AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES INC, 497, 1995-05-22

AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES INC
497, 1995-05-22

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<PAGE> 1

SUPPLEMENT, DATED MAY 1, 1995 TO
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES FUND, INC.
PROSPECTUS

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. Exchanges may only be made for funds that are eligible for sale in
the shareholder's state of residence. The Fund is only available for sale in
Arkansas, Louisiana, New Mexico, Oklahoma and Texas. All other Participating
Funds are available for sale in all 50 states. Shares of any Participating
Fund or Reserve may be exchanged for shares of any other Participating Fund
if shares of that Participating Fund are available for sale; however, during
periods of suspension of sales, shares of a Participating Fund may be
available for sale only to existing shareholders of the Participating Fund.
Additional Funds may be added from time to time as a Participating Fund.
<PAGE> 2

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. Effective today, the dividend procedures for the Fund have been changed so
that all shares earn daily dividends through the day such shares are processed
for payment on redemption rather than through the day before such shares are
processed for payment.

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

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

SUPPLEMENT DATED APRIL 3, 1995
TO PROSPECTUS OF
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES FUND, INC.

1. The following replaces the last paragraph under the section entitled "The
Fund and Its Management":

Joseph A. Piraro is primarily responsible for the day-to-day management
of the Fund's investment portfolio since April 3, 1995. Mr. Piraro is Vice
President of the Fund and an agent of the Adviser. Mr. Piraro has been
employed by Van Kampen American Capital Investment Advisory Corp., an
affiliate of the Adviser, since 1992. Prior to that time, Mr. Piraro was
employed by First Chicago Capital Markets.

2. The Section "Purchase of Shares -- General" is Supplemented as follows:

In addition, the Distributor is sponsoring a sales contest for INVEST
Financial Corporation ("Invest") relating to the Fund and certain other funds or
investment products sponsored by the Distributor. Under the terms of the
contest, an Invest broker may receive an award valued up to $750.00 for sales
during the period April 1, 1995 through May 31, 1995.
<PAGE> 4

SUPPLEMENT DATED FEBRUARY 6, 1995,
TO PROSPECTUSES OF:

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

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

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

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

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

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or in any combination of
shares of the Fund and shares of certain other participating American
Capital funds as described herein under "Purchase of Shares -- Class A
Shares -- Volume Discounts", during the 13 month period commencing with
the first investment pursuant hereto equals at least $1 million. The
Distributor may pay Service Organizations through which purchases are made
an amount up to 0.50% of the amount invested, over a twelve month period
following such transaction.
<PAGE> 5

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

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

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

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

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

999 STK-009
<PAGE> 6

------------------------------------------------------------------------------
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
------------------------------------------------------------------------------

2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666
January 31, 1995

American Capital Texas Municipal Securities, Inc. (the "Fund") is a mutual
fund whose objective is to provide as high a level of interest income exempt
from federal income tax and Texas state income tax, if any, as is consistent
with the Fund's investment policies. The Fund invests principally in Texas
state, municipal and local government obligations and obligations of other
qualifying issuers which are tax-exempt. The Fund currently is available for
sale only in Texas and other selected states specified under "Shareholder
Services -- Exchange Privilege."

There can be no assurance that the objective of the Fund will be achieved.

This Prospectus tells investors briefly the information they should know
before investing in the Fund. Investors should read and retain this Prospectus
for future reference.

A Statement of Additional Information dated the same date as this Prospectus,
has been filed with the Securities and Exchange Commission (the "SEC") and
contains further information about the Fund. A copy of the Statement of
Additional Information may be obtained without charge by calling or writing the
Fund at the telephone number and address printed above. The Statement of
Additional Information is incorporated by reference into this Prospectus.

THE SHARES OF THIS FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.

THE SHARES OF THIS FUND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 7

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

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

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

DISTRIBUTOR:
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

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

<TABLE>
<S> <C>
Prospectus Summary.......... 3
Expense Synopsis............ 5
Financial Highlights........ 7
Multiple Pricing System..... 9
Investment Objective and
Policies.................. 12
Investment Practices and
Restrictions.............. 17
Municipal Securities........ 22
The Fund and Its
Management................ 24
Purchase of Shares.......... 25
Distribution Plans.......... 33
Shareholder Services........ 36
Redemption of Shares........ 40
Dividends, Distributions and
Taxes..................... 43
Prior Performance
Information............... 46
Additional Information...... 48
Investment Holdings......... 50
</TABLE>

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

2
<PAGE> 8

------------------------------------------------------------------------------
PROSPECTUS SUMMARY
------------------------------------------------------------------------------

SHARES OFFERED. Capital Stock.

MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").

TYPE OF COMPANY. Non-diversified, open-end management investment company.

INVESTMENT OBJECTIVE. Interest income exempt from federal income taxes and
Texas state income taxes.

INVESTMENT POLICIES. The Fund invests principally in Texas state, municipal
and local government obligations and obligations of other qualifying issuers
which are tax-exempt.

INVESTMENT RESULTS. The investment results of the Fund since its inception are
shown in the table of "Financial Highlights." See also "Prior Performance
Information."

INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") has served as investment adviser to the Fund since its inception. The
Adviser serves as investment adviser to 45 investment company portfolios. See
"The Fund and Its Management."

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the
"Distributor").

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

CLASS A SHARES. These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price. The Fund pays an
annual service fee of up to 0.25% of its average daily net assets attributable
to such class of shares. See "Purchase of Shares -- Class A Shares" and
"Distribution Plans."

CLASS B SHARES. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of 4% of redemption

3
<PAGE> 9

proceeds during the first and second years, 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. The Fund declares dividends from net investment
income on each business day. Such dividends are distributed monthly. The daily
dividend is a fixed amount determined at least monthly which is not expected to
exceed the net income of the Fund for the month divided by the number of
business days during the month. Capital gains, if any, are distributed at least
annually. All dividends and distributions are automatically reinvested in shares
of the Fund at net asset value per share (without sales charge) unless payment
in cash is requested. See "Dividends, Distributions and Taxes."

4
<PAGE> 10

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

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

<TABLE>
<CAPTION>
CLASS A CLASS C
SHARES CLASS B SHARES(G) SHARES(1)
-------------------------------------------------------------------------------
<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 year, 1.0% during
and second year, the first
3% during the third year, year(b)
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 (after
reimbursement)............ .60% .60% .60%
Rule 12b-1 fees(d).......... .24% 1.00%(g) 1.00%(g)
Other expenses (after
reimbursement)(e)......... .86% .87% .86%(f)
Total fund operating
expenses.................. 1.70% 2.47% 2.46%
</TABLE>

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

(a) Reduced for purchases of $100,000 and over. See "Purchase of
Shares -- Class A Shares" -- page 27.
(b) See "Purchase of Shares -- Class B Shares" and "-- Class C Shares" -- pages
31 and 32.
(c) Not charged in certain circumstances. See "Shareholder
Services -- Systematic Exchange" and "-- Automatic Exchange" -- pages 38
and 39.
(d) Up to .25% for Class A shares and 1.00% for Class B and Class C shares. See
"Distribution Plans" -- page 33.
(e) See "The Fund 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 otherwise permitted by NASD Rules.
* Investments of $1 million or more are not subject to any sales charge at
the time of purchase, but a contingent deferred sales charge of 1% may be
imposed on certain redemptions made within one year of the purchase.
------------------------------------------------------------------------------

5
<PAGE> 11

<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
1 3
EXAMPLE YEAR 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
shares and Class C shares, a contingent deferred
sales charge assuming (1) an operating expense ratio
of 1.70% for Class A shares, 2.47% for Class B shares
and 2.46% for Class C shares, (2) a 5% annual return
throughout the period and (3) redemption at the end
of the period:
Class A............................................ $64 $ 99 $135 $239
Class B............................................ $66 $109 $149 $244**
Class C............................................ $35 $ 77 $131 $280
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at the
end of the period:
Class A............................................ $64 $ 99 $135 $239
Class B............................................ $25 $ 77 $132 $244**
Class C............................................ $25 $ 77 $131 $280
</TABLE>

