AMERICAN CAPITAL PACE FUND INC, 497, 1995-05-17

AMERICAN CAPITAL PACE FUND INC
497, 1995-05-17

Previous: ORANGE & ROCKLAND UTILITIES INC, 10-K/A, 1995-05-17

Next: PACIFIC ENTERPRISES INC, 8-K, 1995-05-17

<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 PACE FUND, INC.
- ------------------------------------------------------------------------------

2800 Post Oak Blvd., Houston, Texas 77056, (800) 421-5666
November 1, 1994

American Capital Pace Fund, Inc. (the "Fund") is a mutual fund seeking growth
of capital by investing in a portfolio of securities consisting principally of
common stocks. Any income received on such securities is incidental to such
objective.

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

- ------------------------------------------------------------------------------
AMERICAN CAPITAL PACE FUND, INC.
- ------------------------------------------------------------------------------

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

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

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

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

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

<TABLE>
<S> <C>
Prospectus Summary....... 3
Expense Synopsis......... 5
Financial Highlights..... 7
Multiple Pricing
System................. 9
Investment Objectives and
Policies............... 12
Investment Practices and
Restrictions........... 13
The Fund and Its
Management............. 18
Purchase of Shares....... 20
Distribution Plans....... 28
Shareholder Services..... 30
Redemption of Shares..... 34
Dividends, Distributions
and Taxes.............. 36
Prior Performance
Information............ 38
Additional Information... 39
Investment Holdings...... 41
</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 growth. There is, however, no assurance that the
Fund will be successful in achieving its objective.

INVESTMENT POLICY. The Fund invests principally in common stocks of companies
which, in the judgment of American Capital Asset Management, Inc. (the
"Adviser"), have above average potential for capital growth. The use of options,
futures contracts and related options and investments in foreign securities may
include additional risks. See "Investment Practices and Restrictions -- Using
Options, Futures Contracts and Related Options" and "Investment Practices and
Restrictions -- Securities of Foreign Issuers." 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.

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 1975. 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
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."

3
<PAGE> 13

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(1)
- -------------------------------------------------------------------------------------------------
<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 year, 1% during the
4% during the second year, first year (b)
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................ .46% .46% .46%
Rule 12b-1 fees(d)............. .20% .99%(f) 1.00%(f)
Other expenses(e)....... .36% .34% .35%
Total fund operating
expenses...................... 1.02% 1.79% 1.81%
</TABLE>

- ------------------------------------------------------------------------------
(a) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares" -- page 22.
(b) See "Purchase of Shares -- Class B Shares" and "-- Class C Shares" -- pages
25 and 27.
(c) Not charged in certain circumstances. See "Shareholder
Services -- Shareholder Services Applicable to All Classes -- 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 28.
(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 otherwise permitted by NASD Rules.
* Investments of $1 million or more are not subject to any sales charge at
the time of purchase, but a contingent deferred sales charge of 1% may be
imposed on certain redemptions made within one year of the purchase.
(1) Annualized.

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 1.02% for Class A shares, 1.79% for
Class B shares and 1.81% for Class C shares, (2)
a 5% annual return throughout the period and (3)
redemption at the end of the period:
Class A........................................ $67 $88 $ 111 $ 175
Class B........................................ $70 $89 $ 115 $ 172**
Class C........................................ $29 $57 $ 98 $ 213
An investor would pay the following expenses on
the same $1,000 investment assuming no redemption
at the end of the period:
Class A........................................ $67 $88 $ 111 $ 175
Class B........................................ $18 $56 $ 97 $ 172**
Class C........................................ $18 $57 $ 98 $ 213
</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. Expenses for Class C shares are based on estimated amounts for
the current fiscal year. 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(1)
--------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $ 12.95 $ 13.21 $ 12.37 $ 12.69 $ 12.72 $ 11.19 $ 14.47
--------- -------- --------- --------- --------- --------- ---------
INCOME FROM OPERATIONS
Investment income................................ .26 .305 .335 .40 .465 .40 .36
Expenses......................................... (.13) (.14) (.14) (.125) (.12) (.085) (.075)
--------- -------- --------- --------- --------- --------- ---------
Net investment income............................ .13 .165 .195 .275 .345 .315 .285
Net realized and unrealized gains or losses on
securities...................................... (.1475) 1.69 1.095 .1575 1.3188 1.55 (1.8787)
--------- -------- --------- --------- --------- --------- ---------
Total from investment operations................. (.0175) 1.855 1.29 .4325 1.6638 1.865 (1.5937)
--------- -------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income............. (.135) (.145) (.2375) (.29) (.3675) (.2875) (.4263)
Distributions from net realized gains on
securities...................................... (1.7475) (1.97) (.2125) (.4625) (1.3263) (.0475) (1.26)
--------- -------- --------- --------- --------- --------- ---------
Total distributions.............................. (1.8825) (2.115) (.45) (.7525) (1.6938) (.335) (1.6863)
--------- -------- --------- --------- --------- --------- ---------
Net asset value, end of period................... $ 11.05 $ 12.95 $ 13.21 $ 12.37 $ 12.69 $ 12.72 $ 11.19
========= ======== ========= ========= ========= ========= =========
TOTAL RETURN(4).................................. (.64%) 15.20% 10.58% 4.31% 13.69% 17.32% (11.92%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............$2,152.5 $2,446.2 $2,350.2 $2,348.7 $2,456.8 $2,405.6 $2,487.5
Ratios to average net assets
Expenses........................................ 1.02% 1.06% 1.00% 1.01% .88% .72% .66%
Net investment income........................... .99% 1.22% 1.38% 2.22% 2.55% 2.58% 2.42%
Portfolio turnover rate.......................... 112% 113% 54% 40% 39% 45% 62%

