<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 PROSPECTUS OF
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
The following replaces the last paragraph under the section entitled "The Fund
and Its Management":
David C. Johnson is primarily responsible for the day-to-day management
of the Fund's investment portfolio since April 3, 1995. Mr. Johnson is Vice
President of the Fund and an agent of the Adviser. Mr. Johnson has been
employed by Van Kampen American Capital Investment Advisory Corp., an
affiliate of the Adviser, for the last five years.
<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
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AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
------------------------------------------------------------------------------
2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666
January 31, 1995
American Capital Municipal Bond Fund, Inc. (the "Fund") is a mutual fund whose
primary objective is to provide, through investment in a professionally managed
portfolio of municipal bonds ("Municipal Bonds"), as high a level of current
interest income exempt from federal income tax as is consistent with the
preservation of capital.
There is no assurance that the Fund will achieve its investment objective.
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.
THE SHARES OF THIS FUND 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> 7
------------------------------------------------------------------------------
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
------------------------------------------------------------------------------
CUSTODIAN:
State Street Bank and
Trust Company
225 Franklin Street
Boston, Massachusetts 02110
SHAREHOLDER SERVICE AGENT:
Van Kampen/American Capital
Shareholder Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
INVESTMENT ADVISER:
Van Kampen American Capital
Asset Management, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056
DISTRIBUTOR:
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
------------------------------------------------------------------------------
TABLE OF CONTENTS
------------------------------------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary............ 3
Expense Synopsis.............. 5
Financial Highlights.......... 7
Multiple Pricing System....... 9
Investment Objective and
Policies.................... 12
Municipal Bonds............... 15
Investment Practices and
Restrictions................ 17
The Fund and Its Management... 22
Purchase of Shares............ 23
Distribution Plans............ 31
Shareholder Services.......... 34
Redemption of Shares.......... 38
Dividends, Distributions and
Taxes....................... 41
Prior Performance
Information................. 43
Additional Information........ 45
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> 8
------------------------------------------------------------------------------
PROSPECTUS SUMMARY
------------------------------------------------------------------------------
SHARES OFFERED. Common 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 OBJECTIVE. Interest income exempt from federal income tax. There
is, however, no assurance that the Fund will be successful in achieving its
objective.
INVESTMENT POLICY. Investing in a diversified portfolio of obligations issued
by states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest from which is exempt from federal income tax.
RISK FACTORS. The Fund invests primarily in long-term Municipal Bonds which
tend to produce higher yields and are subject to greater market fluctuations as
a result of changes in interest rates ("market risk") than Municipal Bonds with
shorter maturities and lower yields. Up to 20% of the Fund's total assets may be
invested in Municipal Bonds rated Ba or B by Moody's Investors Service
("Moody's") and BB or B by Standard & Poor's Corporation ("S&P"), or which, if
non-rated, are in the opinion of the Adviser of comparable quality. Lower rated
securities are subject to market risks and are also subject to the ability of
the issuer to meet its principal and interest obligations ("credit risk").
Municipal Bonds rated B by Moody's are considered generally to lack
characteristics of the desirable investment in that assurance of interest and
principal payments or maintenance of other terms of the contract over any long
period of time may be small. The Fund may seek to hedge interest rate risk
through transactions in futures contracts and related options. Any net gains
from futures and options transactions are subject to federal income tax and such
transactions involve certain risks. See "Investment Practices and
Restrictions -- Futures Contracts and Related Options." The Fund invests a
portion of its assets in private-activity bonds so that a portion of its
exempt-interest dividends constitutes an item of tax preference to the extent
such dividends represent interest received from these private-activity bonds.
See "Dividends, Distributions and Taxes."
INVESTMENT RESULTS. The investment results of the Fund during the past ten
years are shown in the table of "Financial Highlights."
INVESTMENT ADVISER. Van Kampen 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."
3
<PAGE> 9
DISTRIBUTOR. Van Kampen American Capital Distributors, 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 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. Income dividends are distributed monthly. Any taxable net realized
capital gains are distributed annually. Such 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 "Shareholder
Services -- Reinvestment Plan" and "Dividends, Distributions and Taxes."
4
<PAGE> 10
------------------------------------------------------------------------------
EXPENSE SYNOPSIS
------------------------------------------------------------------------------
The following tables are intended to assist investors in understanding the
expenses applicable to each class of shares:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<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 1.0% during the
second year, 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.................... $5.00(c) $5.00(c) $5.00(c)
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management fees (after
reimbursement)................. .50% .50% .50%
Rule 12b-1 fees(d).............. .21% 1.00%(g) 1.00%(g)
Other expenses (after
reimbursement)(e).............. .22% .22% .22%(f)
Total fund operating expenses... .93% 1.72% 1.72%
------------------------------------------------------------------------------
</TABLE>
(a) Reduced for purchases of $100,000 and over. See "Purchase of
Shares -- Class A Shares" -- page 25.
(b) See "Purchase of Shares -- Class B Shares" and "-- Class C Shares" -- pages
28 and 29.
(c) Not charged in certain circumstances. See "Shareholder
Services -- Systematic Exchange" and "-- Automatic Exchange" -- pages 36
and 37.
(d) Up to .25% for Class A shares and 1.00% for Class B and C shares. See
"Distribution Plans" -- page 31.
(e) See "The Fund and Its Management" -- page 22.
(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.
5
<PAGE> 11
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
<S> <C> <C> <C> <C>
1 3
EXAMPLE: YEAR YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
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 .93% for Class A shares, 1.72% for Class B
shares and 1.72% for Class C shares, (2) a 5%
annual return throughout the period and (3)
redemption at the end of the period:
Class A.......................................... $57 $76 $ 97 $156
Class B.......................................... $59 $87 $111 $163**
Class C.......................................... $28 $54 $ 93 $203
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at
the end of the period:
Class A.......................................... $57 $76 $ 97 $156
Class B.......................................... $17 $54 $ 93 $163**
Class C.......................................... $17 $54 $ 93 $203
</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> 12
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(Selected data for a share of capital stock outstanding throughout each of the
periods indicated)
The following financial highlights for each of the five most recent fiscal
years have 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(1)
-----------------------------------------------------------------
YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------------
1994 1993(2) 1992 1991 1990 1989
--------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................... $ 10.53 $ 9.98 $ 9.64 $ 9.13 $ 9.33 $ 9.05
---------- --------- --------- ---------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................................... .68 .69 .705 .71 .72 .72
Expenses.................................................. (.09) (.094) (.09) (.08) (.08) (.065)
---------- --------- --------- ---------- --------- ---------
Net investment income..................................... .59 .596 .615 .63 .64 .655
Net realized and unrealized gains or losses on
securities............................................... (.7255) .558 .349 .5198 (.195) .30
---------- --------- --------- ---------- --------- ---------
Total from investment operations.......................... (.1355) 1.154 .964 1.1498 .445 .955
---------- --------- --------- ---------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (.5745) (.596) (.624) (.6398) (.645) (.675)
Distributions in excess of book-basis
net investment income(3)................................. -- (.008) -- -- -- --
---------- --------- --------- ---------- --------- ---------
Total distributions....................................... (.5745) (.604) (.624) (.6398) (.645) (.675)
---------- --------- --------- ---------- --------- ---------
Net asset value, end of period............................ $ 9.82 $ 10.53 $ 9.98 $ 9.64 $ 9.13 $ 9.33
========== ========= ========= ========== ========= =========
TOTAL RETURN(5)........................................... (1.33%) 11.91% 10.31% 12.98% 4.90% 10.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................... $ 309.0 $ 332.3 $ 292.3 $ 266.9 $ 237.4 $ 231.8
Ratios to average net assets
Expenses................................................. .93% .91% .90% .89% .86% .71%
Net investment income.................................... 5.76% 5.82% 6.29% 6.71% 6.84% 7.05%
Portfolio turnover rate................................... 6% 3% 6% 10% 17% 32%
<CAPTION>
CLASS A(1)
-------------------------------------------
YEAR ENDED SEPTEMBER 30
-------------------------------------------
1988 1987 1986 1985
--------- -------- -------- ---------
<S> <<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................... $ 9.03 $ 10.35 $ 9.23 $ 8.46
---------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................................... .72 .795 .895 .88
Expenses.................................................. (.06) (.065) (.07) (.065)
---------- --------- --------- ---------
Net investment income..................................... .66 .73 . 825 .815
Net realized and unrealized gains or losses on
securities............................................... .5913 (1.27) 1.075 .735
---------- --------- --------- ---------
Total from investment operations.......................... 1.2513 (.54) 1.90 1.55
---------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (.785) (.78) (.78) (.78)
Distributions in excess of book-basis
net investment income(3)................................. (.4463) -- -- --
---------- --------- --------- ---------
Total distributions....................................... (1.2313) (.78) (.78) (.78)
---------- --------- --------- ---------
Net asset value, end of period............................ $ 9.05 $ 9.03 $ 10.35 $ 9.23
========== ========= ========= =========
TOTAL RETURN(5)........................................... 15.57% (5.73%) 21.03% 19.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................... $ 191.7 $ 166.7 $ 159.2 $ 100.5
Ratios to average net assets
Expenses................................................. .69% .64% .68% .72%
Net investment income.................................... 7.47% 7.29% 8.10% 9.20%
Portfolio turnover rate................................... 33% 164% 69% 197%
</TABLE>
(Table continued on following page)
7
<PAGE> 13
<TABLE>
<CAPTION>
CLASS B(4) CLASS C(2)
------------------------ ----------------------------
AUGUST 30,
YEAR 1993(6)
YEAR ENDED SEPTEMBER 30 ENDED THROUGH
------------------------ SEPTEMBER 30, SEPTEMBER 30,
1994 1993(2) 1994 1993
-------- ------- ------------- ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............................. $10.53 $ 9.98 $10.54 $10.53
-------- ------- --------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................................ .68 .685 .69 .05
Expenses......................................................... (.17) (.175) (.18) (.015)
-------- ------- --------- -------
Net investment income............................................ .51 .51 .51 .035
Net realized and unrealized gains or losses on securities........ (.7195) .564 (.7295) .061
-------- ------- --------- -------
Total from investment operations................................. (.2095) 1.074 (.2195) .096
-------- ------- --------- -------
LESS DISTRIBUTIONS
Dividends from net investment income............................. (.4905) (.501) (.4905) (.007)
Distributions in excess of book-basis net investment income(3)... -- (.023) -- (.079)
-------- ------- --------- -------
Total distributions.............................................. (.4905) (.524) (.4905) (.086)
-------- ------- --------- -------
Net asset value, end of period................................... $ 9.83 $ 10.53 $ 9.83 $10.54
======== ======= ========= =======
TOTAL RETURN(5).................................................. (2.13%) 11.15% (2.03%) .91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................. $ 37.2 $ 22.1 $ 8.0 $ 1.3
Ratios to average net assets
Expenses........................................................ 1.72% 1.71% 1.72% 1.69%(7)
Net investment income........................................... 5.00% 4.96% 5.03% 4.25%(7)
Portfolio turnover rate.......................................... 6% 3% 6% 3%
</TABLE>
(1) Per share amounts for 1991 through 1985 are adjusted to reflect a 2 for 1
stock split effected July 26, 1991. Additionally, in 1991, the Fund adopted
for financial reporting purposes a method of accounting for debt discounts
and premiums which is the same as is used for federal income tax reporting.