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

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

6
<PAGE> 12

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

The following financial highlights have been audited by the Fund's independent
accountants, Price Waterhouse LLP, whose report thereon was unqualified. This
summary 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 SEPTEMBER MARCH 2, 1992(1)
30 THROUGH
---------------------- SEPTEMBER 30,
1994 1993(2) 1992(2)
------- ------- --------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................................................... $10.36 $ 9.74 $ 9.45
-------- ------- -------
INCOME FROM OPERATIONS
Investment income...................................................................... .64 .63 .42
Expenses............................................................................... (.17) (.19) (.09)
Expense reimbursement.................................................................. .07 .13 .03
-------- ------- -------
Net investment income.................................................................. .54 .57 .36
Net realized and unrealized gains or losses on securities.............................. (.7025) .65 .23
-------- ------- -------
Total from investment operations....................................................... (.1625) 1.22 .59
-------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income................................................... (.545) (.5875) (.30)
Distributions from net realized gains on securities.................................... (.0125) (.0125) --
-------- ------- -------
Total distributions.................................................................... (.5575) (.60) (.30)
-------- ------- -------
Net asset value, end of period......................................................... $ 9.64 $10.36 $ 9.74
======== ======= =======
TOTAL RETURN(4)........................................................................ (1.62%) 12.94% 6.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................................................... $12.8 $18.0 $ 14.1
Ratios to average net assets
Expenses............................................................................. 1.03% .61% .93%(3)
Expenses, without expense reimbursement.............................................. 1.70% 1.86% 1.41%(3)
Net investment income................................................................ 5.41% 5.74% 5.94%(3)
Net investment income, without expense reimbursement................................. 4.74% 4.49% 5.45%(3)
Portfolio turnover rate................................................................ 10% 5% 4%
</TABLE>

(Table continued on following page)

7
<PAGE> 13

<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------------- -----------------------------
JULY 27, AUGUST 30,
YEAR ENDED SEPTEMBER 1992(1) 1993(1)
30 THROUGH YEAR ENDED THROUGH
---------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1993(2) 1992(2) 1994(2) 1993(2)
------- ------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................. $10.35 $ 9.74 $ 9.91 $10.36 $10.28
------- ------- ------- -------- -------
INCOME FROM OPERATIONS
Investment income..................................... .65 .63 .09 .64 .05
Expenses.............................................. (.25) (.26) (.04) (.25) (.02)
Expense reimbursement................................. .07 .13 .015 .07 .01
------- ------- ------- -------- -------
Net investment income................................. .47 .50 .065 .46 .04
Net realized and unrealized gains or losses on
securities.......................................... (.7065) .633 (.103) (.6965) .121
------- ------- ------- -------- -------
Total from investment operations...................... (.2365) 1.133 (.038) (.2365) .161
------- ------- ------- -------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.................. (.461) (.5105) (.132) (.461) (.081)
Distributions from net realized gains on securities... (.0125) (.0125) -- (.0125) --
------- ------- ------- -------- -------
Total distributions................................... (.4735) (.523) (.132) (.4735) (.081)
------- ------- ------- -------- -------
Net asset value, end of period........................ $ 9.64 $10.35 $ 9.74 $ 9.65 $10.36
======== ======== ======= ======== =======
TOTAL RETURN(4)....................................... (2.35%) 11.97% (.73%) (2.35%) 1.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................. $ 8.6 $ 7.1 $ 0.9 $ 1.2 $ 0.1
Ratios to average net assets
Expenses............................................ 1.80% 1.30% 1.41%(3) 1.79% .66%(3)
Expenses, without expense reimbursement............. 2.47% 2.55% 2.15%(3) 2.46% 1.89%(3)
Net investment income............................... 4.66% 4.92% 3.83%(3) 4.59% 4.17%(3)
Net investment income, without expense
reimbursement..................................... 3.99% 3.67% 3.07%(3) 3.92% 2.92%(3)
Portfolio turnover rate............................... 10% 5% 4% 10% 5%
</TABLE>

(1) Commencement of operations.

(2) Based on the average month-end outstanding.

(3) Annualized.

(4) Total return for periods of less than one full year are not annualized.
Total return does not reflect sales charges.

8
<PAGE> 14

------------------------------------------------------------------------------
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 convert automatically to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.

9
<PAGE> 15

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

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

10
<PAGE> 16

a reduced initial sales charges or purchases at net asset value, as described
herein under "Purchase of Shares -- Class A Shares." For these reasons, the
Distributor will reject any order of more than $250,000 for Class B shares or
any order of more than $1 million for Class C shares.

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

Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. In addition, the check writing privilege is only available for Class A
shares (see "Shareholder Services -- Shareholder Services Applicable to Class A
Shareholders Only -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end shares 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

11
<PAGE> 17

in Class A and Class B shares will tend to have a slightly higher value upon
liquidation for investments held longer. The foregoing will not, however, be
true in all cases. Particularly, if the Fund experiences a consistently negative
or widely fluctuating total return, results may differ.