1987 1986 1985
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $ 12.19 $ 10.45 $ 9.40
--------- --------- ---------
INCOME FROM OPERATIONS
Investment income................................ .365 .38 .495
Expenses......................................... (.07) (.055) (.06)
--------- --------- ---------
Net investment income............................ .295 .325 .435
Net realized and unrealized gains or losses on
securities...................................... 2.7275 2.0125 1.3775
--------- --------- ---------
Total from investment operations................. 3.0225 2.3375 1.8125
--------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income............. (.325) (.395) (.4375)
Distributions from net realized gains on
securities...................................... (.4175) (.2025) (.325)
--------- --------- ---------
Total distributions.............................. (.7425) (.5975) (.7625)
--------- --------- ---------
Net asset value, end of period................... $ 14.47 $ 12.19 $ 10.45
========= ========= =========
TOTAL RETURN(4).................................. 26.53% 23.79% 20.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............$3,001.4 $2,229.6 $1,521.3
Ratios to average net assets
Expenses........................................ .60% .58% .62%
Net investment income........................... 2.51% 3.35% 4.48%
Portfolio turnover rate.......................... 36% 33% 40%
</TABLE>

(Table continued on following page)

7
<PAGE> 17

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B (3) CLASS C(3)
-------------------------------------- ----------
JANUARY 10, AUGUST 27,
YEAR ENDED 1992 (2) 1993 (2)
JUNE 30 THROUGH THROUGH
----------------------- JUNE 30, JUNE 30,
1994 1993 1992 1994
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................................... $12.86 $13.13 $13.87 $13.25
-------- ------- ------- --------
INCOME FROM OPERATIONS
Investment income........................................................ .25 .29 .15 .17
Expenses................................................................. (.22) (.26) (.10) (.15)
-------- ------- ------- --------
Net investment income.................................................... .03 .03 .05 .02
Net realized and unrealized gains or losses on securities................ (.1575) 1.705 (.79) (.4375)
-------- ------- ------- --------
Total from investment operations......................................... (.1275) 1.735 (.74) (.4175)
-------- ------- ------- --------
LESS DISTRIBUTIONS
Dividends from net investment income..................................... (.025) (.035) -- (.095)
Distributions from net realized gains on securities...................... (1.7475) (1.97) -- (1.7475)
-------- ------- ------- --------
Total distributions...................................................... (1.7725) (2.005) -- (1.8425)
-------- ------- ------- --------
Net asset value, end of period........................................... $10.96 $12.86 $13.13 $10.99
======== ======= ======= ========
TOTAL RETURN(4).......................................................... (1.46%) 12.84% (5.34%) (3.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................................... $35.8 $27.7 $11.7 $1.2
Ratios to average net assets
Expenses............................................................... 1.79% 1.98% 1.82%(5) 1.81%(5)
Net investment income.................................................. .21% .25% .56%(5) .24%(5)
Portfolio turnover rate.................................................. 112% 113% 54% 112%
</TABLE>

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

(1) Per share information for the years 1990 through 1985 has been adjusted to
reflect a 2 for 1 stock split effective June 8, 1990.
(2) Commencement of offering of sales.
(3) Based on average month-end shares outstanding.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(5) Annualized.

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 a reduced initial sales charge. See
"Purchase of Shares -- Class A Shares."

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

9
<PAGE> 19

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 of 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 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

10
<PAGE> 20

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 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

11
<PAGE> 21

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 Class A, Class B or Class C 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 capital growth through investments in securities believed by
the Adviser to have above average potential for capital growth. Any income
received on such securities is incidental to such objective.

The Fund invests principally in common stocks. The Fund generally holds a
portion of its assets in investment grade short-term debt securities and
investment grade corporate or government bonds in order to provide liquidity.
From time to time the Fund may also invest up to 100% of its assets in high
quality debt securities for temporary defensive purposes. Short-term investments
may include repurchase agreements with domestic banks or broker-dealers. See
"Investment Practices and Restrictions -- Repurchase Agreements." The Fund may
also invest up to 15% of its total assets in securities of foreign issuers and
may invest in investment companies. See "Investment Practices and
Restrictions -- Securities of Foreign Issuers" and "Investment Practices and
Restrictions -- Investment in Investment Companies."

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

12
<PAGE> 22

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.

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

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any other illiquid securities held by the Fund, exceeds ten
percent of the value of its net assets. The Fund may invest up to 25% of its
assets in repurchase agreements but will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Fund, would exceed ten percent of the value of
its net assets. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto, (b) possible lack of access to income on the underlying security
during this period, and (c) expenses of enforcing its rights.

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

SECURITIES OF FOREIGN ISSUERS. The Fund may invest up to 15% of the value of
its total assets in securities of foreign governments and companies. Such
investments may be subject to special risks, including changes in currency
exchange rates, future political and economic developments, the possible
imposition of additional withholding taxes on dividend or interest income
payable on the securities, or the seizure or

13
<PAGE> 23

nationalization of companies, or establishment of exchange controls or adoption
of other restrictions which might adversely affect the investment.

The Fund may also purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.

USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize 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.

14
<PAGE> 24

As an alternative to selling stock index futures contracts, the Fund can
purchase stock index puts (or stock index futures puts) to hedge the portfolio's
risk in a declining market. Since the value of a put increases as the index
declines below a specified level, the portfolio's value is protected against a
market decline to the degree the performance of the index correlates with the
performance of the Fund's investment portfolio. If the market remains stable or
advances, the Fund can refrain from exercising the put and its portfolio will
participate in the advance, having incurred only the premium cost for the put.

In certain cases the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities.

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

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

PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have above average potential for capital growth. Common stocks are

15
<PAGE> 25

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. To the extent
short-term trading results in realization of gains on securities held for one
year or less, shareholders are subject to taxes at ordinary income rates.

PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The Adviser is authorized to place portfolio transactions
with brokerage firms participating in the distribution of shares of the Fund and
other American Capital mutual funds if it reasonably believes that the quality
of the execution and the commission are comparable to that available from other
qualified brokerage firms. The Adviser is authorized to pay higher commissions
to brokerage firms that provide it with investment and research information than
to firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. The
information received may be used by the Adviser in managing the assets of other
advisory accounts as well as in the management of the assets of the Fund.

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 IN INVESTMENT COMPANIES. The Fund may invest in a separate
investment company, American Capital Small Capitalization Fund, Inc., ("Small
Cap Fund") that invests in a broad selection of small capitalization securities.
The shares of the Small Cap Fund are available only to investment companies
advised by the Adviser. The Adviser believes that the use of the Small Cap Fund
will provide the Fund with the most effective exposure to the performance of the
small capitalization sector of the stock market while at the same time
minimizing costs. The Adviser

16
<PAGE> 26

charges no advisory fee for managing the Small Cap Fund, nor is there any sales
load or other charges associated with distribution of its shares. Other expenses
incurred by the Small Cap Fund are borne by it, and thus indirectly by the
American Capital funds that invest in it. With respect to such other expenses,
the Adviser anticipates that the efficiencies resulting from use of the Small
Cap Fund will result in cost savings for the Fund and other American Capital
funds. In large part these savings will be attributable to the fact that
administrative actions that would have to be performed multiple times if each
American Capital fund held its own portfolio of small capitalization stocks will
need to be performed only once. The Adviser expects that the Small Cap Fund will
experience trading costs that will be substantially less than the trading costs
that would be incurred if small capitalization stocks were purchased separately
for the Fund and other American Capital funds.

The securities of small and medium sized companies that the Small Cap Fund may
invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies.

The Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund. For example, if the Fund's investment in the Small Cap Fund were
$10 million, and the Small Cap Fund had five percent of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.

INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without approval by a
majority (as defined in the 1940 Act) vote of the Fund's shareholders. These
restrictions provide, among other things, that the Fund may not:

1. With respect to 75% of its assets, invest more than five percent of its
assets in the securities of any one issuer (except the United States
government) or purchase more than ten percent of the outstanding voting
securities of any one issuer. Neither limitation shall apply to the
acquisition of shares of other open-ended investment companies to the
extent permitted by rule or order of the SEC exempting the Fund from the
limitations imposed by Section 12(d)(1) of the 1940 Act;

2. Pledge any of its assets, except that the Fund may pledge assets having a
value of not more than ten percent of its total assets in order to secure
permitted borrowings from banks. Such borrowings may not exceed five
percent of the value of the Fund's assets and can be made only as a
temporary measure for

17
<PAGE> 27

extraordinary or emergency purposes. Notwithstanding the foregoing, the
Fund may engage in transactions in options, futures contracts or related
options, segregate or deposit assets to cover or secure options written
and make margin deposits and payments for futures contracts and related
options;

3. Invest more than ten percent of its net assets (determined at the time of
investment) in illiquid securities, securities for which market quotations
are not readily available, and repurchase agreements which have a maturity
of longer than seven days; or

4. Invest in real estate (although the Fund may acquire securities of issuers
that invest in real estate), commodities or commodity contracts, except
that the Fund may enter into transactions in futures contracts or related
options.

In addition to the foregoing, the Fund has adopted additional investment
restrictions which may be changed by the Board of Directors without a vote of
shareholders. These restrictions provide that the Fund may not:

1. Invest more than five percent of its assets in the securities of any one
issuer other than the United States government except that it may acquire
shares of other open-end investment companies to the extent permitted by
rule or order of the SEC exempting the Fund from the limitations imposed
by Section 12(d)(1) of the 1940 Act;

2. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 15% of the value of the Fund's total assets would
be invested in such securities. Foreign investments may be subject to
special risks, including future political and economic developments, the
possible imposition of additional withholding taxes on dividend or
interest income payable on the securities, or the seizure or
nationalization of companies, or establishment of exchange controls or
adoption of other restrictions which might adversely affect the
investment; or

3. Invest more than five percent of its assets in companies having a record,
together with predecessors, of less than three years continuous operation
and in securities not having readily available market quotations provided,
however, that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of
the securities and other assets owned by any such company.

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

The Fund is an open-end, diversified management investment company,
incorporated in Delaware on December 2, 1968, and reincorporated by merger into
a Maryland corporation on December 30, 1982. A mutual fund provides, for those
who

18
<PAGE> 28

have similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.

A board of eight directors has the responsibility for overseeing the affairs
of the Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056,
determines the investment of the Fund's assets, provides administrative services
and manages the Fund's business and affairs. The Adviser, together with its
predecessors, has been in the investment advisory business since 1926 and has
served as investment adviser to the Fund since 1975. As of September 30, 1994,
the Adviser provides investment advice to 45 investment company portfolios with
total net assets of approximately $16.4 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 July 2, 1990 (the "Advisory Agreement"), the
Fund pays the Adviser a monthly fee computed on average daily net assets of the
Fund at the annual rate of 0.50% on the first $1 billion of net assets; 0.45% on
the next $1 billion of net assets; 0.40% on the next $1 billion of net assets
and 0.35% on net assets in excess of $3 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,
custodian fees, legal and accounting fees, the costs of reports and proxies to
shareholders, directors' fees, and all other business expenses not specifically
assumed by the Adviser. Advisory (management) fee and total operating expense
ratios are shown under the caption "Expense Synopsis" herein.

Stephen Boyd is primarily responsible for the day-to-day management of the
Fund's investment portfolio and has been since July 11, 1994. Mr. Boyd is Vice
President of the Fund and Senior Investment Vice President -- Portfolio Manager
of the Adviser. Mr. Boyd was formerly Investment Vice President of the Adviser
from May 1989 to July 1990.

