AMERICAN CAPITAL CORPORATE BOND FUND INC, 497, 1995-05-18

AMERICAN CAPITAL CORPORATE BOND FUND INC
497, 1995-05-18

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<PAGE> 1

SUPPLEMENT, DATED MAY 1, 1995 TO
PROSPECTUSES OF:

AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
AMERICAN CAPITAL GLOBAL EQUITY FUND
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AND
AMERICAN CAPITAL PACE FUND, INC.

1. Effective today, the Distributor has increased the ongoing payments to
broker-dealers and other Service Organizations with respect to Class C shares.
The Distributor will now pay broker-dealers and other Service Organizations
ongoing commissions and transaction fees of up to 0.75% of the average daily net
assets of the Fund's Class C shares for the second through tenth year after
purchase for Class C shares sold on or after May 1, 1995. Broker-dealers and
other Service Organizations will still be paid ongoing commissions and
transaction fees for the second through tenth year after purchase of up to 0.65%
for Class C shares sold before May 1, 1995.

2. The first two paragraphs of "Shareholder Services -- Shareholder Services
Applicable to all Classes -- Exchange Privilege" are amended to read in their
entirety as follows:

EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund
(listed herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts") other than Government Target, may be exchanged for shares of the
same class of any other fund without sales charge, provided that shares of
Corporate Bond, Federal Mortgage, Global Managed, Government Trust, High
Yield, Municipal Bond, Real Estate, Tax-Exempt, Texas Municipal, Utilities,
and the American Capital Global Government Securities Fund of World
Portfolio are subject to a 30-day holding period requirement. Shares of
Government Target may be exchanged for Class A shares of the Fund without
sales charge. Class A shares of Reserve that were not acquired in exchange
for Class B or Class C shares of a Participating Fund may be exchanged for
Class A shares of the Fund upon payment of the excess, if any, of the sales
charge rate applicable to the shares being acquired over the sales charge
rate previously paid. Shares of Reserve acquired through an exchange of
Class B or Class C shares may be exchanged only for the same class of shares
of a Participating Fund without incurring a contingent deferred sales
charge. Shares of any Participating Fund or Reserve may be exchanged for
shares of
<PAGE> 2

any other Participating Fund if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares
of a Participating Fund may be available for sale only to existing
shareholders of the Participating Fund. Additional Funds may be added from
time to time as a Participating Fund.

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

3. The following should be added under the section entitled "Purchase of
Shares -- General":

Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by registered representatives and
members of their families to locations within or outside of the United
States for meetings or seminars of a business nature.
<PAGE> 3

SUPPLEMENT DATED APRIL 3, 1995
TO THE PROSPECTUSES OF
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL ENTERPRISE FUND, INC.
AND
AMERICAN CAPITAL EQUITY INCOME FUND, INC.

The Section "Purchase of Shares -- General" is Supplemented as follows:

In addition, the Distributor is sponsoring a sales contest for INVEST
Financial Corporation ("Invest") relating to the Fund and certain other funds or
investment products sponsored by the Distributor. Under the terms of the
contest, an Invest broker may receive an award valued up to $750.00 for sales
during the period April 1, 1995 through May 31, 1995.
<PAGE> 4

SUPPLEMENT DATED FEBRUARY 6, 1995,
TO PROSPECTUSES OF:

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

The description of the classes of investors entitled to purchase shares at net
asset value contained under the Section entitled "Purchase of Shares -- Class A
Shares" are hereby replaced in their entirety as follows:

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

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

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

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or in any combination of
shares of the Fund and shares of certain other participating American
Capital funds as described herein under "Purchase of Shares -- Class A
Shares -- Volume Discounts", during the 13 month period commencing with
the first investment pursuant hereto equals at least $1 million. The
Distributor may pay Service Organizations through which purchases are made
an amount up to 0.50% of the amount invested, over a twelve month period
following such transaction.
<PAGE> 5

(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1% for such purchases.

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

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

(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000. For such
investments the Fund imposes a contingent deferred sales charge of 1% in
the event of redemptions within one year of the purchase. The contingent
deferred sales charge incurred upon redemption is paid to the Distributor
in reimbursement for distribution-related expenses. A commission will be
paid to dealers who initiate and are responsible for such purchases as
follows: 1% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million.

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

999 STK-009
<PAGE> 6

SUPPLEMENT, DATED JANUARY 16, 1995 TO
PROSPECTUSES OF:

AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL GLOBAL GOVERNMENT FUND
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
AMERICAN CAPITAL TAX-EXEMPT TRUST
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AND
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.

1. Effective January 16, 1995, for full service participant directed profit
sharing and money purchase plans administered by Van Kampen/American Capital
Trust Company, no sales charge is payable at the time of purchase for plans with
at least 50 eligible employees or investing at least $250,000 in American
Capital funds, which includes Participating Funds as described in the Prospectus
under "Purchase of Shares -- Class A Shares -- Volume Discounts," and American
Capital Reserve Fund, Inc. For such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase.

Effective January 16, 1995, the Fund will also begin imposing a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase with respect to those qualified 401(k) retirement plans that are
administered under Van Kampen/American Capital Trust Company's (k) Advantage
Program, or similar recordkeeping programs made available through Van
Kampen/American Capital Trust Company purchasing shares of the Fund at net asset
value.

2. Effective January 16, 1995, the Distributor will no longer pay any
commission on accounts opened for shareholders where the amounts invested
represent the redemption proceeds from investment companies distributed by an
entity other than the Distributor.
<PAGE> 7

3. Effective January 16, 1995, the sales charge structure for Class A shares
has been modified as follows:

SALES CHARGE TABLE

<TABLE>
<CAPTION>
REALLOWED TO
SIZE OF AS % OF NET AS % OF DEALERS (AS A
INVESTMENT AMOUNT INVESTED OFFERING PRICE % OF OFFERING PRICE)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.99% 4.75% 4.25%
$100,000 but less
than $250,000 3.90% 3.75% 3.25%
$250,000 but less
than $500,000 2.83% 2.75% 2.25%
$500,000 but less
than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 and over (see herein) (see herein) (see herein)
- ----------------------------------------------------------------------------
</TABLE>

No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase. The contingent deferred sales charge incurred upon redemption
is paid to the Distributor in reimbursement for distribution-related expenses. A
commission will be paid to dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1% on sales to $2 million, plus
0.80% on the next million, plus 0.20% on the next $2 million and 0.08% on the
excess over $5 million.

4. Effective January 16, 1995, the Fund may sell Class A shares of the Fund at
net asset value to Service Organizations for the benefit of their clients who
are participating in such Service Organizations' "wrap accounts." Service
Organizations must execute supplemental agreements to their existing selling
agreement with the Distributor in order to qualify for the program.
<PAGE> 8

SUPPLEMENT, DATED DECEMBER 20, 1994 TO
PROSPECTUSES OF:

AMERICAN CAPITAL COMSTOCK FUND, INC.
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
AMERICAN CAPITAL EQUITY INCOME FUND, INC.
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
AMERICAN CAPITAL HARBOR FUND, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AMERICAN CAPITAL PACE FUND, INC.
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
AMERICAN CAPITAL TAX-EXEMPT TRUST
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AND
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.

1. On December 20, 1994, The Van Kampen Merritt Companies, Inc. (the "Buyer")
acquired from The Travelers Inc. ("Travelers") 100% ownership (the
"Acquisition") of American Capital Management & Research, Inc. (the "Company"),
the parent corporation of American Capital Asset Management, Inc. (the
"Adviser"), the Funds' investment adviser, and American Capital Marketing, Inc.
(the "Distributor"), the Funds' distributor. The Company was merged with and
into the Buyer after the Acquisition. The combined parent company was renamed
Van Kampen/American Capital, Inc. ("VKAC"). The Adviser and the Distributor are
wholly owned subsidiaries of VKAC, which is a wholly owned subsidiary of VK/AC
Holding, Inc. Prior to the Acquisition, the Company was an indirect wholly owned
subsidiary of Travelers.

The Adviser was renamed Van Kampen/American Capital Asset Management, Inc. and
will continue to provide investment advisory services to the Fund. The
Distributor was renamed Van Kampen/American Capital Marketing, Inc. and will
continue to provide distribution services to the Funds until approximately
December 31, 1994 when the Buyer anticipates merging the Distributor into Van
Kampen/American Capital Distributors, Inc. a registered broker-dealer that
currently serves as distributor to the Van Kampen Merritt family of mutual
funds.

On December 16, 1994, in connection with the Acquisition, the shareholders of
each Fund approved a new investment advisory agreement with the Adviser
<PAGE> 9

providing for the same terms and services as the investment advisory agreement
between each Fund and the Adviser that was in effect before the Acquisition.

The Buyer is a wholly owned subsidiary of VK/AC Holding, Inc. which is
controlled by The Clayton & Dubilier Private Equity Fund IV Limited Partnership,
("C&D L.P."). C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a private
investment firm. It is anticipated that members of senior management of the
Buyer who were members of senior management of the Company prior to the
Acquisition will acquire minority interests (totaling less than 5% in the
aggregate) in VK/AC Holding, Inc. As part of the Acquisition, Travelers also
acquired a minority non-voting interest (representing less than 5%) in VK/AC
Holding, Inc. and was granted an option entitling Travelers, upon the
satisfaction of certain conditions, to purchase from VK/AC Holding, Inc.
additional non-voting shares representing up to 5% of outstanding VK/Holding,
Inc. common shares. The General Partner of C&D L.P. is Clayton & Dubilier
Associates IV Limited Partnership ("C&D Associates L.P."). The general partners
of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, Alberto
Cribiore, Donald J. Gogel and Hubbard C. Howe, each of whom is a principal of
Clayton, Dubilier & Rice, Inc.

As of September 30, 1994, subsidiaries of VKAC on a pro forma basis would have
managed or supervised $51.8 billion of assets, including assets of 66 open-end
investment companies and 38 closed-end investment companies having aggregate
total assets of $32.4 billion.