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

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

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

------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
------------------------------------------------------------------------------

The Fund is a non-diversified, open-end management investment company,
generally known as a mutual fund, organized as a Maryland corporation on
September 6, 1991, with an investment objective of providing as high a level of
interest income exempt from federal income tax and Texas state income tax, if
any, as is consistent with its investment policies. However, there can be no
assurance that the objective of the Fund will be achieved. The Fund invests
primarily in obligations issued by or on behalf of states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which,
in the opinion of bond counsel for the issuer, is exempt from federal income tax
("Municipal Securities").

12
<PAGE> 18

Among the various types of Municipal Securities are general obligation bonds,
revenue or special obligation bonds, industrial development bonds, pollution
control bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes. General obligations are backed by
the taxing power of the issuing municipality. Revenue obligations are backed by
the revenues of a project or facility -tolls from a toll-bridge, for example.
Industrial development revenue obligations are a specific type of revenue
obligation backed by the credit and security of a private user. Variable rate
demand notes and the risks thereof are described under "Investment Practices and
Restrictions -- Variable Rate Demand Notes."

The Fund maintains at least 80% of its net assets invested in Municipal
Securities except as a temporary defensive measure during periods of adverse
market conditions. At least 65% of the Fund's total assets will be invested in
securities issued by the State of Texas, its political subdivisions, agencies
and instrumentalities ("Texas Securities"). This is a fundamental policy and may
not be changed without the approval of at least a majority of the outstanding
shares of the Fund. The Fund does not invest in any securities except Municipal
Securities and Temporary Investments as defined below, except that the Fund may
seek to hedge against changes in interest rates through transactions in listed
futures contracts related to U.S. Government securities or based upon the Bond
Buyers Municipal Bond Index and options thereon. See "Investment Practices and
Restrictions -- Futures Contracts and Related Options."

On a temporary basis, to provide cash reserves or pending investment in
Municipal Securities, the Fund may invest up to 20% of its net assets in taxable
securities rated at the time of purchase by either Moody's Investor Service
("Moody's") as follows: Aaa through A by Moody's for bonds, MIG 1 through MIG 4,
or VMIG 1 through VMIG 4 for notes and Prime-1 through Prime-3 for commercial
paper; or by Standard & Poor's Corporation ("S&P") as follows: AAA through A for
bonds, SP-1 or SP-2 for notes and A-1 through A-3 for commercial paper; or, if
non-rated, are in the opinion of the Adviser, of comparable quality ("Temporary
Investments"). The Fund also may invest temporarily a greater proportion of its
assets in Temporary Investments for defensive purposes, when, in the judgment of
the Adviser, market conditions warrant. Temporary Investments include but are
not limited to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; corporate bonds and debentures; certificates of
deposit and bankers' acceptances of domestic banks with assets of $500 million
or more and having deposits insured by the Federal Deposit Insurance
Corporation; commercial paper; repurchase agreements; and shares of tax-exempt
money market investment companies. See "Investment Practices and
Restrictions -- Money Market Investment Companies."

13
<PAGE> 19

Interest received on certain otherwise tax-exempt securities which are
classified as "private activity bonds" (in general bonds that benefit
non-governmental entities) may be subject to an alternative minimum tax. The
percentage of the Fund's assets invested in "private activity bonds" will vary
during the year, but will not exceed 20%. See "Dividends, Distributions and
Taxes -- Federal Income Taxes" for further discussion.

The Fund may invest up to ten percent of its net assets in illiquid securities
which include Municipal Securities issued in limited placements under which the
Fund represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Securities acquired in
limited placements generally may be resold only in a privately negotiated
transaction to one or more other institutional investors. Such limitation could
result in the Fund's inability to realize a favorable price upon disposition,
and in some cases might make disposition of such securities at the time desired
by the Fund impossible. The ten percent limitation applies at the time the
purchase commitments are made. See "Investment Practices and Restrictions --
Repurchase Agreements."

Differences with respect to the quality and maturity of portfolio investments
can be expected to affect the yield on the Fund and the degree of market and
financial risk to which the Fund is subject. Generally, Municipal Securities
with longer maturities tend to produce higher yields and are subject to greater
market fluctuations as a result of changes in interest rates than Municipal
Securities with shorter maturities and lower yields. In general, market prices
of Municipal Securities vary inversely with interest rates. Lower-rated
Municipal Securities generally provide a higher yield than higher-rated
Municipal Securities of similar maturity but are subject to greater market and
financial risk. The Fund may purchase short-term or long-term Municipal
Securities (with remaining maturities of up to 30 years or more). There is no
limitation on the average maturity of the Municipal Securities in the Fund and
such average maturity is likely to change from time to time based on the
Adviser's view of market conditions. The average maturity of the Municipal
Securities owned by the Fund on September 30, 1994, was 19.86 years. Municipal
Securities ratings of Moody's and of S&P are described in the Statement of
Additional Information. See also "Municipal Securities" herein.

