<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 CORPORATE BOND FUND, INC.
AMERICAN CAPITAL GLOBAL GOVERNMENT FUND
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
AMERICAN CAPITAL TAX-EXEMPT TRUST
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AND
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
1. Effective January 16, 1995, for full service participant directed profit
sharing and money purchase plans administered by Van Kampen/American Capital
Trust Company, no sales charge is payable at the time of purchase for plans with
at least 50 eligible employees or investing at least $250,000 in American
Capital funds, which includes Participating Funds as described in the Prospectus
under "Purchase of Shares -- Class A Shares -- Volume Discounts," and American
Capital Reserve Fund, Inc. For such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase.
Effective January 16, 1995, the Fund will also begin imposing a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase with respect to those qualified 401(k) retirement plans that are
administered under Van Kampen/American Capital Trust Company's (k) Advantage
Program, or similar recordkeeping programs made available through Van
Kampen/American Capital Trust Company purchasing shares of the Fund at net asset
value.
2. Effective January 16, 1995, the Distributor will no longer pay any
commission on accounts opened for shareholders where the amounts invested
represent the redemption proceeds from investment companies distributed by an
entity other than the Distributor.
<PAGE> 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
SIZE OF AS % OF NET AS % OF DEALERS (AS A
INVESTMENT AMOUNT INVESTED OFFERING PRICE % OF OFFERING PRICE)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.99% 4.75% 4.25%
$100,000 but less
than $250,000 3.90% 3.75% 3.25%
$250,000 but less
than $500,000 2.83% 2.75% 2.25%
$500,000 but less
than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 and over (see herein) (see herein) (see herein)
- ----------------------------------------------------------------------------
</TABLE>
No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase. The contingent deferred sales charge incurred upon redemption
is paid to the Distributor in reimbursement for distribution-related expenses. A
commission will be paid to dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1% on sales to $2 million, plus
0.80% on the next million, plus 0.20% on the next $2 million and 0.08% on the
excess over $5 million.
4. Effective January 16, 1995, the Fund may sell Class A shares of the Fund at
net asset value to Service Organizations for the benefit of their clients who
are participating in such Service Organizations' "wrap accounts." Service
Organizations must execute supplemental agreements to their existing selling
agreement with the Distributor in order to qualify for the program.
<PAGE> 7
SUPPLEMENT, DATED DECEMBER 20, 1994 TO
PROSPECTUS OF:
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND
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 Fund's investment adviser, and American Capital Marketing, Inc.
(the "Distributor"), the Fund's 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 Fund 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 the Fund approved a new investment advisory agreement with the Adviser
providing for the same terms and services as the investment advisory agreement
between the 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/AC 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.
<PAGE> 8
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. On December 16, 1994, the shareholders of the Fund approved a new investment
subadvisory agreement between the Adviser and John Govett & Co. Limited ("John
Govett") which will take effect on December 21, 1994. John Govett is a United
Kingdom based investment management company whose investment activities
originated in the 1920s. John Govett is primarily responsible for recommending
the allocation of investments among various international markets and
currencies; recommendation and selection of particular securities in the
international markets; an trading in foreign markets. The investment subadvisory
fee as reflected in the Prospectus remains the same with John Govett.
3. The following replaces the last paragraph under the section entitled "The
Company and Its Management":
John Reynoldson is primarily responsible for the day-to-day management
of the Fund's investment portfolio with respect to investments in the United
States. Mr. Reynoldson is Vice President of the Fund and has been Senior
Investment Vice President of the Adviser since July 1991. He was previously
an investment vice president with the Adviser. Mr. Reynoldson has been
primarily responsible for managing the Fund's investment portfolio with
respect to investments in the United States since its inception. John Govett
(the "Subadviser") has employed Alan Doyle since April 1994 as an
international manager specializing in emerging markets. He is primarily
responsible for allocating the Fund's investments between United States and
non-United States debt obligations and the day-to-day management of the
Fund's investments in countries other than the United States. Mr. Doyle will
begin managing the Fund's investment portfolio effective December 21, 1994.
Mr. Doyle was previously an economist in the fixed income department of
World Invest Ltd. in London.
4. Effective December 20, 1994, shares of the 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 the
Fund's Prospectus.
5. 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 with subsidiaries of Travelers.
<PAGE> 9
6. 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.
7. 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 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:
Class A Shares of the Fund may be purchased at net asset value, upon written
assurance that the purchase is made for investment purposes and that the
shares will not be resold except through redemption by the Fund, by (a)
current or retired Directors of the Fund; current or retired employees of
VK/AC Holding, Inc. or any of its subsidiaries; spouses, minor children and
grandchildren of the above persons; and parents of employees and parents of
spouses of employees of VK/AC Holding, Inc. and any of its subsidiaries;
trustees, directors and employees of Clayton, Dubilier & Rice, Inc.
8. 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.).
9. 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 GLOBAL GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------
2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666
September 29, 1994
American Capital Global Government Securities Fund (the "Fund") is a
professionally managed mutual fund organized as a non-diversified open-end
series of American Capital World Portfolio Series, Inc. (the "Company"). The
Fund seeks a high level of current income through investments primarily in an
internationally diversified portfolio of high quality foreign and U.S.
government bonds. The Fund's secondary objectives are capital appreciation and
protection of principal through active management of the maturity structure and
currency exposure of its portfolio.
There is no assurance that the Fund will achieve its investment objectives.
This Prospectus tells investors briefly the information they should know
before investing. 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 Company. A copy of the Statement of Additional
Information may be obtained without charge by calling or writing the Company 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 GLOBAL GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------
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
INVESTMENT SUBADVISER:
Lombard Odier International
Portfolio Management Limited
Norfolk House
13 Southampton Place
London WC1A 2AJ
England
DISTRIBUTOR:
American Capital
Marketing, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary...... 3
Expense Synopsis........ 5
Financial Highlights.... 7
Multiple Pricing
System................ 9
Investment Objectives
and Policies.......... 12
Risk Factors............ 16
Investment Practices and
Restrictions.......... 17
The Company and Its
Management............ 24
<CAPTION>
PAGE
<S> <C>
Purchase of Shares...... 26
Distribution Plans...... 34
Shareholder Services.... 36
Redemption of Shares.... 41
Dividends, Distributions
and Federal Taxes..... 43
Prior Performance
Information........... 45
Additional
Information........... 47
Investment Holdings..... 49
</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 Company 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. Common Stock.
MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
TYPE OF COMPANY. Non-diversified, open-end management investment company. The
Fund is a non-diversified portfolio of the Company and is one of two series of
shares which the Company is currently authorized to issue.
INVESTMENT OBJECTIVES. The Fund seeks to provide a high level of current
income. The Fund's secondary objectives are capital appreciation and protection
of capital.
INVESTMENT POLICY. Invests primarily in an internationally diversified
portfolio of high quality foreign and U.S. government bonds. The Fund may invest
in supranational issues and enter into contracts for the purchase or sale for
future delivery of fixed-income securities or foreign currencies, or contracts
based on financial indices including any index of U. S. Government securities or
foreign government securities and may purchase and write put and call options to
buy or sell futures contracts.
INVESTMENT RESULTS. The investment results of the Fund since its inception
are shown in the "Financial Highlights" table.
RISK FACTORS. Investing in securities issued by foreign governments and
corporations involves considerations and possible risks not typically associated
with investing in obligations issued by the United States government. The values
of foreign investments are affected by changes in currency rates or exchange
control regulations, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy or
changed circumstances in dealings between nations. See "Investment Objectives
and Policies" and "Risk Factors."
INVESTMENT ADVISER. American Capital Asset Management, Inc. (the "Adviser")
serves as investment adviser to the Fund. The Adviser provides investment advice
to 45 investment company portfolios. Lombard Odier International Portfolio
Management Limited (the "Subadviser") provides advisory services to the Adviser
of the Fund with respect to the Fund's investments in foreign securities. See
"The Company 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
3
<PAGE> 13
Fund. The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A shares. See "Multiple Pricing System." For
information on redeeming shares see "Redemption of Shares."
CLASS A SHARES. These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price. The Fund pays an
annual service fee of up to 0.25% of its average daily net assets attributable
to such class of shares. See "Purchase of Shares -- Class A Shares" and
"Distribution Plans."
CLASS B SHARES. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of 4% of redemption
proceeds during the first and second year, declining each year thereafter to 0%
after the fifth year. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to 1% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class B
Shares" and "Distribution Plans." Class B shares will convert automatically to
Class A shares six years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Multiple Pricing
System -- Conversion Feature."
CLASS C SHARES. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of 1% on redemptions made within
one year of purchase. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to 1% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution Plans." Class C shares will convert automatically to
Class A shares ten years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Multiple Pricing
System -- Conversion Feature."
DIVIDENDS AND DISTRIBUTIONS. Income dividends are paid monthly; any net
short-term or long-term capital gains are distributed at least annually. All
dividends and distributions are automatically reinvested in shares of the Fund
at net asset value per share (without sales charge) unless payment in cash is
requested. See "Shareholder Services -- Reinvestment Plan" and "Dividends,
Distributions and Federal 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 CLASS B CLASS C
SHARES SHARES SHARES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of
offering price).................. 4.75%(a) None None
Sales charge imposed on dividend
reinvestments.................... None None None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower).............. None* 4% during the first and 1.0% during the
second year, 3% during first year(b)
the third year, 2.5%
during the fourth year,
1.5% during the fifth
year and 0% after the
fifth year(b)
Exchange fee(c)................ $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management fees.................. .75% .75% .75%
Rule 12b-1 fees(d)............... .24% 1.00%(g) 1.00%(g)
Other expenses(e)................ .46% .47% .47%(f)
Total fund operating expenses.... 1.45% 2.22% 2.22%
- -------------------------------------------------------------------------------------------
</TABLE>
(a) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares" -- page 26.
