AMERICAN CAPITAL EMERGING GROWTH FUND INC, 497, 1995-05-15

AMERICAN CAPITAL EMERGING GROWTH FUND INC
497, 1995-05-15

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<PAGE> 1

SUPPLEMENT, DATED MAY 1, 1995 TO
PROSPECTUSES OF:

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

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

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

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

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

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

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

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

SUPPLEMENT DATED FEBRUARY 6, 1995,
TO PROSPECTUSES OF:

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

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

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

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

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

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

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

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

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

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

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

999 STK-009
<PAGE> 5

SUPPLEMENT, DATED JANUARY 16, 1995 TO
PROSPECTUSES OF:

AMERICAN CAPITAL COMSTOCK FUND, INC.
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
AMERICAN CAPITAL ENTERPRISE FUND, INC.
AMERICAN CAPITAL EQUITY INCOME FUND, INC.
AMERICAN CAPITAL GLOBAL EQUITY FUND
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
AMERICAN CAPITAL HARBOR FUND, INC.
AND
AMERICAN CAPITAL PACE FUND, INC.

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

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

2. Effective January 16, 1995, the Distributor will no longer pay any
commission on accounts opened for shareholders where the amounts invested
represent the redemption proceeds from investment companies distributed by an
entity other than the Distributor.
<PAGE> 6

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

SALES CHARGE TABLE

<TABLE>
<CAPTION>
REALLOWED
TO DEALERS
AS % OF NET AS % OF (AS A % 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.

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

999 STK-007
<PAGE> 7

SUPPLEMENT, DATED DECEMBER 20, 1994 TO
PROSPECTUSES OF:

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

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

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

On December 16, 1994, in connection with the Acquisition, the shareholders
of each Fund approved a new investment advisory agreement with the Adviser
<PAGE> 8

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

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

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

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

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

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

5. The description in the Prospectus found at Purchase of Shares -- Class A
Shares regarding the purchase of Class A shares at net asset value by directors
of
<PAGE> 9

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

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

7. The Distributor may from time to time implement programs under which a
broker, dealer or financial intermediary's sales force may be eligible to win
nominal awards for certain sales efforts or under which the Distributor will
reallow to any broker, dealer or financial intermediary that sponsors sales
contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on sales generated by
the broker or dealer during such programs. Also, the Distributor in its
discretion may from time to time, pursuant to objective criteria established by
it, pay fees to, and sponsor business seminars for, qualifying brokers, dealers
or financial intermediaries for certain services or activities which are
primarily intended to result in sales of shares of the Fund. Such fees paid for
such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis.
<PAGE> 10

- ------------------------------------------------------------------------------
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
- ------------------------------------------------------------------------------

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

American Capital Emerging Growth Fund, Inc. (the "Fund") is a mutual fund
seeking capital appreciation. The Fund invests in a portfolio of securities
consisting principally of common stocks of small and medium sized companies
considered by American Capital Asset Management, Inc. (the "Adviser"), to be
emerging growth companies.

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 AND ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 11

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

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

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

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

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

<TABLE>
<S> <C>
Prospectus Summary.......... 3
Expense Synopsis............ 5
Financial Highlights........ 7
Multiple Pricing System..... 9
Investment Objective and
Policies.................. 12
Investment Practices and
Restrictions.............. 13
The Fund and Its Management. 18
Purchase of Shares.......... 19
Distribution Plans.......... 27
Shareholder Services........ 30
Redemption of Shares........ 34
Dividends, Distributions and
Taxes..................... 37
Prior Performance
Information................. 38
Additional Information...... 40
Investment Holdings......... 42
</TABLE>

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

2
<PAGE> 12

- ------------------------------------------------------------------------------
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. Capital appreciation. There is, however, no assurance
that the Fund will be successful in achieving its objective.

INVESTMENT POLICY AND RISKS. Investing at least 65% of the Fund's total assets
in common stocks of small and medium sized companies (less than $2 billion of
market capitalization or annual sales), both domestic and foreign, considered by
the Adviser to be emerging growth companies. The companies in which the Fund
invests may offer greater opportunities for growth of capital than larger, more
established companies, but investments in such companies may involve special
risks. See "Investment Objective and Policies" and "Investment Practices and
Restrictions -- Foreign Securities." The 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 ten
years are shown in the table of "Financial Highlights." See also "Prior
Performance Information."

INVESTMENT ADVISER. The Adviser has served as investment adviser to the Fund
since its inception. The Adviser serves as investment adviser to 45 investment
company portfolios. See "The Fund and Its Management."

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

MULTIPLE PRICING SYSTEM. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and Class C shares. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class of
shares that best suits their circumstances and objectives. See "Multiple Pricing
System -- Factors for Consideration." Each class of shares represents an
interest in the same portfolio of investments of the Fund. The per share
dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares. See "Multiple Pricing System." For information on
redeeming shares see "Redemption of Shares."

CLASS A SHARES. These shares are offered at net asset value per share plus a
maximum initial sales charge of 5.75% of the offering price. The Fund pays an

3
<PAGE> 13

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

4
<PAGE> 14

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

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

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C 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
year, 4% during the first year(b)
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......................... .54% .54% .54%
Rule 12b-1 fees(d)...................... .20% 1.00%(f) 1.00%(f)
Other expenses(e)....................... .44% .47% .48%
Total fund operating expenses........... 1.18% 2.01% 2.02%

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

(a) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares" -- page 21.
(b) See "Purchase of Shares -- Class B Shares" and "-- Class C Shares" -- pages
25 and 26.
(c) Not charged in certain circumstances. See "Shareholder Services --
Systematic Exchange" and "... -- Automatic Exchange" -- page 33.
(d) Up to .25% for Class A shares and 1.00% for Class B and Class C shares. See
"Distribution Plans" -- page 27.
(e) See "The Fund and Its Management" -- page 18.
(f) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
* Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a contingent deferred sales charge of 1% may be
imposed on certain redemptions made within one year of the purchase.