The effect of the change, 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, $.01, $.02, $.01 and
$(.01) for the years 1990 to 1986, respectively. Similarly, the ratios of
net investment income to average net assets would have been 6.94%, 7.17%,
7.71%, 7.37% and 8.02%, respectively. For the year 1985, the effect of the
change in the accounting method was immaterial.
(2) Based on average month-end shares outstanding.
(3) Effective October 1, 1992, the Fund adopted Statement of Position 93-2,
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies.
Prior year financial information was not restated.
(4) Sales of Class B commenced September 29, 1992, at a net asset value of
$10.00 per share and at year end, the net asset value was $9.98 per share.
The decrease in net asset value was due principally to a dividend of $0.52
per share. Other financial highlights for Class B shares for this short
period are not meaningful, and therefore not presented.
(5) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(6) Commencement of offering of sales.
(7) Annualized.
8
<PAGE> 14
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MULTIPLE PRICING SYSTEM
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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" herein 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
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<PAGE> 15
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 of 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
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<PAGE> 16
will reject any order of more than $250,000 for Class B shares or any order of
more than $1 million 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 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 liquidation
for investments held longer. The foregoing will not, however, be true in
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<PAGE> 17
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.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's objective is to provide as high a level of current interest income
exempt from federal income tax as is consistent with the preservation of
capital. This limitation could result in a lesser level of interest income than
that of funds willing to incur greater risk of capital. Because the value of and
yield on Municipal Bonds fluctuate, there can be no assurance that the Fund's
objective will be achieved.
The Fund seeks to achieve its objective by investing in a diversified
portfolio of obligations issued by or on behalf of states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which,
in the opinion of bond counsel for the issuer, is exempt from federal income
tax. See "Municipal Bonds." Under normal circumstances, at least 80% of the
assets of the Fund are invested in Municipal
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<PAGE> 18
Bonds which are exempt from federal income tax. This is a fundamental policy and
may not be changed without the approval of at least a majority of the
outstanding shares of the Fund. The Fund does not independently evaluate the
tax-exempt status of the Municipal Bonds in which it invests. The Fund invests
principally in Municipal Bonds rated at the time of purchase within the four
highest grades assigned by Moody's or S&P, or which, if non-rated, is in the
Adviser's opinion of comparable quality. The Fund may not acquire any Municipal
Bond which is rated below A by Moody's and S&P or which is non-rated if
immediately after and as a result of such purchase such Bonds would constitute
more than 50% of the Fund's total assets. The Fund may not acquire any Municipal
Bond which is rated below Baa by Moody's and below BBB by S&P, or which, if
non-rated, is in the opinion of the Adviser of comparable quality, if
immediately after and as a result of such purchase such Bonds would constitute
more than 20% of the Fund's total assets. The Fund may not, however, purchase
any Municipal Bond rated below B by Moody's and S&P or any non-rated Municipal
Bond considered by the Adviser to be of comparable quality. Ratings at the time
of purchase determine which securities may be acquired, and a subsequent
reduction in rating does not require the Fund to dispose of a security. Because
investment in lower-rated securities involves greater investment risks,
achievement of the Fund's investment objectives may be more dependent on the
Adviser's credit analysis than would be the case if the Fund invested only in
higher-rated securities. Non-rated Municipal Bonds are not necessarily of lower
quality than rated Municipal Bonds, but the market for rated Municipal Bonds is
often broader. The Fund may seek to hedge against changes in interest rates
through transactions in listed futures contracts related to U.S. Government
securities or based upon the Bond Buyers Municipal Bond Index and options
thereon. See "Investment Practices and Restrictions -- Futures Contracts and
Related Options."
During the fiscal year ended September 30, 1994, the average percentage of the
Fund's assets invested in Municipal Bonds within the various rating categories
(based on the higher of the S&P or Moody's ratings), and the non-rated debt
securities, determined on a dollar weighted average, were as follows:
<TABLE>
<S> <C>
AAA/Aaa............................................. 20.98%
AA/Aa............................................... 16.74%
A/A................................................. 28.99%
BBB/Baa............................................. 11.13%
BB/Ba............................................... 1.16%
CCC/Caa............................................. .63%
*Non-rated.......................................... 14.37%
Other net assets.................................... 6.00%
--------
Total net assets................................ 100%
</TABLE>
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* The non-rated debt securities as a percentage of total net assets were
considered by the Adviser to be comparable to securities rated by Moody's as
follows: AAA - .17%, BBB - 10.08%, BB - 3.68% and B - .44%.
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<PAGE> 19
Variations in the quality and maturity of the Fund's portfolio investments can
be expected to affect the Fund's yield and the degree of market and credit risk
to which the Fund is subject. Municipal Bonds rated BBB by S&P or Baa by Moody's
may have speculative characteristics so that changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher grade Municipal
Bonds. The Fund maintains the flexibility to invest up to 20% of its total
assets in Municipal Bonds rated Ba or B by Moody's or BB or B by S&P. Municipal
Bonds rated Ba by Moody's are judged to have speculative elements so that their
future cannot be considered as well assured. Municipal Bonds rated B by Moody's
are considered generally to lack characteristics of a desirable investment in
that assurance of interest and principal payments or maintenance of other terms
of the contract over any long period of time may be small. Additional risks of
investing in lower-rated Municipal Bonds are described in the Statement of
Additional Information which includes an appendix describing Municipal Bond
ratings. Generally, Municipal Bonds with longer maturities tend to produce
higher yields and are subject to greater market fluctuations as a result of
changes in interest rates than Municipal Bonds with shorter maturities and lower
yields. The market value of Municipal Bonds generally rises when interest rates
decline and falls when interest rates rise. Generally, lower-rated Municipal
Bonds provide a higher yield than higher-rated Municipal Bonds of similar
maturity but are subject to greater credit risk. The Fund is not limited as to
the maturities of the Municipal Bonds in which it invests. Such securities may
have remaining maturities of up to 30 years or more. The average maturity, which
may vary from time to time, of the Municipal Bonds owned by the Fund on
September 30, 1994, was 20.32 years.
On a temporary defensive basis, due to market conditions or pending investment
in Municipal Bonds, the Fund may hold temporary investments ("Temporary
Investments") consisting of short term municipal notes rated MIG 1 through MIG 4
by Moody's or SP-1 or SP-2 by S&P; variable rate demand notes rated VMIG 1 or
VMIG 2; tax-exempt commercial paper rated P-1 or P-2 in the case of Moody's or
A-1 or A-2 by S&P; securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; certificates of deposit of domestic banks with
assets of $500 million or more and having deposits insured by the Federal
Deposit Insurance Corporation; and shares of tax-exempt money market investment
companies. See "Investment Practices and Restrictions -- Money Market Investment
Companies."
Temporary Investments may also include repurchase agreements collateralized by
Municipal Bonds or by any of the Temporary Investments described above,
provided, however, that no more than 15% of the Fund's net assets at the time of
purchase may be invested in repurchase agreements which do not mature within
seven days. Interest income from certain Temporary Investments may be taxable to
shareholders as ordinary income. See "Dividends, Distributions and Taxes." The
Fund generally invests at least 90% of its assets in securities, the income from
which
14
<PAGE> 20
is exempt from regular federal income tax and at least 80% of its assets in
securities, the income from which is exempt from both such tax and the federal
alternative minimum tax. As a temporary defensive measure during times of
adverse market conditions, up to 50% of the Fund's assets may be invested in
such Temporary Investments.
The Fund may invest up to 15% of its net assets in illiquid securities which
include Municipal Bonds issued in limited placements under which the Fund
represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Bonds acquired in limited
placements generally may be resold only in a privately negotiated transaction to
one or more other institutional investors. Such limitation could result in the
Fund's inability to realize a favorable price upon disposition, and in some
cases might make disposition of such securities at the time desired by the Fund
impossible. The 15% limitation applies at the time the purchase commitment is
made. See "Investment Practices and Restrictions -- Repurchase Agreements."