(b) See "Purchase of Shares -- Class B Shares" and " -- Class C Shares" -- pages
32 and 33.
(c) Not charged in certain circumstances. See "Shareholder Services --
Shareholder Services Applicable to All Classes -- Systematic Exchange" and
" . . . -- Automatic Exchange" -- page 39.
(d) Up to .25% for Class A shares, and 1% for Class B and C shares. See
"Distribution Plans" -- page 34.
(e) See "The Company and Its Management" -- page 24.
(f) "Other expenses" is based on estimated amounts for the current fiscal year.
(g) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
* Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a contingent deferred sales charge of 1% may be imposed
on certain redemptions made within one year of the purchase.
5
<PAGE> 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 $47.50 front-end sales
charge and for Class B and Class C shares, a
contingent deferred sales charge assuming (1)
an operating expense ratio of 1.45% for Class
A shares, 2.22% for Class B shares and 2.22%
for Class C shares, (2) a 5% annual return
throughout the period and (3) redemption at
the end of the period:
Class A.................................... $62 $ 91 $123 $213
Class B.................................... $64 $102 $136 $218**
Class C.................................... $33 $ 69 $119 $255
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Class A.................................... $62 $ 91 $123 $213
Class B.................................... $23 $ 69 $119 $218**
Class C.................................... $23 $ 69 $119 $255
- --------------------------------------------------------------------------------------------
</TABLE>
** Based on conversion to Class A shares after six years.
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. See "Purchase of Shares," "The Company 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 the fiscal years ended May 31, 1994 and May 31,
1993, and the period ended May 31, 1992, has been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the related financial statements
and notes thereto included in the Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A
----------
YEAR ENDED NOV. 15,
MAY 31 1991(1)
---------- TO MAY 31,
1994 1993(3) 1992(3)
---------- ---------- ---------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......................... $9.01 $9.07 $9.43
---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................................ .92 .98 .62
Expenses..................................................... (.14) (.135) (.03)
---------- ---------- ---------
Net investment income........................................ .78 .845 .59
Net realized and unrealized gain (loss) on securities........ (.5715) (.123) (.5245)
---------- ---------- ---------
Total from investment operations............................. .2085 .722 .0655
---------- ---------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income......................... (.726) (.782) (.4255)
Distributions in excess of book-basis net realized
gain on securities......................................... (.2325) -- --
---------- ---------- ---------
Total distributions.......................................... (.9585) (.782) (.4255)
---------- ---------- ---------
Net asset value, end of period............................... $8.26 $9.01 $9.07
========== ========== ==========
TOTAL RETURN(4).............................................. 1.89% 8.47% .71%
</TABLE>
<TABLE>
<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)......................... $62.8 $36.1 $25.0
Average net assets (millions)................................ $55.6 $32.4 $14.0
Ratio to average net assets
Expenses.................................................... 1.45% 1.52% .50%(2)
Expenses, without expense reimbursement..................... -- -- 1.29%(2)
Net investment income....................................... 8.12% 9.33% 10.41%(2)
Net investment income, without expense reimbursement........ -- -- 9.62%(2)
Portfolio turnover rate...................................... 236% 301% 289%
</TABLE>
(Table continued on following page)
7
<PAGE> 17
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
YEAR ENDED MAY 31 NOV. 15, 1991(1)
-------------------------- TO MAY 31,
1994 1993(3) 1992(3)
---------- ---------- ---------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......................................... $9.04 $9.09 $9.43
---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................................................. .90 .98 .605
Expenses...................................................................... (.21) (.20) (.055)
---------- ---------- ---------
Net investment income......................................................... .69 .78 .55
Net realized and unrealized gain (loss) on securities......................... (.5435) (.12) (.5005)
---------- ---------- ---------
Total from investment operations.............................................. .1465 .66 .0495
---------- ---------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income.......................................... (.654) (.71) (.3895)
Distributions in excess of book-basis net realized gain on securities......... (.2325) -- --
---------- ---------- ---------
Total distributions........................................................... (.8865) (.71) (.3895)
---------- ---------- ---------
Net asset value, end of period................................................ $8.30 $9.04 $9.09
========== ========== ==========
TOTAL RETURN(4)............................................................... 1.07% 7.95% .53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).......................................... $147.5 $56.7 $22.5
Average net assets (millions)................................................. $107.1 $39.6 $11.0
Ratio to average net assets
Expenses..................................................................... 2.22% 2.19% 1.02%(2)
Expenses, without expense reimbursement...................................... -- -- 1.82%(2)
Net investment income........................................................ 7.30% 8.66% 9.86%(2)
Net investment income, without expense reimbursement......................... -- -- 9.07%(2)
Portfolio turnover rate....................................................... 236% 301% 289%
<CAPTION>
CLASS C(3)
-------------------------
YEAR ENDED APRIL 12, 1993(1)
MAY 31, TO MAY 31,
1994 1993
--------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......................................... $8.99 $9.00
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................................................. .83 .12
Expenses...................................................................... (.20) (.025)
--------- ---------
Net investment income......................................................... .63 .095
Net realized and unrealized gain (loss) on securities......................... (.4835) .011
--------- ---------
Total from investment operations.............................................. .1465 .106
--------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income.......................................... (.654) (.116)
Distributions in excess of book-basis net realized gain on securities......... (.2325) --
--------- ---------
Total distributions........................................................... (.8865) (.116)
--------- ---------
Net asset value, end of period................................................ $8.25 $8.99
========== ==========
TOTAL RETURN(4)............................................................... 1.19% 8.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).......................................... $23.5 $1.4
Average net assets (millions)................................................. $14.1 $0.4
Ratio to average net assets
Expenses..................................................................... 2.22% 2.63%(2)
Expenses, without expense reimbursement...................................... -- --
Net investment income........................................................ 7.13% 10.06%(2)
Net investment income, without expense reimbursement......................... -- --
Portfolio turnover rate....................................................... 236% 301%
</TABLE>
- ---------------
(1) Commencement of offering of sales.
(2) Annualized.
(3) Based on average month-end shares outstanding.
(4) Total returns for periods of less than one year have been annualized. Total
return does not consider the effect of sales charges.
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 4.75% of the offering price. Class A shares are
subject to an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if they are redeemed within five years of purchase.
Class B shares are subject to an ongoing service fee at an annual rate of up to
0.25% of the Fund's aggregate average daily net assets attributable to the Class
B shares and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
Class B shares enjoy the benefit of permitting all of the investor's dollars to
work from the time the investment is made. The ongoing distribution fee paid by
Class B shares will cause such shares to have a higher expense ratio and to pay
lower dividends than those related to Class A shares. See "Purchase of
Shares -- Class B Shares." Class B shares will automatically convert to Class A
shares six years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "Conversion Feature" herein for discussion
on applicability of the conversion feature to Class B shares.
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares." Class C shares will automatically convert to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.
9
<PAGE> 19
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 calendar month in which the shares were purchased and will no longer be
subject to the distribution fee. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The purpose of the conversion feature is to relieve the
holders of the Class B shares and Class C shares that have been outstanding for
a period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares or Class C
shares as the case may be, from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and transfer agency costs with
respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code, as amended (the "Code"), and (ii) the conversion of
shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares or Class C shares would occur, and shares might continue to be subject to
the distribution fee for an indefinite period which may extend beyond the period
ending six years or ten years, respectively, after the end of the calendar month
in which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Expense Synopsis" sets forth examples of the charges applicable to each
class of shares. In this regard, Class A shares may be more beneficial to the
investor who qualifies for reduced initial sales charges or purchases at net
asset value, as described herein under "Purchase of Shares --
10
<PAGE> 20
Class A Shares." For these reasons, the Distributor will reject any order of
$250,000 or more for Class B shares or any order of $1 million or more for Class
C shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase, investors in
Class A shares do not have all their funds invested initially and, therefore,
initially own fewer shares. Other investors might determine that it is more
advantageous to purchase either Class B shares or Class C shares and have all
their funds invested initially, although remaining subject to ongoing
distribution fees and, for a five-year or one-year period, respectively, being
subject to a contingent deferred sales charge. Ongoing distribution fees on
Class B shares and Class C shares will be offset to the extent of the additional
funds originally invested and any return realized on those funds. However, there
can be no assurance as to the return, if any, which will be realized on such
additional funds. For investments held for ten years or more, the relative value
upon liquidation of the three classes tends to favor Class A or Class B shares,
rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. In addition, the check writing privilege is only available for Class A
shares (see "Shareholder Services -- Shareholder Services Applicable to Class A
Shareholders Only -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, and/or have a longer-term
investment horizon. Class C shares may be appropriate for investors who wish to
avoid a front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon and/or desire a short
contingent deferred sales charge schedule.