19
<PAGE> 29

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

GENERAL

The Fund offers three classes of shares to the general public. Class A shares
are sold with an initial sales charge; Class B and Class C shares are sold
without an initial sales charge and are subject to a contingent deferred sales
charge upon certain redemptions. See "Multiple Pricing System" for a discussion
of factors to 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 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) by the total number of shares of the class
outstanding. Securities listed or traded on a national securities exchange are
valued at the last sale price. Unlisted securities and listed securities for
which the last sale price is not available are valued at the most recent bid
price. Options are valued at the last sale price or if no sales are reported, at
the mean between the bid and asked prices. Securities for which market
quotations are not readily available and other assets are valued at fair value
as determined in good faith by the Board of Directors of the Fund. Short-term
securities are valued in the manner described in the Notes to the Financial
Statements included in the Statement of Additional Information.

20
<PAGE> 30

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

Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan pursuant to which its distribution fee and/or service
fee is paid which relate to a specific class, and (iii) Class B and Class C
shares are subject to a conversion feature. Each class has different exchange
privileges and certain different shareholder service options available. See
"Distribution Plans" and "Shareholder Services -- Exchange Privilege." The net
income attributable to Class B and Class C 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.

21
<PAGE> 31

CLASS A SHARES

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

SALES CHARGE TABLE

<TABLE>
<CAPTION>
SIZE OF AS % OF NET AS % OF REALLOWED TO DEALERS
INVESTMENT AMOUNT INVESTED OFFERING PRICE (AS A % OF 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>

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.

22
<PAGE> 32

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 also
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 Securities Act of 1933 (the "1933 Act").

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

23
<PAGE> 33

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

The Distributor may pay commissions of up to 1% for purchases described in
clause (d). The Distributor may pay Service Organizations through which
purchases are made as described in clause (f) above for transactions of $1
million or more an amount up to 0.50% of the amount invested, over a 12-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.,

24
<PAGE> 34

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 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
charge applicable to the purchases made and the charge 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 included in this Prospectus.

CLASS B SHARES

Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a contingent deferred
sales charge at the

25
<PAGE> 35

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.
- ------------------------------------------------------------------------------

<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

26
<PAGE> 36

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

In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares in the shareholder's Fund account that are not subject to
a contingent deferred sales charge and second of shares held for more than one
year or shares acquired pursuant to reinvestment of dividends or distributions.

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

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

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

27
<PAGE> 37

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

Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing of its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such rule, the Directors of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD Rules") applicable to
mutual fund sales charges. The NASD Rules limit the annual distribution charges
that a mutual fund may impose on a class of shares. The NASD Rules also limit
the aggregate amount which the Fund may pay for such distribution costs. Under
the Class A Plan, the Fund pays a service fee to the Distributor at an annual
rate of up to 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares. Such payments to the Distributor under the
Class A Plan are based on an annual percentage of the value of Class A shares
held in shareholder accounts for which Service Organizations are responsible at
the rates of 0.15% annually with respect to Class A shares in such accounts on
September 29, 1989 and 0.25% annually with respect to Class A shares issued
after that date. Under the Class B Plan and the Class C Plan, the Fund pays a
service fee to the Distributor at an annual rate of up to 0.25% and a
distribution fee at an annual rate of up to 0.75% of the Fund's aggregate
average daily net assets attributable to the Class B shares or Class C shares to
reimburse the Distributor for service fees paid by it to Service Organizations
and for its distribution costs.

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

28
<PAGE> 38

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

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

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

Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward without
interest charges unless permitted under SEC regulations, and may be reimbursed
by the Fund or its shareholders from payments received through contingent
deferred sales charges in future years and from payments under the Class B Plan
and Class C Plan so long as such Plans are in effect. For example, if in a
fiscal year the Distributor incurred distribution expenses under the Class B
Plan of $1 million, of which $500,000 was recovered in the form of contingent
deferred sales charges paid by investors and $400,000 was reimbursed in the form
of payments made by the Fund to the Distributor under the Class B Plan, the
balance of $100,000, would be subject to recovery in future fiscal years from
such sources. For the plan year ended June 30, 1994, the unreimbursed expenses
incurred by the Distributor under the Class B Plan and carried forward were
approximately $1.6 million or 5.02% of the Class B shares' net assets. The
unreimbursed expenses incurred by the Distributor under the Class C Plan from
August 27, 1993 (inception of Class C shares) through June 30, 1994, and carried
forward were approximately $20,000 or 2.96% of the Class C shares' net assets.

29
<PAGE> 39

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

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

The Fund offers a number of shareholder services designed to facilitate
investments in its shares at little or no extra cost to the investor. The
following 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 report showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds listed under "Purchase of Shares -- Class A Shares -- Volume
Discounts," or Reserve, may receive statements quarterly from ACCESS showing any
reinvestments of dividends and capital gains distributions and any other
activity in the account since the preceding statement. Such shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value 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

30
<PAGE> 40

403(b)(7) plans in the case of employees of public school systems and certain
non-profit organizations. Documents and forms containing detailed information
regarding these plans are available from the Distributor. American Capital Trust
Company serves as custodian under the IRA, 403(b)(7) and Keogh plans. Details
regarding fees, as well as full plan administration for profit sharing, pension
and 401(k) plans, are available from the Distributor.

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

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

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

31
<PAGE> 41

sales charge otherwise due upon redemption of the original shares. For purposes
of computing the contingent deferred sales charge payable upon a disposition of
the new shares, the holding period for the original shares is added to the
holding period of the new shares. Class B and Class C shareholders may exchange
their shares for shares of Reserve without incurring the contingent deferred
sales charge that otherwise would be due upon redemption of such Class B or
Class C shares. Class B or Class C shareholders would remain subject to the
contingent deferred sales charge imposed by the original Fund upon their
redemption from the American Capital complex of funds. Shares of Reserve
acquired through an exchange of Class B or Class C shares may be exchanged only
for the same class of shares of a Participating Fund without incurring a
contingent deferred sales charge.

