<PAGE> 1
REGISTRATION NO. 2-21657
NO. 811-1228
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 (X)
POST-EFFECTIVE AMENDMENT NO. 71 (X)
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 (X)
AMENDMENT NO. 25 (X)
</TABLE>
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2800 POST OAK BLVD., HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 993-0500
NORI L. GABERT, ESQ.
VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL AND CORPORATE SECRETARY
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/X/ on April 3, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Exhibit Index required by Rule 483(a) under the Securities act of 1933
is located at page of the manually signed copy of this Registration Statement.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, AND
PURSUANT TO PARAGRAPH (B)(2). REGISTRANT DID NOT FILE A RULE 24F-2 NOTICE FOR
ITS LAST FISCAL YEAR BECAUSE IT DID NOT SELL ANY SECURITIES PURSUANT TO SUCH
DECLARATIONS DURING SUCH FISCAL YEAR.
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<PAGE> 2
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITY BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT(1) PRICE(2) REGISTRATION FEE
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Stock $.01 par
value...................... 2,675,361 $12.98 $289,999 $100.00
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the offering price of $12.98 per Class A share on March 21, 1995.
(2) This calculation is made pursuant to Rule 24e-2 under the Investment Company
Act of 1940. During the fiscal year ended November 30, 1994, 2,653,019
shares were redeemed or repurchased. No shares have been utilized for
reductions prior to this time and the balance of 2,653,019 shares is being
used for reduction at this time.
<PAGE> 3
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PROSPECTUS CAPTION
-------------------------------------------
FORM N-1A ITEM
-------------------------------------------------
PART A
-------------------------------------------------
<S> <C> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Expense Synopsis
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... Investment Objective and Policies;
Investment Practices and Restrictions; The
Fund and Its Management
5. Management of the Fund..................... The Fund and Its Management
6. Capital Stock and Other Securities......... Multiple Pricing System; The Fund and Its
Management; Redemption of Shares;
Dividends, Distributions and Taxes;
Additional Information
7. Purchase of Securities Being Offered....... Multiple Pricing System; Purchase of Shares
8. Redemption or Repurchase................... Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
----------------------------------------------- -------------------------------------------
<C> <S> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Objective and Policies; Options,
Futures Contracts and Related Options;
Investment Restrictions
14. Management of the Fund..................... General Information; Directors and
Executive Officers; Investment Advisory
Agreement
15. Control Persons and Principal Holders of
Securities............................... Directors and Executive Officers;
Investment Advisory Agreement
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Transfer Agent; Portfolio Transactions
and Brokerage; Other Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Multiple Pricing
System
20. Tax Status................................. Dividends, Distributions and Federal Taxes
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Prior Performance Information
23. Financial Statements....................... Financial Statements
PART C
-------------------------------------------------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 4
--------------------------------------------------------------------------------
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
--------------------------------------------------------------------------------
2800 Post Oak Blvd., Houston, Texas 77056, (800) 421-5666
April 3, 1995
American Capital Growth and Income Fund, Inc. (the "Fund") is a mutual fund
seeking income and long-term growth of capital. The Fund invests principally in
income-producing equity securities, including common stocks and convertible
securities. Investments are also made in non-convertible preferred stocks and
debt securities.
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> 5
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AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
--------------------------------------------------------------------------------
CUSTODIAN:
State Street Bank and
Trust Company
225 Franklin Street
Boston, Massachusetts 02110
SHAREHOLDER SERVICE AGENT:
ACCESS Investor 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................ 2
Expense Synopsis.................. 4
Financial Highlights.............. 5
Multiple Pricing System........... 6
Investment Objective and
Policies........................ 8
Investment Practices and
Restrictions.................... 8
The Fund and Its Management....... 11
Purchase of Shares................ 11
Distribution Plans................ 16
Shareholder Services.............. 17
Redemption of Shares.............. 19
Dividends, Distributions and
Taxes........................... 21
Prior Performance Information..... 22
Additional Information............ 22
</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.
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY
--------------------------------------------------------------------------------
SHARES OFFERED. Capital Stock.
MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
TYPE OF COMPANY. Diversified, open-end management investment company.
INVESTMENT OBJECTIVE. Income and long-term growth of capital.
INVESTMENT POLICY. Invests principally in income-producing equity securities
including common stock and convertible securities, although investments are also
made in non-convertible preferred stocks and debt securities. Use of options,
futures contracts and related options may include additional risks. See
"Investment Practices and Restrictions -- Using Options, Futures Contracts and
Related Options."
INVESTMENT RESULTS. The investment results of the Fund during the past 10
years are shown in the table of "Financial Highlights."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") has served as investment adviser to the Fund since 1973. The Adviser
serves as investment adviser to 47 investment company portfolios. See "The Fund
and Its Management."
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
2
<PAGE> 6
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 5.75% 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 5% of redemption
proceeds during the first year, declining each year thereafter to 0% after the
fifth year. See "Redemption of Shares." The Fund pays a combined annual
distribution fee and service fee of up to 1% of its average daily net assets
attributable to such class of shares. See "Purchase of Shares -- Class B Shares"
and "Distribution Plans." Class B shares will convert automatically to Class A
shares six years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "Multiple Pricing System -- Conversion
Feature."
CLASS C SHARES. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of 1% on redemptions made within
one year of purchase. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to 1% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution Plans." Class C shares will convert automatically to
Class A shares ten years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Multiple Pricing System --
Conversion Feature."
DIVIDENDS AND DISTRIBUTIONS. Income dividends are distributed quarterly,
normally in March, June, September and December. 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 a sales
charge) unless payment in cash is requested. See "Dividends, Distributions and
Taxes."
3
<PAGE> 7
--------------------------------------------------------------------------------
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).................... 5.75%(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* 5% during the first 1% during the first
year, year(b)
4% during the second
year, 3% during the
third year, 2.5%
during the fourth
year, 1.5% during the
fifth year and 0%
after the fifth
year(b)
Exchange fee(c)...................... $ 5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management fees...................... .48% .48% .48%
Rule 12b-1 fees(d)................... .17% 1.00%(f) 1.00%(f)
Other expenses(e).................... .51% .54% .53%
Total fund operating expenses........ 1.16% 2.02% 2.01%
</TABLE>
---------------
(a) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares" -- page 13.
(b) See "Purchase of Shares -- Class B Shares" and "-- Class C Shares" -- pages
15 and 16.
(c) Not charged in certain circumstances. See "Shareholder
Services -- Systematic Exchange" and "-- Automatic Exchange" -- page 19.
(d) Up to .25% for Class A shares, and 1% for Class B and Class C shares. See
"Distribution Plans" -- page 16.
(e) See "The Fund and Its Management" -- page 11.
(f) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge 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.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
1 3 5
EXAMPLE: YEAR YEARS YEARS 10 YEARS
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment
including, for Class A shares, the maximum $57.50 front-end sales
charge and, for Class B and Class C shares, a contingent deferred
sales charge assuming (1) an operating expense ratio of 1.16% for
Class A shares, 2.02% for Class B shares and 2.01% for Class C
shares, (2) a 5% annual return throughout the period and (3)
redemption at the end of the period:
Class A........................................................... $69 $92 $118 $190
Class B........................................................... $72 $96 $126 $192**
Class C........................................................... $31 $63 $108 $234
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A........................................................... $69 $92 $118 $190
Class B........................................................... $21 $63 $109 $192**
Class C........................................................... $20 $63 $108 $234
</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.
4
<PAGE> 8
--------------------------------------------------------------------------------
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 years in the period
ended November 30, 1994 has been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the related financial statements and notes thereto
included in the Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30
-----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- --------- -------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................. $14.08 $13.42 $11.69 $ 9.93 $11.71 $10.52 $10.19 $12.04
---------- ---------- --------- -------- ---------- --------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... .43 .42 .46 .52 .45 .32 .29 .32
Expenses............................ (.14) (.15) (.145) (.13) (.12) (.10) (.08) (.09)
---------- ---------- --------- -------- ---------- --------- --------- ----------
Net investment income............... .29 .27 .315 .39 .33 .22 .21 .23
Net realized and unrealized gains or
losses on securities............... (.1025) 1.52 1.785 1.73 (1.12) 1.805 1.875 (.52)
---------- ---------- --------- -------- ---------- --------- --------- ----------
Total from investment operations.... .1875 1.79 2.10 2.12 (.79) 2.025 2.085 (.29)
---------- ---------- --------- -------- ---------- --------- --------- ----------
LESS DISTRIBUTIONS
Dividends from net investment
income............................. (.27) (.2825) (.37) (.36) (.3125) (.22) (.22) (.2175)
Distributions from net realized
gains on securities................ (1.7375) (.8475) -- -- (.6775) (.615) (1.535) (1.3425)
---------- ---------- --------- -------- ---------- --------- --------- ----------
Total distributions................. (2.0075) (1.13) (.37) (.36) (.99) (.835) (1.755) (1.56)
---------- ---------- --------- -------- ---------- --------- --------- ----------
Net asset value, end of period...... $12.26 $14.08 $13.42 $11.69 $ 9.93 $11.71 $10.52 $10.19
=========== =========== ========== ========= =========== ========== ========== ===========
TOTAL RETURN(3)..................... 1.21% 14.34% 18.25% 21.59% (7.29%) 20.50% 21.36% (3.25%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)......................... $205.4 $204.3 $177.8 $157.1 $143.6 $175.6 $165.7 $152.1
Ratios to average net assets
Expenses........................... 1.16% 1.16% 1.15% 1.14% 1.13% .88% .84% .71%
Net investment income.............. 2.25% 2.15% 2.46% 3.40% 3.08% 1.90% 2.01% 1.82%
Portfolio turnover rate............. 102% 134% .78% .89% 111% .34% .23% .49%
<CAPTION>
CLASS B CLASS C
-------------------------- --------------------------
AUGUST 2, AUGUST 2,
YEAR ENDED 1993(1) TO YEAR ENDED 1993(1) TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1986 1985 1994 1993(2) 1994 1993(2)
--------- --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................. $11.01 $11.01 $14.07 $13.64 $14.07 $13.64
--------- --------- ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... .35 .43 .40 .14 .40 .14
Expenses............................ (.09) (.08) (.23) (.08) (.23) (.08)
--------- --------- ------------ ------------ ------------ ------------
Net investment income............... .26 .35 .17 .06 .17 .06
Net realized and unrealized gains or
losses on securities............... 1.275 .945 (.1025) .4175 (.0925)
--------- --------- ------------ ------------ ------------ ------------
Total from investment operations.... 1.535 1.295 .0675 .4775 .0775 .4775
--------- --------- ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
Dividends from net investment
income............................. (.385) (.58) (.15) (.0475) (.15)
Distributions from net realized
gains on securities................ (.12) (.715) (1.7375) -- (1.7375) --
--------- --------- ------------ ------------ ------------ ------------
Total distributions................. (.505) (1.295) (1.8875) (.0475) (1.8875) (.0475)
--------- --------- ------------ ------------ ------------ ------------
Net asset value, end of period...... $12.04 $11.01 $12.25 $14.07 $12.26 $14.07
========== ========== ============= ============= ============= =============
TOTAL RETURN(3)..................... 14.00% 13.03% .36% 3.50% .36% 3.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)......................... $151.5 $146.9 $18.5 $1.7 $3.5 $0.6
Ratios to average net assets
Expenses........................... .76% .76% 2.02% 2.02%(4) 2.01% 2.00%(4)
Net investment income.............. 2.12% 3.39% 1.51% 1.51%(4) 1.50% 1.56%(4)
Portfolio turnover rate............. .45% .35% 102% 134% 102% 134%
</TABLE>
----------------------------
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total returns for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(4) Annualized.
5
<PAGE> 9
--------------------------------------------------------------------------------
MULTIPLE PRICING SYSTEM
--------------------------------------------------------------------------------
The Multiple Pricing System permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 5.75% 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 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 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 "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 automatically convert 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 and Class C shares will automatically convert to
Class A shares six years or ten years, respectively, after the end of the
calendar month in which the shares were purchased and will no longer be subject
to the distribution fee. Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. The purpose of the conversion feature is to relieve the holders of
the Class B shares and Class C shares that have been outstanding for a period of
time sufficient for the Distributor to have been substantially compensated for
distribution expenses related to the Class B shares or Class C shares, as the
case may be, from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code, as amended (the "Code"), and (ii) the conversion of
shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares or Class C shares would occur, and shares might continue to be subject to
the distribution fee for an indefinite period which may extend beyond the period
ending six years or ten years, respectively, after the end of the calendar month
in which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Expense Synopsis" sets forth examples of the charges applicable to each
class of shares. In this regard, Class A shares may be more beneficial to the
in-
6
<PAGE> 10
vestor 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 will reject any order of $250,000 or more for
Class B shares or any order of $1 million or more for Class C shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase, investors in
Class A shares do not have all their funds invested initially and, therefore,
initially own fewer shares. Other investors might determine that it is more
advantageous to purchase either Class B 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. 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 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 and 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.
7
<PAGE> 11
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
--------------------------------------------------------------------------------
The Fund's investment objective, which cannot be changed without shareholder
approval, is income and long-term growth of capital. Since investment in
securities involves potential gain or loss, there is no assurance that the
Fund's objective will be achieved.
In view of the investment objective, the Fund generally invests principally in
income-producing equity securities including common stocks and convertible
securities; although investments are also made in non-convertible preferred
stocks and debt securities rated "investment grade," i.e., within the four
highest grades assigned by Standard & Poor's Corporation ("S&P") or by Moody's
Investors Service ("Moody's"). 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. Securities rated BBB by S&P or Baa by
Moody's are in the lowest of the four investment grades and are considered by
the rating agencies to be medium grade obligations which possess 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 rated securities. The market prices of
preferred stocks and debt securities generally fluctuate with changes in
interest rates so that the value of investments in such securities can be
expected to decrease as interest rates rise and increase as interest rates fall.
The Fund may also invest in warrants and in securities of newly-formed companies
and in investment companies. See "Investment Practices and
Restrictions -- Investment in Investment Companies." The Fund may enter into
repurchase agreements with domestic banks and broker-dealers which involves
certain risks or may lend portfolio securities on a fully collateralized basis.
See "Investment Practices and Restrictions -- Repurchase Agreements and Lending
of Securities." When deemed appropriate for temporary defensive purposes, the
Fund may invest up to 100% of its total assets in U.S. Government securities and
investment grade corporate debt securities.
The Fund may dispose of a security whenever, in the opinion of the Adviser,
factors indicate it is desirable to do so. Such factors include a change in
economic or market factors in general or with respect to a particular industry,
a change in the market trend of or other factors affecting an individual
security, changes in the relative market performance of or appreciation
possibilities offered by individual securities and other circumstances bearing
on the desirability of a given investment.
--------------------------------------------------------------------------------
INVESTMENT PRACTICES AND RESTRICTIONS
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such
investment, together with any other illiquid securities held by the Fund,
exceeds ten percent of the value of its net assets. 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.
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.
LENDING OF SECURITIES. The Fund may lend its portfolio securities to
broker-dealers and other financial institutions in an amount up to ten percent
of the total assets, provided that such loans are callable at any time by the
Fund, and are at all times secured by cash collateral that is at least equal to
the market value, determined daily, of the loaned securities. During the period
of the loan, the Fund receives the income on both the loaned securities and the
collateral and thereby increases its yield after payment of lending fees.
Lending portfolio securities involves risks of delay in recovery of the loaned
securities or in some cases loss of rights in the collateral should the borrower
fail financially. Accordingly, loans of portfolio securities will only be made
to borrowers considered by the Adviser to be creditworthy.
8
<PAGE> 12
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize options, futures contracts and options thereon in several different
ways, depending upon the status of the Fund's portfolio and the Adviser's
expectations concerning the securities markets.
In times of stable or rising security prices, the Fund generally seeks to
obtain maximum exposure to the
securities markets, i.e., to be "fully invested." Nevertheless, even when the
Fund is fully invested, prudent management requires that at least a small
portion of assets be available as cash to honor redemption requests and for
other short-term needs. The Fund may also have cash on hand that has not yet
been invested. The portion of the Fund's assets that is invested in cash
equivalents does not fluctuate with security market prices, so that, in times of
rising market prices, the Fund may underperform the market in proportion to the
amount of cash equivalents in its portfolio. By purchasing futures contracts,
however, the Fund can compensate for the cash portion of its assets and obtain
equivalent performance to investing 100% of its assets in equity securities.
If the Adviser forecasts a market decline, the Fund may take a defensive
position, reducing its exposure to the securities markets by increasing its cash
position. By selling futures contracts instead of portfolio securities, a
similar result can be achieved to the extent that the performance of the futures
contracts correlates to the performance of the Fund's portfolio securities. Sale
of futures contracts could frequently be accomplished more rapidly and at less
cost than the actual sale of securities. Once the desired hedged position has
been effected, the Fund could then liquidate securities in a more deliberate
manner, reducing its futures position simultaneously to maintain the desired
balance, or it could maintain the hedged position.
As an alternative to selling stock index futures contracts, the Fund can
purchase stock index puts (or stock index futures puts) to hedge the portfolio's
risk in a declining market. Since the value of a put increases as the index
declines below a specified level, the portfolio's value is protected against a
market decline to the degree the performance of the index correlates with the
performance of the Fund's investment portfolio. If the market remains stable or
advances, the Fund can refrain from exercising the put and its portfolio will
participate in the advance, having incurred only the premium cost for the put.
In certain cases the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities.
POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in securities. While utilization of
options, futures contracts and similar instruments may be advantageous to the
Fund, if the Adviser is not successful in employing such instruments in managing
the Fund's investments, the Fund's performance will be worse than if the Fund
did not make such investments. In addition, the Fund would pay commissions and
other costs in connection with such investments, which may increase the Fund's
expenses and reduce its return. The Fund may write or purchase options in
privately negotiated transactions ("OTC Options") as well as listed options. OTC
Options can be closed out only by agreement with the other party to the
transaction. Any OTC Option purchased by the Fund is considered an illiquid
security. Any OTC Option written by the Fund is with a qualified dealer pursuant
to an agreement under which the Fund may repurchase the option at a formula
price. Such options are considered illiquid to the extent that the formula price
exceeds the intrinsic value of the option. The Fund may not purchase or sell
futures contracts or related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of the Fund's assets. In
order to prevent leverage in connection with the purchase of futures contracts
thereon by the Fund, an amount of cash, cash equivalents or liquid high grade
debt securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian. The Fund may not invest more than ten percent of its
net assets in illiquid securities and repurchase agreements which have a
maturity of longer than seven days. A more complete discussion of the potential
risks involved in transactions in options, futures contracts and related options
is contained in the Statement of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 15% of its total assets in
securities of foreign governments and companies. Such securities may be subject
to foreign government taxes which would reduce the income yield on such
securities. Foreign investments involve certain risks, such as political or
economic instability of the issuer or of the country of issue, the difficulty of
predicting international trade patterns, fluctuating exchange rates and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations or of the United States Government. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of stock
exchanges, brokers and listed companies abroad than in the United States, and,
with respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation,
9
<PAGE> 13
or diplomatic developments which could affect investment in those countries.
Finally, in the event of a default on any such foreign debt obligations, it may
be more difficult for the Fund to obtain or to enforce a judgment against the
issuers of such securities.
PORTFOLIO TURNOVER. The Fund may purchase and sell securities without regard
to the length of time the security is to be, or has been held. The Fund's annual
portfolio turnover rate is shown in the table of "Financial Highlights." The
rate may exceed 100%, which is higher than that of many other investment
companies. A 100% turnover rate occurs, for example, if all the Fund's portfolio
securities are replaced during one year. High portfolio activity increases the
Fund's transaction costs, including brokerage commissions. To the extent
short-term trading results in realization of gains on securities held one year
or less, shareholders are subject to taxes at ordinary income rates.
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 brokerage commissions on such transactions. Brokerage firms are
selected on the basis of their professional capability for the type of
transaction and the value and quality of execution services rendered on a
continuing basis. The Adviser is authorized to place portfolio transactions with
brokerage firms participating in the distribution of shares of the Fund and
other American Capital mutual funds if it reasonably believes that the quality
of the execution and the commission are comparable to that available from other
qualified brokerage firms. The Adviser is authorized to pay higher commissions
to brokerage firms that provide it with investment and research information than
to firms which do not provide such services if the Adviser determines that such
commissions are 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 IN INVESTMENT COMPANIES. The Fund may invest in a separate
investment company, American Capital Small Capitalization Fund, Inc., ("Small
Cap Fund") that invests in a broad selection of small capitalization securities.
The shares of the Small Cap Fund are available only to investment companies
advised by the Adviser. The Adviser believes that the use of the Small Cap Fund
provides the Fund with the most effective exposure to the performance of the
small capitalization sector of the stock market while at the same time
minimizing costs. The Adviser charges no advisory fee for managing the Small Cap
Fund, nor are there any sales load or other charges associated with distribution
of its shares. Other expenses incurred by the Small Cap Fund are borne by it,
and thus indirectly by the American Capital funds that invest in it. With
respect to such other expenses, the Adviser anticipates that the efficiencies
resulting from use of the Small Cap Fund will result in cost savings for the
Fund and other American Capital funds. In large part these savings will be
attributable to the fact that administrative actions that would have to be
performed multiple times if each American Capital fund held its own portfolio of
small capitalization stocks will need to be performed only once. The Adviser
expects that the Small Cap Fund will experience trading costs that will be
substantially less than the trading costs that would be incurred if small
capitalization stocks were purchased separately for the Fund and other American
Capital funds.
The securities of small and medium sized companies that the Small Cap Fund may
invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies.
The Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund. For example, if the Fund's investment in the Small Cap Fund were
$10 million, and the Small Cap Fund had five percent of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.
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 more than 25% of its total net asset value in any one industry
provided, however, that this limitation excludes shares of other open-end
investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company.
2. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than ten
percent of the value of the Fund's net assets would be invested in such
securities provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro
rata portion of the securities and other assets owned by any such company.
10
<PAGE> 14
In addition to the foregoing, the Fund has adopted additional investment
restrictions which may be changed by the Board of Directors without a vote of
shareholders. One of these restrictions provides that the Fund may not invest
more than ten percent of its net assets (determined at the time of investment)
in illiquid securities and repurchase agreements that have a maturity of longer
than seven days.
--------------------------------------------------------------------------------
THE FUND AND ITS MANAGEMENT
--------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company originally
incorporated in New York on October 21, 1963 as successor to a Georgia
corporation incorporated on May 15, 1946. The name of the Fund was changed from
Fund of America, Inc. to American Capital Growth and Income Fund, Inc. on July
23, 1990. The Fund was reincorporated by merger into a Maryland corporation on
July 6, 1993. 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 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 1973.
As of February 28, 1995, the Adviser provides investment advice to 47 investment
company portfolios with total net assets of approximately $16.6 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
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 a monthly fee computed on average daily
net assets of the Fund at the annual rate of 0.50% on the first $150 million of
average net assets; 0.45% on the next $100 million of average net assets; 0.40%
on the next $100 million of average net assets; and 0.35% of average net assets
over $350 million. Under the Advisory Agreement the Fund also reimburses the
Adviser for the cost of the Fund's accounting services, which include
maintaining its financial books and records and calculating its daily net asset
value. Operating expenses paid by the Fund include shareholder service agency
fees, service fees, distribution fees, 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.
From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.
Mr. James Gilligan has been primarily responsible for the day-to-day
management of the Fund's investment portfolio since January 1990. Mr. Gilligan
is Vice President of the Fund and has been Vice President -- Portfolio Manager
of the Adviser since March 1990. Prior to that time, he was a securities analyst
with the Adviser.
--------------------------------------------------------------------------------
PURCHASE OF SHARES
--------------------------------------------------------------------------------
GENERAL
The Fund offers three classes of shares to the general public. Class A shares
are sold with an initial sales charge. Class B 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 con-
11
<PAGE> 15
sider 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 of the Fund may be purchased on any business day through authorized
dealers. Shares may also be purchased by completing the application included in
this Prospectus and forwarding the application, through the designated dealer,
to the shareholder service agent, ACCESS Investor 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 for each class is determined once daily as of the close of
trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m.,
New York time) each day the Exchange is open. Net asset value per share for each
class is determined by dividing the value of the Fund's securities, cash and
other assets (including accrued interest) attributable to such class less all
liabilities (including accrued expenses) attributable to such class by the total
number of shares of the class outstanding.
Securities listed or traded on a national securities exchange are valued at
the last sale price. Unlisted securities and listed securities for which the
last sale price is not available are valued at the most recent bid price.
Short-term securities are valued in the manner described in the Statement of
Additional Information.
Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and the higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the next
calculation of net asset value (plus applicable Class A sales charges) after an
order is received by a dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by dealers after the close of the Exchange are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
orders received by them to the Distributor so they will be received prior to
such time. Orders of less than $500 are mailed by the dealer and processed at
the offering price next calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan pursuant to which its distribution fee and/or service
fee is paid which relate to a specific class, and (iii) Class B and Class C
shares are subject to a conversion feature. Each class has different exchange
privileges and certain different shareholder service options available. See
"Distribution Plans" and "Shareholder Services -- Exchange Privilege." The net
income attributable to Class B and Class C and the dividends payable on Class B
and Class C shares will be reduced by the amount of the distribution fee and
incremental expenses associated with such distribution fees. Sales personnel of
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class A, Class B or Class C shares.
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 annual basis.
