and are regarded by S&P and Moody's as predominately speculative
with respect to the capacity to pay interest or repay principal in accordance
with their terms. While offering opportunities for higher yields, lower-grade
securities are considered below "investment grade" and involve a greater degree
of credit risk than investment grade income securities;

13
<PAGE> 20

although the lower-grade income securities of an issuer generally involve a
lower degree of credit risk than its common stock.

Unlike the AC Fund, the VK Fund is authorized to borrow money from banks or
enter into reverse repurchase agreements with banks in an amount up to 33 1/3%
of the such fund's total assets (after giving effect to any such borrowing)
which amount includes no more than 5% in borrowings and reverse repurchase
agreements from any entity for temporary purposes. The VK Fund has no current
intention to borrow money other than for temporary purposes. Accordingly, the VK
Fund will not acquire additional utility securities during any period in which
its borrowings exceed 5% of the VK Fund's total assets. The VK Fund will borrow
only when the VK Adviser believes that such borrowings will benefit the VK Fund.

Borrowing by the VK Fund creates an opportunity for increased net income
but, at the same time, creates special risk considerations such as changes in
the net asset value of the shares and in the yield on the VK Fund's portfolio.
Although the principal of such borrowings will be fixed, the VK Fund's assets
may change in value during the time the borrowing is outstanding. Borrowing will
create interest expenses for the VK Fund which can exceed the income from the
assets retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the VK Fund will have to pay, the VK Fund's
net income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of the VK Fund will be less than if
borrowing were not used, and therefore the amount available for distribution to
stockholders as dividends will be reduced.

CHANGES IN CERTAIN INVESTMENT PRACTICES

Both the VK Fund and the AC Fund may engage in certain options and
financial futures transactions. For a complete description of the VK Fund's
investment practices, see the section in the VK Fund's Prospectus entitled
"Investment Practices" and "Investment Objective and Policies" and the section
of the AC Fund's Statement of Additional Information entitled "Additional
Investment Considerations."

C. INFORMATION ABOUT THE FUNDS

VK Fund. Information about the VK Fund is included in its current
Prospectus dated , which accompanies this Proxy
Statement/Prospectus. Additional information about the VK Fund is included in
its current Statement of Additional Information dated the same date as the VK
Fund Prospectus. Copies of the VK Fund Statement of Additional Information may
be obtained without charge by calling (800) 225-2222, ext. 6504. The VK Fund
files proxy material, reports and other information with the SEC. These reports
can be inspected and copied at the Public Reference Facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material
can also be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.

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

14
<PAGE> 21

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

D. THE PROPOSED REORGANIZATION

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

TERMS OF THE AGREEMENT

Pursuant to the Agreement, the VK Fund series of the VKAC Equity Trust
would acquire all of the assets and liabilities of the AC Fund on the date of
the Closing in exchange for Class A, B and C Shares, of the VK Fund.

Subject to AC Fund shareholder approval of the Reorganization, the closing
(the "Closing") will occur within fifteen (15) business days after the later of
the receipt of all necessary regulatory approvals and the final adjournment of
the Special Meeting or such later date as soon as practicable thereafter as the
VK Fund and the AC Fund may mutually agree.

On the date of Closing, the AC Fund will transfer to the VK Fund all of the
assets and liabilities of the AC Fund. The VKAC Equity Trust will in turn
transfer to the AC Fund a number of Class A, B and C Shares, of the VK Fund
approximately equal in value to the value of the net assets of the AC Fund
transferred to the VK Fund as of the date of Closing, as determined in
accordance with the valuation method described in the VK Fund's then current
prospectus.

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

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

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

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

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

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

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

15
<PAGE> 22

5. the effectiveness of this Proxy Statement/Prospectus under applicable
law and obtaining of any approvals, registrations or exemptions under
federal and state securities laws; and

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

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

The AC Board recommends that you vote to approve the Agreement, as it
believes the Reorganization is in the best interests of the AC Fund's
shareholders and that the interests of the AC Fund's existing shareholders will
not be diluted as a result of consummation of the proposed Reorganization.

DESCRIPTION OF SECURITIES TO BE ISSUED

SHARES OF BENEFICIAL INTEREST

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

VOTING RIGHTS OF SHAREHOLDERS

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

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

16
<PAGE> 23

CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS; SHARE CERTIFICATES

If the Reorganization is approved, the VK Fund will establish an account
for each AC Fund shareholder containing the appropriate number of Shares of the
VK Fund. The shareholder services and shareholder programs of the VK Fund and
the AC Fund have already been substantially conformed as part of the
Consolidation. Shareholders of the AC Fund who are accumulating AC Fund shares
under the dividend reinvestment plan, or who are receiving payment under the
systematic withdrawal plan with respect to AC Fund shares, will retain the same
rights and privileges after the Reorganization in connection with the VK Fund
Class A, B and C Shares, respectively, received in the Reorganization through
substantially similar plans maintained by the VK Fund. In the case of shares of
the AC Fund held in IRA accounts, the corresponding Shares of the VK Fund will
be credited to a new IRA account maintained in the name of the shareholder by
Van Kampen American Capital Trust Company, an affiliate of VKAC that acts as the
custodian of IRA accounts for VKAC Distributors-sponsored open-end management
mutual funds. Such IRA investors will be sent appropriate documents to confirm
Van Kampen American Capital Trust Company's custodianship.

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

FEDERAL INCOME TAX CONSEQUENCES

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

The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code. It is a condition to closing that
the VKAC Equity Trust and the AC Fund receive an opinion from O'Melveny & Myers
to the effect that for federal income tax purposes:

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

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

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

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

17
<PAGE> 24
5. The tax basis of the Class A, B and C Shares of the VK Fund received by
the shareholders of the AC Fund will be the same as the tax basis of the shares
of the AC Fund surrendered in exchange therefor.

6. The holding period of the Class A, B and C Shares of the VK Fund
received by the shareholders of the AC Fund will include the holding period of
the shares of the AC Fund surrendered in exchange therefor.

In rendering its opinion, O'Melveny & Myers may rely upon certain
representations of the management of the AC Fund and the VKAC Equity Trust and
it has assumed, for purposes of such opinion, that the Reorganization will be
consummated as described in the Agreement and that redemptions of shares of the
AC Fund occurring prior to the Closing will consist solely of redemptions in the
ordinary course of business.

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

CAPITALIZATION

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

CAPITALIZATION TABLE AS OF MARCH 31, 1995

<TABLE>
<CAPTION>
VK FUND AC FUND PRO FORMA
----------- ---------- -----------
<S> <C> <C> <C>
NET ASSETS
Class A Shares(1)................................. $50,205,767 $8,679,874 $58,843,316
Class B Shares.................................... 80,561,804 14,272,635 94,766,276
Class C Shares.................................... 1,149,726 2,345,602 3,492,816
------------ ----------- ------------
Total..................................... $131,917,297 $25,298,111 $157,102,408
============ =========== ============
NET ASSET VALUE PER SHARE
Class A Shares.................................... $12.76 $8.72 $12.75
Class B Shares.................................... 12.79 8.71 12.78
Class C Shares.................................... 12.78 8.70 12.77

SHARES OUTSTANDING
Class A Shares(1)................................. 3,933,453 995,792 4,613,694
Class B Shares.................................... 6,298,006 1,638,873 7,413,927
Class C Shares.................................... 89,941 269,483 273,478
------------ ----------- ------------
Total..................................... 10,321,400 2,904,148 12,301,099
============ =========== ============
SHARES AUTHORIZED
Class A Shares.................................... Unlimited Unlimited Unlimited
Class B Shares.................................... Unlimited Unlimited Unlimited
Class C Shares.................................... Unlimited Unlimited Unlimited
</TABLE>

---------------
(1) Includes $1,468 and 115 shares representing Class D shares outstanding as of
March 31, 1995.

18
<PAGE> 25

COMPARATIVE PERFORMANCE INFORMATION

The average annual total return for the AC Fund for the one-year period
ended March 31, 1995 and for the period beginning December 1, 1993 (the date
shares of the AC Fund were first offered for sale to the public) through March
31, 1995 were (1.51)% and (5.13)%, in respect of its Class A shares; (.14)% and
(4.24)% in respect of its Class B shares; and 2.72% and (1.52)% in respect of
its Class C shares. The average annual total return for VK Fund for the one-year
period ended March 31, 1995 and for the period beginning July 23, 1993 (the date
Class A and B Shares of the VK Fund were first offered for sale to the public)
through March 31, 1995 were (5.23)% and (5.85)% in respect of its Class A
Shares; (3.91)% and (5.15)% in respect of its for Class B Shares and for the
one-year period ended March 31, 1995 and the period beginning August 13, 1993
(the date Class C Shares of the VK Fund were first offered for sale to the
public) through March 31, 1995 were (.95)% and (3.77)% in respect of its Class C
Shares. The return figures include the effect of the maximum sales charge
applicable to purchases and sales of Shares of both the VK Fund and the AC Fund.

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

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

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

LEGAL MATTERS

Certain legal matters concerning the issuance of Class A, B and C Shares of
the VK Fund will be passed on by Skadden, Arps, Slate, Meagher & Flom, 333 West
Wacker Drive, Chicago, Illinois 60606, which serves as counsel to the VK Fund.
Wayne W. Whalen, a partner of Skadden, Arps, Slate, Meagher & Flom, is a Trustee
of the VKAC Equity Trust. On July 21, 1995, Mr. Whalen was elected as a Trustee
of the AC Fund.

Certain legal matters concerning the federal income tax consequences of the
Reorganization will be passed upon by O'Melveny & Myers, 400 South Hope Street,
Los Angeles, California 90071, which serves as counsel to AC Fund. Lawrence J.
Sheehan, a former partner of O'Melveny & Myers and currently of counsel with
said firm, is a Trustee of the AC Fund. On July 21, 1995, Mr. Sheehan was
elected as a Trustee of the VKAC Equity Trust.

EXPENSES

The expenses of the Reorganization, including expenses incurred by the AC
Fund will be borne by the VK Fund after the Reorganization. Accordingly, the VK
Fund and its shareholders after the Reorganization

19
<PAGE> 26

will bear such expenses of the Reorganization. The AC Board has determined that
the arrangements regarding the payment of expenses and other charges relating to
the Reorganization are fair and equitable.

F. RECOMMENDATIONS OF BOARD OF TRUSTEES

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

OTHER MATTERS THAT MAY COME BEFORE THE MEETING

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

OTHER INFORMATION

A. SHAREHOLDINGS OF THE AC FUND AND THE VK FUND

At the close of business on [ ], 1995, the record date for
the Meeting, there were [ ] Class A, [ ] Class B and [ ] Class C
Shares, respectively, of the AC Fund outstanding and entitled to vote at the
meeting. [As of such date, no person was known by the AC Fund to own of record
or "beneficially" five percent or more of the outstanding shares of the AC Fund
as determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended]. At the close of business on [March 31], 1995, there were
3,933,453 Class A, [6,298,006] Class B and [89,941] Class C Shares,
respectively, of the VK Fund outstanding. [As of such date, no person was known
by the VK Fund to own of record or "beneficially" five percent or more of the
outstanding shares of the VK Fund as determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended.]

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

B. SHAREHOLDER PROPOSALS

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

20
<PAGE> 27

VOTING INFORMATION AND REQUIREMENTS

Each valid proxy given by a shareholder of the AC Fund will be voted by the
persons named in the proxy in accordance with the designation on such proxy on
the Reorganization proposal and as the persons named in the proxy may determine
on such other business as may come before the Special Meeting on which
shareholders are entitled to vote. If no designation is made, the proxy will be
voted by the persons named in the proxy as recommended by the AC Board "FOR"
approval of the Reorganization.

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

The presence in person or by proxy of the holders of a majority of the
outstanding shares entitled to vote is required to constitute a quorum at the
Special Meeting. Approval of the Reorganization will require the favorable vote
of the holders of a majority of the outstanding shares of the AC Fund entitled
to vote at the Special Meeting at which a quorum is constituted. Shares not
voted with respect to a proposal due to an abstention or broker non-vote will be
deemed votes not cast with respect to such proposal, but such shares will be
deemed present for quorum purposes.

In the event that sufficient votes in favor of the Reorganization are not
received by the scheduled time of the Meeting, the persons named in the proxy
may propose and vote in favor of one or more adjournments of the Meeting to
permit further solicitation of proxies. If sufficient shares were present to
constitute a quorum, but insufficient votes had been cast in favor of the
Reorganization to approve it, proxies would be voted in favor of adjournment
only if the AC Board determined that adjournment and additional solicitation was
reasonable and in the best interest of the shareholders of the AC Fund, taking
into account the nature of the proposal, the percentage of the votes actually
cast, the percentage of negative votes, the nature of any further solicitation
that might be made and the information provided to shareholders about the
reasons for additional solicitation. Any such adjournment will require the
affirmative vote of the holders of a majority of the outstanding shares voted at
the session of the Meeting to be adjourned.

Proxies of shareholders of the AC Fund are solicited by the AC Board. The
cost of solicitation will be paid by the VK Fund after the Reorganization.
Additional solicitation may be made by mail, personal interview, telephone,
facsimile and telegraph by personnel of the AC Fund or AC Adviser who will not
be additionally compensated therefor.

[ ], 1995

PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY.

21
<PAGE> 28

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(708) 684-6000
------------------------

Statement of Additional Information
Dated [ ], 1995
------------------------

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proposed Reorganization of the AC Fund................................................ 2

Additional Information About the VK Fund and the VKAC Equity Trust.................... 2

Additional Information About the AC Fund.............................................. 2

Financial Statements.................................................................. 2

Pro Forma Financial Statements........................................................ 2
</TABLE>

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

1
<PAGE> 29

PROPOSED REORGANIZATION OF THE AC FUND

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

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

ADDITIONAL INFORMATION ABOUT THE VK FUND AND THE VKAC EQUITY TRUST

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

ADDITIONAL INFORMATION ABOUT THE AC FUND

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

FINANCIAL STATEMENTS

Incorporated herein by reference in its entirety is (i) the audited
financial statements of the VK Fund for fiscal year ended June 30, 1994,
attached as Appendix C to this Statement of Additional Information, (ii) the
unaudited semi-annual financial statements of the VK Fund for the six months
ended December 31, 1994, attached as Appendix D to this Statement of Additional
Information, (iii) the audited financial statements of the AC Fund for fiscal
year ended September 30, 1994, attached as Appendix E to this Statement of
Additional Information, and (iv) the unaudited semi-annual financial statements
of the AC Fund for the six months ended March 31, 1995, attached as Appendix F
to this Statement of Additional Information.

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

PRO FORMA FINANCIAL STATEMENTS

Set forth below are unaudited pro forma financial statements of the VK Fund
giving effect to the Reorganization, which include (i) Pro Forma Condensed
Statement of Assets and Liabilities at December 31, 1994, (ii) Pro Forma
Condensed Statement of Operations for the year ended December 31, 1994; and
(iii) Pro Forma Portfolio of Investments at December 31, 1994.

2
<PAGE> 30

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
UNAUDITED

<TABLE>
<CAPTION>
VK FUND AC FUND ADJUSTMENTS PRO FORMA
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investments, at Market Value (cost of $139,241,360,
$21,330,573 and $160,571,933, respectively)(2)..... $125,737,414 $20,272,287 $ 0 $146,009,701
Short Term Investments (cost of $1,620,025,
$1,286,404 and $2,906,429, respectively)........... 1,587,100 1,286,404 0 2,873,504
Cash(4)(5)........................................... 1,945,750 4,963 9,194 1,959,907
Unamortized Organization Expenses and Initial
Registration Costs(4).............................. 82,114 11,786 (11,786) 82,114
Other Assets less Liabilities(3)..................... 280,173 253,226 (113,000) 420,399
------------ ----------- ----------- ------------
Net Assets........................................... $129,632,551 $21,828,666 $(115,592) $151,345,625
============= ============ ========== ============
Net Assets Consist of:
Capital(3)......................................... $150,409,499 $23,278,433 $(113,000) $173,574,932
Accumulated Undistributed Net Investment
Income(5)........................................ 168,339 2,592 (2,592) 168,339
Accumulated Net Realized Loss on Investments....... (7,320,968) (394,073) 0 (7,715,041)
Net Unrealized Depreciation on Investments......... (13,624,319) (1,058,286) 0 (14,682,605)
------------ ----------- ----------- ------------
Net Assets........................................... $129,632,551 $21,828,666 $(115,592) $151,345,625
============= ============ ========== ============
Class A Shares:
Net Assets (including the conversion of Class D
shares to Class A shares)........................ $ 49,737,170 $ 8,015,034 $ (44,038) $ 57,708,166
Shares Outstanding(1).............................. 3,986,791 962,824 (320,594) 4,629,021
------------ ----------- ------------
NAV................................................ $ 12.48 $ 8.32 $ 12.47
============= ============ ============
Class B Shares:
Net Assets......................................... $ 78,589,041 $11,807,834 $ (68,845) $ 90,328,030
Shares Outstanding(1).............................. 6,288,480 1,418,902 (474,275) 7,233,107
------------ ----------- ------------
NAV................................................ $ 12.50 $ 8.32 $ 12.49
============= ============ ============
Class C Shares:
Net Assets......................................... $ 1,306,340 $ 2,005,798 $ (2,709) $ 3,309,429
Shares Outstanding(1).............................. 104,572 241,166 (80,574) 265,164
------------ ----------- ------------
NAV................................................ $ 12.49 $ 8.32 $ 12.48
============= ============ ============
</TABLE>

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

(1) -- The pro forma net asset value per share assumes the issuance by the VK
Fund of 642,230 Class A Shares, 944,627 Class B Shares and 160,592 Class C
Shares in exchange for the assets and liabilities of the AC Fund at a net
asset value per share of $12.48, $12.50 and $12.49, for the Class A, B and
C Shares respectively.

(2) -- Due to inherent differences in the pricing methodologies of the two
funds, the market value of the AC Fund will be increased by approximately
$52,500, or $0.02 per share, upon reflecting the pricing methodology used
by the VK Fund.

(3) -- In connection with the transaction, the combined Fund will incur
non-recurring costs associated with the merger of approximately $113,000,
or $.009 per share.

(4) -- In connection with the transaction, the Distributor will reimburse the AC
Fund for any remaining unamortized organizational expenses and initial
registration costs.

(5) -- In connection with the transaction, the AC Fund must distribute all of
its undistributed net investment income prior to the Reorganization.

3
<PAGE> 31

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
UNAUDITED

<TABLE>
<CAPTION>
UTILITIES
VK FUND INCOME FUND ADJUSTMENTS PRO FORMA
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income....................... $ 8,402,771 $ 1,016,234 $ 0 $ 9,419,005
------------ ----------- ----------- ------------
Expenses:
Distribution (12b-1) and Service
Fees............................... 1,012,996 101,760 (27,600)(1) 1,087,156
Investment Advisory Fee(2)............ 898,025 97,708 0 995,733
All Other Expenses.................... 562,488 233,546 (107,200)(3) 688,834
------------ ----------- ----------- ------------
Total Expenses.......................... 2,473,509 433,014 (134,800) 2,771,723
Less Expenses Waived.................... 0 157,313 (157,313) 0
------------ ----------- ----------- ------------
Net Expenses.......................... 2,473,509 275,701 22,513 2,771,723
------------ ----------- ----------- ------------
Net Investment Income................... 5,929,262 740,533 (22,513) 6,647,282
------------ ----------- ----------- ------------
Realized and Unrealized Loss on
Investments:
Net Realized Loss on Investments...... (7,771,099) (391,399) 0 (8,162,498)
Net Change in Unrealized Depreciation
on Investments During the Period... (13,208,401) (1,052,857) 0 (14,261,258)
------------ ----------- ----------- ------------
Net Realized and Unrealized Gain/Loss on
Investments........................... (20,979,500) (1,444,256) 0 (22,423,756)
------------ ----------- ----------- ------------
Net Decrease in Net Assets from
Operations............................ $(15,050,238) $ (703,723) $ (22,513) $(15,776,474)
=========== ========== ========= ============
</TABLE>

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

(1) -- In conjunction with the proposed transaction, the Class A Share
Distribution and Service Plan for the Acquiring Fund will be modified such
that the maximum expense will be reduced from .30% of average net assets to
.25%.

(2) -- Reflects the management fee of .65% of net assets up to $500 million,
.60% on the next $500 million of net assets, and .55% thereafter.

(3) -- Represents the reduction in operating expenses resulting from a larger,
more efficient Fund rather than two smaller Funds.