Since the maximum sales charge rate applicable to purchases of Class A shares
of the Fund is at least one percentage point higher than the maximum sales
charge rate applicable to the purchase of Class A shares of American Capital
fixed income funds, the foregoing exchange privilege may be utilized to reduce
the sales charge paid to purchase Class A shares of the Fund, subject to the
exchange fee.

Shares of the fund to be acquired must be registered for sale in the
investor's state and an exchange fee, currently five dollars 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 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

32
<PAGE> 42

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.

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

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

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

Class B and Class C shareholders who establish a withdrawal plan may redeem up
to 12% annually of the shareholder's initial account balance without incurring a
contingent deferred sales charge. Initial account balance means the amount of
the 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.

33
<PAGE> 43

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

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

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

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

34
<PAGE> 44

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 redemption 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 that 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.

The Fund may redeem any shareholder account with a net asset value of less
than $50, provided that there has been no purchase of shares for that account
during a continuous period of at least twelve months. Three months advance
notice of any such involuntary redemption is required and the shareholder is
given an opportunity to purchase the required value of additional shares at the
next determined net asset value without sales charge. Any involuntary redemption
may occur only if the shareholder account is less than $50 due to shareholder
redemptions. Any applicable contingent deferred sales charges will be deducted
from the proceeds of this redemption.

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

35
<PAGE> 45

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

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

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

36
<PAGE> 46

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.
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
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 income dividends, capital gains distributions are automatically
reinvested in additional shares of the Fund at net asset value. See "Shareholder
Services -- Reinvestment Plan."

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

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

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

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

Gains or losses on the Fund's transactions in listed options (except certain
equity options) on securities or indexes, futures and options on futures
generally are treated as 60% long-term and 40% short-term, and positions held by
the Fund at the end of its

37
<PAGE> 47

fiscal year generally are required to be marked to market, with the result that
unrealized gains and losses are treated as realized. Gains and losses realized
by the Fund from writing over-the-counter options constitute short-term capital
gains or losses unless the option is exercised, in which case the character of
the gain or loss is determined by the holding period of the underlying security.
The Code contains certain "straddle" rules which require deferral of losses
incurred in certain transactions involving hedged positions to the extent the
Fund has unrealized gains in offsetting positions and generally terminate the
holding period of the subject position. Additional information is set forth in
the Statement of Additional Information.

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

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

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

The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 5.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable contingent deferred
sales charge has been paid. The Fund's total return will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Since shares of the Fund were offered at a maximum sales charge of 8.50% prior
to June 12, 1989, actual Fund total return would have been somewhat less than
that computed on the basis of the current maximum sales charge. Total return is
based on historical earnings and asset value fluctuations and is not intended to
indicate future performance. No adjustments are made to reflect any income taxes
payable by shareholders on dividends and distributions paid by the Fund or to
reflect the fact no 12b-1 fees were incurred prior to October 1, 1989.

38
<PAGE> 48

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

Total return is calculated separately for Class A, Class B and Class C shares.
Class A total return figures include the maximum sales charge of 5.75%; Class B
and Class C total return figures include any applicable contingent deferred
sales charge. Because of the differences in sales charges and distribution fees,
the total returns for each of the classes will differ.

In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds or 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.

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 December 2,
1968, and reincorporated by merger into a Maryland corporation on December 30,
1982. The Fund may offer three classes of shares: Class A, Class B and Class C.
Each

39
<PAGE> 49

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 interest in the Fund's existing portfolio. Shares issued are fully
paid, non-assessable and have no preemptive or conversion rights.

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

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

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

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

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

40
<PAGE> 50

- ------------------------------------------------------------------------------
INVESTMENT HOLDINGS
- ------------------------------------------------------------------------------
June 30, 1994
COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
CONSUMER DISTRIBUTION
*21,200 AutoZone, Inc.
*14,000 Best Buy, Inc.
49,000 Claire's Stores, Inc.
*63,000 CUC International, Inc.
185,000 Dayton Hudson Corp.
100,000 Dillard Department
Stores, Inc.
*13,000 Discount Auto Parts, Inc.
576,937 Dollar General Corp.
*20,800 Dress Barn, Inc.
*500,000 Federated Department
Stores, Inc.
40,800 Fingerhut Corp.
300,000 Gap, Inc.
18,000 Hannaford Brothers Co.
42,500 Heilig-Meyers Co.
*10,000 IHOP Corp.
*36,400 Kroger Co.
220,000 Lowes Companies, Inc.
675,000 May Department Stores Co.
11,000 McKesson Corp.
*33,000 Meyer (Fred), Inc.
*38,000 Michael's Stores, Inc.
4,000 Miller (Herman), Inc.
*120,000 Office Depot, Inc.
366,600 Penney (J.C.) Company,
Inc.
*10,000 Revco (D.S.), Inc.
*10,000 Safeway, Inc.
*87,200 Score Board, Inc.
350,000 Sears, Roebuck & Co.
*35,800 Stop & Shop Companies,
Inc.
28,800 Super Valu Stores, Inc.
*47,600 Tech Data Corp.
CONSUMER DURABLES
9,000 ARCTCO, Inc.
350,000 Brunswick Corp.
23,000 Callaway Golf Co.
29,100 Centex Corp.
*15,000 Clayton Homes, Inc.
347,000 Echlin, Inc.
3,000 Fleetwood Enterprises,
Inc.