12
<PAGE> 16
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 herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED
TO
AS % DEALERS
OF AS % (AS A
NET OF % OF
SIZE OF AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)
<S> <C> <C> <C>
-------------------------------------------------------------------------------
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than $100,000 4.99% 4.75% 4.00%
$100,000 but less than $250,000 3.90% 3.75% 3.00%
$250,000 but less than $500,000 2.83% 2.75% 2.25%
$500,000 but less than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 and over (See herein) (See herein) (See herein)
-------------------------------------------------------------------------------
</TABLE>
No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase. The contingent deferred sales charge incurred upon redemption
is paid to the Distributor in reimbursement for distribution-related expenses. A
commission will be paid to dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1% on sales to $2 million, plus
0.80% on the next million, plus 0.20% on the next $2 million and 0.08% on the
excess over $5 million.
In addition to the reallowances from the applicable public offering price
described herein, 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
concessions 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. Dealers which are reallowed
all or substantially all of the sales charges may be deemed to be underwriters
for purposes of the Securities Act of 1933.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to dealers described herein. Such financial
institutions, other industry professionals and dealers are hereinafter referred
to as "Service Organizations." Banks are currently prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretation of federal law
expressed herein and banks and other financial institutions may be required to
register as dealers pursuant to certain state laws.
Class A shares of the Fund may be purchased at net asset value, upon written
assurance that the purchase is made for investment purposes and that the shares
will not be resold except through redemption by the Fund, by:
(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
13
<PAGE> 17
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.
(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 in
Participating Funds (as hereinafter defined) or American Capital Reserve
Fund, Inc. ("Reserve"). For such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of redemptions within one year of
the purchase other than redemptions required to make payments to
participants under the terms of the plan. 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.
Purchase orders made pursuant to clause (4) 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 as described in (3) through (8) above.
The Fund may terminate, or amend the terms of, offering shares of the Fund at
net asset value to such groups at any time.
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. ("Government Securities"), American Capital
Government Target Series ("Government Target"), American Capital Growth and
Income Fund, Inc., American Capital Harbor Fund, Inc., American Capital High
Yield Investments, Inc. ("High Yield"), American Capital Municipal Bond Fund,
Inc. ("Municipal Bond"), American Capital Pace Fund, 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 in the preceding table
may also be determined by combining the amount being invested in shares of the
Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
Shares previously purchased are only taken into account, however, if the
Distributor is notified by the investor or the investor's dealer at the time an
order is placed for a purchase which would qualify for a reduced sales charge on
the basis of previous purchases and if sufficient information is furnished to
permit confirmation of such purchases.
14
<PAGE> 18
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over the
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the Participating
Funds previously purchased and still owned. An investor may elect to compute the
13-month period starting up to 90 days before the date of execution of a Letter
of Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
charges applicable to the purchases made and the charges previously paid. The
initial purchase must be for an amount equal to at least five percent of the
minimum total purchase amount of the level selected. If trades not initially
made under a Letter of Intent subsequently qualify for a lower sales charge
through the 90-day back-dating provisions, an adjustment will be made at the
expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments 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.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES
CHARGE
AS A
PERCENTAGE
OF
DOLLAR
AMOUNTS
SUBJECT
TO
YEAR SINCE PURCHASE CHARGE
--------------------------------------------------------------------------------
<S> <C>
First................................................................ 5%
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 four percent (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.
15
<PAGE> 19
CLASS C SHARES
Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of 1%. The charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price. In addition, no charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first, of any shares in the shareholder's Fund account that are not subject
to a contingent deferred sales charge and second, of shares held for more than
one year or shares acquired pursuant to reinvestment of dividends or
distributions.
A commission or transaction fee of 1% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.65% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation to Service Organizations
that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account, 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% 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 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 service 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%
16
<PAGE> 20
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 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 expenses 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 $608,000 or 0.497% of the Class B shares' net assets. For the plan
year ended June 30, 1994, the unreimbursed expenses incurred by the Distributor
under the Class C Plan and carried forward were approximately $52,000 or 2.01%
of the Class C shares' net assets.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
--------------------------------------------------------------------------------
SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of those services.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by
ACCESS. Share certificates are not issued except upon shareholder requests. 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
17
<PAGE> 21
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 predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized investment dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP, and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
FUND TO FUND DIVIDENDS. A shareholder may, upon written request or by
completing the appropriate section of the application form in this Prospectus
elect to have all dividends and other distributions paid on a Class A, Class B
or Class C account in the Fund invested into a pre-existing Class A, Class B or
Class C account in any of the Participating Funds listed under "Purchase of
Shares -- Class A Shares -- Volume Discounts" or Reserve.
Both accounts must be of the same type, either non-retirement or retirement.
Any two non-retirement accounts can be used. If the accounts are retirement
accounts, they must both be for the same class and of the same type of
retirement plan (e.g., IRA, 403(b)(7), 401(k), Keogh) and for the benefit of the
same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution only if shares of such selected fund have
been registered 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 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 Income 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. Shares of Reserve 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 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 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 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.
Since the maximum sales charge rate applicable to purchases of Class A shares
of the Fund is at least one percentage point higher than the maximum sales
charge rate applicable to the purchase of Class A shares of American Capital
Fixed-Income funds, the foregoing exchange privilege may be utilized to reduce
the sales charge paid to purchase Class A shares of the Fund, subject to the
exchange fee.
Shares of the fund to be acquired must be registered for sale in the
investor's state and an exchange fee, currently $5 per transaction, is charged
by ACCESS except as described herein under "Systematic Exchange" and "Automatic
Exchange." Exchanges of shares are sales and may result in a gain or loss for
federal income tax purposes, although if the shares exchanged have been held for
less than 91 days, the sales charge paid on such shares is not included in the
tax basis of the exchanged shares, but is carried over and included in the tax
basis of the shares acquired. See the Statement of Additional Information.
18
<PAGE> 22
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. The exchange fee as described above
under "Shareholder Services -- Exchange Privilege" will be waived for such
systematic exchanges. Additional information on how to establish this option is
available from the Distributor.
AUTOMATIC EXCHANGE. The exchange fee described above under "Shareholder
Services -- Exchange Privilege" will be waived for any exchange transmitted
through ACCESS Plus, FUNDSERV or via computer transmission. Contact the American
Capital Service Department at (800) 421-5666 for further information on how to
utilize this option.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly withdrawal plan. Any investor whose shares
in a single account total $5,000 or more may establish a withdrawal plan on a
quarterly, semiannual or annual basis. This plan provides for the orderly use of
the entire account, not only the income but also the capital, if necessary. Each
withdrawal constitutes a redemption of shares on which any capital gain or loss
will be recognized. The planholder may arrange for monthly, quarterly,
semiannual or annual checks in any amount not less than $25. Such a systematic
withdrawal plan may also be maintained by an investor purchasing shares for a
retirement plan established on a form made available by the Fund. See
"Shareholder Services -- Retirement Plans."
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 shareholders' 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 this plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with 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
redemption of shares.
--------------------------------------------------------------------------------
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 invest-
19
<PAGE> 23
ment dealer. Orders received from dealers must be at least $500 unless
transmitted via the FUNDSERV network. The redemption price for such shares is
the net asset value next calculated after an order is received by a dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
redemption requests received by them to the Distributor so they will be received
prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B and
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of 1% may be imposed on certain redemptions of
Class A shares made within one year of purchase for investments of $1 million or
more and for certain qualified 401(k) retirement plans. The contingent deferred
sales charge incurred upon redemption is paid by the Distributor in
reimbursement for distribution-related expenses. See "Purchase of Shares." A
custodian of a retirement plan account may charge fees based on the custodian's
fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 60 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a 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. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P. O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received in proper form. Payment for shares redeemed will be made by check
mailed within seven days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payment may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms the purchase check has cleared, usually a
period of 15 days. Any taxable gain or loss will be recognized by the
shareholder upon redemption of shares.
The Fund may redeem any shareholder account with a net asset value of less
than $50, provided that there has been no purchase of shares for that account
during a continuous period of at least twelve months. Three months advance
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 involuntary redemption
may occur if the shareholder account is less than $50 due to shareholder
redemptions. 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 address of record of 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
20
<PAGE> 24
share determined that day. These privileges are available for all accounts other
than retirement accounts. The telephone redemption privilege is not available
for shares represented by certificates. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed once in each
30-day period. The proceeds must be payable to the shareholder(s) of record and
sent to the address of record for the account or wired directly to their
predesignated bank account. This privilege is not available if the address of
record has been changed within 60 days prior to a telephone redemption request.
Proceeds from redemptions are expected to be wired on the next business day
following the date of redemption. The Fund reserves the right at any time to
terminate, limit or otherwise modify this redemption privilege.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the 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
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.
DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main source of income. Substantially all of this income, less
expenses, is distributed quarterly, normally in March, June, September and
December, as dividends to shareholders. Unless the shareholder instructs
otherwise, dividends are automatically applied to purchase additional shares of
the Fund at the next determined net asset value. See "Shareholder
Services -- Reinvestment Plan."
The per share dividends on Class B and Class C shares will be lower than the
per share dividend on Class A shares as a result of the distribution fees and
higher incremental transfer agency fees applicable to such classes.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund distributes to shareholders once a
year the excess, if any, of its total profits on the sale of securities during
the year over its total losses on the sale of securities, including capital
losses carried forward from prior years under tax laws. As in the case of income
dividends, capital gains distributions are automatically reinvested in
additional shares of the Fund at net asset value. See "Shareholder
Services -- Reinvestment Plan."
TAXES. The Fund has qualified and intends to be taxed as a regulated
investment company under the Code. By qualifying as a regulated investment
company, the Fund is not subject to federal income taxes to the extent it
distributes its net investment income and net realized capital gains. Dividends
from net investment income and distributions from any net realized short-term
capital gains are taxable to shareholders as ordinary income. Long-term capital
gains distributions constitute long-term capital gains for federal income tax
purposes. All such dividends and distributions are taxable to the shareholder
whether or not reinvested in shares. However, shareholders not subject to tax on
their income will not be required to pay tax on amounts distributed to them.
Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions,
including information as to the portion (including short-term capital gains)
taxable as ordinary income, and the portion taxable as long-term capital gains.
To avoid being subject to a 31% federal backup withholding on dividends,
distributions and redemption payments, shareholders must furnish the Fund with a
certification of their correct taxpayer identification number.
Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution paid shortly after the purchase of shares
by an investor would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so purchased) even though
subject to income taxes as discussed above.
Gains or losses on the Fund's transactions in listed options (except certain
equity options) on securities or indexes, futures and options on futures
generally are treated as 60% long-term and 40% short-term, and posi-
21
<PAGE> 25
tions held by the Fund at the end of its fiscal year generally are required to
be marked to market, with the result that unrealized gains and losses are
treated as realized. Gains and losses realized by the Fund from writing
over-the-counter options constitute short-term capital gains or losses unless
the option is exercised, in which case the character of the gain or loss is
determined by the holding period of the underlying security. The Code contains
certain "straddle" rules which require deferral of losses incurred in certain
transactions involving hedged positions to the extent the Fund has unrealized
gains in offsetting positions and generally terminate the holding period of the
subject position. Additional information is set forth in the Statement of
Additional Information.
The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisers for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Fund.
--------------------------------------------------------------------------------
PRIOR PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
From time to time the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one, five and ten-year periods. Other total return quotations,
aggregate or average, over other time periods may also be included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 5.75% 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.
Since shares of the Fund were offered at a maximum sales charge of 8.50% prior
to June 12, 1989, actual Fund total return would have been somewhat less than
that computed on the basis of the current maximum sales charge. Total return is
based on historical earnings and asset value fluctuations and is not intended to
indicate future performance. No adjustments are made to reflect any income taxes
payable by shareholders on dividends and distributions paid by the Fund or to
reflect the fact no 12b-1 fees were incurred prior to October 1, 1989.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated separately for Class A, Class B and Class C shares.
Class A total return figures include the maximum sales charge of 5.75%; Class B
and Class C total return figures include any applicable contingent deferred
sales charge. Because of the differences in sales charges and distribution fees,
the total returns for each of the Classes will differ.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average Index, Standard & Poor's, NASDAQ, other appropriate indices
of investment securities, or with investment or savings vehicles. The
performance information may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Investor's Business Daily, Kiplinger's Personal Finance Magazine,
Money, Mutual Fund Forecaster, Stanger's Investment Advisor, USA Today, U.S.
News & World Report and The Wall Street Journal. Such comparative performance
information will be stated in the same terms in which the 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 as provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
22
<PAGE> 26
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 New York on
October 21, 1963, as successor to a Georgia corporation incorporated on May 15,
1946. The Fund was reincorporated by merger into a Maryland corporation on July
6, 1993. The Fund may offer three classes of shares: Class A, Class B and Class
C shares. Each class of shares represent interests in the assets of the Fund and
have identical voting, dividend, liquidation and other rights on the same terms
and conditions, except that the distribution fees and/or service fees related to
each class of shares are borne solely by that class, and each class of shares
has exclusive voting rights with respect to provisions of the Fund's Class A
Plan, Class B Plan and Class C Plan which pertain to that class. An order has
been received from the SEC permitting the issuance and sale of multiple classes
of shares representing interests in the Fund's existing portfolio. Shares issued
are fully paid, non-assessable and have no pre-emptive or conversion rights.
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 an event the holders of the remaining less than 50% of the shares
voting for the election of directors will not be able to elect any person to the
Board of Directors.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors, officers and employees to
buy and sell securities for their personal accounts subject certain
restrictions. Persons with access to certain sensitive information are subject
to pre-clearance and other procedures designed to prevent conflicts of interest.
SHAREHOLDER INQUIRIES. Shareholder inquiries should be directed to the Fund at
2800 Post Oak Blvd., 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.
23
<PAGE> 27
PART B: STATEMENT OF ADDITIONAL INFORMATION
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
APRIL 3, 1995
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated April 3,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION........................................................... 2
INVESTMENT OBJECTIVE AND POLICIES............................................. 2
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS................................ 3
INVESTMENT RESTRICTIONS....................................................... 8
DIRECTORS AND EXECUTIVE OFFICERS.............................................. 10
INVESTMENT ADVISORY AGREEMENT................................................. 13
DISTRIBUTOR................................................................... 14
DISTRIBUTION PLANS............................................................ 14
TRANSFER AGENT................................................................ 16
PORTFOLIO TURNOVER............................................................ 16
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................... 16
DETERMINATION OF NET ASSET VALUE.............................................. 18
PURCHASE AND REDEMPTION OF SHARES............................................. 18
EXCHANGE PRIVILEGE............................................................ 22
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES.................................... 23
PRIOR PERFORMANCE INFORMATION................................................. 25
OTHER INFORMATION............................................................. 26
FINANCIAL STATEMENTS.......................................................... 26
APPENDIX...................................................................... 27
</TABLE>
1
<PAGE> 28
GENERAL INFORMATION
The Fund was originally incorporated in New York on October 21, 1963, as
successor to a Georgia corporation incorporated on May 15, 1946. On July 23,
1990 the Fund's name was changed from Fund of America, Inc. to American Capital
Growth and Income Fund, Inc. The Fund was reincorporated by merger into a
Maryland corporation on July 6, 1993.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") 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. Gofel 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. Advantage Capital Corporation, a retail broker-dealer
affiliate of the Distributor, is a wholly owned subsidiary of VK/AC Holding,
Inc.
As of March 21, 1995, no person was known by the Fund to own beneficially
or to hold of record as much as five percent of the outstanding Class A, Class B
or Class C shares of the Fund, except as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE CLASS
NAME AND ADDRESS OF OWNERSHIP AT OF PERCENTAGE
OF HOLDER JULY 15, 1994* SHARES OWNERSHIP
------------------------------------------- --------------------- -------- ----------
<S> <C> <C> <C>
Geraldine Miller, 18,898 shares Class C 5.60%
300 SE LaCreole Dr.,
SP #258,
Dallas, Oregon 97338
American Capital Trust Company, 3,334,158 shares Class A 18.13%
P.O. Box 1411, 627,899 shares Class B 31.13%
Houston, Texas 77251-1411 57,080 shares Class C 16.92%
Merrill Lynch Pierce Fenner & Smith, Inc., 110,596 shares Class B 5.48%
P.O. Box 45286, 80,565 shares Class C 23.88%
Jacksonville, Florida 32232-5286
Smith Barney Inc., 309,624 shares Class B 15.35%
388 Greenwich Street, 54,680 shares Class C 16.21%
11th Floor
New York, New York 10013-2375
</TABLE>
---------------
* All holders were of record except Geraldine Miller, who held shares
beneficially.
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete
explanation of the matters disclosed. Readers must refer also to this caption in
the Prospectus for a complete presentation of the matters disclosed below.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend an
amount up to ten percent of the value of its total assets to broker-dealers and
other financial institutions provided that such loans are at all times secured
by cash collateral that is at least equal to the market value, determined daily,
of the loaned
2
<PAGE> 29
securities. The advantage of such loans is that the Fund continues to receive
the interest or dividends on the loaned securities, while at the same time
earning interest on the collateral which is invested in short-term obligations.
The Fund may pay reasonable finders', administrative and custodial fees in
connection with loans of its securities. There is no assurance as to the extent
to which securities loans can be effected.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund in five business days. If the borrower fails to maintain the
requisite amount of collateral, the loan automatically terminates, and the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's management to be credit worthy and when the
consideration which can be earned from such loans is believed to justify the
attendant risks. On termination of the loan, the borrower is required to return
the securities to the Fund; any gains or loss in the market price during the
loan would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities marked to market daily at not less than the repurchase
price. The underlying securities (normally securities of the U.S. Government, or
its agencies and instrumentalities), may have maturity dates exceeding one year.
The Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights. As a matter of operating policy, the Fund does
not intend to invest more than five percent of its net assets in repurchase
agreements. See "Investment Practices and Restrictions -- Repurchase Agreements"
in the Prospectus for further information.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
WRITING CALL AND PUT OPTIONS
Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option writing program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities is likely to result in higher
portfolio turnover.
Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund would write call
options only on a covered basis, which means that, at all times during the
option period, the Fund would own or have the right to acquire securities of the
type that it would be obligated to deliver if any outstanding option were
exercised.
3
<PAGE> 30
The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash, cash
equivalents or U.S. Government securities in an amount of not less than the
exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer of an option only if a liquid secondary
market exists for options of that series, but there is no assurance that such a
market will exist, particularly in the case of over-the-counter options, since
they can be closed out only with the other party to the transaction.
Alternatively, the Fund could purchase an offsetting option, which would not
close out its position as a writer, but would provide an asset of equal value to
its obligation under the option written. If the Fund is not able to enter into a
closing purchase transaction or to purchase an offsetting option with respect to
an option it has written, it will be required to maintain the securities subject
to the call or the collateral underlying the put until a closing purchase
transaction can be entered into (or the option is exercised or expires), even
though it might not be advantageous to do so.
Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others, regardless of whether such options are written on one or
more accounts or through one or more brokers. An exchange may order the
liquidation of positions found to be in violation of those limits, and it may
impose other sanctions or restrictions. These position limits may restrict the
number of options the Fund may be able to write.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Conversely, put options could be purchased to protect (i.e., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of the Fund's assets generally. Alternatively, put options could be purchased
for capital appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option. The
purchase of put options for capital appreciation involves the same significant
risk of loss as described above for call options.
4
<PAGE> 31
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDEXES
Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the exercise
price of the option, multiplied by a specified dollar multiple. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund is exempt from
registration as a "commodity pool."
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalents or liquid high
grade debt securities equal to a percentage (which will normally range between
two and ten percent) of the contract amount. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract margin does
not involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation margin, are made on a daily
basis as the price of the underlying securities or index fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the
5
<PAGE> 32
underlying security or index declines, the position is less valuable, and the
Fund is required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased and/or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts as a hedging device. These
include the risk of imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
6
<PAGE> 33
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that the Fund not enter
into futures and 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 minimize leverage in connection with the purchase of futures contracts
by the Fund, an amount of cash, cash equivalents or liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as, it could sell a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts would be intended to serve the same purpose as the actual
purchase of the futures contracts.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
ADDITIONAL RISKS TO OPTIONS AND FUTURES TRANSACTIONS
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the
7
<PAGE> 34
same or different Exchanges or are held or written on one or more accounts or
through one or more brokers). Option positions of all investment companies
advised by the Adviser are combined for purposes of these limits. An Exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.
Most U.S. futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit. It is possible that futures contract
prices would move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, and in
the event of adverse price movements, the Fund would be required to make daily
cash payments of variation margin. In such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which, along with its
investment objective, cannot be changed without approval by the holders of a
majority of its outstanding shares. Such majority is defined by the 1940 Act as
the lesser of (i) 67% or more of the voting securities present at the meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. These
restrictions provide that the Fund shall not:
1. Borrow money, except from a bank and then only as a temporary measure
for extraordinary or emergency purposes but not for making additional
investments and not in excess of five percent of the total net assets of
the Fund taken at cost. In connection with any borrowing the Fund may
pledge up to 15% of its total assets taken at cost. Notwithstanding the
foregoing, the Fund may engage in transactions in options, futures
contracts and related options, segregate or deposit assets to cover or
secure options written, and make margin deposits or payments for futures
contracts and related options.
2. Engage in the underwriting or distribution of securities issued by
others. The Fund, however, may acquire portfolio securities under
circumstances where, if resold, it might be deemed an underwriter.
3. Purchase or sell interests in real estate, except readily marketable
securities, including securities of real estate investment trusts.
4. Purchase securities on margin, or sell securities short, but the Fund
may enter into transactions in options, futures contracts and related
options and may make margin deposits and payments in connection
therewith.
5. Purchase or sell commodities or commodities contracts, except that the
Fund may enter into transactions in futures contracts and related
options.
6. The Fund may not invest in interests in oil, gas, or other mineral
exploration or development programs, except that the Fund may acquire
securities of public companies which themselves are engaged in such
activities.
7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts and other investment strategies and instruments that would be
considered "senior securities" but for the maintenance by the Fund of a
segregated account with its custodian or some other form of "cover."
8
<PAGE> 35
8. Purchase securities of a corporation in which a director of the Fund
owns a controlling interest.
9. Permit officers or directors of the Fund to profit by selling
securities to or buying them from the Fund. However, companies with
which the officers and directors of the Fund are connected may enter
into underwriting agreements with the Fund to sell its shares, sell
securities to, and purchase securities from the Fund when acting as
broker or dealer at the customary and usual rates and discounts, to the
extent permitted by the 1940 Act.
10. Invest in or hold the securities of an issuer in which the officers and
directors of the Fund or the Adviser who individually own more than
one-half of one percent of the securities of such issuer together own
more than five percent of such securities.
11. Make loans to other persons except loans of portfolio securities up to
ten percent of the value of the Fund's assets collateralized in cash at
100% each business day, subject to immediate termination if the
collateral is not maintained or on five business days' notice by the
Fund or not less than one business day's notice by the borrower, on
which the Fund will receive all income accruing on the borrowed
securities during the loan. Investments in repurchase agreements and
purchases by the Fund of a portion of an issue of publicly distributed
debt securities shall not be considered the making of a loan.
12. Invest more than 25% of its total net asset value in any one industry
provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's
pro rata portion of the securities and other assets owned by any such
company.
13. Invest more than five percent of the market value of its total assets
at the time of purchase in the securities (except U.S. Government
securities) of any one issuer or purchase more than ten percent of the
outstanding voting securities of such issuer except to acquire shares of
other open-end investment companies to the extent permitted by rule or
order of the Securities and Exchange Commission (the "SEC") exempting
the Fund from the limitations imposed by Section 12(d)(1) of the 1940
Act.
14. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than ten percent of the value of the Fund's net assets would be
invested in such securities provided, however, that this limitation
excludes shares of other open-end investment companies owned by the Fund
but includes the Fund's pro rata portion of the securities and other
assets owned by any such company.
15. Invest more than five percent of the market value of its total assets
in companies having a record together with predecessors of less than
three years continuous operation and in securities not having readily
available market quotations; provided, however, that this limitation
excludes shares of other open-end investment companies owned by the Fund
but includes the Fund's pro rata portion of the securities and other
assets owned by any such company.
Consistent with its investment objective, the Fund may make additional
commitments more restrictive than its fundamental policies. Should the Fund
determine in the future that a commitment is no longer in the best interests of
the Fund and its shareholders, it will revoke its commitment by withdrawing its
shares from sale in the state to which the commitment was made. Such withdrawal
may affect the ability of shareholders to make future investments in the Fund.
As a matter of operating policy, which may be changed by the Board of
Directors, the Fund will not invest more than ten percent of its net assets
(determined at the time of investment) in illiquid securities and repurchase
agreements that have a maturity of longer than seven days.
In addition to the fundamental policies which may only be changed by
shareholders, the Fund has made an undertaking with one state that the Fund may
acquire warrants or other rights to subscribe to securities of companies issuing
such warrants or rights, or of parents or subsidiaries of such companies,
although the Fund may not invest more than five percent of its net assets in
such securities valued at the lower of cost or market, nor more than two percent
of its net assets in such securities (valued on such basis) which are not listed
on the
9
<PAGE> 36
New York or American Stock Exchanges (warrants and rights represent options,
usually for a specified period of time, to purchase a particular security at a
specified price from the issuer). Warrants or rights acquired in units or
attached to other securities are not subject to the foregoing limitations.
The Fund has made certain undertakings in regard to investments in
investment companies:
1. The Fund will limit its investment in investment companies to that of
American Capital Small Capitalization Fund, Inc.
2. The Fund will not invest more than ten percent of its net assets in
American Capital Small Capitalization Fund, Inc. until it complies with
certain NASAA regulations.