4
<PAGE> 32

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

PRO FORMA -- PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
-------------------- ------- ----------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 80.4%
BUILDINGS & REAL ESTATE 0.8%
Health & Retirement Property Trust................................. 92,750 1,240,531
-------------

ELECTRIC UTILITIES 28.8%
Baltimore Gas & Electric Co........................................ 20,500 453,563
Boston Edison Co................................................... 56,054 1,338,289
Carolina Power & Light Co.......................................... 61,000 1,624,125
Central & South West Corp.......................................... 60,000 1,357,500
Central LA Electric Co............................................. 59,130 1,396,946
CMS Energy Corp.................................................... 99,100 2,266,912
DPL Inc............................................................ 100,212 2,054,346
DQE Inc............................................................ 36,861 1,092,007
Duke Power Co...................................................... 36,000 1,372,500
Eastern Utilities Associates....................................... 59,800 1,315,600
FPL Group Inc...................................................... 76,600 2,690,575
General Public Utilities Corp...................................... 86,175 2,262,094
Georgia Power Co. -- Preferred..................................... 90,000 1,845,000
NIPSCO Industries, Inc............................................. 15,000 446,250
Nynex Corp......................................................... 78,100 2,870,175
Oklahoma Gas & Electric Co......................................... 54,806 1,815,449
Pacific Gas & Electric Co.......................................... 61,600 1,501,500
Pacificorp......................................................... 28,500 516,563
Peco Energy Co..................................................... 87,823 2,151,664
Pinnacle West Capital Corp......................................... 116,000 2,291,000
Public Service Company of Colorado................................. 15,500 455,312
Public Service Enterprise Group.................................... 16,800 445,200
Scana Corp......................................................... 10,600 446,525
Southern Co........................................................ 107,225 2,144,500
Teco Energy Inc.................................................... 84,800 1,706,600
Texas Utilities Co................................................. 50,500 1,616,000
Unicom Corp........................................................ 56,000 1,344,000
Washington Water Power Co.......................................... 70,000 953,750
Wisconsin Energy Corp.............................................. 68,478 1,771,868
-------------
43,545,813
-------------
</TABLE>

5
<PAGE> 33

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

PRO FORMA -- PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
-------------------- ------- ----------------
<S> <C> <C>
ELECTRONICS 0.3%
Kenetech Corp...................................................... 30,000 431,250
-------------

NATURAL GAS PIPELINE AND DISTRIBUTION 16.8%
Coastal Corp....................................................... 81,300 2,093,475
El Paso Natural Gas Co............................................. 73,182 2,232,051
Enron Capital -- Preferred......................................... 40,000 870,000
Enron Corp......................................................... 67,895 2,070,797
Enserch Corp....................................................... 52,300 686,438
Equitable Resources Inc............................................ 47,150 1,278,944
K N Energy Inc..................................................... 38,613 917,059
MCN Corp........................................................... 124,000 2,247,500
National Fuel Gas Co. NJ........................................... 66,300 1,690,650
Nicor Inc.......................................................... 79,211 1,802,050
Pacific Enterprises................................................ 24,100 512,125
Questar Corp....................................................... 70,000 1,925,000
Sonat Inc.......................................................... 70,000 1,960,000
Tenneco Inc........................................................ 15,000 637,500
Transco Energy..................................................... 10,000 455,000
UGI Corp........................................................... 88,018 1,793,367
Western Resources Inc.............................................. 78,800 2,255,650
-------------
25,427,606
-------------

TELECOMMUNICATIONS 14.8%
Airtouch Communications Inc........................................ 50,000 1,456,250
Ameritech Corp..................................................... 69,470 2,804,851
AT & T Corp........................................................ 50,000 2,512,500
Bell Atlantic Corp................................................. 38,000 1,890,500
Bellsouth Corp..................................................... 60,600 3,279,975
Citizens Utilities Co.............................................. 55,000 694,375
GTE Corp........................................................... 44,600 1,354,725
MCI Communications Corp............................................ 102,000 1,874,250
Pacific Telesis Group.............................................. 17,200 490,200
Southwestern Bell Corp............................................. 50,000 2,018,750
</TABLE>

6
<PAGE> 34

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

PRO FORMA -- PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES ($)MARKET VALUE
------------------------------------------------------------------- ------- ----------------
<S> <C> <C>
TELECOMMUNICATIONS -- CONTINUED
Telephone & Data Systems Inc....................................... 42,508 1,960,681
U.S. West Inc...................................................... 42,600 1,517,625
Viatel Inc......................................................... 117,325 457,568
-------------
22,312,250
-------------

WATER & SEWER UTILITIES 1.3%
American Water Works Inc........................................... 61,083 1,649,241
United Water Resources Inc......................................... 24,900 314,363
-------------
1,963,604
-------------

FOREIGN 17.6%
AES China Generating Co. Ltd. (China).............................. 50,000 531,250
British Telecommunications ADR (UK)................................ 35,000 2,104,375
Cable & Wireless PLC ADR (UK)...................................... 96,000 1,680,000
China Light & Power Ltd ADR (Hong Kong)............................ 164,879 703,209
Empresa Nacional de Electricidad ADR (Spain)....................... 40,000 1,620,000
Midlands Electricity PLC (UK)...................................... 39,200 496,668
National Power PLC ADR (UK)........................................ 30,000 2,295,117
Norweb PLC (UK).................................................... 107,800 1,450,149
Powergen PLC ADR (UK).............................................. 30,000 2,511,018
Repsol SA ADR (Spain).............................................. 42,000 1,144,500
Rogers Cantel Mobile Communications Inc. (Canada).................. 43,990 1,282,583
Royal PTT (Nederland).............................................. 30,000 1,011,003
Scottish Hydro Electric PLC (Germany).............................. 250,000 1,276,787
Southern Electric PLC (UK)......................................... 125,000 1,575,943
Tele Danmark A/S ADR (Denmark)..................................... 50,000 1,275,000
Telefonica de Espana ADR (Spain)................................... 30,000 1,053,750
TransCanada Pipelines Ltd (Canada)................................. 91,840 1,113,560
Vodafone Group PLC -- ADR (United Kingdom)......................... 62,922 2,115,752
Westcoast Energy Inc. (Canada)..................................... 90,000 1,428,750
-------------
26,669,414
-------------
TOTAL COMMON AND PREFERRED STOCKS 121,590,468
-------------
</TABLE>

7
<PAGE> 35

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

PRO FORMA -- PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
PAR
AMOUNT
($000) DESCRIPTION COUPON(%) MATURITY ($)MARKET VALUE
------ ------------------------------------------------ -------- -------- ---------------
<S> <C> <C> <C> <C>
FIXED INCOME SECURITIES 16.1%
ELECTRIC UTILITIES 4.1%
380 Alabama Power Co................................ 6.375 08/01/99 351,842
100 Baltimore Gas & Electric Co..................... 7.500 01/15/07 92,770
200 Cincinnati Gas & Electric Co.................... 6.450 02/15/04 174,700
500 Idaho Power Co.................................. 8.000 03/15/04 488,200
700 Iowa Electric Light & Power..................... 8.625 05/15/01 707,490
3,000 Midland Funding Corp. II........................ 11.750 07/23/05 2,790,000
200 San Diego Gas & Electric Co..................... 7.625 06/15/02 191,180
400 Southern Union Co............................... 7.600 02/01/24 335,492
250 Texas Utilities Electric Co..................... 6.250 10/01/04 212,038
500 Union Electric Co............................... 7.375 12/15/04 467,800
200 Virginia Electric & Power Co.................... 8.875 06/01/99 203,620
200 Virginia Electric & Power Co.................... 6.000 08/01/01 175,840
---------------
6,190,972
---------------

NATURAL GAS PIPELINE AND DISTRIBUTION 3.2%
2,440 Coastal Corp.................................... 8.125 09/15/02 2,333,721
500 Colorado Interstate Gas Co...................... 10.000 06/15/05 541,400
595 Enron Corp...................................... 6.750 07/01/05 517,352
400 Enserch Corp.................................... 6.375 02/01/04 342,720
330 Laclede Gas Co.................................. 8.500 11/15/04 331,683
75 Occidental Petroleum............................ 10.125 09/15/09 80,385
500 Panhandle Eastern Corp.......................... 7.875 08/15/04 476,300
100 Texas Eastern Transmission Corp................. 8.000 07/15/02 96,730
85 Union Oil of California 8.750 08/15/01 85,833
100 Union Oil of California......................... 6.375 02/01/04 85,650
---------------
4,891,774
---------------

TELECOMMUNICATIONS 6.8%
600 AT & T Corp..................................... 7.500 06/01/06 562,080
355 GTE Corp........................................ 9.375 12/01/00 369,945
390 MCI Communications Corp......................... 7.500 08/20/04 367,341
2,000 Mobilemedia Communications...................... 0/10.500 12/01/03 1,110,000
485 Motorola, Inc................................... 7.600 01/01/07 457,064
</TABLE>

8
<PAGE> 36

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

PRO FORMA -- PORTFOLIO OF INVESTMENTS -- CONTINUED
DECEMBER 31, 1994 (UNAUDITED)

<TABLE>
<CAPTION>
PAR
AMOUNT
($000) DESCRIPTION COUPON(%) MATURITY ($)MARKET VALUE
------ ------------------------------------------------ -------- -------- ---------------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS -- CONTINUED
80 Northwestern Bell Telephone Co.................. 9.500 05/01/00 84,216
450 Pacific Telephone & Telegraph Co................ 6.000 11/01/02 388,935
600 Tele-Communications, Inc........................ 7.250 08/01/05 517,620
1,500 Tele-Communications, Inc........................ 8.250 01/15/03 1,419,706
1,000 Telephone & Data Systems Inc.................... 8.400 02/24/23 873,522
2,112 Time Warner Inc................................. 8.750 01/10/15 1,990,560
617 United Telecommunications, Inc.................. 9.750 04/01/00 644,888
3,250 Viatel Inc...................................... 0/15.000 01/15/05 1,573,650
--------------
10,359,527
--------------

FOREIGN 2.0%
1,250 AES Corp. (China)............................... 6.500 03/15/02 1,206,250
1,500 Argentina Rep (Argentina)....................... 8.375 12/20/03 1,102,500
200 Hydro Quebec (Canada)........................... 7.375 02/01/03 187,380
500 Hydro Quebec (Canada)........................... 8.050 07/07/24 480,830
--------------
2,976,960
--------------

TOTAL FIXED INCOME SECURITIES................................................... 24,419,233
--------------

TOTAL LONG-TERM INVESTMENTS (COST $160,571,933) 96.5%........................... 146,009,701
--------------

TOTAL SHORT-TERM INVESTMENTS (COST $2,906,429) 1.9%............................. 2,873,504
--------------

OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%...................................... 2,462,420
--------------

NET ASSETS 100%................................................................. $ 151,345,625
==============
</TABLE>

9
<PAGE> 37

APPENDIX A

VAN KAMPEN AMERICAN CAPITAL
UTILITY FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1995

[TO COME]

A-1
<PAGE> 38

APPENDIX B

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

[TO COME]

B-1
<PAGE> 39
APPENDIX C
Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Portfolio of Investments

June 30, 1994
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
---------------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks 81.2%
Electric Utilities 28.1%
Boston Edison Co.......................................... 56,054 $ 1,471,418
Carolina Power & Light Co................................. 55,885 1,292,341
Central & South West Corp................................. 66,000 1,402,500
Central LA Elec Co........................................ 59,130 1,389,555
CMS Energy Corp........................................... 86,000 1,795,250
Commonwealth Edison Co.................................... 50,000 1,137,500
Dominion Resources Inc.................................... 48,272 1,755,894
DPL Inc................................................... 74,412 1,469,637
DQE Inc................................................... 36,861 1,092,007
Duke Power Co............................................. 66,595 2,380,771
Entergy Corp.............................................. 75,000 1,856,250
FPL Group Inc............................................. 60,000 1,792,500
General Public Utilities Corp............................. 60,000 1,575,000
Georgia Power Co - Preferred.............................. 90,000 2,148,750
Idaho Pwr Co.............................................. 15,000 341,250
Kenetech Corp. <F2>....................................... 20,000 365,000
Nevada Power Co........................................... 20,000 382,500
New England Elec Sys...................................... 46,065 1,502,871
Nynex Corp................................................ 50,000 1,893,750
Oklahoma Gas & Elec Co.................................... 54,806 1,664,732
Pacific Gas & Electric Co................................. 61,600 1,463,000
Peco Energy Co............................................ 70,723 1,865,319
Pinnacle West Cap Corp.................................... 80,000 1,310,000
Southern Co............................................... 90,000 1,687,500
Teco Energy Inc........................................... 84,800 1,621,800
Wisconsin Energy Corp..................................... 68,478 1,634,912
------------
38,292,007
------------
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
Natural Gas Pipeline and Distribution 20.7%
Burlington Resources Inc.................................. 28,371 1,173,850
Coastal Corp.............................................. 71,237 1,923,399
Consolidated Natural Gas Co............................... 42,430 1,601,733
El Paso Natural Gas Co.................................... 73,182 2,360,119
Enron Cap - Preferred..................................... 40,000 905,000
Enron Corp................................................ 67,895 2,223,561
Enserch Corp.............................................. 15,000 215,625
Equitable Resources Inc................................... 50,647 1,740,991
K N Energy Inc............................................ 38,613 859,139
</TABLE>

See Notes to Financial Statements

C-1
<PAGE> 40

Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Portfolio of Investments (Continued)

June 30, 1994
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
---------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas Pipeline and Distribution (Continued)
MCN Corp.................................................. 62,000 $ 2,480,000
National Fuel Gas Co. NJ.................................. 66,300 1,947,562
Nicor Inc................................................. 79,211 2,089,190
Questar Corp.............................................. 52,549 1,701,274
Sonat Inc................................................. 70,000 2,152,500
Tenneco Inc............................................... 40,000 1,855,000
UGI Corp.................................................. 88,018 1,749,358
Western Resources Inc.................................... 47,425 1,274,547
------------
28,252,848
------------
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
Telecommunications 16.0%
Airtouch Communications Inc. <F2>........................ 74,671 1,764,102
Alltel Corp............................................... 95,059 2,388,358
AT & T Corp............................................... 40,000 2,175,000
Bell Atlantic Corp........................................ 36,000 2,016,000
Bellsouth Corp............................................ 15,000 926,250
Citizens Utilities Co..................................... 55,633 764,947
Comcast Corp.............................................. 63,343 1,140,174
GTE Corp. <F4>............................................ 39,982 1,259,433
MCI Communications Corp................................... 102,000 2,256,750
MFS Communications Inc. <F2>.............................. 50,000 1,237,500
Southwestern Bell Corp.................................... 50,000 2,175,000
Telephone & Data Sys Inc.................................. 42,508 1,572,796
U.S. West Inc............................................. 51,000 2,135,625
------------
21,811,935
------------
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
Water & Sewer Utilities 1.9%
American Wtr Wks Inc...................................... 61,083 1,656,876
Washington Wtr Pwr Co..................................... 70,000 1,006,250
------------
2,663,126
------------
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
Foreign 14.5%
AES China Generating Co. Ltd. (China) <F2>................ 50,000 562,500
Alcatel Alsthom Compagnie Generale d' Electricite
ADR (France)............................................ 21,000 456,750
British Gas PLC ADR (UK).................................. 40,000 1,660,000
British Telecommunications ADR (UK)....................... 23,920 1,348,490
China Light & Power Ltd ADR (Hong Kong)................... 164,879 842,598
Empresa Nacional de Electricidad ADR (Spain).............. 40,000 1,795,000
Grupo Iusacell SA de CV Ser D ADR (Mexico) <F2>........... 1,875 49,453
Grupo Iusacell SA de CV Ser L ADR (Mexico) <F2>........... 4,375 113,750
Morgan Stanley Group Inc, Japan Index Callable Warrants
Expiring 05/28/96 (Japan).............................. 51,120 293,940
</TABLE>

See Notes to Financial Statements

C-2
<PAGE> 41

Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Portfolio of Investments (Continued)

June 30, 1994
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
---------------------------------------------------------------------------------------
<S> <C> <C>
Foreign (Continued)
National Power PLC ADR (UK)............................... 30,000 $ 2,009,634
Powergen PLC ADR (UK)..................................... 30,000 2,342,832
Repsol SA ADR (Spain)..................................... 37,000 1,059,125
Rogers Cantel Mobile Communications
Inc. (Canada) <F2>...................................... 37,727 914,880
Tele Danmark A/S ADR (Denmark) <F2>....................... 50,000 1,231,250
Telefonica de Espana ADR (Spain).......................... 30,000 1,207,500
TransCanada Pipelines Ltd (Canada)........................ 91,840 1,090,600
Vodafone Group PLC ADR (United Kingdom)................... 20,974 1,588,780
Westcoast Energy Inc. (Canada)............................ 80,000 1,180,000
------------
19,747,082
------------
Total Common and Preferred Stocks......................... 110,766,998
------------
</TABLE>

See Notes to Financial Statements

C-3
<PAGE> 42

Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Portfolio of Investments (Continued)

June 30, 1994
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount S & P Moody's
(000) Description Rating Rating Coupon Maturity Market Value
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Securities 15.0%
Electric Utilities 5.3%
$2,000 California Energy Inc. <F3>.......................... BB- Ba3 0/10.250% 01/15/04 $ 1,440,000
3,000 Calpine Corp........................................ B B1 9.250 02/01/04 2,770,000
3,000 Midland Funding Corp. II............................ B- B2 11.750 07/23/05 2,990,481
------------
7,200,481
------------
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Pipeline and Distribution 1.8%
2,440 Coastal Corp........................................ BB+ Baa3 8.125 09/15/02 2,426,596
------------

Telecommunications 4.9%
2,000 Mobilemedia Communications <F3>..................... CCC+ B3 0/10.500 12/01/03 1,200,000
3,000 Panamsat L P/Panamsat Cap Corp. <F3>................ B- B3 0/11.375 08/01/03 1,935,000
1,500 Tele Communications Inc............................. BBB- Baa3 8.250 01/15/03 1,464,942
1,000 Telephone & Data Sys Inc............................ BBB Baa3 8.400 02/24/23 948,084
1,112 Time Warner Inc..................................... BBB- Ba3 8.750 01/10/15 1,116,170
------------
6,664,196
------------
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Foreign 3.0%
1,250 AES Corp. (China)................................... B+ Ba3 6.500 03/15/02 1,157,813
1,500 Argentina Rep (Argentina)........................... BB- B1 8.375 12/20/03 1,231,875
2,000 Fideicomiso Petacalco Ser A (Mexico)................ BB+ Ba2 8.125 12/15/03 1,700,000
------------
4,089,688
------------
Total Fixed Income Securities......................................................................... 20,380,961
------------

Total Long-Term Investments 96.2%
(Cost $146,550,979) <F1>............................................................................ 131,147,959
------------
Short-Term Investments 4.0%
Repurchase Agreement, UBS Securities, U.S. T-Note, $4,825,000 par, 4.200% coupon, due 11/15/95,
dated 06/30/94, to be sold on 07/01/94 at $5,016,585................................................ 5,016,000
Other................................................................................................ 467,565
------------
Total Short-Term Investments.......................................................................... 5,483,565
Liabilities in Excess of Other Assets (0.2%).......................................................... (294,941)
------------
Net Assets 100%....................................................................................... $136,336,583
------------
<FN>

<F1>At June 30, 1994, cost for federal income tax purposes is
$146,550,979, the aggregate gross unrealized appreciation is
$1,074,096 and the aggregate gross unrealized depreciation
is $16,686,262, resulting in net unrealized depreciation
including open option transactions of $15,612,166.

<F2>Non-income producing security as this stock currently does
not declare dividends.

<F3>Currently is a zero coupon bond which will convert to a
coupon paying bond at a predetermined date.

<F4>Assets segregated as collateral for open option
transactions.

</TABLE>

See Notes to Financial Statements

C-4
<PAGE> 43

Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Statement of Assets and Liabilities

June 30, 1994
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $146,550,979) (Note 1)............................................. $131,147,959
Short-Term Investments (Note 1)....................................................................... 5,483,565
Cash.................................................................................................. 190
Receivables:
Investments Sold..................................................................................... 2,232,453
Dividends............................................................................................ 704,189
Interest............................................................................................. 472,064
Fund Shares Sold..................................................................................... 441,263
Unamortized Organizational Expenses and Initial Registration Costs (Note 1)........................... 93,706
Options at Market Value (Net premiums paid of $245,896) (Note 4)...................................... 36,750
Other................................................................................................. 2,067
-------------
Total Assets......................................................................................... 140,614,206
-------------
Liabilities:
Payables:
Investments Purchased................................................................................ 3,715,193
Fund Shares Repurchased.............................................................................. 181,536
Investment Advisory Fee (Note 2)..................................................................... 74,334
Accrued Expenses...................................................................................... 306,560
-------------
Total Liabilities.................................................................................... 4,277,623
-------------
Net Assets............................................................................................ $136,336,583
-------------
Net Assets Consist of:
Paid in Surplus....................................................................................... $152,890,679
Accumulated Undistributed Net Investment Income....................................................... 1,512,453
Accumulated Net Realized Loss on Investments.......................................................... (2,454,383)
Net Unrealized Depreciation on Investments............................................................ (15,612,166)
-------------
Net Assets............................................................................................ $136,336,583
-------------

Maximum Offering Price Per Share:

Class A Shares:
Net asset value and redemption price per share (based on net assets of $51,489,288 and
3,989,613 shares of beneficial interest issued and outstanding) (Note 3)............................. $ 12.91
Maximum sales charge (4.65%* of offering price)...................................................... .63
-------------
Maximum offering price to public..................................................................... $ 13.54
-------------
Class B Shares:
Net asset value and offering price per share (based on net assets of $83,705,297 and
6,499,096 shares of beneficial interest issued and outstanding) (Note 3).......................... $ 12.88
-------------
Class C Shares:
Net asset value and offering price per share (based on net assets of $1,140,525 and
88,630 shares of beneficial interest issues and outstanding) (Note 3).............................. $ 12.87
-------------
Class D Shares:
Net asset value and offering price per share (based on net assets of $1,473 and
114 shares of beneficial interest issued and outstanding) (Note 3)................................. $ 12.92
-------------
</TABLE>

*On sales of $100,000 or more, the offering price will be reduced.