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MUNICIPAL BONDS
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Municipal Bonds include debt obligations of a state, territory or a possession
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which Municipal Bonds may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses and obtaining funds to lend to
other public institutions and facilities. Certain types of Municipal Bonds are
issued to obtain funding for privately operated facilities.
Many new issues of Municipal Bonds are sold on a "when-issued" basis. While
the Fund has ownership rights to the Bonds, the Fund does not have to pay for
them until they are delivered, normally 15 to 45 days later. To meet that
payment obligation, the Fund sets aside with the custodian sufficient cash or
securities equal to the amount that will be due. See "Investment Practices and
Restrictions -- Delayed Delivery and When-Issued Securities."
The yields of Municipal Bonds depend on, among other things, general money
market conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of Moody's and S&P represent their opinions of the quality of the
Municipal Bonds they undertake to rate. It should be emphasized, however, that
ratings are general
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<PAGE> 21
and are not absolute standards of quality. Consequently, Municipal Bonds with
the same maturity, coupon and rating may have different yields while Municipal
Bonds of the same maturity and coupon with different ratings may have the same
yield. A description of the ratings is included in the Statement of Additional
Information.
Among the various types of Municipal Bonds are general obligation bonds,
revenue or special obligation bonds, industrial development bonds, pollution
control bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
-- tolls from a toll-bridge, for example. Industrial development revenue bonds
are a specific type of revenue bond backed by the credit and security of a
private user. The Fund's ability to achieve its objective depends to a great
extent on the ability of these various issuers to meet their scheduled payments
of principal and interest.
The Fund considers investments in tax-exempt Municipal Bonds not to be subject
to concentration policies and may invest a relatively high percentage of its
assets in Municipal Bonds issued by entities having similar characteristics. The
issuers may be located in the same geographic area or may pay their interest
obligations from revenue of similar projects such as hospitals, utility systems
and housing finance agencies. This may make the Fund's investments more
susceptible to similar economic, political or regulatory occurrences. As the
similarity in issuers increases, the potential for fluctuation in the Fund's per
share net asset value also increases. The Fund may invest more than 25% of its
total assets in industrial development revenue bonds, but it does not intend to
invest more than 25% of its assets in industrial development revenue bonds
issued for companies in the same industry or state. Sizeable investments in such
obligations could involve an increased risk to the Fund should any of such
issuers of any such related projects or facilities experience financial
difficulties.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Bonds. It may be expected that similar proposals may be
introduced in the future. If any such proposals were to be enacted, the ability
of the Fund to pay "exempt-interest" dividends may be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.
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<PAGE> 22
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INVESTMENT PRACTICES AND RESTRICTIONS
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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 that seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. Repurchase agreements involve
certain risks in the event of default by the other party. In the event of the
bankruptcy of the seller of a repurchase agreement, the Fund could experience
delays in liquidating the underlying securities, and the Fund could incur a loss
if the value of the underlying securities declines. 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, exceeds 15% of the
value of its net assets. In the event of the 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 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.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable interest rate adjustment
formula and which are subject to an unconditional right of demand to receive
payment of the principal balance plus accrued interest either at any time or at
specified intervals not exceeding one year and in either case upon no more than
seven days notice. The interest rates are adjustable at intervals ranging from
daily ("floating rate") to up to one year to some prevailing market rate for
similar investments, such adjustment formula being calculated to maintain the
market
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<PAGE> 23
value of the VRDN at approximately the par value of the VRDN upon the adjustment
date. The adjustments are typically based upon the prime rate of a bank or some
other appropriate interest rate adjustment index.
The Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven days.
The Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation and issuing the repurchase commitment.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with respect
to Municipal Securities held by it. Under a "stand-by commitment," a bank or
dealer from which Municipal Securities are acquired agrees to purchase from the
Fund, at the Fund's option, the Municipal Securities at a specified price. Such
commitments are sometimes called "liquidity puts."
The amount payable to the Fund upon its exercise of a "stand-by commitment" is
normally (i) the Fund's acquisition cost of the Municipal Securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
"Stand-by commitments" generally can be acquired when the remaining maturity of
the underlying Municipal Securities is not greater than one year, and are
exercisable by the Fund at any time before the maturity of such obligations.
The Fund's right to exercise "stand-by commitments" is unconditional and
unqualified. A "stand-by commitment" generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Securities to a third party
at any time.
The Fund expects that "stand-by commitments" will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield-to-maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding "stand-by commitments" held in the Fund will not exceed
1/2 of 1% of the value of the Fund's total assets calculated immediately after
each "stand-by commitment" is acquired.
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<PAGE> 24
The Fund intends to enter into "stand-by commitments" only with banks and
dealers which, in the Adviser's opinion, present minimal credit risks.
The Fund would acquire "stand-by commitments" solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a "stand-by commitment" would not affect the
valuation of the underlying Municipal Securities which would continue to be
valued in accordance with the method of valuation employed for the Fund in which
they are held. "Stand-by commitments" acquired by the Fund would be valued at
zero in determining net asset value. Where the Fund paid any consideration
directly or indirectly for a "stand-by commitment," its costs would be reflected
as unrealized depreciation for the period during which the commitment was held
by the Fund.
DELAYED DELIVERY AND WHEN-ISSUED SECURITIES. Municipal Bonds may at times be
purchased or sold on a delayed delivery or a when-issued basis. These
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, often a month or more after the
purchase. The payment obligation and the interest rate are each fixed at the
time the Fund enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Fund may sell these securities prior to settlement date if
it is deemed advisable. Purchasing Municipal Bonds on a when-issued basis
involves the risk that the yield available in the market when the delivery takes
place may actually be higher than those obtained in the transaction itself; if
yields so increase, the value of the when-issued obligation will generally
decrease. The Fund will maintain a separate account at its custodian bank
consisting of cash or liquid high-grade debt obligations (valued on a daily
basis) equal at all times to the amount of any when-issued commitment.
MONEY MARKET INVESTMENT COMPANIES. The Fund may invest in shares of open-end
investment companies which are tax-exempt money market funds. Such investment
would not exceed three percent of the total outstanding voting stock of the
acquired company; five percent of the value of the total assets of the Fund; or
ten percent of the total assets of the acquired company as held by the Fund and
all American Capital funds. When the Fund invests in a tax-exempt money market
fund, the Adviser will reduce its advisory fee by the amount of any investment
advisory and administrative services fees paid to the investment adviser of the
money market fund.
FUTURES CONTRACTS AND RELATED OPTIONS. The investment policies of the Fund
permit the Fund to engage in transactions in listed futures contracts and
related options. Such transactions may be in listed futures contracts based upon
The Bond Buyer Municipal Bond Index (the "Index"), a price weighted measure of
the market value of 40 large-sized, recent issues of tax-exempt bonds or in
listed contracts based on U.S. Government securities.
19
<PAGE> 25
Futures contracts and options thereon may be used for defensive hedging or
anticipatory hedging purposes, depending upon the composition of the Fund's
portfolio and the Adviser's expectations concerning the securities markets. See
the Statement of Additional Information for discussion of futures contracts and
related options.
Potential Risks of Futures Contracts and Related Options. The purchase and
sale of futures contracts and related options involve risks different from those
involved with direct investments in securities. While utilization of futures
contracts and related options 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
connection with such investments, which may increase the Fund's expenses and
reduce its return. 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 equivalent 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.
PORTFOLIO TURNOVER. The Fund may purchase or sell securities without regard to
the length of time the security has been held to take advantage of short-term
differentials in bond yields consistent with its objective of seeking tax-exempt
interest income. The Fund engages in short-term trading only if the anticipated
benefits are expected by the Adviser to exceed the transaction costs. The Fund's
annual portfolio turnover rate is shown in the "Financial Highlights" table
shown herein. Since portfolio changes are made in light of market and other
conditions, the turnover rate may vary greatly from year to year. A 100%
turnover rate would occur, for example, if all the securities in the Fund's
portfolio were replaced once a year. A 100% turnover rate is substantially
greater than that of many other investment companies. Higher portfolio turnover
involves higher transaction costs and may result in realization of short-term
capital gains if securities are held for one year or less. Such gains are
taxable to shareholders as ordinary income except to the extent such gains are
offset by capital losses.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. 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 such transactions. The Municipal
Bonds in which the Fund invests are traded in the over-the-counter market.
Municipal Bonds are generally traded on a net basis and do not normally involve
any brokerage commissions. The cost of portfolio securities transactions of the
Fund primarily consists of dealer or underwriter spreads. The Adviser is
authorized to place
20
<PAGE> 26
portfolio transactions with brokerage firms participating in the distribution of
shares of the Fund and other American Capital funds if it reasonably believes
that the quality of the execution and the commission are comparable to that
available from other qualified firms. The Adviser is authorized to place
portfolio transactions with brokerage firms 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 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.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without approval by a
majority (as defined in the 1940 Act) vote of the Fund's shareholders. These
restrictions provide, among other things, that the Fund may not:
1. Invest in securities other than Municipal Bonds and Temporary Investments
(as defined herein), listed futures contracts related to U.S. Government
securities, Municipal Bonds or to an index of Municipal Bonds, and options
on such contracts.
2. Invest more than five percent of its total assets at market value at the
time of purchase in the securities of any one issuer (other than
obligations of the United States Government or of any instrumentalities
thereof).
3. Borrow money, except from banks for temporary or emergency purposes, such
borrowing not to exceed five percent of its total assets at market value at
the time of borrowing. Any such borrowing may be secured provided that not
more than ten percent of the total assets at market value at the time of
pledging may be used as security for such borrowings. 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 in connection
with futures contracts and related options.