Under most circumstances, for investments aggregating less than $100,000 at
the time of purchase, investments originally made in Class C shares will tend to
have a slightly higher value upon liquidation than investments originally made
in either Class A or Class B shares if liquidated within approximately the first
six years after the date of the original investment and investments originally
made in Class B shares will tend to have a slightly higher value upon
liquidation than investments originally made in either Class A or Class C shares
for investments held longer. Under most circumstances, for investments
aggregating $100,000 or more at the time of purchase, investments originally
made in Class C shares will tend to have a slightly higher value upon
liquidation than either investments originally made in Class A or Class B shares
if liquidated within approximately the first two to the first six years after
the date of the original investment, but investments originally made in Class A
and Class B shares will tend to have a slightly higher value upon liquidation
for investments held
11
<PAGE> 21
longer. The foregoing will not, however, be true in all cases. Particularly, if
the Fund experiences a consistently negative or widely fluctuating total return,
results may differ.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling 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 OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------
The investment objectives of the Fund is to provide a high level of current
income through investments primarily in an internationally diversified portfolio
of high quality foreign and U.S. government bonds. The Fund's secondary
objectives are capital appreciation and protection of principal through active
management of the maturity structure and currency exposure of its portfolio.
Government securities include debt securities issued or guaranteed by the United
States or foreign governments or their agencies, authorities or
instrumentalities.
The Fund seeks to achieve its objective by investing primarily in a global
portfolio of high quality debt obligations allocated among diverse international
markets and denominated in various currencies. Under normal circumstances, the
Fund invests at
12
<PAGE> 22
least 65% of its assets in government securities, and may invest a portion of
its assets in high quality debt securities of U.S. and foreign corporations.
Normally, the Fund invests in obligations of at least three countries. These
countries may include the United States, the countries of Western Europe, Japan,
Australia, New Zealand and Canada. Obligations of any other country may also be
considered for investment. Securities of any one issuer (other than the United
States government) will represent no more than 25% of the Fund's total assets.
The Fund may purchase securities that are issued by the government of one nation
but denominated in the currency of another nation (or in a multinational
currency unit).
The Fund may also invest in debt obligations of supranational lending entities
organized or supported by several national governments. Such supranational
entities in which the Fund may invest include the following: International Bank
for Reconstruction and Development (World Bank), established to promote
reconstruction and economic development in its member nations; European Coal and
Steel Community, a partnership of 12 European countries created to establish a
common market for coal and steel and to further the economic development of its
member countries; European Investment Bank, established to finance investment
projects that contribute to the balanced development of the European Economic
Community; European Bank for Reconstruction & Development, whose objectives are
to foster the transition toward open market economies and to promote private and
entrepreneurial initiative in countries of central and eastern Europe;
Inter-American Development Bank, established to further the development of its
Latin American member countries; African Development Bank, established to
contribute to the economic development and social progress of its African member
countries; Asian Development Bank, established to promote economic growth and
cooperation in Asia and the Far East. The Fund may from time to time invest up
to 25% of its total assets in these and other supranational entities.
The Adviser, subject to the direction of the Company's Directors, provides the
Fund with an overall investment program consistent with the Fund's objectives
and policies. The Adviser is solely responsible for advising the Fund with
respect to investments in the United States. The Subadviser, subject to overall
review by the Adviser and the Company's Directors and other authorized officers,
is responsible for recommending an optimal asset allocation and currency
exposure of the Fund's assets and is responsible for providing advice with
respect to the Fund's investments in countries other than the United States. The
Adviser and the Subadviser are sometimes referred to as the Advisers.
The Fund limits its purchases of debt securities to high quality obligations.
For debt obligations other than commercial paper, this includes securities that
are rated Aa3 or better by Moody's Investors Service ("Moody's") or AA- or
better by Standard & Poor's Corporation ("S&P"), or that are not rated but
considered by the
13
<PAGE> 23
Advisers to be of equivalent quality. A description of the Moody's and S&P
ratings is included in the Statement of Additional Information.
The Fund's portfolio is managed in accordance with a global investment
strategy, which means that the Fund's investments are allocated among securities
denominated in the United States dollar and the currencies of a number of
foreign countries and, within each such country, among different types of debt
securities. The Fund's exposure with respect to each currency is adjusted based
on Fund management's perception of the most favorable markets and issuers. In
this regard, the percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in accordance with
Fund management's assessment of the relative yield and appreciation potential of
such securities and the relationship of a country's currency to the United
States dollar. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by Fund management in determining
whether to increase or decrease the emphasis placed upon a particular type of
security within the Fund's investment portfolio.
The returns available from foreign currency denominated debt obligations can
be adversely affected by changes in exchange rates. The Advisers believe that
the use of foreign currency hedging techniques, including "cross-hedges" (see
"Investment Practices and Restrictions -- Forward Foreign Currency Exchange
Contracts", herein), can help protect against changes in the United States
dollar value of income available for distribution to shareholders and declines
in the net asset value of the Fund's shares resulting from adverse changes in
currency exchange rates. For example, the return available from securities
denominated in a particular foreign currency would diminish in the event the
value of the United States dollar increased against such currency. Such a
decline could be partially or completely offset by an increase in value of a
hedge involving a foreign currency contract, or by a cross-hedge involving a
forward currency contract, where such contract is available on terms more
advantageous to the Fund than a contract to sell the currency in which the
position being hedged is denominated. It is the Advisers' belief that hedges and
cross-hedges can therefore provide significant protection of net asset value in
the event of a general rise in the United States dollar against foreign
currencies. However, a hedge or cross-hedge cannot protect completely against
exchange rate risks, and if Fund management is incorrect in its judgment of
future exchange rate relationships, the Fund could be in a less advantageous
position than if such a hedge had not been established.
The investment objectives and policies, the percentage limitations and the
kinds of securities in which the Fund may invest may be changed by the Board of
Directors without shareholder action unless expressly governed by those
limitations as described under "Investment Practices and Restrictions" which can
be changed only by action of the shareholders. A change in the Fund's investment
objectives may result in the Fund having investment objectives different from
that which a shareholder
14
<PAGE> 24
deemed appropriate at the time of investment. See also the Statement of
Additional Information.
TEMPORARY SHORT-TERM INVESTMENTS. It is the Fund's policy generally to invest
in a globally diversified portfolio of longer term debt securities. However, in
the interest of preserving shareholders' capital and consistent with the Fund's
investment objectives, the Adviser may employ a temporary defensive investment
strategy if it determines such a strategy to be warranted. Under a defensive
strategy, the Fund may hold cash (United States dollars or foreign currencies)
and/or invest any portion or all of its assets in high quality money market
instruments. It is impossible to predict when or for how long the Fund will
employ defensive strategies. Money market instruments in which the Fund may
invest include, but are not limited to, the following instruments of United
States or foreign issuers: government securities; commercial paper; bank
certificates of deposit and bankers' acceptances; and repurchase agreements
related to any of the foregoing. The Fund will only purchase commercial paper if
it is rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P or, if not rated,
is considered by the Adviser to be of equivalent quality. In addition, for
temporary defensive reasons, such as during times of international political or
economic uncertainty, most or all of the Fund's investments may be made in the
United States and denominated in United States dollars.
Under such a temporary defensive strategy, the Fund would invest at least 25%
of its assets in securities issued by banks. See "Investment Practices and
Restrictions -- Investment Restrictions." Such investments may include
certificates of deposit, time deposits, bankers' acceptances, and obligations
issued by bank holding companies, as well as repurchase agreements entered into
with banks. In such event, the Fund would have greater exposure to the risk
factors which are characteristic of such investments. In particular, the value
of and investment return on the Fund's shares would be affected by economic or
regulatory developments in or related to the banking industry. Sustained
increases in interest rates can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. The banking industry is
also subject to the effects of the concentration of loan portfolios in
particular businesses such as real estate, energy, agriculture or high
technology-related companies; concentration of loan portfolios in lesser
developed country loans and highly leveraged transaction loans; national and
local regulation; and competition within those industries as well as with other
types of financial institutions. In addition, the Fund's investments in
commercial banks located in several foreign countries are subject to additional
risks due to the combination in such banks of commercial banking and diversified
securities activities.
15
<PAGE> 25
- ------------------------------------------------------------------------------
RISK FACTORS
- ------------------------------------------------------------------------------
FOREIGN SECURITIES AND CURRENCIES. Investing in securities issued by foreign
governments and corporations involves considerations and possible risks not
typically associated with investing in obligations issued by the United States
government. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in this country or abroad) or changed circumstances in
dealings between nations. Foreign currency exchange rates are determined by
forces of supply and demand on the foreign exchange markets. These forces are
themselves affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation and other
factors. Moreover, foreign currency exchange rates may be affected by the
regulatory control of the exchanges on which the currencies trade. Costs are
incurred in connection with conversions between various currencies. In addition,
foreign brokerage commissions and dealer mark-ups are generally higher than in
the United States, and foreign securities markets may be less liquid, more
volatile and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards and potential difficulties in
enforcing contractual obligations, and could be subject to extended settlement
periods.