5
<PAGE> 15

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment
including, for Class A shares, the
maximum $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 1.18%
for Class A shares, 2.01% for
Class B shares and 2.02% for Class
C shares, (2) a 5% annual return
throughout the period and (3)
redemption at the end of the
period:
Class A......................... $69 $93 $119 $192
Class B......................... $72 $96 $126 $193**
Class C......................... $31 $63 $109 $235
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 $93 $119 $192
Class B......................... $20 $63 $108 $193**
Class C......................... $21 $63 $109 $235

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

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

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

6
<PAGE> 16

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

The following information for each of the five most recent fiscal years has
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified. This information should be read in conjunction with the
related financial statements and notes thereto included in the Statement of
Additional Information.

<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------------------------------------
1994 1993 1992(1) 1991 1990 1989 1988 1987 1986 1985
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE
Net asset
value,
beginning
of period...... $26.46 $19.03 $20.06 $14.44 $15.19 $11.46 $19.45 $16.61 $14.70 $14.98
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------
INCOME FROM
INVESTMENT
OPERATIONS
Investment
income...... .33 .15 .195 .23 .29 .43 .40 .48 .34 .25
Expenses.... (.44) (.20) (.21) (.195) (.185) (.14) (.13) (.15) (.12) (.10)
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------
Net investment
income (loss) (.11) (.05) (.015) .035 .105 .29 .27 .33 .22 .15
Net realized
and unrealized
gains or losses
on securities (.32) 8.6375 .9275 6.035 (.60) 3.77 (4.7375) 3.03 2.3575 .355
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------
Total from
investment
operations.. (.43) 8.5875 .9125 6.07 (.495) 4.06 (4.4675) 3.36 2.5775 .505
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------
LESS
DISTRIBUTIONS
Dividends
from net
investment
income...... -- -- (.0325) (.0775) (.255) (.3175) (.38) (.225) (.1525) (.41)
Distributions
from net
realized gain
on securities (1.66) (1.1575) (1.91) (.3725) -- (.0125) (3.1425) (.295) (.515) (.375)
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------
Total
distri-
butions.. (1.66) (1.1575) (1.9425) (.45) (.255) (.33) (3.5225) (.52) (.6675) (.785)
--------- ---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------
Net asset
value, end of
period....... $24.37 $26.46 $19.03 $20.06 $14.44 $15.19 $11.46 $19.45 $16.61 $14.70
========= ========== ========== ========== ========= ========== ========== ========= ========== =========
TOTAL
RETURN(3)... (1.67%) 46.73% 4.28% 43.30% (3.27%) 36.39% (23.20%) 21.23% 18.76% 3.73%

RATIOS/SUPPLEMENTAL
DATA
Net assets,
end of period
(millions)... $677.1 $517.8 $312.3 $283.6 $206.6 $209.4 $206.8 $346.6 $382.3 $414.1
Ratios to
average net
assets
Expenses..... 1.18% 1.10% 1.04% 1.14% 1.15% .97% .90% .77% .71% .68%
Net
investment
income
(loss).... (.30%) (.27%) (.08%) .21% .65% 2.03% 1.78% 1.72% 1.27% 1.01%
Portfolio
turnover
rate........ 64% 47% 61% 69% 47% 72% 122% 132% 103% 101%
</TABLE>

7
<PAGE> 17

<TABLE>
<CAPTION>
CLASS B CLASS C (1)
------------------------------------ ------------------------
APRIL 20, JULY 6,
1992(2) YEAR 1993(2)
YEAR ENDED AUGUST 31 THROUGH ENDED THROUGH
---------------------- AUGUST 31, AUGUST 31, AUGUST 31,
1994 1993(1) 1992(1) 1994 1993
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................ $26.14 $18.98 $19.66 $26.42 $25.07
--------- --------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................................... .24 .19 .08 .24 .03
Expenses.................................................. (.51) (.435) (.145) (.49) (.075)
--------- --------- ---------- ---------- ----------
Net investment income (loss).............................. (.27) (.245) (.065) (.25) (.045)
Net realized and unrealized gains or losses on securities. (.35) 8.5625 (.615) (.37) 1.395
--------- --------- ---------- ---------- ----------
Total from investment operations.......................... (.62) 8.3175 (.68) (.62) 1.35
--------- --------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment income...................... -- -- -- -- --
Distributions from net realized gain on securities........ (1.66) (1.1575) -- (1.66) --
--------- --------- ---------- ---------- ----------
Total distributions....................................... (1.66) (1.1575) -- (1.66) --
--------- --------- ---------- ---------- ----------
Net asset value, end of period.............................. $23.86 $26.14 $18.98 $24.14 $26.42
========= ========= ========== ========== ==========
TOTAL RETURN(3)............................................. (2.46%) 45.41% (3.51%) (2.46%) 5.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)........................ $252.9 $74.5 $5.2 $24.5 $1.4
Ratios to average net assets
Expenses.................................................. 2.01% 1.89% 1.86% (4) 2.02% 2.31% (4)
Net investment income (loss).............................. (1.07%) (1.07%) (.80%)(4) (1.04%) (1.37%)(4)
Portfolio turnover rate..................................... 64% 47% 61% 64% 47%
</TABLE>

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

(1) Based on average month-end shares outstanding

(2) Commencement of offering of sales

(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.