<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
9,000 Flexsteel Industries,
Inc.
200,000 Ford Motor Co.
48,600 GenCorp. Inc.
315,000 General Motors Corp.
15,000 Harley Davidson, Inc.
24,800 Hayes Wheels
International, Inc.
50,000 Leggett & Platt, Inc.
38,250 Mattel, Inc.
31,000 Oakwood Homes Corp.
33,100 Pulte Corp.
*22,050 SLM International, Inc.
75,000 Snap-On, Inc.
140,000 Sunbeam-Oster Company,
Inc.
10,000 Toro Co.
*10,000 Winnebago Industries,
Inc.
CONSUMER NON-DURABLES
480,000 American Greeting Corp.,
Class A
175,000 Anheuser-Busch Companies,
Inc.
55,000 Avon Products, Inc.
800,000 ConAgra, Inc.
*45,200 Cone Mills Corp.
7,000 Dean Foods Co.
*533,300 Dr Pepper/Seven-Up
Companies, Inc.
23,600 First Brands Corp.
6,000 Guilford Mills, Inc.
17,000 Hershey Foods Corp.
18,000 Hillenbrand Industries,
Inc.
9,000 Hormel (George A.) & Co.
35,800 IBP, Inc.
*23,200 Jones Apparel Group, Inc.
11,000 McCormick & Company, Inc.
190,000 PepsiCo, Inc.
170,000 Pet, Inc.
*46,600 Pillowtex Corp.
32,000 Pioneer Hi-Bred
International, Inc.
450,000 Procter & Gamble Co.
</TABLE>

41
<PAGE> 51

COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
20,000 Reebok International,
Ltd.
3,800,000 RJR Nabisco Holdings
Corp.
160,000 Snapple Beverage Corp.
200,000 United States Shoe Corp.
*11,000 Warnaco Group, Inc.
56,800 Whitman Corp.
16,800 Wrigley (William, Jr.)
Co.
CONSUMER SERVICES
*5,000 American Medical Response
33,000 Applebee's International,
Inc.
*1,000 Avid Technology, Inc.
8,000 Bowne & Co., Inc.
*262,500 Brinker International,
Inc.
177,000 Capital Cities ABC, Inc.
50,000 CBS, Inc.
32,800 Equifax, Inc.
*76,500 Hospitality Franchise
Systems, Inc.
800,000 Host Marriott Corp.
*15,000 King World Productions,
Inc.
*13,000 Liberty Media Corp.,
Class A
507,500 Marriott International,
Inc.
900,000 McDonald's Corp.
7,000 Morrison Restaurants,
Inc.
50,000 Ogden Corp.
17,000 Omnicom Group, Inc.
*352,500 Outback Steakhouse, Inc.
4,000 Reynolds & Reynolds Co.
*25,000 Robert Half
International, Inc.
3,000 Sbarro, Inc.
43,000 Service Corp.
International
29,200 Spelling Entertainment
Group, Inc.
11,000 Tribune Co.
5,000 United Television, Inc.
120,000 Wendy's International,
Inc.
ENERGY
675,000 Amoco Corp.
750,000 Apache Corp.
35,000 Ashland Oil, Inc.
325,000 Atlantic Richfield Co.
380,000 Baker Hughes, Inc.
555,000 British Petroleum Co.,
PLC, ADR
92,600 Chevron Corp.

<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
31,000 Eastern Enterprises
290,000 Enron Corp.
33,000 Equitable Resources, Inc.
242,000 Halliburton Co.
*3,000 Magma Power Co.
14,000 MAPCO, Inc.
300,000 Mobil Corp.
1,000 NACCO Industries, Inc.
22,500 National Fuel Gas Co.
33,000 NICOR, Inc.
*9,000 Offshore Pipelines, Inc.
14,400 Oneok, Inc.
26,600 Pacific Enterprises
30,300 Pittston Services Group
9,400 Quaker State Corp.
30,000 Repsol, S.A., ADR
160,000 Royal Dutch Petroleum
Co., ADR
126,000 Schlumberger, Ltd.
*25,000 Smith International, Inc.
3,000 Southwestern Energy Co.
16,000 Sun, Inc.
7,000 Tidewater, Inc.
17,000 Tosco Corp.
*14,000 Tuboscope Vetco
International, Class C
10,000 Ultramar Corp.
*16,000 Weatherford
International, Inc.
*100,000 Western Atlas, Inc.
*85,000 Western Company of North
America
3,000 Wicor, Inc.
650,000 Williams Companies, Inc.
600,000 YPF Sociedad Anonima, ADS
FINANCE
164,300 Advanta Corp., Class A
150,000 Aetna Life & Casualty Co.
25,000 Alex Brown, Inc.
27,000 Ambac, Inc.
2,104,130 American Capital Small
Capitalization Fund,
Inc.
250,000 American International
Group, Inc.
17,000 AmSouth Bancorporation
*41,000 Anchor Bancorp, Inc.
</TABLE>

42
<PAGE> 52

COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
930,000 BankAmerica Corp.
17,000 Bankers Life Holding
Corp.
23,000 Baybanks, Inc.
36,382 Bear, Stearns Companies,
Inc.
26,000 Boatmen's Bancshares,
Inc.
6,000 Capitol American
Financial Corp.
5,000 CMAC Investment Corp.
26,000 Compass Bancshares, Inc.
1,000 Conseco, Inc.
176,200 Crestar Financial Corp.
*100,000 Dime Bancorp
775,000 Equitable Companies, Inc.
19,000 Fidelity National
Financial, Inc.
2,000 First American Financial
Corp.
425,000 First Bank System, Inc.
4,000 First Federal Corp.
300,000 First Interstate Bancorp
14,000 First of America Bank
Corp.
20,000 First USA, Inc.
10,000 Fleet Financial Group,
Inc.
5,000 Foothill Group, Inc.
3,000 Fremont General Corp.
146,000 General RE Corp.
14,000 GFC Financial Corp.
74,000 Green Tree Financial
Corp.
6,000 Jefferson Pilot Corp.
38,000 Keycorp
11,000 Leucadia National Corp.
2,000 Life Partners Group, Inc.
7,500 Mercantile
Bancorporation, Inc.
35,333 Mercury Finance Co.
28,200 MGIC Investors Corp.
300,000 Midlantic Corp.
460,000 NationsBank Corp.
37,000 NWNL Companies, Inc.
5,000 Orion Capital Corp.
27,000 Paine Webber Group, Inc.
170,000 Protective Life Corp.
4,000 Provident Life &
Accidental Insurance
Co., Class B
3,000 Raymond James Financial,
Inc.