NON-DIVERSIFICATION. The Fund is a "non-diversified" investment company
portfolio, which means the Fund is not limited in the proportion of its assets
that may be invested in the securities of a single issuer. However, the Fund
intends to conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which will relieve the Fund of any liability
for federal income tax to the extent its earnings are distributed to
shareholders. See "Dividends, Distributions and Federal Taxes." To so qualify,
among other requirements, the Fund will limit its investments so that, at the
close of each calendar quarter, (i) not more than 25% of the market value of the
Fund's total assets are invested in securities of a single issuer (other than
the U.S. Government, its agencies and instrumentalities), and (ii) at least 50%
of the market value of its total assets is invested in cash, securities of the
U.S. Government, its agencies and instrumentalities and other securities limited
in respect of any one issuer to an amount not greater than five percent of the
market value of the Fund's total assets and not more than ten percent of the
outstanding voting securities of such issuer. For purposes of the Fund's
requirements to maintain diversification for tax purposes, the issuer of a loan
participation will be the underlying borrower. In cases where the Fund does not
have recourse directly against the borrower, both the borrower and each agent
bank and co-lender interposed between the Fund and the borrower will be deemed
issuers of the loan participation for tax diversification purposes. Since the
Fund, as a non-diversified investment company, may invest in a
16
<PAGE> 26
smaller number of individual issuers than a diversified investment company, an
investment in the Fund may, under certain circumstances, present greater risks
to an investor than an investment in a diversified company.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES AND RESTRICTIONS
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REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic or foreign 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. Repurchase agreements
involve certain risks in the event of a default by the other party. 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 the Fund's net assets. In the event of the
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience delays in liquidating the underlying security including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto, (b) possible lack of access to
income on the underlying security during this period, and (c) expenses of
enforcing its rights. See the Statement of Additional Information.
For the purpose of investing in repurchase agreements, the Adviser 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Advisers are responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Fund. The Fund's portfolio securities generally are traded in the
over-the-counter market through dealers. A dealer is a securities firm or bank
which makes a market for securities by opening a position at one price and
closing the position at a slightly more favorable price. The difference between
the prices is known as a spread. Foreign currency and forward currency exchange
contracts are traded in a similar fashion in a dealer market maintained
primarily by large commercial banks. The
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Fund will pay brokerage commissions in connection with transactions in exchange-
traded options, futures contracts and related options. Spreads or commissions
for transactions executed in foreign markets often are higher than in the United
States. Broker or dealer firms are selected on the basis of their professional
capability for the type of transaction and the value and quality of execution of
services on a continuing basis. The Advisers are authorized to place portfolio
transactions with broker or dealer firms participating in the distribution of
shares of the Fund and other American Capital mutual funds if they reasonably
believe that the quality of the execution and the commission are comparable to
that available from other qualified firms. The Advisers are authorized to pay
higher commissions to brokerage firms that provide investment and research
information than to firms which do not provide such services if the Advisers
determine that such commissions are reasonable in relation to the overall
services provided. The information received may be used by the Advisers 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. Similarly, the Fund may from time to
time, place brokerage transactions with brokers that may be considered
affiliated persons of the Subadviser, including the Subadviser's parent company,
Lombard, Odier & Cie ("LOC"). When such transactions are made, in accordance
with Rule 17e-1 of 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."
PORTFOLIO TURNOVER. A change in securities held by the Fund is known as
"portfolio turnover" and may involve the payment by the Fund of brokerage
commissions or dealer spreads and other transaction costs on the sale of
securities as well as on the investment of the proceeds in other securities. The
portfolio turnover rate for a fiscal year is the ratio of the lesser of
purchases or sales of portfolio securities to the average value of portfolio
securities, excluding debt securities whose maturities at acquisition were one
year or less. The Fund expects its portfolio turnover rate to be as much as 400%
in any given year. An annual turnover rate of 400% occurs, for example, when the
dollar equivalent of all securities in the Fund's portfolio are replaced four
times over the period of one year. A high rate of portfolio turnover involves
correspondingly greater expenses than a lower rate, which expenses must be borne
by the Fund and its shareholders. A high portfolio turnover rate may also result
in the realization of substantial net short-term capital gains. See "Dividends,
Distributions and Federal Taxes -- Taxes."
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<PAGE> 28
LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
unaffiliated brokers, dealers and financial institutions provided that (a)
immediately after any such loan, the value of the securities loaned does not
exceed 15% of the total value of the Fund's assets, and (b) any securities loan
is collateralized in accordance with applicable regulatory requirements. The
Advisers believe the risk of loss on such transactions is slight, because, if a
borrower were to default for any reason, the collateral should satisfy the
obligation. See the Statement of Additional Information.
ILLIQUID SECURITIES. The Fund may invest up to ten percent of its net assets
in illiquid securities. As used herein, securities are considered illiquid if,
in the ordinary course of business, the Fund would not be able to dispose of the
security and receive the proceeds of the sale within seven days. Since market
quotations are not readily available for illiquid securities, such securities
will be valued by a method that the Fund's Board of Directors believes
accurately reflects fair value.
SHORT SALES AGAINST THE BOX. The Fund may from time to time make short sales
of securities it owns or has the right to acquire. A short sale is "against the
box" to the extent that the Fund contemporaneously owns or has the right to
obtain at no added cost securities identical to those sold short. In a short
sale, the Fund does not immediately deliver the securities sold and does not
receive the proceeds from the sale. The Fund is said to have a short position in
the securities sold until it delivers the securities sold, at which time it
receives the proceeds of the sale. The Fund may not make short sales or maintain
a short position if to do so would cause more than 25% of its total assets,
taken at market value, to be involved in such sales.
The Fund may close out a short position by purchasing and delivering an equal
amount of the securities sold short, rather than by delivering securities
already held by the Fund, because the Fund may want to continue to receive
interest and dividend payments on securities in its portfolio. However, the Fund
will not purchase and deliver new securities to satisfy its short order if such
purchase and sale would cause such Fund to derive more than 30% of its gross
income from the sale of securities held for less than three months.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices
including any index of United States government securities or foreign government
securities ("futures contracts") and may purchase and write put and call options
to buy or sell futures contracts ("options on futures contracts"). A "sale" of a
futures contract means the acquisition of a contractual obligation to deliver
the securities or foreign currencies called for by the contract at a specified
price on a specified date. A "purchase" of a futures contract means the
incurring of a contractual obligation to acquire the securities or foreign
currencies called for by the contract at a specified price on a specified date.
The purchaser of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified multiple of
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<PAGE> 29
the value of the index on the expiration date of the contract ("current contract
value") and the price at which the contract was originally struck. No physical
delivery of the fixed-income securities underlying the index is made. Options on
futures contracts to be written or purchased by the Fund will be traded on
United States or foreign exchanges. These investment techniques are used to
hedge against anticipated future changes in interest or exchange rates which
otherwise might either adversely affect the value of the Fund's portfolio
securities or adversely affect the price of securities which the Fund intends to
purchase at a later date. See the Statement of Additional Information for
further discussion of the use, risks and costs of futures contracts and options
on futures contracts.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write put and call
options on foreign currencies to increase the Fund's gross income and for the
purpose of protecting against declines in the United States dollar value of
foreign currency denominated portfolio securities and against increases in the
United States dollar cost of such securities to be acquired. As in the case of
other kinds of options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, the Fund may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies written or
purchased by the Fund are traded on United States and foreign exchanges or
over-the-counter. There is no specific percentage limitation on the Fund's
investments in options on foreign currencies. See the Statement of Additional
Information for further discussion of the use, risks and costs of options on
foreign currencies.
OPTIONS ON PORTFOLIO SECURITIES. The Fund may write call options on certain
of its portfolio securities at such time and from time to time as Fund
management shall determine to be appropriate and consistent with the investment
objective of the Fund. Generally, the Fund expects that options written by it
will be conducted on recognized securities exchanges.
In certain instances, however, the Fund may transact options in the
over-the-counter market ("OTC 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.
There is no fixed limit on the percentage of the Fund's assets upon which
options may be written.
The Fund will receive a premium (less any commissions) from the writing of
such contracts, consistent with the Fund's investment objective. The writing of
option
20
<PAGE> 30
contracts is a highly specialized activity which involves investment techniques
and risks different from those ordinarily associated with investment companies,
although the Fund believes that the writing of call options listed on an
exchange or traded in the over-the-counter market, where the Fund owns the
underlying security, tends to reduce such risks. The writer foregoes the
opportunity to profit from an increase in market price of the underlying
security above the exercise price so long as the option remains open. See the
Statement of Additional Information for more information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may purchase or sell
forward foreign currency exchange contracts ("forward contracts") to attempt to
minimize the risk to the Fund from adverse changes in the relationship between
the United States dollar and foreign currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the United States dollar
price of the security ("transaction hedge"). Additionally, for example, when the
Fund believes that a foreign currency may suffer a substantial decline against
the United States dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency, or when the
Fund believes that the United States dollar may suffer a substantial decline
against foreign currency, it may enter into a forward purchase contract to buy
that foreign currency for a fixed dollar amount ("position hedge"). In this
situation, the Fund may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed United States dollar amount where
the Fund believes that the United States dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
United States dollar value of the currency in which portfolio securities of the
Fund are denominated ("cross-hedge"). The Fund custodian will place cash or
United States government securities or other high-quality debt securities in a
segregated account having a value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in the segregated
account declines, additional cash or securities are placed in the account on a
daily basis so that the value of the account equals the amount of the Fund's
commitments with respect to such contracts. As an alternative to maintaining all
or part of the segregated account, the Fund may purchase a call option
permitting the Fund to purchase the amount of foreign currency being hedged by a
forward sale contract at a price no higher than the forward contract price or
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price. Unanticipated changes in currency prices
may result in poorer overall performance for the Fund than if it had not entered
into such contracts.