The Fund has also made an undertaking to a certain state not to invest in
real estate limited partnership interests.
DIRECTORS AND EXECUTIVE OFFICERS
The Fund's Directors and executive officers and their principal occupations
during the past five years are listed below. All persons named as Directors also
serve in similar capacities for other funds advised by the Adviser as indicated
below.
FERNANDO SISTO, Chairman of the Board and Director. Stevens Institute of
Technology, Castle Point Station, Hoboken, New Jersey 07030-5991. George M. Bond
Professor and formerly Dean of Graduate School and Chairman, Department of
Mechanical Engineering, Stevens Institute of Technology; Director, Dynalysis of
Princeton (engineering research).(1)
J. MILES BRANAGAN, Director. 2300 205th Street, Torrance, California
90501-1452. Co-founder, Chairman and President, MDT Corporation (medical
equipment).(1)
RICHARD E. CARUSO, Director. Two Radnor Station, Suite 314, 290 King of
Prussia Road, Radnor Pennsylvania, 19087. Chairman and Chief Executive Officer,
Integra LifeSciences Corporation (biotechnology/life sciences); Trustee,
Susquehanna University; Trustee and First Vice President, The Baum School of Art
(community art school); Founder and Director, Uncommon Individual Foundation
(youth development); Director, International Board of Business Performance
Group, London School of Economics; formerly Director, First Sterling Bank;
formerly Director and Executive Vice President, LFC Financial Corporation
(leasing financing).(1)
ROGER HILSMAN, Director. 251-1 Hamburg Cove, Lyme, Connecticut 06371.
Formerly Professor of Government and International Affairs, Columbia
University.(1)
*DON G. POWELL, President and Director. 2800 Post Oak Blvd., 45th Floor,
Houston, Texas 77056. President, Chief Executive Officer and Director of VK/AC
Holding, Inc., VKAC and the Adviser; Chairman, Chief Executive Officer and
Director of the Distributor.(1)(2)(4)
DAVID REES, Director. 1601 Country Club Drive, Glendale, California 91208.
Senior Editor, Los Angeles Business Journal.(1)(3)
**LAWRENCE J. SHEEHAN, Director. 1999 Avenue of the Stars, Suite 700, Los
Angeles, California 90067-6035. Of Counsel to and formerly Partner (1969-1994)
of the law firm of O'Melveny & Myers, legal counsel to the Fund.(1)(3)(5)
WILLIAM S. WOODSIDE, Director. 712 Fifth Avenue, 40th Floor, New York, New
York 10019. Vice Chairman of the Board, Sky Chefs, Inc. (airline food catering);
formerly Director, Primerica Corporation (currently known as The Travelers
Inc.); formerly Chairman of the Board and Chief Executive Officer, old Primerica
Corporation (American Can Company); formerly Director, James River Corporation
(paper products); Trustee and formerly President, Whitney Museum of American
Art; Chairman, Institute for Educational Leadership, Inc., Board of Visitors,
Graduate School of The City University of New York, Academy of Political
Science; Committee for Economic Development; Director, Public Education Fund
10
<PAGE> 37
Network, Fund for New York City Public Education; Trustee, Barnard College;
Member, Dean's Council, Harvard School of Public Health; Member, Mental Health
Task Force, Carter Center.(1)
NORI L. GABERT, Vice President and Secretary. 2800 Post Oak Blvd., Houston,
Texas 77056. Vice President, Associate General Counsel and Corporate Secretary
of the Adviser.(4)
JAMES A. GILLIGAN, Vice President. 2800 Post Oak Blvd., Houston, Texas
77056. Vice President -- Portfolio Manager of the Adviser. Formerly Security
Analyst of the Adviser.(4)
TANYA M. LODEN, Vice President and Controller. 2800 Post Oak Blvd.,
Houston, Texas 77056. Vice President and Controller of most of the investment
companies advised by the Adviser; formerly Tax Manager/Assistant Controller.(4)
DENNIS J. MCDONNELL, Vice President. One Parkview Plaza, Oakbrook Terrace,
IL 60181. Director of VK/AC Holding, Inc. and Van Kampen American Capital, Inc.;
President, Chief Operating Officer and Director of Van Kampen American Capital
Investment Advisory Corp.; and Director of McCarthy, Crisanti & Maffei, Inc.
CURTIS W. MORELL, Vice President and Treasurer. 2800 Post Oak Blvd.,
Houston, Texas 77056; Vice President and Treasurer of most of the investment
companies advised by the Adviser.(4)
RONALD A. NYBERG, Vice President. One Parkview Plaza, Oakbrook Terrace, IL
60181. Executive Vice President, General Counsel and Secretary of VK/AC Holding,
Inc.; Vice President of ACCESS Investor Services, Inc. and Van Kampen American
Services, Inc.; Vice President, General Counsel and Assistant Secretary of Van
Kampen American Capital Advisors, Inc., Senior Vice President and General
Counsel of the Adviser; Executive Vice President and General Counsel and
Director of VKAC Distributors, Inc.
ALAN T. SACHTLEBEN, Vice President. 2800 Post Oak Blvd., Houston, Texas
77056. Executive Vice President of VK/AC Holding, Inc. and VKAC; Senior Vice
President -- Chief Investment Officer/Equity and Director of the Adviser.
J. DAVID WISE, Vice President and Assistant Secretary. 2800 Post Oak Blvd.,
Houston, Texas 77056. Vice President, Associate General Counsel and Compliance
Review Officer of the Adviser.(4)
PAUL R. WOLKENBERG, Vice President, 2800 Post Oak Blvd, Houston, Texas
77056. Senior Vice President of the Adviser; President, Chief Operating Officer
and Director of Van Kampen American Capital Services, Inc.; Executive Vice
President, Chief Operating Officer and Director of Van Kampen American Capital
Trust Company; Executive Vice President and Director of "ACCESS".(4)
---------------
* Director who is an interested person of the Adviser and of the Fund within
the meaning of the 1940 Act by virtue of his affiliation with the Adviser.
** Director who is an interested person of the Fund and may be an interested
person of the Adviser within the meaning of the 1940 Act by virtue of his
affiliation with legal counsel of the Fund.
(1) A director or trustee 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 Government
Target Series, American Capital Harbor Fund, Inc., American Capital High
Yield Investments, Inc., American Capital Life Investment Trust, American
Capital Municipal Bond Fund, Inc., American Capital Pace Fund, Inc.,
American Capital Real Estate Securities Fund, Inc., American Capital Reserve
Fund, Inc., American Capital Small Capitalization Fund, Inc., American
Capital Tax-Exempt Trust, American Capital Texas Municipal Securities, Inc.,
American Capital U.S. Government Trust for Income, American Capital
Utilities Income Fund, Inc. and American Capital World Portfolio Series,
Inc.
11
<PAGE> 38
(2) A director/trustee/managing general partner of American Capital Bond Fund,
Inc., American Capital Convertible Securities, Inc., American Capital
Exchange Fund and American Capital Income Trust investment companies advised
by the Adviser, and a trustee of Common Sense Trust, an open-end investment
company which the Adviser serves as adviser for ten of the portfolios.
(3) A director of Source Capital, Inc., a closed-end investment company not
advised by the Adviser.
(4) An officer and/or director/trustee of other investment companies advised or
subadvised by the Adviser.
(5) A director of FPA Capital Fund, Inc., FPA New Income, Inc., and FPA
Perennial Fund, Inc., investment companies not advised by the Adviser, TCW
Convertible Securities Fund, Inc.
The Executive Committee, consisting of Messrs. Hilsman, Powell, Sheehan and
Sisto, may act for the Board of Directors between Board meetings except where
board action is required by law.
The directors and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. During the last fiscal year, the
Directors not affiliated with the Adviser or its parent received as a group
$13,259 in directors' fees from the Fund in addition to certain out-of-pocket
expenses. Such directors also received compensation for serving as directors of
other investment companies advised by the Adviser as identified in the notes to
the foregoing table. For legal services rendered during the fiscal year, the
Fund paid legal fees of $11,954 to the law firm of O'Melveny & Myers, of which
Mr. Sheehan is Of Counsel. The firm also serves as legal counsel to the American
Capital Funds listed in Footnote 1 above.
Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Directors serve as directors or trustees
noted in Footnote 1 above is set forth below. The compensation shown for the
Fund is for the fiscal year ended November 30, 1994 and the total compensation
shown for the Fund and other related mutual Funds is for the calendar year ended
December 31, 1994. Mr. Powell is not compensated for his service as Director,
because of his affiliation with the Adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION
OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM
ACCRUED REGISTRANT
AS AND
AGGREGATE PART FUND
COMPENSATION OF COMPLEX
FROM FUND PAID TO
NAME OF PERSON REGISTRANT EXPENSES DIRECTORS(1)(5)
----------------------------------------- ---------- -------- ---------------
<S> <C> <C> <C>
J. Miles Branagan........................ $1,695 -0- $64,000
Dr. Richard E. Caruso(4)................. $1,695(2) -0- $64,000
Dr. Roger Hilsman........................ $1,780 -0- $66,000
David Rees(4)............................ $1,695 -0- $64,000
Lawrence J. Sheehan...................... $1,780 -0- $67,000
Dr. Fernando Sisto(4).................... $2,190(2) -0- $82,000
William S. Woodside(3)................... $1,465 -0- $54,000
</TABLE>
---------------
(1) Represents 29 investment company portfolios in the fund complex
(2) Amount reflects deferred compensation of $1,695 and $1,160 for Messrs.
Caruso and Sisto, respectively.
(3) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Registrant's adviser. As a result, of the amounts reflected in columns 1 and
3, $445 and $17,000, respectively, were paid by the Registrants.
(4) Messrs. Caruso, Rees and Sisto have deferred compensation in the past. The
cumulative deferred compensation accrued by the Fund as of November 30, 1994
is as follows: Caruso, $5,082; Rees, $18,041; Sisto, $7,356.
(5) Includes the following amounts for which the various Portfolios were
reimbursed by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman,
$1,000; Rees, $2,000; Sheehan, $2,000; Sisto, $2,000.
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<PAGE> 39
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement,
dated December 20, 1994 (the "Advisory Agreement"). Under the Advisory
Agreement, 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. The
Adviser is responsible for obtaining and evaluating economic, statistical, and
financial data and for formulating and implementing investment programs in
furtherance of the Fund's investment objectives. The Adviser also furnishes at
no cost to the Fund (except as noted herein) the services of sufficient
executive and clerical personnel for the Fund as are necessary to prepare
registration statements, prospectuses, shareholder reports, and notices and
proxy solicitation materials. In addition, the Adviser furnishes at no cost to
the Fund the services of a President of the Fund, one or more Vice Presidents as
needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of a Treasurer or other principal
financial officer and the personnel operating under his direction. Payments are
made to the Adviser or its parent in reimbursement of personnel, facilities,
office space, and equipment costs attributable to the provision of accounting
services to the Fund. The services are provided at cost which is allocated among
the investment companies advised by the Adviser in the manner approved by the
Board of Directors from time to time. The Fund also pays shareholder service
agency fees, distribution fees, service fees, custodian fees, legal and auditing
fees, the costs of reports to shareholders and all other ordinary expenses not
specifically assumed by the Adviser.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at annual rate
of: 0.50% on the first $150 million of average net assets; 0.45% on the next
$100 million of average net assets; 0.40% on the next $100 million of average
net assets; and 0.35% on the excess over $350 million of average net assets.
The average net asset value for purposes of computing the advisory fees is
determined by taking the average of all of the determinations of net asset value
for each business day during a given calendar month. Such fee is payable for
each calendar month as soon as practicable after the end of that month. The fee
payable to the Adviser is reduced by any commissions, tender solicitation and
other fees, brokerage or similar payments received by the Adviser or any other
direct or indirect majority owned subsidiary of VK/AC Holding, Inc., in
connection with the purchase and sale of portfolio investments of the Fund, less
any direct expenses incurred by such subsidiary of VK/AC Holding, Inc. in
connection with obtaining such payments. The Adviser agrees to use its best
efforts to recapture tender solicitation fees and exchange offer fees for the
Fund's benefit, and to advise the Board of Directors of the Fund of any other
commissions, fees, brokerage or similar payments which may be possible under
applicable laws for the Adviser or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc., to receive in connection with the Fund's
portfolio transactions or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitations applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses include the investment advisory fee and other operating costs
paid by the Fund except (1) interest and taxes, (2) brokerage commissions, (3)
certain litigation and indemnification expenses as described in the Advisory
Agreement and (4) payments made by the Fund pursuant to the distribution plan
(described herein). The Advisory Agreement also provides that the Adviser shall
not be liable to the Fund for any actions or omissions if it acted without
willful misfeasance, bad faith, negligence or reckless disregard of its
obligations.
Currently, the most restrictive applicable limitations are 2 1/2% of the
first $30 million, 2% of the next $70 million, and 1 1/2% of the remaining
average net assets.
13
<PAGE> 40
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Board of Directors or (ii) by
vote of a majority of the Fund's outstanding voting securities and (b) by the
affirmative vote of a majority of the Directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement provides that it shall
terminate automatically if assigned and that it may be terminated without
penalty by either party on not more than 60 days' nor less than 30 days' written
notice.
During the fiscal years ended November 30, 1992, 1993 and 1994, the Adviser
received $837,631, $946,101 and $1,075,607, respectively, in advisory fees from
the Fund. For such periods the Fund paid $65,787, $75,664 and $86,186,
respectively, for accounting services. A substantial portion of these amounts
was paid to the Adviser in reimbursement of personnel, facilities and equipment
costs attributable to the provision of accounting services to the Fund.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement, dated December 20, 1994 (the "Underwriting
Agreement"). The Distributor has the exclusive right to distribute shares of the
Fund through affiliated and unaffiliated dealers. The Distributor's obligation
is an agency or "best efforts" arrangement under which the Distributor is
required to take and pay for only such shares of the Fund as may be sold to the
public. The Distributor is not obligated to sell any stated number of shares.
The Distributor bears the cost of printing (but not typesetting) prospectuses
used in connection with this offering and the cost and expense of supplemental
sales literature, promotion and advertising. The Underwriting Agreement is
renewable from year to year if approved (a) by the Fund's Board of Directors or
by a vote of a majority of the Fund's outstanding voting securities and (b) by
the affirmative vote of a majority of Directors who are not parties to the
Underwriting Agreement or interested persons of any party, by votes cast in
person at a meeting called for such purpose. The Underwriting Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 60 days' written notice.
During the fiscal years ended November 30, 1992, 1993 and 1994, total
underwriting commissions on the sale of shares of the Fund were $239,868,
$426,440 and $547,421, respectively. Of such totals, the amount retained by the
Distributor was $29,976, $57,449 and $67,504, respectively. The remainder was
reallowed to dealers. Of such dealer reallowances, $35,643, $71,192 and $48,179,
respectively, was received by Advantage Capital Corporation, an affiliated
dealer of the Distributor.
DISTRIBUTION PLANS
The Fund has adopted a Class A distribution plan, a Class B distribution
plan and a Class C distribution plan (the "Class A Plan", "Class B Plan" and
"Class C Plan", respectively) to permit the Fund directly or indirectly to pay
expenses associated with servicing shareholders and in the case of the Class B
Plan and Class C Plan the distribution of its shares (the Class A Plan, the
Class B Plan and the Class C Plan are sometimes referred to herein collectively
as "Plans" and individually as a "Plan").
The Directors have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and Class C
Plans, authorized payments by the Fund include payments at an annual rate of up
to 0.25% of the net assets of the shares of the respective class to reimburse
the Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) 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,
14
<PAGE> 41
(2) out-of-pocket expenses of printing and distributing prospectuses and annual
and semi-annual shareholder reports to other than existing shareholders, (3)
out-of-pocket and overhead expenses for preparing, printing and distributing
advertising material and sales literature, (4) expenses for promotional
incentives to broker-dealers and financial and industry professionals, and (5)
advertising and promotion expenses, including conducting and organizing sales
seminars, marketing support salaries and bonuses, and travel-related expenses.
With respect to the Class C Plan, authorized payments by the Fund also include
payments at an annual rate of up to 0.75% of the net assets of the Class C
shares to reimburse the Distributor for (1) 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 paid to broker-dealers and other Service
Organizations in an amount up to 0.65% of the average daily net assets of the
Fund's Class C shares, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals, and (5) advertising and promotion expenses, including conducting
and organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses. Such reimbursements are subject to the maximum sales
charge limits specified by the National Association of Securities Dealers, Inc.
("NASD") for asset-based charges.
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. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements were approved by the Directors, including a majority of the
Directors who are not affiliated persons (as defined in the 1940 Act) of the
Fund and who have no direct or indirect financial interest in the operation of
any of the Plans or in any agreements related to each Plan ("Independent
Directors"). In approving each Plan in accordance with the requirements of Rule
12b-1, the Directors determined that there is a reasonable likelihood that each
Plan will benefit the Fund and its shareholders.
Each Plan requires the Distributor to provide the Directors at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, the Plans will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Directors, including a majority
of Independent Directors.
Each Plan may be terminated by vote of a majority of the Independent
Directors, or by vote of a majority of the outstanding voting shares of the
Fund. Any change in any of the Plans that would materially increase the
distribution or service expenses borne by the Fund requires shareholder approval
voting separately by class; otherwise, it may be amended by a majority of the
Directors, including a majority of the Independent Directors, by vote cast in
person at a meeting called for the purpose of voting upon such amendment. So
long as the Plan is in effect, the selection or nomination of the Independent
Directors is committed to the discretion of the Independent Directors.
For the fiscal year ended November 30, 1994, the Fund's aggregate expenses
under the Class A Plan were $364,255 or .17%, of the Class A shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for
payments made to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the fiscal year ended November 30, 1994, the
Fund's aggregate expenses under the Class B Plan were $106,450 or 1.00% of the
Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $79,838 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in respect of sales
of Class B shares of the Fund and $26,612 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B Plan.
15
<PAGE> 42
For the fiscal year ended November 30, 1994, the Fund's aggregate expenses under
the Class C Plan were $24,087 or 1.00% of the Class C shares' average net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $18,065 for commissions and transaction fees paid to broker-dealers
and other Service Organizations in respect of sales of Class C shares of the
Fund and $6,022 for fees paid to Service Organizations for servicing Class C
shareholders and administering the Class C Plan.
TRANSFER AGENT
During the fiscal year ended November 30, 1994, ACCESS, shareholder service
agent and dividend disbursing agent for the Fund, received fees aggregating
$636,148 for these services. These services have been provided at cost plus a
profit.
PORTFOLIO TURNOVER
The Fund's annual portfolio turnover rate is shown in the table of
Financial Highlights in the Prospectus. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for a fiscal year by the average monthly value of the portfolio securities owned
by the Fund during such fiscal year. The portfolio turnover rate may vary
greatly from year to year and within a year. The annual turnover rate may be
above 100% which is substantially greater than that of most other investment
companies. A 100% turnover rate would occur, for example, if all the securities
in the Fund's portfolio were replaced in a period of one year. Higher portfolio
activity increases the Fund's transaction costs. To the extent short-term
trading results in realization of gains on securities held for one year or less,
shareholders are subject to taxes at ordinary income rates unless such gains are
offset by capital loss carryovers. The Fund seeks to limit portfolio turnover to
the extent practicable, although changes are made in the portfolio whenever such
action appears advisable.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of any
commissions paid on such transactions. It is the policy of the Adviser to seek
the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described herein)
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting broker-dealers and in negotiating commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser. Consistent with the Rules of Fair Practice
of the NASD and subject to seeking best execution and such other policies as the
Board of Directors may determine, the Adviser may consider sales of shares of
the Fund and of the other American Capital mutual funds as a factor in the
selection of firms to execute portfolio transactions for the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).
Pursuant to provisions of the investment advisory agreement, the Fund's
Board of Directors has authorized the Adviser to cause the Fund to incur
brokerage commissions in an amount higher than the lowest available rate in
return for research services provided to the Adviser. The Adviser is of the
opinion that the
16
<PAGE> 43
continued receipt of supplemental investment research services from dealers is
essential to its provision of high quality portfolio management services to the
Fund. The Adviser undertakes that such higher commissions will not be paid by
the Fund unless (a) the Adviser determines in good faith that the amount is
reasonable in relation to the services in terms of the particular transaction or
in terms of the Adviser's overall responsibilities with respect to the accounts
as to which it exercises investment discretion, (b) such payment is made in
compliance with the provisions of Section 28(e) and other applicable state and
federal laws, and (c) in the opinion of the Adviser, the total commissions paid
by the Fund are reasonable in relation to the expected benefits to the Fund over
the long term. The investment advisory fee paid by the Fund under the investment
advisory agreement is not reduced as a result of the Adviser's receipt of
research services.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Adviser in servicing all of its accounts; not all of such services may be used
by the Adviser in connection with the Fund. In the opinion of the Adviser, the
benefits from research services to each of the accounts (including the Fund)
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Fund will not be disproportionate to the benefits
received by the Fund on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Adviser are the respective investment objectives, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.
The Adviser's brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Fund Directors who are not affiliated
persons (as defined in the 1940 Act) of the Adviser.
Brokerage commissions paid by the Fund on portfolio transactions for the
fiscal years ended November 30, 1992, 1993 and 1994, totalled $430,525, $723,269
and $695,729, respectively. During the year ended November 30, 1994, the Fund
paid $251,205 in brokerage commissions on transactions totalling $150,197,227 to
brokers selected primarily on the basis of research services provided to the
Adviser. The negotiated commission paid to an affiliated broker on any
transaction would be comparable to that payable to a non-affiliated broker in a
similar transaction.
Prior to December 20, 1994, the Fund placed brokerage transactions with
brokers that were considered affiliated persons of the Adviser's former parent,
The Travelers Inc. Such affiliated persons included Smith Barney Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Effective December
20, 1994, Smith Barney and Robinson Humphrey ceased to be affiliates of the
Adviser. In addition, from December 15, 1988 through February 21, 1992, Dain
Bosworth, Inc. ("Dain Bosworth") and Rauscher Pierce, Refsnes, Inc. ("Rauscher
Pierce") were affiliates of The Travelers Inc.; from September 10, 1987 to March
27, 1992, The Fox-Pitt, Kelton Group S.A. ("Fox-Pitt") was an affiliate of The
Travelers Inc.; and from 1985 through September 30, 1992, Jefferies & Company,
Inc. ("Jefferies") was an affiliate of The Travelers Inc. The negotiated
commission paid to an affiliated broker on any transaction would be comparable
17
<PAGE> 44
to that payable to a non-affiliated broker in a similar transaction. The Fund
paid the following commissions to these brokers during the periods shown:
<TABLE>
<CAPTION>
RAUSCHER ROBINSON SMITH DAIN
PIERCE HUMPHREY JEFFERIES BARNEY FOX-PITT BOSWORTH
-------- -------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Commissions Paid:
Fiscal 1992 $1,204 $40,512 -- -- -- --
Fiscal 1993 -- $66,185 -- -- -- --
Fiscal 1994 -- -- -- $46,318 -- --
Fiscal 1994 Percentages:
Commissions with affiliates to
total commissions -- -- -- 6.66% -- --
Value of transactions with
affiliates to total transactions -- -- -- 7.47% -- --
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time) on each
business day on which the Exchange is open. The Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value of Fund shares is computed by dividing the
value of all securities plus other assets, less liabilities, by the number of
shares outstanding, and adjusting to the nearest cent per share.
Such computation is made by using prices as of the close of trading on the
Exchange and (i) valuing securities traded on a national securities exchange at
the last reported sale price, or if there has been no sale that day, at the last
reported bid price, (ii) valuing over-the-counter securities for which the last
sale price is available from the National Association of Securities Dealers
Automated Quotations ("NASDAQ") at that price, (iii) valuing all other
over-the-counter securities for which market quotations are available at the
most recent bid price supplied by NASDAQ or broker-dealers, and (iv) valuing any
securities for which market quotations are not readily available, and any other
assets at fair value as determined in good faith by the Board of Directors of
the Fund. Short-term investments are valued in the manner described in the notes
to the financial statements included in this Statement of Additional
Information.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the SEC.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."
PURCHASE OF SHARES
Shares of the Fund are sold in continuous offering and may be purchased on
any business day through authorized dealers, including Advantage Capital
Corporation.
MULTIPLE PRICING SYSTEM
The Fund issues three classes of shares: Class A shares are subject to an
initial sales charge; Class B shares and Class C shares are sold at net asset
value and are subject to a contingent deferred sales charge. The three classes
of shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B and Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)
18
<PAGE> 45
resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.
During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the Securities Act of 1933.
INVESTMENTS BY MAIL
A shareholder investment account may be opened by completing the
application included in the Prospectus and forwarding the application, through
the designated dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of $500 or more, in the form of a check
payable to the Fund, must accompany the application. This minimum may be waived
by the Distributor for plans involving continuing investments. Subsequent
investments of $25 or more may be mailed directly to ACCESS. All such
investments are made at the public offering price of Fund shares next computed
following receipt of payment by ACCESS. Confirmations of the opening of an
account and of all subsequent transactions in the account are forwarded by
ACCESS to the investor's dealer of record, unless another dealer is designated.