(4) Annualized

8
<PAGE> 18

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

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

9
<PAGE> 19

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

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

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

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

10
<PAGE> 20

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

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

Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. 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

11
<PAGE> 21

all cases. Particularly, if the Fund experiences a consistently negative or
widely fluctuating total return, results may differ.

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

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

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

The Fund seeks to provide capital appreciation for its shareholders; any
ordinary income received from portfolio securities is entirely incidental. This
goal may be changed by the Fund's Board of Directors without shareholder
approval, but no change is anticipated. If there is a change in the investment
objective of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs. There can, of course, be no assurance that the objective of capital
appreciation will be realized; therefore, full consideration should be given to
the risks inherent in the investment techniques that the Adviser may use to
achieve such objective.

As a fundamental investment policy, the Fund under normal conditions invests
at least 65% of its total assets in common stocks of small and medium sized
companies, both domestic and foreign, in the early stages of their life cycle
that the

12
<PAGE> 22

Adviser believes have the potential to become major enterprises. Investments in
such companies may offer greater opportunities for growth of capital than
larger, more established companies, but also may involve certain special risks.
Emerging growth companies often have limited product lines, markets, or
financial resources, and they may be dependent upon one or a few key people for
management. The securities of such companies may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. While the Fund will invest primarily in
common stocks, to a limited extent, it may invest in other securities such as
preferred stocks, convertible securities and warrants.

The Fund does not limit its investment to any single group or type of
security. The Fund may also invest in special situations involving new
management, special products and techniques, unusual developments, mergers or
liquidations. Investments in unseasoned companies and special situations often
involve much greater risks than are inherent in ordinary investments, because
securities of such companies may be more likely to experience unexpected
fluctuations in price.

The Fund's primary approach is to seek what the Adviser believes to be
unusually attractive growth investments on an individual company basis. The Fund
may invest in securities that have above average volatility of price movement.
Because prices of common stocks and other securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securities
prices by spreading its investments over many different companies in a variety
of industries. There is, however, no assurance that the Fund will be successful
in achieving its objective.

The Fund may invest up to 20% of its total assets in securities of foreign
issuers. See "Investment Practices and Restrictions -- Foreign Securities."
Additionally, the Fund may invest up to ten percent of the value of its assets
in restricted securities (i.e., securities which may not be sold without
registration under the Securities Act of 1933 (the "1933 Act")) and in other
securities not having readily available market quotations. The Fund may enter
into repurchase agreements with domestic banks and broker-dealers which involves
certain risks. The Fund does not presently expect to commit as much as five
percent of its total assets to investments in either warrants or restricted
securities. The risks involved in investing in restricted securities, warrants
and repurchase agreements are described under "Investment Policies and
Techniques" in the Statement of Additional Information.

- ------------------------------------------------------------------------------
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,

13
<PAGE> 23

(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. It is the current policy of the Fund not to
invest at the time of purchase more than 25% of its total assets in securities
subject to repurchase agreements, nor more than ten percent of its net assets in
securities subject to repurchase agreements that do not mature within seven days
and in any other illiquid securities. 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
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. See the Statement of Additional Information.

For the purpose of investing in repurchase agreements, the Adviser aggregates
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.

FOREIGN SECURITIES. The Fund may invest up to 20% of its assets in securities
of foreign issuers. 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, or diplomatic
developments which could affect investment in those countries. Finally, in the
event of a default on any such foreign debt

14
<PAGE> 24

obligations, it may be more difficult for the Fund to obtain or to enforce a
judgment against the issuers of such securities.

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 stock prices, the Fund generally seeks to obtain
maximum exposure to the stock market, 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 stock 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
stock index futures contracts, however, the Fund can "equitize" 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 stock market by increasing its cash
position. By selling stock index futures contracts instead of portfolio
securities, a similar result can be achieved to the extent that the performance
of the stock index 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.

15
<PAGE> 25

POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options, futures contracts and related options 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 or call options thereon by the Fund, an amount of cash, cash
equivalents or liquid high-grade debt securities equal to the market value of
the obligation under the futures contract's or options (less any related margin
deposits) will be maintained in a segregated account with the Custodian. The
Fund may not invest more than ten percent of its net assets in illiquid
securities and repurchase agreements which have a maturity of longer than seven
days. A more complete discussion of the potential risks involved in transactions
in options, futures contracts and related options, is contained in the Statement
of Additional Information.

PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have above average potential for capital appreciation. Common stocks
are disposed of in situations where it is believed that potential for such
appreciation has lessened or that other common stocks have a greater potential.
Therefore, 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.

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

16
<PAGE> 26

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.

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

INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which 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. Lend money or securities except by the purchase of a portion of an issue of
bonds, debentures or other obligations of types commonly distributed to
institutional investors publicly or privately (in the latter case the
investment will be subject to the stated limits on investments in
"restricted securities"), and except by the purchase of securities subject
to repurchase agreements;

2. Invest more than 25% of the value of its assets in any one industry;

3. Invest in the securities of investment companies, except that the Fund may
invest up to ten percent of its assets in the securities of registered
closed-end investment companies, provided that the Fund acquires no more
than five percent of the voting stock of any such company which has a
policy of concentrating investments in a particular industry or group of
industries or more than three percent of the voting stock of such a company
which does not have this policy;

4. Sell short provided that short sales "against the box" are not subject to
this limitation;

17
<PAGE> 27

5. As to 75% of the Fund's total assets, invest more than five percent of the
value of its total assets in the securities of any one issuer (not
including federal government securities) or acquire more than ten percent
of any class of the outstanding voting securities of any one issuer.