2. Effective December 20, 1994, shares of each Fund will no longer be offered
at net asset value to accounts opened for shareholders by dealers where the
amounts invested represent the redemption proceeds from investment companies
distributed by either the Distributor or Van Kampen/American Capital
Distributors, Inc. This change does not affect any exchange or reinstatement
privilege described in each Fund's Prospectus.

3. Other agreements entered into in connection with the Acquisition provide,
among other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Fund(s) with subsidiaries of
Travelers.

4. For all Funds except American Capital Municipal Bond Fund, Inc., American
Capital Tax-Exempt Trust, and American Capital Texas Municipal Securities, Inc.:
The Distributor is sponsoring a sales incentive program for A.G. Edwards & Sons,
Inc. ("A.G. Edwards"). The Distributor will reallow its portion of the Fund's
sales concession to A.G. Edwards on sales of Class A Shares of the Fund relating
to the "rollover" of any savings into an Individual Retirement Account ("IRA"),
the transfer of assets into an IRA and contributions to an IRA, commencing on
January 1, 1995 and terminating on April 15, 1995.

5. The description in the Prospectus found at Purchase of Shares -- Class A
Shares regarding the purchase of Class A shares at net asset value by directors
of
<PAGE> 10

the Fund and employees and officers of the Adviser and certain affiliates of the
Adviser and certain of their family members is replaced by the following:

6. For all Funds except American Capital Comstock Fund, Inc., American Capital
Emerging Growth Fund, Inc., American Capital Equity Income Fund, Inc., American
Capital Growth and Income Fund, Inc., American Capital Harbor Fund, Inc., and
American Capital Pace Fund, Inc.: The Adviser may utilize at its own expense
credit analysis, research and trading support services provided by its
affiliate, Van Kampen/American Capital Investment Advisory Corp. (formerly Van
Kampen Merritt Investment Advisory Corp.).

7. The Distributor may from time to time implement programs under which a
broker, dealer or financial intermediary's sales force may be eligible to win
nominal awards for certain sales efforts or under which the Distributor will
reallow to any broker, dealer or financial intermediary that sponsors sales
contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on sales generated by
the broker or dealer during such programs. Also, the Distributor in its
discretion may from time to time, pursuant to objective criteria established by
it, pay fees to, and sponsor business seminars for, qualifying brokers, dealers
or financial intermediaries for certain services or activities which are
primarily intended to result in sales of shares of the Fund. Such fees paid for
such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis.
<PAGE> 11

- ------------------------------------------------------------------------------
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
- ------------------------------------------------------------------------------

2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666
December 15, 1994

American Capital Corporate Bond Fund, Inc. (the "Fund") is a mutual fund whose
primary objective is to seek to provide current income with preservation of
capital. Capital appreciation is a secondary objective which is sought only when
consistent with the Fund's primary objective. The Fund invests primarily in a
diversified portfolio of corporate debt securities.

There is no assurance that the Fund will achieve its investment objectives.

This Prospectus tells investors briefly the information they should know
before investing in the Fund. Investors should read and retain this Prospectus
for future reference.

A Statement of Additional Information dated the same date as this Prospectus
has been filed with the Securities and Exchange Commission ("SEC") and contains
further information about the Fund. A copy of the Statement of Additional
Information may be obtained without charge by calling or writing the Fund at the
telephone number and address printed above. The Statement of Additional
Information is incorporated by reference into this Prospectus.

THE SHARES OF THIS FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY AND ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 12

CUSTODIAN:
State Street Bank and
Trust Company
225 Franklin Street
Boston, Massachusetts 02110

SHAREHOLDER SERVICE AGENT:
American Capital Companies
Shareholder Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

INVESTMENT ADVISER:
American Capital
Asset Management, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056

DISTRIBUTOR:
American Capital
Marketing, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056

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

<TABLE>
<S> <C>
Prospectus Summary.......... 3
Expense Synopsis............ 5
Financial Highlights........ 7
Multiple Pricing System..... 9
Investment Objectives and
Policies.................. 12
Investment Practices and
Restrictions.............. 15
The Fund and Its
Management... 20
Purchase of Shares.......... 21
Distribution Plans.......... 29
Shareholder Services........ 31
Redemption of Shares........ 36
Dividends, Distributions and
Taxes..................... 38
Prior Performance
Information... 40
Additional Information...... 42
Appendix -- Ratings of
Commercial Paper and
Senior Securities......... 44
Investment Holdings......... 47
</TABLE>

***************************************************************************
* *
* No dealer, salesperson, or other person has been authorized to give *
* any information or to make any representations other than those *
* contained in this Prospectus or in the Statement of Additional *
* Information, and, if given or made, such other information or *
* representations must not be relied upon as having been authorized by *
* the Fund or by the Distributor. This Prospectus does not constitute *
* an offering by the Distributor in any jurisdiction in which such *
* offering may not lawfully be made. *
* *
***************************************************************************

2
<PAGE> 13

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

SHARES OFFERED. Capital Stock.

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

TYPE OF COMPANY. Diversified, open-end management investment company.

INVESTMENT OBJECTIVES. Current income consistent with preservation of capital.
Capital appreciation is a secondary objective. There is, however, no assurance
that the Fund will be successful in achieving its objectives.

INVESTMENT POLICY. Investing primarily in a diversified portfolio of corporate
debt securities which in the opinion of the investment adviser will provide an
adequate return and yet be subject to reasonable credit risk.

RISK FACTORS. The market prices of corporate debt securities generally
fluctuate with changes in interest rates, and the Fund's net asset value per
share will increase and decrease with changes in the value of its portfolio.
Generally corporate bonds with longer maturities tend to produce higher yields
and are subject to greater market fluctuation as a result of changes in interest
rates ("market risk") than corporate bonds with shorter maturities. Lower rated
corporate debt securities (commonly referred to as junk bonds) generally provide
a higher yield than higher rated corporate debt securities of similar maturity
but are subject to a greater degree of risk with respect to the ability of the
issuer to meet its principal and interest obligations ("credit risk"). Up to 40%
of the Fund's total assets may be invested in securities rated Ba by Moody's
Investors Service ("Moody's") or BB by Standard and Poor's Corporation ("S&P").
Such securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. The Fund may seek to hedge market risk through
transactions in options, futures contracts and related options. Such
transactions involve certain risks. See "Investment Practices and Restrictions."

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

INVESTMENT ADVISER. American Capital Asset Management, Inc. (the "Adviser")
serves as investment adviser to the Fund. The Adviser provides investment advice
to 45 investment company portfolios. See "The Fund and Its Management."

DISTRIBUTOR. American Capital Marketing, Inc. (the "Distributor").

MULTIPLE PRICING SYSTEM. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and

3
<PAGE> 14

Class C shares. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class of shares that best
suits their circumstances and objectives. See "Multiple Pricing
System -- Factors for Consideration." Each class of shares represents an
interest in the same portfolio of investments of the Fund. The per share
dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares. See "Multiple Pricing System." For information on
redeeming shares see "Redemption of Shares."

CLASS A SHARES. These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price. The Fund pays an
annual service fee of up to 0.25% of its average daily net assets attributable
to such class of shares. See "Purchase of Shares -- Class A Shares" and
"Distribution Plans."

CLASS B SHARES. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of 4% of redemption
proceeds during the first and second year, declining each year thereafter to 0%
after the fifth year. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to 1% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class B
Shares" and "Distribution Plans." Class B shares will convert automatically to
Class A shares six years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Multiple Pricing
System -- Conversion Feature."

CLASS C SHARES. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of 1% on redemptions made within
one year of purchase. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to 1% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution Plans." Class C shares will convert automatically to
Class A shares ten years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Multiple Pricing
System -- Conversion Feature."

DIVIDENDS AND DISTRIBUTIONS. Income dividends are distributed monthly; any
capital gains are distributed at least annually. All dividends and distributions
are automatically reinvested in shares of the Fund at net asset value per share
(without sales charge) unless payment in cash is requested. See "Dividends,
Distributions and Taxes."

4
<PAGE> 15

- ------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- ------------------------------------------------------------------------------

The following tables are intended to assist investors in understanding the
expenses applicable to each class of shares:

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES(1) CLASS C SHARES(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of
offering price)................. 4.75%(a) None None
Sales charge imposed on dividend
reinvestments................... None None None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)............. None* 4% during the first and 1.00% during the
second years, 3% during first year(b)
the third year, 2.5%
during the fourth year,
1.5% during the fifth
year and 0% after the
fifth year(b)
Exchange fee(c).................. $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management fees................. .49% .49% .49%
Rule 12b-1 fees(d).............. .20% 1.00%(g) 1.00%(g)
Other expenses(e)............... .40% .41% .44%(f)
Total fund operating expenses... 1.09% 1.90% 1.93%
</TABLE>

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

<TABLE>
<S> <C>
(a) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class A
Shares" -- page 23.
(b) See "Purchase of Shares -- Class B Shares" and "-- Class C Shares"-- page 26 and 28.
(c) Not charged in certain circumstances. See "Shareholder Services -- Shareholder
Services Applicable to All Classes -- Systematic Exchange" and "... -- Automatic
Exchange" .. and page 34.
(d) Up to .25% for Class A shares and 1.00% for Class B and C shares. See "Distribution
Plans" -- page 29.
(e) See "The Fund and Its Management" -- page 20.
(f) "Other expenses" is based on estimated amounts for the current fiscal year.
(g) Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by NASD Rules.
* Investments of $1 million or more are not subject to any sales charge at the time of
purchase, but a contingent deferred sales charge of 1% may be imposed on certain
redemptions made within one year of the purchase.
(1) On an annualized basis.
</TABLE>

5
<PAGE> 16

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment including,
for Class A shares, the maximum $47.50
front-end sales charge and for Class B and
Class C shares, a contingent deferred
sales charge assuming (1) an operating
expense ratio of 1.09% for Class A shares,
1.90% for Class B shares and 1.93% for
Class C shares, (2) a 5% annual return
throughout the period and (3) redemption
at the end of the period:
Class A................................. $58 $81 $105 $174
Class B................................. $61 $93 $120 $182**
Class C................................. $30 $61 $104 $225
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of the
period:
Class A................................. $58 $81 $105 $174
Class B................................. $19 $60 $103 $182**
Class C................................. $20 $61 $104 $225

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

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

The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. See "Purchase of Shares," "The Fund and Its Management" and
"Redemption of Shares." The example is included to provide a means for the
investor to compare expense levels of funds with different fee structures over
varying investment periods. To facilitate such comparison, all funds are
required to utilize a five percent annual return assumption. This assumption is
unrelated to the Fund's prior performance and is not a projection of future
performance. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.