4. Purchase any Municipal Bond rated below Baa by Moody's and below BBB by
S&P, or which, if non-rated, is in the opinion of the Adviser of comparable
quality, if immediately after and as a result of such purchase such Bonds
would constitute more than 20% of the Fund's total assets.
5. Purchase any Municipal Bond rated below A by Moody's and S&P, or which is
non-rated, if immediately after and as a result of such purchase such Bonds
would constitute more than 50% of the Fund's total assets.
6. Purchase any Municipal Bond rated below B by Moody's and S&P or any
non-rated Municipal Bonds considered by the Adviser to be of comparable
quality.
21
<PAGE> 27
Each state and each political subdivision, agency or instrumentality of such
state, and each multi-state agency of which a state is a member is a separate
"issuer" as that term is used in this Prospectus. The non-government user of
facilities financed by industrial development bonds is also considered as a
separate issuer. If, however, a security is guaranteed by another entity,
securities issued or guaranteed by such guaranteeing entity shall be limited to
ten percent of the value of the Fund's total assets.
------------------------------------------------------------------------------
THE FUND AND ITS MANAGEMENT
------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company originally
incorporated in Texas on September 8, 1976. The Fund was reincorporated in
Maryland on July 2, 1992. A mutual fund provides, for those who have similar
investment goals, a practical and convenient way 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 its inception. As of December 31,
1994, the Adviser provides investment advice to 45 investment company portfolios
with total net assets of approximately $15.8 billion.
The Adviser and the Distributor are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
Alberto Cribiore, Donald J. Gogel and Hubbard C. Howe, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of VKAC own, in the aggregate, not more than 6% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 10% of the common stock of
VK/AC Holding, Inc.
Mr. Don G. Powell is President and Director of the Fund, President, Chief
Executive Officer and Director of the Adviser, and Chairman, Chief Executive
22
<PAGE> 28
Officer and Director of the Distributor. Most other officers of the Fund are
also officers and/or directors of the Adviser.
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 December 20, 1994 (the "Advisory
Agreement"), the Fund pays the Adviser an annual fee of 0.50% of the Fund's
average net assets. The fee is computed daily and payable monthly. 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, custodian 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) fee, and total
operating expense, ratios are shown under the caption "Expense Synopsis" herein.
Robert B. Evans has been primarily responsible for the day-to-day management
of the Fund's investment portfolio since November 1987. Mr. Evans is Vice
President of the Fund. Mr. Evans has been associated with the Adviser since
1991.
------------------------------------------------------------------------------
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 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 investment 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
23
<PAGE> 29
service agent, Van Kampen/American Capital 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. The Fund's investments are valued by an
independent pricing service.
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 net asset
value next computed 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.
24
<PAGE> 30
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.
Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund, with subsidiaries of The Travelers Inc.
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.
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 % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE 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
25
<PAGE> 31
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.
For full service participant directed profit sharing and money purchase plans
and qualified 401(k) retirement plans administered by Van Kampen American
Capital Trust Company's (k) Advantage Program, or similar recordkeeping programs
made available through the 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
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. 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 reallowances 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 sell shares of the Fund. 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.
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 above. 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.
26
<PAGE> 32
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 VK/AC Holding,
Inc. or any of its subsidiaries; spouses, minor children and grandchildren of
the above persons; and parents of employees and parents of spouses of employees
of VK/AC Holding, Inc. and any of its subsidiaries; trustees, directors and
employees of Clayton, Dubilier & Rice, Inc.; (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 (d)
trustees or other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more; and (e)
clients of Service Organizations that 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. 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 (f) 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 (g) 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 (g) 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
27
<PAGE> 33
investment advisers, trust companies and bank trust departments described in
clause (g) above, retirement plans described in clause (g) above and for
registered representatives' accounts.
The Distributor may pay commissions of up to 1% for such purchases described
in clause (d). The Distributor may pay Service Organizations through which
purchases are made as described in clause (g) 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. ("Corporate Bond"), 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., American Capital Pace Fund,
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
28
<PAGE> 34
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 table herein. 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 purchased 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 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.
29
<PAGE> 35
------------------------------------------------------------------------------
<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, 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.
30
<PAGE> 36
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.
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.
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, and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." 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.
------------------------------------------------------------------------------
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's 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%
31
<PAGE> 37
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 29, 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 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
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<PAGE> 38
current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.
The distribution fee attributable to Class B 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 $1.5 million or 4.25% of the Class B shares' net assets. The
unreimbursed expenses incurred by the Distributor under the Class C Plan from
August 30, 1993 (inception of Class C shares) through June 30, 1994, and carried
forward were approximately $118,000 or 1.71% 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.
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<PAGE> 39
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SHAREHOLDER SERVICES
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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 these 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 investors 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 investor 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.
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.
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 reinvested into a pre-existing Class A, Class B
or Class C account in any of the Participating Funds listed under "Purchase of
Shares --
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<PAGE> 40
Class A Shares -- Volume Discounts," or Reserve. 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 funds have been registered for sale 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
Corporate Bond, Federal Mortgage, Global Managed, Government Trust, High Yield,
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 Participating Fund may be available for sale only to
existing shareholders. 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
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<PAGE> 41
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. VKAC
and its subsidiaries, including ACCESS (collectively, "Van Kampen 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 Van Kampen American Capital nor the
Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Van Kampen 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 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
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<PAGE> 42
systematic exchanges. Additional information on how to establish this option is
available from the Distributor.
AUTOMATIC EXCHANGE. The exchange fee described under "Shareholder
Services -- Exchange Privilege" will be waived for any exchange transmitted
through ACCESS Plus, FUNDSERV or via computer transmission. Contact the 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.
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 the 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 the 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 the purchase 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 the
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 ("State Street Bank") will be sent to the Class A shareholder. These
37
<PAGE> 43
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 State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the Class A shareholder's 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
calendar 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
State Street Bank. 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.
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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 investment
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 one percent may be imposed on certain
redemptions of Class A shares made within one year of purchase for investments
of $1 million or more and for certain qualified 401(k) retirement plans. 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.
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<PAGE> 44
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 national securities exchange, registered securities association
or clearing agency; a savings and loan association; 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, 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.
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 is 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.
The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Board of Directors. Any involuntary redemption may only occur if the shareholder
account is less than the minimum initial investment due to shareholder
redemptions. Any applicable contingent deferred sales charge will be deducted
from the proceeds of this redemption. At least 60 days advance written notice of
any such involuntary redemption is required and the shareholder is given an
opportunity to purchase the required value of additional shares at the next
determined net asset value without sales charge. Any applicable contingent
deferred sales charge will be deducted from the proceeds of this redemption.
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
39
<PAGE> 45
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. Van Kampen 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 Van Kampen American Capital nor the Fund will
be liable for following telephone instructions which it reasonably believes to
be genuine. Van Kampen 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 available for the following types of non-retirement accounts: individual
accounts, joint accounts and accounts of minors with custodians acting on their
behalf. 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 net 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
40
<PAGE> 46
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDEND POLICY. The Fund distributes substantially all of its net investment
income in monthly dividends to shareholders. The Fund intends to distribute
after the end of a fiscal year the net capital gains, if any, realized during
the fiscal year, except to the extent that such gains are offset by capital loss
carryovers. Unless the shareholder instructs otherwise, dividends and
distributions are automatically applied to purchase shares of the Fund at net
asset value. See "Shareholder Services -- Reinvestment Plan."
The per share dividends on Class B and Class C shares of the Fund will be
lower than the per share dividends on Class A shares of the Fund as a result of
the distribution fees and higher incremental transfer agency fees applicable to
such classes of shares.
FEDERAL INCOME 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.
In addition, the Fund intends to continue to invest in sufficient Municipal
Bonds to permit payment of "exempt-interest dividends" (as defined in the Code).
Dividends paid by the Fund from the net tax-exempt interest earned from
Municipal Bonds qualify as exempt-interest dividends if, at the close of each
quarter of the Fund's fiscal year, at least 50% of the value of its total assets
consists of Municipal Bonds.
The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gains. One such provision affects tax-exempt
securities by requiring that gains on such securities purchased at a market
discount be treated as ordinary income to the extent of the accrued market
discount, if the securities are acquired after April 30, 1993. Such securities
were exempt from the market discount rules under prior law.
Except as provided below, exempt-interest dividends paid to shareholders are
not includable in the shareholders' gross income for federal income tax
purposes. For each of the last three fiscal years of the Fund, over 99% of the
dividends paid by the Fund were exempt-interest dividends. The percentage of
income that is tax-
exempt is applied uniformly to all dividends paid during each fiscal year. This
percentage may differ from the actual tax-exempt percentage during any
particular month.
41
<PAGE> 47
Interest on certain "private-activity bonds" issued after August 7, 1986, is
an item of tax preference subject to the alternative minimum tax on individuals
and corporations. The Fund invests a portion of its assets in such
private-activity bonds so that a portion of its exempt-interest dividends is an
item of tax preference to the extent such dividends represent interest received
from these private-activity bonds. For the fiscal year ended September 30, 1994,
approximately 12% of the Fund's income consisted of interest on private-activity
bonds which is an item of tax preference. The Tax Reform Act of 1986 also
imposed per capita volume limitations on certain private-activity bonds which
could limit the amount of such bonds available for investment by the Fund.
Shareholders are notified annually of the federal tax status of dividends and
any capital gains distributions.
Individuals whose modified income exceeds a base amount are subject to federal
income tax on up to one-half of their Social Security benefits. Modified income
includes adjusted gross income, one-half of Social Security benefits and
tax-exempt interest, including tax-exempt interest dividends from the Fund.