Thus the Fund retains the right to invest up to 25% of the value of its total
assets in one company, but intends to do so only if a particular company is
believed to afford better than average prospects for market appreciation at a
time when general business conditions and trends in the market as a whole are
considered to make greater diversification less desirable.

ADDITIONAL RESTRICTIONS. The Fund has also undertaken to one or more states to
abide by additional restrictions so long as its securities are registered for
sale in such states. These limitations may change from time to time as permitted
by such states. The most restrictive restrictions presently in effect are that
the Fund shall not:

1. Purchase securities of issuers which have a record of less than three years
continuous operation if such purchase would cause more than five percent of
the Fund's total assets to be invested in the securities of such issuers;

2. Invest more than ten percent of its net assets in illiquid securities,
including securities that are not readily marketable, restricted securities
and repurchase agreements that have a maturity of more than seven days;

3. Invest in interests in oil, gas, or other mineral exploration or
developmental programs, except through the purchase of liquid securities of
companies which engage in such businesses.

The Fund also has undertaken that its Distributor, Adviser, the officers and
the directors of such companies and of the Fund will not take short positions in
securities issued by the Fund.

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

The Fund is an open-end, diversified management investment company,
incorporated in Delaware on January 23, 1969, and reincorporated by merger into
a Maryland corporation on September 19, 1973. The name of the Fund was changed
from American Capital Venture Fund, Inc. to American Capital Emerging Growth
Fund, Inc. on July 24, 1990. A mutual fund provides, for those who have similar
investment goals, a practical and convenient way to invest in a diversified
portfolio of securities by combining their resources in an effort to achieve
such goals.

A board of eight directors has the responsibility for overseeing the affairs
of the Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056
determines the investment of the Fund's assets, provides administrative services
and manages the Fund's business and affairs. The Adviser, together with its
predecessors, has

18
<PAGE> 28

been in the investment advisory business since 1926 and has served as investment
adviser to the Fund since its inception. As of November 30, 1994, the Adviser
provides investment advice to 45 investment company portfolios with total net
assets of approximately $16.1 billion.

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

The Fund retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement dated June 15, 1993 (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 0.575% of the first $350 million of net assets;
0.525% of the next $350 million of net assets; 0.475% of the next $350 million
of net assets; and 0.425% of net assets over $1.05 billion. 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, distribution fees, service fees,
custodial fees, legal and accounting fees, the costs of reports and proxies to
shareholders, directors' fees, and all other business expenses not specifically
assumed by the Adviser. Advisory (management) fee, and total operating expense,
ratios are shown under the caption "Expense Synopsis" herein.

Gary M. Lewis is primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Lewis is Vice President of the Fund and has
been Vice President -- Portfolio Manager of the Adviser since December 1987. Mr.
Lewis has been primarily responsible for managing the Fund's investment
portfolio since April 1989.

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

GENERAL

The Fund offers three classes of shares to the general public. Class A shares
are sold with an initial sales charge; Class B shares and Class C shares are
sold without an initial sales charge and are subject to a contingent deferred
sales charge upon certain redemptions. See "Multiple Pricing System" for a
discussion of factors to

19
<PAGE> 29

consider in selecting which class of shares to purchase. Contact the American
Capital Service Department at (800) 421-5666 for further information and
appropriate forms.

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

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

Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per share is determined once daily as of the close of trading on the
New York Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time)
each day the Exchange is open. Net asset value per share for each class is
determined by dividing the value of the Fund's securities, cash and other assets
(including accrued interest) attributable to such class less all liabilities
(including accrued expenses) attributable to such class, by the total number of
shares of the class outstanding. Such computation is made by using prices as of
the close of trading on the New York Stock Exchange and (i) valuing securities
listed or traded on a national securities exchange at the last reported sale
price, or if there has been no sale that day, at the mean between the last
reported bid and asked prices, (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, and (iii)
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 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

20
<PAGE> 30

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 shares and the dividends payable on
Class B and Class C shares will be reduced by the amount of the distribution fee
and incremental expenses associated with such distribution fees. Sales personnel
of broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class A, Class B or Class C shares.

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

21
<PAGE> 31

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

In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. The Distributor may pay
dealers through whom purchases are made at net asset value as described in
clause (e) herein an amount equal to 0.40% of the amount invested. Dealers which
are reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the 1933 Act.

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

22
<PAGE> 32

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 (a) current or
retired directors of the Fund; current or retired employees of ACMR and any of
its affiliates; spouses, minor children and grandchildren of the above persons;
and parents of employees and parents of spouses of employees of ACMR and any of
its affiliates; (b) employees of an investment subadviser to any fund in the
same "group of investment companies" (as defined in Rule 11a-3 under the 1940
Act) as the Fund or an affiliate of the subadviser; employees and registered
representatives of Service Organizations with selling group agreements with the
Distributor; employees of financial institutions that have arrangements with
Service Organizations having selling group agreements with the Distributor; and
spouses and minor children of such persons; (c) any trust, pension, profit
sharing or other benefit plan for such persons and (d) trustees or other
fiduciaries purchasing shares for retirement plans of organizations with
retirement plan assets of $10 million or more. Shares are offered at net asset
value to such persons because of anticipated economies in sales efforts and
sales related expenses. Such shares are also offered at net asset value to (e)
accounts opened for shareholders by dealers where the amounts invested represent
the redemption proceeds from investment companies distributed by an entity other
than the Distributor if such redemption has occurred no more than 15 days prior
to the purchase of shares of the Fund and the shareholder paid an initial sales
charge and was not subject to a deferred sales charge on the redeemed account.
Shares are also offered at net asset value to (f) registered investment
advisers, trust companies and bank trust departments exercising discretionary
investment authority with respect to the money to be invested in the Fund,
provided that the aggregate amount invested in the Fund alone, or in any
combination of shares of the Fund and shares of certain other participating
American Capital mutual funds as described in the Prospectus under "Purchase of
Shares -- Class A Shares -- Volume Discounts," during the 13-month period
commencing with the first investment pursuant hereto at net asset value, equals
at least $1 million. Purchase orders made pursuant to clause (f) may be placed
either through authorized dealers as described above or directly with ACCESS by
the investment adviser, trust company or bank trust department, provided that
ACCESS receives federal funds for the purchase by the close of business on the
next business day following acceptance of the order. An authorized dealer or
financial institution may charge a transaction fee for placing an order to
purchase shares pursuant to this provision or for placing a redemption order
with respect to such shares. Service Organizations will be paid a service fee as
described