6
<PAGE> 17

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected data for a share of capital stock outstanding throughout each of the
periods indicated)

The following information for each of the five most recent fiscal years has
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified. This information should be read in conjunction with the
related financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
YEAR ENDED AUGUST 31
---------------------------------------------------------------------
1994 1993(1) 1992 1991 1990 1989
--------- ---------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $7.36 $6.98 $6.57 $6.34 $6.78 $7.04
--------- ---------- -------- ---------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................................... .57 .58 .60 .64 .715 .77
Expenses............................................... (.08) (.07) (.07) (.06) (.06) (.05)
--------- ---------- -------- ---------- --------- --------
Net investment income.................................. .49 .51 .53 .58 .655 .72
Net realized and unrealized gains or losses on
securities............................................ (.745) .3875 .44 .2425 (.46) (.25)
--------- ---------- -------- ---------- --------- --------
Total from investment operations....................... (.255) .8975 .97 .8225 .195 .47
--------- ---------- -------- ---------- --------- --------
DIVIDENDS FROM NET INVESTMENT INCOME................... (.485) (.5175) (.56) (.5925) (.635) (.73)
--------- ---------- -------- ---------- --------- --------
Net asset value, end of period......................... $6.62 $7.36 $6.98 $6.57 $6.34 $6.78
========== =========== ========= =========== ========== =========
TOTAL RETURN(4)........................................ (3.55%) 13.48% 15.38% 13.61% 2.94% 7.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $160.0 $190.8 $191.8 $184.6 $191.2 $239.6
Ratios to average net assets
Expenses.............................................. 1.09% 1.05% 1.00% 1.00% .94% .75%
Net investment income................................. 7.06% 7.24% 7.90% 9.03% 10.07% 10.21%
Portfolio turnover rate................................ 0% 19% 37% 15% 54% 18%

-------------------------------------------
YEAR ENDED AUGUST 31
--------------------------------------------
1988 1987 1986(6) 1985(6)
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $7.12 $7.23 $7.03 $6.31
--------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................................... .78 .81 .86 .87
Expenses............................................... (.05) (.05) (.05) (.05)
--------- -------- -------- -------
Net investment income.................................. .73 .76 .81 .82
Net realized and unrealized gains or losses on
securities............................................ (.035) (.06) .20 .72
--------- -------- -------- -------
Total from investment operations....................... .695 .70 1.01 1.54
--------- -------- -------- -------
DIVIDENDS FROM NET INVESTMENT INCOME................... (.775) (.81) (.81) (.82)
--------- -------- -------- -------
Net asset value, end of period......................... $7.04 $7.12 $7.23 $7.03
========== ========= ========= ========
TOTAL RETURN(4)........................................ 10.37% 10.05% 14.85% 25.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $206.8 $156.4 $123.3 $91.4
Ratios to average net assets
Expenses.............................................. .74% .72% .72% .76%
Net investment income................................. 10.46% 10.63% 11.17% 12.29%
Portfolio turnover rate................................ 56% 28% 30% 62%
</TABLE>

(Continued on following page)

7
<PAGE> 18

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------------------- ----------
YEAR ENDED SEPTEMBER 28, 1992(2) YEAR ENDED
AUGUST 31, THROUGH AUGUST 31, AUGUST 31,
1994 1993(1) 1994(1)
---------- --------------------- -----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................. $7.36 $7.05 $7.36(3)
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income.................................... .57 .56 .57
Expenses............................................. (.13) (.13) (.13)
--------- ------- --------
Net investment income................................ .44 .43 .44
Net realized and unrealized gains or
losses on securities............................... (.755) .3465 (.755)
--------- ------- --------
Total from investment operations..................... (.315) .7765 (.315)
--------- ------- --------
DIVIDENDS FROM NET INVESTMENT INCOME................. (.425) (.4665) (.425)
--------- ------- --------
Net asset value, end of period....................... $6.62 $7.36 $6.62
========= ======= ========
TOTAL RETURN(4)...................................... (4.38%) 11.54% (4.51%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................. $13.5 $8.4 $2.3
Ratios to average net assets
Expenses........................................... 1.90% 1.96%(5) 1.93%
Net investment income.............................. 6.29% 6.21%(5) 6.49%
Portfolio turnover rate.............................. 0% 19% 0%

</TABLE>

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

(1) Based on average month-end shares outstanding.
(2) Commencement of offering of sales.
(3) Sales of Class C shares commenced on August 30, 1993 at a net asset value of
$7.40 per share. At August 31, 1993, there were 68 Class C shares
outstanding with a per share net asset value of $7.36. The decrease in net
asset value was due principally to a $.0375 dividend, which was declared as
of August 31, 1993. Other financial highlights for the Class C shares for
this short period are not presented as they are not meaningful.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(5) Annualized.
(6) Effective for the year ended August 31, 1987, the Fund adopted for financial
reporting purposes an accounting method of amortizing debt discounts and
premiums on the same basis as is used for federal income tax reporting. The
effect of the change in accounting method, on a pro forma basis would have
been to increase net investment income with a corresponding decrease in net
realized and unrealized gains or losses in the amounts of $.01 and $.03 for
the years 1986 and 1985, respectively. Similarly, the ratios of net
investment income to average net assets would have been 11.30% and 12.69%,
respectively.

8
<PAGE> 19

- ------------------------------------------------------------------------------
MULTIPLE PRICING SYSTEM
- ------------------------------------------------------------------------------

The Multiple Pricing System permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.

CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price. Class A shares are
subject to an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Purchase of Shares -- Class A Shares."

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

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

CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the

9
<PAGE> 20

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

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

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

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

10
<PAGE> 21

will reject any order of $250,000 or more for Class B shares or any order of $1
million or more for Class C shares.

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

Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. In addition, the check writing privilege is only available for Class A
shares (See "Shareholder Services -- Shareholder Services Applicable to Class A
Shareholders Only -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, and/or have a longer-term
investment horizon. Class C shares may be appropriate for investors who wish to
avoid a front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon and/or desire a short
contingent deferred sales charge schedule.

Under most circumstances, for investments aggregating less than $100,000 at
the time of purchase, investments originally made in Class C shares will tend to
have a slightly higher value upon liquidation than investments originally made
in either Class A or Class B shares if liquidated within approximately the first
six years after the date of the original investment and investments originally
made in Class B shares will tend to have a slightly higher value upon
liquidation than investments originally made in either Class A or Class C shares
for investments held longer. Under most circumstances, for investments
aggregating $100,000 or more at the time of purchase, investments originally
made in Class C shares will tend to have a slightly higher value upon
liquidation than either investments originally made in Class A or Class B shares
if liquidated within approximately the first two to the first six years after
the date of the original investment, but investments originally made in Class A
and Class B shares will tend to have a slightly higher value upon

11
<PAGE> 22

liquidation for investments held longer. The foregoing will not, however, be
true in all cases. Particularly, if the Fund experiences a consistently negative
or widely fluctuating total return, results may differ.

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

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

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

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------

The Fund's primary objective is to seek to provide current income consistent
with preservation of capital. Capital appreciation is a secondary objective
which is sought only when consistent with the Fund's primary objective. The Fund
attempts to achieve these objectives by investing primarily in corporate debt
securities, including convertible securities. There is no assurance that these
objectives will be achieved and yields may fluctuate over time.

The Fund expects that at all times at least 65% of its total assets will be
invested in corporate bonds. For these purposes a corporate bond is defined as
any corporate debt security with an original term to maturity of greater than
one year. The Fund may invest up to ten percent of its assets in preferred
stocks. See "Investment

12
<PAGE> 23

Practices and Restrictions -- Preferred Stocks." The Fund may invest up to 20%
of its assets in convertible securities which includes convertible debentures as
well as convertible preferred stocks. In order to hedge against changes in
interest rates, the Fund may invest in or write options on U.S. Government
securities and engage in transactions involving interest rate futures and
options on such contracts. See "Investment Practices and
Restrictions -- Options, Futures Contracts and Related Options" and the
Statement of Additional Information for discussion of options, futures contracts
and related options.

The Fund is not limited as to the maturities of the corporate debt securities
in which it invests. Most preferred stocks have no stated maturity. The weighted
average maturity, which is likely to vary from time to time, of the corporate
bonds owned by the Fund on August 31, 1994, was 16.22 years. Corporate bonds
with longer maturities generally tend to produce higher yields and are subject
to greater market risk than debt securities with shorter maturities. When
interest rates increase, prices of outstanding corporate bonds and preferred
stocks generally decline. Conversely, prices of outstanding corporate bonds and
preferred stocks generally increase when interest rates fall.

The Fund invests in three categories of securities:

I. (a) securities rated at the time of purchase Baa or higher by Moody's or
BBB or higher by S&P;

(b) securities issued, or guaranteed by the U. S. Government, its agencies
or instrumentalities;

(d) cash and cash equivalents.

II. Securities rated Ba by Moody's or BB by S&P.

III. Securities rated B or below by Moody's and S&P or nonrated (excluding
nonrated U.S. Government agency obligations).

The above specified ratings apply to preferred stocks as well as corporate
bonds.