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<PAGE> 31
POTENTIAL RISKS OF OPTIONS, FUTURES AND FORWARD CONTRACTS. The successful use
of the foregoing investment techniques depends on the ability of the Fund's
Advisers to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of futures contracts, options or
forward contracts or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to options on currencies and forward contracts, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the prices of such instruments
and movements in the price of the securities and currencies hedged or used for
cover will not be perfect and could produce unanticipated losses. The Fund's
ability to dispose of its positions in futures contracts, options and forward
contracts will depend on the availability of liquid markets in such instruments.
Markets in options and futures with respect to a number of fixed-income
securities and currencies are relatively new and still developing. It is
impossible to predict the amount of trading interest that may exist in various
types of futures contracts, options and forward contracts. If a secondary market
does not exist with respect to an option purchased or written by the Fund
over-the-counter, it might not be possible to effect a closing transaction in
the option (i.e., dispose of the option) with the result that (i) an option
purchased by the Fund would have to be exercised in order for the Fund to
realize any profit and (ii) the Fund may not be able to sell currencies or
portfolio securities covering an option written by the Fund until the option
expires or it delivers the underlying futures contract or currency upon
exercise. Therefore, no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes set forth above. 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 (less any related margin
deposits) will be maintained in a segregated account with the Custodian.
Furthermore, the Fund's ability to engage in options and futures transactions
may be limited by tax considerations. See the Statement of Additional
Information.
SECURITY FORWARD COMMITMENTS. The Fund may purchase or sell securities on a
"when issued" or "delayed delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, frequently a month or more
after such transaction. The price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment takes place. At the time of settlement,
the market value of the securities may be more or less than the purchase or sale
price.
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<PAGE> 32
The Fund may either settle a Forward Commitment according to its original
terms, or it may resell or repurchase a Forward Commitment on or before the
settlement date if deemed advisable by the Advisers. When engaging in Forward
Commitments, the Fund relies on the other party to complete the transaction;
should the other party fail to do so, the Fund might lose a purchase or sale
opportunity that could be more advantageous than alternative opportunities at
the time of the failure.
INVESTMENT RESTRICTIONS. The Fund has adopted a number of investment
restrictions that may not be changed without the approval of the holders of a
majority of the Fund's shares. See the Statement of Additional Information. The
percentage limitations need only be met at the time the investment is made or
other relevant action taken. These restrictions provide, among other things,
that the Fund may not:
1. Purchase any security (other than obligations of the United States
Government, its agencies, or instrumentalities) if more than 25% of its
total assets (taken at current value) would then be invested in a single
industry except that, if the value of securities owned by the Fund with
remaining maturities of less than 13 months exceeds 35% of the value of
the Fund's total assets, the Fund will invest at least 25% of its assets
in securities issued by banks. Although this policy is not applicable to
securities issued by government or political subdivisions because such
issues are not members of any industry, the Fund does not intend to invest
more than 25% of its total assets in the securities issued or guaranteed
by any government (except U.S. Government, its agencies or
instrumentalities). For purposes of this restriction, issuers are not
considered to be of a single industry if their primary economic
characteristics are materially different.
2. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of its
net assets, or pledge more than ten percent of its net assets in
connection with permissible borrowings or purchase additional securities
when money borrowed exceeds five percent of its net assets. Margin
deposits or payments in connection with the writing of options, or in
connection with the purchase or sale of forward contracts, futures,
foreign currency futures and related options, are not deemed to be a
pledge or other encumbrance.
3. Lend money except through the purchase of (i) United States and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit and similar evidences of indebtedness, both
foreign and domestic, and (ii) repurchase agreements; or lend securities
in an amount exceeding 15% of the total assets of the Fund. The purchase
of a portion of an issue of securities described under (i) above
distributed publicly, whether or not the purchase is made on the original
issuance, is not considered the making of a loan.
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<PAGE> 33
4. Write, purchase or sell puts, calls or combinations thereof, except that
the Fund may (i) write covered or fully collateralized call options, write
secured put options, and enter into closing or offsetting purchase
transactions with respect to such options, (ii) purchase and sell options
to the extent that the premiums paid for all such options owned at any
time do not exceed ten percent of its total assets and (iii) engage in
transactions in interest rate futures contracts and related options
provided that such transactions are entered into for bona fide hedging
purposes (or that the underlying commodity value of the Fund's long
positions does not exceed the sum of certain identified liquid investments
as specified in CFTC regulations), provided further that the aggregate
initial margin and premiums do not exceed five percent of the fair market
value of the Fund's total assets, and provided further that the Fund may
not enter into net aggregate long and short futures contracts or related
options if more than 50% of the Fund's total assets would be so invested.
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THE COMPANY AND ITS MANAGEMENT
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The Company is an open-end, management investment company, commonly referred
to as a "mutual fund," incorporated in Maryland on May 25, 1990. A mutual fund
provides, for those who have similar investment goals, a practical and
convenient way to invest in a more diversified portfolio of securities than such
investors could assemble independently by combining their resources in an effort
to achieve such goals. The Fund is a non-diversified portfolio of the Company
and is one of two series of shares of common stock which the Company is
currently authorized to issue. The other series is American Capital Global
Equity Fund ("Global Equity"). From time to time, the Company may establish
other funds, each corresponding to a distinct investment portfolio and a
distinct series of the Company's common stock. Each series of the Company is a
separate and distinct entity, and a shareholder of one series has no interest in
or entitlement to the assets of any other series.
A board of eight directors has the responsibility for overseeing the affairs
of the Company. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, and
the Subadviser, Norfolk House, 13 Southampton Place, London WC1A 2AJ, England,
are responsible for the provision of advisory services in relation to the Fund's
assets. The Adviser also 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. As of August 31, 1994, the Adviser
provides investment advice to 45 investment company portfolios with total net
assets of approximately $16.8 billion.
The Adviser and the Distributor are wholly owned subsidiaries of American
Capital Management & Research, Inc. ("ACMR"), an indirect wholly owned
subsidiary of
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<PAGE> 34
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 Company, President, Chief Executive Officer and Director of
the Adviser, and Executive Vice President and Director of the Distributor. Most
other officers of the Company are also officers and/or directors of the Adviser,
and a number are also officers and directors of the Distributor. The Subadviser
provides investment advisory services to the Adviser of the Fund with respect to
the Fund's investments in foreign securities, including recommending optimal
asset allocation and currency exposure. The Subadviser is wholly owned by LOC,
one of the largest and oldest private banks in Switzerland, established in 1798.
Mr. Pierre Keller, a Managing Partner of LOC, is Chairman and Mr. Robert van
Maasdijk is Managing Director of the Subadviser. The Subadviser presently serves
as investment subadviser to two open-end investment company portfolios and one
closed-end investment company portfolio other than the Company.
The Company retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. The Adviser
has entered into a sub-advisory agreement dated July 17, 1991, as supplemented,
(the "Sub-advisory Agreement") with the Subadviser to assist it in performing
its investment advisory functions. The Subadviser will be primarily responsible
for recommending the allocation of investments among various international
markets and currencies; recommendation and selection of particular securities in
the international markets; and trading in the foreign fixed-income markets.
Under an investment advisory agreement dated July 17, 1991, as supplemented,
(the "Advisory Agreement"), the Company pays the Adviser a monthly fee computed
at the annual rate of 0.75% of the Fund's average daily net assets. This fee is
higher than that charged by most other mutual funds but the Fund believes it is
justified by the special international nature of the Fund and is not necessarily
higher than the fees charged by certain mutual funds with investment objectives
and policies similar to those of the Fund. Under the Advisory Agreement, the
Company 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 charges, custodial fees,
legal and accounting fees, the costs of reports and proxies to shareholders,
directors' fees, and all other business expenses not specifically assumed by the
Adviser. Advisory (management) fee, and total operating expense, ratios are
shown under the caption "Expense Synopsis" herein. Pursuant to the Sub-advisory
Agreement, the Subadviser receives on an annual basis 50% of the compensation
received by the Adviser. The Adviser and the Subadviser may, from time to time,
agree to waive their respective investment advisory fees or any portion thereof
or elect to reimburse the Fund for ordinary business expenses in excess of an
agreed upon amount.
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<PAGE> 35
John R. Reynoldson is primarily responsible for the day-to-day management of
the Fund's investment portfolio with respect to investments in the United
States. Mr. Reynoldson is Vice President of the Fund and has been Senior
Investment Vice President of the Adviser since July 1991. He was previously an
investment vice president with the Adviser. Mr. Reynoldson has been primarily
responsible for managing the Fund's investment portfolio with respect to
investments in the United States since its inception. The Subadviser employs
Robert McHenry as Senior Investment Manager, who is primarily responsible for
the day-to-day management of the Fund's investments in countries other than the
United States. Mr. McHenry has provided such services since the Fund's
inception. Mr. McHenry was previously an investment manager with Wardley
Investment Management Services International Limited and, prior to that, he was
an investment manager with World Trust Asset Management Limited.
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PURCHASE OF SHARES
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GENERAL
The Fund offers three classes of shares to the general public. Class A shares
are sold with an initial sales charge; Class B shares and Class C shares are
sold without an initial sales charge and are subject to a contingent deferred
sales charge upon certain redemptions. See "Multiple Pricing System" for a
discussion of factors to consider in selecting which class of shares to
purchase. Contact the American Capital Service Department at (800) 421-5666 for
further information and appropriate forms.
Shares of the Fund are offered continuously for sale by the Distributor and
are available through authorized dealers. Initial investments must be at least
$500, and subsequent investments must be at least $25. Both minimums may be
waived by the Distributor for plans involving periodic investments. Shares of
the Fund may be sold in foreign countries where permissible. The Fund and the
Distributor reserve the right to refuse any order for the purchase of shares.