23
<PAGE> 33

herein under "Distribution Plans" on purchases made on behalf of registered
investment advisers, trust companies and bank trust departments described in
clause (f) above, retirement plans described in clause (d) above and for
registered representatives' accounts.

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

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

VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund
alone, or in any combination of shares of the Fund and shares of certain other
participating American Capital mutual funds (the "Participating Funds"),
although other Participating Funds may have different sales charges. The
Participating Funds are American Capital Comstock Fund, Inc., American Capital
Corporate Bond Fund, Inc. ("Corporate Bond"), American Capital Emerging Growth
Fund, Inc., American Capital Enterprise Fund, Inc., American Capital Equity
Income Fund, Inc., American Capital Federal Mortgage Trust ("Federal Mortgage"),
American Capital Global Managed Assets Fund, Inc. ("Global Managed"), American
Capital Government Securities, Inc., American Capital Government Target Series
("Government Target"), American Capital Growth and Income Fund, Inc., American
Capital Harbor Fund, Inc., American Capital High Yield Investments, Inc. ("High
Yield"), American Capital Municipal Bond Fund, Inc. ("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 shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
Shares previously purchased are only taken into account, however, if the
Distributor

24
<PAGE> 34

is notified by the investor or the investor's dealer at the time an order is
placed for a purchase which would qualify for a reduced sales charge on the
basis of previous purchases and if sufficient information is furnished to permit
confirmation of such purchases.

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

25
<PAGE> 35

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO 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 4% (the applicable rate in the second year after purchase).

A commission or transaction fee of 4% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.

CLASS C SHARES

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

26
<PAGE> 36

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, and (iii) pursuant to the Fund's systematic withdrawal
plan but limited to 12% annually of the initial value of the account. The
contingent deferred sales charge is also waived on redemptions of Class C shares
as it relates to the reinvestment of redemption proceeds in shares of the same
class of the Fund within 120 days after redemption. See the Statement of
Additional Information for further discussion of waiver provisions.

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

27
<PAGE> 37

fund may impose on a class of shares. The NASD Rules also limit the aggregate
amount which the Fund may pay for such distribution charges. 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 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 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 services and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to 4% of
the purchase price of Class B shares purchased by the clients of broker-dealers
and other Service Organizations, and (ii) other distribution expenses as
described in the Statement of Additional Information. Under the Class C Plan,
the Distributor receives additional payments from the Fund in the form of a
distribution fee at the annual rate of up to 0.75% of the net assets of the
Class C shares as reimbursements for (i) upfront commissions and transaction
fees of up to 0.75% of the purchase price of Class C shares purchased by the
clients of broker-dealers and other Service Organizations and ongoing
commissions and transaction fees of up to 0.65% of the average daily net assets
of the Fund's Class C shares, and (ii) other distribution expenses as described
in the Statement of Additional Information.

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

28
<PAGE> 38

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 expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward without
interest charges unless permitted under SEC regulations, and may be reimbursed
by the Fund or its shareholders from payments received through contingent
deferred sales charges in future years and from payments under the Class B Plan
and Class C Plan so long as such Plans are in effect. For example, if in a
fiscal year the Distributor incurred distribution expenses under the Class B
Plan of $1 million, of which $500,000 was recovered in the form of contingent
deferred sales charges paid by investors and $400,000 was reimbursed in the form
of payments made by the Fund to the Distributor under the Class B Plan, the
balance of $100,000, would be subject to recovery in future fiscal years from
such sources. For the plan year ended June 30, 1994, the unreimbursed expenses
incurred by the Distributor under the Class B Plan and carried forward were
approximately $9.7 million or 1.62% 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 from July 6, 1993 (inception of Class C
shares) through June 30, 1994, and carried forward were approximately $334,000
or .16% 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.

29
<PAGE> 39

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

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

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Stock certificates are not issued except upon
shareholder request. Most shareholders elect not to receive certificates in
order to facilitate redemptions and transfers. A shareholder may incur an
expense to replace a lost certificate. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder who has an account in any of the
Participating Funds listed under "Purchase of Shares -- Class A Shares -- Volume
Discounts," or Reserve, may receive statements quarterly from ACCESS showing any
reinvestments of dividends and capital gains distributions and any other
activity in the account since the preceding statement. Such shareholder 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 per share (without sales
charge) on the record date. Unless the shareholder instructs otherwise, the
reinvestment plan is automatic. The investor may, on the initial application or
prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest 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. American
Capital

30
<PAGE> 40

Trust Company serves as Custodian under the IRA, 403(b)(7) and Keogh plans.
Details regarding fees, as well as full plan administration for profit sharing,
pension and 401(k) plans, are available from the Distributor.