At least 60% of the Fund's assets must, and up to 100% may, be invested in
category I securities. No more than 20% may be invested in category III
securities. The remaining zero percent to 40% of the Fund's assets are invested
in category II securities (commonly referred to as junk bonds). Although the
Fund may invest up to 40% of its assets in securities rated Ba by Moody's or BB
by S&P, it currently intends to limit such investments to less than 35% of its
assets.

The above percentage limitations apply to the Fund's investment portfolio
excluding options, futures contracts and related options. This is a fundamental
policy of the Fund which may not be changed without approval by a majority (as
defined in the 1940 Act) of the Fund's shareholders.

13
<PAGE> 24

During the fiscal year ended August 31, 1994, the average percentage of the
Fund's assets invested in debt securities (or preferred stocks) within the
various rating categories (based on the higher of the S&P or Moody's ratings),
and the nonrated debt securities, determined on a dollar weighted average, were
as follows:
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
AA/Aa...................................................... 2.57%
A/A........................................................ 22.02%
BBB/Baa.................................................... 63.91%
BB/Ba...................................................... 4.47%
Cash and Equivalents....................................... 7.03%
--------
Total Net Assets....................................... 100.00%
</TABLE>
- ------------------------------------------------------------------------------

Generally, lower rated debt securities provide a higher yield than higher
rated debt securities of similar maturity but are subject to greater market risk
and credit risk. Lower rated debt securities generally are more speculative with
respect to the capacity of the issuer to make interest and principal payments.
For example, debt securities rated BB/Ba or B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. It is the current
operating policy of the Fund not to purchase debt securities rated below B by
both Moody's and S&P or nonrated securities considered by the Adviser to be of
comparable quality. The ratings of Moody's and S&P represent their opinions of
the quality of the securities they undertake to rate, but not the market value
risk of such securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Credit ratings are also
subject to a risk that the rating agencies may fail to timely change the ratings
to reflect subsequent events. A description of the bond, commercial paper and
preferred stock ratings of Moody's and S&P is contained in the Appendix.
Investors should consider carefully the additional risks associated with
investment in lower rated securities, which are not generally meant for short-
term investment.

The market value of lower rated securities may fluctuate more than the market
value of higher rated securities, since the former tend to reflect short-term
corporate and market developments to a greater extent than higher rated
securities, which fluctuate primarily in response to the general level of
interest rates, assuming that there has been no change in the fundamental
quality of such securities. Investment results of the Fund's lower rated
securities may be more dependent upon the Adviser's credit analysis than the
results from investments in higher rated securities. Lower rated securities may
be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities. A projection of an
economic downturn, for example, could cause a decline in prices of lower rated
securities because the advent of a recession could lessen the ability of a
highly leveraged company to make principal and interest payments on its senior

14
<PAGE> 25

securities. In addition, the secondary trading market for lower rated securities
may be less liquid than the market for higher grade securities.

Prices of lower rated debt securities may decline rapidly in the event a
significant number of holders decide to sell. Changes in expectations regarding
an individual issuer, an industry or lower rated debt securities generally could
reduce market liquidity for such securities and make their sale by the Fund more
difficult, at least in the absence of price concessions. An economic downturn or
an increase in interest rates could severely disrupt the market for high yield
bonds and adversely affect the value of outstanding bonds and the ability of the
issuers to repay principal and interest. See "Risk Factors" in the Statement of
Additional Information for a further discussion of risk factors associated with
investments in lower rated securities.

Common stocks may be temporarily acquired in the portfolio as a result of
conversion of convertible securities into such common stocks or upon exercise of
warrants attached to or included in a unit with a debt security purchased by the
Fund.

The Fund may also invest up to 20% of its total assets in United States dollar
denominated securities of foreign governments and other foreign issuers.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES AND RESTRICTIONS
- ------------------------------------------------------------------------------

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the purchaser's holding period. The Fund will not
invest in repurchase agreements maturing in more than seven days if any such
investment, together with any other illiquid securities held by the Fund, would
exceed ten percent of the value of its net assets. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights.

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in

15
<PAGE> 26

the net revenue generated. The Adviser believes that the joint account produces
greater efficiencies and economies of scale that may contribute to reduced
transaction costs, higher returns, higher quality investments and greater
diversity of investments for the Fund than would be available to the Fund
investing separately. The manner in which the joint account is managed is
subject to conditions set forth in the SEC order obtained by the Fund
authorizing this practice, which conditions are designed to ensure the fair
administration of the joint account and to protect the amounts in that account.

PREFERRED STOCKS. Preferred stocks may provide a higher dividend rate than the
interest yield on debt securities of the same issuer, but are subject to greater
risk of fluctuation in market value and greater risk of non-receipt of income.

Preferred stocks are in many ways like perpetual debt securities, providing a
stream of income but without stated maturity date. Because they lack a fixed
maturity date, preferred stocks are likely to fluctuate substantially in price
when interest rates change. Such fluctuations generally are comparable to or
exceed those of long-term government or corporate bonds (those with maturities
of fifteen to thirty years).

Preferred stocks have claims on assets and earnings of the issuer which are
subordinate to the claims of all creditors but senior to the claims of common
stockholders. A preferred stock rating differs from a bond rating because it
applies to an equity issue which is intrinsically different from, and
subordinated to, a debt issue. Preferred stock ratings generally represent an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations.

OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The investment policies of the
Fund permit the Fund to invest in or write options, futures contracts and
related options. Thus, the Fund may engage in transactions in futures contracts
on U.S. Government securities.

The Fund presently expects to utilize options, futures contracts and options
thereon in several different ways, depending upon the status of the Fund's
portfolio and the Adviser's expectations concerning the securities markets. See
the Statement of Additional Information for discussion of options, futures
contracts and related options.

POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in securities. While utilization of
options, futures contracts and similar instruments may be advantageous to the
Fund, if the Adviser is not successful in employing such instruments in managing
the Fund's investments, the Fund's performance will be worse than if the Fund
did not make such investments. In addition, the Fund would pay commissions and
other costs in

16
<PAGE> 27

connection with such investments, which may increase the Fund's expenses and
reduce its return.

The Fund may write or purchase options in privately negotiated transactions
("OTC Options") as well as listed options. OTC Options can be closed out only by
agreement with the other party to the transaction. Thus, any OTC Options
purchased by the Fund will be considered an illiquid security. Any OTC Options
written by the Fund will be with a qualified dealer pursuant to an agreement
under which the Fund may repurchase the option at a formula price. Such options
will be considered illiquid to the extent that the formula price exceeds the
intrinsic value of the option. The Fund may not purchase or sell futures
contracts or related options for which the aggregate initial margin and premiums
exceed five percent of the fair market value of the Fund's assets. In order to
prevent leverage in connection with the purchase of futures contracts or call
options thereon by the Fund, an amount of cash, cash equivalents or liquid high
grade debt securities equal to the market value of the obligation under the
futures contracts or options (less any related margin deposits) will be
maintained in a segregated account with the Custodian. The Fund may not invest
more than ten percent of its net assets in illiquid securities and repurchase
agreements which have a maturity of longer than seven days. A more complete
discussion of the potential risks involved in transactions in options or futures
contracts and related options is contained in the Statement of Additional
Information.

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

PORTFOLIO TRANSACTIONS AND BROKERAGE. The Adviser is responsible for the
placement of orders for the purchase and sale of portfolio securities for the
Fund and the negotiation of the price of, and any commissions on, such
transactions. Most transactions made by the Fund are with dealers acting as
principals. Broker-dealers are selected on the basis of their professional
capability for the type of transaction and the value and quality of execution
services rendered on a continuing basis. The Adviser is authorized to place
portfolio transactions with broker-dealers participating in the distribution of
shares of the Fund and other American Capital mutual funds if it reasonably
believes that the quality of the execution and any commission are comparable to
that available from other qualified firms. The Adviser is authorized to place
portfolio transactions with broker-dealers that provide it with investment and
research information and to pay higher than the lowest available commission if
the Adviser determines that the cost is reasonable in relation to the

17
<PAGE> 28

overall services provided. The information received may be used by the Adviser
in managing the assets of other advisory accounts as well as in the management
of the assets of the Fund.

The Fund may, from time to time, place brokerage transactions with brokers
that may be considered affiliated persons of the Adviser's parent, The Travelers
Inc. ("Travelers"). Such affiliated persons include Smith Barney Inc. ("Smith
Barney"), a wholly owned subsidiary of Travelers, and Robinson Humphrey, Inc., a
wholly owned subsidiary of Smith Barney. When such transactions are made, in
accordance with Rule 17e-1 under the 1940 Act, commissions paid must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."

SECURITIES OF FOREIGN ISSUERS. The Fund may invest up to 20% of its total
assets in United States dollar denominated debt issues of foreign governments
and other foreign issuers.

The Adviser believes that in many instances such foreign debt securities may
provide higher yields than securities of domestic issuers which have similar
maturities. Such securities may be subject to foreign government taxes which
would reduce the effective yield. Such securities may be less liquid than the
securities of the U.S. corporations, and are certainly less liquid than
securities issued by the U.S. Government or its agencies.

The above-described foreign investments involve certain risks, which should be
considered carefully by an investor in the Fund. These risks include political
or economic instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of U.S. corporations or of the U.S. Government. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, and, with respect to certain foreign countries, there
is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Finally, in the
event of a default on any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities. Such investments will be made only when the Adviser believes
that higher yields justify the attendant risks.

INVESTMENT RESTRICTIONS. The Fund is subject to the following restrictions
which, like the investment objective, may not be changed without the approval of
a

18
<PAGE> 29

majority (as defined in the 1940 Act) of the Fund's shareholders. These
restrictions provide, among other things, that the Fund may not:

1. Invest more than five percent of its total assets at market value in any
one issuer or purchase more than ten percent of any class of securities of
any issuer (excluding in both cases the U.S. Government).