See Notes to Financial Statements

C-5
<PAGE> 44

Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Statement of Operations

For the Period July 28, 1993 (Commencement of Investment Operations)
through June 30, 1994
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends (Net of foreign withholding taxes of $59,538).......................................... $ 4,662,190
Interest......................................................................................... 1,531,447
Accretion of Discount............................................................................ 6,056
Net Realized Loss on Foreign Currency Translation................................................ (418)
---------------
Total Income.................................................................................... 6,199,275
---------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $129,926, $713,771,
$6,339 and $2, respectively) (Note 5)........................................................... 850,038
Investment Advisory Fee (Note 2)................................................................. 749,584
Shareholder Services............................................................................. 178,236
Amortization of Organizational Expenses and Initial Registration Costs (Note 1).................. 21,294
Trustees Fees and Expenses (Note 2).............................................................. 20,900
Legal (Note 2)................................................................................... 18,590
Other............................................................................................ 205,687
---------------
Total Expenses.................................................................................. 2,044,329
---------------
Net Investment Income............................................................................ $ 4,154,946
---------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales............................................................................. $ 117,960,843
Cost of Securities Sold......................................................................... (120,060,055)
---------------
Net Realized Loss on Investments (Including realized gain on closed and expired option
and futures transactions of $1,787 and $93,705, respectively)................................... (2,099,212)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period......................................................................... -0-
End of the Period (Including unrealized depreciation on open option transactions of $209,146)... (15,612,166)
---------------
Net Unrealized Depreciation on Investments During the Period..................................... (15,612,166)
---------------
Net Realized and Unrealized Loss on Investments.................................................. $ (17,711,378)
---------------
Net Decrease in Net Assets from Operations....................................................... $ (13,556,432)
---------------
</TABLE>

See Notes to Financial Statements

C-6
<PAGE> 45

Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Statement of Changes in Net Assets

For the Period July 28, 1993 (Commencement of Investment Operations)
through June 30, 1994
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
From Investment Activities:
Operations:
<S> <C>
Net Investment Income........................................................................... $ 4,154,946
Net Realized Loss on Investments................................................................ (2,099,212)
Net Unrealized Depreciation on Investments During the Period.................................... (15,612,166)
---------------
Change in Net Assets from Operations............................................................ (13,556,432)
---------------
Distributions from Net Investment Income:
Class A Shares................................................................................. (1,135,794)
Class B Shares................................................................................. (1,491,532)
Class C Shares................................................................................. (15,164)
Class D Shares................................................................................. (3)
---------------
(2,642,493)
---------------
Distributions in Excess of Net Realized Gain on Investments:
Class A Shares................................................................................. (131,867)
Class B Shares................................................................................. (222,070)
Class C Shares................................................................................. (1,234)
---------------
(355,171)
---------------
Total Distributions............................................................................ (2,997,664)
---------------
Net Change in Net Assets from Investment Activities............................................. (16,554,096)
---------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold....................................................................... 164,220,373
Net Asset Value of Shares Issued Through Dividend Reinvestment.................................. 2,433,525
Cost of Shares Repurchased...................................................................... (13,766,079)
---------------
Net Change in Net Assets from Capital Transactions.............................................. 152,887,819
---------------
Total Increase in Net Assets.................................................................... 136,333,723

Net Assets:
Beginning of the Period......................................................................... 2,860
---------------
End of the Period (Including undistributed net investment income of $1,512,453)................. $ 136,336,583
---------------
</TABLE>

See Notes to Financial Statements

C-7
<PAGE> 46

VAN KAMPEN MERRITT UTILITY FUND

FINANCIAL HIGHLIGHTS

The following schedule presents selected per share data and related ratios
for one share of the Fund outstanding throughout the period indicated.

<TABLE>
<CAPTION>
CLASS A SHARES
------------------
FROM JULY 28, 1993
(COMMENCEMENT OF
INVESTMENT
OPERATIONS) TO
JUNE 30, 1994
------------------
<S> <C>
Net asset value, beginning of period........................................ $ 14.300
--------
New investment income....................................................... .479
Net realized and unrealized loss on investments............................. (1.513)
--------
Total from investment operations............................................ (1.034)
--------
Less:
Distributions from net investment income.................................. .323
Distributions in excess of net realized gain on investments............... .037
--------
Total distributions......................................................... .360
--------
Net assets value, end of period............................................. $ 12.906
========
TOTAL RETURN (annualized)................................................... (8.03%)
Net assets at end of period (in millions)................................... $ 51.5
Ratio of expenses to average net assets (annualized)........................ 1.34%
Ratio of net investment income to average net assets (annualized)........... 4.10%
Portfolio turnover.......................................................... 101.54%
</TABLE>

See Notes to Financial Statements

C-8
<PAGE> 47

VAN KAMPEN MERRITT UTILITY FUND
FINANCIAL HIGHLIGHTS -- CONTINUED

The following schedule presents selected per share data and related ratios
for one share of the Fund outstanding throughout the period indicated.

<TABLE>
<CAPTION>
CLASS B SHARES
----------------
FROM JULY 28,
1993
(COMMENCEMENT OF
INVESTMENT
OPERATIONS) TO
JUNE 30, 1994
----------------
<S> <C>
Net asset value, beginning of period........................................ $ 14.300
--------
Net investment income....................................................... .394
Net realized and unrealized loss on investments............................. (1.519)
--------
Total from investment operations............................................ (1.125)
--------
Less:
Distributions from net investment income.................................. .258
Distributions in excess of net realized gain on investments............... .037
--------
Total distributions......................................................... .295
--------
Net asset value, end of period.............................................. $ 12.880
========
TOTAL RETURN (annualized)................................................... (8.72%)
Net assets at end of period (in millions)................................... $ 83.7
Ratio of expenses to average net assets (annualized)........................ 2.06%
Ratio of net investment income to average net assets (annualized)........... 3.36%
Portfolio turnover.......................................................... 101.54%
</TABLE>

See Notes to Financial Statements

C-9
<PAGE> 48

VAN KAMPEN MERRITT UTILITY FUND
FINANCIAL HIGHLIGHTS -- CONTINUED

The following schedule presents selected per share data and related ratios
for one share of the Fund outstanding throughout the period indicated.

<TABLE>
<CAPTION>
CLASS C SHARES
--------------------
FROM AUGUST 13, 1993
(COMMENCEMENT OF
DISTRIBUTION) TO
JUNE 30, 1994
--------------------
<S> <C>
Net asset value, beginning of period...................................... $ 14.460
--------
Net investment income..................................................... .330
Net realized and unrealized loss on investments........................... (1.627)
--------
Total from investment operations.......................................... (1.297)
--------
Less:
Distributions from net investment income................................ .258
Distributions in excess of net realized gain on investments............. .037
--------
Total distributions....................................................... .295
--------
Net asset value, end of period............................................ $ 12.868
========
TOTAL RETURN (annualized)................................................. (9.89%)
Net assets at end of period (in millions)................................. $ 1.1
Ratio of expenses to average net assets (annualized)...................... 2.05%
Ratio of net investment income to average net assets (annualized)......... 3.38%
Portfolio turnover........................................................ 101.54%
</TABLE>

See Notes to Financial Statements

C-10
<PAGE> 49

VAN KAMPEN MERRITT UTILITY FUND
FINANCIAL HIGHLIGHTS -- CONTINUED

The following schedule presents selected per share data and related ratios
for one share of the Fund outstanding throughout the period indicated.

<TABLE>
<CAPTION>
CLASS D SHARES
-------------------
FROM MARCH 14, 1994
(COMMENCEMENT OF
DISTRIBUTION) TO
JUNE 30, 1994
-------------------
<S> <C>
Net asset value, beginning of period...................................... $13.930
-------
Net investment income..................................................... .258
Net realized and unrealized loss on investments........................... (1.237)
-------
Total from investment operations.......................................... (.979)
-------
Less distributions from net investment income............................. .030
-------
Net asset value, end of period............................................ $12.921
=======
TOTAL RETURN (annualized)................................................. (19.67%)
Net assets at end of period (in thousands)................................ $ 1.5
Ratio of expenses to average net assets (annualized)...................... 1.39%
Ratio of net investment income to average net assets (annualized)......... 4.15%
Portfolio turnover........................................................ 101.54%
</TABLE>

See Notes to Financial Statements

C-11
<PAGE> 50

Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Notes of Financial Statements

June 30, 1994
-----------------------------------------------------------------------------

1. Significant Accounting Policies
Van Kampen Merritt Utility Fund (the "Fund") was organized as a
subtrust of the Van Kampen Merritt Equity Trust, a Massachusetts business
trust, on March 10, 1993, and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on July 28, 1993 with two
classes of common shares, Class A and Class B shares. The distribution of the
Fund's Class C shares, which were initially introduced as Class D shares and
subsequently renamed Class C shares on March 7, 1994, commenced on August 13,
1993. The distribution of the Fund's fourth class of shares, Class D shares,
commenced on March 14, 1994.

The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.

A. Security Valuation-Investments in securities listed on a securities
exchange shall be valued at their sale price as of the close of such securities
exchange. Investments in securities not listed on a securities exchange shall be
valued based on their last quoted bid price or, if not available, their fair
value as determined by the Board of Trustees or its delegate. Fixed income
investments are stated at value using market quotations or, if such valuations
are not available, estimates obtained from yield data relating to instruments
or securities with similar characteristics in accordance with procedures
established in good faith by the Board of Trustees. Short-term securities with
remaining maturities of less than 60 days are valued at amortized cost.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" and "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain in a segregated account with its custodian assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1994, there were no when
issued or delayed delivery purchase commitments.

C. Investment Income-Dividend income is recorded on the ex-dividend date
and interest income is recorded on an accrual basis. Original issue discount is
amortized over the expected life of each applicable security.

D. Organizational Expenses and Initial Registration Costs-The Fund has
reimbursed Van Kampen Merritt Inc. ("Van Kampen Merritt") for costs incurred in
connection with the Fund's organization and initial registration in the amount
of $115,000. These costs are being amortized on a straight line basis over the
60 month period ending July 28, 1998. Van Kampen Merritt Investment Advisory
Corp. (the "Adviser") has agreed that in the event any of the initial shares of
the Fund originally purchased by Van Kampen Merritt are redeemed during the
amortization period, the Fund will be reimbursed for any unamortized
organizational expenses in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.

E. Federal Income Taxes-It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.

Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.

F. Distribution of Income and Gains-The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes.

G. Option and Futures Transactions-Premiums received from call options
written are recorded as deferred credits. The position is marked to market daily
with any difference between the

C-12
<PAGE> 51

Van Kampen Merritt Utility Fund

-----------------------------------------------------------------------------
Notes of Financial Statements (Continued)

June 30, 1994
-----------------------------------------------------------------------------

options' current market value and premiums received recorded as
an unrealized gain or loss. If the options are not exercised, premiums
received are realized as a gain at expiration date. If the position is
closed prior to expiration, a gain or loss is realized based on
premiums received less the cost of the closing transaction. When
options are exercised, premiums received are added to the pro-
ceeds from the sale of the underlying securities and a gain or loss is
realized accordingly. These same principles apply to the sale of
put options.

Put and call options purchased are accounted for in the same manner as
portfolio securities. The cost of securities acquired through the exercise of
call options is increased by premiums paid. The proceeds from securities sold
through the exercise of put options are decreased by premiums paid.

Futures contracts are marked to market daily with fluctuations in value
settled daily in cash through a margin account. Gains or losses are realized at
the time the position is closed out or the contract expires.

2. Investment Advisory Agreement and Other Transactions
with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the
Adviser will provide investment advice and facilities to the Fund for an annual
fee payable monthly as follows:

Average Net Assets % Per Annum
-----------------------------------------------------------------
First $500 million................................. .65 of 1%
Over $500 million but less than $1 billion......... .60 of 1%
Over $1 billion.................................... .55 of 1%

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher &
Flom, counsel to the Fund, of which a trustee of the Fund is an affiliated
person.

For the period ended June 30, 1994, the Fund recognized expenses of
approximately $16,600, representing Van Kampen Merritt's or the Adviser's cost
of providing accounting, legal and certain shareholder services to the Fund.

Certain officers and trustees of the Fund are also officers and
directors of the Adviser and Van Kampen Merritt. The Fund does not compensate
its officers or trustees who are officers of the Adviser or Van Kampen Merritt.

At June 30, 1994, Van Kampen Merritt owned 104, 103, 100 and 100 shares
of Classes A, B, C and D, respectively.

3. Capital Transactions
The Fund has outstanding four classes of common shares, Classes A, B, C
and D. There are an unlimited number of shares of each class without par value
authorized.

At June 30, 1994, paid in surplus aggregated $57,702,258, $93,931,416,
$1,255,412 and $1,593 for Classes A, B, C and D, respectively. For the period
ended June 30, 1994, transactions were as follows:

Shares Value
-------------------------------------------------------------------
Sales:
Class A................................. 4,376,491 $ 63,097,058
Class B................................. 6,920,468 99,775,499
Class C................................. 94,980 1,346,223
Class D................................. 114 1,593
---------- --------------
Total Sales............................. 11,392,053 $ 164,220,373
---------- --------------

Dividend Reinvestment:
Class A................................. 74,103 $ 1,036,464
Class B................................. 98,967 1,383,421
Class C................................. 981 13,640
Class D................................. 0 0
---------- --------------
Total Dividend Reinvestment............. 174,051 $ 2,433,525
---------- --------------

Repurchases:
Class A................................. (461,081) $ (6,432,694)
Class B................................. (520,439) (7,228,934)
Class C................................. (7,331) (104,451)
Class D................................. 0 0
---------- --------------
Total Repurchases....................... (988,851) $ (13,766,079)
---------- --------------

Class B, C and D shares are offered without a front end sales charge,
but are subject to a contingent deferred sales charge (CDSC). The CDSC will be
imposed on most redemptions made within six years of the purchase for Class B
and one year of the purchase for Classes C and D as detailed in the following
schedule. The Class B, C and D shares bear the expense of their respective
deferred

C-13
<PAGE> 52

Van Kampen Merritt Utility Fund

-----------------------------------------------------------------------------
Notes of Financial Statements (Continued)

June 30, 1994
-----------------------------------------------------------------------------

sales arrangements, including higher distribution and service fees and
incremental transfer agency costs.
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C Class D
---------------------------------------------------------------------
First............................... 4.00% 1.00% 0.75%
Second.............................. 3.75% None None
Third............................... 3.50% None None
Fourth.............................. 2.50% None None
Fifth............................... 1.50% None None
Sixth............................... 1.00% None None
Seventh and Thereafter.............. None None None

For the period ended June 30, 1994, Van Kampen Merritt, as Distributor
for the Fund, received net commissions on sales of the Fund's Class A shares of
approximately $102,700 and CDSC on the redeemed shares of Classes B, C and D
of approximately $175,100. Sales charges do not represent expenses of the Fund.

4. Investment Transactions
Aggregate purchases and cost of sales of investment securities,
excluding short-term notes, for the period ended June 30, 1994, were
$263,362,228 and $117,156,294, respectively.

Transactions in options for the period ended June 30, 1994 were
as follows:
Contracts Premium
---------------------------------------------------------------------
Options Written and Purchased (Net)........ 2,500 $(658,358)
Options Terminated in
Closing Transactions (Net)................ (1,868) 427,671
Options Expired............................ (520) (15,209)
------- -----------
Outstanding at June 30, 1994............... 112 $(245,896)
------- -----------

The related futures contracts of the outstanding options transactions
at June 30, 1994, and the description and market value is as follows:

Expiration
Month/ Market
Exercise Value of
Contracts Price Options
---------------------------------------------------------------
September Treasury Bond Futures
Purchased Calls................... 112 Sept/106 $36,750
----- -------

5. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.

Annual fees under the Plans of up to .30% each for Class A and Class D
shares and 1.00% each for Class B and Class C shares are accrued daily. Included
in these fees for the period ended June 30, 1994, are payments to Van Kampen
Merritt of approximately $59,000.

C-14
<PAGE> 53
Van Kampen Merritt Utility Fund
-----------------------------------------------------------------------------
Independent Auditors' Report
-----------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen Merritt Utility Fund:

We have audited the accompanying statement of assets and liabilities of
Van Kampen Merritt Utility Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1994, and the related statement of operations, and
the statement of changes in net assets for the period from July 28, 1993
(commencement of investment operations) through June 30, 1994, and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
June 30, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen Merritt Utility Fund as of June 30, 1994, the results of
its operations and the changes in its net assets for the period from July 28,
1993 (commencement of investment operations) through June 30, 1994, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
August 4,1994

C-15
<PAGE> 54
APPENDIX D
Van Kampen Merritt Utility Fund

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

Portfolio of Investments
December 31, 1994 (Unaudited)

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

<TABLE>

<CAPTION>
Security Description Shares Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks 85.9%
Buildings & Real Estate 1.0%
Health & Retirement Property Trust ....... 92,750 $ 1,240,531
------------
Electric Utilities 28.1%
Boston Edison Co. ........................ 56,054 1,338,289
Carolina Power & Light Co. ............... 61,000 1,624,125
Central & South West Corp. ............... 60,000 1,357,500
Central LA Electric Co. .................. 59,130 1,396,946
CMS Energy Corp. ......................... 80,000 1,830,000
DPL Inc. ................................. 74,412 1,525,446
DQE Inc. ................................. 36,861 1,092,007
Duke Power Co. ........................... 36,000 1,372,500
Eastern Utilities Associates ............ 59,800 1,315,600
FPL Group Inc. ........................... 60,000 2,107,500
General Public Utilities Corp. ........... 69,175 1,815,844
Georgia Power Co. - Preferred ............ 90,000 1,845,000
Nynex Corp. ............................. 62,000 2,278,500
Oklahoma Gas & Electric Co. .............. 54,806 1,815,449
Pacific Gas & Electric Co. ............... 61,600 1,501,500
Peco Energy Co. .......................... 70,723 1,732,714
Pinnacle West Capital Corp. .............. 90,000 1,777,500
Southern Co. ............................. 83,125 1,662,500
Teco Energy Inc. ........................ 84,800 1,706,600
Texas Utilities Co. ...................... 38,500 1,232,000
Unicom Corp. ............................. 56,000 1,344,000
Washington Water Power Co. ............... 70,000 953,750
Wisconsin Energy Corp. ................... 68,478 1,771,868
------------
36,397,138
------------
Electronics 0.3%
Kenetech Corp. <F2> ....................... 30,000 431,250
------------
Natural Gas Pipeline and Distribution 18.5%
Coastal Corp. ........................... 81,300 2,093,475
El Paso Natural Gas Co. .................. 73,182 2,232,051
Enron Capital - Preferred ................ 40,000 870,000
Enron Corp. .............................. 67,895 2,070,797
Enserch Corp. ............................ 52,300 686,438
Equitable Resources Inc. ................. 47,150 1,278,944

</TABLE>

See Notes to Financial Statements

D-1
<PAGE> 55

Van Kampen Merritt Utility Fund

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

Portfolio of Investments (Continued)
December 31, 1994 (Unaudited)

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

<TABLE>

<CAPTION>
Security Description Shares Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas Pipeline and Distribution (Continued)
K N Energy Inc. ................................ 38,613 $ 917,059
MCN Corp. ...................................... 124,000 2,247,500
National Fuel Gas Co. .......................... 66,300 1,690,650
Nicor Inc. ..................................... 79,211 1,802,050
Questar Corp. .................................. 70,000 1,925,000
Sonat Inc. ..................................... 70,000 1,960,000
Tenneco Inc. ................................... 15,000 637,500
UGI Corp. ...................................... 88,018 1,793,367
Western Resources Inc. ......................... 61,900 1,771,887
------------
23,976,718
------------
Telecommunications 15.9%
Airtouch Communications Inc. <F2> ............... 50,000 1,456,250
Ameritech Corp. ................................ 54,870 2,215,376
AT & T Corp. ................................... 50,000 2,512,500
Bell Atlantic Corp. ............................ 38,000 1,890,500
Bellsouth Corp. ................................ 50,000 2,706,250
Citizens Utilities Co. ........................ 55,000 694,375
GTE Corp. <F4> .................................. 44,600 1,354,725
MCI Communications Corp. ....................... 102,000 1,874,250
Southwestern Bell Corp. ........................ 50,000 2,018,750
Telephone & Data Systems Inc. ................. 42,508 1,960,681
U.S. West Inc. ................................. 42,600 1,517,625
Viatel Inc. <F2> ................................ 117,325 457,568
------------
20,658,850
------------
Water & Sewer Utilities 1.5%
American Water Works Inc. ..................... 61,083 1,649,241
United Water Resources Inc. .................... 24,900 314,363
------------
1,963,604
------------
Foreign 20.6%
AES China Generating Co. Ltd. (China) <F2> ...... 50,000 531,250
British Telecommunications ADR (UK) ............ 35,000 2,104,375
Cable & Wireless PLC ADR (UK) .................. 96,000 1,680,000
China Light & Power Ltd ADR (Hong Kong) ........ 164,879 703,209
Empresa Nacional de Electricidad ADR (Spain) ... 40,000 1,620,000
Midlands Electricity PLC (UK) .................. 39,200 496,668
National Power PLC ADR (UK) .................... 30,000 2,295,117

</TABLE>

See Notes to Financial Statements

D-2
<PAGE> 56

Van Kampen Merritt Utility Fund

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

Portfolio of Investments (Continued)
December 31, 1994 (Unaudited)

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

<CAPTION>
Security Description Shares Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
Foreign (Continued)
Norweb PLC (UK) ....................................... 107,800 $ 1,450,149
Powergen PLC ADR (UK) ................................. 30,000 2,511,018
Repsol SA ADR (Spain) ................................. 42,000 1,144,500
Rogers Cantel Mobile Communications Inc. (Canada) <F2> . 43,990 1,282,583
Royal PTT (Nederland) ................................. 30,000 1,011,003
Scottish Hydro Electric PLC (Germany) ................. 250,000 1,276,787
Southern Electric PLC (UK) ............................ 125,000 1,575,943
Tele Danmark A/S ADR (Denmark) <F2> .................... 50,000 1,275,000
Telefonica de Espana ADR (Spain) ...................... 30,000 1,053,750
TransCanada Pipelines Ltd (Canada) .................... 91,840 1,113,560
Vodafone Group PLC - ADR (United Kingdom) ............. 62,922 2,115,752
Westcoast Energy Inc. (Canada) ........................ 90,000 1,428,750
-------------
26,669,414
-------------
Total Common and Preferred Stocks .................... 111,337,505
-------------

</TABLE>

See Notes to Financial Statements

D-3
<PAGE> 57

Van Kampen Merritt Utility Fund

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

Portfolio of Investments (Continued)
December 31, 1994 (Unaudited)

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

<TABLE>

<CAPTION>
Par
Amount S & P Moody's
(000) Description Rating Rating Coupon Maturity Market Value
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Income Securities 11.1%
Electric Utilities 2.1%
$ 3,000 Midland Funding Corp. II .................................... B- B2 11.750% 7/23/05 $ 2,790,000
------------
Natural Gas Pipeline and Distribution 1.8%
2,440 Coastal Corp. ................................................ BB+ Baa3 8.125 9/15/02 2,333,721
------------
Telecommunications 5.4%
2,000 Mobilemedia Communications <F3> .............................. CCC+ B3 0/10.500 12/01/03 1,110,000
1,500 Tele Communications Inc. ..................................... BBB- Baa3 8.250 1/15/03 1,419,706
1,000 Telephone & Data Systems Inc. ................................ BBB Baa3 8.400 2/24/23 873,522
2,112 Time Warner Inc. ............................................. BB+ Ba3 8.750 1/10/15 1,990,560
3,250 Viatel Inc. <F3> ............................................ NR NR 0/15.000 1/15/05 1,573,650
------------
6,967,438
------------
Foreign 1.8%
1,250 AES Corp. (China) ........................................... B+ Ba3 6.500 3/15/02 1,206,250
1,500 Argentina Rep (Argentina) .................................... BB- B1 8.375 12/20/03 1,102,500
------------
2,308,750
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Total Fixed Income Securities ........................................................................ 14,399,909
--------------
Total Long-Term Investments 97.0%
(Cost $139,241,360) <F1> ............................................................................. 125,737,414
--------------
Short-Term Investments 1.2%
Mexican Tesobonos ($500,000 par, yielding 7.647%, maturing 05/04/95) ................................ 480,000
Mexican Tesobonos ($500,000 par, yielding 8.194%, maturing 11/30/95) ................................ 449,800
Mexican Tesobonos ($700,000 par, yielding 7.740%, maturing 07/13/95) ................................ 657,300
--------------
Total Short-Term Investments
(Cost $1,620,025) <F1> ............................................................................... 1,587,100
Other Assets in Excess of Liabilities 1.8%.......................................................... 2,308,037
--------------
Net Assets 100%..................................................................................... $ 129,632,551
--------------
<FN>
<F1>At December 31, 1994, cost for federal income tax purposes including
short-term investments is $140,861,385; the aggregate gross unrealized
appreciation is $2,211,790 and the aggregate gross unrealized depreciation
is $15,836,109, resulting in net unrealized depreciation including
currency translation and open option transactions of $13,624,319.