FUND TO FUND DIVIDENDS. A shareholder may, upon written request or by
completing the appropriate section of the application form in this Prospectus,
elect to have all dividends and other distributions paid on a Class A, Class B
or Class C account in the Fund invested into a pre-existing Class A, Class B or
Class C account in any of the Participating Funds listed under "Purchase of
Shares -- Class A Shares -- Volume Discounts," or Reserve.

Both accounts must be of the same class and of the same type, either non-
retirement or retirement. Any two non-retirement accounts can be used. If the
accounts are retirement accounts, they must both be for the same class and of
the same type of retirement plan (e.g., IRA, 403(b)(7), 401(k), Keogh) and for
the benefit of the same individual. If a qualified, pre-existing account does
not exist, the shareholder must establish a new account subject to minimum
investment and other requirements of the fund into which distributions would be
invested. Distributions are invested into the selected fund at its net asset
value as of the payable date of the distribution only if shares of such selected
fund have been registered in the investor's state.

EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund (listed
under "Purchase of Shares -- Class A Shares -- Volume Discounts"), other than
Government Target, may be exchanged for shares of the same class of shares 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 any Participating Fund upon payment of the
excess, if any, of the sales charge rate applicable to the shares being acquired
over the sales charge rate previously paid. Shares of any Participating Fund or
Reserve may be exchanged for shares of any other Participating Fund if shares of
that Participating Fund are available for sale; however, during periods of
suspension of sales, shares of a Participating Fund may be available for sale
only to existing shareholders of the Participating Fund. Additional funds may be
added from time to time as a Participating Fund.

31
<PAGE> 41

shares. Such shares remain subject to the contingent deferred sales charge
imposed by the Fund initially purchased by the shareholder upon their redemption
from the American Capital complex of funds. 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 described herein.

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

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

32
<PAGE> 42

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 both
"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 information regarding such fund prior
to investing.

SYSTEMATIC EXCHANGE. A shareholder may invest regularly into any Participating
Fund by systematically exchanging from the Fund into such other fund account
($25 minimum for existing account, $100 minimum for establishing new account).
Both accounts must be of the same type and class. The exchange fee as described
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 Class B shares
for a retirement plan established on a form made available by the Fund. See
"Shareholder Services -- Retirement Plans."

33
<PAGE> 43

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

Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon
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 investment
dealer. Orders received from dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by a dealer provided such order
is transmitted to the Distributor prior to the Distributor's close of business
on such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.

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

The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 60 days, signature(s) must be
guaranteed by one of the

34
<PAGE> 44

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 American Capital Trust Company
serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution forms
must be obtained from and be forwarded to American Capital Trust Company, P. O.
Box 944, Houston, Texas 77001-0944. Contact the custodian for information.

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

TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures
previously set forth, the Fund permits shareholders and the dealer
representative of record to redeem shares by telephone and to have redemption
proceeds sent to the address of record for the account or to the bank account of
record as described below. To establish such privilege a shareholder must
complete the appropriate section of the application form in this Prospectus or
call the Fund at (800) 421-5666 to request that a copy of the Telephone
Redemption Authorization form be sent to them for completion. To redeem shares
contact the telephone transaction line at (800) 421-5684. American Capital and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape

35
<PAGE> 45

recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither American Capital nor the Fund will be liable for following telephone
instructions which it reasonably believes to be genuine. American Capital and
the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason; in such
case, a shareholder would have to use the Fund's regular redemption procedure
previously described. Requests received by ACCESS prior to 4:00 p.m., New York
time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are 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 American
Capital Trust Company for repayment of principal (and interest) on their
borrowings on such plans.

36
<PAGE> 46

- ------------------------------------------------------------------------------
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 at least annually 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 dividends on Class A shares as a result of the distribution fees and
higher incremental transfer agency fees applicable to such classes of shares.

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

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

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

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

37
<PAGE> 47

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

Gains or losses on the Fund's transactions in listed options (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 positions held by
the Fund at the end of its fiscal year generally are required to be marked to
market, with the result that unrealized gains and losses are treated as
realized. Gains and losses realized by the Fund from writing over-the-counter
options 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

38
<PAGE> 48

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 ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, 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 provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.

39
<PAGE> 49

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

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

ORGANIZATION OF THE FUND. The Fund was incorporated in Delaware on January 23,
1969, and reincorporated by merger into a Maryland corporation on September 19,
1973. The Fund may offer three classes of shares: Class A, Class B and Class C
shares. Each class of shares represents interests in the assets of the Fund and
has identical voting, dividend, liquidation and other rights on the same terms
and conditions except that the distribution fees and/or service fees related to
each class of shares are borne solely by that class, and each class of shares
has exclusive voting rights with respect to provisions of the Fund's Class A
Plan, Class B Plan and Class C Plan which pertain to that class. An order has
been received from the SEC permitting the issuance and sale of multiple classes
of shares representing interests in the Fund's existing portfolio. Shares issued
are fully paid, non-assessable and have no preemptive or conversion rights.

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

VOTING RIGHTS. The Bylaws of the Fund provide that shareholder meetings are
required to be held to elect directors only when required by the 1940 Act. Such
event is likely to occur infrequently. In addition, a special meeting of the
shareholders will be called, if requested by the holders of ten percent of the
Fund's outstanding shares, for the purposes, and to act upon the matters,
specified in the request (which may include election or removal of directors).
When matters are submitted for a shareholder vote, each shareholder is entitled
to one vote for each share owned. The shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors if they choose to do so,
and in such an event the holders of the remaining less than 50% of the shares
voting for the election of directors will not be able to elect any person to the
Board of Directors.