2. Invest more than five percent of the value of its total assets in companies
having a record, together with predecessors, of less than three years of
continuous operation.

3. Borrow money, except for temporary or emergency purposes, and then not in
excess of five percent of its total assets taken at cost, or mortgage,
pledge or hypothecate its assets to secure such borrowing except in an
amount taken at market not exceeding ten percent of its total assets taken
at cost. Notwithstanding the foregoing, the Fund may engage in transactions
in options, futures contracts and related options, segregate or deposit
assets to cover or secure options written and make margin deposits and
payments for futures contracts and related options.

4. Underwrite securities of other issuers, except insofar as the Fund may be
deemed to be an underwriter for purposes of the Securities Act of 1933 in
the resale of any unregistered securities owned by the Fund; provided,
however, the Fund shall not purchase any unregistered securities if
immediately after and as a result of such purchase of such securities,
together with any other illiquid securities held by the Fund, would
constitute more than ten percent of the Fund's total assets.

5. Lend any of its assets except for the following types of transactions: (a)
loans of portfolio securities up to ten percent of the value of the Fund's
net assets, taken at market, collateralized at 100% each business day,
subject to immediate termination if the collateral is not maintained, or on
five business days' notice by the Fund or not less than one business day's
notice by the borrower, on which the Fund will receive all income accruing
on the borrowed securities during the loan as described under "Investment
Practices and Restrictions -- Loans of Portfolio Securities"; (b) the
purchase of debt securities publicly distributed or of a type customarily
purchased by institutional investors; and (c) the purchase of securities
subject to repurchase agreements. See "Investment Practices and
Restrictions -- Repurchase Agreements."

19
<PAGE> 30

- ------------------------------------------------------------------------------
THE FUND AND ITS MANAGEMENT
- ------------------------------------------------------------------------------

The Fund is an open-end, diversified management investment company
incorporated in Delaware on July 18, 1963 and reincorporated by merger into a
Maryland corporation on September 19, 1973. A mutual fund provides a practical
and convenient way for those who have similar investment goals to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.

A board of eight directors has the responsibility for overseeing the affairs
of the Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056,
determines the investment of the Fund's assets, provides administrative services
and manages the Fund's business and affairs. The Adviser, together with its
predecessors, has been in the investment advisory business since 1926 and has
served as investment adviser to the Fund since 1971. As of November 30, 1994,
the Adviser manages the assets of 45 investment company portfolios with total
net assets of approximately $16.1 billion.

The Adviser and the Distributor are wholly owned subsidiaries of American
Capital Management & Research, Inc. ("ACMR"), an indirect wholly owned
subsidiary of The Travelers Inc. ("Travelers"). Travelers is a financial
services holding company engaged, through its subsidiaries, principally in three
business segments -- investment services, consumer finance services, and
insurance services. Mr. Don G. Powell is President and Director of the Fund,
President, Chief Executive Officer and Director of the Adviser, and Executive
Vice President and Director of the Distributor. Most other officers of the Fund
are also officers and/or directors of the Adviser, and a number are also
officers and directors of the Distributor.

The Fund retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement dated September 6, 1989 (the "Advisory
Agreement"), the Fund pays the Adviser a monthly fee computed on average daily
net assets of the Fund at the annual rate of 0.50% of the first $150 million of
net assets; 0.45% of the next $100 million of net assets; 0.40% of the next $100
million of net assets; and 0.35% of net assets over $350 million. Under the
Advisory Agreement, the Fund also reimburses the Adviser for the cost of the
Fund's accounting services, which include maintaining its financial books and
records and calculating its daily net asset value. Operating expenses paid by
the Fund include shareholder service agency fees, service fees, distribution
fees, custodial fees, legal and accounting fees, the costs of reports and
proxies to shareholders, directors' fees, and all other business expenses not
specifically assumed by the Adviser. Advisory (management)

20
<PAGE> 31

fees, and total operating expense, ratios are shown under the caption "Expense
Synopsis" herein.

David R. Troth is primarily responsible for the day-to-day management of the
Fund's investment portfolio. He has served in that role since 1979. Mr. Troth is
Vice President of the Fund and Senior Investment Vice President of the Adviser.

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

GENERAL

The Fund offers three classes of shares to the general public. Class A shares
are sold with an initial sales charge; Class B shares and Class C shares are
sold without an initial sales charge and are subject to a contingent deferred
sales charge upon certain redemptions. See "Multiple Pricing System" for a
discussion of factors to consider in selecting which class of shares to
purchase. Contact the American Capital Service Department at (800) 421-5666 for
further information and appropriate forms.

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

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

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

21
<PAGE> 32

listed or traded principally 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 mean between the last reported bid
and asked price. Securities for which market quotations are not readily
available and other assets are valued at fair value as determined in good faith
by the Board of Directors of the Fund. Short-term securities are valued in the
manner described in the notes to the financial statements included in the
Statement of Additional Information.

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

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

22
<PAGE> 33

CLASS A SHARES

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

SALES CHARGE TABLE

<TABLE>
<CAPTION>
REALLOWED TO
DEALERS (AS
AS % OF AS % OF A %
SIZE OF NET AMOUNT OFFERING OF OFFERING
INVESTMENT INVESTED PRICE PRICE)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000............. 4.99% 4.75% 4.00%
$100,000 but less than
$250,000..................... 4.17% 4.00% 3.50%
$250,000 but less than
$500,000..................... 3.09% 3.00% 2.50%
$500,000 but less than
$1,000,000................... 2.04% 2.00% 1.75%
$1,000,000 and over............ (See herein) (See herein) (See herein)
- ---------------------------------------------------------------------------
</TABLE>

For qualified 401(k) retirement plans administered under American Capital
Trust Company's (k) Advantage Program, or similar recordkeeping programs made
available through American Capital Trust Company, no sales charge is payable at
the time of purchase for plans with at least 50 eligible employees or investing
at least $250,000 in American Capital funds, which include Participating Funds
as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," and American Capital Reserve Fund, Inc. ("Reserve"). For such
investments the Fund imposes a contingent deferred sales charge of 1% in the
event of certain redemptions within one year of the purchase. No such charge
will be imposed unless and until appropriate relief is granted by the SEC. The
contingent deferred sales charge incurred upon redemption is paid to the
Distributor in reimbursement for distribution-related expenses. A commission
will be paid to dealers who initiate and are responsible for such purchases as
follows: 1% on sales to $5 million, plus 0.50% on the next $5 million, plus
0.25% on the excess over $10 million.

In addition to the reallowance from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that

23
<PAGE> 34

sell shares of the Fund. The Distributor may pay dealers through whom purchases
are made at net asset value as described in clause (e) herein an amount equal to
0.40% of the amount invested. Dealers which are reallowed all or substantially
all of the sales commissions may be deemed to be underwriters for purposes of
the Securities Act of 1933 (the "1933 Act").

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

Class A shares of the Fund may be purchased at net asset value, upon written
assurance that the purchase is made for investment purposes and that the shares
will not be resold except through redemption by the Fund, by (a) current or
retired Directors of the Fund; current or retired employees of ACMR and any of
its affiliates; spouses, minor children and grandchildren of the above persons;
and parents of employees and parents of spouses of employees of ACMR and any of
its affiliates; (b) employees of an investment subadviser to any fund in the
same "group of investment companies" (as defined in Rule 11a-3 under the 1940
Act) as the Fund or an affiliate of the subadviser; employees and registered
representatives of Service Organizations with selling group agreements with the
Distributor; employees of financial institutions that have arrangements with
Service Organizations having selling group agreements with the Distributor; and
spouses and minor children of such persons; (c) any trust, pension, profit
sharing or other benefit plan for such persons and (d) trustees or other
fiduciaries purchasing shares for retirement plans of organizations with
retirement plan assets of $10 million or more. Shares are offered at net asset
value to such persons because of anticipated economies in sales efforts and
sales related expenses. Such shares are also offered at net asset value to (e)
accounts opened for shareholders by dealers where the amounts invested represent
the redemption proceeds from investment companies distributed by an entity other
than the Distributor if such redemption has occurred no more than 15 days prior
to the purchase of shares of the Fund and the shareholder paid an initial sales
charge and was not subject to a deferred sales charge on the redeemed account.
Shares are also offered at net asset value to

24
<PAGE> 35

(f) registered investment advisers, trust companies and bank trust departments
exercising discretionary investment authority with respect to the money to be
invested in the Fund, provided that the aggregate amount invested in the Fund
alone, or in any combination of shares of the Fund and shares of certain other
participating American Capital mutual funds as described herein under "Purchase
of Shares -- Class A Shares -- Volume Discounts," during the 13-month period
commencing with the first investment pursuant hereto at net asset value, equals
at least $1 million. Purchase orders made pursuant to clause (f) may be placed
either through authorized dealers as described above or directly with ACCESS by
the investment adviser, trust company or bank trust department, provided that
ACCESS receives federal funds for the purchase by the close of business on the
next business day following acceptance of the order. An authorized dealer or
financial institution may charge a transaction fee for placing an order to
purchase shares pursuant to this provision or for placing a redemption order
with respect to such shares. Service Organizations will be paid a service fee as
described herein under "Distribution Plans" on purchases made on behalf of
registered investment advisers, trust companies and bank trust departments
described in clause (f) above, retirement plans described in clause (d) above,
and for registered representatives' accounts.

The Distributor may pay commissions of up to 1% for purchases described in
clause (d). The Distributor may pay Service Organizations through which
purchases are made as described in clause (f) above for transactions of $1
million or more an amount up to 0.50% of the amount invested, over a
twelve-month period following the pertinent transaction. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.