<F2>Non-income producing security as this stock currently does not declare
dividends.

<F3>Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.

<F4>Assets segregated as collateral for open option transactions.
</TABLE>

See Notes to Financial Statements

D-4
<PAGE> 58

Van Kampen Merritt Utility Fund

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

Statement of Assets and Liabilities
December 31, 1994 (Unaudited)

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

<TABLE>

<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $139,241,360) <F1>....................................... $ 125,737,414
Short-Term Investments (Cost $1,620,025) <F1>............................................... 1,587,100
Cash........................................................................................ 1,945,750
Receivables:
Dividends................................................................................... 677,590
Interest.................................................................................... 382,840
Fund Shares Sold............................................................................ 285,171
Unamortized Organizational Expenses and Initial Registration Costs <F1>..................... 82,114
Options at Market Value (Net premiums paid of $139,650) <F5>................................ 52,500
Other....................................................................................... 514
---------------
Total Assets................................................................................ 130,750,993
---------------
Liabilities:
Payables:
Fund Shares Repurchased..................................................................... 457,086
Income Distributions........................................................................ 279,252
Investment Advisory Fee <F2>................................................................ 82,707
Accrued Expenses............................................................................ 299,397
---------------
Total Liabilities........................................................................... 1,118,442
---------------
Net Assets.................................................................................. $ 129,632,551
---------------
Net Assets Consist of:
Paid in Surplus <F3> ....................................................................... $ 150,409,499
Accumulated Undistributed Net Investment Income............................................. 168,339
Accumulated Net Realized Loss on Investments ............................................... (7,320,968)
Net Unrealized Depreciation on Investments.................................................. (13,624,319)
---------------
Net Assets.................................................................................. $ 129,632,551
---------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $49,735,735 and
3,986,676 shares of beneficial interest issued and outstanding) <F3>........................ $ 12.48
Maximum sales charge (4.65%* of offering price)............................................. .61
---------------
Maximum offering price to public ........................................................... $ 13.09
---------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $78,589,041 and
6,288,480 shares of beneficial interest issued and outstanding) <F3>........................ $ 12.50
---------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,306,340 and
104,572 shares of beneficial interest issued and outstanding) <F3>.......................... $ 12.49
---------------
Class D Shares:
Net asset value and offering price per share (Based on net assets of $1,435 and
115 shares of beneficial interest issued and outstanding) <F3> ............................. $ 12.48
---------------
*On sales of $100,000 or more, the sales charge will be reduced. Effective January 16, 1995,
the maximum sales charge was changed to 5.75%.

</TABLE>

See Notes to Financial Statements

D-5
<PAGE> 59

Van Kampen Merritt Utility Fund

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

Statement of Operations
For the Six Months Ended December 31, 1994 (Unaudited)

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

<TABLE>

<CAPTION>
Investment Income:
<S> <C>
Dividends (Net of foreign withholding taxes of $67,523)......................................... $ 3,107,551
Interest........................................................................................ 990,723
Net Realized Loss on Foreign Currency Translation .............................................. (1,268)
---------------
Total Income.................................................................................... 4,097,006
---------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $75,541, $421,207,
$6,086 and $2, respectively) <F6> .............................................................. 502,836
Investment Advisory Fee <F2> ................................................................... 447,533
Shareholder Services ........................................................................... 152,175
Trustees Fees and Expenses <F2>................................................................. 12,425
Amortization of Organizational Expenses and Initial Registration Costs <F1> .................... 11,592
Legal <F2>...................................................................................... 4,630
Other........................................................................................... 109,493
---------------
Total Expenses.................................................................................. 1,240,684
---------------
Net Investment Income........................................................................... $ 2,856,322
---------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales............................................................................. $ 63,915,823
Cost of Securities Sold......................................................................... (68,782,408)
---------------
Net Realized Loss on Investments (Including realized loss on closed option
transactions of $173,277)....................................................................... (4,866,585)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period......................................................................... (15,612,166)
End of the Period (Including unrealized depreciation on open option transactions and
foreign currency translation of $87,150 and $298, respectively)................................. (13,624,319)
---------------
Net Unrealized Appreciation on Investments During the Period.................................... 1,987,847
---------------
Net Realized and Unrealized Loss on Investments................................................. $ (2,878,738)
---------------
Net Decrease in Net Assets from Operations...................................................... $ (22,416)
---------------

</TABLE>

See Notes to Financial Statements

D-6
<PAGE> 60

Van Kampen Merritt Utility Fund

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

Statement of Changes in Net Assets
For the Six Months Ended December 31, 1994 and the Period July 28, 1993
(Commencement of Investment Operations) to June 30, 1994 (Unaudited)
--------------------------------------------------------------------------------

<TABLE>

<CAPTION>
Six Months Ended Period Ended
December 31, 1994 June 30, 1994

----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income....................................................... $ 2,856,322 $ 4,154,946
Net Realized Loss on Investments ........................................... (4,866,585) (2,099,212)
Net Unrealized Appreciation/Depreciation on Investments During the Period... 1,987,847 (15,612,166)
----------------- ---------------
Change in Net Assets from Operations ....................................... (22,416) (13,556,432)
----------------- ---------------
Distributions from Net Investment Income:
Class A Shares.............................................................. (1,795,999) (1,135,794)
Class B Shares.............................................................. (2,368,926) (1,491,532)
Class C Shares.............................................................. (35,460) (15,164)
Class D Shares.............................................................. (51) (3)
----------------- ---------------
(4,200,436) (2,642,493)
----------------- ---------------
Distributions in Excess of Net Realized Gain on Investments:
Class A Shares.............................................................. -0- (131,867)
Class B Shares.............................................................. -0- (222,070)
Class C Shares.............................................................. -0- (1,234)
----------------- ---------------
-0- (355,171)
----------------- ---------------
Total Distributions......................................................... (4,200,436) (2,997,664)
----------------- ---------------
Net Change in Net Assets from Investment Activities......................... (4,222,852) (16,554,096)
----------------- ---------------
From Capital Transactions <F3>:
Proceeds from Shares Sold................................................... 11,817,310 164,220,373
Net Asset Value of Shares Issued Through Dividend Reinvestment.............. 3,369,177 2,433,525
Cost of Shares Repurchased.................................................. (17,667,667) (13,766,079)
----------------- ---------------
Net Change in Net Assets from Capital Transactions.......................... (2,481,180) 152,887,819
----------------- ---------------
Total Increase/Decrease in Net Assets....................................... (6,704,032) 136,333,723
Net Assets:
Beginning of the Period..................................................... 136,336,583 2,860
----------------- ---------------
End of the Period (Including undistributed net investment
income of $168,339 and $1,512,453, respectively) ........................... $ 129,632,551 $ 136,336,583
----------------- ---------------

</TABLE>

See Notes to Financial Statements

D-7
<PAGE> 61

VAN KAMPEN MERRITT UTILITY FUND

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
CLASS A SHARES
-------------------------------------
FROM
JULY 28, 1993
(COMMENCEMENT OF
SIX MONTHS INVESTMENT
ENDED OPERATIONS) TO
DECEMBER 31, 1994 JUNE 30, 1994
----------------- ----------------
<S> <C> <C>
Net asset value, beginning of period........................ $12.906 $ 14.300
------- --------
Net investment income....................................... .300 .479
Net realized and unrealized loss on investments............. (.281) (1.513)
------- --------
Total from investment operations............................ .019 (1.034)
------- --------
Less:
Distributions from net investment income.................. .450 .323
Distributions in excess of net realized gain on
investments............................................ 0 .037
------- --------
Total distributions......................................... .450 .360
------- --------
Net asset value, end of period.............................. $12.475 $ 12.906
======= ========
TOTAL RETURN (non-annualized)............................... .13% (7.38%)
Net assets at end of period (in millions)................... $ 49.7 $ 51.5
Ratio of expenses to average net assets (annualized)........ 1.38% 1.34%
Ratio of net investment income to average net assets
(annualized).............................................. 4.63% 4.10%
Portfolio turnover.......................................... 45.87% 101.54%
</TABLE>

See Notes to Financial Statements

D-8
<PAGE> 62

VAN KAMPEN MERRITT UTILITY FUND

FINANCIAL HIGHLIGHTS -- CONTINUED

The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
CLASS B SHARES
---------------------------------------
FROM
JULY 28, 1993
(COMMENCEMENT OF
SIX MONTHS INVESTMENT
ENDED OPERATIONS) TO
DECEMBER 31, 1994 JUNE 30, 1994
----------------- ------------------
<S> <C> <C>
Net asset value, beginning of period......................... $12.880 $ 14.300
------- --------
Net investment income........................................ .257 .394
Net realized and unrealized loss on investments.............. (.271) (1.519)
------- --------
Total from investment operations............................. (.014) (1.125)
------- --------
Less:
Distributions from net investment income................... .369 .258
Distributions in excess of net realized gain on
investments............................................. -- .037
------- --------
Total Distributions.......................................... .369 .295
------- --------
Net asset value, end of period............................... $12.497 $ 12.880
======= ========
TOTAL RETURN (non-annualized)................................ (.10%) (8.02%)
Net assets at end of period (in millions).................... $ 78.6 $ 83.7
Ratio of expenses to average net assets (annualized)......... 2.09% 2.06%
Ratio of net investment income to average net assets
(annualized)............................................... 3.92% 3.36%
Portfolio turnover........................................... 45.87% 101.54%
</TABLE>

See Notes to Financial Statements

D-9
<PAGE> 63

VAN KAMPEN MERRITT UTILITY FUND

FINANCIAL HIGHLIGHTS -- CONTINUED

The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
CLASS C SHARES
-----------------------------------------
FROM
AUGUST 13, 1993
SIX MONTHS (COMMENCEMENT OF
ENDED DISTRIBUTION) TO
DECEMBER 31, 1994 JUNE 30, 1994
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period....................... $12.868 $ 14.460
------- --------
Net investment income...................................... .237 .330
Net realized and unrealized loss on investments............ (.244) (1.627)
------- --------
Total from investment operations........................... (.007) (1.297)
------- --------
Less:
Distributions from net investment income................. .369 .258
Distributions in excess of net realized gain on
investments........................................... 0 .037
------- --------
Total distributions........................................ .369 .295
------- --------
Net asset value, end of period............................. $12.492 $ 12.868
======= ========
TOTAL RETURN (non-annualized).............................. (.10%) (9.11%)
Net assets at end of period (in millions).................. $ 1.3 $ 1.1
Ratio of expenses to average net assets (annualized)....... 2.14% 2.05%
Ratio of net investment income to
Average net assets (annualized)............................ 3.87% 3.38%
Portfolio turnover......................................... 45.87% 101.54%
</TABLE>

See Notes to Financial Statements

D-10
<PAGE> 64

VAN KAMPEN MERRITT UTILITY FUND
FINANCIAL HIGHLIGHTS -- CONTINUED

The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
CLASS D SHARES
----------------------------------------
FROM MARCH 14, 1994
SIX MONTHS (COMMENCEMENT OF
ENDED DISTRIBUTION) TO
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------------
<S> <C> <C>
Net asset value, beginning of period....................... $12.921 $13.930
------- -------
Net investment income...................................... .294 .258
Net realized and unrealized loss on investments............ (.293) (1.237)
------- -------
Total from investment operations........................... .001 (.979)
Less distributions from net investment income.............. .444 .030
------- -------
Net asset value, end of period............................. $12.478 $12.921
======= =======
TOTAL RETURN (non-annualized).............................. .01% (7.04%)
Net assets at end of period (in thousands)................. $ 1.4 $ 1.5
Ratio of expenses to average net assets (annualized)....... 1.43% 1.39%
Ratio of net investment income to average net assets
(annualized)............................................. 4.55% 4.15%
Portfolio turnover......................................... 45.87% 101.54%
</TABLE>

See Notes to Financial Statements

D-11
<PAGE> 65

Van Kampen Merritt Utility Fund

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

Notes to Financial Statements
December 31, 1994 (Unaudited)

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

1. Significant Accounting Policies
Van Kampen Merritt Utility Fund (the "Fund") was organized as a subtrust of the
Van Kampen Merritt Equity Trust, a Massachusetts business trust on March 10,
1993, and is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund commenced
investment operations on July 28, 1993, with two classes of common shares, Class
A and Class B shares. The distribution of the Fund's Class C and Class D shares
commenced on August 13, 1993 and March 14, 1994, respectively.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation-Investments in securities listed on a securities exchange
shall be valued at their sale price as of the close of such securities exchange.
Investments in securities not listed on a securities exchange shall be valued
based on their last quoted bid price or, if not available, their fair value as
determined by the Board of Trustees or its delegate. Fixed income investments
are stated at value using market quotations or, if such valuations are not
available, estimates obtained from yield data relating to instruments or
securities with similar characteristics in accordance with procedures
established in good faith by the Board of Trustees. Short-term securities with
remaining maturities of less than 60 days are valued at amortized cost.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" and "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At December 31, 1994, there were no
when issued or delayed delivery purchase commitments.

C. Investment Income-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Bond discount is amortized over
the expected life of each applicable security.

D. Organizational Expenses and Initial Registration Costs The Fund has
reimbursed Van Kampen American Capital Distributors, Inc. or its affiliates
("VKAC") for costs incurred in connection with the Fund's organization and
initial registration in the amount of $115,000. These costs are being
amortized on a straight line basis over the 60 month period ending
July 28, 1998. Van Kampen American Capital Investment Advisory Corp.
(the "Adviser") has agreed that in the event any of the initial shares of
the Fund originally purchased by VKAC are redeemed by the Fund during the
amortization period, the Fund will be reimbursed for any unamortized
organizational expenses and initial registration costs in the same proportion
as the number of shares redeemed bears to the number of initial shares held
at the time of redemption.

E. Federal Income Taxes-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.

Net realized gains or losses may differ for financial and tax reporting purposes
primarily as a result of post October 31 losses which are not recognized for tax
purposes until the first day of the following fiscal year.

F. Distribution of Income and Gains-The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains
for book purposes may include short-term capital gains and gains on option and
futures transactions. All short-term capital gains and a portion of option and
futures gains are included in ordinary income for tax purposes.

D-12
<PAGE> 66

Van Kampen Merritt Utility Fund

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

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)

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

2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:

<TABLE>

Average Net Assets % Per Annum
----------------------------------
<S> <C>
First $500 million... .65 of 1%
Next $500 million.... .60 of 1%
Over $1 billion...... .55 of 1%

</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom, counsel
to the Fund, of which a trustee of the Fund is an affiliated person.

For the six months ended December 31, 1994, the Fund recognized expenses of
approximately $64,200 representing VKAC's cost of providing accounting, legal
and certain shareholder services to the Fund.

Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.

The Fund has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC.

At December 31, 1994, VKAC owned 104, 103, 100 and 100 shares of Classes A, B, C
and D, respectively.

3. Capital Transactions
The Fund has outstanding four classes of common shares, Classes A, B, C and D.
There are an unlimited number of shares of each class without par value
authorized.

At December 31, 1994, paid in surplus aggregated $57,660,692, $91,289,057,
$1,458,152 and $1,598 for Classes A, B, C and D, respectively. For the six
months ended December 31, 1994, transactions were as follows:

<TABLE>

<CAPTION>
Shares Value
--------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................... 369,195 $ 4,774,403
Class B....................... 517,543 6,716,671
Class C....................... 25,602 326,236
Class D....................... -0- -0-
------------ ----------------
Total Sales .................. 912,340 $ 11,817,310
------------ ----------------
Dividend Reinvestment:
Class A....................... 114,112 $ 1,449,174
Class B....................... 148,859 1,892,264
Class C....................... 2,184 27,734
Class D....................... 1 5
------------ ----------------
Total Dividend Reinvestment... 265,156 $ 3,369,177
------------ ----------------
Repurchases:
Class A....................... (486,244) $ (6,265,143)
Class B....................... (877,018) (11,251,294)
Class C....................... (11,844) (151,230)
Class D....................... -0- -0-
------------ ----------------
Total Repurchases............. (1,375,106) $ (17,667,667)

</TABLE>

D-13
<PAGE> 67

Van Kampen Merritt Utility Fund

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

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)

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

At June 30, 1994, paid in surplus aggregated $57,702,258, $93,931,416,
$1,255,412 and $1,593 for Classes A, B, C and D, respectively. For the period
ended June 30, 1994, transactions were as follows:

<TABLE>

Shares Value
----------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 4,376,491 $ 63,097,058
Class B ...................... 6,920,468 99,775,499
Class C....................... 94,980 1,346,223
Class D....................... 114 1,593
---------- --------------
Total Sales................... 11,392,053 $ 164,220,373
---------- --------------
Dividend Reinvestment:
Class A ...................... 74,103 $ 1,036,464
Class B ...................... 98,967 1,383,421
Class C....................... 981 13,640
Class D....................... -0- -0-
---------- --------------
Total Dividend Reinvestment... 174,051 $ 2,433,525
---------- --------------
Repurchases:
Class A ...................... (461,081) $ (6,432,694)
Class B ...................... (520,439) (7,228,934)
Class C....................... (7,331) (104,451)
Class D....................... -0- -0-
---------- --------------
Total Repurchases............. (988,851) $(13,766,079)
---------- --------------

</TABLE>

Class B, C and D shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Classes C and D as detailed in the following schedule.
The Class B, C and D shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

<TABLE>

<CAPTION>
Contingent Deferred
Sales Charge

Year of Redemption Class B Class C Class D
---------------------------------------------------
<S> <C> <C> <C>
First ................. 4.00% 1.00% 0.75%
Second ................. 3.75% None None
Third .................. 3.50% None None
Fourth ................. 2.50% None None
Fifth ................. 1.50% None None
Sixth .................. 1.00% None None
Seventh and Thereafter . None None None

</TABLE>

For the six months ended December 31, 1994, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$23,700 and CDSC on the redeemed shares of Classes B, C and D of approximately
$254,100. Sales charges do not represent expenses of the Fund.

4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended December 31, 1994, were $60,511,795
and $67,988,103, respectively.

5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.

Summarized below are the specific types of derivative financial instruments used
by the Fund.

D-14
<PAGE> 68

Van Kampen Merritt Utility Fund

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

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)

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

A. Option Contracts-An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to provide the return of an index without purchasing all of the securities
underlying the index.

Transactions in options for the six months ended December 31, 1994, were as
follows:

<TABLE>

<CAPTION>
Contracts Premium
---------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1994 ........ 112 $ (245,896)
Options Written and Purchased (Net) . 2,400 (269,543)
Options Terminated in Closing
Transactions (Net) .................. (2,212) 375,789
--------- -------------
Outstanding at December 31, 1994 .... 300 $ (139,650)
--------- -------------

</TABLE>

The description and market value of the outstanding option transactions as of
December 31, 1994, are as follows:

<TABLE>

<CAPTION>
Exp. Month/ Market Value
Contracts Exercise Price of Option
------------------------------------------------------------
<S> <C> <C> <C>
January 1995
Philadelphia Exchange
Utility Index
Purchase Calls . 300 Jan/230 $ 52,500
--------- ---------

</TABLE>

6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.