The Fund also reserves the right to suspend the sale of the Fund's shares in
response to conditions in the securities markets or for other reasons.
Shares may be purchased on any business day through authorized dealers. Shares
may also be purchased by completing the application included in this Prospectus
and forwarding the application, through the designated dealer, to the
shareholder service agent, American Capital Companies Shareholder Services, Inc.
("ACCESS"). When purchasing shares of the Fund, investors must specify whether
the purchase is for Class A, Class B or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per share is
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<PAGE> 36
determined once daily as of the close of trading on the New York Stock Exchange
(the "Exchange") (currently 4:00 p.m. New York time) each day the Exchange is
open. Net asset value per share for each class is determined by dividing the
value of the Fund's securities, cash and other assets (including accrued
interest) attributable to such class less all liabilities (including accrued
expenses) attributable to such class, by the total number of shares of the class
outstanding. Securities listed or traded on a national securities exchange are
valued at the mean of representative quoted bid or asked prices. Unlisted
securities and listed securities for which such prices are not available are
valued at prices of comparable securities. Options and futures contracts are
valued at the last sale price or if no sales are reported, at the mean between
the bid and asked prices. Short-term investments are valued at cost plus
interest earned (amortized cost), which approximates market value.
The net asset value of the Fund is computed by (i) valuing long-term debt
obligations at the mean of representative quoted bid or asked prices for such
securities or, if such prices are not available, at prices for securities of
comparable maturity, quality and type; however, when the Advisers deem it
appropriate, prices obtained for the day of valuation from a bond pricing
service will be used, (ii) valuing short-term debt obligations with remaining
maturities in excess of 60 days at the mean of representative quoted bid and
asked prices for such securities or, if such prices are not available, using the
prices for securities of comparable maturity, quality and type, (iii) valuing
short-term debt securities with 60 days or less remaining to maturity by
amortizing such securities to maturity based on their cost to the Fund. Options
and futures contracts and options thereon which are traded on exchanges are
valued at their last sale or settlement price as of the close of such exchanges,
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Over-the-counter options are valued at the average of the last bid
prices obtained from dealers. Any other assets will be valued at fair value as
determined in good faith by the Board of Directors of the Company.
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 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
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<PAGE> 37
$500 are mailed by the dealer and processed at the offering price next
calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan pursuant to which its distribution fee and/or service
fee is paid which relate to a specific class, and (iii) Class B and Class C
shares are subject to a conversion feature. Each class has different exchange
privileges and certain different shareholder service options available. See
"Distribution Plans" and "Shareholder Services -- Exchange Privilege." The net
income attributable to Class B and Class C shares and the dividends payable on
Class B and Class C shares will be reduced by the amount of the distribution fee
and incremental expenses associated with such distribution fees. Sales personnel
of broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class A, Class B or Class C shares.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
AS % OF AS % OF DEALERS (AS
SIZE OF NET AMOUNT OFFERING % OF OFFERING
INVESTMENT INVESTED PRICE PRICE)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.................. 4.99% 4.75% 4.00%
$100,000 but less than $250,000..... 4.17% 4.00% 3.50%
$250,000 but less than $500,000..... 3.09% 3.00% 2.50%
$500,000 but less than $1,000,000... 2.04% 2.00% 1.75%
$1,000,000 and over................. (see herein) (see herein) (see herein)
- ------------------------------------------------------------------------------
</TABLE>
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.
28
<PAGE> 38
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 "Volume Discounts," and American Capital Reserve Fund,
Inc. ("Reserve"). For such investments the Fund imposes a contingent deferred
sales charge of 1% in the event of certain redemptions within one year of the
purchase. No such charge will be imposed unless and until appropriate relief is
granted by the SEC. The contingent deferred sales charge incurred upon
redemption is paid to the Distributor in reimbursement for distribution-related
expenses. A commission will be paid to dealers who initiate and are responsible
for such purchases as follows: 1% on sales to $5 million, plus 0.50% on the next
$5 million, plus 0.25% on the excess over $10 million.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. The Distributor may pay
dealers through whom purchases are made at net asset value as described in
clause (e) herein an amount equal to 0.40% of the amount invested. Dealers which
are reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the Securities Act of 1933.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to dealers described herein. Such financial
institutions, other industry professionals and dealers are hereinafter referred
to as "Service Organizations." Banks are currently prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be required to
register as dealers pursuant to certain state laws.
Class A shares of the Fund may be purchased at net asset value, upon written
assurance that the purchase is made for investment purposes and that the shares
will not be resold except through redemption by the Fund, by (a) current or
retired directors of the Fund; current or retired employees of ACMR and any of
its affiliates; spouses, minor children and grandchildren of the above persons;
and parents of employees and parents of spouses of employees of ACMR and any of
its affiliates;
29
<PAGE> 39
(b) employees of an investment subadviser to any fund in the same "group of
investment companies" (as defined in Rule 11a-3 under the 1940 Act) as the Fund
or an affiliate of the subadviser; employees and registered representatives of
Service Organizations with selling group agreements with the Distributor;
employees of financial institutions that have arrangements with Service
Organizations having selling group agreements with the Distributor; and spouses
and minor children of such persons; (c) any trust, pension, profit sharing or
other benefit plan for such persons; and (d) trustees or other fiduciaries
purchasing shares for retirement plans of organizations with retirement plan
assets of $10 million or more. Shares are offered at net asset value to such
persons because of anticipated economies in sales efforts and sales related
expenses. Such shares are also offered at net asset value to (e) accounts opened
for shareholders by dealers where the amounts invested represent the redemption
proceeds from investment companies distributed by an entity other than the
Distributor if such redemption has occurred no more than 15 days prior to the
purchase of shares of the Fund and the shareholder paid an initial sales charge
and was not subject to a deferred sales charge on the redeemed account. Shares
are also offered at net asset value to (f) registered investment advisers, trust
companies and bank trust departments exercising discretionary investment
authority with respect to the money to be invested in the Fund, provided that
the aggregate amount invested in the Fund alone, or in any combination of shares
of the Fund and shares of certain other participating American Capital mutual
funds as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto at net asset value, equals at least $1 million. Purchase orders
made pursuant to clause (f) may be placed either through authorized dealers as
described above or directly with ACCESS by the investment adviser, trust company
or bank trust department, provided that ACCESS receives federal funds for the
purchase by the close of business on the next business day following acceptance
of the order. An authorized dealer or financial institution may charge a
transaction fee for placing an order to purchase shares pursuant to this
provision or for placing a redemption order with respect to such shares. Service
Organizations will be paid a service fee as described herein under "Distribution
Plans" on purchases made on behalf of registered investment advisers, trust
companies and bank trust departments described in clause (f) above, retirement
plans described in clause (d) above and for registered representatives'
accounts.
The Distributor may pay commissions of up to 1% for purchases described in
clause (d). The Distributor may pay Service Organizations through which
purchases are made as described in clause (f) above for transactions of $1
million or more an amount up to 0.50% of the amount invested, over a
twelve-month period following the pertinent transaction. The Company may
terminate, or amend the terms of, offering shares of the Fund at net asset value
to such groups at any time.
30
<PAGE> 40
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described herein.
VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund,
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., American Capital Government
Securities, Inc., American Capital Government Target Series ("Government
Target"), American Capital Growth and Income Fund, Inc., American Capital Harbor
Fund, Inc., American Capital High Yield Investments, Inc. ("High Yield"),
American Capital Municipal Bond Fund, Inc. ("Municipal Bond"), American Capital
Pace Fund, Inc., American Capital Real Estate Securities Fund, Inc. ("Real
Estate"), American Capital Tax-Exempt Trust ("Tax-Exempt"), American Capital
Texas Municipal Securities, Inc. ("Texas Municipal"), American Capital U.S.
Government Trust for Income ("Government Trust"), American Capital Utilities
Income Fund, Inc. ("Utilities Income") and American Capital World Portfolio
Series, Inc. 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
31
<PAGE> 41
the investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the charges applicable to the purchases made and
the charges previously paid. The initial purchase must be for an amount equal to
at least five percent of the minimum total purchased amount of the level
selected. If trades not initially made under a Letter of Intent subsequently
qualify for a lower sales charge through the 90-day back-dating provisions, an
adjustment will be made at the expiration of the Letter of Intent to give effect
to the lower charge. Such adjustments in sales charge will be used to purchase
additional shares for the shareholder at the applicable discount category.
Additional information is contained in the application form included in this
Prospectus.
CLASS B SHARES
Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions.
The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchases
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------------------------------------------------------------------
<S> <C>
First....................................... 4%
Second...................................... 4%
Third....................................... 3%
Fourth...................................... 2.5%
Fifth....................................... 1.5%
Sixth....................................... None
- ------------------------------------------------------------------------------
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares in the shareholder's Fund account that are not subject to
a contingent deferred sales charge, second, of shares held for over five years
or shares acquired pursuant to
32
<PAGE> 42
reinvestment of dividends or distributions and third, of shares held longest
during the five-year period. The charge is not applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.
CLASS C SHARES
Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of 1%. The charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price. In addition, no charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
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.