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

VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund
alone, or in any combination of shares of the Fund and shares of certain other
participating American Capital mutual funds (the "Participating Funds"),
although other Participating Funds may have different sales charges. The
Participating Funds are American Capital Comstock Fund, Inc., American Capital
Corporate Bond Fund, Inc., American Capital Emerging Growth Fund, Inc., American
Capital Enterprise Fund, Inc., American Capital Equity Income Fund, Inc.,
American Capital Federal Mortgage Trust ("Federal Mortgage"), American Capital
Global Managed Assets Fund, Inc. ("Global Managed"), American Capital Government
Securities, Inc., American Capital Government Target Series ("Government
Target"), American Capital Growth and Income Fund, Inc., American Capital Harbor
Fund, Inc., American Capital High Yield Investments, Inc. ("High Yield"),
American Capital Municipal Bond Fund, Inc. ("Municipal Bond"), American Capital
Pace Fund,

25
<PAGE> 36

Inc., American Capital Real Estate Securities Fund, Inc. ("Real Estate"),
American Capital Tax-Exempt Trust ("Tax-Exempt"), American Capital Texas
Municipal Securities, Inc. ("Texas Municipal"), American Capital U.S. Government
Trust for Income ("Government Trust"), American Capital Utilities Income Fund,
Inc. ("Utilities Income") and American Capital World Portfolio Series, Inc.
("World Portfolio"). A person eligible for a volume discount includes an
individual; members of a family unit comprising husband, wife and minor
children; or a trustee or other fiduciary purchasing for a single fiduciary
account.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
Shares previously purchased are only taken into account, however, if the
Distributor is notified by the investor or the investor's dealer at the time an
order is placed for a purchase which would qualify for a reduced sales charge on
the basis of previous purchases and if sufficient information is furnished to
permit confirmation of such purchases.

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

CLASS B SHARES

Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an

26
<PAGE> 37

amount equal to the lesser of the then current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gains
distributions.

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

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

In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first, of any shares in the shareholder's Fund account that are not subject
to a contingent deferred sales charge, second, of shares held for over five
years or shares acquired pursuant to reinvestment of dividends or distributions
and third, of shares held longest during the five-year period. The charge is not
applied to dollar amounts representing an increase in the net asset value since
the time of purchase.

To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4% (the applicable rate in the second year after purchase).

A commission or transaction fee of 4% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives,

27
<PAGE> 38

in the form of cash or other compensation, to Service Organizations that sell
Class B shares of the Fund.

CLASS C SHARES

Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of 1%. The charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price. In addition, no charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.

In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares in the shareholder's Fund account that are not subject to
a contingent deferred sales charge and second of shares held for more than one
year or shares acquired pursuant to reinvestment of dividends or distributions.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class C shares of the Fund.

A commission or transaction fee of 1% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase. Broker-
dealers and other Service Organizations will also be paid ongoing commissions
and transaction fees of up to 0.65% of the average daily net assets of the
Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation to Service Organizations
that sell Class C shares of the Fund.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account. The contingent
deferred sales charge is also waived on redemptions of Class C shares as it
relates to the reinvestment of redemption proceeds in shares of the same class
of the Fund within 120 days after redemption. See the Statement of Additional
Information for further discussion of waiver provisions.

28
<PAGE> 39

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

Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing of its shareholders in accordance
with a plan adopted by the investment company board of directors and approved by
its shareholders. Pursuant to such Rule, the Directors of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD Rules") applicable to
mutual fund sales charges. The NASD Rules limit the annual distribution charges
that a mutual fund may impose on a class of shares. The NASD Rules also limit
the aggregate amount which the Fund may pay for such distribution costs. Under
the Class A Plan, the Fund pays a service fee to the Distributor at an annual
rate of up to 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares. Such payments to the Distributor under the
Class A Plan are based on an annual percentage of the value of Class A shares
held in shareholder accounts for which such Service Organizations are
responsible at the rates of 0.15% annually with respect to Class A shares in
such accounts on September 30, 1989 and 0.25% annually with respect to Class A
shares issued after that date. Under the Class B Plan and the Class C Plan, the
Fund pays a service fee to the Distributor at an annual rate of up to 0.25% and
a distribution fee at an annual rate of up to 0.75% of the Fund's aggregate
average daily net assets attributable to the Class B shares or Class C shares to
reimburse the Distributor for service fees paid by it to Service Organizations
and for its distribution costs.

The Distributor uses the Class A, Class B and Class C service fees to
compensate Service Organizations for personal services and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to 4% of
the purchase price of Class B shares purchased by the clients of broker-dealers
and other Service Organizations and (ii) other distribution expenses as
described in the Statement of Additional Information. Under the Class C Plan,
the Distributor receives additional payments from the Fund in the form of a
distribution fee at the annual rate of up to 0.75% of the net assets of the
Class C shares as reimbursement for (i) upfront commissions and transaction fees
of up to 0.75% of the purchase price of Class C shares purchased by the clients
of broker-dealers and other Service Organizations and ongoing commissions and
transaction fees of up to 0.65% of the average daily net assets of the

29
<PAGE> 40

Fund's Class C shares, and (ii) other distribution expenses as described in the
Statement of Additional Information.

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

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

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

Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward without
interest charges unless permitted under SEC regulations, and may be reimbursed
by the Fund or its shareholders from payments received through contingent
deferred sales charges in future years and from payments under the Class B Plan
and Class C Plan so long as such Plans are in effect. For example, if in a
fiscal year the Distributor incurred distribution expenses under the Class B
Plan of $1 million, of which $500,000 was recovered in the form of contingent
deferred sales charges paid by investors and $400,000 was reimbursed in the form
of payments made by the Fund to the Distributor under the Class B Plan, the
balance of $100,000 would be subject to recovery in future fiscal years from
such sources. For the plan year ended June 30, 1994, the unreimbursed expenses
incurred by the Distributor under the Class B Plan and carried forward were
approximately $591,000 or 4.66% of the Class B shares' net assets. The
unreimbursed expenses incurred by the Distributor

30
<PAGE> 41

under the Class C Plan from August 30, 1993 (inception of Class C shares)
through June 30, 1994, and carried forward were approximately $31,000 or 1.64%
of the Class C shares' net assets.

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

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

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

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

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Stock certificates are not issued except upon
shareholder request. Most shareholders elect not to receive certificates in
order to facilitate redemptions and transfers. A shareholder may incur an
expense to replace a lost certificate. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder who has an account in any of the
Participating Funds listed under "Purchase of Shares -- Class A Shares -- Volume
Discounts," or Reserve, may receive statements quarterly from ACCESS showing any
reinvestments of dividends and capital gains distributions and any other
activity in the account since the preceding statement. Such shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.

REINVESTMENT PLAN. A convenient way for shareholders to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date. Unless the shareholder instructs otherwise, the reinvestment
plan is automatic. The shareholder may on the initial application or prior to
any declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value or that both dividends and
capital gains distributions be paid in cash.

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<PAGE> 42

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

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

FUND TO FUND DIVIDENDS. A shareholder may, upon written request or by
completing the appropriate section of the application form in this Prospectus,
elect to have all dividends and other distributions paid on a Class A, Class B
or Class C account in the Fund invested into a pre-existing Class A, Class B or
Class C account in any of the Participating Funds listed under "Purchase of
Shares -- Class A Shares -- Volume Discounts," or Reserve. Both accounts must be
of the same class and of the same type, either non-retirement or retirement. Any
two non-retirement accounts can be used. If the accounts are retirement
accounts, they must both be for the same class and of the same type of
retirement plan (e.g., IRA, 403(b)(7), 401(k), Keogh) and for the benefit of the
same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution only if shares of such selected fund have
been registered in the investor's state.

EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund (listed
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts") other
than Government Target, may be exchanged for the same class of shares of any
other fund without sales charge, provided that shares of the Fund and shares of
Federal Mortgage, Global Managed, Government Trust, High Yield, Municipal Bond,
Real Estate, Tax-Exempt, Texas Municipal, Utilities Income and the Global
Government Securities Fund of World Portfolio are subject to a 30-day holding
period requirement. Shares of Government Target may be exchanged for Class A
shares of the Fund without sales charge. Shares of Reserve may be exchanged for
Class A shares of any Participating Fund upon payment of the excess, if any, of
the sales charge rate applicable to the shares being acquired over the sales
charge rate previously paid. Shares of any Participating Fund or Reserve may be
exchanged for shares of any other Participating Fund if shares of that
Participating Fund are available for sale; however, during periods of suspension
of sales, shares of a

32
<PAGE> 43

Participating Fund may be available for sale only to existing shareholders of
the Participating Fund. Additional funds may be added from time to time as a
Participating Fund.

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

Shares of the fund to be acquired must be registered for sale in the
investor's state and an exchange fee, currently $5 per transaction, is charged
by ACCESS except as described herein under "Systematic Exchange" and "Automatic
Exchange." Exchanges of shares are sales and may result in a gain or loss for
federal income tax purposes, although if the shares exchanged have been held for
less than 91 days, the sales charge paid on such shares is not included in the
tax basis of the exchanged shares, but is carried over and included in the tax
basis of the shares acquired. See the Statement of Additional Information.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form included in this Prospectus. ACMR
and its subsidiaries, including ACCESS (collectively, "American Capital"), and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither American Capital nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed. Exchanges
are

33
<PAGE> 44

effected at the net asset value per share next calculated after the request is
received in good order with adjustment for any additional sales charge. See
"Purchase of Shares" and "Redemption of Shares." If the exchanging shareholder
does not have an account in the fund whose shares are being acquired, a new
account will be established with the same registration, dividend and capital
gain options (except fund to fund dividends) and dealer of record as the account
from which shares are exchanged, unless otherwise specified by the shareholder.
In order to establish a systematic withdrawal plan for the new account or
reinvest dividends from the new account into another fund, however, an
exchanging shareholder must file a specific written request. The Fund reserves
the right to reject any order to acquire its shares through exchange, or
otherwise to modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.