Annual fees under the Plans of up to .30% each for Class A and Class D shares
and 1.00% each of Class B and Class C shares are accrued daily. Included in
these fees for the six months ended December 31, 1994, are payments to VKAC of
approximately $336,600.

D-15
<PAGE> 69
APPENDIX E
INVESTMENT PORTFOLIO
September 30, 1994

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATE OBLIGATIONS 47.3%
CONSUMER SERVICES 2.7%
$600,000 Tele-Communications, Inc., 7.25%, 8/1/05..................... $ 530,520
----------
ENERGY 12.5%
500,000 Colorado Interstate Gas Co., 10.00%, 6/15/05................. 550,400
95,000 Enron Corp., 6.75%, 7/1/05................................... 84,407
400,000 ENSERCH Corp., 6.375%, 2/1/04 ............................... 347,608
330,000 Laclede Gas Co., 8.50%, 11/15/04 ............................ 336,897
75,000 Occidental Petroleum, 10.125%, 9/15/09....................... 80,906
500,000 Panhandle Eastern Corp., 7.875%, 8/15/04 .................... 485,175
400,000 Southern Union Co., 7.60%, 2/1/24 ........................... 339,552
100,000 Texas Eastern Transmission Corp., 8.00%, 7/15/02............. 99,750
Union Oil of California
100,000 6.375%, 2/1/04 .......................................... 87,130
85,000 8.75%, 8/15/01 .......................................... 88,120
----------
TOTAL ENERGY .............................. 2,499,945
----------
TECHNOLOGY 2.3%
485,000 Motorola, Inc., 7.60%, 1/1/07 ............................... 464,872
----------
UTILITIES 29.8%
380,000 Alabama Power Co., 6.375%, 8/1/99........................... 361,167
600,000 American Telephone & Telegraph Corp., 7.50%, 6/1/06.......... 573,540
100,000 Baltimore Gas & Electric Co., 7.50%, 1/15/07 ................ 94,560
200,000 Cincinnati Gas & Electric Co., 6.45%, 2/15/04................ 176,940
100,000 Duke Power Co., 7.00%, 6/1/00................................ 96,650
355,000 GTE Corp., 9.375%, 12/1/00 .................................. 379,388
Hydro Quebec
200,000 7.375%, 2/1/03 ......................................... 187,980
500,000 8.05%, 7/7/24............................................ 488,580
500,000 Idaho Power Co., 8.00%, 3/15/04.............................. 495,100
300,000 Iowa Electric Light & Power, 8.625%, 5/15/01................. 310,350
390,000 MCI Communications Corp., 7.50%, 8/20/04..................... 373,230
80,000 Northwestern Bell Telephone Co., 9.50%, 5/1/00............... 86,264
450,000 Pacific Telephone & Telegraph Co., 6.00%, 11/1/02............ 391,635
200,000 San Diego Gas & Electric Co., 7.625%, 6/15/02................ 195,060
250,000 Texas Utilities Electric Co., 6.25%, 10/1/04................. 214,357
500,000 Union Electric Co., 7.375%, 12/15/04 ........................ 476,400
617,000 United Telecommunications, Inc., 9.75%, 4/1/00............... 660,251
Virginia Electric & Power Co.
200,000 6.00%, 8/1/01 ........................................... 180,800
200,000 8.875%, 6/1/99........................................... 208,780
----------
TOTAL UTILITIES ........................................ 5,951,032
----------
TOTAL CORPORATE OBLIGATIONS (Cost $10,050,317).......... 9,446,369
----------
</TABLE>

NOT A PART OF THE PROSPECTUS

E-1

<PAGE> 70

INVESTMENT PORTFOLIO, CONTINUED

<TABLE>
<CAPTION>
Number of Market
Shares Value
-----------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK 44.1%
ENERGY 4.0%
13,500 Nicor, Inc................................................... $ 327,375
22,100 Pacific Enterprises.......................................... 469,625
------------
TOTAL ENERGY .............................. 797,000
------------
FINANCE 2.3%
7,500 Equity Residential Properties Trust.......................... 238,125
6,100 Weingarten Realty Investors.................................. 218,075
------------
TOTAL FINANCE ............................. 456,200
------------
UTILITIES 37.8%
14,600 Ameritech Corp. ............................................. 587,650
20,500 Baltimore Gas & Electric Co. ................................ 471,500
9,600 Bellsouth Corp............................................... 535,200
13,100 CMS Energy Corp. ............................................ 284,925
25,800 DPL, Inc. ................................................... 503,100
12,600 Duke Power Co. .............................................. 491,400
16,600 FPL Group, Inc............................................... 539,500
14,100 NYNEX Corp. ................................................. 542,850
14,200 Pacific Telesis Group........................................ 436,650
28,500 Pacificorp .................................................. 480,938
17,100 Peco Energy Co. ............................................ 433,913
15,500 Public Service Company of Colorado .......................... 418,500
16,800 Public Service Enterprise Group.............................. 441,000
10,600 SCANA Corp. ................................................. 470,375
24,100 Southern Co. ................................................ 448,863
16,900 Western Resources, Inc....................................... 479,538
------------
TOTAL UTILITIES............................ 7,565,902
------------
TOTAL COMMON STOCK (Cost $9,199,579) ...... 8,819,102
------------
CONVERTIBLE PREFERRED STOCK 2.3%
10,000 Transco Energy Co., $3.50 (Cost $461,250).................... 450,000
------------
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENTS 3.8%
---------
<S> <C>
$560,000 Prudential Funding Corp., 4.70%, 10/3/94 .................... 559,781
200,000 United States Treasury Note, 7.75%, 2/15/95 ................. 201,594
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $762,031)............. 761,375
-----------
TOTAL INVESTMENTS (Cost $20,473,177) 97.5%................... 19,476,846
Other assets and liabilities, net 2.5% ...................... 505,787
-----------
NET ASSETS 100%............................................ $19,982,633
===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

NOT A PART OF THE PROSPECTUS

E-2

<PAGE> 71
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994

<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $20,473,177)......................... $ 19,476,846
Cash.................................................................... 2,078
Receivable for Fund shares sold......................................... 339,923
Interest and dividends receivable....................................... 269,006
Other assets............................................................ 30,053
------------
Total Assets...................................................... 20,117,906
------------
LIABILITIES
Payable for Fund shares purchased....................................... 55,342
Accrued expenses........................................................ 47,442
Due to Distributor...................................................... 18,372
Dividends payable....................................................... 14,117
------------
Total Liabilities................................................. 135,273
------------
Net Assets, equivalent to $8.39 per share for Class A and
Class B shares and $8.38 per share for Class C shares................... $ 19,982,633
============

NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 892,244 Class A, 1,279,763 Class B and
209,939 Class C shares outstanding...................................... $ 23,819
Capital surplus......................................................... 21,250,210
Accumulated net realized loss on securities............................. (326,263)
unrealized depreciation of securities................................... (996,331)
Undistributed net investment income..................................... 31,198
------------
NET ASSETS at September 30, 1994........................................ $ 19,982,633
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

NOT A PART OF THE PROSPECTUS

E-3

<PAGE> 72

STATEMENT OF OPERATIONS
November 23, 1993* through September 30, 1994

<TABLE>
<S> <C>
INVESTMENT INCOME
Interest......................................................... $ 400,095
Dividends........................................................ 270,632
----------------
Investment income............................................ 670,727
----------------
EXPENSES
Management fees (net of expense reimbursement of $65,379)........ --
Registration and filing fees..................................... 86,855
Service fees - Class A........................................... 7,768
Distribution and service fees - Class B.......................... 50,180
Distribution and service fees - Class C.......................... 7,517
Audit fees....................................................... 22,000
Accounting services.............................................. 17,596
Reports to shareholders.......................................... 15,292
Shareholder service agent's fees and expenses.................... 14,846
Legal fees....................................................... 2,975
Director's fees and expenses..................................... 1,633
Miscellaneous.................................................... 3,663
Expense reimbursement in excess of management fees............... (76,410)
----------------
Total expenses............................................... 153,915
----------------
Net investment income........................................ 516,812
----------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES
Net realized loss on securities.................................. (326,081)
Net unrealized depreciation of securities........................ (996,331)
----------------
Net realized and unrealized loss on securities............... (1,322,412)
----------------
Decrease in net assets resulting from operations............. $ (805,600)
================
</TABLE>

*COMMENCEMENT OF OPERATIONS

SEE NOTES TO FINANCIAL STATEMENTS.

NOT A PART OF THE PROSPECTUS

E-4

<PAGE> 73
STATEMENT OF CHANGES IN NET ASSETS
November 23, 1993* through September 30, 1994

<TABLE>
<S> <C>
NET ASSETS, beginning of period ....................................... $ 101,000
-----------
OPERATIONS
Net investment income............................................ 516,812
Net realized loss on securities.................................. (326,081)
Net unrealized depreciation of securities........................ (996,331)
-----------
Decrease in net assets resulting from operations .............. (805,600)
-----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A ....................................................... (225,591)
Class B ....................................................... (226,800)
Class C ....................................................... (33,691)
-----------
(486,082)
-----------
FUNDS SHARE TRANSACTIONS
Proceeds from shares sold
Class A ....................................................... 9,870,409
Class B ....................................................... 12,813,610
Class C ....................................................... 2,166,085
-----------
24,850,104
-----------
Proceeds from shares issued for dividends reinvested
Class A ....................................................... 210,220
Class B ....................................................... 187,883
Class C ....................................................... 24,750
-----------
422,853
-----------
Cost of shares redeemed
Class A ....................................................... (2,139,284)
Class B ....................................................... (1,610,501)
Class C ....................................................... (349,857)
-----------

(4,099,642)
-----------
Increase in net assets resulting from Fund share transactions ... 21,173,315
-----------
INCREASE IN NET ASSETS ............................................... 19,881,633
-----------
NET ASSETS, end of period.............................................. $19,982,633
===========
</TABLE>

*COMMENCEMENT OF OPERATIONS

SEE NOTES TO FINANCIAL STATEMENTS.

NOT A PART OF THE PROSPECTUS

E-5

<PAGE> 74
NOTES TO FINANCIAL STATEMENTS

NOTE 1-ORGANIZATION

American Capital Utilities Income Fund, Inc. (the "Fund") was organized as an
open-end, diversified management investment company in Maryland on August 31,
1993. The Fund's investment manager, American Capital Asset Management, Inc.
(the "Adviser") contributed the initial capital of $101,000 on November 8, 1993
and an additional $1,899,000 on November 30, 1993. The Fund began offering
shares on November 23, 1993.

NOTE 2-SIGNIFICANT ACCOUNTING POLICIES

The Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.

A. INVESTMENT VALUATIONS

Securities listed or traded on a national securities exchange are valued
at the last sale price. Unlisted securities and listed securities for
which the last sale price is not available are valued at the last
reported bid price.

Short-term investments with a maturity of 60 days or less when purchased
are valued at amortized cost, which approximates market value. Short-term
investments with a maturity of more than 60 days when purchased are
valued based on market quotations, until the remaining days to maturity
becomes less than 61 days. From such time, until maturity, the
investments are valued at amortized cost.

B. FEDERAL INCOME TAXES

No provision for federal income taxes is required because the Fund
intends to elect to be taxed as a "regulated investment company" under
the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and
taxable net realized capital gains to its shareholders. It is anticipated
that no distributions of capital gains will be made until tax-basis
capital loss carryforwards, if any, expire or are offset by net realized
capital gains.

C. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME

Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the basis of identified
cost. Dividend income is recorded on the ex-dividend date. Interest
income is accrued daily.

D. DIVIDENDS AND DISTRIBUTIONS

Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue Code, which may
differ from generally accepted accounting principles. Such dividends or
distributions may exceed financial statement earnings.

E. DEBT DISCOUNT OR PREMIUM

The Fund accounts for discounts and premiums on the same basis as is
followed for federal income tax reporting. Accordingly, originally issue
discounts on debt securities purchased are amortized over the life of the
security. Premiums on debt securities are not amortized. Market discounts
are accounted for at the time of sale as realized gains for book purposes
and ordinary income for tax purposes.

F. ORGANIZATION COSTS

Organization expenses of approximately $15,000 were deferred and are
being amortized over a five year period ending November, 1998.

NOT A PART OF THE PROSPECTUS

E-6
<PAGE> 75

NOTE 3-MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES

The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate of
.65%. From time to time, the Adviser may voluntarily elect to reimburse the
Fund a portion of the Fund's expenses. Such reimbursement may be discontinued
at any time without prior notice. For the period ended September 30, 1994, such
reimbursement amounted to $141,789.

Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his discretion. Charges are
allocated among all investment companies advised or sub-advised by the Adviser.
For the period ended September 30, 1994, these charges included $1,621 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities, and equi pment costs attributable to
the provision of accounting services to the Fund. The services provided by the
Adviser are at cost.

American Capital Companies Shareholder Services, Inc., an affiliate of the
Adviser, serves as the Fund's shareholder service agent. These services are
provided at cost plus a profit. For the period ended September 30, 1994, such
fees aggregated $6,315.

The Fund has been advised that American Capital Marketing, Inc. (the
"Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both
affiliates of the Adviser, received $18,378 and $30,810, respectively, as their
portion of the commission charged on sales of Fund shares during the period.

Under the Distribution Plans, the Fund pays up to .25% per annum of its average
daily net assets to the Distributor for expenses and service fees incurred.
Class B shares and Class C shares pay an additional fee of up to .75% per annum
of their average net assets to reimburse the Distributor for its distribution
expenses. Actual distribution expenses incurred by the Distributor for Class B
shares and Class C shares may exceed the amounts reimbursed to the Distributor
by the Fund. At September 30, 1994, the unreimbursed expenses incurred by the
Distributor under the Class B plan and Class C plan aggregated approximately
$462,250 and $29,000, respectively, and may be carried forward and reimbursed
through either the collection of the contingent deferred sales charges from
share redemptions or, subject to the annual renewal of the plans, future Fund
reimbursements of distribution fees.

Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.

Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.

NOTE 4-DIRECTOR COMPENSATION

Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $770 plus a fee of $15 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the
Fund at an annual rate of $290. During the period, such fees aggregated $1,575.

The directors may participate in a voluntary deferred compensation plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. At September 30, 1994, the liability for the Plan aggregated
$500. Each director covered under the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.

NOTE 5-INVESTMENT ACTIVITY

During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $28,382,015 and $8,140,116,
respectively.

For federal income tax purposes, the identified cost of investments owned at
September 30, 1994 was $20,475,892. Gross unrealized appreciation of
investments aggregated $80,850 and gross unrealized depreciation of investments
aggregated $1,079,896. Approximately $323,500 in financial statement losses are
deferred for tax purposes until the following fiscal year.

NOT A PART OF THE PROSPECTUS

E-7

<PAGE> 76
NOTE 6-CAPITAL

The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred
basis (the Class B shares and Class C shares). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.

The Fund has 200 million of each class of shares of $.01 par value capital
stock authorized. Transactions in shares of capital stock during the period
were as follows:

<TABLE>
<S> <C>
Shares sold
Class A .............................................. 1,116,081
Class B .............................................. 1,446,604
Class C .............................................. 248,296
---------
2,810,981
---------

Shares issued for dividends reinvested
Class A .............................................. 24,273
Class B .............................................. 21,860
Class C .............................................. 2,888
---------
49,021
---------
Shares redeemed
Class A .............................................. (248,110)
Class B .............................................. (188,701)
Class C .............................................. (41,245)
---------
(478,056)
---------
Increase in shares outstanding ................. 2,381,946
=========
</TABLE>

NOT A PART OF THE PROSPECTUS

E-8

<PAGE> 77
FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout the
period indicated.

<TABLE>
<CAPTION>
NOVEMBER 23, 1993(1) THROUGH
SEPTEMBER 30, 1994
------------------------------------
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(4)
Net asset value, beginning of period ........... $9.44 $9.44 $9.44
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................... .53 .52 .53
Expenses........................................ (.09) (.14) (.15)
------ ------ ------
Net investment income........................... .44 .38 .38
Net realized and unrealized losses on securities (1.10) (1.09) (1.106)
------ ------ ------
Total from investment operations ............... (.66) (.71) (.726)
DIVIDENDS FROM NET INVESTMENT INCOME............ (.39) (.34) (.334)
------ ------ ------
Net asset value, end of period ................. $ 8.39 $ 8.39 $ 8.38
====== ====== ======

TOTAL RETURN(3)................................. (7.24%) (7.72%) (7.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............ $7.5 $10.7 $1.8
Average net assets (millions) .................. $5.2 $ 6.0 $0.9
Ratios to average net assets(2)
Expenses.................................. 1.06% 1.82% 1.79%
Expenses, without expense reimbursement... 2.43% 3.19% 3.16%
Net investment income..................... 5.48% 4.66% 4.65%
Net investment income, without expense
reimbursement ........................... 4.11% 3.29% 3.28%

Portfolio turnover rate......................... 72% 72% 72%

</TABLE>

(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED; SEE NOTE 3.
(3) TOTAL RETURN NOT ANNUALIZED. TOTAL RETURN CALCULATED FROM DECEMBER 1, 1993
(DATE THE FUND BEGAN MEETING ITS INVESTMENT OBJECTIVE) THROUGH SEPTEMBER
30, 1994. TOTAL RETURN DOES NOT CONSIDER THE EFFECT OF SALES CHARGES.
(4) PER SHARE INFORMATION BASED ON AVERAGE MONTH-END SHARES OUTSTANDING.

SEE NOTES TO FINANCIAL STATEMENTS.

NOT A PART OF THE PROSPECTUS

E-9

<PAGE> 78

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.

In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of American Capital Utilities Income
Fund, Inc. at September 30, 1994, and the results of its operations, the
changes in its net assets and the selected per share data and ratios for the
period from November 23, 1993 (commencement of operations) through September
30, 1994, in conformity with generally accepted accounting principles. These
financial statements and selected per share data and ratios (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at September 30, 1994 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Houston, Texas
November 14, 1994

NOT A PART OF THE PROSPECTUS

E-10

<PAGE> 79
APPENDIX F

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT/
NUMBER OF SHARES DESCRIPTION COUPON MATURITY ($)MARKET VALUE
----------------- ----------------------------------------- --------- -------- ---------------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS 40.0%
CONSUMER SERVICES 2.1%
$ 600,000 Tele-Communications, Inc................. 7.750 08/01/05 $ 541,800
-------------
ENERGY 13.7%
500,000 Colorado Interstate Gas Co. ............. 10.000 06/15/05 559,250
595,000 Enron Corp. ............................. 6.750 07/01/05 543,949
400,000 ENSEARCH Corp. .......................... 6.375 02/01/04 356,360
330,000 Laclede Gas Co. ......................... 8.500 11/15/04 346,731
75,000 Occidental Petroleum Corp. .............. 10.125 09/15/09 85,087
500,000 Panhandle Eastern Corp. ................. 7.875 08/15/04 497,180
400,000 Southern Union Co. ...................... 7.600 02/01/24 354,800
400,000 Southwest Gas Co. ....................... 9.750 06/15/02 433,320
100,000 Texas Eastern Transmission Corp. ........ 8.000 07/15/02 101,080
100,000 Union Oil of California.................. 6.375 02/01/04 89,820
85,000 Union Oil of California.................. 8.750 08/15/01 89,190
-------------
TOTAL ENERGY............................. 3,456,767
-------------
TECHNOLOGY 1.9%
485,000 Motorola, Inc. .......................... 7.600 01/01/07 479,714
-------------
UTILITIES 22.3%
600,000 A T & T Corp. ........................... 7.500 06/01/06 591,480
100,000 Baltimore Gas & Electric Co. ............ 7.500 01/15/07 97,400
200,000 Cincinnati Gas & Electric Co. ........... 6.450 02/15/04 183,060
500,000 Florida Power & Light Co. ............... 6.875 04/01/04 471,050
355,000 GTE Corp. ............................... 9.375 12/01/00 381,803
500,000 Idaho Power Co. ......................... 8.000 03/15/04 508,250
700,000 Iowa Electric Light & Power Co. ......... 8.625 05/15/01 734,440
635,000 MCI Communications Corp. ................ 7.500 08/20/04 625,285
80,000 Northwestern Bell Telephone Co. ......... 9.500 05/01/00 86,640
200,000 San Diego Gas & Electric Co. ............ 7.625 06/15/02 199,460
250,000 Texas Utilities Electric Co. ............ 6.250 10/01/04 223,590
500,000 Union Electric Co. ...................... 7.375 12/15/04 490,300
617,000 United Telecommunications, Inc. ......... 9.750 04/01/00 665,928
200,000 Virginia Electric & Power Co. ........... 6.000 08/01/01 184,120
200,000 Virginia Electric & Power Co. ........... 8.875 06/01/99 209,800
-------------
TOTAL UTILITIES.......................... 5,652,606
-------------
TOTAL CORPORATE OBLIGATIONS 10,130,887
(Cost $10,455,626)....................... -------------