<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
22,000 Regions Financial Corp.
3,000 Reinsurance Group of
America, Inc.
12,000 Roosevelt Financial
Group, Inc.
287,000 Signet Banking Corp.
42,600 SouthTrust Corp.
7,000 Star Banc Corp.
13,000 Statesman Group, Inc.
150,000 St. Paul Companies, Inc.
29,000 SunAmerica, Inc.
2,000 TCF Financial Corp.
35,000 Transamerica Corp.
14,000 Union Planters Corp.
15,000 USLIFE Corp.
54,000 Washington Mutual Savings
Bank of Seattle
4,000 Washington National Corp.
85,000 Wells Fargo & Co.
HEALTH CARE
940,000 Abbott Laboratories
226,500 American Cyanamid Co.
765,000 Baxter International,
Inc.
9,000 Beckman Instruments, Inc.
10,000 Caremark International,
Inc.
*217,600 Carrington Laboratories,
Inc.
260,000 Columbia Healthcare Corp.
*8,000 Cordis Corp.
*4,900 Cor Therapeutics, Inc.
*17,000 Dentsply International,
Inc.
*8,160 FHP International Corp.
*7,800 Forest Labs, Inc.
*400,000 Genentech, Inc.
*38,000 Haemonetics Corp.
*12,000 HealthCare Compare Corp.
*220,000 Healthcare & Retirement
Corp.
*110,000 Healthtrust Inc.-The
Hospital Co.
*20,000 Humana, Inc.
*31,000 ICOS Corp.
650,000 Lilly (Eli) & Co.
*47,500 Mid-Atlantic Medical
Services, Inc.
*25,000 Nellcor, Inc.
*30,000 Oxford Health Plans, Inc.
</TABLE>

43
<PAGE> 53

COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
*14,000 Pacificare Health
Systems, Inc., Class A
*34,000 Perrigo Co.
144,100 Pfizer, Inc.
*19,000 Quantum Health Resources,
Inc.
180,000 Schering-Plough Corp.
*17,000 Sofamor/Danek Group, Inc.
30,000 SpaceLabs Medical, Inc.
440,000 United Healthcare Corp.
15,000 U.S. Homecare Corp.
*25,200 Value Health, Inc.
*30,000 Vencor, Inc.
165,000 Warner-Lambert Co.
PRODUCER MANUFACTURING
640,000 Allied Signal, Inc.
16,600 Aptar Group, Inc.
560,000 Browning-Ferris
Industries, Inc.
135,000 Caterpillar, Inc.
*11,000 Coltec Industries, Inc.
20,000 Cummins Engine Company,
Inc.
470,000 General Electric Co.
*23,400 IDEX Corp.
24,000 Illinois Tool Works, Inc.
265,000 ITT Corp.
21,000 Johnson Controls, Inc.
34,000 Juno Lighting, Inc.
17,000 National Services
Industries, Inc.
5,750 Paccar, Inc.
580,000 Philips, N.V.
13,600 Pittway Corp., Class A
13,000 SPS Technologies, Inc.
26,600 Stewart & Stevenson
Services, Inc.
7,000 St. Joe Paper Co.
31,000 Teledyne, Inc.
10,000 Tenneco, Inc.
350,000 Textron, Inc.
*37,500 Thermo Electron Corp.
*14,000 Thermo Instrument
Systems, Inc.
46,500 Trinity Industries, Inc.
13,000 Tyco Laboratories, Inc.

<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
*292,000 Varity Corp.
558,000 WMX Technologies, Inc.
RAW MATERIALS/PROCESSING INDUSTRIES
19,800 Albemarle Corp.
5,000 Amcast Industrial Corp.
*3,000 American Pacific Corp.
15,000 Asarco, Inc.
27,000 Avery Dennison Corp.
6,000 Bemis, Inc.
22,000 Betz Laboratories, Inc.
75,000 Birmingham Steel Corp.
13,000 Church & Dwight, Inc.
20,000 Crown Cork & Seal Co.,
Inc.
210,000 DuPont (E.I.) de Nemours
& Co., Inc.
35,000 Ecolab, Inc.
39,600 Ethyl Corp.
2,000 Excel Industries, Inc.
*225,000 Georgia Gulf Corp.
39,000 Handy & Harman
325,000 Hercules, Inc.
327,500 Imperial Chemical
Industries, PLC, ADR
250,000 International Paper Co.
31,700 Justin Industries, Inc.
25,000 LAC Minerals, Ltd.
*25,000 LTV Corp.
12,000 Lukens, Inc.
39,400 Minerals Technologies,
Inc.
510,000 Monsanto Co.
14,400 Mycogen Corp.
26,000 Oregon Steel Mills, Inc.
*20,000 Owens-Corning Fiberglass
Corp.
*63,000 Owens-Illinois, Inc.
33,000 Pall Corp.
20,000 Pentair, Inc.
650,000 Praxair, Inc.
26,000 RPM, Inc.
325,000 Scott Paper Co.
*2,000 Sealed Air Corp.
18,000 Sigma-Aldrich Corp.
28,000 Sonoco Products Co.
8,000 Thiokol Corp.
9,333 Wausau Paper Mills Co.
</TABLE>