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

SHAREHOLDER SERVICE AGENT. ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256, serves as transfer agent, shareholder service agent and dividend

40
<PAGE> 50

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.

41
<PAGE> 51

- ------------------------------------------------------------------------------
INVESTMENT HOLDINGS
- ------------------------------------------------------------------------------
August 31, 1994
COMMON STOCKS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -------------------------------------------------------------
<S> <C>
CONSUMER DISTRIBUTION
*200,000 Ann Taylor Stores, Inc.
*150,000 BMC West Corp.
*100,000 Burlington Coat Factory Corp.
*50,000 Carson, Pirie, Scott & Co.
375,000 Dollar General Corp.
*200,000 Gymboree Corp.
350,000 Lowe's Companies, Inc.
125,000 Nordstrom, Inc.
75,000 Premark International, Inc.
*100,000 Safeway, Inc.
80,400 Talbots, Inc.
50,000 Tiffany & Co.
*250,000 Viking Office Products
*250,000 Williams-Sonoma, Inc.
CONSUMER DURABLES
35,000 Borg Warner Automotive, Inc.
100,000 Bush Industries, Inc.
350,000 Callaway Golf Co.
*15,000 Cobra Golf, Inc.
75,000 Echlin, Inc.
100,000 Harman International
Industries, Inc.
100,000 Leggett & Platt, Inc.
187,500 Lennar Corp.
100,000 Oakwood Homes Corp.
*75,000 Schuler Homes, Inc.
90,000 Sunbeam-Oster Company, Inc.
125,000 Superior Industries
International, Inc.
CONSUMER NON-DURABLES
100,000 Coors Adolph Co.
*75,000 Fieldcrest Cannon, Inc.
100,000 IBP, Inc.
100,888 Lancaster Colony Corp.
*150,000 Nautica Enterprises, Inc.
*150,000 Smithfield Foods, Inc.
*150,000 Starbucks Corp.
65,000 St. John Knits, Inc.
*100,000 Tommy Hilfiger Corp.
105,000 Wolverine World Wide, Inc.

<CAPTION>
NUMBER OF
SHARES
- -------------------------------------------------------------
<S> <C>
CONSUMER SERVICES
225,000 Apple South, Inc.
*125,000 Avid Technology, Inc.
35,000 Belo (A.H.) Corp.
*93,750 Clear Channel
Communications, Inc.
150,000 Equifax, Inc.
*100,000 Franklin Quest Co.
*90,000 Gartner Group, Inc.
*350,000 Hospitality Franchise System,
Inc.
*250,000 Infinity Broadcasting Corp.
*85,000 Landrys Seafood Restaurants
65,000 La Quinta Inns, Inc.
35,000 Lee Enterprises, Inc.
100,000 Meredith Corp.
*337,500 Outback Steakhouse, Inc.
100,000 Reynolds & Reynolds Co.
*180,000 Robert Half International,
Inc.
*35,000 Scientific Games Holdings
Corp.
30,000 SPS Transaction Services, Inc.
ENERGY
150,000 Apache Corp.
100,000 Devon Energy Corp.
200,000 Enron Oil & Gas Co.
75,000 Kerr McGee Corp.
50,000 Murphy Oil Corp.
200,000 Noble Affiliates, Inc.
125,000 Pittston Services Group
150,000 Pogo Producing Co.
*200,000 Seagull Energy Corp.
*100,000 Seitel, Inc.
*200,000 Smith International, Inc.
125,000 Snyder Oil Corp.
75,000 Tosco, Corp.
100,000 Vintage Petroleum, Inc.
*200,000 Weatherford International,
Inc.
*200,000 Western Co. of North America
130,000 Williams Companies, Inc.
FINANCE
150,000 Advanta Corp., Class A
200,000 Bank South Corp.
200,000 Baybanks, Inc.
50,000 Compass Bancshares, Inc.
</TABLE>

42
<PAGE> 52

COMMON STOCKS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------------------------------------------
<S> <C>
150,000 Crestar Financial Corp.
110,000 Cullen Frost Bankers, Inc.
55,000 Equitable of Iowa Companies
125,000 First American Corp.
125,000 First Security Corp.
200,000 First USA, Inc.
100,000 GFC Financial Corp.
300,000 Green Tree Financial Corp.
100,000 Hibernia Corp., Class A
35,000 Integra Financial Corp.
125,000 Mercantile Bancorporation,
Inc.
125,000 Michigan National Corp.
175,000 Midlantic Corp.
75,000 Rollins Truck Leasing Corp.
100,000 Signet Banking Corp.
112,500 SouthTrust Corp.
50,000 Star Banc Corp.
50,000 United Companies
Financial Corp.
100,000 West One Bancorp
HEALTH CARE
*200,000 American Medical Holdings,
Inc.
*50,000 CDP Technologies, Inc.
150,000 Columbia/HCA Healthcare Corp.
*150,000 Coventry Corp.
*50,000 Genesis Health Ventures, Inc.
*100,000 Genentech, Inc.
300,000 HBO & Co.
*200,000 Healthcare & Retirement Corp.
*300,000 Health Management Associates,
Inc., Class A
*100,000 Horizon Healthcare Corp.
*75,000 Integrated Health Services,
Inc.
*150,000 Lincare Holdings, Inc.
*100,000 Living Centers of America,
Inc.
*100,000 Mariner Health Group, Inc.
*150,000 Medaphis Corp.
*400,000 Mid Atlantic Medical Services
100,000 Mylan Labs, Inc.
*75,000 Oxford Health Plans, Inc.
*75,000 Phycor, Inc.
*100,000 Quantum Health Resources, Inc.
*50,000 Quorum Health Group, Inc.
*75,000 Sun Healthcare Group
200,000 United Healthcare Corp.
*150,000 Universal Health Services,
Inc., Class B