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

SYSTEMATIC EXCHANGE. A shareholder may invest regularly into any Participating
Fund by systematically exchanging from the Fund into such other fund account
($25 minimum for existing account, $100 minimum for establishing new account).
Both accounts must be of the same type and class. The exchange fee as described
above under "Shareholder Services -- Exchange Privilege" will be waived for such
systematic exchanges. Additional information on how to establish this option is
available from the Distributor.

AUTOMATIC EXCHANGE. The exchange fee description above under "Shareholder
Services -- Exchange Privilege" will be waived for any exchange transmitted
through ACCESS Plus, FUNDSERV or via computer transmission. Contact the American
Capital Service Department at (800) 421-5666 for further information on how to
utilize this option.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly withdrawal plan. Any investor whose shares
in a single account total $5,000 or more may establish a withdrawal plan on a
quarterly, semiannual or annual basis. This plan provides for the orderly use of
the entire account, not only the income but also the capital, if necessary. Each
withdrawal constitutes a redemption of shares on which any capital gain or loss
will be recognized. The planholder may arrange for monthly, quarterly,
semiannual or annual checks in any amount not less than $25. Such a systematic
withdrawal plan may also be maintained by an investor purchasing shares for a
retirement plan established on a form made available by the Fund. See
"Shareholder Services -- Retirement Plans."

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<PAGE> 45

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

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

SHAREHOLDER SERVICES APPLICABLE TO CLASS A
SHAREHOLDERS ONLY

CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the AUTHORIZATION FOR REDEMPTION BY CHECK
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to ACCESS, a supply of checks drawn on State Street Bank and Trust
Company (the "Bank") will be sent to the Class A shareholder. These checks may
be made payable by the Class A shareholder to the order of any person in any
amount of $100 or more.

When a check is presented to the Bank for payment, full and fractional Class A
shares required to cover the amount of the check are redeemed from the
shareholder's Class A account by ACCESS at the next determined net asset value.
Check writing redemptions represent the sale of shares. Any gain or loss
realized on the sale of shares is a taxable event. See "Redemption of Shares."

Checks will not be honored for redemption of Class A shares held less than 15
days, unless such Class A shares have been paid for by bank wire. Any Class A
shares for which there are outstanding certificates may not be redeemed by
check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or the
Bank. Retirement plans

35
<PAGE> 46

and accounts that are subject to backup withholding are not eligible for the
privilege. A "stop payment" system is not available on these checks. See the
Statement of Additional Information for further information regarding the
establishment of the privilege.

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

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

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

The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 60 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker/dealer; a
credit union; a savings and loan association; a member firm of a national
securities exchange, registered securities association or clearing agency; or a
federal savings bank.

Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator,

36
<PAGE> 47

and the name and title of the individual(s) authorizing such redemption is not
shown in the account registration, a copy of the corporate resolution or other
legal documentation appointing the authorized signer and certified within the
prior 60 days must accompany the redemption request. IRA redemption requests
should be sent to the IRA custodian to be forwarded to ACCESS. Where American
Capital Trust Company serves as IRA custodian, special IRA, 403(b)(7), or Keogh
distribution forms must be obtained from and be forwarded to American Capital
Trust Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.

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

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

37
<PAGE> 48

available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
an account has multiple owners, ACCESS may rely on the instructions of any one
owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed once in each 30-day period. The proceeds must be payable to the
shareholder(s) of record and sent to the address of record for the account or
wired directly to their predesignated bank account. This privilege is not
available if the address of record has been changed within 60 days prior to a
telephone redemption request. Proceeds from redemptions are expected to be wired
on the next business day following the date of redemption. The Fund reserves the
right at any time to terminate, limit or otherwise modify this redemption
privilege.

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

- ------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------

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

DIVIDENDS. Interest earned from investments is the Fund's main source of
income. Substantially all of this income, less expenses, is distributed monthly
as dividends to shareholders. The Fund has paid consecutive monthly dividends
since its first monthly dividend in November, 1971. Dividends are automatically
applied to purchase shares of the Fund at the next determined net asset value.
See "Shareholder Services -- Reinvestment Plan."

38
<PAGE> 49

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

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

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

Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions.

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

Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution paid shortly after the purchase of shares
by an investor would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so purchased) even though
subject to income taxes as discussed herein.

Gains or losses on the Fund's transactions in listed options on securities,
futures and options on futures generally are treated as 60% long-term and 40%
short-term, and positions held by the Fund at the end of its fiscal year
generally are required to be marked to market, with the result that unrealized
gains and losses are treated as realized. Gains and losses realized by the Fund
from writing over-the-counter options generally constitute short-term capital
gains or losses unless the option is exercised, in which case the character of
the gain or loss is determined by the holding period of the underlying security.
The Code contains certain "straddle"

39
<PAGE> 50

rules which require deferral of losses incurred in certain transactions
involving hedged positions to the extent the Fund has unrealized gains in
offsetting positions and generally terminate the holding period of the subject
position. Additional information is set forth in the Statement of Additional
Information.

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

- ------------------------------------------------------------------------------
PRIOR PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------

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

The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 4.75% for Class A Shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable contingent deferred
sales charge has been paid. The Fund's total return will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are made to reflect
any income taxes payable by shareholders on dividends and distributions paid by
the Fund or to reflect the fact no 12b-1 fees were incurred prior to October 1,
1989.

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

In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to

40
<PAGE> 51

indicate future performance. Yield is determined by analyzing the Fund's net
income per share for a 30-day (or one month) period (which period will be stated
in the advertisement), and dividing by the maximum offering price per share on
the last day of the period. A "bond equivalent" annualization method is used to
reflect a semiannual compounding.

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
lesser than the Fund's then current dividend rate.

The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.

Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.

Yield and total return are calculated separately for Class A, Class B and
Class C shares. Class A total return figures include the maximum sales charge of
4.75%; Class B and Class C total return figures include any applicable
contingent deferred sales charge. Because of the differences in sales charges
and distribution fees, the total returns for each of the classes will differ.

In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, Salomon Brothers
Corporate Bond Index, Shearson-Lehman Corporate Bond Index, Merrill Lynch
Corporate Master Index, Merrill Lynch Corporate and Government Index, Bloomberg
Financial Markets Indices, other appropriate indices of investment securities,
or with investment or savings vehicles. The performance information may also
include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Investor's Business
Daily, Kiplinger's Personal Finance Magazine, Money, Mutual Fund Forecaster,
Stanger's Investment Advisor, USA Today, U.S. News & World Report and The Wall
Street Journal. Such comparative performance information will be stated in the
same terms in which the

41
<PAGE> 52

comparative data or indices are stated. Any such advertisement would also
include the standard performance information required by the SEC as described
above. For these purposes, the performance of the Fund, as well as the
performance of other mutual funds or indices, do not reflect sales charges, the
inclusion of which would reduce Fund performance. The Fund will include
performance data for Class A, Class B and Class C shares of the Fund in any
advertisement or information including performance data of the Fund.

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

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

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

ORGANIZATION OF THE FUND. The Fund was incorporated in Delaware on July 18,
1963, and reincorporated by merger into a Maryland corporation on September 19,
1973. The Fund may offer three classes of shares: Class A, Class B and Class C
shares. Each class of shares represents interests in the assets of the Fund and
has identical voting, dividend, liquidation and other rights on the same terms
and conditions except that the distribution fees and/or service fees related to
each class of shares are borne solely by that class, and each class of shares
has exclusive voting rights with respect to provisions of the Fund's Class A
Plan, Class B Plan and Class C Plan which pertain to that class. An order has
been received from the SEC permitting the issuance and sale of multiple classes
of shares representing interests in the Fund's existing portfolio. Shares issued
are fully paid, non-assessable and have no preemptive or conversion rights.

PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors, officers and employees to
buy and sell securities for their personal accounts subject to preclearance and
other procedures designed to prevent conflicts of interest.

VOTING RIGHTS. The Bylaws of the Fund provide that shareholder meetings are
required to be held to elect directors only when required by the 1940 Act. Such
event is likely to occur infrequently. In addition, a special meeting of the
shareholders will be called, if requested by the holders of ten percent of the
Fund's outstanding shares, for the purposes, and to act upon the matters,
specified in the

42
<PAGE> 53

request (which may include election or removal of directors). When matters are
submitted for a shareholder vote, each shareholder is entitled to one vote for
each share owned. The shares have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of directors
can elect 100% of the directors if they choose to do so, and in such an event,
the holders of the remaining less than 50% of the shares voting for the election
of directors will not be able to elect any person to the Board of Directors.

SHAREHOLDER INQUIRIES. Shareholder inquiries should be directed to the Fund at
2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666.

SHAREHOLDER SERVICE AGENT. ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256, serves as transfer agent, shareholder service agent and dividend
disbursing agent for the Fund. ACCESS, a wholly owned subsidiary of the
Adviser's parent, provides these services at cost plus a profit.

LEGAL COUNSEL. O'Melveny & Myers, 400 South Hope Street, Los Angeles,
California 90071, is legal counsel to the Fund.

INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1201 Louisiana, Suite 2900,
Houston, Texas 77002, are the independent accountants for the Fund.

43
<PAGE> 54

- ------------------------------------------------------------------------------
APPENDIX -- RATINGS OF COMMERCIAL PAPER AND
SENIOR SECURITIES
- ------------------------------------------------------------------------------

Description of Standard & Poor's Corporation ("S&P") and Moody's Investors
Service ("Moody's") commercial paper and senior securities ratings.

A AND PRIME COMMERCIAL PAPER RATINGS:

Commercial paper rated A by S&P has the following characteristics. Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
"A" or better, although in some cases "BBB" credits may be allowed. The issuer
has access to at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. The rating A is described by S&P as the investment grade category,
the highest rating classification. Relative strength or weakness of the above
factors determine whether the issuer's commercial paper is rated A-1, A-2 or
A-3. The "A-1" designation indicates that the degree of safety regarding timely
payment is very strong. Issues rated "A-1+" are those of an overwhelming degree
of credit protection. The "A-2" designation indicates that the capacity for
timely payment is strong.