</TABLE>

See Notes to Financial Statements

F-1
<PAGE> 80

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
PORTFOLIO OF INVESTMENTS -- CONTINUED
MARCH 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT/
NUMBER OF SHARES DESCRIPTION ($)MARKET VALUE
----------------- -------------------------------------------------------------- ---------------
<S> <C> <C>
COMMON STOCK 56.8%
ENERGY 4.7%
25,000 Pacific Enterprises........................................... $ 618,750
25,000 Panhandle Eastern Corp. ...................................... 575,000
-------------
TOTAL ENERGY.................................................. 1,193,750
-------------
UTILITIES 52.1%
14,000 Ameritech Corp. .............................................. 577,500
26,000 Baltimore Gas & Electric Co. ................................. 614,250
10,000 Bellsouth Corp. .............................................. 595,000
25,000 CMS Energy Corp. ............................................. 584,375
29,000 DPL, Inc. .................................................... 605,375
25,000 Eastern Utilities Association................................. 596,875
20,000 FPL Group, Inc. .............................................. 727,500
22,000 General Public Utilities Corp. ............................... 640,750
12,000 GTE Corp. .................................................... 399,000
7,000 National Power ADR............................................ 75,250
19,000 NIPSCO Industries, Inc. ...................................... 591,375
16,000 NYNEX Corp. .................................................. 634,000
19,000 Pacific Telesis Group......................................... 574,750
30,000 Pacificorp. .................................................. 581,250
24,000 Peco Energy Co. .............................................. 603,000
27,000 Pinnacle West Capital Corp. .................................. 563,625
5,200 Powergen Power & Light ADR.................................... 63,050
19,000 Public Service Co. of Colorado................................ 584,250
22,000 Public Service Enterprise Group............................... 602,250
29,000 Southern Co. ................................................. 590,875
18,000 Texas Utilities Electric Co. ................................. 571,500
24,000 Unicom Corp. ................................................. 570,000
15,000 U. S. West, Inc. ............................................. 600,000
20,000 Western Resources, Inc. ...................................... 625,000
-------------
TOTAL UTILITIES............................................... 13,170,800
-------------
TOTAL COMMON STOCK (Cost $13,991,594)......................... 14,364,550
-------------
REPURCHASE AGREEMENT 2.1%
$ 535,000 Salomon Brothers, Inc, dated 3/31/95, 6.27% due 4/3/95
(collateralized by U. S. Government obligations in a pooled
cash account) repurchase proceeds $535,093 (Cost $535,000).... 535,000
-------------
TOTAL INVESTMENTS 98.9% (Cost $24,982,220)......................................... 25,030,437
OTHER ASSETS AND LIABILITIES, NET 1.1%............................................. 267,674
-------------
NET ASSETS 100%.................................................................... $25,298,111
============
</TABLE>

See Notes to Financial Statements

F-2
<PAGE> 81

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)

<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $24,982,220)................................ $25,030,437
Cash........................................................................... 2,984
Interest and dividends receivable.............................................. 318,764
Receivable for Fund shares sold................................................ 70,581
Other assets................................................................... 35,396
-----------
Total Assets............................................................ 25,458,162
-----------
LIABILITIES
Due to Distributor............................................................. 21,862
Due to shareholder service agent............................................... 29,242
Deferred Directors' compensation............................................... 1,374
Dividends payable.............................................................. 18,270
Payable for Fund shares redeemed............................................... 17,281
Accrued expenses and other payables............................................ 72,022
-----------
Total Liabilities....................................................... 160,051
-----------
NET ASSETS, equivalent to $8.72 per share for Class A, $8.71 per share Class B
and
$8.70 per share for Class C shares........................................... $25,298,111
===========
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 995,792 Class A, 1,638,873 Class B and
269,483 Class C shares outstanding........................................... $ 29,041
Capital surplus................................................................ 25,669,373
Accumulated net realized loss on securities.................................... (456,783)
Net unrealized appreciation of securities...................................... 48,217
Undistributed net investment income............................................ 8,263
-----------
NET ASSETS at March 31, 1995................................................... $25,298,111
===========
</TABLE>

See Notes to Financial Statements

F-3
<PAGE> 82

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................................ $ 445,920
Dividends....................................................................... 314,116
----------
Investment income.......................................................... 760,036
----------
EXPENSES:
Management fees................................................................. 72,767
Registration and filing fees.................................................... 62,865
Service fees -- Class A......................................................... 5,980
Distribution and service fees -- Class B........................................ 61,001
Distribution and service fees -- Class C........................................ 10,143
Accounting services............................................................. 26,816
Shareholder service agent's fees and expenses................................... 44,609
Audit fees...................................................................... 14,400
Reports to shareholders......................................................... 9,919
Director's fees and expenses.................................................... 5,510
Legal fees...................................................................... 3,199
Miscellaneous................................................................... 1,772
Expense reimbursement........................................................... (99,662)
----------
Total Expenses............................................................. 219,319
----------
NET INVESTMENT INCOME...................................................... 540,717
----------
Net Realized and Unrealized Gain (Loss) on Securities:
Net realized loss on securities................................................. (130,520)
Net unrealized appreciation of securities during the period..................... 1,044,548
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES............................. 914,028
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $1,454,745
==========
</TABLE>

See Notes to Financial Statements

F-4
<PAGE> 83

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
NOVEMBER 23, 1993*
SIX MONTHS ENDED THROUGH
MARCH 31, 1995 SEPTEMBER 30, 1994
---------------- ------------------
<S> <C> <C>
NET ASSETS, beginning of period............................. $ 19,982,633 $ 101,000
------------ ------------
Operations
Net investment income..................................... 540,717 516,812
Net realized loss on securities........................... (130,520) (326,081)
Net unrealized appreciation (depreciation) of securities
during the period...................................... 1,044,548 (996,331)
------------ ------------
Increase (decrease) in net assets resulting from
operations........................................... 1,454,745 (805,600)
------------ ------------
Dividends to shareholders from net investment income
Class A................................................... (225,289) (225,591)
Class B................................................... (290,220) (226,800)
Class C................................................... (48,143) (33,691)
------------ ------------
(563,652) (486,082)
------------ ------------
Fund share transactions
Proceeds from shares sold
Class A................................................ 2,321,151 9,870,409
Class B................................................ 4,053,715 12,813,610
Class C................................................ 576,648 2,166,085
------------ ------------
6,951,514 24,850,104
------------ ------------
Proceeds from shares issued for dividends reinvested
Class A................................................ 204,839 210,220
Class B................................................ 238,579 187,883
Class C................................................ 32,346 24,750
------------ ------------
475,764 422,853
------------ ------------
Cost of shares redeemed
Class A................................................ (1,660,741) (2,139,284)
Class B................................................ (1,237,109) (1,610,501)
Class C................................................ (105,043) (349,857)
------------ ------------
(3,002,893) (4,099,642)
------------ ------------
INCREASE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS......................................... 4,424,385 21,173,315
------------ ------------
INCREASE IN NET ASSETS...................................... 5,315,478 19,881,633
------------ ------------
NET ASSETS, end of period................................... $ 25,298,111 $ 19,982,633
============ ============
</TABLE>

---------------
* Commencement of operations

See Notes to Financial Statements

F-5
<PAGE> 84

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout each of
the periods indicated (Unaudited).

<TABLE>
<CAPTION>
CLASS A CLASS A
-------------- ---------------------
SIX MONTHS NOVEMBER 23, 1993(1)
ENDED THROUGH
MARCH 31, 1995 SEPTEMBER 30, 1994(4)
-------------- ---------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $ 8.39 $ 9.44
------ -------
Income from investment operations
Investment income................................. .29 .53
Expenses.......................................... (.06) (.09)
------ -------
Net investment income................................ .23 .44
Net realized and unrealized gains or losses on
securities........................................ .334 (1.10)
------ -------
Total from investment operations..................... .564 (.66)
------ -------
Dividends from net investment income................. (.234) (.39)
------ -------
Net asset value, end of period....................... $ 8.72 $ 8.39
====== =======
TOTAL RETURN(3)................................... 6.70% (7.24%)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................. $ 8.7 $ 7.5
Average net assets (millions)........................ $ 8.2 $ 5.2
Ratios to average net assets(2)
Expenses.......................................... 1.42% 1.06%
Expenses, without expense reimbursement........... 2.31% 2.43%
Net investment income............................. 5.41% 5.48%
Net investment income, without expense
reimbursement................................... 4.52% 4.11%
Portfolio turnover rate.............................. 29% 72%
</TABLE>

---------------
(1) -- Commencement of operations.

(2) -- Annualized; see Note 3.

(3) -- Total return not annualized. Total return calculated from December 1,
1993 (date the Fund began meeting its investment objective) through
September 30, 1994. Total return does not consider the effect of sales
charges.

(4) -- Based on average month-end shares outstanding.

See Notes to Financial Statements

F-6
<PAGE> 85

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout each of
the periods indicated (Unaudited).

<TABLE>
<CAPTION>
CLASS B CLASS B
---------- -------------
NOVEMBER 23,
SIX MONTHS 1993(1)
ENDED THROUGH
MARCH 31, SEPTEMBER 30,
1995 1994(4)
---------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................................. $ 8.39 $ 9.44
------ -------
Income from investment operations
Investment income.................................................. .29 .52
Expenses........................................................... (.10) (.14)
------ -------
Net investment income................................................ .19 .38
Net realized and unrealized gains or losses on securities............ .332 (1.096)
------ -------
Total from investment operations..................................... .522 (.716)
------ -------
Dividends from net investment income................................. (.202) (.334)
------ -------
Net asset value, end of period....................................... $ 8.71 $ 8.39
====== =======
TOTAL RETURN(3)...................................................... 6.30% (7.72%)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................................. $ 14.3 $ 10.7
Average net assets (millions)........................................ $ 12.2 $ 6.0
Ratios to average net assets(2)
Expenses........................................................... 2.28% 1.82%
Expenses, without expense reimbursement............................ 3.17% 3.19%
Net investment income.............................................. 4.52% 4.66%
Net investment income, without expense reimbursement............... 3.63% 3.29%
Portfolio turnover rate.............................................. 29% 72%
</TABLE>

---------------
(1) Commencement of operations.

(2) Annualized; see Note 3.

(3) Total return not annualized. Total return calculated from December 1, 1993
(date the Fund began meeting its investment objective) through September 30,
1994. Total return does not consider the effect of sales charges.

(4) Based on average month-end shares outstanding.

See Notes to Financial Statements

F-7
<PAGE> 86

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout each of
the periods indicated (Unaudited).

<TABLE>
<CAPTION>
CLASS C CLASS C
----------- -------------
NOVEMBER 23,
SIX MONTHS 1993(1)
ENDED THROUGH
MARCH 31, SEPTEMBER 30,
1995 1994(4)
----------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................................. $ 8.38 $ 9.44
------- -------
Income from investment operations
Investment income.................................................. .29 .53
Expenses........................................................... (.10) (.15)
------- -------
Net investment income................................................ .19 .38
Net realized and unrealized gains or losses on securities............ .332 (1.106)
------- -------
Total from investment operations..................................... .522 (.726)
------- -------
Dividends from net investment income................................. (.202) (.334)
------- -------
Net asset value, end of period....................................... $ 8.70 $ 8.38
======= =======
TOTAL RETURN(3)................................................. 6.30% (7.82%)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................................. $ 2.3 $ 1.8
Average net assets (millions)........................................ $ 2.0 $ 0.9
Ratios to average net assets(2)
Expenses........................................................... 2.27% 1.79%
Expenses, without expense reimbursement............................ 3.16% 3.16%
Net investment income.............................................. 4.51% 4.65%
Net investment income, without expense reimbursement............... 3.62% 3.28%
Portfolio turnover rate.............................................. 29% 72%
</TABLE>

---------------
(1) Commencement of operations.

(2) Annualized; see Note 3.

(4) Based on average month-end shares outstanding.

See Notes to Financial Statements

F-8
<PAGE> 87

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND

NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED)

NOTE 1 -- ORGANIZATION

Van Kampen American Capital Utilities Income Fund, Inc. (the "Fund") was
organized as an open-end, diversified management investment company in Maryland
on August 31, 1993. The Fund's investment manager, Van Kampen American Capital
Asset Management, Inc. (the "Adviser") contributed the initial capital of
$101,000 on November 8, 1993 and an additional $1,899,000 on November 30, 1993.
The Fund began offering shares on November 23, 1993.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.

A. INVESTMENT VALUATIONS -- Securities listed or traded on a national
securities exchange are valued at the last sale price. Unlisted securities and
listed securities for which the last sale price is not available are valued at
the last reported bid price.

Short-term investments with a maturity of 60 days or less when purchased
are valued at amortized cost, which approximates market value. Short-term
investments with a maturity of more than 60 days when purchased are valued based
on market quotations, until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.

B. FEDERAL INCOME TAXES -- No provision for federal income taxes is
required because the Fund intends to elect to be taxed as a "regulated
investment company" under the Internal Revenue Code and intends to maintain this
qualification by annually distributing all of its taxable net investment income
and taxable net realized capital gains to its shareholders. It is anticipated
that no distributions of capital gains will be made until tax-basis capital loss
carryforwards, if any, expire or are offset by net realized capital gains.

Approximately $323,500 in financial statement losses are deferred for tax
purposes until the following fiscal year.

C. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME -- Investment
transactions are accounted for on the trade date. Realized gains and losses on
investments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.

D. DIVIDENDS AND DISTRIBUTIONS -- Dividends and distributions to
shareholders are recorded on the record date. The Fund distributes tax basis
earnings in accordance with the minimum distribution requirements of the
Internal Revenue Code, which may differ from generally accepted accounting
principles. Such dividends or distributions may exceed financial statement
earnings.

E. DEBT DISCOUNT OR PREMIUM -- The Fund accounts for original issue
discounts and premiums on the same basis as is followed for federal income tax
reporting. Accordingly, originally issue discounts on long-term debt securities
purchased are amortized over the life of the security. Premiums on debt
securities are not

F-9
<PAGE> 88

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND

NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED) -- CONTINUED

amortized. Market discounts are accounted for at the time of sale as realized
gains for book purposes and ordinary income for tax purposes.

F. ORGANIZATION COSTS -- Organization expenses of approximately $15,000
were deferred and are being amortized over a five year period ending November,
1998.

NOTE 3 -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES

The Adviser serves as investment manager of the Fund. Management fees are
paid monthly, based on the average daily net assets of the Fund at an annual
rate of .65%. From time to time, the Adviser may voluntarily elect to reimburse
the Fund a portion of the Fund's expenses. Such reimbursement may be
discontinued at any time without prior notice. For the period ended March 31,
1995, such reimbursement amounted to $99,662.

Accounting services include the salaries and overhead expenses of the
Fund's Treasurer and the personnel operating under his discretion. Charges are
allocated among investment companies advised or sub-advised by the Adviser. For
the period ended March 31, 1995, these charges included $3,130 as the Fund's
share of the employee costs attributable to the Fund's accounting officers. A
portion of the accounting services expense was paid to the Adviser in
reimbursement of personnel, facilities, and equipment costs attributable to the
provision of accounting services to the Fund. The services provided by the
Adviser are at cost.

ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period ended March 31, 1995, such fees aggregated $30,900.

The Fund has been advised that Van Kampen American Capital Distributors,
Inc. (the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both
affiliates of the Adviser, received $3,383 and $10,323, respectively, as their
portion of the commission charged on sales of Fund shares during the period.

Under the Distribution Plans, the Fund pays up to .25% per annum of its
average daily net assets to the Distributor for expenses and service fees
incurred. Class B shares and Class C shares pay an additional fee of up to .75%
per annum of their average net assets to reimburse the Distributor for its
distribution expenses. Actual distribution expenses incurred by the Distributor
for Class B shares and Class C shares may exceed the amounts reimbursed to the
Distributor by the Fund. At March 31, 1995, the unreimbursed expenses incurred
by the Distributor under the Class B plan and Class C plan aggregated
approximately $529,000 and $31,000, respectively, and may be carried forward and
reimbursed through either the collection of the contingent deferred sales
charges from share redemptions or, subject to the annual renewal of the plans,
future Fund reimbursements of distribution fees.

Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.

Certain officers and directors of the Fund are officers and directors of
the Adviser, the Distributor, the Retail Dealer and the shareholder service
agent.

F-10
<PAGE> 89

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND

NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED) -- CONTINUED

NOTE 4 -- DIRECTOR COMPENSATION

Fund directors who are not affiliated with the Adviser are compensated by
the Fund at the annual rate of $730 plus a fee of $20 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the Fund
at an annual rate of $270. During the period, such fees aggregated $2,849.

The directors may participate in a voluntary deferred compensation plan
(the "Plan"). The Plan is not funded and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered under the Plan elects to be credited with
an earnings component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.

NOTE 5 -- INVESTMENT ACTIVITY

During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $11,020,452 and $6,356,147,
respectively.

The cost of investments owned at March 31, 1995 was the same for federal
income tax and financial reporting purposes. Gross unrealized appreciation of
investments aggregated $649,418 and gross unrealized depreciation of investments
aggregated $601,201.

NOTE 6 -- CAPITAL

The Fund offers three classes of shares at their respective net asset
values per share, plus a sales charge which is imposed either at the time of
purchase (the Class A shares) or at the time of redemption on a contingent
deferred basis (the Class B shares and Class C shares). All classes of shares
have the same rights, except that Class B shares and Class C shares bear the
cost of distribution fees and certain other class specific expenses. Realized
and unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.

F-11
<PAGE> 90

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND

NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED) -- CONTINUED

The Fund has 200 million of each class of shares of $.01 par value capital
stock authorized. Transactions in shares of capital stock during the period were
as follows:

<TABLE>
<CAPTION>
NOVEMBER 23, 1993*
SIX MONTHS ENDED THROUGH
MARCH 31, 1995 SEPTEMBER 30, 1994
---------------- ------------------
<S> <C> <C>
Shares sold
Class A................................................... 273,477 1,116,081
Class B................................................... 476,363 1,446,604
Class C................................................... 68,131 248,296
---------------- ------------------
817,971 2,810,981
---------------- ------------------
Shares issued for dividends reinvested
Class A................................................... 24,018 24,273
Class B................................................... 27,959 21,860
Class C................................................... 3,791 2,888
---------------- ------------------
55,768 49,021
---------------- ------------------
Shares redeemed
Class A................................................... (193,947) (248,110)
Class B................................................... (145,212) (188,701)
Class C................................................... (12,378) (41,245)
---------------- ------------------
(351,537) (478,056)
---------------- ------------------
Increase in shares outstanding.............................. 522,202 2,381,946
============= ==============
</TABLE>

---------------
* Commencement of operations

F-12
<PAGE> 91

PART C: OTHER INFORMATION

ITEM 15. INDEMNIFICATION

The VKAC Equity Trust's trustees and officers are covered by an Errors and
Omissions Policy. Section 5 of the current and proposed investment advisory
agreement between each series of the VKAC Equity Trust and VK Adviser provides
that, in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of the obligations or duties under the investment advisory
agreement on the part of VK Adviser, VK Adviser shall not be liable to the VKAC
Equity Trust or to any shareholder for any act or omission in the course of or
connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding or sale of any security. The distribution
agreement provides that the VKAC Equity Trust shall indemnify Van Kampen
American Capital Distributors, Inc. and certain persons related thereto for any
loss or liability arising from any alleged misstatement of a material fact (or
alleged omission to state a material fact) contained in, among other things,
registration statements or prospectuses except to the extent the misstated fact
or omission was made in reliance upon information provided by or on behalf of
Van Kampen American Capital Distributors, Inc.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to trustees,
directors, officers and controlling persons of the VKAC Equity Trust and VK
Adviser and Van Kampen American Capital Distributors, Inc. pursuant to the
foregoing provisions or otherwise, the VKAC Equity Trust has been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the VKAC Equity Trust of expenses incurred or paid by a trustee,
director, officer, or controlling person of the VKAC Equity Trust and the
principal underwriter in connection with the successful defense of any action,
suit or proceeding) is asserted against the VKAC Equity Trust by such trustee,
director, officer or controlling person or Van Kampen American Capital
Distributors, Inc. in connection with the Class A, B and C Shares, respectively,
being registered, the VKAC Equity Trust will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

ITEM 16. EXHIBITS

(1) (a) Agreement and Declaration of Trust+

(b) Form of Establishment and Designation of Series for Van
Kampen American Capital Utility Fund+

(2) Bylaws+

(4) Form of Agreement and Plan of Reorganization*

(5) Specimen Stock Certificate for Class A, B and C Shares of the Van
Kampen American Capital Utility Fund+

(6) Form of Investment Advisory Agreement+

(7) (a) Form of Distribution and Service Agreement+

(b) Form of Dealer Agreement+

(d) Form of Bank Agreement+

(9) (a) Form of Custodian Agreement+

(b) Form of Transfer Agency Agreement+

C-1
<PAGE> 92
(10) (a) Form of Distribution Plan Pursuant to Rule 12b-1+

(b) Form of Shareholder Assistance Agreement+

(d) Form of Service Plan+

(11) Form of Opinion of Skadden, Arps, Slate, Meagher & Flom+

(12) Form of Opinion of O'Melveny & Meyers+

(13) (a) Form of Support Service Agreement+

(b) Form of Fund Pricing Agreement+

(d) Form of Amended Legal Services Agreement+

(14) (a) Consent of Price Waterhouse LLP*

(b) Consent of KPMG Peat Marwick LLP*

(16) Powers of Attorney*

(17) (a) Copy of 24f-2 Election of Registrant+

(b) Form of proxy card*

(27) (a) Financial Data Schedule for Van Kampen American Capital
Utilities Income Fund*

(b) Financial Data Schedule for Van Kampen American Capital
Utility Fund*
---------------

* Filed herewith.
+ To be filed by pre-effective amendment.

ITEM 17. UNDERTAKINGS.

(1) The undersigned registrant agrees that prior to any public re-offering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offerings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.

(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.

C-2
<PAGE> 93

SIGNATURES

AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED ON BEHALF OF THE REGISTRANT IN THE CITY OF OAKBROOK TERRACE AND
STATE OF ILLINOIS, ON THE 23RD THE DAY OF MAY, 1995.