In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the prospectus. If ACCESS service
agent ceases to act as such, a successor company named by the Fund will act in
the same capacities so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales charge reflected in the sales charge table as shown in
the Prospectus under "Purchase of Shares -- Sales Charge Table" apply to
purchases of Class A shares of the Fund where the aggregate investment is
$50,000 or more. For purposes of determining eligibility for volume discounts,
spouses and their minor children are treated as a single purchaser, as is a
director or other fiduciary purchasing for a single fiduciary account. An
aggregate investment includes all shares of the Fund and all shares of certain
other participating American Capital mutual funds described in the Prospectus
(the "Participating Funds"), which have been previously purchased and are still
owned, plus the shares being purchased. The current offering price is used to
determine the value of all such shares. If, for example, an investor has
previously purchased and still holds Class A shares of the Fund and shares of
other Participating Funds having a current offering price of $25,000 and that
person purchases $30,000 of additional Class A shares of the Fund, the charge
applicable to the $30,000 purchase would be 4.75% of the offering price. The
same reduction is applicable to purchases under a Letter of Intent as described
in the next paragraph. THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE TIME AN
ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED CHARGE ON THE
BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN WRITING WHEN
SUCH AN ORDER IS PLACED BY MAIL. The reduced sales charge will not be applied if
such notification is not furnished at the time of the order. The reduced sales
charge will also not be applied should a review of the records of the
Distributor or ACCESS fail to confirm the representations concerning the
investor's holdings.
LETTER OF INTENT
Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount", made pursuant to the Letter of Intent and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal as if it were a single investment. Escrowed
shares totalling five percent of the dollar amount of the Letter of Intent are
held by ACCESS in the name of the shareholder. The Letter of Intent may be
back-dated up to 90 days in order that any investments made during this 90-day
period, valued at the investor's cost, can become subject to the Letter of
Intent. The Letter of Intent does not obligate the investor to purchase the
indicated amount. In the event the Letter of Intent goal is not achieved within
the 13-month period, the investor is required to pay the
19
<PAGE> 46
difference between sales charges otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the investor in shares of the Fund, the amount of excess sales
charge, if any, paid during the 13-month period.
VOLUME DISCOUNTS
The schedule of volume discounts in the Prospectus applies to purchases of
Class A shares made at one time by any purchaser, which term includes (1) an
individual -- or an individual, his or her spouse and children under the age of
21 -- purchasing securities for his or her or their own account; (2) a trustee
or other fiduciary of a single trust estate or a single fiduciary account
(including a pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code (the
"Code")), although more than one beneficiary is involved; and (3) tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the Code.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
is closed, including those holidays listed under "Determination of Net Asset
Value." The right of redemption may be suspended and the payment therefor may be
postponed for more than seven days during any period when (a) the New York Stock
Exchange is closed for other than customary weekends or holidays; (b) trading on
the New York Stock Exchange is restricted; (c) an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund to fairly determine
the value of its net assets; or (d) the SEC, by order, so permits.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), the front-end sales charge will be waived and a contingent deferred
sales charge ("CDSC -- Class A") of one percent is imposed in the event of
certain redemptions within one year of the purchase. If a CDSC -- Class A is
imposed upon redemption, the amount of the CDSC -- Class A will be equal to the
lesser of one percent of the net asset value of the shares at the time of
purchase, or one percent of the net asset value of the shares at the time of
redemption.
The CDSC -- Class A will only be imposed if a Qualified Purchaser redeems
an amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one year period prior to the redemption. The CDSC --
Class A will be waived in connection with redemptions by certain Qualified
Purchasers, (e.g., in retirement plans qualified under Section 401(a) of the
Code and deferred compensation plans under Section 457 of the Code) required to
obtain funds to pay distributions to beneficiaries pursuant to the terms of the
plans. Such payments include, but are not limited to, death, disability,
retirement, or separation from service. No CDSC -- Class A will be imposed on
exchanges between funds. For purposes of the CDSC -- Class A, when shares of one
fund are exchanged for shares of another fund, the purchase date for the shares
of the fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC -- Class A rather than a front-end load sales charge. In determining
whether a CDSC -- Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of American Capital Reserve Fund, Inc.
with shares of certain other participating American Capital Funds described as
"Participating Funds" in the Prospectus.
20
<PAGE> 47
As described in the Prospectus under "Purchase of Shares," redemption of
Class B and Class C will be subject to a contingent deferred sales charge.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
The CDSC -- Class B and C may be waived on redemptions of Class B and Class
C shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC -- Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. An individual will be
considered disabled for this purpose if he or she meets the definition thereof
in Section 72(m)(7) of the Code, which in pertinent part defines a person as
disabled if such person "is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long-continued and indefinite
duration." While the Fund does not specifically adopt the balance of the Code's
definition which pertains to furnishing the Secretary of Treasury with such
proof as he or she may require, the Distributor will require satisfactory proof
of death or disability before it determines to waive the CDSC -- Class B and C.
In cases of disability or death, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of American Capital
Funds; in such event, as described below, the Fund will "tack" the period for
which the original shares were held onto the holding period of the shares
acquired in the transfer or rollover for purposes of determining what, if any,
CDSC -- Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or disability
of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition,
the charge will be waived on any minimum distribution required to be distributed
in accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC -- Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
21
<PAGE> 48
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and C
upon such involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC -- Class C paid on the redeemed shares,
any portion or all of his or her redemption proceeds (plus that amount necessary
to acquire a fractional share to round off his or her purchase to the nearest
full share) in Class C shares of the Fund, provided that the reinvestment is
effected within 120 days after such redemption and the shareholder has not
previously exercised this reinvestment privilege with respect to Class C shares
of the Fund. Shares acquired in this manner will be deemed to have the original
cost and purchase date of the redeemed shares for purposes of applying the
CDSC -- Class C to subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. 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.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
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.
22
<PAGE> 49
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The Fund's policy is to distribute substantially all of its taxable net
investment income in quarterly dividends to shareholders of Class A, Class B and
Class C shares. Any taxable net realized capital gains are distributed annually.
The per share dividends on Class B and Class C shares will be lower than the per
share dividends on Class A shares as a result of the distribution fee and higher
transfer agency fees applicable to the Class B and Class C shares. Taxable net
realized capital gains are the excess, if any, of the Fund's total profits on
the sale of securities during the year over its total losses on the sale of
securities, including capital losses carried forward from prior years in
accordance with the tax laws. Such capital gains, if any, are distributed at
least once a year. All income dividends and capital gains distributions are
reinvested in shares of the Fund at net asset value without sales charge on the
record date, except that any shareholder may otherwise instruct the shareholder
service agent in writing and receive cash. Shareholders are informed as to the
sources of distributions at the time of payment.
The Fund has elected to be taxed as a regulated investment company under
Sections 851-855 of the Code. This means the Fund must pay all or substantially
all its taxable net investment income and taxable net realized capital gains to
shareholders of Class A, Class B and Class C shares and meet certain
diversification and other requirements. By qualifying as a regulated investment
company, the Fund is not subject to Federal income taxes to the extent it
distributes its taxable net investment income and taxable net realized capital
gains. If for any taxable year the Fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net realized capital gains, would be subject to tax at regular
corporate rates (without any deduction for distributions to shareholders).
The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders at least 98% of its ordinary taxable (net
investment) income for the twelve months ended December 31, plus 98% of its
capital gains net income for the twelve months ended October 31 of such year.
The Fund intends to distribute sufficient amounts to avoid liability for the
excise tax.
Dividends from net investment income and distributions from any short-term
capital gains are taxable to shareholders as ordinary income. To the extent
determined each year, a portion of dividends paid from net investment income
qualifies in the case of corporations, for the 70% dividends received deduction.
To qualify for the dividends received deduction, a corporate shareholder must
hold the shares on which the dividend is paid for more than 45 days.
Dividends and distributions declared payable to shareholders of record
after September 30, of any year and paid before February 1 of the following
year, are considered taxable income to shareholders on the record date even
though paid in the next year.
Distributions from long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held Fund
shares. Such distributions and distributions from short-term capital gains are
not eligible for the dividends received exclusion or deduction referred to
above. Any loss on the sale of Fund shares held for less than six months is
treated as a long-term capital loss to the extent of any long-term capital gain
distribution paid on such shares, subject to an exception for losses incurred
under certain Systematic Withdrawal Plans. All dividends and distributions are
taxable to the shareholder whether or not reinvested in shares. Shareholders are
notified annually by the Fund as to the federal tax status of dividends and
distributions paid by the Fund unless such amount is less than ten dollars, in
which case no notice is provided.
If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws.
23
<PAGE> 50
Non-resident shareholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
BACK-UP WITHHOLDING
The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and that he is not subject to withholding. (An
individual's taxpayer identification number is his social security number.) The
31% "back-up withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Code includes special rules applicable to certain listed options
(excluding equity options as defined in the Code), futures contracts, and
options on futures contracts which the Fund may write, purchase or sell. Such
options and contracts are classified as Section 1256 contracts under the Code.
The character of gain or loss resulting from the sale, disposition, closing out,
expiration or other termination of Section 1256 contracts is generally treated
as long-term capital gain or loss to the extent of 60% thereof and short-term
capital gain or loss to the extent of 40% thereof ("60/40 gain or loss"). Such
contracts, when held by the Fund at the end of a fiscal year, generally are
required to be treated as sold at market value on the last day of such fiscal
year for Federal income tax purposes ("marked-to-market"). Over-the-counter
options are not classified as Section 1256 contracts and are not subject to the
mark-to-market rule or to 60/40 gain or loss treatment. Any gains or losses
recognized by the Fund from transactions in over-the-counter options generally
constitute short-term capital gains or losses. If over-the-counter call options
written, or over-the-counter put options purchased, by the Fund are exercised,
the gain or loss realized on the sale of the underlying securities may be either
short-term or long-term, depending on the holding period of the securities. In
determining the amount of gain or loss, the sales proceeds are reduced by the
premium paid for over-the-counter puts or increased by the premium received for
over-the-counter calls.
Certain of the Fund's transactions in options, futures contracts, and
options on futures contracts, particularly its hedging transactions, may
constitute "straddles" which are defined in the Code as offsetting positions
with respect to personal property. A straddle in which at least one (but not
all) of the positions are Section 1256 contracts a "mixed straddle" under the
Code if certain identification requirements are met.
The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period and (iii) "short sale" rules which may terminate the holding
period of securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.
The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.
24
<PAGE> 51
PRIOR PERFORMANCE INFORMATION
The Fund's average annual total return (computed in the manner described in
the Prospectus) for Class A shares of the Fund for the one-year, five-year and
ten-year periods ended November 30, 1994 was -4.62%, 7.78%, and 10.34%,
respectively. The average annual total return (computed in the manner described
in the Prospectus) for Class B shares of the Fund for the one-year and the
16-month periods ended November 30, 1994 was -4.54% and 0.21%, respectively. The
average annual total return (computed in the manner described in the prospectus)
for Class C shares of the Fund for the one-year and the 16-month periods ended
November 30, 1994 was -1.08% and 2.90%, respectively. These results are based on
historical earnings and asset value fluctuations and are not intended to
indicate future performance. Such information should be considered in light of
the Fund's investment objectives and policies as well as the risks incurred in
the Fund's investment practices.
Total return is computed separately for Class A, Class B and Class C
shares.
From time to time VKAC will announce the results of their monthly polls of
U.S. investor intentions -- the American Capital Index of Investor Intentions
and the American Capital Mutual Fund Index -- which polls measure how Americans
plan to use their money.
From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors, and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality
received by American Capital in 1994.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Funds.
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, perform an annual audit of the
Fund's financial statements.
25
<PAGE> 52
FINANCIAL STATEMENTS
The attached financial statements in the form in which they appear in the
Annual Report to Shareholders, including the related Report of Independent
Accountants on the November 30, 1994 financial statements are hereby included in
the Statement of Additional Information.
The following information is not included in the Annual Report. This
example assumes a purchase of Class A shares of the Fund aggregating less than
$50,000 subject to the schedule of sales charges set forth in the Prospectus at
a price based upon the net asset value of Class A shares of the Fund.
<TABLE>
<CAPTION>
NOVEMBER 30,
1994
------------
<S> <C>
Net Asset Value per Class A Share $12.26
Class A Per Share Sales Charge -- 5.75% of offering price (6.10%
of net asset value per share) $ .75
------------
Class A Per Share Offering Price to the Public $13.01
</TABLE>
26
<PAGE> 53
APPENDIX
RATINGS OF SENIOR SECURITIES
Description of Standard & Poor's Corporation ("S&P") and Moody's Investor
Service ("Moody's") senior securities ratings.
MOODY'S CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
S&P'S CORPORATE BOND RATINGS:
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Note: Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Plus (+) or Minus (-): The ratings from AA to B may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PREFERRED STOCK RATINGS:
Both Moody's and S&P use the same designations for corporate bonds as they
do for preferred stock except in the case of Moody's preferred stock ratings the
initial letter rating is not capitalized. While the descriptions are tailored
for preferred stocks, the relative quality distinctions are comparable to those
described above for corporate bonds.
27
<PAGE> 54
INVESTMENT PORTFOLIO
November 30, 1994
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Number Market
of Shares Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC COMMON STOCK 69.8%
CONSUMER DISTRIBUTION 4.3%
35,000 American Stores Co. ........................................... $ 923,125
20,000 Dayton Hudson Corp. ........................................... 1,632,500
45,000 Limited, Inc. ................................................. 871,875
44,000 May Department Stores Co. ..................................... 1,595,000
*27,000 Michael's Stores, Inc. ........................................ 1,069,875
*32,000 Nine West Group, Inc. ......................................... 792,000
21,000 Nordstrom, Inc. ............................................... 1,013,250
43,000 Sears, Roebuck & Co. .......................................... 2,031,750
--------------
TOTAL CONSUMER DISTRIBUTION................................. 9,929,375
--------------
CONSUMER DURABLES 1.8%
50,000 Black & Decker Corp. .......................................... 1,200,000
19,000 Eastman Kodak Co. ............................................. 866,875
39,000 Echlin, Inc. .................................................. 1,179,750
22,000 Stanley Works ................................................. 786,500
--------------
TOTAL CONSUMER DURABLES..................................... 4,033,125
--------------
CONSUMER NON-DURABLES 8.7%
30,000 Anheuser Busch Companies, Inc. ................................ 1,473,750
23,000 Clorox Co. .................................................... 1,339,750
*68,000 Dr Pepper/Seven-Up Companies, Inc. ............................ 1,683,000
35,000 Heinz (H.J.) Co. .............................................. 1,273,125
20,000 Hershey Foods Corp. ........................................... 935,000
25,000 Kellogg Co. ................................................... 1,421,875
67,000 Liz Claiborne, Inc. ........................................... 1,515,875
68,000 Pet, Inc. ..................................................... 1,147,500
39,000 Procter & Gamble Co. .......................................... 2,437,500
39,000 Ralston Purina Group .......................................... 1,672,125
32,000 Reebok International, Ltd. .................................... 1,228,000
43,000 Rubbermaid, Inc. .............................................. 1,161,000
36,000 Sara Lee Corp. ................................................ 877,500
100,000 U.S. Shoe Co. ................................................. 1,662,500
--------------
TOTAL CONSUMER NON-DURABLES................................. 19,828,500
--------------
CONSUMER SERVICES 4.8%
10,000 Capital Cities ABC, Inc. ...................................... 817,500
29,000 Dun & Bradstreet Corp. ........................................ 1,533,375
43,400 Gaylord Entertainment Co., Class A ............................ 981,925
55,000 McDonald's Corp. .............................................. 1,560,625
16,000 Omnicom Group ................................................. 834,000
32,000 Readers Digest Association, Inc. .............................. 1,480,000
15,000 Tribune Co. ................................................... 751,875
41,000 Walt Disney Co. ............................................... 1,788,625
78,000 Wendy's International, Inc. ................................... 1,092,000
--------------
TOTAL CONSUMER SERVICES .................................... 10,839,925
--------------
ENERGY 4.9%
26,000 Amoco Corp. ................................................... 1,579,500
24,000 Exxon Corp. ................................................... 1,449,000
23,000 Mobil Corp. ................................................... 1,960,750
44,000 Occidental Petroleum Corp. .................................... 863,500
</TABLE>
F-1
<PAGE> 55
INVESTMENT PORTFOLIO, continued
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Number Market
of Shares Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY-Continued
125,000 Pacific Enterprises ........................................... $ 2,671,875
35,700 Panhandle Eastern Corp. ....................................... 754,163
19,000 Sun Co., Inc. ................................................. 553,375
72,000 USX-Marathon Group ............................................ 1,296,000
--------------
TOTAL ENERGY .............................................. 11,128,163
--------------
FINANCE 10.2%
50,000 Ahmanson (H.F.) & Co. ......................................... 831,250
32,000 American General Corp. ........................................ 840,000
14,000 American International Group, Inc. ............................ 1,282,750
47,000 Bank of Boston Corp. .......................................... 1,257,250
32,000 Bankamerica Corp. ............................................. 1,312,000
15,000 Bankers Trust Corp. ........................................... 888,750
25,000 Chemical Banking Corp. ........................................ 909,375
14,000 Cigna Corp. ................................................... 887,250
22,000 Crestar Financial Corp. ....................................... 841,500
55,000 DeBartolo Realty Corp. ........................................ 776,875
23,000 Equity Residential Properties Trust ........................... 623,875
10,000 Federal National Mortgage Association ......................... 711,250
50,000 Federal Realty Investment Trust ............................... 1,050,000
30,000 First Bank System, Inc. ....................................... 997,500
8,000 General Re Corp. .............................................. 939,000
14,000 Health Care Property Investments .............................. 374,500
33,000 Liberty Property Trust ........................................ 581,625
72,000 Manufactured Home Communities, Inc. ........................... 1,224,000
15,000 MBIA, Inc. .................................................... 787,500
18,000 NationsBank Corp. ............................................. 807,750
15,000 Post Properties, Inc. ......................................... 433,125
42,000 RFS Hotel Investments, Inc. ................................... 588,000
30,000 St. Paul Companies, Inc. ...................................... 1,237,500
33,000 Transamerica Corp. ............................................ 1,563,375
10,000 Wells Fargo & Co. ............................................. 1,445,000
--------------
TOTAL FINANCE ............................................. 23,191,000
--------------
HEALTH CARE 8.9%
28,000 Abbott Laboratories, Inc. ..................................... 892,500
15,000 American Home Products Corp. .................................. 976,875
*31,000 Amgen, Inc. ................................................... 1,809,625
68,000 Baxter International, Inc. .................................... 1,751,000
35,000 Bristol Myers Squibb Co. ...................................... 2,021,250
26,700 Eli Lilly & Co. ............................................... 1,672,088
*26,000 Genentech, Inc. ............................................... 1,222,000
*24,000 Genetics Institute ............................................ 930,000
*46,000 Healthtrust, Inc.-The Hospital Co. ............................ 1,483,500
*30,000 Nellcor, Inc. ................................................. 1,016,250
12,000 Pfizer, Inc. .................................................. 928,500
18,100 Schering Plough Corp. ......................................... 1,355,238
67,000 Upjohn Co. .................................................... 2,152,375
26,000 Warner Lambert Co. ............................................ 2,011,750
--------------
TOTAL HEALTH CARE ......................................... 20,222,951
--------------
</TABLE>
F-2
<PAGE> 56
INVESTMENT PORTFOLIO, continued
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Number Market
of Shares Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 4.3%
47,000 Allied Signal, Inc. ........................................... $ 1,533,375
64,000 Browning Ferris Industries, Inc. .............................. 1,728,000
23,000 Fluor Corp. ................................................... 986,125
35,000 General Electric Co. .......................................... 1,610,000
26,000 Illinois Tool Works, Inc. ..................................... 1,053,000
15,000 United Technologies Corp. ..................................... 877,500
*22,000 Varity Corp. .................................................. 819,500
48,000 WMX Technologies, Inc. ........................................ 1,236,000
--------------
TOTAL PRODUCER MANUFACTURING .............................. 9,843,500
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.0%
18,700 Ball Corp. .................................................... 525,938
37,000 Bemis, Inc. ................................................... 818,625
45,000 Cabot Corp. ................................................... 1,175,625
12,000 Dow Chemical Co. .............................................. 768,000
25,000 DuPont (E.I.) de Nemours & Co. ................................ 1,346,875
21,000 Eastman Chemical Co. .......................................... 989,625
102,000 Ethyl Corp. ................................................... 1,045,500
12,000 International Paper Co. ....................................... 858,000
23,000 Scott Paper Co. ............................................... 1,500,750
--------------
TOTAL RAW MATERIALS/PROCESSING MATERIALS .................. 9,028,938
--------------
TECHNOLOGY 8.0%
36,000 Adobe Systems, Inc. ........................................... 1,188,000
26,000 Boeing Co. .................................................... 1,163,500
37,000 Computer Associates International, Inc. ....................... 1,683,500
*30,000 DSC Comunication Corp. ........................................ 937,500
68,000 International Business Machines Corp. ......................... 4,811,000
31,000 Loral Corp. ................................................... 1,228,375
10,000 McDonnell Douglas Corp. ....................................... 1,395,000
*17,000 Microsoft Corp. ............................................... 1,068,875
15,000 Motorola, Inc. ................................................ 845,625
33,000 Nothern Telecom, Ltd. ......................................... 1,056,000
26,000 Rockwell International Corp. .................................. 880,750
20,000 Xerox Corp. ................................................... 1,965,000
--------------
TOTAL TECHNOLOGY .......................................... 18,223,125
--------------
UTILITIES 9.9%
24,000 AT&T Corp. .................................................... 1,179,000
20,000 Bellsouth Corp. ............................................... 1,037,500
85,000 Duke Power Co. ................................................ 3,463,750
40,000 GTE Corp. ..................................................... 1,225,000
32,000 NIPSCO Industries, Inc. ....................................... 936,000
30,000 NYNEX Corp. ................................................... 1,128,750
35,000 Pacific Telesis Group ......................................... 1,015,000
135,000 Pacificorp .................................................... 2,497,500
93,000 Peco Energy Co. ............................................... 2,243,625
84,000 Rochester Telephone Corp. ..................................... 1,827,000
76,300 Southern Co. .................................................. 1,583,225
115,000 Sprint Corp. .................................................. 3,435,625
30,000 Texas Utilities Co. ........................................... 978,750
--------------
TOTAL UTILITIES ........................................... 22,550,725
--------------
TOTAL DOMESTIC COMMON STOCK (Cost $153,783,590) ........... 158,819,327
--------------
</TABLE>
F-3
<PAGE> 57
INVESTMENT PORTFOLIO, continued
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Number Market
of Shares Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK 6.2%
42,000 British Petroleum Co., PLC, ADR ............................... $ 3,333,750
20,000 Daimler Benz, AG, ADS ......................................... 950,000
23,000 Ericsson (L.M.), Class B, ADR ................................. 1,276,500
58,000 Hanson, PLC, ADR .............................................. 1,058,500
40,000 Hong Kong Telecom, Ltd., ADR .................................. 775,000
*51,000 Huaneng Power International, ADR .............................. 879,750
69,000 Philip N.V., ADR .............................................. 2,087,250
24,000 Royal Dutch Petroleum Corp., ADR .............................. 2,607,000
22,000 Telefonos de Mexico, S.A., ADR ................................ 1,166,000
--------------
TOTAL FOREIGN COMMON STOCK (Cost $12,957,563) ............. 14,133,750
--------------
CONVERTIBLE PREFERRED STOCK 4.8%
CONSUMER DURABLES 1.9%
40,000 NorAm Energy Corp., $3.00 ..................................... 1,250,000
20,000 Occidental Petroleum Corp., $7.75 ............................. 992,500
200,000 RJR Nabisco Holdings Corp., Inc., $.60125 ..................... 1,350,000
18,000 Transco Energy Co., $3.50 ..................................... 729,000
--------------
TOTAL CONSUMER DURABLES ................................... 4,321,500
--------------
FINANCE 0.9%
18,000 Citicorp, $5.375 .............................................. 2,065,500
--------------
PRODUCER MANUFACTURING 1.0%
56,300 Cooper Industries, Inc., $1.60 ................................ 1,203,413
80,000 Westinghouse Electric Co., $1.30 .............................. 1,060,000
--------------
TOTAL PRODUCER MANUFACTURING .............................. 2,263,413
--------------
RAW MATERIALS/PROCESSING MATERIALS 1.0%
5,000 Alumax, Inc., $4.00 ........................................... 560,000
12,900 Boise Cascade Corp., $1.58 .................................... 288,638
8,600 Cyprus Amax Minerals Co., $4.00 ............................... 494,500
45,000 James River Corp., $1.55 ...................................... 922,500
--------------
TOTAL RAW MATERIALS/PROCESSING MATERIALS .................. 2,265,638
--------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $11,302,852) ...... 10,916,051
--------------
<CAPTION>
Principal
Amount
--------
CONVERTIBLE CORPORATE OBLIGATIONS 9.1%
CONSUMER DISTRIBUTION 0.6%
$ 1,500,000 Price Costco., Inc., 6.75%, 3/1/01 ............................ 1,391,250
--------------
CONSUMER SERVICES 2.2%
Time Warner, Inc.