To avoid being subject to a 31% federal back-up withholding on dividends
(except exempt-interest 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 of record shortly after the purchase of
shares by an investor represents, in substance, a return of capital to the
investor, even though subject to income taxes to the extent discussed herein.
The foregoing is only a brief summary of some of the important tax
considerations generally affecting the Fund and its investors who are U.S.
residents or U.S. corporations. Additional tax information of relevance to
particular investors, including investors who may be "substantial users" of
facilities financed by Municipal Bonds, is contained in the Statement of
Additional Information. Investors are urged to consult their tax advisers with
specific reference to their own tax situation. 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.
FEDERAL INCOME TAX ASPECTS OF FUTURES AND OPTIONS. The Fund's ability to
engage in transactions in listed futures contracts and related options may be
limited by provisions of the Code, including the requirement that the Fund
derive less than 30% of its gross income from the sale or other disposition of
securities held for less than three months. Gains and losses recognized by the
Fund from transactions in futures contracts and options generally constitute
capital gains and losses for federal
42
<PAGE> 48
income tax purposes. See "Federal Tax Information" in the Statement of
Additional Information. To the extent such activities result in net realized
short-term capital gains which are distributed to shareholders, such
distributions constitute taxable ordinary income. To the extent such activities
result in net realized long-term capital gains which are distributed to
shareholders, such distributions constitute taxable long-term capital gains.
STATE AND LOCAL TAXES. The exemption of interest income for federal income tax
purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that shareholders consult their tax advisers for information in this
regard. The Fund reports annually to its shareholders the percentage and source,
on a state-by-state basis, of interest income earned on Municipal Bonds held by
the Fund during the preceding year. Distributions paid by the Fund from sources
other than tax-exempt interest are generally subject to taxation at the state
and local levels.
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PRIOR PERFORMANCE INFORMATION
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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.
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<PAGE> 49
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.
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 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 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. The Fund's "tax-equivalent
yield" is calculated by determining the rate of return that would have to be
achieved on a fully taxable investment to produce the after-tax equivalent of
the Fund's yield, assuming certain tax brackets for a Fund shareholder.
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
less 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.
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.,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds; or with municipal bond indices, such as Lehman
Brothers Municipal Bond Index or Bond Buyer's Index of 25 Revenue Securities or
with the Consumer Price Index, Standard & Poor's, NASDAQ, or other appropriate
indices of
44
<PAGE> 50
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 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 originally incorporated in Texas on
September 8, 1976. The Fund was incorporated in the State of Maryland on July 2,
1992. 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, nonassessable 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
45
<PAGE> 51
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 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 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.
46
<PAGE> 52
------------------------------------------------------------------------------
INVESTMENT HOLDINGS
------------------------------------------------------------------------------
September 30, 1994
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
EDUCATION
$ 1,000,000 Broward County,
Florida,
Educational
Facilities
Authority Rev.
(Nova University
Project), G.O.,
8.50%, 4/1/10
625,000 Clear Creek, Texas,
Independent School
District, G.O.,
6.25%, 2/1/11
1,000,000 Cook County,
Illinois, Community
College, District
#508, Certificates
of Participation,
FGIC, 8.75%, 1/1/07
1,150,000 Florida State Board
of Education,
Capital Outlay,
Series A, 7.25%,
6/1/23
Illinois
Educational
Facilities
Authority Rev.,
G.O.
1,000,000 Lake First College,
FSA, 6.75%, 10/1/21
1,000,000 Northwestern
University, Series
1985, 6.90%,
12/1/21
2,000,000 New Hampshire
Higher Education &
Daniel Webster
College Issue,
G.O., 7.625%,
7/1/16
1,000,000 New York City, New
York, Industrial
Development Agency,
Civil Facility Rev.
(Marymount
Manhattan College
Project), G.O.,
7.00%, 7/1/23
New York State
Dormitory Authority
Rev.
$ 1,000,000 City University,
8.125%, 7/1/17;
Pre-refunded
7/1/97
3,250,000 State University
Educational
Facility, Series
1990-A, 7.70%,
5/15/12
Pennsylvania State
Higher Educational
Facilities
Authority Rev.
500,000 Hahnemann
University Project,
MBIA, G.O.,
7.20%, 7/1/19
250,000 Pennsylvania
Medical College,
Series A, G.O.,
7.50%, 3/1/14
University of the
Virgin Islands,
Series A
500,000 7.50%, 1/1/90
500,000 7.65%, 10/1/14
HEALTH CARE
500,000 Colorado Health
Facilities
Authority Rev.
(Cleo Wallace
Center Project),
7.00%, 8/1/15
1,500,000 Colorado Health
Facilities
Authority Rev. (PSL
Healthcare System
Project), Series
1991-A, FSA, 6.25%,
2/15/21
1,000,000 Cuyahoga County,
Ohio, Health Care
Facilities Rev.
(Jennings Hall),
7.30%, 11/15/23
</TABLE>
47
<PAGE> 53
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 1,000,000 Lebanon County,
Pennsylvania,
Health Facilities
Authority Health
Center Rev. (UTD
Church of Christ
Homes Project),
6.75%, 10/1/10
750,000 Massachusetts
State, Industrial
Finance Rev.,
7.10%, 11/15/18
235,000 Pinal County,
Arizona, Industrial
Development
Authority (Casa
Grande Regional
Medical Center
Project), 9.00%,
12/1/13
1,000,000 St. Petersburg,
Florida, Health
Facilities
Authority Rev.
(Allegany Health
Systems), 7.75%,
12/1/15
HOSPITALS
Bexar County,
Texas, Health
Facilities
Development Rev.
(St. Lukes Lutheran
Hospital Project)
500,000 7.00%, 5/1/21
1,500,000 7.90%, 5/1/18
1,000,000 Boston,
Massachusetts, Rev.
(Boston City
Hospital), FHA,
7.625%, 2/15/21
500,000 Boulder County,
Colorado,
Industrial
Development Rev.
(Boulder Medical
Center Project),
8.875%, 1/1/17
1,000,000 Charlotte County,
Florida, Hospital
Authority Rev.,
(Bon Secours Health
System), 8.25%,
8/15/18
500,000 Clarksville,
Tennessee, Hospital
Rev., Refunding &
Improvement
(Clarksville
Memorial Project),
6.25%, 7/1/13
$ 995,000 Clearfield,
Pennsylvania,
Hospital Authority
Rev. (Clearfield
Hospital Project),
Series-94, 6.875%,
6/1/16
800,000 Colorado Health
Facilities
Authority Rev.
(Rocky Mountain
Adventist), 6.625%,
2/1/13
2,000,000 Delaware State
Economic
Development
Authority Rev.
(Osteopathic
Hospital
Association of
Delaware), Series
A, 6.90%, 1/1/18
1,000,000 Ector County,
Texas, Hospital
District (Medical
Center Hospital),
7.125%, 4/15/02
500,000 Erie County,
Pennsylvania,
Hospital Authority
Rev. (Metro Health
Center), Series
1992, 7.25%, 7/1/12
1,000,000 Harris County,
Texas Health
Facilities
Development Corp.
(Memorial Hospital
System Project),
7.125%, 6/1/15
Illinois Health
Facilities
Authority Rev.
1,000,000 Elmhurst Memorial
Hospital, Series
87-A, 8.125%,
1/1/13
1,000,000 Improvement Swedish
Covenant, Series
A, 6.30%, 8/1/13
2,000,000 Lutheran Health
System, Series B,
MBIA,
6.00%, 4/1/18
1,000,000 Masonic Medical
System, Series
1989-B, 7.70%,
10/1/19
1,000,000 Memorial Hospital,
7.25%, 5/1/22
</TABLE>
48
<PAGE> 54
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 500,000 Mercy Center For
Health Care
Services, 6.625%,
10/1/12
1,000,000 Northwestern
Memorial Hospital,
6.75%,
8/15/11
1,000,000 Indiana Health
Facilities,
Financing Hospital
Authority Rev.
(Community Hospital
of Indiana),
Series-H, MBIA,
6.85%, 7/1/22
1,160,000 Jefferson County,
Texas, Health
Facility Authority
Rev. (Baptist
Health Care
Project), 8.30%,
10/1/14
845,000 Lebanon County,
Pennsylvania, Good
Samaritan Hospital
Authority Rev.
(Good Samaritan
Hospital Project),
5.85%, 11/15/07
1,000,000 Marion County,
Indiana, Hospital
Authority, Facility
Rev. (Methodist
Hospital of
Indiana), 6.50%,
9/1/13
1,000,000 McKeesport,
Pennsylvania,
Hospital Authority
Rev. (McKeesport
Hospital Corp.),
6.50%, 7/1/08
1,000,000 Michigan State
Hospital Finance
Authority Rev. (St.
Joseph Hospital
Corp.), Series A,
8.125%, 7/1/05
1,000,000 Missouri State
Health &
Educational
Facilities
Authority
(Heartland Health
Systems Project),
8.125%, 10/1/10
$ 2,500,000 New Hampshire
Health & Higher
Educational
Facility Authority
Rev. (Wentworth
Douglass Hospital),
8.50%, 1/1/15
New York State
Medical Care
Facilities Finance
Agency Rev.
1,000,000 Columbia
Presbyterian
Hospital, Series A,
FHA, 8.00 %,
2/15/25
1,965,000 Montefiore Medical
Center, 7.25%,
2/15/09
1,000,000 North General
Hospital, Series
89-A, 7.40%,
2/15/19
725,000 Philadelphia,
Pennsylvania,
Hospital & Higher
Education
Facilities
Authority Rev.
(Roxborough
Memorial Hospital),
Series 2, 7.25%,
3/1/24
1,500,000 Richardson, Texas,
Hospital Authority,
Refunding &
Improvement Rev.