VAN KAMPEN AMERICAN CAPITAL
EQUITY TRUST

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

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------------------------------------------- -----------------------------------
<S> <C>
/s/ DONALD C. MILLER* Chairman of the Board
--------------------------------------------- and Trustee
Donald C. Miller
/s/ DENNIS J. McDONNELL* President and Trustee
--------------------------------------------- (Chief Executive Officer)
Dennis J. McDonnell
/s/ EDWARD C. WOOD, III* Vice President, Treasurer and
--------------------------------------------- Chief Financial Officer
Edward C. Wood, III (Accounting Officer)
/s/ R. CRAIG KENNEDY* Trustee
---------------------------------------------
R. Craig Kennedy
/s/ PHILIP P. GAUGHAN* Trustee
---------------------------------------------
Philip P. Gaughan
/s/ JACK E. NELSON* Trustee
---------------------------------------------
Jack E. Nelson
/s/ JEROME L. ROBINSON* Trustee
---------------------------------------------
Jerome L. Robinson
/s/ WAYNE W. WHALEN* Trustee
---------------------------------------------
Wayne W. Whalen
</TABLE>

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

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

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

C-3
<PAGE> 94
VAN KAMPEN MERRITT EQUITY TRUST
FORM N-14

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE
DESCRIPTION NUMBER
-------------- ------
<S> <C> <C>
(1) (a) Agreement and Declaration of Trust+
(b) Form of Establishment and Designation of Series for Van Kampen American
Capital Utility Fund+
(2) Bylaws+
(4) Form of Agreement and Plan of Reorganization*
(5) Specimen Stock Certificate for Class A, B and C Shares of the Van Kampen
American Capital Utility Fund+
(6) Form of Investment Advisory Agreement+
(7) (a) Form of Distribution and Service Agreement+
(b) Form of Dealer Agreement+
(c) Form of Broker Agreement+
(d) Form of Bank Agreement+
(9) (a) Form of Custodian Agreement+
(b) Form of Transfer Agency Agreement+
(10) (a) Form of Distribution Plan Pursuant to Rule 12b-1+
(b) Form of Shareholder Assistance Agreement+
(c) Form of Administrative Services Agreement+
(d) Form of Service Plan+
(11) Form of Opinion of Skadden, Arps, Slate, Meagher & Flom+
(12) Form of Opinion of O'Melveny & Meyers+
(13) (a) Form of Support Service Agreement+
(b) Form of Fund Pricing Agreement+
(c) Form of Amended Accounting Service Agreement+
(d) Form of Amended Legal Services Agreement+
(14) (a) Consent of Price Waterhouse LLP*
(b) Consent of KPMG Peat Marwick LLP*
(16) Powers of Attorney*
(17) (a) Copy of 24f-2 Election of Registrant+
(b) Form of proxy card*
(27) (a) Financial Data Schedule for Van Kampen American Capital Utilities Income
Fund*
(b) Financial Data Schedule for Van Kampen American Capital Utility Fund*
</TABLE>

---------------
* Filed herewith
+ To be filed

<PAGE> 1
EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION

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

W I T N E S S E T H:

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

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

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

WHEREAS, the AC Fund was organized as a Maryland corporation, pursuant
to a Certificate of Incorporation dated August 31, 1993 and subsequently
reorganized as a Delaware business trust, pursuant to an Agreement and
Declaration of Trust dated [July ____, 1995] and is authorized to issue an
unlimited number of shares of beneficial interest with par value of $0.01 per
share;

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

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

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

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

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<PAGE> 2

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

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

1. PLAN OF TRANSACTION.

A. TRANSFER OF ASSETS. Upon satisfaction of the conditions precedent
set forth in Sections 7 and 8 hereof, the AC Fund will convey, transfer and
deliver to the VKM Fund at the closing, provided for in Section 2 hereof, all
of the existing assets of the AC Fund (including accrued interest to the
Closing Date) consisting of nondefaulted, liquid, and primarily common stock
and income securities issued by companies engaged in the "utilities industry",
(at least eighty (80%) percent of which securities are investment grade rated)
due bills, cash and other marketable securities acceptable to the VKM Fund as
more fully set forth on Schedule 1 hereto, and as amended from time to time
prior to the Closing Date (as defined below), free and clear of all liens,
encumbrances and claims whatsoever (the assets so transferred collectively
being referred to as the "Assets"). For purposes of this Agreement, "utility
securities" shall mean the common stocks and income securities of those
companies involved in the production, transmission, or distribution of electric
energy, gas, telecommunications services or the provisions of other utility or
utility related goods or services.

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

2. CLOSING OF THE TRANSACTION.

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

3. PROCEDURE FOR REORGANIZATION.

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

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<PAGE> 3

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

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

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

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

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

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

4. AC FUND'S REPRESENTATIONS AND WARRANTIES.

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

A. ORGANIZATION. The AC Fund is a Delaware Business Trust duly formed
and in good standing under the laws of the State of Delaware and is duly
authorized to transact business in the State of

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<PAGE> 4

Delaware. The AC Fund is qualified to do business in all jurisdictions in
which it is required to be so qualified, except jurisdictions in which the
failure to so qualify would not have a material adverse effect on the AC Fund.
The AC Fund has all material federal, state and local authorization necessary
to own all of the properties and assets of the AC Fund and to carry on its
business as now being conducted, except authorizations which the failure to so
obtain would not have a material adverse effect on the AC Fund.

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

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

D. FINANCIAL STATEMENTS. The AC Fund shall furnish to the VKM Trust
(i) an unaudited statement of assets and liabilities and the portfolio of
investments and the related statements of operations and changes in net assets
of the AC Fund for the period ended July 31, 1995; and (ii) within five (5)
business days after the Closing Date, an unaudited statement of assets and
liabilities and the portfolio of investments and the related statements of
operations and changes in net assets as of and for the interim period ending on
the Closing Date; such financial statements will represent fairly the financial
position and portfolio of investments and the results of the AC Fund's
operations as of, and for the period ending on the dates of such statements in
conformity with generally accepted accounting principles applied on a
consistent basis during the periods involved and the results of its operations
and changes in financial position for the periods then ended; and such
financial statements shall be certified by the Treasurer of the AC Fund as
complying with the requirements hereof.

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

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

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

H. RESTRICTED SECURITIES. None of the securities comprising the assets
of the AC Fund at the date hereof are, or on the Closing Date or any subsequent
delivery date will be, "restricted securities" under the Securities Act of
1933, (the "Securities Act") or the rules and regulations of the Securities and
Exchange Commission (the "SEC") thereunder, or will be securities for which
market quotations are not readily available for purposes of Section 2(a)(41)
under the 1940 Act.

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<PAGE> 5

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

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

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

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

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

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

(3) any entering into, amendment or termination of any contract or
agreement by AC Fund, except as otherwise contemplated by this Agreement;

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

(5) any amendment of the Certificate of Incorporation of the AC
Fund; or

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

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

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<PAGE> 6

transfer and delivery such Assets; upon delivery of such Assets, the VKM Fund
will receive good and marketable title to such Assets, free and clear of all
liens, mortgages, pledges, encumbrances, charges, claims and equities other
than a lien for taxes not yet due and payable.

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

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

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

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

5. THE VKM TRUST'S REPRESENTATIONS AND WARRANTIES.

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

A. ORGANIZATION. The VKM Trust is a Delaware Business Trust duly
formed and in good standing under the laws of the State of Delaware and is duly
authorized to transact business in the State of Delaware. The VKM Fund is a
separate series of the VKM Trust duly designated in accordance with the
applicable provisions of the Declaration of Trust. The VKM Trust and VKM Fund
are qualified to do business in all jurisdictions in which they are required to
be so qualified, except jurisdictions in which the failure to so qualify would
not have a material adverse effect on either the VKM Trust or VKM Fund. The
VKM Trust has all material federal, state and local authorization necessary to
own on behalf of the VKM Trust all of the properties and assets allocated to
the VKM Fund and to carry on its business and the business thereof as now being
conducted, except authorizations which the failure to so obtain would not have
a material adverse effect on the VKM Trust or VKM Fund.

B. REGISTRATION. The VKM Fund is registered under the 1940 Act as an
open-end, diversified management company and; such registration has not been
revoked or rescinded. The VKM Trust is in compliance in all material respects
with the 1940 Act and the rules and regulations thereunder. All of the
outstanding shares of beneficial interest of the VKM Fund (subject to the
matters set forth in the Opinion of Counsel dated ___________, from Skadden,
Arps, Slate, Meagher & Flom, to the VKM Trust, a copy of which is contained in
the VKM Trust's registration statement on Form N1-A, a copy of which opinion
letter has been tendered to the AC Fund) have been duly authorized and are
validly issued, fully paid and non-assessable and not subject to pre-emptive
dissenters rights.

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<PAGE> 7

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

D. FINANCIAL STATEMENTS. The VKM Trust shall furnish to the AC Fund
(i) an unaudited statement of assets and liabilities and the portfolio of
investments and the related statements of operations and changes in net assets
of the VKM Fund for the period ended March 31, 1995, and (ii) within five (5)
business days after the Closing Date, an unaudited statement of assets and
liabilities and the portfolio of investments and the related statements of
operations and changes in net assets as of and for the interim period ending on
the Closing Date; such financial statements will represent fairly the financial
position and portfolio of investments of the VKM Fund and the results of its
operations as of, and for the period ending on, the dates of such statements in
conformity with generally accepted accounting principles applied on a
consistent basis during the period involved and fairly present the financial
position of the VKM Fund as at the dates thereof and the results of its
operations and changes in financial position for the periods then ended; and
such financial statements shall be certified by the Treasurer of the VKM Trust
as complying with the requirements hereof.

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

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

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

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

I. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the VKM Trust does not and will not (i) result
in a material violation of any provision of the Declaration of Trust of the VKM
Trust or the Designation of Series of the VKM Fund, (ii) result in a material
violation of any statute, law, judgment, writ, decree, order, regulation or
rule of any court or governmental authority applicable to the VKM Trust or
(iii) result in a material violation or breach of, or constitute a default
under, or result in the creation or imposition or any lien, charge or
encumbrance upon any property or assets of the VKM Trust pursuant to any
material contract, indenture, mortgage, loan agreement, note, lease or other
instrument or obligation to which the VKM Trust is subject. Except as set
forth in Schedule 6 to this Agreement, (i) no consent, approval, authorization,
order of filing with notice to any court or governmental authority or agency is
required for the consummation by the VKM

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<PAGE> 8

Trust of the transactions contemplated by this Agreement and (ii) no consent of
or notice to any third party or entity is required for the consummation by the
VKM Trust of the transactions contemplated by this Agreement.

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

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

L. SHARES OF THE VKM FUND: AUTHORIZATION. Subject to the matters set
forth in the Statement of Additional Information of the VKM Fund, under the
heading "The Fund and the Trust", a copy of which has been furnished to the AC
Fund, the shares of beneficial interest of the VKM Fund to be issued pursuant
to Section 1 hereof have been duly authorized and, when issued in accordance
with this Agreement, will be validly issued and fully paid and non-assessable
by the VKM Trust and conform in all material respects to the description
thereof contained in the VKM Trust's Prospectus furnished to the AC Fund.

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

N. REGISTRATION STATEMENT. The Registration Statement and the
Prospectus contained therein filed on Form N-14, the ("Registration
Statement"), as of the effective date of the Registration Statement, and at all
times subsequent thereto and including the Closing Date, as amended or as
supplemented if they shall have been amended or supplemented, will conform, in
all material respects, to the applicable requirements of the applicable Federal
securities laws and the rules and regulations of the SEC thereunder, and will
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representations or warranties in this Section 5N
apply to statements or omissions made in reliance upon and in conformity with
written information concerning the AC Fund furnished to the VKM Trust by the AC
Fund.

O. TAX QUALIFICATION. The VKM Fund has qualified as a regulated
investment company within the meaning of Section 851 of the Code for each of
its taxable years; and has satisfied the distribution requirements imposed by
Section 852 of the Code for each of its taxable years. For purposes of this
Section, any reference to the VKM Fund shall include its predecessors, a
sub-trust of a Massachusetts business trust organized and designated on [March
26, 1987] and subsequently reorganized by merger with and into the VKM Fund.

6. COVENANTS.

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

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

B. GOVERNMENT FILINGS; CONSENTS. The AC Fund and VKM Trust shall file
all reports required to be filed by the AC Fund and VKM Trust with the SEC
between the date of this Agreement the Closing

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<PAGE> 9

Date and shall deliver to the other party copies of all such reports promptly
after the same are filed. Except where prohibited by applicable statutes and
regulations, each party shall promptly provide the other (or its counsel) with
copies of all other filings made by such party with any state, local or federal
government agency or entity in connection with this Agreement or the
transactions contemplated hereby. Each of the AC Fund and the VKM Trust shall
use all reasonable efforts to obtain all consents, approvals, and
authorizations required in connection with the consummation of the transactions
contemplated by this Agreement and to make all necessary filings with the
Secretary of State of the State of Delaware.

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

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

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

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

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<PAGE> 10

G. DISTRIBUTION OF THE SHARES. At Closing the AC Fund covenants that
it shall cause to be distributed the VKM Fund Shares in the proper pro rata
amount for the benefit of AC Fund's shareholders and such that the AC Fund
shall not continue to hold amounts of said shares so as to cause a violation of
Section 12(d)(1) of the Investment Company Act. The AC Fund covenants further
that, pursuant to Section 3G, it shall liquidate and dissolve the AC Fund as
promptly as practicable after the Closing Date. The VKM Trust covenants to use
all reasonable efforts to cooperate with the AC Fund and the AC Fund's transfer
agent in the distribution of said shares.

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

I. ADDITIONAL AGREEMENTS. In case at any time after the Closing Date
any further action is necessary or desirable in order to carry out the purposes
of this Agreement (including, without limitation, the execution of any
documents, agreements or certificates or any other additional actions
reasonably requested with respect to the non-assumption of the liabilities and
obligations of the AC Fund by the VKM Trust or the VKM Fund), the proper
officers and trustees of each party to this Agreement shall take all such
necessary action.

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

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

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

7. CONDITIONS TO OBLIGATIONS OF THE AC FUND.

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

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<PAGE> 11

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

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

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

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

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

F. TAX OPINION. The Fund shall have obtained an opinion from
O'Melveny & Myers, counsel for the AC Fund, dated as of the Closing Date,
addressed to the AC Fund, that the consummation of the transactions set forth
in this Agreement comply with the requirements of a reorganization as described
in Section 368(a) of the Internal Revenue Code of 1986, as amended,
substantially in the form attached as Annex A.

G. OPINION OF COUNSEL. The AC Fund shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for the VKM Trust, dated as of
the Closing Date, addressed to the AC Fund substantially in the form attached
hereto as Annex B to the effect that: (i) the VKM Trust is duly formed and in
good standing as a business trust under the laws of the State of Delaware; (ii)
the Board of Trustees of the VKM Trust has duly designated the VKM Fund as a
series of the VKM Trust pursuant to the terms of the Declaration of Trust of
the VKM Trust; (iii) the VKM Fund is registered as an open-end, diversified
management company under the Securities Act of 1933 and the 1940 Act; (iv) this
Agreement and the reorganization provided for herein and the execution of this
Agreement have been duly authorized and approved by all requisite action of VKM
Trust and this Agreement has been duly executed and delivered by the VKM Trust
and (assuming the Agreement is a valid and binding obligation of the other
parties thereto) is a valid and binding obligation of the VKM Trust; (v)
neither the execution or delivery by the VKM Trust of this Agreement nor the
consummation by the VKM Trust or VKM Fund of the transactions contemplated
thereby contravene the VKM Trust's Declaration of Trust, or, to the best of
their knowledge, violate any provision of any statute or any published
regulation or any judgment or order disclosed to us by the VKM Trust as being
applicable to the VKM Trust or the VKM Fund; (vi) to the best of their
knowledge based solely on the certificate of an appropriate officer of the VKM
Trust attached hereto, there is no pending or threatened litigation which would
have the effect of prohibiting any material business practice or the
acquisition of any material property or the conduct of any material business of
the VKM Fund or might have a material adverse effect on the value of any assets
of the VKM Fund; (vii) the VKM Fund's Shares have been duly authorized and upon
issuance thereof in accordance with this

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<PAGE> 12

Agreement will, subject to certain matters regarding the liability of a
shareholder of a Delaware trust, be validly issued, fully paid and non-
assessable; (viii) except as to financial statements and schedules and other
financial and statistical data included or incorporated by reference therein
and subject to usual and customary qualifications with respect to Rule 10b-5
type opinions, as of the effective date of the Registration Statement filed
pursuant to the Agreement, the portions thereof pertaining to VKM Trust and the
VKM Fund comply as to form in all material respects with the requirements of
the Securities Act, the Securities Exchange Act and the 1940 Act and the rules
and regulations of the Commission thereunder and no facts have come to
counsel's attention which would cause them to believe that as of the
effectiveness of the portions of the Registration Statement applicable to VKM
Trust and VKM Fund, the Registration Statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and (ix) to
the best of their knowledge and information and subject to the qualifications
set forth below, the execution and delivery by the VKM Trust of the Agreement
and the consummation of the transactions therein contemplated do not require,
under the laws of the States of Delaware or Illinois or the federal laws of the
United States, the consent, approval, authorization, registration,
qualification or order of, or filing with, any court or governmental agency or
body (except such as have been obtained under the Securities Act, the 1940 Act
or the rules and regulations thereunder.) Counsel need express no opinion,
however, as to any such consent, approval, authorization, registration,
qualification, order or filing (a) which may be required as a result of the
involvement of other parties to the Agreement in the transactions contemplated
by the Agreement because of their legal or regulatory status or because of any
other facts specifically pertaining to them; (b) the absence of which does not
deprive the AC Fund of any material benefit under the Agreement; or (c) which
can be readily obtained without significant delay or expense to the AC Fund,
without loss to the AC Fund of any material benefit under the Agreement and
without any material adverse effect on you during the period such consent,
approval, authorization, registration, qualification or order was obtained.
The foregoing opinion relates only to consents, approvals, authorizations,
registrations, qualifications, orders or filings under (a) laws which are
specifically referred to in this opinion, (b) laws of the States of Delaware
and Illinois and the United States of America which, in our experience, are
normally applicable to transactions of the type provided for in the Agreement
and (c) court orders and judgments disclosed to us by the VKM Trust in
connection with this opinion. In addition, although counsel need not
specifically considered the possible applicability to the VKM Trust of any
other laws, orders or judgments, nothing has come to their attention in
connection with our representation of the VKM Trust in this transaction that
has caused them to conclude that any other consent, approval, authorization,
registration, qualification, order or filing is required.

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

8. CONDITIONS TO OBLIGATIONS OF VKM TRUST

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

B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the
representations and warranties of the AC Fund contained herein shall be true in
all material respects of the Closing Date, and as of the Closing Date there
shall have been no material adverse change in the financial condition, results
of operations, business, properties or assets of the AC Fund since March 31,
1995 and the VKM Trust shall have received a certificate of the Chairman or
President of the AC Fund satisfactory in form and substance to the VKM Trust so
stating. The AC Fund shall have performed and complied in all

12
<PAGE> 13

material respects with all agreements, obligations and covenants required by
this Agreement to be so performed or complied with by them on or prior to the
Closing Date.

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

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

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

F. TAX OPINION. The VKM Trust shall have obtained an opinion from
O'Melveny & Myers, counsel for the AC Fund, dated as of the Closing Date,
addressed to the VKM Trust and VKM Fund, that the consummation of the
transactions set forth in this Agreement comply with the requirements of a
reorganization as described in Section 368(a) of the Internal Revenue Code of
1986 substantially in the form attached as Annex A.

G. OPINION OF COUNSEL. The VKM Trust shall have received the opinion
of O'Melveny & Myers, counsel for AC Fund, dated as of the Closing Date,
addressed to the VKM Trust and VKM Fund, substantially in the form attached as
Annex C to the effect that: (i) the AC Fund is duly formed and in good
standing as a trust under the laws of the State of Delaware; (ii) the AC Fund
is registered as an open-end, diversified management company under the
Securities Act of 1933 and the 1940 Act; (iii) this Agreement and the
reorganization provided for herein and the execution of this Agreement have
been duly authorized and approved by all requisite action of the AC Fund and
this Agreement has been duly executed and delivered by the AC Fund and
(assuming the Agreement is a valid and binding obligation of the other parties
thereto) is a valid and binding obligation of the AC Fund; (iv) neither the
execution or delivery by the AC Fund of this Agreement nor the consummation by
the AC Fund of the transactions contemplated thereby contravene the AC Fund's
Declaration of Trust or, to the best of their knowledge, violate any provision
of any statute, or any published regulation or any judgment or order disclosed
to us by the AC Fund as being applicable to the AC Fund; (v) to the best of
their knowledge based solely on the certificate of an appropriate officer of
the AC Fund attached hereto, there is no pending, or threatened litigation
which would have the effect of prohibiting any material business practice or
the acquisition of any material property or the conduct of any material
business of the AC Fund or might have a material adverse effect on the value of
any assets of the AC Fund; (vi) except as to financial statements and schedules
and other financial and statistical data included or incorporated by reference
therein and subject to usual and customary qualifications with respect to Rule
10b-5 type opinions as of the effective date of the Registration Statement
filed pursuant to the Agreement, the portions thereof pertaining to the AC Fund
comply as to form in all material respects with their requirements of the
Securities Act, the Securities Exchange Act and the 1940 Act and the rules and
regulations of the Commission thereunder and no facts have come to counsel's
attention which cause them to believe that as of the effectiveness of the
portions of the Registration Statement applicable to the AC Fund, the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; and (vii) to the best of their
knowledge and information and subject to the qualifications set forth below,
the execution and delivery by the AC Fund of the Agreement and the consummation
of the transactions therein contemplated do not require, under the laws of the
States of Texas or Delaware, or the federal laws of the United States, the
consent, approval, authorization, registration, qualification or order of, or
filing with, any court or governmental agency or body (except such as have been
obtained under the Securities Act, the 1940 Act or the rules and regulations
thereunder.) Counsel need express no opinion, however, as to any such
consent, approval, authorization, registration, qualification, order or filing
(a)

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<PAGE> 14

which may be required as a result of the involvement of other parties to the
Agreement in the transactions contemplated by the Agreement because of their
legal or regulatory status or because of any other facts specifically
pertaining to them; (b) the absence of which does not deprive the VKM Trust or
VKM Fund of any material benefit under such agreements; of (c) which can be
readily obtained without significant delay or expense to the VKM Trust or VKM
Fund, without loss to the VKM Trust or VKM Fund of any material benefit under
the Agreement and without any material adverse effect on them during the period
such consent, approval authorization, registration, qualification or order was
obtained. The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications, orders or fillings under (a)
laws which are specifically referred to in this opinion, (b) laws of the States
of Texas and Delaware and the United States of America which, in our
experience, are normally applicable to transactions of the type provided for in
the Agreement and (c) court orders and judgments disclosed to us by the AC Fund
in connection with the opinion. In addition, although counsel need not
specifically considered the possible applicability to the AC Fund of any other
laws, orders or judgments, nothing has come to their attention in connection
with our representations of the AC Fund in this transaction that has caused
them to conclude that any other consent, approval, authorization, registration,
qualification, order or filing is required.