847,000 8.75%, 1/10/15 ............................................. 804,650
6,900,000 LYON, Zero Coupon, 12/17/12 ................................ 2,095,875
5,900,000 LYON, Zero Coupon, 6/22/13 ................................. 2,087,125
--------------
TOTAL CONSUMER SERVICES ................................... 4,987,650
--------------
</TABLE>
F-4
<PAGE> 58
INVESTMENT PORTFOLIO, continued
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 1.2%
$ 900,000 Amoco CDA Petroleum Co., 7.375%, 9/1/13 ....................... $ 1,071,000
1,585,000 Western Co. of North America, 7.25%, 1/15/15 .................. 1,695,950
--------------
TOTAL ENERGY .............................................. 2,766,950
--------------
PRODUCER MANUFACTURING 1.2%
1,500,000 Browning Ferris Industries, 6.75%, 7/18/05 .................... 1,335,000
4,000,000 Valhi, Inc., LYON, Zero Coupon, 10/20/07 ...................... 1,250,000
--------------
TOTAL PRODUCER MANUFACTURING .............................. 2,585,000
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.4%
1,500,000 Albany International Co., 5.25%, 3/15/02 ...................... 1,260,000
76,000 Atlantic Richfield Co., ELKS, 9.00%, 9/15/97 .................. 1,878,817
--------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES ................. 3,138,817
--------------
TECHNOLOGY 2.5%
50,000 American Express Co., ELKS, 6.25%, 10/15/96 ................... 2,148,145
3,000,000 Automatic Data Processing, Inc., LYON, Zero
Coupon, 2/20/12 ............................................. 1,207,500
*1,000,000 General Instrument Corp., 5.00%, 6/15/00 ...................... 1,345,000
20,000 Salomon, Inc., ELKS, 6.50%, 2/1/97 ............................ 1,029,980
--------------
TOTAL TECHNOLOGY .......................................... 5,730,625
--------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS
(Cost $21,593,110) ..................................... 20,600,292
--------------
SHORT-TERM INVESTMENTS 10.6%
4,000,000 Federal Home Loan Mortgage Corp., 5.62%, 1/18/95 .............. 3,969,674
9,110,000 General Electric Capital Corp., 5.70%, 12/1/94 ................ 9,108,558
#11,000,000 United States Treasury Bills, 4.91% to 5.11%,
12/22/94 to 1/5/9............................................ 10,955,360
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $24,033,592) ........... 24,033,592
--------------
TOTAL INVESTMENTS (Cost $223,670,707) 100.5% ................. 228,503,012
Other assets and liabilities, net (0.5%) ..................... (1,124,264)
--------------
NET ASSETS 100% .............................................. $ 227,378,748
==============
</TABLE>
ELKS - EQUITY-LINKED SECURITIES, TRADED IN SHARES
LYON - LIQUID YIELD OPTION NOTE
# SECURITIES WITH A MARKET VALUE OF APPROXIMATELY $9.1 MILLION WERE PLACED
AS COLLATERAL FOR FUTURES CONTRACTS (NOTE 1B).
* NON-INCOME PRODUCING SECURITY
F-5
<PAGE> 59
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $223,670,707)......................... $228,503,012
------------
Cash..................................................................... 2,875
Receivable for investments sold.......................................... 6,083,461
Interest and dividends receivable........................................ 928,684
Receivable for Fund shares sold.......................................... 310,702
Other assets............................................................. 2,310
------------
TOTAL ASSETS......................................................... 235,831,044
------------
LIABILITIES
Payable for investments purchased........................................ 7,762,573
Payable for Fund shares redeemed......................................... 306,946
Accrued expenses......................................................... 101,590
Due to Adviser........................................................... 92,696
Due to Distributor....................................................... 86,491
Due to shareholder service agent......................................... 56,000
Due to broker-variation margin........................................... 46,000
------------
TOTAL LIABILITIES.................................................... 8,452,296
------------
NET ASSETS, equivalent to $12.26 per share for Class A shares, $12.25 per
share for Class B shares and $12.26 per share for Class C shares..... $227,378,748
============
NET ASSETS WERE COMPRISED OF:
Shares of capital stock, at par; 16,756,959 Class A, 1,507,551 Class B
and 286,471 Class C shares outstanding............................... $ 185,510
Capital surplus.......................................................... 204,659,719
Undistributed net realized gain on securities............................ 16,536,382
Net unrealized appreciation (depreciation) of securities
Investments.......................................................... 4,832,305
Futures contracts.................................................... (165,347)
Undistributed net investment income...................................... 1,330,179
------------
NET ASSETS at November 30, 1994.......................................... $227,378,748
============
</TABLE>
F-6
<PAGE> 60
STATEMENT OF OPERATIONS
Year Ended November 30, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................................... $ 5,824,023
Interest.................................................................... 1,770,746
-----------
Investment income........................................................ 7,594,769
-----------
EXPENSES
Management fees............................................................. 1,075,607
Shareholder service agent's fees and expenses............................... 729,635
Service fees-Class A........................................................ 364,255
Distribution and service fees-Class B....................................... 106,450
Distribution and service fees-Class C....................................... 24,087
Reports to shareholders..................................................... 110,988
Registration and filing fees................................................ 109,958
Accounting services......................................................... 86,186
Audit fees.................................................................. 29,273
Directors' fees and expenses................................................ 15,355
Custodian fees.............................................................. 12,594
Legal fees.................................................................. 11,954
Miscellaneous............................................................... 15,160
-----------
Total expenses........................................................... 2,691,502
-----------
Net investment income.................................................... 4,903,267
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain(loss) on securities
Investments.............................................................. 16,623,357
Futures contracts........................................................ (114,500)
Written options.......................................................... 23,747
Net unrealized depreciation of securities during the year
Investments.............................................................. (19,556,746)
Futures contracts........................................................ (94,847)
-----------
Net realized and unrealized loss on securities........................... (3,118,989)
-----------
Increase in net assets resulting from operations......................... $ 1,784,278
============
</TABLE>
F-7
<PAGE> 61
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------
1994 1993
------------ -----------
<S> <C> <C>
NET ASSETS, beginning of year............................... $206,581,841 $177,797,185
------------ ------------
OPERATIONS
Net investment income...................................... 4,903,267 4,153,117
Net realized gain on securities............................ 16,532,604 26,384,165
Net unrealized depreciation of securities during the year.. (19,651,593) (4,852,142)
------------ ------------
Increase in net assets resulting from operations........... 1,784,278 25,685,140
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A.................................................. (4,309,919) (3,978,392)
Class B.................................................. (108,041) (217)
Class C.................................................. (25,543) (104)
------------ ------------
(4,443,503) (3,978,713)
------------ ------------
Net realized gains on securities
Class A.................................................. (25,694,707) (11,319,982)
Class B.................................................. (386,769) --
Class C.................................................. (125,403) --
------------ ------------
(26,206,879) (11,319,982)
------------ ------------
Total dividends and distributions........................ (30,650,382) (15,298,695)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold
Class A.................................................. 33,007,147 33,951,048
Class B.................................................. 19,553,051 1,834,091
Class C.................................................. 3,427,062 573,119
------------ ------------
55,987,260 36,358,258
------------ ------------
Proceeds from shares issued for dividends and
distributions reinvested
Class A.................................................. 26,960,817 13,773,306
Class B.................................................. 435,522 108
Class C.................................................. 81,960 104
------------ ------------
27,478,299 13,773,518
------------ ------------
Cost of shares redeemed
Class A.................................................. (31,138,841) (31,634,743)
Class B.................................................. (2,333,888) (96,634)
Class C.................................................. (329,819) (2,188)
------------ ------------
(33,802,548) (31,733,565)
------------ ------------
Increase in net assets resulting from Fund
share transactions...................................... 49,663,011 18,398,211
------------ ------------
INCREASE IN NET ASSETS...................................... 20,796,907 28,784,656
------------ ------------
NET ASSETS, end of year..................................... $227,378,748 $206,581,841
============ ============
</TABLE>
F-8
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
American Capital Growth and Income Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. INVESTMENT VALUATIONS
Securities listed or traded on a national securities exchange are
valued at the last sale price. Unlisted securities and listed
securities for which the last sale price is not available are valued
at the most recent bid price.
Short-term investments with a maturity of 60 days or less when
purchased are valued at amortized cost, which approximates market
value. Short-term investments with a maturity of more than 60 days when
purchased are valued based on market quotations until the remaining
days to maturity becomes less than 61 days. From such time, until
maturity, investments are valued at amortized cost.
B. OPTIONS AND FUTURES CONTRACTS
Transactions in options and futures contracts are utilized in
strategies to manage the market risk of the Fund's investments by
increasing or decreasing the percentage of assets effectively invested.
The purchase of a futures contract or call option (or the writing of a
put option) increases the impact of changes in the market price of
investments on net asset value. There is also a risk that the market
movement of such instruments may not be in the direction forecasted.
Options purchased are recorded as investments; options written (sold)
are accounted for as liabilities. When an option expires the premium
(original option value) is realized as a gain if the option was written
or realized as a loss if the option was purchased. When the exercise of
an option results in a cash settlement, the difference between the
premium and the settlement proceeds is realized as a gain or loss.
When an option is closed, the difference between the premium and the
cost to close the position is realized as a gain or loss.
Upon entering into futures contracts the Fund maintains, in a
segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is
held as collateral in an account in the name of the broker, the Fund's
agent in acquiring the futures position. During the period the futures
contract is open, changes in the value of the contract ("variation
margin") are recognized by marking the contract to market on a daily
basis. As unrealized gains or losses are incurred, variation margin
payments are received from or made to the broker. Upon the closing or
cash settlement of a contract, gains or losses are realized. The cost
of securities acquired through delivery under a contract is adjusted by
the unrealized gain or loss on the contract.
C. FEDERAL INCOME TAXES
No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the
Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and
taxable net realized gains to its shareholders.
D. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized
gains and losses are determined on the basis of identified cost.
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily.
E. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue Code, which
may differ from generally accepted accounting principles. Such
dividends or distributions may exceed financial statement earnings.
F-9
<PAGE> 63
F. DEBT DISCOUNT OR PREMIUM
The Fund accounts for discounts and premiums on the same basis as is
used for federal income tax reporting. Accordingly, original issue
discounts on debt securities purchased are amortized over the life of
the security. Premiums on debt securities are not amortized. Market
discounts are recognized at the time of sale as realized gains for book
purposes and ordinary income for tax purposes.
NOTE 2-MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen American Capital Asset Management, Inc. (the "Adviser") serves as
investment manager of the Fund. Management fees are paid monthly, based on
the average daily net assets of the Fund at an annual rate of .50% of the
first $150 million, .45% of the next $100 million, .40% of the next $100
million, and .35% of the amount in excess of $350 million.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are
allocated among all investment companies advised or sub-advised by the Adviser.
For the year ended November 30, 1994, these charges included $8,638 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services to the Fund. The services are provided by
the Adviser at cost.
The Fund was advised that Van Kampen American Capital Shareholder Services,
Inc., an affiliate of the Adviser, serves as the Fund's shareholder service
agent. These services are provided at cost plus a profit. For the year ended
November 30, 1994, the fees for such services aggregated $636,148.
Van Kampen American Capital Distributors, Inc. (the "Distributor"), and
Advantage Capital Corporation (the "Retail Dealer"), both affiliates of the
Adviser, received $67,504 and $48,179, respectively, as their portion of the
commissions charged on sales of Fund shares during the year.
The Fund paid brokerage commissions of $46,318 to a company which is deemed
to be an affiliate of the Adviser's parent because it owns more than 5% of
the company's outstanding voting securities.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to reimburse the Distributor for expenses and
service fees incurred. Class B shares and Class C shares pay an additional
distribution fee of up to .75% per annum of their average net assets to
reimburse the Distributor for its distribution expenses. Actual distribution
expenses incurred by the Distributor for Class B shares and Class C shares
may exceed the amounts reimbursed to the Distributor by the Fund. At November
30, 1994, the unreimbursed expenses incurred by the Distributor under the
Class B and Class C plans aggregated approximately $738,000 and $54,000,
respectively, and may be carried forward and reimbursed through either the
collection of the contingent deferred sales charges from share redemptions
or, subject to the annual renewal of the plans, future Fund reimbursements of
distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the
Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service
agent.
NOTE 3-INVESTMENT ACTIVITY
During the year, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $225,330,231 and $212,237,065,
respectively.
For federal income tax purposes, the identified cost of investments owned at
November 30, 1994 was $223,838,066. Net unrealized appreciation of investments
aggregated $4,664,946, gross unrealized appreciation of investments aggregated
$14,620,177 and gross unrealized depreciation of investments aggregated
$9,955,231. Approximately $77,000 in capital losses are deferred to the
following fiscal year.
F-10
<PAGE> 64
At November 30, 1994, the Fund held 40 long Standard & Poor's 500-Index
futures contracts expiring in December, 1994. The market value of such
contracts was $9,079,000 and the unrealized depreciation was $165,347.
During the year, the Fund wrote 230 option contracts with a premium value of
$23,747. The contracts expired unexercised.
NOTE 4-DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,060 plus a fee of $25 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the
Fund at the annual rate of $400. During the year, such fees aggregated $13,259.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payments of its obligations under the Plan by any form of
trust or escrow. At November 30, 1994, the liability for the Plan aggregated
$42,887. Each director covered by the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.
NOTE 5-CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of
purchase (the Class A shares) or at the time of redemption on a contingent
deferred basis (the Class B shares and Class C shares). All classes of shares
have the same rights, except that Class B shares and Class C shares bear the
cost of distribution fees and certain other class specific expenses. Class B
shares and Class C shares automatically convert to Class A shares six years
and ten years after purchase, respectively, subject to certain conditions.
Realized and unrealized gains or losses, investment income and expenses
(other than class specific expenses) are allocated daily to each class of
shares based upon the relative proportion of net assets of each class. The
Fund has 200 million of each class of $.01 par value capital stock
authorized. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended November 30
-----------------------------
1994 1993
---------- -----------
<S> <C> <C>
Shares sold
Class A.......................................... 2,576,390 2,490,649
Class B.......................................... 1,537,292 129,655
Class C.......................................... 265,742 40,582
---------- -----------
4,379,424 2,660,886
---------- -----------
Shares issued for dividends reinvested
Class A.......................................... 2,116,024 1,073,608
Class B.......................................... 34,072 8
Class C.......................................... 6,406 7
---------- -----------
2,156,502 1,073,623
---------- -----------
Shares redeemed
Class A.......................................... (2,440,283) (2,310,230)
Class B.......................................... (186,624) (6,852)
Class C.......................................... (26,112) (154)
---------- -----------
(2,653,019) (2,317,236)
---------- -----------
Increase in shares outstanding................... 3,882,907 1,417,273
========== ===========
</TABLE>
NOTE 6-SUBSEQUENT DIVIDENDS AND DISTRIBUTIONS
The Board of Directors of the Fund declared dividends from net investment income
and distributions from capital gains payable December 30, 1994 to shareholders
of record on December 15, 1994 as follows:
<TABLE>
<CAPTION>
Class Income Dividend Capital Gains
------- --------------- -------------
<S> <C> <C>
A $.09 $.86
B .07 .86
C .07 .86
</TABLE>
F-11
<PAGE> 65
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each
of the periods indicated.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended November 30
-------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year..... $14.08 $13.42 $11.69 $ 9.93 $11.71
-------- -------- ------- ------ --------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................... .43 .42 .46 .52 .45
Expenses............................... (.14) (.15) (.145) (.13) (.12)
-------- -------- ------- ------ --------
Net investment income.................. .29 .27 .315 .39 .33
Net realized and unrealized gains
or losses on securities............... (.1025) 1.52 1.785 1.73 (1.12)
-------- -------- ------- ------ --------
Total from investment operations....... .1875 1.79 2.10 2.12 (.79)
-------- -------- ------- ------ --------
LESS DISTRIBUTIONS
Dividends from net investment income .. (.27) (.2825) (.37) (.36) (.3125)
Distributions from net realized
gains on securities................... (1.7375) (.8475) -- -- (.6775)
-------- -------- ------- ------ --------
Total distributions ................... (2.0075) (1.13) (.37) (.36) (.99)
-------- -------- ------- ------ --------
Net asset value, end of year .......... $12.26 $14.08 $13.42 $11.69 $ 9.93
======== ======== ======= ====== ========
TOTAL RETURN(1)........................ 1.21% 14.34% 18.25% 21.59% (7.29%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions)..... $205.4 $204.3 $177.8 $157.1 $143.6
Average net assets (millions).......... $209.3 $193.4 $169.5 $157.3 $156.3
Ratios to average net assets
Expenses ............................ 1.16% 1.16% 1.15% 1.14% 1.13%
Net investment income................ 2.25% 2.15% 2.46% 3.40% 3.08%
Portfolio turnover rate................ 102% 134% 78% 89% 111%
</TABLE>
(1) TOTAL RETURN DOES NOT CONSIDER THE EFFECT OF SALES CHARGES.
F-12
<PAGE> 66
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
Class B Class C
-------------------------- --------------------------
Year August 2, Year August 2,
Ended 1993(1) to ended 1993(1) to
November 30, November 30, November 30, November 30,
1994 1993(2) 1994 1993(2)
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year..... $14.07 $13.64 $14.07 $13.64
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................... .40 .14 .40 .14
Expenses............................... (.23) (.08) (.23) (.08)
-------- -------- -------- --------
Net investment income.................. .17 .06 .17 .06
Net realized and unrealized gains
or losses on securities.............. (.1025) .4175 (.0925) .4175
-------- -------- -------- --------
Total from investment operations....... .0675 .4775 .0775 .4775
-------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income .. (.15) (.0475) (.15) (.0475)
Distributions from net realized
gains on securities.................. (1.7375) -- (1.7375) --
-------- -------- -------- --------
Total distributions.................... (1.8875) (.0475) (1.8875) (.0475)
-------- -------- -------- --------
Net asset value, end of year........... $12.25 $14.07 $12.26 $14.07
======== ======== ======== =======
TOTAL RETURN(3) ....................... .36% 3.50% .36% 3.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions)..... $18.5 $1.7 $3.5 $0.6
Average net assets (millions).......... $10.6 $0.4 $2.4 $0.2
Ratios to average net assets
Expenses............................ 2.02% 2.02%(4) 2.01% 2.00%(4)
Net investment income............... 1.51% 1.51%(4) 1.50% 1.56%(4)
Portfolio turnover rate................ 102% 134% 102% 134%
</TABLE>
(1) COMMENCEMENT OF OFFERING OF SHARES.
(2) BASED ON AVERAGE MONTH-END SHARES OUTSTANDING
(3) TOTAL RETURN FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
TOTAL RETURN DOES NOT CONSIDER THE EFFECT OF SALES CHARGES.
(4) ANNUALIZED
F-13
<PAGE> 67
Report of Independent Accountants
To the Shareholders and Board of Directors of
American Capital Growth and Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of American Capital Growth and
Income Fund, Inc. at November 30, 1994, and the results of its operations, the
changes in its net asets and the selected per share data and ratios for each of
the fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to rexpress an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant exstimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1994 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion ecpressed above.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
January 16, 1995
<PAGE> 68
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
<TABLE>
<CAPTION>
INCLUDED IN
PART B
-----------
<S> <C>
Investment Portfolio
November 30, 1994 *
Statement of Assets and Liabilities
November 30, 1994 *
Statement of Operations
Year ended November 30, 1994 *
Statement of Changes in Net Assets
Year ended November 30, 1993 *
Year ended November 30, 1994 *
Notes to Financial Statements *
Financial Highlights *
Report of Independent Accountants *
</TABLE>
---------------
The Statement of Sources of Net Assets and Schedules II and III are omitted
because the required information is included in the financial statements filed
herewith, or because the conditions requiring their filing do not exist.
(b) Exhibits
<TABLE>
<S> <C>
1.1 -- Articles of Amendment and Restatement filed May 6, 1993, incorporated
herein by reference (Exhibit 1.5 to Form N-1A of Registrant's
Registration No. 2-21657, Post-Effective Amendment No. 67, filed May
6, 1993).
2 -- Bylaws as amended March 2, 1995.
3 -- Inapplicable.
4.1 -- Specimen Stock Certificate for Maryland corporation incorporated
herein by reference (Exhibit 4.1 to Form N-1A of Registrant's
Registration No. 2-21657, Post-Effective Amendment No. 63, filed May
1, 1992).
4.2 -- Specimen Stock Certificate for Class B shares incorporated herein by
reference (Exhibit 4.2 to Form N-1A of Registrant's Registration No.
2-21657, Post-Effective Amendment No. 70, filed August 10, 1994).
4.3 -- Specimen Stock Certificate for Class C shares incorporated herein by
reference (Exhibit 4.3 to Form N-1A of Registrant's Registration No.
2-21657, Post-Effective Amendment No. 70, filed August 10, 1994).
5 -- Investment Advisory Agreement dated December 20, 1994.
6.1 -- Underwriting Agreement dated December 20, 1994.
6.2 -- Form of Selling Group Agreement incorporated herein by reference
(Exhibit 6.2 to Form N-1A of Registrant's Registration No. 2-21657,
Post-Effective Amendment No. 62, filed March 25, 1992).
6.3 -- Form of Selling Agreement for banks and bank affiliated
broker/dealers incorporated herein by reference (Exhibit 6.3 to Form
N-1A of Registrant's Registration No. 2-21657, Post-Effective
Amendment No. 62, filed March 25, 1992).
7 -- Inapplicable.
</TABLE>
C-1
<PAGE> 69
<TABLE>
<S> <C>
8.1 -- Form of Custodian Contract dated December 2, 1993 incorporated herein
by reference (Exhibit 8 to Form N-1A of American Capital Global
Managed Assets Fund, Inc., Registration No. 33-74024. Post-Effective
Amendment No. 2, filed on May 6, 1994).
8.2 -- Transfer Agency and Service Agreement dated January 1, 1995
incorporated herein by reference (Exhibit 8.2 to Form N-1A of
American Capital Tax-Exempt Trust, Registration No. 2-96030,
Post-Effective Amendment No. 15, filed on March 29, 1995).
9 -- Form of Data Access Services Agreement dated December 2, 1993
incorporated herein by reference (Exhibit 9.2 to Form N-1A of
American Capital Utilities Income Fund, Inc., Registration No.
33-68452, Post-Effective Amendment No. 1, filed on May 19, 1994).
10 -- Opinion of Counsel.
11 -- Consent of Independent Accountants.
12 -- Inapplicable.
13 -- Inapplicable.
14.1 -- Individual Retirement Account Brochure with Application incorporated
herein by reference (Exhibit 14.2 to Form N-1A of American Capital
Reserve Fund, Inc., Registration No. 2-50870, Post-Effective
Amendment No. 31, filed September 24, 1993).
14.2 -- 403(b)(7) Custodial Account incorporated herein by reference (Exhibit
14.2 to Form N-1A of American Capital Reserve Fund, Inc.,
Registration No. 2-50870, Post-Effective Amendment No. 30, filed
September 24, 1992).
14.3 -- ORP 403(b)(7) Custodial Account incorporated herein by reference
(Exhibit 14.3 to Form N-1A of American Capital Reserve Fund, Inc.,
Registration No. 2-50870, Post-Effective Amendment No. 30, filed
September 24, 1992).
14.4 -- Retirement Plans for the Small Business -- Forms Package and Plan
Documents incorporated herein by reference (Exhibit 14.4 to Form N-1A
of American Capital Government Securities, Inc., Registration No.
2-90482, filed February 24, 1994).
14.5 -- Prototype Profit Sharing/Money Purchase Plan and Trust incorporated
herein by reference (Exhibit 14.5 to Form N-1A of Registrant's
Registration No. 2-21657, Post-Effective Amendment No. 61, filed
March 26, 1991).
14.6 -- Prototype 401(k) Plan and Trust incorporated herein by reference
(Exhibit 14.6 to Form N-1A of Registrant's Registration No. 2-21657,
Post-Effective Amendment No. 61, filed March 26, 1991).
14.7 -- Salary Reduction Simplified Employee Pension Plan incorporated herein
by reference (Exhibit 14.7 to Form N-1A of American Capital World
Portfolio Series, Inc., Registration No. 33-37879, Post Effective
Amendment No. 9, filed September 24, 1993).
14.8 -- Simplified Employee Pension Plan Brochure with Application
incorporated herein by reference (Exhibit 14.8 to Form N-1A of
Registrant's Registration No. 2-21657, Post Effective Amendment No.
69, filed March 24, 1994).
15.1 -- Plan of Distribution for Class A shares dated July 30, 1993, as
amended October, 1994.
15.2 -- Plan of Distribution for Class B shares dated July 30, 1993, as
amended October 7, 1994.
15.3 -- Plan of Distribution for Class C shares dated July 30, 1993, as
amended October 7, 1994.
</TABLE>
C-2
<PAGE> 70
<TABLE>
<S> <C>
15.4 -- Form of Servicing Agreement incorporated herein by reference (Exhibit
15.2 to Form N-1A of Registrant's Registration No. 2-21657,
Post-Effective Amendment No. 62, filed March 25, 1992).
15.5 -- Form of Servicing Agreement for bank and bank affiliated
broker/dealers incorporated herein by reference (Exhibit 15.3 to Form
N-1A of Registrant's Registration No. 2-21657, Post-Effective
Amendment No. 62, filed March 25, 1992).
16 -- Computation Measure for Performance Information.
18.1 -- Powers-of-Attorney for Don G. Powell, J. Miles Branagan, Richard E.
Caruso, Roger Hilsman, David Rees, Lawrence J. Sheehan and Fernando
Sisto on behalf of American Capital Growth and Income Fund, Inc., a
Maryland corporation, incorporated herein by reference (Exhibit 17.2
to Form N-1A of Registrant's Registration No. 2-21657, Post-Effective
Amendment No. 63, filed May 1, 1993).
18.2 -- Power-of-Attorney for William S. Woodside on behalf of American
Capital Growth and Income Fund, Inc., a Maryland corporation,
incorporated herein by reference (Exhibit 17.2 to Form N-1A of
Registrant's Registration No. 2-21657, Post-Effective Amendment No.
65, filed July 13, 1992).
27 -- Financial Data Schedule.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF FEBRUARY 28, 1995
<TABLE>
<CAPTION>
(2)
NUMBER OF RECORD HOLDERS
(1) -------------------------------
TITLE OF CLASS CLASS A CLASS B CLASS C
----------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Capital stock, $0.01 par value 25,372 2,707 457
</TABLE>
ITEM 27. INDEMNIFICATION.