33
<PAGE> 43
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, and (iii) pursuant to the Fund's systematic withdrawal
plan but limited to 12% annually of the initial value of the account. The
contingent deferred sales charge is also waived on redemptions of Class C shares
as it relates to the reinvestment of redemption proceeds in shares of the same
class of the Fund within 120 days after redemption. See the Statement of
Additional Information for further discussion of waiver provisions.
- ------------------------------------------------------------------------------
DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing 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") as amended July
7, 1993. 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. 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 and Class C shares to reimburse the
Distributor for service fees paid by it to Service Organizations and for its
distribution cost.
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
34
<PAGE> 44
Plan, the Distributor receives additional payments from the Fund in the form of
a distribution fee at the annual rate of up to 0.75% of the net assets of the
Class C shares as reimbursement for (i) upfront commissions and transaction fees
of up to 0.75% of the purchase price of Class C shares purchased by the clients
of broker-dealers and other Service Organizations and ongoing commissions and
transaction fees of up to 0.65% of the average daily net assets of the Fund's
Class C shares, and (ii) other distribution expenses as described in the
Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Directors of the Fund determined that there was a reasonable likelihood that
such Plans would benefit the Fund and its shareholders. Information with respect
to distribution and service revenues and expenses is presented to the Directors
each year for their consideration in connection with their deliberations as to
the continuance of the Distribution Plans. In their review of the Distribution
Plans, the Directors are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.
Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than 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,
35
<PAGE> 45
1994, the unreimbursed expenses incurred by the Distributor under the Class B
Plan and carried forward were approximately $5.9 million or 4.04% of the Class B
shares' net assets. The unreimbursed expenses incurred by the Distributor under
the Class C Plan and carried forward were approximately $400,000 or 1.71% of the
Class C shares' net assets.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of those services.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
the shares are held by ACCESS. Stock certificates are not issued except upon
shareholder requests. Most shareholders elect not to receive certificates in
order to facilitate redemptions and transfers. A shareholder may incur an
expense to replace a lost certificate. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder who has an account in any of the
Participating Funds listed under "Purchase of Shares -- Class A Shares -- Volume
Discounts," or Reserve, may receive statements quarterly from ACCESS showing any
reinvestments of dividends and capital gains distributions and any other
activity in the account since the preceding statement. Such shareholder also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (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.
36
<PAGE> 46
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); Keogh and corporate pension and profit sharing plans; 401(k)
plans; or Section 403(b)(7) plans in the case of employees of public school
systems and certain non-profit organizations. Documents and forms containing
detailed information regarding these plans are available from the Distributor.
American Capital Trust Company serves as Custodian under the IRA, 403(b)(7) and
Keogh plans and charges an annual fee. Details regarding other fees, as well as
full plan administration for profit sharing, pension and 401(k) plans are
available from the Distributor.
FUND TO FUND DIVIDENDS. A shareholder may, upon written request or by
completing the appropriate section of the application form in this Prospectus,
elect to have all dividends and other distributions paid on a Class A, Class B
or Class C account in the Fund invested into a pre-existing Class A, Class B or
Class C account in any of the Participating Funds listed under "Purchase of
Shares -- Class A Shares -- Volume Discounts," or Reserve. Both accounts must be
of the same class and of the same type, either non-retirement or retirement. Any
two non-retirement accounts can be used. If the accounts are retirement
accounts, they must both be for the same class and of the same type of
retirement plan (e.g., IRA, 403(b)(7), 401(k), Keogh) and for the benefit of the
same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution only if shares of such selected fund have
been registered for sale in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund (listed
herein under "Purchase of 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 the Fund and of Corporate Bond, Federal
Mortgage, Government Trust, High Yield, Municipal Bond, Real Estate, Tax-Exempt,
Texas Municipal and Utilities Income 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
37
<PAGE> 47
Participating Fund may be available for sale only to existing shareholders.
Additional funds may be added from time to time as a Participating Fund.
Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other
American Capital fund that offers such shares ("new shares") in an amount equal
to the aggregate net asset value of the original shares, without the payment of
any contingent deferred sales charge otherwise due upon redemption of the
original shares. For purposes of computing the contingent deferred sales charge
payable upon a disposition of the new shares, the holding period for the
original shares is added to the holding period of the new shares. Class B and
Class C shareholders may exchange their shares for shares of Reserve without
incurring the contingent deferred sales charge that otherwise would be due upon
redemption of such Class B or Class C shares. Class B or Class C shareholders
would remain subject to the contingent deferred sales charge imposed by the
original fund upon their redemption from the American Capital complex of funds.
Shares of Reserve acquired through an exchange of Class B or Class C shares may
be exchanged only for the same class of shares of a Participating Fund without
incurring a contingent deferred sales charge.
Shares of the fund to be acquired must be registered for sale in the
investor's state and an exchange fee, currently $5 per transaction, is charged
by ACCESS except as described herein under "Systematic Exchange" and "Automatic
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
38
<PAGE> 48
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except fund to fund dividends) and dealer of
record as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In order to establish a systematic withdrawal plan
for the new account or reinvest dividends from the new account into another
fund, however, an exchanging shareholder must file a specific written request.
The Fund reserves the right to reject any order to acquire its shares through
exchange, or otherwise to modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
SYSTEMATIC EXCHANGE. A shareholder may invest regularly into any
Participating Fund by systematically exchanging from the Fund into such other
fund account ($25 minimum for existing account, $100 minimum for establishing
new account). Both accounts must be of the same type and class. The exchange fee
as described above under "Shareholder Services -- Exchange Privilege" will be
waived for such systematic exchanges. Additional information on how to establish
this option is available from the Distributor.
AUTOMATIC EXCHANGE. The exchange fee 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
39
<PAGE> 49
shareholder's investment in the Fund at the time the election to participate in
the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred Sales
Charge" and the Statement of Additional Information.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under this plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon
redemption of shares.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the AUTHORIZATION FOR REDEMPTION BY CHECK
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to the Class A shareholder. These
checks may be made payable by the shareholder to the order of any person in any
amount of $100 or more.
When a check is presented to State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the shareholder's Class A account by ACCESS at the next determined net
asset value. Check writing redemptions represent the sale of shares. Any gain or
loss realized on the sale of Class A shares is a taxable event. See "Redemption
of Shares."
Checks will not be honored for redemption of shares held less than 15 days,
unless such Class A shares have been paid for by bank wire. Any Class A shares
for which there are outstanding certificates may not be redeemed by check. If
the amount of the check is greater than the proceeds of all uncertificated
shares held in the shareholder's Class A account, the check will be returned and
the shareholder may be subject to additional charges. A Class A shareholder may
not liquidate the entire account by means of a check. The check writing
privilege may be terminated or suspended at any time by the Fund or State Street
Bank. Retirement Plans and accounts that are subject to backup withholding are
not eligible for the privilege. A "stop payment" system is not available on
these checks. See the Statement of Additional Information for further
information regarding the establishment of the privilege.
40
<PAGE> 50
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized investment
dealer. Orders received from dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by a dealer provided such order
is transmitted to the Distributor prior to the Distributor's close of business
on such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B and
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of 1% may be imposed on certain redemptions of
Class A shares made within one year of purchase for investments of $1 million or
more. The contingent deferred sales charge incurred upon redemption is paid to
the Distributor in reimbursement for distribution-related expenses. See
"Purchase of Shares." A custodian of a retirement plan account may charge fees
based on the custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or the
record address has changed within the previous 60 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where American Capital Trust Company
serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution forms
must be obtained from
41
<PAGE> 51
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. Payment for shares redeemed will be made by check mailed within seven
days after acceptance by ACCESS of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed have
been recently purchased by check, ACCESS may delay mailing a redemption check
until the purchase check has cleared, usually a period of 15 days. Any taxable
gain or loss will be recognized by the shareholder upon redemption of shares.
The Fund may redeem any shareholder account if such account has for a period
of more than six months had a net asset value of less than $500. The Fund would
redeem a shareholder's account falling below $500 only if this results from
shareholder withdrawals and not from market decline. Sixty days prior written
notice of any such involuntary redemption is required, and the shareholder is
given an opportunity to purchase the required value of additional shares at the
next determined net asset value without sales charge. Any applicable contingent
deferred sales charge will be deducted from the proceeds of this redemption.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures
previously set forth, the Fund permits shareholders and the dealer
representative of record to redeem shares by telephone and to have redemption
proceeds sent to the address of record for the account or to the bank account of
record as described below. To establish such privilege, a shareholder must
complete the appropriate section of the application form in this Prospectus or
call the Fund at (800) 421-5666 to request that a copy of the Telephone
Redemption Authorization form be sent to them for completion. To redeem shares,
contact the telephone transaction line at (800) 421-5684. American Capital and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither American Capital nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Fund's regular redemption
procedure previously described. Requests received by ACCESS prior to 4:00 p.m.,
New York time, on a regular business day will be processed at the net asset
value per share determined that
42
<PAGE> 52
day. These privileges are available for all accounts other than retirement
accounts. The telephone redemption privilege is not available for shares
represented by certificates. If an account has multiple owners, ACCESS may rely
on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed once in each 30-day period. The proceeds must be payable to the
shareholder(s) of record and sent to the address of record for the account or
wired directly to their predesignated bank account. This privilege is not
available if the address of record has been changed within 60 days prior to a
telephone redemption request. Proceeds from redemptions are expected to be wired
on the next business day following the date of redemption. The Fund reserves the
right at any time to terminate, limit or otherwise modify this redemption
privilege.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class A shares of the Fund. A Class C shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of the Fund with credit given for any contingent
deferred sales charge paid upon such redemption. Such reinstatement is made at
the net asset value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by American
Capital Trust Company for repayment of principal (and interest) on their
borrowings on such plans.