(Richardson Medical
Center), 6.75%,
12/1/23
1,000,000 Royal Oak,
Michigan, Hospital
Finance Authority,
Rev. (William
Beaumont Hospital),
Series D, 6.75%,
1/1/20
1,750,000 Rusk County, Texas,
Health Facilities
Corp., Hospital
Rev. (Henderson
Memorial Hospital
Project), 7.75%,
4/1/13
500,000 Salem, Oregon,
Hospitals
Facilities
Authority Rev.,
7.50%, 12/1/24
</TABLE>
49
<PAGE> 55
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
Scranton-Lackawanna,
Pennsylvania,
Health & Welfare
Authority Rev.
(Moses Taylor
Hospital Project)
$ 1,000,000 Series A, 7.375%,
7/15/08
500,000 Series B, 8.25%,
7/1/09
South Dakota State
Health &
Educational
Facilities
Authority Rev.
(Sioux Valley
Hospital)
1,000,000 7.25%, 4/1/20
2,000,000 7.625%, 11/1/13
1,500,000 St. Joseph County,
Indiana, Hospital
Authority Rev.
(Memorial Hospital
South Bend
Project), MBIA,
6.25%, 8/15/22
1,000,000 Tyler, Texas,
Health Facilities
Development Corp.
(East Texas Medical
Center Regional
Health), Series B,
6.75%, 11/1/25
1,000,000 Washington County,
Pennsylvania,
Hospital Authority,
7.35%, 6/1/13
1,500,000 Wells County,
Indiana, Hospital
Authority Rev.,
Refunding
(Caylor-Nickel
Medical Center,
Inc.), 8.50%,
4/15/03
1,000,000 Weslaco, Texas,
Health Facilities
Development (Knapp
Medical Center
Project), Series-A,
5.25%, 6/1/16
1,000,000 West Virginia
State, Hospital
Finance Authority,
Refunding &
Improvement
(Fairmont General
Hospital), Series
A, 6.75%, 3/1/14
$ 2,000,000 Wisconsin State
Health &
Educational
Facilities Rev.
(Wheaton Franciscan
Services Inc.),
8.20%, 8/15/18
HOUSING
1,275,000 Albuquerque, New
Mexico, Home Mtg.
Rev., 12.00%,
9/1/98
1,645,000 Arapahoe County,
Colorado, Single
Family Mtg. Rev.,
8.375%, 8/1/19
1,000,000 Austin, Texas,
Housing Finance
Corp., Multi-family
Rev. (Stassey Woods
Apartments
Project), 6.75%,
4/1/19
Bexar County,
Texas, Housing
Finance Corp., Rev.
410,000 8.20%, 4/1/22
435,000 Series B, 9.25%,
4/1/16
145,000 El Paso, Texas,
Property Finance
Authority Inc.,
Single Family Mtg.
Rev., Series A,
8.70%, 12/1/18
680,000 Fort Worth, Texas,
Housing Finance
Corp., Home Mtg.
Rev., Refunding,
8.50%, 10/1/11
800,000 Harris County,
Texas, Housing
Financing Corp.,
Single Family Mtg.
Rev., Series
1983-A, 10.125%,
7/15/03
Houston, Texas,
Housing Finance
Corp., Single
Family Mtg. Rev.
705,000 10.00%, 9/15/14
885,000 Series A, FSA,
5.95%, 12/1/10
</TABLE>
50
<PAGE> 56
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 1,000,000 Maricopa County,
Arizona, IDR,
Multi-Family Rev.,
Refunding (Laguna
Point Apartments
Project), 6.50%,
7/1/09
Massachusetts State
Housing Finance
Agency
1,000,000 Multi-family Housing
Authority, Series A,
8.75%, 8/1/08
550,000 Residential Housing
Authority, Series A,
8.40%, 8/1/21
965,000 Minnesota State
Housing Finance
Agency, Single
Family Mtg. Rev.,
6.75%, 1/1/26
1,000,000 Montgomery County,
Pennsylvania,
Industrial
Development
Authority,
Retirement
Community Rev. (GDL
Farms Corp.
Project), 6.30%,
1/1/13
1,000,000 Mount Clemens,
Michigan, Housing
Corp., Multi-family
Rev., Refunding,
Series A, 6.60%,
6/1/13
1,000,000 North St. Paul,
Minnesota,
Multi-family
Refunding Housing
Rev. (Cottages
North St. Paul),
9.25%, 2/1/22
1,000,000 Pima County,
Arizona, IDR,
Single Family Mtg.
Rev., 6.625%,
11/1/14
1,155,000 Ridgeland,
Mississippi, Urban
Renewal (The
Orchard, Ltd.
Project), Series A,
7.75%, 12/1/15
2,500,000 St. Paul, Minnesota
Port Authority,
Housing &
Redevelopment
Authority,
Multi-family
Housing Rev.,
Series J, 9.50%,
12/1/11
$ 1,000,000 South Dakota State
Housing Development
Authority,
Homeowner Mtg.,
Series D-1, 6.85%,
5/1/26
1,450,000 Texas State
Veterans Housing
Assistance, MBIA,
G.O., 6.80%,
12/1/23
245,000 Travis County,
Texas, Housing
Finance Corp.,
Single Family Mtg.
Rev., 8.20%, 4/1/22
LIFE CARE
2,000,000 Butler County,
Pennsylvania,
Industrial
Development
Authority Rev., 1st
Mtg. Rev. (Sherwood
Oaks Project),
Series A, 8.75%,
6/1/16
975,000 Hanover Park,
Illinois, 1st Mtg.
Rev. (Windsor Park
Manor Project),
9.25%, 12/1/07
1,000,000 Massachusetts State
Industrial Finance
Agency Rev., 1st
Mtg. (Reeds Landing
Project), 8.625%,
10/1/23
500,000 Tempe, Arizona,
Industrial
Development
Authority Rev.
(Friendship Village
Temple), Series-A,
6.75%, 12/1/13
1,000,000 Wisconsin State
Health &
Educational
Facilities
Authority Rev.
(United Lutheran
Program for the
Aging Inc.
Project), 8.50%,
3/1/19
</TABLE>
51
<PAGE> 57
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
MISCELLANEOUS
$ 500,000 Berry Creek
Metropolitan
District, Colorado,
G.O., Refunding and
Improvement, 8.25%,
12/1/11
2,000,000 Compton,
California,
Certificates of
Participation,
Refunding, Series
B, 7.50%, 8/1/15
1,000,000 Detroit, Michigan,
Tax Increment Bonds
(Development Area
No. 1 Project),
Series 89-A, 7.60%,
7/1/10
2,500,000 District of
Columbia Rev.
(National Public
Radio), Series A,
7.70%, 1/1/23
1,000,000 Dove Valley
Metropolitan
District, Arapahoe
County, Colorado,
G.O., 9.50%,
12/1/08
1,000,000 Du Page County,
Illinois
(Stormwater
Project), 6.55%,
1/1/21
Fort Bend County,
Texas, Levee
Improvement
District No. 11,
G.O.
500,000 8.70%, 3/1/09
440,000 8.70%, 3/1/10
1,000,000 Lake Charles,
Louisiana, Harbor &
Terminal Facilities
Rev. (Trunkline
Liquified Natural
Gas Co. Project),
7.75%, 8/15/22
1,000,000 Lehigh County,
Pennsylvania, IDR
(Allentown
Interstate Motel),
8.00%, 8/1/12
Mountain Village
Metropolitan
District, San
Miguel County,
Colorado,
Refunding, Series
1992, G.O.
$ 630,000 7.95%, 12/1/03
500,000 8.10%, 12/1/11
145,000 Pocahontas, Iowa,
Industrial
Development Rev.
(Navistar
International
Harvester Co.)
10.25%, 10/1/00
1,000,000 Port of New
Orleans, Louisiana,
IDR, Refunding
(Avondale
Industries, Inc.),
8.25%, 6/1/04
2,330,000 Somerset County,
Pennsylvania,
General Authority,
Commonwealth Lease
Rev., FGIC, 6.25%,
10/15/11
1,750,000 St. Charles,
Illinois,
Industrial
Development Rev,
(Tri-City Center
Project), 7.50%,
11/1/13
Texas General
Services, Community
Partner Interests,
(Office Building
and Land
Acquisition
Project)
500,000 7.00%, 8/1/19
500,000 7.00%, 8/1/24
1,000,000 Texas State,
Refunding
(Superconducting
Project), Series C,
G.O., 5.50%, 4/1/20
Utah State Building
Ownership Authority
Lease Rev. (Dept.
of Employment
Security)
1,000,000 7.80%, 8/15/10
1,300,000 7.80%, 8/15/11
</TABLE>
52
<PAGE> 58
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 1,000,000 Valdez, Alaska,
Marine Term Rev.,
Refunding, (Sohio
Pipeline), 7.125%,
12/1/25
1,250,000 Virginia, Port of
Authority,
Commonwealth,
8.20%, 7/1/08
1,500,000 Woodward, Oklahoma,
Municipal Auto
Sales, Refunding,
8.00%, 11/1/12
MUNICIPAL UTILITY DISTRICT (MUD)
500,000 Eldridge Road,
Texas, MUD,
Refunding, 6.125%,
3/1/11
1,000,000 Harris County,
Texas, MUD No.1,
9.75%, 3/1/00;
Pre-refunded 3/1/95
500,000 Harris County,
Texas, MUD,
Refunding, G.O.,
7.30%, 3/1/14
1,000,000 Mills Road, Texas,
MUD, 6.50%, 9/1/14
Mission Bend MUD
No. 2, Texas
500,000 10.00%, 9/1/98
375,000 10.00%, 9/1/00
655,000 Montgomery County,
Texas, MUD No. 4
(Water Works
System), 8.90%,
9/1/02
500,000 North Mission Glen,
Texas, MUD
Refunding, 6.50%,
9/1/14
NURSING HOMES
500,000 Fairfield, Ohio,
Economic
Development Rev.,
Refunding (Beverly
Enterprises),
8.50%, 1/1/03
$ 475,000 Louisiana Public
Facilities
Authority,
Industrial
Development Rev.,
Refunding (Beverly
Enterprises),
8.25%, 9/1/08
1,315,000 Luzerne County,
Pennsylvania,
Industrial
Development
Authority, 1st Mtg.