Item 27 is incorporated herein by reference to Form N-1A of Registrant's
Registration No. 2-21657, Post-Effective Amendment No. 67, filed on May 7, 1993.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
During the last two fiscal years, the investment adviser has not engaged in
any business of a substantial nature except as investment adviser to the
American Capital Funds Group (listed below), to the Emerging Growth Portfolio of
the Smith Barney Series Fund and to Common Sense Trust, and as adviser to
Western Reserve Life -- Emerging Growth Portfolio and Smith Barney/Travelers
Series Fund Inc. -- American Capital Enterprise Portfolio, all registered
open-end investment companies. The American Capital Funds Group and Common Sense
Trust are all located at 2800 Post Oak Blvd., Houston, Texas 77056. The Emerging
Growth Portfolio of the Smith Barney Series Fund and the American Capital
Enterprise Portfolio of the Smith Barney/Travelers Series Fund Inc. are located
at Two World Trade Center, New York, New York 10048. Western Reserve
Life -- Emerging Growth Portfolio is located at 201 Highland Avenue, Largo,
Florida 34640.
C-3
<PAGE> 71
The American Capital Funds Group of registered investment companies for
which Van Kampen American Capital Asset Management, Inc. (formerly American
Capital Asset Management, Inc.) currently serves as investment adviser are
listed below:
American Capital Bond Fund, Inc.
American Capital Comstock Fund, Inc.
American Capital Convertible Securities, 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 Exchange Fund
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Income Trust
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Small Capitalization Fund, Inc.
American Capital Tax-Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
Mosher, Inc.
During the last two fiscal years, no officer or director of the investment
adviser has engaged in any other business, profession, vocation or employment of
a substantial nature except as follows:
William N. Brown; Senior Vice President
Vice President and Director;
ACCESS Investor Services, Inc.
Advantage Capital Corporation
American Capital Shareholders Corporation
Van Kampen American Capital Advisors, Inc.
Van Kampen American Capital Exchange Corp.
Van Kampen American Capital Services, Inc.
Van Kampen American Capital Trust Company
Vice President;
Advantage Capital Credit Services, Inc.
American Capital Contractual Services, Inc.
Huey P. Falgout, Jr.; Vice President and Assistant Secretary
Vice President and Assistant Corporate Secretary;
ACCESS Investor Services, Inc.
Advantage Capital Corporation
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<PAGE> 72
Advantage Capital Credit Services, Inc.
Advantage Capital Insurance Agency, Inc.
Advantage Capital Insurance Agency of Alabama, Inc.
Advantage Capital Insurance Agency of Hawaii, Inc.
Advantage Capital Insurance Agency of Massachusetts, Inc.
Advantage Capital Insurance Agency of Ohio, Inc.
Advantage Capital Insurance Agency of Oklahoma, Inc.
Advantage Capital Insurance Agency of Texas, Inc.
American Capital Contractual Services, Inc.
American Capital Shareholders Corporation
Van Kampen American Capital Advisors, Inc.
Van Kampen American Capital Exchange Corp.
Van Kampen American Capital Services, Inc.
Van Kampen American Capital Trust Company
Nori L. Gabert; Vice President, Associate General Counsel and Secretary
Vice President, Corporate Secretary and Counsel;
American Capital Contractual Services, Inc.
Vice President and Corporate Secretary;
American Capital Shareholders Corporation
Van Kampen American Capital Advisors, Inc.
Van Kampen American Capital Exchange Corp.
Vice President and Assistant Corporate Secretary;
ACCESS Investor Services, Inc.
Advantage Capital Corporation
Advantage Capital Credit Services, Inc.
Van Kampen American Capital Services, Inc.
Van Kampen American Capital Trust Company
Wayne D. Godlin; Vice President -- Portfolio Manager
Vice President;
Van Kampen American Capital Advisors, Inc.
Ronald A. Nyberg; Senior Vice President and General Counsel
Executive Vice President, General Counsel and Corporate Secretary;
Van Kampen American Capital, Inc.
VK/AC Holding, Inc.
Executive Vice President, General Counsel and Director;
Van Kampen American Capital Distributors, Inc.
Van Kampen American Capital Investment Advisory Corp.
Van Kampen American Capital Management, Inc.
Vice President, General Counsel and Assistant Corporate Secretary;
American Capital Shareholders Corporation
Van Kampen American Capital Advisors, Inc.
Van Kampen American Capital Exchange Corp.
Vice President and Assistant Corporate Secretary;
American Capital Contractual Services, Inc.
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<PAGE> 73
Vice President;
ACCESS Investor Services, Inc.
Advantage Capital Corporation
Advantage Capital Credit Services, Inc.
Van Kampen American Capital Services, Inc.
Van Kampen American Capital Trust Company
General Counsel and Assistant Secretary;
McCarthy, Crisanti & Maffei, Inc.
McCarthy, Crisanti & Maffei Acquisition Corporation
Robert C. Peck, Jr.; Senior Vice President, Chief Investment
Officer -- Fixed-Income Department and Director
Senior Vice President, Chief Investment Officer -- Fixed-Income Department
and Director; Van Kampen American Capital Advisors, Inc.
Don G. Powell; President, Chief Executive Officer and Director
President, Chief Executive Officer and Director;
Van Kampen American Capital, Inc.
Van Kampen American Capital Advisors, Inc.
Van Kampen American Capital Exchange Corp.
Van Kampen American Capital Holding, Inc.
VK/AC Holding, Inc.
Chairman, Chief Executive Officer and Director;
Van Kampen American Capital Distributors, Inc.
Van Kampen American Capital Investment Advisory Corp.
Van Kampen American Capital Management, Inc.
Executive Vice President and Director;
ACCESS Investor Services, Inc.
Advantage Capital Corporation
Advantage Capital Credit Services, Inc.
American Capital Contractual Services, Inc.
American Capital Shareholders Corporation
Van Kampen American Capital Services, Inc.
Van Kampen American Capital Trust Company
Director;
McCarthy, Crisanti & Maffei, Inc.
McCarthy, Crisanti & Maffei Acquisition Corporation
William R. Rybak; Senior Vice President, Chief Financial Officer and Treasurer
Executive Vice President, Chief Financial Officer and Director;
Van Kampen American Capital Distributors, Inc.
Van Kampen American Capital Investment Advisory Corp.
Van Kampen American Capital Management, Inc.
Executive Vice President and Chief Financial Officer;
Van Kampen American Capital, Inc.
VK/AC Holding, Inc.
Vice President, Chief Financial Officer and Treasurer;
ACCESS Investor Services, Inc.
Van Kampen American Capital Advisors, Inc.
Van Kampen American Capital Exchange Corp.
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<PAGE> 74
Van Kampen American Capital Services, Inc.
Van Kampen American Capital Shareholders Corporation
Van Kampen American Capital Trust Company
Vice President and Chief Financial Officer;
Advantage Capital Corporation
American Capital Contractual Services, Inc.
Vice President and Treasurer;
Advantage Capital Credit Services, Inc.
Treasurer;
Advantage Capital Insurance Agency, Inc.
Advantage Capital Insurance Agency of Alabama, Inc.
Advantage Capital Insurance Agency of Hawaii, Inc.
Advantage Capital Insurance Agency of Massachusetts, Inc.
Advantage Capital Insurance Agency of Ohio, Inc.
Advantage Capital Insurance Agency of Oklahoma, Inc.
Alan T. Sachtleben; Senior Vice President, Chief Investment Officer -- Equity
Department and Director
Executive Vice President;
Van Kampen American Capital, Inc.
VK/AC Holding, Inc.
Senior Vice President, Chief Investment Officer -- Equity Department and
Director;
Van Kampen American Capital Advisors, Inc.
J. David Wise; Vice President, Associate General Counsel, Compliance Review
Officer and Assistant Secretary
Vice President, General Counsel and Corporate Secretary;
Van Kampen American Capital Trust Company
Vice President and Assistant Corporate Secretary;
Van Kampen American Capital Services, Inc.
Vice President;
ACCESS Investor Services, Inc.
Paul R. Wolkenberg; Senior Vice President
President, Chief Operating Officer and Director;
Van Kampen American Capital Services, Inc.
Executive Vice President, Chief Operating Officer and Director;
Van Kampen American Capital Trust Company
Executive Vice President and Director;
ACCESS Investor Services, Inc.
Executive Vice President;
American Capital Shareholders Corporation
Director;
Advantage Capital Corporation
Advantage Capital Credit Services, Inc.
American Capital Contractual Services, Inc.
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<PAGE> 75
Lea S. Zeitman; Assistant Secretary
Senior Vice President, Chief Administrative Officer, General Counsel and
Corporate Secretary; Advantage Capital Corporation
Vice President, General Counsel and Corporate Secretary;
Advantage Capital Credit Services, Inc.
Advantage Capital Insurance Agency, Inc.
Advantage Capital Insurance Agency of Alabama, Inc.
Advantage Capital Insurance Agency of Hawaii, Inc.
Advantage Capital Insurance Agency of Ohio, Inc.
Advantage Capital Insurance Agency of Oklahoma, Inc.
Vice President;
American Capital Contractual Services, Inc.
Van Kampen American Capital Trust Company
Assistant Corporate Secretary;
Van Kampen American Capital Advisors, Inc.
Clerk;
Advantage Capital Insurance Agency of Massachusetts, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Van Kampen American Capital Distributors, Inc. acts as principal
underwriter for the following registered investment companies:
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Tax-Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
*Van Kampen Merritt California Tax Free Income Fund
Van Kampen Merritt Equity Trust
*Van Kampen Merritt Michigan Tax Free Income Fund
*Van Kampen Merritt Missouri Tax Free Income Fund
Van Kampen Merritt Money Market Trust
*Van Kampen Merritt Ohio Tax Free Income Fund
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<PAGE> 76
Van Kampen Merritt Pennsylvania Tax Free Income Fund
Van Kampen Merritt Prime Rate Income Trust
Van Kampen Merritt Series Trust
Van Kampen Merritt Tax Free Fund
Van Kampen Merritt Tax Free Money Fund
Van Kampen Merritt Trust
Van Kampen Merritt U.S. Government Trust
Van Kampen Merritt Insured Tax Free Income Fund
Van Kampen Merritt Tax Free High Income Fund
Van Kampen Merritt California Insured Tax Free Fund
Van Kampen Merritt Municipal Income Fund
Van Kampen Merritt Limited Term Municipal Income Fund
Van Kampen Merritt Florida Insured Tax Free Income Fund
Van Kampen Merritt New Jersey Tax Free Income Fund
Van Kampen Merritt New York Tax Free Income Fund
Van Kampen Merritt High Yield Fund
Van Kampen Merritt Short-Term Global Income Fund
Van Kampen Merritt Adjustable Rate U.S. Government Fund
Van Kampen Merritt Strategic Income Fund
Van Kampen Merritt Emerging Markets Income Fund
Van Kampen Merritt Growth Fund
Van Kampen Merritt Growth and Income Fund
Van Kampen Merritt Utility Fund
Van Kampen Merritt Balanced Fund
Van Kampen Merritt Total Return Fund
Van Kampen Merritt Pennsylvania Tax Free Income Fund
Van Kampen Merritt Money Market Fund
Van Kampen Merritt Tax Free Money Fund
Van Kampen Merritt Prime Rate Income Trust
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust Series 1
Insured Municipals Income Trust Series 1 through 342
Insured Municipals Income Trust (Discount) Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) Series 1 through 96
Insured Municipals Income Trust (Intermediate Term) Series 5 through 81
Insured Municipals Income Trust (Limited Term) Series 9 through 78
Insured Municipals Income Trust (Premium Bond Series) Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) Series 1 and 2
Insured Tax Free Bond Trust Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) Series 1
Investors' Quality Tax-Exempt Trust Series 1 through 88
Investors' Quality Tax-Exempt Trust-Intermediate Series 1
Investors' Corporate Income Trust Series 1 through 12
Investors' Governmental Securities Income Trust Series 1 through 7
Van Kampen Merritt International Bond Income Trust Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust Series 1
Alabama Insured Municipals Income Trust Series 1 through 8
Arizona Investors' Quality Tax-Exempt Trust Series 1 through 16
Arizona Insured Municipals Income Trust Series 1 through 12
Arkansas Insured Municipals Income Trust Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust Series 1
California Insured Municipals Income Trust Series 1 through 136
California Insured Municipals Income Trust (Premium Bond Series) Series 1
California Insured Municipals Income Trust (1st Intermediate
Series) Series 1 through 3
</TABLE>
C-9
<PAGE> 77
<TABLE>
<S> <C>
California Investors' Quality Tax-Exempt Trust Series 1 through 20
California Insured Municipals Income Trust (Intermediate
Laddered) Series 1 through 16
Colorado Insured Municipals Income Trust Series 1 through 73
Colorado Investors' Quality Tax-Exempt Trust Series 1 through 18
Connecticut Insured Municipals Income Trust Series 1 through 26
Connecticut Investors' Quality Tax-Exempt Trust Series 1
Delaware Investor's Quality Tax-Exempt Trust Series 1 and 2
Florida Insured Municipal Income Trust -- Intermediate Series 1 and 2
Florida Insured Municipals Income Trust Series 1 through 88
Florida Investors' Quality Tax-Exempt Trust Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) Series 1 through 14
Georgia Insured Municipals Income Trust Series 1 through 73
Georgia Investors' Quality Tax-Exempt Trust Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust Series 1
Investors' Quality Municipals Trust (AMT) Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust Series 1 through 53
Louisiana Insured Municipals Income Trust Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust Series 1
Maryland Investors' Quality Tax-Exempt Trust Series 1 through 69
Massachusetts Insured Municipals Income Trust Series 1 through 30
Massachusetts Insured Municipals Income Trust
(Premium Bond Series) Series 1
Michigan Insured Municipals Income Trust Series 1 through 124
Michigan Insured Municipals Income Trust (Premium Bond Series) Series 1
Michigan Insured Municipals Income Trust (1st Intermediate
Series) Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust Series 1 through 30
Minnesota Insured Municipals Income Trust Series 1 through 54
Minnesota Investors' Quality Tax-Exempt Trust Series 1 through 21
Missouri Insured Municipals Income Trust Series 1 through 88
Missouri Insured Municipals Income Trust (Premium Bond Series) Series 1
Missouri Investors' Quality Tax-Exempt Trust Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1
Nebraska Investors' Quality Tax-Exempt Trust Series 1 through 9
New Mexico Insured Municipals Income Trust Series 1 through 16
New Jersey Insured Municipals Income Trust Series 1 through 98
New Jersey Investors' Quality Tax-Exempt Trust Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1 and 4
New York Insured Municipals Income Trust -- Intermediate Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) Series 1
New York Insured Municipals Income Trust Series 1 through 123
New York Insured Tax-Free Bond Trust Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1 through 14
New York Investors' Quality Tax-Exempt Trust Series 1
North Carolina Investors' Quality Tax-Exempt Trust Series 1 through 80
Ohio Insured Municipals Income Trust Series 1 through 94
Ohio Insured Municipals Income Trust (Premium Bond Series) Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 3 through 6
</TABLE>
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<TABLE>
<S> <C>
Ohio Investors' Quality Tax-Exempt Trust Series 1 through 16
Oklahoma Insured Municipal Income Trust Series 1 through 14
Oregon Investors' Quality Tax-Exempt Trust Series 1 through 53
Pennsylvania Insured Municipals Income Trust -- Intermediate Series 1 through 6
Pennsylvania Insured Municipals Income Trust Series 1 through 196
Pennsylvania Insured Municipals Income Trust (Premium Bond
Series) Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust Series 1 through 78
Tennessee Insured Municipals Income Trust Series 1-3 and 5-30
Texas Insured Municipals Income Trust Series 1 through 39
Texas Insured Municipals Income Trust (Intermediate Ladder) Series 1
Virginia Investors' Quality Tax-Exempt Trust Series 1 through 63
Van Kampen Merritt Utility Income Trust Series 1 through 6
Van Kampen Merritt Insured Income Trust Series 1 through 36
Van Kampen Merritt Insured Income Trust (Intermediate Term) Series 1 through 33
Van Kampen Merritt Select Equity Trust Series 1
Van Kampen Merritt Select Equity and Treasury Trust Series 1
Washington Insured Municipals Income Trust Series 1
West Virginia Insured Municipals Income Trust Series 1 through 5
</TABLE>
---------------
*Has not yet commenced investment operations.
Van Kampen American Capital Distributors, Inc. also acts as principal
underwriter or depositor for American Capital Monthly Accumulation Plans, a
registered unit investment trust.
(b) The following information is furnished with respect to each officer and
director of Van Kampen American Capital Distributors, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS PRINCIPAL UNDERWRITER WITH REGISTRANT
--------------------------- ------------------------------- ----------------------
<S> <C> <C>
Don G. Powell(1) Chairman and Chief Executive President and Director
Officer
William R. Molinari(2) President and Chief Operating --
Officer
Ronald A. Nyberg(2) Executive Vice President and --
General Counsel
William R. Rybak(2) Executive Vice President and --
Chief Financial Officer
Robert A. Broman(2) Sr. Vice President --
Gary R. DeMoss(2) Sr. Vice President --
Robert J. Froehlich(2) Sr. Vice President --
Keith K. Furlong(2) Sr. Vice President --
Robert S. West(2) Sr. Vice President --
John H. Zimmermann, III(2) Sr. Vice President --
Timothy K. Brown(2) 1st Vice President --
James S. Fosdick(2) 1st Vice President --
Edward F. Lynch(2) 1st Vice President --
Scott E. Martin(2) 1st Vice President, Deputy --
General Counsel and Secretary
Mark R. McClure(2) 1st Vice President --
Mark T. McGannon(2) 1st Vice President --
Charles G. Millington(2) 1st Vice President, Controller --
and Treasurer
Michael L. Stallard(2) 1st Vice President --
</TABLE>
C-11
<PAGE> 79
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS PRINCIPAL UNDERWRITER WITH REGISTRANT
--------------------------- ------------------------------- ----------------------
<S> <C> <C>
David M. Swanson(2) 1st Vice President --
Patricia A. Bettlach(2) Vice President --
Carol S. Biegel(2) Vice President --
Linda Mae Brown(2) Vice President --
William F. Burke, Jr.(2) Vice President --
Thomas M. Byron(2) Vice President --
Glenn M. Cackovic(2) Vice President --
Joseph N. Caggiano(2) Vice President --
Richard J. Charlino(2) Vice President --
Eleanor M. Cloud(2) Vice President --
Dominick Cogliandro(2) Vice President and Assistant --
Treasurer
David B. Dibo(2) Vice President --
Howard A. Doss(2) Vice President --
Charles Edward Fisher(2) Vice President --
William J. Fow(2) Vice President --
Erich P. Gerth(2) Vice President --
John A. Hanhauser(2) Vice President --
Eric J. Hargens(2) Vice President --
J. Christopher Jackson(2) Vice President, Associate --
General Counsel and Assistant
Secretary
Dana R. Klein(2) Vice President --
Ann Marie Klingenhagen(2) Vice President --
David R. Kowalski(2) Vice President and Director of --
Compliance
S. William Lehew III(2) Vice President --
Walter Lynn(2) Vice President --
Deborah A. Lysacek(2) Vice President --
Michele L. Manley(2) Vice President --
Kevin S. Marsh(2) Vice President --
Ruth L. McKeel(2) Vice President --
Ronald E. Pratt(2) Vice President --
Craig S. Prichard(2) Vice President --
Michael W. Rohr(2) Vice President --
James B. Ross(2) Vice President --
James J. Ryan(2) Vice President --
Heather R. Sabo(2) Vice President --
Lisa A. Schomer(2) Vice President --
Ronald J. Schuster(2) Vice President --
Diane H. Snowden(2) Vice President --
Darren D. Stabler(2) Vice President --
Christopher J. Vice President --
Staniforth(2)
William C. Strafford(2) Vice President --
James C. Taylor(2) Vice President --
John F. Tierney(2) Vice President --
Curtis L. Ulvestad(2) Vice President --
Jeffrey A. Urbina(2) Vice President --
Sandra A. Waterworth(2) Vice President and Assistant --
Secretary
Steven T. West(2) Vice President --
</TABLE>
C-12
<PAGE> 80
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS PRINCIPAL UNDERWRITER WITH REGISTRANT
--------------------------- ------------------------------- ----------------------
<S> <C> <C>
Weston B. Wetherell(2) Vice President, Associate --
General Counsel and Assistant
Secretary
James R. Yount(2) Vice President --
Richard P. Zgonina(2) Vice President --
</TABLE>
---------------
(1) 2800 Post Oak Blvd., Houston, Texas 77056
(2) One Parkview Plaza, Oakbrook Terrace, IL 60181
(c) Commissions and other compensation received by each principal
underwriter who is not an affiliated person of the Registrant or an affiliated
person of such an affiliated person, directly or indirectly, from the Registrant
during the Registrant's last fiscal year:
Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Unless otherwise stated below, the books or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are in the physical possession of:
Fund Treasurer
Mutual Fund Accounting
2800 Post Oak Blvd.
Houston, Texas 77056
<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
------ --------------------------------------------------------------
<S> <C> <C>
31a-1 (b)(1)(2)(i)(ii) Van Kampen American Capital Asset Management, Inc.
(iii), (3)(7)(8) 2800 Post Oak Blvd.
(9)(10)(12) Houston, Texas 77056
(b)(2)(iv) ACCESS Investor Services, Inc.
7501 Tiffany Springs Parkway
Kansas City, Missouri 64153
(b)(4) Van Kampen American Capital Asset Management, Inc.
</TABLE>
ITEM 31. MANAGEMENT SERVICES.
There are no management related services contracts not discussed in Part A
or Part B.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-13
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, and State of Texas, on the 28th day of
March, 1995.
AMERICAN CAPITAL GROWTH AND INCOME FUND,
INC.
By /s/ DON G. POWELL
---------------------------------------
Don G. Powell, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on March 28, 1995:
Principal Executive Officer:
<TABLE>
<S> <C>
/s/ DON G. POWELL President and Director
---------------------------------------------
(Don G. Powell)
Principal Financial Officer and Accounting
Officer:
/s/ CURTIS W. MORELL Vice President and Treasurer
---------------------------------------------
(Curtis W. Morell)
Directors:
*J. MILES BRANAGAN Director
---------------------------------------------
(J. Miles Branagan)
*RICHARD E. CARUSO Director
---------------------------------------------
(Richard E. Caruso)
*ROGER HILSMAN Director
---------------------------------------------
(Roger Hilsman)
*DAVID REES Director
---------------------------------------------
(David Rees)
*LAWRENCE J. SHEEHAN Director
---------------------------------------------
(Lawrence J. Sheehan)
*FERNANDO SISTO Director
---------------------------------------------
(Fernando Sisto)
*WILLIAM S. WOODSIDE Director
---------------------------------------------
(William S. Woodside)
</TABLE>
---------------
* Signed by the undersigned pursuant to a Power-of-Attorney previously filed
with the Commission.
/s/ NORI L. GABERT
------------------------------------------
Nori L. Gabert
Attorney-in-Fact
<PAGE> 82
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
INDEX TO EXHIBITS TO FORM N-1A
REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
---------------------------------------------------------------------------------------------
<S> <C>
2 -- Bylaws as amended March 2, 1995.
5 -- Investment Advisory Agreement dated December 20, 1994.
6.1 -- Underwriting Agreement dated dated December 20, 1994.
10 -- Opinion of Counsel
11 -- Consent of Independent Accountants
15.1 -- Plan of Distribution for Class A shares dated July 30, 1993 as amended October
7, 1994.
15.2 -- Plan of Distribution for Class B shares dated July 30, 1993 as amended October
7, 1994.
15.3 -- Plan of Distribution for Class C shares dated July 30, 1993 as amended October
7, 1994.
16 -- Computation Measure for Performance Information.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 2
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
BY-LAWS
(As amended March 3, 1995)
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meetings. The Corporation is not
required to hold an annual meeting of its stockholders in any year in which the
election of directors is not required to be acted upon under the Investment
Company Act of 1940. If the Corporation is required by the Investment Company
Act of 1940 to hold a meeting of stockholders to elect directors, such meeting
shall be held at a date and time set by the Board of Directors in accordance
with the Investment Company Act of 1940 and no later than 120 days after the
occurrence of the event requiring the meeting. Any stockholders' meeting held
in accordance with the preceding sentence shall for all purposes constitute the
annual meeting of stockholders for the fiscal year of the Corporation in which
the meeting is held. Except as the charter or statute provides otherwise, any
business may be considered at an annual meeting without the purpose of the
meeting having been specified in the notice. Failure to hold an annual meeting
does not invalidate the Corporation's existence or affect any otherwise valid
corporate acts.
SECTION 1.02. Special Meetings. At any time in the interval
between annual meetings, a special meeting of stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting. The Secretary of the Corporation shall
call a special meeting of stockholders on the written request of stockholders
entitled to cast at least ten percent of all the votes entitled to be cast at
the meeting. A request for a special meeting shall state the purpose of the
meeting and the matters proposed to be acted on at it. The Secretary shall
inform the stockholders who make the request of the reasonably estimated costs
of preparing and mailing a notice of the meeting and, on payment of these costs
to the Corporation, notify each stockholder entitled to notice of the meeting.
Unless requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at any
special meeting of stockholders held in the preceding 12 months.