- ------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
- ------------------------------------------------------------------------------
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.
DIVIDENDS. Interest earned from debt securities are the Fund's main source of
income. This income, less expenses, is distributed monthly as dividends to
shareholders. Unless the shareholder instructs otherwise, dividends and capital
gains distributions 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 higher distribution
charges and incremental transfer agency fees applicable to such classes of
shares.
43
<PAGE> 53
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund distributes to shareholders at
least once a year the excess, if any, of its total profits on the sale of
securities during the year over its total losses on the sale of securities,
including capital losses carried forward from prior years under tax laws. As in
the case of income dividends, capital gains distributions are automatically
reinvested in additional shares of the Fund at net asset value. See "Shareholder
Services -- Reinvestment Plan."
TAXES. The Fund has qualified and intends to be taxed as a regulated
investment company under the Code. By qualifying as a regulated investment
company, the Fund is not subject to federal income taxes to the extent it
distributes its net investment income and net realized capital gains. Dividends
from net investment income and distributions from any net realized short-term
capital gains are taxable to shareholders as ordinary income. Long-term capital
gains constitute long-term capital gains for federal income tax purposes. All
such dividends and distributions are taxable to the shareholder whether or not
reinvested in shares. However, shareholders not subject to tax on their income
will not be required to pay tax on amounts distributed to them.
Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions.
To avoid being subject to a 31% federal backup withholding on dividends,
distributions and redemption payments, shareholders must furnish the Fund with a
certification of their correct taxpayer identification number.
Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution paid shortly after the purchase of shares
by an investor would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so purchased) even though
subject to income taxes as discussed herein.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Investors
may be entitled to claim United States foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code. If
more than 50% in value of the Fund's total assets at the close of its fiscal
year consists of securities of foreign issuers, the Fund will be eligible, and
may file elections with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro rata
portions of such taxes in their United States income tax returns as gross
income, treat such respective pro rata portions as taxes paid by them, and
deduct such respective pro rata portions in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their United States
income taxes. The Fund will report annually to its shareholders the amount per
share of such withholding.
44
<PAGE> 54
Under Code Section 988, certain realized gains or losses on the sale or
retirement of foreign bonds held by the Fund, to the extent attributable to
fluctuations in currency exchange rates, as well as certain other gains or
losses attributable to exchange rate fluctuations, are typically treated as
ordinary income or loss. Such income or loss may increase or decrease (or
possibly eliminate) the Fund's income available for distribution. If, under the
rules governing the tax treatment of foreign currency gains and losses, the
Fund's income available for distribution is decreased or eliminated, all or a
portion of the dividends declared by the Fund may be treated for federal income
tax purposes as a return of capital or, in some circumstances, as capital gain.
Generally, your tax basis in your Fund shares will be reduced to the extent that
an amount distributed to you is treated as a return of capital.
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 advisors 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 year and for the life of the Fund. Other total return
quotations, aggregate or average, over other time periods may also be included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 4.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable contingent deferred
sales charge has been paid. The Fund's total return will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are made to reflect
any income taxes payable by shareholders on dividends and distributions by the
Fund.
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.
45
<PAGE> 55
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
To increase the yield of the Fund, the Adviser, may from time to time, limit
its management fee. A yield quotation which reflects an expense reimbursement or
subsidization by the Adviser will be higher than a yield quotation without such
expense reimbursement or subsidization. The Adviser may stop limiting its
management fees at any time without prior notice.
Yield and total return are calculated separately for Class A, Class B and
Class C shares. Class A total return figures include the maximum sales charge of
4.75%; Class B and Class C total return figures include any applicable
contingent deferred sales charge. Because of the differences in sales charges
and distribution fees, the total returns for each of the classes will differ.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds or with the Consumer Price Index, the Dow Jones
Industrial Average Index, 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 publica-
46
<PAGE> 56
tions 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 refer to results of top performing world bond markets as compiled by
Morgan Stanley Capital International or other independent statistical services.
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 Company was organized on May 25, 1990, under
the laws of the State of Maryland, and presently is authorized to sell two
series. These series are American Capital Global Equity Fund and the Fund. Each
of these series offers three classes of shares: Class A, Class B and Class C
shares. Each class of shares represents interests in the assets of the Fund and
has identical voting, dividend, liquidation and other rights on the same terms
and conditions except that the distribution fees and/or service fees related to
each class of shares are borne solely by that class, and each class of shares
has exclusive voting rights with respect to provisions of the Fund's Class A
Plan, Class B Plan and Class C Plan which pertain to that class. An order has
been received from the SEC permitting the issuance and sale of multiple classes
of shares representing interests in the Fund's existing portfolio. Shares issued
are fully paid, non-assessable and have no preemptive or conversion rights.
VOTING RIGHTS. The Bylaws of the Company 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 of the Fund 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
47
<PAGE> 57
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. Shares of the Fund will be voted by the Fund's shareholders
individually when the matter affects the specific interest of the Fund only,
such as a change in a fundamental investment policy. The shares of all the
Company's series will be voted in the aggregate on other matters, such as the
election of the Company's directors. 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
Company 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 Company.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1201 Louisiana, Suite 2900,
Houston, Texas 77002, are the independent accountants for the Company.
CUSTODIAN. The Company's securities and cash in the United States will be
held under a custodian agreement with State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. The Custodian may employ
sub-custodians outside the United States approved by the Directors of the
Company in accordance with regulations of the SEC.
48
<PAGE> 58
- ------------------------------------------------------------------------------
INVESTMENT HOLDINGS
- ------------------------------------------------------------------------------
May 31, 1994
Government Obligations
<TABLE>
<CAPTION>
Principal
Amount
------------------------------------------------------------------------------
(Local Currency)
<S> <C>
GREAT BRITAIN
L 1,330,000 Treasury Notes, 6.75%, 11/26/04
UNITED STATES*
$ 9,400,000 Treasury Bonds, 7.125%, 2/15/23
98,127,000 Treasury Notes, 7.75%, 2/15/95
87,000,000 Treasury Notes, 11.25%, 5/15/95
22,500,000 Treasury Notes, 12.625%, 8/15/94
Repurchase Agreement*
5,905,000 Kidder Peabody & Co., Inc., dated 5/31/94, 4.27%, due
6/1/94 (collateralized by U.S. Government obligations in
a pooled cash account) repurchase proceeds $5,905,700
</TABLE>
* Securities were placed as collateral for forward commitments and futures
contracts.
Forward Purchase Commitments
<TABLE>
<CAPTION>
Principal
Amount
------------------------------------------------------------------------------
Local Currency
(in Millions)
<S> <C>
Australia (Commonwealth of)
A$ 4,950,000 7.00%, 8/15/98, settlement 6/94
Denmark (Kingdom of)
Kr 51,500,000 7.00%, 12/15/04, settlement 9/94
France (Government of)
FF 92,340,000 8.50%, 3/12/97, settlement 8/94
Germany (Federal Republic of)
DM 4,200,000 6.25%, 1/4/24, settlement 8/94
Italy (Republic of)
IL 8,000,000,000 8.50%, 1/1/97, settlement 7/94
Japan (Government of)
Y 147,500,000 4.10%, 6/21/04, settlement 8/94
Spain (Government of)
SP 1,100,000,000 8.30%, 12/15/98, settlement 6/94
696,000,000 8.30%, 12/15/98, settlement 8/94
137,400,000 8.00%, 5/30/04, settlement 6/94
790,000,000 8.00%, 5/30/04, settlement 7/94
United States Treasury Bond
$ 29,000,000 7.125%, 2/15/23, settlement 8/94
</TABLE>
49
<PAGE> 59
- ------------------------------------------------------------------------------
Currency Legend
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Currency
Country Abbreviation
-------------
<S> <C>
Australia.................................. A$
Denmark.................................... Kr
France..................................... FF
Germany.................................... DM
Great Britain.............................. L
Italy...................................... IL
Japan...................................... Y
Spain...................................... SP
United States.............................. $
</TABLE>
- ------------------------------------------------------------------------------
50
<PAGE> 60
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> 61
AMERICAN CAPITAL
GLOBAL GOVERNMENT SECURITIES FUND
Prospectus
September 29, 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
Investment Subadviser
Lombard Odier International
Portfolio Management Limited
Norfolk House
13 Southampton Place
London WC1A 2AJ
England
Transfer, Disbursing, Redemption
and Shareholder Service Agent
American Capital Companies
Shareholder Services, Inc.
P.O. Box 418256
Kansas City, MO 64141-9256
Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, TX 77002
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Inquiries concerning transfer of
registration, distributions, redemptions
and shareholder service should be
directed to the Shareholder Service Agent,
American Capital Companies Shareholder
Services, Inc. (ACCESS), P.O. Box 418256,
Kansas City, MO 64141-9256.
Inquiries concerning sales should be
directed to the Distributor, American
Capital Marketing, Inc., P.O. Box 1411,
Houston, TX 77251-1411.
American Capital C/O ACCESS
Global Government P.O. Box 418256
Securities Fund Kansas City, MO 64141-9256
A Fund of
American Capital
World Portfolio
Series, Inc.
A Fund of American Captial
World Portfolio Series, Inc.
PRINTED MATTER
Printed in U.S.A./008-02-23 10/076 PRO-001