At least 80% of the Municipal Securities purchased by the Fund are rated at
the time of purchase as determined by Moody's in the following quality grades:
Aaa through Baa for bonds, MIG 1 through MIG 4, or VMIG 1 through VMIG 4 for
notes and Prime-1 through Prime-3 for commercial paper; or as determined by S&P
in the following grades: AAA through BBB for bonds, SP-1 or SP-2 for notes and
A-1 through A-3 for commercial paper; or, if non-rated, are in the opinion of

14
<PAGE> 20

the Adviser of comparable quality. The lowest rating in each category described
above is considered by the rating agency to be of adequate quality.

During the fiscal period ended September 30, 1994, the average percentage of
the Fund's assets invested in Municipal Securities within the various rating
categories (based on the higher of the S&P or Moody's ratings), and the
non-rated debt securities, determined on a dollar weighted average, were as
follows:

<TABLE>
<S> <C>
AAA/Aaa...................................... 25.00%
AA/Aa........................................ 15.96%
A/A.......................................... 17.11%
BBB/Baa...................................... 19.74%
BB/Ba........................................ 1.46%
*Non-rated................................... 17.39%
Other Net Assets............................. 3.34%
--------
Total Net Assets.................... 100.00%
</TABLE>

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

* The non-rated debt securities as a percentage of total net assets were
considered by the Adviser to be comparable to securities rated by Moody's as
follows: BBB - 17.39%.

Up to 20% of the Municipal Securities purchased by the Fund may be obligations
rated BB or lower by S&P and Moody's or non-rated obligations which in the
opinion of the Adviser are of comparable quality. Such securities, (sometimes
referred to as high-yield, lower rated securities) are predominantly speculative
with respect to the capacity to pay interest and repay principal in accordance
with the terms of the security and generally involve a greater volatility of
price than securities in higher rating categories. The market prices of
high-yielding, lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. In purchasing
such securities, the Fund will rely on the Adviser's judgment, analysis and
experience in evaluating the creditworthiness of the issuer of such securities.
The Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of its management and regulatory matters. The
Adviser has extensive experience in high-yield tax-exempt asset management. See
in the Statement of Additional Information "Municipal Securities -- Additional
Risks of Lower Rated Municipal Securities" and in the Appendix "Ratings of
Investments" for additional information regarding ratings of debt securities.
The Fund does not invest in obligations which are not currently paying interest
or which are rated C (lowest grade by Moody's) or which are rated C or D by S&P
or which are non-rated obligations considered by the Adviser to be of comparable
quality.

15
<PAGE> 21

The Fund is registered as a "non-diversified" company under the 1940 Act. The
Fund intends to comply with Subchapter M of the Code which limits the aggregate
value of all holdings (except U.S. Government and cash items, as defined in the
Code), each of which exceeds 5% of the Fund's total assets, to an aggregate
amount of 50% of such assets. Also, holdings of a single issuer (with the same
exceptions) may not exceed 25% of the Fund's total assets. These limits are
measured at the end of each quarter. Under the Subchapter M limits,
"non-diversification" allows up to 50% of the total assets to be invested in as
few as two single issuers. In the event of a decline in the creditworthiness of
or default upon, the obligations of one or more such issuers exceeding five
percent, an investment in the Fund will entail greater risk than in funds which
have a policy of "diversification" because a high percentage of the Fund assets
may be invested in Municipal Securities of one or two issuers. Furthermore, a
high percentage of investments among few issuers may result in a greater degree
of fluctuation in the market value of the assets of the Fund because the Fund
will be more susceptible to economic, political, or regulatory developments
affecting these securities than would be the case with a fund composed of more
varied obligations of issuers. Also, the net asset value per share of the Fund
will tend to increase more when, for example, the assets invested in a limited
number of single issuers increase in value, and decrease more when such assets
decrease in value.

The Fund ordinarily will invest at least 65% of its total assets in Texas
Securities, and, therefore, it is more susceptible to factors adversely
affecting issuers of Texas Securities than is a municipal bond mutual fund that
is not concentrated in issuers of Texas Securities to this degree. Such factors
include the economic condition of the State of Texas (the "State") and its
regions, pressures on the State budget, and litigation affecting issuers of
Texas Securities. Any circumstances that adversely affect the State's credit
standing may also affect the market value of securities of other issuers in the
State, either directly or indirectly, as a result of a dependency of local
governments and other authorities upon State aid and reimbursement programs.