SECTION 1.03. Place of Meetings. Meetings of stockholders
shall be held at such place in the United States as is set from time to time by
the Board of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less
than ten nor more than 90 days before each stockholders' meeting, the Secretary
shall give written notice of
1
<PAGE> 2
the meeting to each stockholder entitled to vote at the meeting and each other
stockholder entitled to notice of the meeting. The notice shall state the time
and place of the meeting and, if the meeting is a special meeting or notice of
the purpose is required by statute, the purpose of the meeting. Notice is given
to a stockholder when it is personally delivered to him, left at his residence
or usual place of business, or mailed to him at his address as it appears on
the records of the Corporation. Notwithstanding the foregoing provisions, each
person who is entitled to notice waives notice if he before or after the
meeting signs a waiver of the notice which is filed with the records of
stockholders' meetings, or is present at the meeting in person or by proxy.
SECTION 1.05. Quorum; Voting. Unless statute or the charter
provides otherwise, at a meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a majority of all the votes entitled to
be cast at the meeting constitutes a quorum, and a majority of all the votes
cast at a meeting at which a quorum is present is sufficient to approve any
matter which properly comes before the meeting, except that a plurality of all
the votes cast at a meeting at which a quorum is present is sufficient to elect
a director.
SECTION 1.06. Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been transacted
at the meeting as originally notified may be deferred and transacted at any
such adjourned meeting at which a quorum shall be present.
SECTION 1.07. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. A stockholder may vote the stock
the stockholder owns of record either in person or by proxy. A stockholder may
sign a writing authorizing another person to act as proxy. Signing may be
accomplished by the stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be affixed to the writing
by any reasonable means, including facsimile signature. A stockholder may
authorize another person to act as proxy by transmitting, or authorizing the
transmission of, a telegram, cablegram, datagram, or other means of electronic
transmission to the person authorized to act as proxy or to a proxy
solicitation firm, proxy support service organization, or other person
authorized by the person who will act as proxy to receive the transmission.
Unless a proxy provides otherwise, it is not valid more than 11 months after
its date. A proxy is revocable by a stockholder at any time without condition
or qualification unless the proxy states that it is irrevocable and the proxy
is coupled with an interest. A proxy may be made irrevocable for so long as it
is coupled with an interest. The interest with which a proxy may be coupled
includes an interest in the stock to be voted under the proxy or another
general interest in the Corporation or its assets or liabilities.
2
<PAGE> 3
SECTION 1.08. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class or series of shares held by each and
certified by the transfer agent for such class or series or by the Secretary,
shall be furnished by the Secretary.
SECTION 1.09. Conduct of Business and Voting. At all
meetings of stockholders, unless the voting is conducted by inspectors, the
proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies, the acceptance or
rejection of votes and procedures for the conduct of business not otherwise
specified by these By-Laws, the charter or law, shall be decided or determined
by the chairman of the meeting. If demanded by stockholders, present in person
or by proxy, entitled to cast ten percent in number of votes entitled to be
cast, or if ordered by the chairman, the vote upon any election or question
shall be taken by ballot and, upon like demand or order, the voting shall be
conducted by one or more inspectors, in which event the proxies and ballots
shall be received, and all questions touching the qualification of voters and
the validity of proxies and the acceptance or rejection of votes shall be
decided, by such inspectors. Unless so demanded or ordered, no vote need be by
ballot and voting need not be conducted by inspectors. The stockholders at any
meeting may choose an inspector or inspectors to act at such meeting, and in
default of such election the chairman of the meeting may appoint an inspector
or inspectors. No candidate for election as a director at a meeting shall
serve as an inspector thereat.
SECTION 1.10. Informal Action by Stockholders. Any action
required or permitted to be taken at a meeting of stockholders may be taken
without a meeting if there is filed with the records of stockholders' meetings
an unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and
affairs of the Corporation shall be managed under the direction of its Board of
Directors. All powers of the Corporation may be exercised by or under
authority of the Board of Directors, except as conferred on or reserved to the
stockholders by statute or by the charter or By-Laws. It shall be the duty of
the Board of Directors to ensure that the purchase, sale, retention and
disposal of portfolio securities and the other investment practices of the
Corporation are at all times consistent with the investment policies and
restrictions of the Corporation and the Investment Company Act of 1940. The
Board, however, may delegate the duty of management of the assets and the
administration of the day-to-day operations of the Corporation to one or more
entities or individuals pursuant to a written contract or contracts which have
obtained the approvals, including the approval of renewals thereof, required by
the Investment Company Act of 1940.
3
<PAGE> 4
SECTION 2.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are fewer than three stockholders, the number
of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
its charter until changed as herein provided. A majority of the entire Board
of Directors may alter the number of directors set by the charter to not exceed
25 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. At each annual
meeting, the stockholders shall elect directors to hold office until the next
annual meeting and until their successors are elected and qualify; provided,
however, that through June 30, 1996 the term of office of each director shall
end at the time such director reaches the age of 76 1/2 or 74 1/2 for persons
first elected on or after January 1, 1986 as a director of any open end
investment company managed by Van Kampen American Capital Asset Management,
Inc. and that on and after July 1, 1996 the term of office of each director
shall end at the time such director reaches the age of 76 1/2 or 72 1/2 for
persons first elected on or after January 1, 1986 as a director of any open end
investment company managed by Van Kampen American Capital Asset Management,
Inc.
SECTION 2.04. Removal of Directors. Unless statute or the
charter provides otherwise, the stockholders may remove any director, with or
without cause, by the affirmative vote of a majority of all the votes entitled
to be cast for the election of directors.
SECTION 2.05. Vacancy on Board. The stockholders may elect a
successor to fill a vacancy on the Board of Directors which results from the
removal of a director by the stockholders. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director. Unless otherwise
provided by statute or the charter, a majority of the remaining directors,
whether or not sufficient to constitute a quorum, may fill a vacancy on the
Board of Directors which results from any cause except an increase in the
number of directors and a majority of the entire Board of Directors may fill a
vacancy which results from an increase in the number of directors. A director
elected by the Board of Directors to fill a vacancy serves until the next
annual meeting of stockholders and until his successor is elected and
qualifies.
SECTION 2.06. Regular Meetings. After each meeting of
stockholders at which directors shall have been elected, the Board of Directors
shall meet as soon as practicable for the purpose of organization and the
transaction of other business. In the event that no other time and place are
specified by resolution of the Board, the President or Chairman with notice in
accordance with Section 2.08, the Board of Directors shall meet immediately
following the close of, and at the place of, such stockholders' meeting. Any
other regular meeting of the Board of Directors shall be held on such date and
at any place as may be designated from time to time by the Board of Directors.
4
<PAGE> 5
SECTION 2.07. Special Meetings. Special meetings of the
Board of Directors may be called at any time by the Chairman of the Board or
the President or by a majority of the Board of Directors by vote at a
meeting, or in writing with our without a meeting. A special meeting of the
Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors. In the absence of
designation such meeting shall be held at such place as may be designated in
the call.
SECTION 2.08. Notice of Meetings; Waiver of Notice. Except
as provided in Section 2.06, the Secretary shall give notice to each director
of each regular and special meeting of the Board of Directors. The notice
shall state the time and place of the meeting. Notice is given to a director
when it is delivered personally to him, left at his residence or usual place of
business, or sent by telegraph, facsimile transmission or telephone, at least
24 hours before the time of the meeting or, in the alternative, by mail to his
address as it shall appear on the records of the Corporation at least 72 hours
before the time of the meeting. Unless statute, the By-Laws or a resolution of
the Board of Directors provides otherwise, the notice need not state the
business to be transacted at or the purposes of any regular or special meeting
of the Board of Directors. No notice of any meeting of the Board of Directors
need be given to any director who attends, or to any director who, in a writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives such notice. Any meeting of the Board of Directors,
regular or special, may adjourn from time to time to reconvene at the same or
some other place, and no notice need be given of any such adjourned meeting
other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or the
charter or the By-Laws requires a greater proportion, the action of a majority
of the directors present at a meeting at which a quorum is present is action of
the Board of Directors. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a
quorum, the directors present by majority vote and without notice other than by
announcement may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. Unless otherwise provided by statute or regulation, any
action required or permitted to be taken at a meeting of the Board of Directors
may be taken without a meeting, if an unanimous written consent which sets
forth the action is signed by each member of the Board and filed with the
minutes of proceedings of the Board.
SECTION 2.10. Telephone Meetings. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Unless provided otherwise by statute or
regulation, participation in a meeting by these means constitutes presence in
person at the meeting.
SECTION 2.11. Compensation. By resolution of the Board of
Directors a fixed sum and expenses, if any, for attendance at each regular or
special meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the
5
<PAGE> 6
Corporation in any other capacity also may receive compensation for such other
services, pursuant to a resolution of the Board of Directors.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint
from among its members an Executive Committee and other committees composed of
two or more directors and delegate to these committees any of the powers of the
Board of Directors, except the power to declare dividends or other
distributions on stock, elect directors, issue stock other than as provided
in the next sentence, recommend to the stockholders any action which requires
stockholder approval, amend the By-Laws, or approve any merger or share
exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general formula or method
specified by the Board by resolution or by adoption of a stock option or other
plan, may fix the terms of stock subject to classification or reclassification
and the terms on which any stock may be issued, including all terms and
conditions required or permitted to be established or authorized by the Board
of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix
rules of procedure for its business. A majority of the members of a committee
shall constitute a quorum for the transaction of business and the action of a
majority of those present at a meeting at which a quorum is present shall be
action of the committee. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member. Any action required or permitted to be taken at a
meeting of a committee may be taken without a meeting, if an unanimous written
consent which sets forth the action is signed by each member of the committee
and filed with the minutes of the committee. The members of a committee may
conduct any meeting thereof by telephone in accordance with the provisions of
Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster
of sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by
the charter and these By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
composed of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section
shall be subject to implementation by resolution of the Board of Directors
passed from time to time for that purpose, and any provisions of the By-Laws
(other than this Section) and any resolutions which are
6
<PAGE> 7
contrary to the provisions of this Section or to the provisions of any such
implementing resolutions shall be suspended until it shall be determined by any
interim Executive Committee acting under this Section that it shall be to the
advantage of the Corporation to resume the conduct and management of its
affairs and business under all the other provisions of these By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation
shall have a President, a Secretary and a Treasurer. It may also have a
Chairman of the Board. The Board of Directors shall designate who shall serve
as chief executive officer, who shall have general supervision of the business
and affairs of the Corporation, and may designate a chief operating officer,
who shall have supervision of the operations of the Corporation. In the
absence of any designation the President, shall serve as chief executive
officer. The Corporation may also have one or more Vice-Presidents, assistant
officers and subordinate officers as may be established by the Board of
Directors. A person may hold more than one office in the Corporation except
that no person may serve concurrently as both President and Vice-President of
the Corporation. The other officers may be directors.
SECTION 4.02. Chairman of the Board. The Chairman of the
Board, if one be elected, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present; and, in
general, he shall perform all such duties as are from time to time assigned to
him by the Board of Directors. The Chairman of the Board shall be a director.
The Chairman of the Board, if one be elected, shall not be an officer of the
corporation unless expressly designated as an officer by the Board of
Directors; the Chairman shall be an executive officer if also expressly
designated as the chief executive officer of the Corporation.
SECTION 4.03. President. Unless otherwise provided by
resolution of the Board of Directors, the President, in the absence of the
Chairman of the Board, shall preside at all meetings of the Board of Directors
and of the stockholders at which he shall be present. Unless otherwise
specified by the Board of Directors, the President shall be the chief operating
officer of the Corporation and perform the duties customarily performed by
chief operating officers. He may sign and execute, in the name of the
Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments, except in cases in which the signing and execution thereof shall
have been expressly delegated to some other officer or agent of the
Corporation. In general, he shall perform all duties usually performed by a
president of a corporation and such other duties as are from time to time
assigned to him by the Board of Directors or the chief executive officer of the
Corporation.
SECTION 4.04. Vice-President. The Vice-President or Vice-
Presidents, at the request of the chief executive officer or the President, or
in the President's absence or during his inability to act, shall perform the
duties and exercise the functions of the President, and when so
7
<PAGE> 8
acting shall have the powers of the President. If there be more than one
Vice-President, the Board of Directors may determine which one or more of the
Vice-Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board of Directors, the
chief executive officer or the President may make such determination; otherwise
any of the Vice-Presidents may perform any of such duties or exercise any of
such functions. The Vice-President or Vice-Presidents shall have such other
powers and perform such other duties, and have such additional descriptive
designations in their titles (if any), as are from time to time assigned to
them by the Board of Directors, the chief executive officer, or the President.
SECTION 4.05. Secretary. The Secretary shall keep the
minutes of the meetings of the stockholders, of the Board of Directors and of
any committees, in books provided for that purpose; he shall see that all
notices are duly given in accordance with the provisions of the By-Laws or as
required by law; he shall be custodian of the records of the Corporation; he
may witness any document on behalf of the Corporation, the execution of which is
duly authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same; and, in general, he shall perform all duties incident to the office of a
secretary of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of
and be responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as are from
time to time assigned to him by the Board of Directors, the chief executive
officer, or the President.
SECTION 4.07. Assistant and Subordinate Officers. The assistant
and subordinate officers of the Corporation are all officers below the
office of Vice-President, Secretary or Treasurer. The assistant or subordinate
officers shall have such duties as are from time to time assigned to them by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.08. Election, Tenure and Removal of Officers. The
Board of Directors shall elect the officers of the Corporation. The Board of
Directors may from time to time authorize any committee or officer to appoint
assistant and subordinate officers. Election or appointment of an officer,
employee or agent shall not of itself create contract rights. All officers
shall be appointed to hold their offices, respectively, during the pleasure of
the Board. The Board of Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the Board) may remove an
officer at any time. The removal of an officer does not prejudice any of his
contract rights. The Board of Directors (or, as to any assistant or
subordinate officer, any committee or officer authorized by the Board) may fill
a vacancy which occurs in any office for the unexpired portion of the term.
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SECTION 4.09. Compensation. The Board of Directors shall
have power to fix the salaries and other compensation and remuneration, of
whatever kind, of all officers of the Corporation. It may authorize any
committee or officer, upon whom the power of appointing assistant and
subordinate officers may have been conferred, to fix the salaries, compensation
and remuneration of such assistant and subordinate officers.
ARTICLE V.
INDEMNIFICATION
SECTION 5.01. Indemnification of Directors and Officers. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than a proceeding by or in the right of the Corporation in which such person
shall have been adjudged to be liable to the Corporation), by reason of being or
having been a director or officer of the Corporation, or serving or having
served at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another entity in which the Corporation has a
interest as a shareholder, creditor or otherwise (a "Covered Person"), against
all liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable expenses
(including attorney's fees) actually incurred by the Covered Person in
connection with such action, suit or proceeding, except (i) liability in
connection with any proceeding in which it is determined that (A) the act or
omission of the Covered Person was material to the matter giving rise to the
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty, or (B) the Covered Person actually received an improper
personal benefit in money, property or services, or (C) in the case of any
criminal proceeding, the Covered Person had reasonable cause to believe that
the act or omission was unlawful and (ii) liability to the Corporation or its
security holders to which the Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office (any or all of
the conduct referred to in clauses (i) and (ii) being hereinafter referred to
as "Disabling Conduct").
SECTION 5.02. Procedure For Indemnification. Any indemnification
under this By-law shall (unless ordered by a court) be made by the Corporation
only as authorized for a specific proceeding by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that
the Covered Person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of the proceeding against the Covered Person for
insufficiency of evidence of any Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, by a majority of a quorum of
the directors who are neither "interested persons" of the Corporation as
defined in the 40 Act nor parties to the proceeding ("disinterested, non-party
directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination
of any proceeding by judgment, order or settlement shall not create a
presumption that the Covered Person did not meet
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the required standard of conduct; the termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment, shall create a rebuttable presumption
that the Covered Person did not meet the required standard of conduct. Any
determination pursuant to this Section 5.02 shall not prevent recovery from any
Covered Person of any amount paid to him in accordance with this By-Law as
indemnification if such Covered Person is subsequently adjudicated by a court
of competent jurisdiction to be liable by reason of Disabling Conduct.
SECTION 5.03. Advance Payment of Expenses. Reasonable
expenses (including attorney's fees) incurred by a Covered Person may be paid
or reimbursed by the Corporation in advance of the final disposition of an
action, suit or proceeding upon receipt by the Corporation of (i) a written
affirmation by the Covered Person of his good faith belief that the standard
of conduct necessary for indemnification under this By-Law has been met and
(ii) a written undertaking by or on behalf of the Covered Person to repay the
amount if it is ultimately determined that such standard of conduct has not
been met, so long as either (A) the Covered Person has provided a security
for his undertaking, (B) the Corporation is insured against losses arising
by reason of any lawful advances, or (C) a majority of a quorum of the
disinterested, non-party directors, or an independent legal counsel in a
written opinion, has determined, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason to believe
that the Covered Person ultimately will be found entitled to indemnification.
SECTION 5.04. Exclusivity, Etc. The indemnification and
advance of expenses provided by this By-Law shall not be deemed exclusive of
any other rights to which a Covered Person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of stockholders or disinterested directors, or other provision that is
consistent with law, both as to action in an official capacity and as to action
in another capacity while holding office or while employed by or acting as
agent for the Corporation, shall continue in respect of all events occurring
while the Covered Person was a director or officer after such Covered Person
has ceased to be a director or officer, and shall inure to the benefit of the
estate, heirs, executors and administrators of such Covered person.
All rights to indemnification and advance of expenses under the Charter and
hereunder shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in such capacity
at any time while this By-Law is in effect. Nothing herein shall prevent the
amendment of this By-Law, provided that no such amendment shall diminish the
rights of any Covered Person hereunder with respect to events occurring or
claims made before its adoption or as to claims made after its adoption in
respect of events occurring before its adoption. Any repeal or modification
of this By-Law shall not in any way diminish any rights to indemnification or
advance of expenses of a Covered Person or the obligations of the Corporation
arising hereunder with respect to events occurring, or claims made, while
this By-Law or any provision hereof is in force.
SECTION 5.05. Insurance. The Corporation may purchase and
maintain insurance on behalf of any Covered Person against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such; provided, however, that the Corporation
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shall not purchase insurance to indemnify any Covered Person against liability
for Disabling Conduct.
SECTION 5.06. Severability: Definitions. The invalidity or
unenforceability of any provision of this Article V shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article V means this Article V in its entirety.
ARTICLE VI.
STOCK
SECTION 6.01. Certificates for Stock. If the Board of
Directors authorizes the issue of a class or series of stock with certificates,
each holder of shares of that class or series, upon written request therefor in
accordance with such procedures as may be established by the Board from time to
time, is entitled to certificates which represent and certify the shares of
that class or series he holds in the Corporation. Each stock certificate shall
include on its face the name of the Corporation, the name of the stockholder or
other person to whom it is issued, and the class or series of stock and number
of shares it represents. It shall be in such form, not inconsistent with law
or with the charter, as shall be approved by the Board of Directors or any
officer of officers designated for such purpose by resolution of the Board of
Directors. Each stock certificate shall be signed by the Chairman of the
Board, the President, or a Vice-President, and countersigned by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile
of it or in any other form and the signatures may be either manual or
facsimile signatures. A certificate is valid and may be issued whether or
not an officer who signed it is still an officer when it is issued. The B
oard of Directors may authorize the issue of some or all of the shares of any
or all classes or series without certificates. Such authorization shall not
affect shares already represented by certificates until they are surrendered
to the Corporation. At the time of issue or transfer of shares without
certificates the Corporation shall send each stockholder a written statement
of the information required by the Maryland General Corporation Law.
SECTION 6.02. Transfers. The Board of Directors shall have
power and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of shares of stock; and may
appoint transfer agents and registrars thereof. The duties of transfer agent
and registrar may be combined.
SECTION 6.03. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date or direct that the stock transfer
books be closed for a stated period for the purpose of making any proper
determination with respect to stockholders, including which stockholders are
entitled to notice of a meeting, vote at a meeting, receive a dividend, or be
allotted other rights. The record date may not be prior to the close of
business on the day the record date is fixed nor, subject to Section 1.06,
more than 90 days before the date on which the
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action requiring the determination will be taken; the transfer books may not be
closed for a period longer than 20 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.
SECTION 6.04. Stock Ledger. The Corporation shall maintain a
stock ledger which contains the name and address of each stockholder and the
number of shares of stock of each class or series which the stockholder holds.
The stock ledger may be in written form or in any other form which can be
converted within a reasonable time into written form for visual inspection. The
original or a duplicate of the stock ledger shall be kept at the offices of a
transfer agent for the particular class or series of stock, or, if none, at the
principal office in the State of Maryland or the principal executive offices of
the Corporation.
SECTION 6.05. Certification of Beneficial Owners. The Board
of Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify, the purpose for which the
certification may be made, the form of certification and the information to
be contained in it, if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or
closing of the stock transfer books within which the certification must be
received by the Corporation, and any other provisions with respect to the
procedure which the Board considers necessary or desirable. On receipt of a
certification which complies with the procedure adopted by the Board in
accordance with this Section, the person specified in the certification is,
for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 6.06. Lost Stock Certificates. The Board of Directors of
the Corporation may determine the conditions for issuing a new stock
certificate in place of one which is alleged to have been lost, stolen or
destroyed, including the requirement that the owner furnish a bond as indemnity
against any claim that may be made against the Corporation in respect of the
lost, stolen or destroyed certificate, or the Board of Directors may delegate
such power to any officer or officers of the Corporation. In their discretion,
the Board of Directors or such officer or officers may refuse to issue such new
certificate save upon the order of some court having jurisdiction in the
premises.
ARTICLE VII.
FINANCE
SECTION 7.01. Checks, Drafts, Etc. All checks, drafts and
orders for the payment of money, notes and other evidences of indebtedness,
issued in the name of the Corporation, shall, unless otherwise provided by
resolution of the Board of Directors, be signed by the President, a
Vice-President or an Assistant Vice-President and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
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SECTION 7.02. Annual Statement of Affairs. The President or
chief accounting officer shall prepare annually a full and correct statement of
the affairs of the Corporation, to include a statement of net assets and a
financial statement of operations for the preceding fiscal year. The statement
of affairs shall be placed on file at the Corporation's principal office within
120 days after the end of the fiscal year.
SECTION 7.03. Fiscal Year. The fiscal year of the
Corporation shall be the twelve-calendar-month period ending November 30 in
each year, unless otherwise provided by the Board of Directors.
SECTION 7.04. Dividends. If declared by the Board of
Directors at any meeting thereof, the Corporation may pay dividends on its
shares in cash, property, or in shares of the capital stock of the Corporation,
unless such dividend is contrary to law or to a restriction contained in the
charter of the Corporation.
SECTION 7.05. Net Asset Value. Except in the event of
emergency conditions or as otherwise permitted by the Investment Company Act of
1940, the net asset value per share of each class or series of stock shall be
determined no less frequently than once daily, Monday through Friday, at such
time or times as the Board of Directors sets at least annually. In valuing
portfolio investments for the determination of the net asset value per share of
any class or series, securities for which market quotations are readily
available shall be valued at prices which, in the opinion of the Board of
Directors or the person designated by the Board of Directors to make the
determination, most nearly represent the current market value of such
securities, and other securities and assets shall be valued on the basis of
their fair value as determined by or pursuant to the direction of the Board of
Directors, which in the case of debt obligations, commercial paper and
repurchase agreements may, but need not, be on the basis of yields for
securities of comparable maturity, quality and type, or on the basis of
amortized cost.
SECTION 7.06. Employment of Custodian. The Corporation shall
place and maintain its securities and similar investments in the custody of one
or more custodians meeting the requirements of the Investment Company Act of
1940 or may serve as its own custodian but only in accordance with such rules
and regulations or orders as the Securities and Exchange Commission may from
time to time prescribe for the protection of investors. Securities held by a
custodian may be registered in the name of the Corporation, including the
designation of the particular class or series to which such assets belong, or
any such custodian, or the nominee of either of them. Subject to such rules,
regulations, and orders as the Commission may adopt as necessary or appropriate
for the protection of investors, the Corporation or any custodian, with the
consent of the Corporation, may deposit all or any part of the securities owned
by the Corporation in a system for the central handling of securities, pursuant
to which system all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.
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ARTICLE VIII.
SUNDRY PROVISIONS
SECTION 8.01. Books and Records. The Corporation shall keep
correct and complete books and records of its accounts and transactions and
minutes of the proceedings of its stockholders and Board of Directors and of
any executive or other committee when exercising any of the powers of the
Board of Directors. The books and records of a Corporation may be in written
form or in any other form which can be converted within a reasonable time
into written form for visual inspection. Minutes shall be recorded in
written form but may be maintained in the form of a reproduction. The
original or a certified copy of these By-Laws shall be kept at the principal
office of the Corporation.
SECTION 8.02. Corporate Seal. The Board of Directors shall
provide a suitable seal, bearing the name of the Corporation, which shall be in
the charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule or regulation relating to a corporate seal to
place the word "Seal" adjacent to the signature of the person authorized to
sign the document on behalf of the Corporation.
SECTION 8.03. Bonds. The Board of Directors may require any
officer, agent or employee of the Corporation to give a bond to the
Corporation, conditioned upon the faithful discharge of his duties, with one
or more sureties and in such amount as may be satisfactory to the Board of
Directors.
SECTION 8.04. Voting Shares in Other Corporations. Shares of
other corporations or associations, registered in the name of the Corporation,
may be voted by the President, a Vice-President, or a proxy appointed by either
of them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 8.05. Mail. Any notice or other document which is
required by these By-Laws to be mailed shall be deposited in the United States
mails, postage prepaid.
SECTION 8.06. Execution of Documents. A person who holds
more than one office in the Corporation may not act in more than one capacity
to execute, acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer.