<CAPTION>
NUMBER OF
SHARES
- -----------------------------------------------
<S> <C>
*150,000 Value Health, Inc.
*75,000 Watsons Pharmaceuticals, Inc.
PRODUCER MANUFACTURING
125,000 AGCO Corp.
*350,000 American Power
Conversion Corp.
*150,000 Ametek, Inc.
30,000 Briggs & Stratton Corp.
*150,000 Clark Equipment Co.
75,000 Danaher Corp.
100,000 Juno Lighting, Inc.
150,000 Kennametal, Inc.
*75,000 Newpark Resources, Inc.
*75,000 OHM Corp.
150,000 Parker Hannifin Corp.
*125,000 Reliance Electric Co., Class A
*125,000 Sanifill, Inc.
35,000 Thermo Remediation, Inc.
75,000 TRW, Inc.
150,000 Wabash National Corp.
150,000 Wellman, Inc.
RAW MATERIALS/PROCESSING
INDUSTRIES
*150,000 Airgas, Inc.
*150,000 A K Steel
50,000 Chesapeake Corp.
200,000 Freeport-McMoRan Copper Gold,
Class A
*250,000 Georgia Gulf Corp.
125,000 Hanna (M.A.) Co.
100,000 Medusa Corp.
150,000 Millipore Corp.
100,000 Nucor Corp.
100,000 Olin Corp.
50,000 Phelps Dodge Corp.
100,000 Ply Gem Industries, Inc.
150,000 Praxair, Inc.
*40,000 Sealed Air Corp.
100,000 Terra Industries, Inc.
TECHNOLOGY
18,500 Alantec Corp.
*110,000 Amphenol Corp., Class A
*150,000 Analog Devices, Inc.
*150,000 Andrew Corp.
*250,000 Applied Materials, Inc.
*30,000 Aspect Telecommunications
Corp.
</TABLE>

43
<PAGE> 53

COMMON STOCKS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------------------------------------------
<S> <C>
*350,000 Atmel Corp.
140,000 Augat, Inc.
*75,000 Broderbund Software, Inc.
*100,000 Cadence Design Systems, Inc.
*75,000 Ceridian Corp.
*23,300 CIDCO, Inc.
*125,000 Compuware Corp.
*200,000 DSC Communications Corp.
*110,000 Electroglas, Inc.
*150,000 Filenet Corp.
*200,000 General Instruments, Corp.
*200,000 Input/Output, Inc.
*100,000 Integrated Device
Technology, Inc.
*150,000 KLA Instruments Corp.
*100,000 Landmark Graphics Corp.
200,000 Linear Technology Corp.
*300,000 LSI Logic Corp.
300,000 Microchip Technology, Inc.
250,000 Micron Technology, Inc.
*150,000 Novellus Systems, Inc.
*100,000 Silicon Graphics, Inc.
*200,000 Solectron Corp.
*350,000 Tellabs, Inc.
150,000 Varian Associates, Inc.
*100,000 VLSI Technology, Inc.
75,000 Watkins Johnson Co.
TRANSPORTATION
100,000 Airborne Freight Corp.
*100,000 American Freightways Corp.
*75,000 Landstar Systems, Inc.
150,000 Skywest, Inc.

<CAPTION>
NUMBER OF
SHARES
- ------------------------------------------------
<S> <C>
100,000 Southwest Airlines Co.
*75,000 Swift Transportation, Inc.
200,000 TNT Freightway Corp.
*50,000 Wisconsin Central
Transportation Corp.
UTILITIES
*250,000 ALC Communications Corp.
100,000 Century Telephone
Enterprises, Inc.
250,000 LCI International, Inc.
32,400 Telephone & Data Systems, Inc.
CONVERTIBLE PREFERRED STOCK
*70,000 Cellular Communications, Inc.
SHORT-TERM INVESTMENTS
<CAPTION>
PRINCIPAL
AMOUNT
- ------------------------------------------------
<S> <C>
$20,770,000 Federal National Mortgage
Association, 4.46% to 4.47%,
10/4/94 to 10/11/94
67,830,000 Repurchase Agreement with
Salomon Brothers, Inc., dated
8/31/94, 4.80%, due 9/1/94
(collateralized by U.S.
Government obligations in a
pooled cash account)
repurchase proceeds
$67,839,044
#40,000,000 United States Treasury Bill,
4.29%, 9/15/94
</TABLE>

* Non-income producing security.
# A portion of this security, with a market value of approximately $29.6 million
was maintained in a segregated account and placed as collateral for futures
contracts.

44
<PAGE> 54

BACKUP WITHHOLDING INFORMATION

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

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

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

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

* A corporation

* Financial institution

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

* United States or any agency or instrumentality thereof

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

* International organization or any agency or instrumentality thereof

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

* Real estate investment trust

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

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

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

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

<PAGE> 55

AMERICAN CAPITAL
EMERGING GROWTH FUND, INC.

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

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

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

Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, TX 77002

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

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

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

For investors seeking capital
appreciation.

[AMERICAN CAPITAL LOGO]
PRINTED MATTER
Printed in U.S.A./###-##-####/016 PRO-001