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

I. THE ASSETS. The Assets, as set forth in Schedule 1, as amended,
shall consist solely of nondefaulted, liquid and investment grade "utility
securities" (as defined in Section 1A), cash and other marketable securities
which are in conformity with the VKM Fund's investment objective, policy and
restrictions as set forth in the VKM Fund's prospectus and statement of
additional information, copies of which have been delivered to the AC Fund.

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

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

9. AMENDMENT, WAIVER AND TERMINATION.

(A) The parties hereto may, by agreement in writing authorized
by their respective Boards of Directors or Trustees, as the case may be, amend
this Agreement at any time before or after approval thereof by the shareholders
of the parties hereto; provided, however, that (i) after such AC Fund
shareholder approval, no amendment shall be made by the parties hereto which
substantially changes the terms of Sections 1, 2 and 3 hereof without obtaining
AC Fund's shareholder approval thereof.

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

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<PAGE> 15

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

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

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

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

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

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

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

10. REMEDIES

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

11. SURVIVAL OF WARRANTIES AND INDEMNIFICATION.

(A) SURVIVAL. The representations and warranties included or provided
for herein, or in the Schedules or other instruments delivered or to be
delivered pursuant hereto, shall survive the Closing Date for a three year
period except that any representation or warranty with respect to taxes shall
survive for the expiration of the statutory period of limitations for
assessments of tax deficiencies as the same may be extended from time to time
by the taxpayer. The covenants and agreements included or provided for herein
shall survive and be continuing obligations in accordance with their terms.
The period for which a representation, warranty, covenant or agreement survives
shall be referred to hereinafter as the "Survival Period." Notwithstanding
anything set forth in the immediately preceding sentence, the VKM Trust's and
the AC Fund's right to seek indemnity pursuant to this Agreement shall survive
for a period of ninety (90) days beyond the expiration of the Survival Period
of the representation, warranty, covenant or agreement upon which indemnity is
sought. In no event shall the

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<PAGE> 16

VKM Trust or the AC Fund be obligated to indemnify the other if indemnity is
not sought within ninety (90) days of the expiration of the applicable Survival
Period.

(B) INDEMNIFICATION. The AC Fund shall indemnity and defend VKM
Trust, VKM Fund, their officers, trustees, agents and persons controlled by or
controlling any of them and hold them harmless, from and against any and all
losses, damages, liabilities, claims, demands, judgments, settlements,
deficiencies, taxes, assessments, charges, costs and expenses of any nature
whatsoever (including reasonable attorneys' fees) including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees reasonably incurred by such indemnitee in connection with the defense or
disposition of any claim, action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which
such indemnitee may be or may have been involved as a party or otherwise or
with which such indemnitee may be or may have been threatened, (collectively,
the "Losses") resulting from or arising out of any of the following:

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

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

(C) REPRESENTATIONS AND WARRANTIES. In addition to the indemnities
provided in Section 11(B) above, each party (an "Indemnitor") shall indemnify
and hold the other and its officers, directors, agents and persons controlled
by or controlling any of them (each an "Indemnified Party") harmless from and
against any Losses arising out of or related to any claim of a breach of any
representation, warranty or covenant made herein by the Indemnitor; provided,
however, that no Indemnified Party shall be indemnified hereunder against any
Losses arising directly from such Indemnified Party's (i) willful misfeasance,
(ii) bad faith, (iii) gross negligence or (iv) reckless disregard of the duties
involved in the conduct of such Indemnified Party's position.

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

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<PAGE> 17

12. SURVIVAL

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

13. NOTICES.

All notices hereunder shall be sufficiently given for all purposes
hereunder if in writing and delivered personally or sent by registered mail or
certified mail, postage prepaid. Notice to the AC Fund shall be addressed to
the AC Fund c/o Van Kampen American Capital Asset Management, Inc., 2800 Post
Oak Boulevard, Houston, TX 77056; Attention: General Counsel, with a copy to
George M. Bartlett, O'Melveny & Myers, 400 South Hope Street, Los Angeles,
California 90071, or at such other address as the AC Fund may designate by
written notice to the VKM Trust. Notice to the VKM Trust shall be addressed to
the VKM Trust c/o Van Kampen American Capital Investment Advisory Corp., One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attention: General Counsel
or at such other address and to the attention of such other person as the VKM
Trust may designate by written notice to the AC Fund. Any notice shall be
deemed to have been served or given as of the date such notice is delivered
personally or mailed.

14. SUCCESSORS AND ASSIGNS.

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

15. BOOKS AND RECORDS.

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

16. GENERAL.

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

17
<PAGE> 18

17. LIMITATION OF LIABILITY.

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

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

AMERICAN CAPITAL UTILITIES INCOME TRUST, a Delaware business trust.

By: ______________________________

Title: _____________________________

Attest: _________________________________

Title: ________________________________

VAN KAMPEN MERRITT EQUITY TRUST, a Delaware business trust.

By: _______________________________

Title: _____________________________

Attest: __________________________________

Title: ________________________________

18
<PAGE> 19

SCHEDULE 1 [LIST OF MARKETABLE SECURITIES] [AS AMENDED AT CLOSING]

<PAGE> 20

SCHEDULE 2 [AC FUND CONSENTS]

<PAGE> 21

ANNEX A [TAX FREE OPINION: O'MELVENY & MYERS]

<PAGE> 22

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

<PAGE> 23

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

<PAGE> 1

EXHIBIT 14(a)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of the registration statement on Form
N-14 (the "Registration Statement") of our report dated November 14, 1994,
relating to the financial statements and financial highlights appearing in the
September 30, 1994 Annual Report to Shareholders of American Capital Utilities
Income Fund, which is also incorporated by reference into the Registration
Statement.

Price Waterhouse LLP

PRICE WATERHOUSE LLP

Houston, Texas
May 25, 1995

<PAGE> 1
EXHIBIT 14(b)

CONSENT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Van Kampen Merritt Utility Fund:

We consent to the use of our report included herein.

KPMG Peat Marwick LLP

Chicago, Illinois
May 23, 1995

<PAGE> 1

EXHIBIT 16

POWER OF ATTORNEY

The undersigned, being officers and trustees of Van Kampen Merritt Equity
Trust, a Massachusetts business trust (the "Trust"), do hereby, in the
capacities shown below, individually appoint Ronald A. Nyberg of Oakbrook
Terrace, Illinois, as the agent and attorney-in-fact with full power of
substitution and resubstitution, for each of the undersigned, to execute and
deliver, for and on behalf of the undersigned, the Registration Statement on
Form N-14 ("Registration Statement") to be filed with the Securities and
Exchange Commission on or about May 24, 1995, pursuant to the provisions of the
Securities Act of 1933, and any and all amendments to the Registration Statement
which may be filed by the Trust with the Securities and Exchange Commission.

This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.

Dated: May 18, 1995

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

/s/ DONALD C. MILLER Chairman and Trustee 5/18/95
---------------------------------------------
Donald C. Miller

/s/ DENNIS J. McDONNELL President (Chief Executive Officer) 5/18/95
--------------------------------------------- and Trustee
Dennis J. McDonnell

/s/ R. CRAIG KENNEDY Trustee 5/18/95
---------------------------------------------
R. Craig Kennedy

/s/ PHILIP P. GAUGHAN Trustee 5/18/95
---------------------------------------------
Philip P. Gaughan

/s/ JACK E. NELSON Trustee 5/18/95
---------------------------------------------
Jack E. Nelson

/s/ JEROME L. ROBINSON Trustee 5/18/95
---------------------------------------------
Jerome L. Robinson

/s/ WAYNE W. WHALEN Trustee 5/18/95
---------------------------------------------
Wayne W. Whalen

/s/ EDWARD C. WOOD III Vice President and Treasurer 5/18/95
--------------------------------------------- (Chief Financial and Accounting
Edward C. Wood III Officer)
</TABLE>

<PAGE> 1

EXHIBIT 17(B)

PROXY

VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND

SPECIAL MEETING OF SHAREHOLDERS

[ ], 1995

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE VAN KAMPEN AMERICAN CAPITAL
UTILITIES INCOME FUND.

The undersigned holder of shares of common stock of the Van Kampen American
Capital Utilities Income Fund, a Delaware business trust (the "AC Fund"), hereby
appoint Don G. Powell, Ronald A. Nyberg, Fernando Sisto and Nori L. Gabert, and
each of them, with full power of substitution and revocation, as proxies to
represent the undersigned at the Special Meeting of Shareholders to be held at
the [Transco Tower Auditorium, Level 2, 2800 Post Oak Boulevard, Houston, Texas
77056, on [day], [September 8, 1995] at [TIME]], and any and all adjournments
thereof (the "Special Meeting"), and thereat to vote all shares of stock which
the undersigned would be entitled to vote, with all powers the undersigned would
possess if personally present, in accordance with the following instructions:

<TABLE>
<S> <C> <C> <C> <C>
1. FOR AGAINST ABSTAIN
------ ------ ------ the proposal to approve the Reorganization pursuant to
which the AC Fund would transfer substantially all of its
------ ------ ------ assets to the Van Kampen American Capital Utility Fund in
exchange for Class A, B or C Shares, respectively, of the
VK Fund, which Class A, B or C Shares would be
distributed to each shareholder of the AC Fund and the AC
Fund would be dissolved, as more fully described in the
Proxy Statement/Prospectus.
2. FOR AGAINST ABSTAIN
------ ------ ------ To act upon any and all other business which may come
before the Special Meeting or any adjournment thereof.
------ ------ ------
</TABLE>

If more than one of the proxies, or their substitutes, are present at the
Special Meeting or any adjournment thereof, they jointly (or, if only one
is present and voting then that one) shall have authority and may exercise
all powers granted hereby. This Proxy, when properly executed, will be
voted in accordance with the instructions marked hereon by the undersigned.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
PROPOSALS DESCRIBED ABOVE AND IN THE DISCRETION OF THE PROXIES UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.

Account No. No. of Shares Proxy No.

The undersigned hereby acknowledges receipt of the accompanying Notice of
Special Meeting and Proxy Statement for the Special Meeting to be held on
[ ], 1995.

Dated
------------------------ , 1995

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

------------------------------------------------------------------------
Signature(s)

Please sign exactly as your name or names appear on this Proxy. When signing as
attorney, trustee, executor, administrator, custodian, guardian or corporate
officer, please give full title. If shares are held jointly, each holder should
sign.

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> CLASS A SHARES

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 24,982,220
<INVESTMENTS-AT-VALUE> 25,030,437
<RECEIVABLES> 389,345
<ASSETS-OTHER> 35,396
<OTHER-ITEMS-ASSETS> 2,984
<TOTAL-ASSETS> 25,458,162
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160,051
<TOTAL-LIABILITIES> 160,051
<SENIOR-EQUITY> 29,041
<PAID-IN-CAPITAL-COMMON> 25,669,373
<SHARES-COMMON-STOCK> 995,792
<SHARES-COMMON-PRIOR> 892,244
<ACCUMULATED-NII-CURRENT> 8,263
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (456,783)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48,217
<NET-ASSETS> 25,298,111
<DIVIDEND-INCOME> 314,116
<INTEREST-INCOME> 445,920
<OTHER-INCOME> 0
<EXPENSES-NET> 219,319
<NET-INVESTMENT-INCOME> 540,717
<REALIZED-GAINS-CURRENT> (130,520)
<APPREC-INCREASE-CURRENT> 1,044,548
<NET-CHANGE-FROM-OPS> 914,028
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 225,289
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 273,477
<NUMBER-OF-SHARES-REDEEMED> 193,947
<SHARES-REINVESTED> 24,018
<NET-CHANGE-IN-ASSETS> 5,315,478
<ACCUMULATED-NII-PRIOR> 31,198
<ACCUMULATED-GAINS-PRIOR> (326,263)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 72,767
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 318,981
<AVERAGE-NET-ASSETS> 8,160,973
<PER-SHARE-NAV-BEGIN> 8.39
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> .334
<PER-SHARE-DIVIDEND> .234
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.72
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> CLASS B SHARES

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,638,873
<SHARES-COMMON-PRIOR> 1,279,763
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 290,220
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 476,363
<NUMBER-OF-SHARES-REDEEMED> 145,212
<SHARES-REINVESTED> 27,959
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 12,200,171
<PER-SHARE-NAV-BEGIN> 8.39
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .332
<PER-SHARE-DIVIDEND> .202
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.71
<EXPENSE-RATIO> 2.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> CLASS C SHARES

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 269,483
<SHARES-COMMON-PRIOR> 209,939
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 48,143
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 68,131
<NUMBER-OF-SHARES-REDEEMED> 12,378
<SHARES-REINVESTED> 3,791
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,028,570
<PER-SHARE-NAV-BEGIN> 8.38
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .332
<PER-SHARE-DIVIDEND> .202
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.70
<EXPENSE-RATIO> 2.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> VKM UTILITY FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 140,861,385<F1>
<INVESTMENTS-AT-VALUE> 127,324,514<F1>
<RECEIVABLES> 1,345,601<F1>
<ASSETS-OTHER> 82,114<F1>
<OTHER-ITEMS-ASSETS> 1,998,764<F1>
<TOTAL-ASSETS> 130,750,993<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,118,442<F1>
<TOTAL-LIABILITIES> 1,118,442<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 57,660,692
<SHARES-COMMON-STOCK> 3,986,676
<SHARES-COMMON-PRIOR> 3,989,613
<ACCUMULATED-NII-CURRENT> 168,339<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (7,320,968)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (13,624,319)<F1>
<NET-ASSETS> 49,735,735
<DIVIDEND-INCOME> 3,107,551<F1>
<INTEREST-INCOME> 990,723<F1>
<OTHER-INCOME> (1,268)<F1>
<EXPENSES-NET> 1,240,684<F1>
<NET-INVESTMENT-INCOME> 2,856,322<F1>
<REALIZED-GAINS-CURRENT> (4,866,585)<F1>
<APPREC-INCREASE-CURRENT> 1,987,847<F1>
<NET-CHANGE-FROM-OPS> (22,416)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,795,999)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 369,195
<NUMBER-OF-SHARES-REDEEMED> (486,244)
<SHARES-REINVESTED> 114,112
<NET-CHANGE-IN-ASSETS> (1,753,553)
<ACCUMULATED-NII-PRIOR> 1,512,453<F1>
<ACCUMULATED-GAINS-PRIOR> (2,454,383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355,171)<F1>
<GROSS-ADVISORY-FEES> 447,533<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,240,684<F1>
<AVERAGE-NET-ASSETS> 51,735,969
<PER-SHARE-NAV-BEGIN> 12.906
<PER-SHARE-NII> .3
<PER-SHARE-GAIN-APPREC> (.281)
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.475
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> VKM UTILITY FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 140,861,385<F1>
<INVESTMENTS-AT-VALUE> 127,324,514<F1>
<RECEIVABLES> 1,345,601<F1>
<ASSETS-OTHER> 82,114<F1>
<OTHER-ITEMS-ASSETS> 1,998,764<F1>
<TOTAL-ASSETS> 130,750,993<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,118,442<F1>
<TOTAL-LIABILITIES> 1,118,442<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 91,289,057
<SHARES-COMMON-STOCK> 6,288,480
<SHARES-COMMON-PRIOR> 6,499,096
<ACCUMULATED-NII-CURRENT> 168,339<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (7,320,968)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (13,624,319)<F1>
<NET-ASSETS> 78,589,041
<DIVIDEND-INCOME> 3,107,551<F1>
<INTEREST-INCOME> 990,723<F1>
<OTHER-INCOME> (1,268)<F1>
<EXPENSES-NET> 1,240,684<F1>
<NET-INVESTMENT-INCOME> 2,856,322<F1>
<REALIZED-GAINS-CURRENT> (4,866,585)<F1>
<APPREC-INCREASE-CURRENT> 1,987,847<F1>
<NET-CHANGE-FROM-OPS> (22,416)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,368,926)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 517,543
<NUMBER-OF-SHARES-REDEEMED> (877,018)
<SHARES-REINVESTED> 148,859
<NET-CHANGE-IN-ASSETS> (5,116,256)
<ACCUMULATED-NII-PRIOR> 1,512,453<F1>
<ACCUMULATED-GAINS-PRIOR> (2,454,383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355,171)<F1>
<GROSS-ADVISORY-FEES> 447,533<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,240,684<F1>
<AVERAGE-NET-ASSETS> 83,444,882
<PER-SHARE-NAV-BEGIN> 12.880
<PER-SHARE-NII> .257
<PER-SHARE-GAIN-APPREC> (.271)
<PER-SHARE-DIVIDEND> (.369)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.497
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> VKM UTILITY FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 140,861,385<F1>
<INVESTMENTS-AT-VALUE> 127,324,514<F1>
<RECEIVABLES> 1,345,601<F1>
<ASSETS-OTHER> 82,114<F1>
<OTHER-ITEMS-ASSETS> 1,998,764<F1>
<TOTAL-ASSETS> 130,750,993<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,118,442<F1>
<TOTAL-LIABILITIES> 1,118,442<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 1,458,152
<SHARES-COMMON-STOCK> 104,572
<SHARES-COMMON-PRIOR> 88,630
<ACCUMULATED-NII-CURRENT> 168,339<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (7,320,968)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (13,624,319)<F1>
<NET-ASSETS> 1,306,340
<DIVIDEND-INCOME> 3,107,551<F1>
<INTEREST-INCOME> 990,723<F1>
<OTHER-INCOME> (1,268)<F1>
<EXPENSES-NET> 1,240,684<F1>
<NET-INVESTMENT-INCOME> 2,856,322<F1>
<REALIZED-GAINS-CURRENT> (4,866,585)<F1>
<APPREC-INCREASE-CURRENT> 1,987,847<F1>
<NET-CHANGE-FROM-OPS> (22,416)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (35,460)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 25,602
<NUMBER-OF-SHARES-REDEEMED> (11,844)
<SHARES-REINVESTED> 2,184
<NET-CHANGE-IN-ASSETS> 165,815
<ACCUMULATED-NII-PRIOR> 1,512,453<F1>
<ACCUMULATED-GAINS-PRIOR> (2,454,383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355,171)<F1>
<GROSS-ADVISORY-FEES> 447,533<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,240,684<F1>
<AVERAGE-NET-ASSETS> 1,200,026
<PER-SHARE-NAV-BEGIN> 12.868
<PER-SHARE-NII> .237
<PER-SHARE-GAIN-APPREC> (.244)
<PER-SHARE-DIVIDEND> (.369)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.492
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> VKM UTILITY FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 140,861,385<F1>
<INVESTMENTS-AT-VALUE> 127,324,514<F1>
<RECEIVABLES> 1,345,601<F1>
<ASSETS-OTHER> 82,114<F1>
<OTHER-ITEMS-ASSETS> 1,998,764<F1>
<TOTAL-ASSETS> 130,750,993<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,118,442<F1>
<TOTAL-LIABILITIES> 1,118,442<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 1,598
<SHARES-COMMON-STOCK> 115
<SHARES-COMMON-PRIOR> 114
<ACCUMULATED-NII-CURRENT> 168,339<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (7,320,968)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (13,624,319)<F1>
<NET-ASSETS> 1,435
<DIVIDEND-INCOME> 3,107,551<F1>
<INTEREST-INCOME> 990,723<F1>
<OTHER-INCOME> (1,268)<F1>
<EXPENSES-NET> 1,240,684<F1>
<NET-INVESTMENT-INCOME> 2,856,322<F1>
<REALIZED-GAINS-CURRENT> (4,866,585)<F1>
<APPREC-INCREASE-CURRENT> 1,987,847<F1>
<NET-CHANGE-FROM-OPS> (22,416)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (51)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (38)
<ACCUMULATED-NII-PRIOR> 1,512,453<F1>
<ACCUMULATED-GAINS-PRIOR> (2,454,383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355,171)<F1>
<GROSS-ADVISORY-FEES> 447,533<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,240,684<F1>
<AVERAGE-NET-ASSETS> 1,481
<PER-SHARE-NAV-BEGIN> 12.921
<PER-SHARE-NII> .294
<PER-SHARE-GAIN-APPREC> (.293)
<PER-SHARE-DIVIDEND> (.444)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.478
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not a class basis.
</FN>

</TABLE>