SECTION 8.07. Amendments. Subject to the special provisions
of Section 2.02, (i) any and all provisions of these By-Laws may be altered or
repealed and new by-laws may be adopted at any annual meeting of the
stockholders, or at any special meeting called for that
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purpose, and (ii) the Board of Directors shall have the power, at any regular
or special meeting thereof, to make and adopt new by-laws, or to amend, alter
or repeal any of the By-Laws of the Corporation.
* * *
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Exhibit 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this 20th day of December, 1994, by and
between AMERICAN CAPITAL GROWTH AND INCOME FUND, INC., a Maryland corporation
(hereinafter referred to as the "FUND"), and AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").
The FUND and the ADVISER agree as follows:
(1) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Directors and in conformity with applicable laws, the FUND's Articles of
Incorporation ("Articles of Incorporation"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected
by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by
way of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
routine legal services except for services provided by outside counsel to the
FUND selected by the Directors, and the supervision of the FUND's Treasurer and
the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND director and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Directors of appropriate policies and procedures, the ADVISER may, to the
extent authorized by law, cause the FUND to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of
<PAGE> 2
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction. In the event of such authorization and to the extent
authorized by law, the ADVISER shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its directors and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the FUND which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such financial statements and other FUND documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the FUND's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the FUND selected by the Directors; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the FUND and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses reports, notices and proxy solicitation materials of
the FUND; (xi) all other expenses incidental to holding meetings of the FUND's
shareholders including proxy solicitation therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Directors; and (xv) such nonrecurring
expenses as may arise, including those associated with actions, suits or
proceedings to which the FUND is a party and the legal obligation which the
FUND may have to indemnify its officers and directors with respect thereto. To
the extent that any of the foregoing expenses are allocated between the FUND
and any other party, such allocations shall be pursuant to methods approved by
the Directors.
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(2) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, directors, officers and employees of the FUND
may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or
to any shareholder of the FUND, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
(3) Compensation Payable to ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed
at the following annual rates:
.50% on the first $150 million of the FUND's average daily net assets; .45% on
the next $100 million of the FUND's average daily net assets; .40% on the next
$100 million of the FUND's average daily net assets; and .35% of any excess
over $350 million.
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Articles of Incorporation. Such fee shall be
payable for each calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall be
reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of American Capital Management & Research, Inc., or
its successor, in connection with the purchase and sale of portfolio
investments of the FUND, less any direct expenses incurred by such person, in
connection with obtaining such commissions, fees, brokerage or similar
payments. The ADVISER shall use its best efforts to recapture all available
tender offer solicitation fees and exchange offer fees in connection with the
FUND's portfolio transactions and shall advise the Directors of any other
commissions, fees,
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brokerage or similar payments which may be possible for the ADVISER or any
other direct or indirect majority owned subsidiary of American Capital
Management & Research, Inc., or its successor, to receive in connection with
the FUND's portfolio transactions or other arrangements which may benefit the
FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed 1.5% of the first $30 million of the FUND's average daily
net assets plus 1% of any excess over $30 million, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and directors and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to American Capital Marketing, Inc., the distributor of the FUND's
shares, in connection with a distribution plan adopted by the FUND's Directors
pursuant to Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) Books and Records
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
(5) Duration of Agreement
This Agreement shall have an initial term of 2 years from the date hereof, and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved at least annually by the vote of a majority of the
FUND's Directors who are not
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parties to this Agreement or interested persons of any such parties, cast in
person at a meeting called for the purpose of voting on such approval, and by a
vote of a majority of the FUND's Directors or a majority of the FUND's
outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Directors, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
60 days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
By: Curtis W. Morell
---------------------------------------
Name: Curtis W. Morell
---------------------------------------
Its: Vice President
---------------------------------------
AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: Nori L. Gabert
---------------------------------------
Name: Nori L. Gabert
---------------------------------------
Its: Vice President
---------------------------------------
5
<PAGE> 1
Exhibit 6.1
UNDERWRITING AGREEMENT
between
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
and
AMERICAN CAPITAL MARKETING, INC.
THIS AGREEMENT made this 20th day of December, 1994 by and between AMERICAN
CAPITAL GROWTH AND INCOME FUND, INC., a Maryland corporation, hereinafter
referred to as the "Fund" and AMERICAN CAPITAL MARKETING, INC., a Texas
corporation, hereinafter referred to as the "Underwriter".
WHEREAS, the Fund proposes to issue its shares in three classes: Class A, Class
B and Class C, all as described in the Fund's current prospectus at the time of
sale;
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:
FIRST: The Fund hereby appoints the Underwriter as its exclusive agent for the
sale of shares of the Fund to the public through investment dealers in the
United States and throughout the world.
SECOND: The Fund shall not sell any of its shares except through the
Underwriter and under the terms and conditions set forth in paragraph FOURTH
below. Notwithstanding the provisions of the foregoing sentence, however,
(A) the Fund may issue its shares to any other investment company or personal
holding company, or to the shareholders thereof, in exchange for all or a
majority of the shares or assets of any such company;
(B) the Fund may issue its shares at net asset value to any shareholder of the
Fund purchasing such shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders; and
(C) the Fund may issue its shares at net asset value to its Directors.
THIRD: The Underwriter hereby accepts appointment as exclusive agent for the
sale of all classes of shares of the Fund and agrees that it will use its best
efforts to sell such shares; provided, however, that:
(A) the Underwriter may, and when requested by the Fund shall, suspend its
efforts to effectuate sales for any or all classes of shares of the Fund or
limit such sales efforts to existing
1
<PAGE> 2
shareholders of the Fund at any time when, in the opinion of the Underwriter,
after consultation with the investment adviser to the Fund, or in the opinion
of the Fund, sales efforts should be limited or suspended because of market or
other economic considerations (including a determination by the Fund's
investment adviser that it would be in the best interests of existing
shareholders of the Fund to suspend sales of shares of the Fund or limit such
sales to existing shareholders of the Fund) or abnormal circumstances of any
kind;
(B) upon the limiting or suspension of sales efforts by the Underwriter
pursuant to clause (A) above, the Fund may in its discretion suspend the sale
of shares through the Underwriter or limit such sales to existing shareholders
of the Fund; and
(C) the Fund may withdraw the offering of its shares (i) at any time with the
consent of the Underwriter, or (ii) without such consent when so required by
the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction. It is mutually understood and agreed
that the Underwriter does not undertake to sell any specific amount of shares
of the Fund. The Fund shall have the right to specify minimum amounts for
initial and subsequent orders for the purchase of shares.
FOURTH: The offering price of shares of the Fund (the "offering price") shall
be the net asset value per share plus, in the case of Class A shares, any
applicable initial sales charge. Net asset value per share shall be determined
in the manner provided in the then current prospectus of the Fund. The sales
charge for shares shall be established by the Underwriter. The Underwriter may
designate a scale of reducing sales charges on the basis of the value of shares
purchased or owned in accordance with Rule 22d-1 under the Investment Company
Act of 1940 (the "Act"). Included in the scale of reducing sales charges may be
a level at which no sales charges are added to the net asset value in computing
the public offering price. The Underwriter may also designate eliminations of
sales charges to particular classes of investors or transactions in accordance
with Rule 22d-1, provided such eliminations are approved by the Fund and
described in the prospectus. The Fund shall allow, directly to investment
dealers through whom shares of the Fund are sold, such portion of the sales
charge as may be payable to them and specified by the Underwriter up to, but
not exceeding, the amount of the total sales charge. The difference between any
portion of the sales charge so payable to investment dealers and the total
sales charges included in the offering price shall be paid to the Underwriter.
The offering price of Class B and Class C shares of the Fund shall be the net
asset value per share without an initial sales charge. However, the Fund agrees
that the Underwriter shall impose certain contingent deferred sales charges in
connection with the redemption
2
<PAGE> 3
of Class B and Class C shares of the Fund, not to exceed a specified percentage
of the original purchase price of the shares as from time to time set forth in
the prospectus of the Fund. The Underwriter may retain (or receive from the
Fund, as the case may be) all of such contingent deferred sales charges. Net
asset value per share shall be determined in the manner provided in the then
current prospectus of the Fund. The Underwriter may designate eliminations of
contingent deferred sales charges to particular classes of investors or
transactions in accordance with Rule 22d-1 provided such eliminations are
approved by the Fund and described in the prospectus. The Underwriter proposes
to pay to investment dealers through whom Class B and Class C shares of the
Fund are sold a dealer commission of a specified percentage of the purchase
price of Class B and Class C shares purchased through them and as from time to
time set forth in the prospectus of the Fund.
The Underwriter shall act as agent of the Fund in connection with the sale and
repurchase of shares of the Fund. Except with respect to such sales and
repurchases, the Underwriter shall act as principal in all matters relating to
the promotion of the sale of shares of the Fund and shall enter into all of its
own engagements, agreements and contracts as principal on its own account. The
Underwriter shall enter into selling group agreements with investment dealers
selected by the Underwriter, authorizing such investment dealers to offer and
sell shares of the Fund to the public upon the terms and conditions set forth
therein, which shall not be inconsistent with the provisions of this
Agreement. Each selling group agreement shall provide that the investment
dealer shall act as a principal, and not as an agent of the Fund.
FIFTH: The Underwriter shall bear:
(A) the expenses of printing from the final proof and distributing
registration statements and prospectuses relating to public offerings made by
the Underwriter pursuant to this Agreement and annual and semi-annual
shareowner reports used as sales literature (not, however, including
typesetting costs), as well as all printing and distribution costs of any other
sales literature used by the Underwriter or furnished by the Underwriter to
dealers in connection with such public offerings except as otherwise agreed by
the Board of Directors;
(B) expenses of advertising in connection with such public offerings except as
otherwise agreed by the Board of Directors; and
(C) all legal expenses in connection with the foregoing.
SIXTH: The Underwriter will accept orders for shares of the Fund only to the
extent of purchase orders actually received and not in excess of such orders,
and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders.
3
<PAGE> 4
SEVENTH:
(A) The Fund and the Underwriter shall each comply with all applicable
provisions of the Act, the Securities Act of 1933 (the "Securities Act") and of
all other federal and state laws, rules and regulations governing the issuance
and sale of shares of the Fund.
(B) The Fund agrees to indemnify the Underwriter against any and all claims,
demands, liabilities and expenses which the Underwriter may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.
(C) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of or
based upon any act or deed of the Underwriter or its sales representatives
which has not been authorized by the Fund in its prospectus or in this
Agreement. The Underwriter agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.
(D) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur under the Securities
Act, or common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in any prospectus of the Fund
prepared for use under Rule 482 of the Securities Act, or any omission to state
a material fact therein.
EIGHTH: Nothing herein contained shall require the Fund to take any action
contrary to any provision of its Articles of Incorporation or to any applicable
statute or regulation.
NINTH: This Agreement shall become effective on the date hereof, shall have an
initial term of two years from the date hereof, and shall continue in force and
effect from year to year thereafter, provided, that such continuance is
specifically approved at least annually (a) (i) by the Board of Directors of
the Fund, or (ii) by vote of a majority of the Fund's outstanding voting
securities (as
4
<PAGE> 5
defined in Section 2(a)(42) of the Act); and (b) by vote of a majority of the
Fund's Board of Directors who are not parties to this Agreement or interested
persons (as defined in Section 2(a)(19) of the Act) of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval.
TENTH:
(A) This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board of Directors of the Fund or by vote of a majority
of the outstanding voting securities of the Fund, or by the Underwriter, on
sixty days written notice to the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the Act).
ELEVENTH: Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed, postage paid, to the other party at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the address of both the Fund and the
Underwriter shall be 2800 Post Oak Boulevard, Houston, Texas 77056.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate on the day and year first above written.
AMERICAN CAPITAL MARKETING, INC.
By: /s/ Fred Shepherd
-----------------------------
Name: Fred Shepherd
Its: Vice President
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
By: /s/ J. David Wise
----------------------------
Name: J. David Wise
Its: Vice President and Assistant Secretary
5
<PAGE> 1
Exhibit 10
O ' M E L V E N Y & M Y E R S
4 0 0 S O U T H H O P E S T R E E T
L O S A N G E L E S , C A L I F O R N I A 9 0 0 7 1 - 2 8 9 9
TELEPHONE (213) 669-6000
FACSIMILE (213) 669-6407
March 27, 1995
WRITER'S DIRECT DIAL NUMBER OUR FILE NUMBER
(213) 669-6690 019,625-999
LA1-660074.V1
American Capital Growth and
Income Fund, Inc.
2800 Post Oak Boulevard
Houston, TX 77056
Ladies and Gentlemen:
At your request, we have examined the form of Post-Effective
Amendment No. 71 to Registration Statement No. 2-21657 to be filed by you with
the Securities and Exchange Commission on form N-1A in connection with the
registration under the Securities Act of 1933 of 2,675,361 shares of your
Capital Stock, $.01 par value (the "Shares"). We are familiar with the
proceedings taken and proposed to be taken by you in connection with the
authorization, issuance and sale of the Shares.
Based upon our examination and upon our knowledge of your
corporate activities, it is our opinion that the Shares will, when issued and
sold in the manner described in the Registration Statement at a price in excess
of par value, be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Respectfully submitted,
/s/ O'MELVENY & MYERS
0'MELVENY & MYERS
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 71, Amendment No. 25 to
the registration statement on Form N-1A (the "Registration Statement") of our
report dated January 16, 1995, relating to the financial statements and
financial highlights of American Capital Growth and Income Fund, Inc., which
appears in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Accountants" in such Prospectus
and to the reference to us under the heading "Independent Accountants" in such
Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
March 28, 1995
<PAGE> 1
Exhibit 15.1
CLASS A
DISTRIBUTION PLAN
OF
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
Section 1. American Capital Growth and Income Fund, Inc. (the "Fund") may act
as a distributor of securities of which it is the issuer, pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act"), according to the
terms of this Distribution Plan (the "Plan").
Section 2. The Fund may incur as a distributor of securities of which it is the
issuer, expenses of up to twenty-five one-hundredths of one percent (.25%) per
annum of the Fund's average daily net assets.
Section 3. Amounts set forth in Section 2 may be expended when and if
authorized in advance by the Fund's Board of Directors. Such amounts may be
used to finance any activity which is primarily intended to result in the sale
of the Fund's shares or the retention of shares by investors, including but not
limited to expenses of organizing and conducting sales seminars, printing of
prospectuses and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental
payments to dealers under a dealer incentive program to be established by
American Capital Marketing, Inc. ("Marketing") as the Fund's Distributor, in
accordance with Section 4, and the costs of administering such a program. All
amounts expended pursuant to the Plan shall be paid to Marketing. Marketing
shall be required to use such amounts exclusively to finance those activities
set forth in Sections 3 and 4 of the Plan.
Section 4. (a) Amounts expended by the Fund under the Plan shall be used
primarily for the implementation by Marketing of a dealer incentive program and
to pay the costs of administering the calculation of payment under such
program.
(b) Pursuant to this program, Marketing may enter into agreements ("Servicing
Agreements") with such broker/dealers ("Dealers") as may be selected from time
to time by Marketing for the provision of distribution assistance in connection
with the sale of shares of the Fund ("Shares") to the Dealers' clients and
customers ("Customers") and for the provision of administrative support
services to Customers who may from time to time directly or beneficially own
Shares. The distribution assistance and administrative support services to be
rendered by Dealers under the Servicing Agreements may include, but shall not
be limited to, the following: distributing sales literature; answering routine
Customer inquiries concerning the Fund; assisting Customers in changing
dividend options, account designations and addresses, and in enrolling into the
pre-authorized check plan, systematic
<PAGE> 2
withdrawal plan or any of several tax sheltered retirement plans offered in
connection with the purchase of Shares; assisting in the establishment and
maintenance of Customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and capital gains
distributions automatically in Shares and providing such other information and
services as the Fund or the Customer may reasonably request.
Section 5. This Plan shall not take effect until it has been approved by a vote
of at least a majority (as defined in the Act) of the outstanding voting
securities of the Fund.
Section 6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of the majority of both (a) the Board of
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Disinterested Directors"), cast in person at a meeting
called for the purpose of voting on this Plan or such agreements.
Section 7. Unless sooner terminated pursuant to Section 9, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 6.
Section 8. Marketing shall provide to the Fund's Board and the Board shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
Section 9. This Plan may be terminated, without payment of any penalty, at any
time by vote of a majority of the Disinterested Directors, or by vote of a
majority of the Fund's outstanding voting securities.
Section 10. Any agreement related to this Plan shall be in writing, and shall
provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Directors or by a vote of
the Fund's outstanding voting securities, on not more than sixty days written
notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
2
<PAGE> 3
Section 11. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 5 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in
Section 6 hereof.
AMERICAN CAPITAL GROWTH AND INCOME
FUND, INC.
By: /s/ Nori L. Gabert
---------------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: July 30, 1993
as amended October 7, 1994
3
<PAGE> 1
EXHIBIT 15.2
CLASS B
DISTRIBUTION PLAN
OF
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
WHEREAS, American Capital Growth and Income Fund, Inc. (the "Fund"), engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund proposes to commence an offering of Class B shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distrubiton and sale of its Class B shares, to make payments
in connection with the distrubiton of its Class B shares and to engage American
Capital Marketing, Inc. ("Marketing") to act as principal underwriter (as
defined in the Act) of its Class B shares, and desires to adopt a Class B
Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, Marketing proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class B shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class B shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by Marketing to such Service Organizations;
WHEREAS, Marketing may provide additional promotional incentives to certain or
all Service Organizations and proposes to incur substantial additional expenses
in rendering distribution services for Class B shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;
WHEREAS, the Directors of the Fund have determined that there is a reasonable
likelihood that adoption of this Class B Distribution
<PAGE> 2
Plan will benefit the Fund and its Class B shareholders;
NOW, THEREFORE, the Fund hereby adopts this Class B Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Board of Directors of the Fund,
Marketing will provide the Fund with such distribution services and facilities
as the Fund may from time to time consider necessary to enhance the sale of its
Class B shares.
2. In consideration of the Transactional Compensation and Service Fees
paid and the other distribution services for Class B shares rendered by
Marketing, the Fund shall pay Marketing out of the assets attributable to the
Class B shares an annual distribution fee ("Distribution Fee") calculated daily
and payable weekly. The Distribution Fee shall equal on an annual basis up to
1.00% of the average daily net assets of the Funds' Class B shares. Only
distribution expenditures of a type and amount authorized in advance by the
Fund's Board of Directors and properly attributable to the sale of Class B
shares will be used to justify any fee paid pursuant to this Plan.
3. This Plan shall not take effect until it has been approved by a vote of
at least a majority (as defined in the Act) of the outstanding Class B shares
of the Fund.
4. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of the majority of both (a) the Board of
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Disinterested Directors"), cast in person at a meeting
called for the purpose of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Directors then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall
continue in effect for a period of one year from the date it takes effect
(which shall be the date of the commencement of the public offering of Class B
shares, provided that the conditions of Sections 3 and 4 above have been met).
7. Marketing shall provide to the Fund's Board and the Board shall review,
at least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
2
<PAGE> 3
8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Directors, or by vote of a majority of
the outstanding voting securities of the Fund.
9. Any agreement related to this Plan shall be in writing, and shall provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Directors or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.
11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
American Capital Growth and Income Fund, Inc.
By: Nori L. Gabert
------------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: July 30, 1993
as amended October 7, 1994
3
<PAGE> 1
Exhibit 15.3
CLASS C
DISTRIBUTION PLAN
OF
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
WHEREAS, American Capital Growth and Income Fund, Inc. (the "Fund"), engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund proposes to commence an offering of Class C shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class C shares, to make payments
in connection with the distribution of its Class C shares and to engage
American Capital Marketing, Inc. ("Marketing") to act as principal
underwriter (as defined in the Act) of its Class C shares, and desires to adopt
a Class C Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, Marketing proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class C shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class C shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by Marketing to such Service Organizations;
WHEREAS, Marketing may provide additional promotional incentives to certain or
all Service Organizations and proposes to incur substantial additional expenses
in rendering distribution services for Class C shares, including but not
limited to, printing prospectuses and reports for other than existing
shareholders, preparation and distribution of advertising material and sales
literature, expenses of organizing and conducting sales seminars, and other
operating expenses;
WHEREAS, the Directors of the Fund have determined that there is a reasonable
likelihood that adoption of this Class C Distribution
<PAGE> 2
Plan will benefit the Fund and its Class C shareholders;
NOW, THEREFORE, the Fund hereby adopts this Class C Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Board of Directors of the Fund, Marketing
will provide the Fund with such distribution services and facilities as the
Fund may from time to time consider necessary to enhance the sale of its Class
C shares.
2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class C shares rendered by Marketing,
the Fund shall pay Marketing out of the assets attributable to the Class C
shares an annual distribution fee ("Distribution Fee") calculated daily and
payable weekly. The Distribution Fee shall equal on an annual basis up to 1.00%
of the average daily net assets of the Funds' Class C shares. Only distribution
expenditures of a type and amount authorized in advance by the Fund's Board of
Directors and properly attributable to the sale of the Class C shares will be
used to justify any fee paid pursuant to this Plan.
3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class C shares of
the Fund.
4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Board of
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Disinterested Directors"), cast in person at a meeting
called for the purpose of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Directors then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class C shares, provided
that the conditions of Sections 3 and 4 above have been met).
7. Marketing shall provide to the Fund's Board and the Board shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
2
<PAGE> 3
8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Directors, or by vote of a majority of
the outstanding voting securities of the Fund.
9. Any agreement related to this Plan shall be in writing, and shall provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Directors or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.
11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
American Capital Growth and Income Fund, Inc.
By: NORI L. GABERT
----------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: July 30, 1993
as amended October 7, 1994
3
<PAGE> 1
EXHIBIT 16
COMPUTATION FOR PERFORMANCE INFORMATION
CALCULATION OF TOTAL RETURN -- CLASS A SHARES
The Fund calculates its average annual total return quotations for Class A
shares for the period ended November 30, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)[n]=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated period or periods at the end of the designated
period or periods (or fractional portion thereof).
</TABLE>
These calculations incorporate the following assumptions:
1. The maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 payment.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period,
i.e., any sales load charged upon reinvestment of dividends would be
reflected.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges deducted at the end of such period or periods.
<PAGE> 2
CALCULATION OF TOTAL RETURN -- CLASS B SHARES
The Fund calculates its average annual total return quotations for Class B
shares for the period ended November 30, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)[n]=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated period or periods at the end of the designated
period or periods (or fractional portion thereof).
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with the applicable contingent
deferred sale charge imposed upon redemption.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 3
CALCULATION OF TOTAL RETURN -- CLASS C SHARES
The Fund calculates its average annual total return quotations for Class C
shares for the period ended November 30, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)[n]=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated period or periods at the end of the designated
period or periods (or fractional portion thereof).
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with a 1% contingent deferred
sales charge imposed if redeemed during the first year.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000039451
<NAME> CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 223,670,707
<INVESTMENTS-AT-VALUE> 228,503,012
<RECEIVABLES> 7,322,847
<ASSETS-OTHER> 2,310
<OTHER-ITEMS-ASSETS> 2,875
<TOTAL-ASSETS> 235,831,044
<PAYABLE-FOR-SECURITIES> 7,762,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 689,723
<TOTAL-LIABILITIES> 8,452,296
<SENIOR-EQUITY> 185,510
<PAID-IN-CAPITAL-COMMON> 204,659,719
<SHARES-COMMON-STOCK> 16,756,959
<SHARES-COMMON-PRIOR> 14,504,828
<ACCUMULATED-NII-CURRENT> 1,330,179
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,536,382
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,666,958
<NET-ASSETS> 227,378,748
<DIVIDEND-INCOME> 5,824,023
<INTEREST-INCOME> 1,770,746
<OTHER-INCOME> 0
<EXPENSES-NET> 2,691,502
<NET-INVESTMENT-INCOME> 4,903,267
<REALIZED-GAINS-CURRENT> 16,532,604
<APPREC-INCREASE-CURRENT> (19,651,593)
<NET-CHANGE-FROM-OPS> 1,784,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,309,919
<DISTRIBUTIONS-OF-GAINS> 25,694,707
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,576,390
<NUMBER-OF-SHARES-REDEEMED> 2,440,283
<SHARES-REINVESTED> 2,116,024
<NET-CHANGE-IN-ASSETS> 20,796,907
<ACCUMULATED-NII-PRIOR> 870,415
<ACCUMULATED-GAINS-PRIOR> 26,210,657
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,075,607
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,691,502
<AVERAGE-NET-ASSETS> 209,303,516
<PER-SHARE-NAV-BEGIN> 14.08
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.103)
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> (1.737)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000039451
<NAME> CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,507,551
<SHARES-COMMON-PRIOR> 122,811
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 108,041
<DISTRIBUTIONS-OF-GAINS> 386,769
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,537,292
<NUMBER-OF-SHARES-REDEEMED> 186,624
<SHARES-REINVESTED> 34,072
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 10,644,968
<PER-SHARE-NAV-BEGIN> 14.07
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.103)
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (1.737)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.25
<EXPENSE-RATIO> 2.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000039451
<NAME> CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 286,471
<SHARES-COMMON-PRIOR> 40,435
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,543
<DISTRIBUTIONS-OF-GAINS> 125,403
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 265,742
<NUMBER-OF-SHARES-REDEEMED> 26,112
<SHARES-REINVESTED> 6,406
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,408,713
<PER-SHARE-NAV-BEGIN> 14.07
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.093)
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (1.737)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