Among the factors considered by Moody's in assigning commercial paper ratings
are the following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative differences in
strengths and weaknesses in respect of these criteria establish a rating in one
of three classifications. The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Its other two ratings, Prime-2 and Prime-3 are
designated Higher Quality and High Quality, respectively. Issuers rated
"Prime-1" are considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers rated "Prime-2" have a strong capacity for
repayment of short-term promissory obligations.

44
<PAGE> 55

MOODY'S CORPORATE BOND RATINGS:

AAA -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

BAA -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA -- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the

45
<PAGE> 56

modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

S&P'S CORPORATE BOND RATINGS:

AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.

A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

BB -- B -- CCC -- CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

CI -- The rating CI is reserved for income bonds on which no interest is being
paid.

D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or Minus (-): The ratings from AA to B may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

PREFERRED STOCK RATINGS:

Both Moody's and S&P use the same designations for corporate bonds as they do
for preferred stock except in the case of Moody's preferred stock ratings the
initial letter rating is not capitalized. While the descriptions are tailored
for preferred stocks the relative quality distinctions are comparable to those
described above for corporate bonds.

46
<PAGE> 57

- ------------------------------------------------------------------------------
INVESTMENT HOLDINGS
- ------------------------------------------------------------------------------
August 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -------------------------------------
<S> <C>
CORPORATE OBLIGATIONS
CONSUMER DISTRIBUTION
$2,000,000 Grand Metropolitan
Investment Corp., 8.00%,
9/15/22

CONSUMER NON-DURABLES
2,000,000 Coca-Cola Enterprises,
Inc.,
8.50%, 2/1/12

CONSUMER SERVICES
6,215,000 Columbia Pictures
Entertainment, Inc.,
9.875%, 2/1/98
1,250,000 Harcourt General, Inc.,
8.875%, 6/1/22
6,000,000 News America Holdings,
Inc.,
8.875%, 4/26/23

ENERGY
6,300,000 Ashland Oil, Inc., 8.80%,
11/15/12
8,500,000 Coastal Corp., 11.75%,
6/15/06
9,000,000 Occidental Petroleum
Corp.,
9.625%, 7/1/99
6,300,000 PDV America, Inc., 7.875%,
8/1/03
5,000,000 Phillips Petroleum Corp.,
8.86%, 5/15/22
Union Oil Co. of
California
4,000,000 9.125%, 2/15/06
3,000,000 9.25%, 2/1/03

FINANCE
39,360 Bank of America, 11.875%,
4/1/10
5,000,000 Beaver Valley II Funding
Corp., 9.00%, 6/1/17
4,500,000 First PV Funding Corp.,
10.30%, 1/15/14
3,819,000 PNPP II Funding Corp.,
8.51%, 11/30/06

<CAPTION>
PRINCIPAL
AMOUNT
- -------------------------------------
<S> <C>
$4,500,000 Ryder Systems, Inc.,
9.25%,
5/15/01
1,500,000 United Illuminating Co.,
10.24%, 1/2/20

PRODUCER MANUFACTURING
5,000,000 John Deere Credit Corp.,
9.625%, 11/1/98

RAW MATERIAL/PROCESSING INDUSTRIES
4,000,000 Crown Cork & Seal Co.,
Inc., 8.00%, 4/15/23
4,000,000 Federal Paper Board, Inc.,
8.875%, 7/1/12
3,000,000 Georgia-Pacific Corp.,
9.50%, 2/15/18
500,000 James River Corp., 8.375%,
11/15/01
300,000 Owens-Corning Fiberglass
Corp., 9.375%, 6/1/12
1,300,000 Scott Paper Co., 8.80%,
5/15/22

TECHNOLOGY
5,000,000 International Business
Machines Corp., 7.50%,
6/15/13
2,000,000 Tele-Communications, Inc.,
9.25%, 1/15/23

TRANSPORTATION
*3,000,000 AMR Corp., 9.50%, 5/15/01
750,000 CSX Corp., 8.625%, 5/15/22
Kansas City Southern
Industries, Inc.
1,500,000 7.875%, 7/1/02
700,000 8.80%, 7/1/22
5,000,000 United Airlines, Series
1991-A, 10.02%, 3/22/14

UTILITIES
Arizona Public Service Co.
1,000,000 8.75%, 1/15/24
2,000,000 9.50%, 4/15/21
</TABLE>

47
<PAGE> 58

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -------------------------------------
<S> <C>
$2,300,000 Cleveland Electric
Illuminating Co., 10.00%,
6/1/20
9,800,000 Commonwealth Edison Co.,
8.25%, 12/1/07
1,720,000 Connecticut Yankee Atomic
Power, Series A, 12.00%,
6/1/00
1,605,000 Consumers Power Co.,
8.875%, 11/15/99
1,000,000 Gulf States Utilities,
8.94%, 1/1/22
Long Island Lighting Co.,
1,000,000 9.00%, 11/1/22
4,000,000 9.75%, 5/1/21
1,500,000 Niagra Mohawk Power Corp.,
8.50%, 7/15/23
2,500,000 Texas Utilities Electric
Co., 8.875%, 2/1/22
1,500,000 Union Electric Co., 8.00%,
12/15/22
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -------------------------------------
<S> <C>
CANADIAN GOVERNMENT OBLIGATIONS
$4,000,000 Province of Newfoundland,
9.00%, 10/15/21
4,650,000 Province of Nova Scotia,
8.25%, 7/30/22
Province of Saskatchewan
650,000 8.00%, 2/1/13
2,000,000 8.50%, 7/15/22

SHORT-TERM INVESTMENTS
7,825,000 Repurchase Agreement with
Salomon Brothers, Inc.,
dated 8/31/94, 4.90% due
9/1/94 (collateralized by
U.S. Government
obligations in a pooled
cash account) repurchase
proceeds $7,826,065
1,000,000 United States Treasury
Bill, 4.40%, 9/22/94
</TABLE>

* A portion of this security, with a market value of approximately $2.1 million
was maintained in a segregated account and placed as collateral for futures
contracts

48
<PAGE> 59

BACKUP WITHHOLDING INFORMATION

STEP 1. Please make sure that the social security number or taxpayer
identification number (TIN) which appears on the Application complies with
the following guidelines:

<TABLE>
<S> <C>
Account Type Give Social Security Number or Tax
Identification Number of:
- --------------------------------------------------------------------------------
Individual Individual
- --------------------------------------------------------------------------------
Joint (or Joint Tenant) Owner who will be paying tax
- --------------------------------------------------------------------------------
Uniform Gifts to Minors Minor
- --------------------------------------------------------------------------------
Legal Guardian Ward, Minor or Incompetent
- --------------------------------------------------------------------------------
Sole Proprietor Owner of Business
- --------------------------------------------------------------------------------
Trust, Estate, Pension Trust, Estate, Pension Plan Trust (not
Plan Trust personal TIN of fiduciary)
- --------------------------------------------------------------------------------
Corporation, Partnership, Corporation, Partnership, Other
Other Organization Organization
- --------------------------------------------------------------------------------
Broker/Nominee Broker/Nominee
- --------------------------------------------------------------------------------
</TABLE>

STEP 2. If you do not have a TIN or you do not know your TIN, you must obtain
Form SS-5 (Application for Social Security Number) or Form SS-4 (Application
for Employer Identification Number) from your local Social Security or IRS
office and apply for one. Write "Applied For" in the space on the application.

STEP 3. If you are one of the entities listed below, you are exempt from
backup withholding and should not check the box on the Application in Section
2, Taxpayer Identification.

* A corporation

* Financial institution

* Section 501 (a) exempt organization (IRA, Corporate Retirement Plan,
403(b), Keogh)

* United States or any agency or instrumentality thereof

* A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof

* International organization or any agency or instrumentality thereof

* Registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.

* Real estate investment trust

* Common trust fund operated by a bank under section 584 (a)

* An exempt charitable remainder trust, or a non-exempt trust described in
section 4947 (a) (1)

If you are in doubt as to whether you are exempt, please contact the Internal
Revenue Service.

STEP 4. IRS PENALTIES -- If you do not supply us with your TIN, you will be
subject to an IRS $50 penalty unless your failure is due to reasonable cause
and not willful neglect. If you fail to report interest, dividend or
patronage dividend income on your federal income tax return, you will be
treated as negligent and subject to an IRS 5% penalty tax on any resulting
underpayment of tax unless there is clear and convincing evidence to the
contrary. If you falsify information on this form or make any other false
statement resulting in no backup withholding on an account which should be
subject to backup withholding, you may be subject to an IRS $500 penalty and
certain criminal penalties including fines and imprisonment.

<PAGE> 60

AMERICAN CAPITAL
CORPORATE BOND FUND, INC.

Prospectus
December 15, 1994
National Distributor
American Capital Marketing, Inc.
2800 Post Oak Blvd.
Houston, TX 77056

Investment Adviser
American Capital
Asset Management, Inc.
2800 Post Oak Blvd.
Houston, TX 77056

Transfer, Disbursing, Redemption
and Shareholder Service Agent
American Capital Companies
Shareholder Services, Inc.
P.O. Box 418256
Kansas City, MO 64141-9256

Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, TX 77002

Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

Inquiries concerning transfer of
registration, distributions, redemptions
and shareholder service should be
directed to the Shareholder Service Agent,
American Capital Companies Shareholder
Services, Inc. (ACCESS), P.O. Box 418256,
Kansas City, MO 64141-9256. Inquiries
concerning sales should be directed to the
Distributor, American Capital Marketing, Inc.,
P.O. Box 1411, Houston, TX 77251-1411

American Capital C/O ACCESS
Corporate Bond Fund, Inc. P.O. Box 418256
Kansas City, MO 64141-9256

For investors seeking current income
and preservation of capital through
corporate bonds.

PRINTED MATTER
Printed in U.S.A./017 PRO-001