44
<PAGE> 54

COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
59,000 Willamette Industries,
Inc.
20,000 Worthington Industries,
Inc.
TECHNOLOGY
*41,600 Adaptec, Inc.
240,000 Adobe Systems, Inc.
*29,000 Analog Devices, Inc.
*13,500 Andrew Corp.
*330,000 Applied Materials, Inc.
17,000 Arrow Electronics, Inc.
*20,000 Aspect Telecommunications
Corp.
*110,000 Atmel Corp.
18,000 Avnet, Inc.
*25,000 Cadence Design Systems,
Inc.
*23,000 Ceridian Corp.
*54,750 Cheyenne Software, Inc.
*29,000 Chipcom Corp.
*18,000 Cirrus Logic, Inc.
*315,000 Compaq Computer Corp.
20,000 Computer Associates
International, Inc.
*67,400 Compuware Corp.
*17,000 Copytele, Inc.
*2,400 Cray Research, Inc.
*12,000 Digi International, Inc.
*8,000 Electronics for Imaging,
Inc.
*110,000 FileNet Corp.
*270,000 General Instrument Corp.
10,000 General Motors Corp.,
Class H
18,000 Harris Corp.
*44,600 Informix Corp.
*212,500 Integrated Device
Technology, Inc.
525,000 International Business
Machines Corp.
*50,000 Intuit, Inc.
*54,000 Komag, Inc.
*25,000 Lam Research Corp.
*7,000 Landmark Graphics Corp.
228,000 Linear Technology Corp.
90,000 Loral Corp.
*345,000 LSI Logic Corp.
*29,000 Marshall Industries
*215,000 Microsoft Corp.

<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
*165,000 National Semiconductor
Corp.
*16,000 Network General Corp.
*375,000 Novell, Inc.
*85,000 Oracle Systems Corp.
*20,000 PeopleSoft, Inc.
5,000 Pioneer Standard
Electronics, Inc.
*8,000 Platinum Technology, Inc.
675,000 Rockwell International
Corp.
*193,000 Silicon Graphics, Inc.
*80,000 Solectron Corp.
*52,400 Standard Microsystems
Corp.
*6,000 Sterling Software, Inc.
*40,000 Symantec Corp.
*22,000 Synopsys, Inc.
*16,000 Syquest Technology, Inc.
*134,000 Tellabs, Inc.
*17,000 Teradyne Technologies,
Inc.
207,000 Texas Instruments, Inc.
*115,000 3Com Corp.
*6,800 U.S. Robotics, Inc.
7,000 Varian Associates, Inc.
*27,000 VLSI Technology, Inc.
*16,000 Wall Data, Inc.
*7,000 Xilinx, Inc.
TRANSPORTATION
11,000 Airborne Freight Corp.
210,000 Burlington Northern, Inc.
*42,000 Chicago and North Western
Transportation
20,000 Conrail, Inc.
219,000 Illinois Central Corp.
*36,000 Mesa Airlines, Inc.
11,000 Skywest, Inc.
215,000 Southwest Airlines Co.
UTILITIES
*60,000 ALC Communications Corp.
300,000 Alltel Corp.
275,000 Ameritech Corp.
300,000 Baltimore Gas & Electric
Co.
600,000 Bellsouth Corp.
9,000 Boston Edison Co.
1,000 Central Hudson Gas &
Electric Corp.
</TABLE>

45
<PAGE> 55

COMMON STOCK

<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
28,400 Century Telephone
Enterprises, Inc.
26,000 Cipsco, Inc.
4,000 Citizens Utilities Co.,
Class B
12,600 Comsat Corp.
*6,000 Contel Cellular, Inc.,
Class A
*30,000 Destec Energy, Inc.
10,000 DQE, Inc.
10,000 Eastern Utilities
Associates
23,000 Illinova Corp.
3,000 LG&E Energy Corp.
*10,000 Lin Broadcasting Corp.
37,000 Lincoln
Telecommunications Co.
300,000 MCI Communications Corp.
*9,000 Nextel Communications,
Inc.
33,800 Oklahoma Gas & Electric
Co.
64,000 Pinnacle West Capital
Corp.
61,000 Portland General Corp.
6,000 Public Service Co. of
Colorado
*77,000 Public Service Co. of New
Mexico
800,000 Sprint Corp.
</TABLE>

CONVERTIBLE PREFERRED STOCK

<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ------------------------------------
<C> <S>
27,200 FHP International Corp.,
Series A, $1.25
SHORT-TERM INVESTMENTS

</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------------------------------------
<C> <S>
COMMERCIAL PAPER
$47,020,000 General Electric Capital
Corp.,
4.40%, 7/1/94
8,140,000 Prudential Funding
Corp.,
4.30%, 7/1/94
10,000,000 State Bank of New South
Wales,
4.36%, 7/28/94
REPURCHASE AGREEMENT
$10,675,000 Swiss Bank Corp.
Government Securities,
Inc., dated 6/30/94,
4.25% due 7/1/94
(collateralized by U.S.
Government obligations
in a pooled cash
account) repurchase
proceeds $10,676,260
UNITED STATES AGENCY AND GOVERNMENT
OBLIGATIONS
10,000,000 Tennessee Valley
Authority, 4.29%,
8/11/94
#280,000,000 United States Treasury
Bills, 3.97% to 4.30%,
7/21/94 to 10/6/94
</TABLE>

* Non-income producing security.
# Securities with a market value of $242.6 million were placed as collateral for
futures contracts.

46
<PAGE> 56

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> 57

AMERICAN CAPITAL
PACE FUND, INC.

Prospectus
November 1, 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

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 Transfer Agent, American
Capital Companies Shareholder Services,
Inc. (ACCESS), P.O. Box 418256,
Kansas City, MO 64141-9256.
Inquiries concerning sales should be
directed to the Distributor, American
Capital Marketing, Inc., P.O. Box 1411,
Houston, TX 77251-1411.

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

For investors seeking growth of
capital through a portfolio of
common stocks.

PRINTED MATTER
Printed in U.S.A./014 PRO-001