Rev., Refunding
(Birchwood Nursing
Center Project),
Series-A, 7.875%,
12/1/13
POLLUTION CONTROL REVENUE (PCR)
3,675,000 Brazos River
Authority, Texas,
PCR (Texas Utility
Co. Project A,
9.875%, 10/1/17
1,000,000 Burke County,
Georgia,
Development
Authority, PCR
(Georgia Power
Co.), 9.375%,
12/1/17
1,000,000 Burlington, Kansas,
PCR, MBIA (Kansas
Gas & Electric Co.
Project), 7.00%,
6/1/31
1,595,000 Capital Industrial
Development Corp.,
Texas, PCR
(International
Business Machines
Corp.), 7.40%,
5/1/12
750,000 County of
Coshocton, Ohio,
Solid Waste
Disposal Rev.
(Stone Container
Corp. Project),
Series 1992,
7.875%, 8/1/13
1,000,000 Hodge, Louisiana,
Utility Rev. (Stone
Container Corp.
Project), Series
1990, 9.00%, 3/1/10
1,280,000 Illinois
Development Finance
Authority, PCR
(Commonwealth
Edison Co.),
11.375%, 10/15/14
</TABLE>
53
<PAGE> 59
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 1,250,000 Mercer County,
North Dakota, PCR,
Basin Electric
Power, Series E,
7.00%, 1/1/19
500,000 Monroe County,
Michigan, PCR
(Detroit Edison
Co.) Series A,
10.50%, 12/1/16
New Hampshire State
Industrial
Development
Authority, PCR
1,000,000 New England Power
Co., 7.80%, 4/1/16
1,000,000 United Illuminating
Co., Series B,
10.75%,
10/1/12
1,000,000 Parish of St.
Charles, Louisiana,
PCR (Louisiana
Power & Light Co.),
8.25%, 6/1/14
1,400,000 Parish of West
Feliciana,
Louisiana, PCR
(Gulf States
Utilities), Series
A, 7.50%, 5/1/15
1,000,000 Petersburg,
Indiana, PCR,
Refunding
(Indianapolis Power
& Lighting), Series
1993-A, 6.10%,
1/1/16
750,000 Pope County,
Arkansas, PCR
(Arkansas Power &
Light Project),
11.00%, 12/1/15
1,350,000 Sabine River
Authority, Texas,
Refunding, PCR
(Texas Utilities
Co. Project),
7.75%, 4/1/16
440,000 Series 1986, 9.00%,
9/1/07
POOL FINANCING PROGRAMS
Emmaus,
Pennsylvania,
General Authority,
Local Government
Bond Pool Program,
Rev.
$ 1,750,000 Series A, BIG,
8.15%, 5/15/18
2,500,000 Series C, BIG,
7.90%, 5/15/18
Indianapolis,
Indiana, Local
Public Improvement
1,000,000 Series A, 6.00%,
2/1/20
2,000,000 Series C, 6.70%,
1/1/17
450,000 Series D, 6.50%,
2/1/22
550,000 Series D, 6.75%,
2/1/14
1,000,000 Series D, 6.75%,
2/1/20
670,000 Tampa, Florida,
Capital Improvement
Program Rev.,
Series A, 8.25%,
10/1/18
RESOURCE RECOVERY
Broward County,
Florida, Resource
Recovery Rev.
1,810,000 North Project,
7.95%, 12/1/08
2,365,000 South Project,
7.95%, 12/1/08
1,000,000 Camden County, New
Jersey, PCR, Solid
Waste Resource
Recovery Rev.,
Series B, 7.50%,
12/1/09
1,500,000 Delaware County,
Pennsylvania,
Industrial
Development
Authority Rev.,
(Resource Recovery
Project), 8.10%,
12/1/13
1,000,000 El Centro,
California,
Certificates of
Participation,
7.00%, 6/1/19
1,000,000 Montgomery County,
Pennsylvania,
Industrial
Development
Authority Rev.,
Resource Recovery,
7.50%, 1/1/12
</TABLE>
54
<PAGE> 60
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 2,000,000 Northeast,
Maryland, Solid
Waste Disposal
Authority Rev.
(Montgomery County
Resource Recovery
Project), Series A,
6.30%, 7/1/16
500,000 Rockdale County,
Georgia,
Development
Authority Rev.,
Solid Waste
Disposal (Visy
Paper, Inc.
Project), 7.50%,
1/1/26
SALES TAX REVENUE
1,000,000 Crestwood,
Illinois, Tax
Increment Rev.,
Refunding, 7.25%,
12/1/08
1,000,000 Edgewater,
Colorado,
Redevelopment Rev.,
6.75%, 12/1/08
1,000,000 Orange County,
Florida, Tourist
Development Tax
Rev., AMBAC, 6.00%,
10/1/16
Round Lake Beach,
Illinois, Tax
Increment Rev.
900,000 Series 1993, 7.20%,
12/1/04
500,000 Series 1993, 7.50%,
12/1/13
975,000 St. Louis,
Missouri, Tax
Increment Rev.
(Scullin
Redevelopment
Area), Series A,
10.00%, 8/1/10
TRANSPORTATION
3,000,000 Atlanta, Georgia,
Airport Facilities
Rev. (Atlanta
International
Airport), Series
1990, 6.25%, 1/1/21
Chicago, Illinois,
O'Hare
International
Airport Rev.
1,000,000 Series A, 6.00%,
1/1/18
1,000,000 Series B, 6.00%,
1/1/18
$ 500,000 Cleveland, Ohio,
Parking Facilities
Improvement Rev.,
8.00%, 9/15/12
940,000 Dallas-Fort Worth,
Texas,
International
Airport Facility
Rev, (American
Airlines, Inc.),
7.50%, 11/1/25
2,500,000 Greater Orlando
Aviation Authority,
Florida, Airport
Facilities Rev.,
8.375%, 10/1/16
500,000 Hawaii State Harbor
Capital Improvement
Rev., MBIA, 7.00%,
7/1/17
2,000,000 Indiana
Transportation
Finance Authority,
Airport Facilities
Lease Rev., Series
A, 6.25%, 11/1/16
Kentucky State
Turnpike Authority,
Toll Road Rev.,
Refunding
1,000,000 Series A, 5.50%,
7/1/07
8,000,000 Series 1987-A,
5.00%, 7/1/08
2,000,000 Los Angeles,
California,
Regional Airport
Facility
Improvement Corp.,
Lease Rev., 11.25%,
11/1/25
1,500,000 Metropolitan
Transportation
Authority, New York
Transportation
Facilities, Rev.,
Series G, MBIA,
5.50%, 7/1/15
1,000,000 New Hampshire State
Turnpike System,
Rev., Refunding,
Series A, FGIC,
6.75%, 11/1/11
3,200,000 New Jersey State
Turnpike Authority,
Series C, 6.50%,
1/1/16
</TABLE>
55
<PAGE> 61
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 1,000,000 Port Authority of
New York and New
Jersey,
Consolidated Board,
95th Series,
6.125%, 7/15/22
1,000,000 Philadelphia,
Pennsylvania,
Industrial
Development
Authority Rev.
(Parking Garage II
Project), 6.125%,
2/15/03
1,750,000 San Joaquin Hills,
California,
Transcorridor
Agency, Toll Road
Rev., 6.75%, 1/1/32
1,000,000 St. Louis,
Missouri, Parking
Facilities Rev.,
6.625%, 12/15/21
1,000,000 Triborough Bridge &
Tunnel Authority,
New York Rev.,
7.875%, 1/1/18
Tulsa, Oklahoma,
Municipal Airport
Trust, Rev.
1,000,000 7.60%, 12/1/30
800,000 American Airlines,
9.50%, 6/1/20
825,000 Virgin Islands Port
Authority, Marine
Division Rev.
(Marine Terminal),
Series A, 10.13%,
11/1/05
UTILITIES -- COMBINATION
ELECTRIC, GAS
AND/OR WATER
Austin, Texas
Utility System Rev.
1,250,000 FGIC, 7.75%,
11/15/06
2,280,000 Refunding, 6.00%,
5/15/15
1,000,000 Series A, 7.80%,
11/15/12
2,380,000 Series B, 7.80%,
11/15/12
1,000,000 Chicago, Illinois,
Gas Supply Rev.
(People's Gas
Lighting and Coke
Co.), Series A,
8.10%, 5/1/20
1,000,000 Chicago, Illinois,
Metropolitan Water
District, G.O.,
7.00%, 1/1/11
700,000 Citronelle,
Alabama, Utilities
Board, Water, Sewer
& Gas Rev., 9.00%,
5/1/13
10,950,000 Jefferson County,
Kentucky, Capital
Project Lease Rev.,
Waste Water
Treatment Plant,
Zero Coupon,
8/15/14
750,000 Jefferson,
Wisconsin, Sewer
System, Waterworks,
7.40%, 7/1/16
2,000,000 Los Angeles,
California, Dept.
of Water & Power,
Electric Plant
Rev., 5.375%,
9/1/23
2,000,000 Massachusetts State
Water Resource
Authority, Series
A, 7.50%, 4/1/16
1,000,000 New Hampshire State
Business Finance
Authority, Electric
Facilities Rev.
(Plymouth
Cogeneration Light
Power), 7.75%,
6/1/14
New York City
Municipal Water
Finance Authority,
New York, Water &
Sewer Rev.
1,000,000 Series A, 7.625%,
6/15/16
3,000,000 Series A, MBIA,
7.25%, 6/15/15
4,100,000 Series B, 5.00%,
6/15/17
</TABLE>
56
<PAGE> 62
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 1,000,000 New York State
Environment
Facilities Corp.,
Water Facilities
Rev. (Long Island
Water Corp.),
10.00%, 10/1/17
Norco, California,
Sewer and Water
Rev., Refunding,
500,000 6.70%, 10/1/13
500,000 7.20%, 10/1/19
750,000 Northwest Harris
County, Texas,
Municipal Utility,
Waterworks and
Sewer System
Combination Tax,
8.10%, 10/1/15
2,000,000 Orlando, Florida,
Utilities
Commission, Water &
Electric Rev.,
Refunding, 8.625%,
10/1/05; Pre-
refunded 10/1/95
Willow Fork, Texas,
Drainage District,
G.O.
500,000 7.00%, 3/1/12
500,000 7.00%, 3/1/13
1,000,000 Winters, Texas,
Water Works & Sewer
Rev., 8.50%, 8/1/17
UTILITIES--ELECTRIC
2,500,000 Alaska Energy
Authority Power
Rev., First Series
(Bradley Lake
Hydroelectric
Project), BIG,
6.25%, 7/1/21
1,500,000 Florida State
Municipal Power
Agency, Refunding
(St. Lucie
Project), FGIC,
5.00%, 10/1/01
Georgia State
Municipal Electric
Authority, Power
Rev.
$ 850,000 6.00%, 1/1/20
2,000,000 Series A, 7.875%,
1/1/18;
Pre-refunded
1/1/96
1,750,000 Series Q, 8.375%,
1/1/16;
Pre-refunded
1/1/98
9,685,000 Grand River Dam
Authority,
Oklahoma, Rev.,
Series 1987, 5.00%,
6/1/12
Intermountain Power
Agency, Utah, Power
Supply Authority
Rev.
1,850,000 1st Crossover
Series, 5.00%,
7/1/16
1,000,000 Series A, 6.00%,
7/1/23
2,400,000 Series A, 7.75%,
7/1/17
3,650,000 Series B, 7.75%,
7/1/20
2,000,000 Series H, 6.00%,
7/1/21
2,000,000 Series I, 6.00%,
7/1/21
1,000,000 Lewis County,
Washington, Public
Utility District
No. 1, Rev.
(Cowlitz Falls
Hydroelectric
Project), 6.00%,
10/1/24
Massachusetts
Municipal Wholesale
Electric Co., Rev.
2,060,000 Series B, 13.00%,
7/1/18
310,000 Series B, 13.625%,
7/1/17;
Pre-refunded
1/1/93
750,000 Michigan Public
Power Agency, Rev.,
Refunding (Belle
River Project),
7.00%, 1/1/18
</TABLE>
57
<PAGE> 63
MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 1,250,000 Municipal Electric
Authority, Georgia,
Special Obligation,
2nd Crossover
Series Rev.,
8.125%, 1/1/17
3,000,000 Muscatine, Iowa,
Electric Authority
Rev., 5.00%, 1/1/08
2,500,000 New York State
Power Authority,
Rev., Series T,
7.375%, 1/1/18
300,000 Northern
California, Public
Power Agency, Rev.,
5.00%, 7/1/09
North Carolina
Eastern Municipal
Power Agency, Power
System Rev.
335,000 8.00%, 1/1/21
2,665,000 8.00%, 1/1/21;
Pre-refunded
1/1/98
7,695,000 Series A, 4.50%,
1/1/24
North Carolina
Municipal Power
Agency No. 1,
Catawba Electric
Rev.
1,000,000 6.00%, 1/1/20
2,850,000 7.875%, 1/1/19
1,070,000 Piedmont Municipal
Power Agency, South
Carolina, Rev.,
5.00%, 1/1/25
5,290,000 Salt River Project,
Arizona
Agricultural
Improvement & Power
District Electric
System Rev.,
7.875%, 1/1/28
Sam Rayburn, Texas,
Municipal Power
Agency, Refunding
$ 1,000,000 Series A, 6.25%,
10/1/17
1,000,000 Series A, 6.75%,
10/1/14
1,000,000 South Carolina,
Public Service
Authority, 7.875%,
7/1/21;
Pre-refunded 1/1/96
Southern Minnesota
Municipal Power
Agency, Power
Supply System Rev.
2,000,000 Series A, 5.00%,
1/1/16
1,250,000 Series C, 5.00%,
1/1/17
8,565,000 Texas Municipal
Power Agency Rev.,
5.50%, 9/1/13
Washington State
Public Power Supply
System Rev.
1,250,000 Nuclear Project No.
1, Series B,
7.125%, 7/1/16
445,000 Nuclear Project No.
1, Series D,
15.00%, 7/1/17
2,500,000 Nuclear Project No.
2, Series B, 7.00%,
7/1/12
1,000,000 Nuclear Project No.
2, Series B,
7.375%, 7/1/12
2,000,000 Nuclear Project No.
2, Series 1990-C,
7.625%, 7/1/10
3,000,000 Nuclear Project No.
3, MBIA 5.60%,
7/1/17
</TABLE>
58
<PAGE> 64
MUNICIPAL VARIABLE RATE DEMAND NOTES+
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------
<S> <C>
$ 100,000 Arkansas State
Development Finance
Authority, 3.65%,
12/1/15
California
Statewide
Communities
Development Corp.
Rev., Series A
600,000 3.50%, 6/1/19
1,000,000 3.50%, 8/1/19
400,000 Cuyahoga County,
Ohio, IDR (Allen
Group, Inc.
Project), 3.50%,
12/1/15
500,000 Dade County,
Florida, Industrial
Development
Authority Rev.,
(Dynacolor Graphic
Project), 4.00%,
6/1/99
500,000 Delaware County,
Pennsylvania,
Industrial
Development
Authority Rev. (Ram
Motors, Inc.),
4.20%, 9/1/10
300,000 Fort Wayne,
Indiana, Hospital
Authority, Series
C, 3.90%, 1/1/16
900,000 Illinois
Development Finance
Authority Rev.,
3.70%, 4/1/07
100,000 Illinois Health
Facilities
Authority Rev.,
3.70%, 1/1/18
800,000 Indiana Health
Facilities
Financing Authority
Rev., Capital
Access Designated
Pool Program,
3.70%, 12/1/02
$ 100,000 Maricopa County,
Arizona, Industrial
Development
Authority, Hospital
Facility Rev.
(Samaritan Health
Services Hospital),
Series B-2, 3.60%,
12/1/08
New York City, New
York, G.O.
500,000 3.70%, 8/1/10
700,000 3.70%, 8/1/17
400,000 3.70%, 8/1/21
1,550,000 New York, New York,
Subseries A-7,
G.O., 3.95%, 8/1/20
100,000 New York State Job
Development
Authority, 3.60%,
3/1/07
500,000 Ossian, Indiana,
Economic
Development Rev.
(Walbro Auto
Corporation
Project), 3.80%,
12/1/23
3,100,000 Panola County,
Mississippi (Moog
Automotive, Inc.
Project), 3.85%,
9/1/10
400,000 Pennsylvania State
Higher Educational
Facility Authority
Rev., Series B,
3.75%, 7/1/18
300,000 Sacramento County,
California,
Multi-family
Housing Rev.,
Series E, 3.75%,
9/15/07
100,000 Uinta County,
Wyoming, PCR,
Refunding (Chevron
U.S.A., Inc.
Project), 3.50%,
12/1/22
</TABLE>
---------------
+Interest rates are as of September 30, 1994.
FHA -- Federal Housing Administration
G.O. -- General obligation bond
Rev. -- Revenue bond
IDR -- Industrial Revenue Bond
Insurers:
AMBAC -- AMBAC Indemnity Corp.
BIG -- Bond Investors Guaranty Insurance Co.
FGIC -- Financial Guaranty Insurance Corp.
FSA -- Financial Security Assurance Inc.
MBIA -- Municipal Bond Investor's Assurance Corp.
59
<PAGE> 65
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
Plan Trust Trust, Estate, Pension Plan Trust (NOT
personal TIN of fiduciary)
--------------------------------------------------------------------------------
Corporation, Partnership,
Other Organization Corporation, Partnership, Other
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> 66
AMERICAN CAPITAL
MUNICIPAL BOND FUND, INC.
PROSPECTUS
January 31, 1995
National Distributor
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Advisor
Van Kampen American Capital
Asset Management, Inc.
2800 Post Oak Blvd.
Houston, TX 77056
Transfer, Disbursing, Redemption
and Shareholder Service Agent
Van Kampen/American Capital
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,
Van Kampen/American Capital
Shareholder Services, Inc.
(ACCESS), P.O. Box 418256,
Kansas City, MO 64141-9256.
Inquiries concerning sales should be
directed to the Distributor,
Van Kampen American Capital Distributors, Inc.,
One Parkview Plaza
Oakbrook Terrace, IL 60181
American Capital C/O ACCESS
Municipal Bond P.O. Box 418256
Fund, Inc. Kansas City, MO 64141-9256
For investors seeking interest
income exempt from federal
income taxes.
PRINTED MATTER
Printed in U.S.A./027 PRO-001