Texas' economy continues to recover from the recession that began in the mid-
1980s due to declining oil prices and a collapse in the real estate industry.
The economy has become more stable due to increased diversification, with the
oil and gas industry diminishing in relative importance and the
service-producing sectors providing the major sources of job growth. Based on
information from the Texas Employment Commission, the unemployment rate averaged
6.4% in 1994. The Comptroller of Public Accounts predicts that the overall Texas
economy will outpace national economic growth in the long term by an annual
average of one-half percentage point.

The 73rd State Legislature passed a balanced 1994-95 biennial State budget in
May of 1993 without increasing State taxes. This was accomplished by implement-

16
<PAGE> 22

ing savings proposals, cutting spending and increasing federal funding. The 74th
State Legislature has just begun the process of establishing the 1996-97
biennial State budget. The Comptroller of Public Accounts has estimated that the
State will have 19.9 percent more revenues available for general purpose
spending in 1996-97 than it had in 1994-95, including a surplus of $3 billion
from the 1994-95 biennium.

On May 31, 1993, the Texas Governor signed a comprehensive legislative
revision to the school finance provisions of the Texas Education Code. The
legislative revisions resulted from a series of court decisions commonly
referred to as Edgewood v. Kirby, in which Texas courts have declared the Texas
school finance system unconstitutional under Texas law. Previous legislative
efforts to correct the school finance system were declared unconstitutional. The
Texas Supreme Court has ruled that the legislative revision is constitutional,
but suggested that further changes may be needed in the near future to provide
equal access to funding for facility needs. The legislative revision and further
efforts to equalize school funding may affect the financial condition of the
Texas State Government and certain Texas school districts.

The Adviser does not believe that the factors described above will have a
significant adverse effect on the Fund's investment in investment grade Texas
Securities or Municipal Securities. Because the Fund's portfolio will consist
primarily of investment grade securities, the Fund is expected to be less
subject to market and credit risks than a fund that invests in lower quality
Texas Securities or Municipal Securities. See the Statement of Additional
Information.

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

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (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 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 its net assets. In the event of the
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights.

17
<PAGE> 23

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund than would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.

VARIABLE RATE DEMAND NOTES. Variable rate demand notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable interest rate adjustment
formula and which are subject to an unconditional right of demand on the part of
the holder thereof to receive payment of the principal balance plus accrued
interest upon a specified notice period (usually seven to 30 days). There is,
however, the possibility that because of default or insolvency, the demand
feature of VRDNs or Participating VRDNs, described below, may not be honored.
The interest rates are adjustable at intervals ranging from daily ("floating
rate") to up to one year to some prevailing market rate for similar investments,
such adjustment formula being calculated to maintain the market value of the
VRDN at approximately the par value of the VRDN upon the adjustment date. The
adjustments are typically set at a rate determined by the remarketing agent or
based upon the prime rate of a bank or some other appropriate interest rate
adjustment index.

Investments by the Fund in VRDNs may also be made in the form of participation
interests ("Participating VRDNs") in variable rate tax-exempt obligations held
by a financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven days.
The Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation and issuing the repurchase commitment.

STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with respect
to Municipal Securities held by it. Under a "stand-by commitment," a bank or
dealer from which Municipal Securities are acquired agrees to purchase from the
Fund, at the Fund's option, the Municipal Securities at a specified price. Such
commitments are sometimes called "liquidity puts."

18
<PAGE> 24

The amount payable to the Fund upon its exercise of a "stand-by commitment" is
normally (i) the Fund's acquisition cost of the Municipal Securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
"Stand-by commitments" generally can be acquired when the remaining maturity of
the underlying Municipal Securities is not greater than one year, and are
exercisable by the Fund at any time before the maturity of such obligations.

The Fund's right to exercise "stand-by commitments" is unconditional and
unqualified. A "stand-by commitment" generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Securities to a third party
at any time.

The Fund expects that "stand-by commitments" will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield-to-maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding "stand-by commitments" held in the Fund will not exceed
1/2 of 1% of the value of the Fund's total assets calculated immediately after
each "stand-by commitment" is acquired. The Fund intends to enter into "stand-by
commitments" only with banks and dealers which, in the Adviser's opinion,
present minimal credit risks.

The Fund would acquire "stand-by commitments" solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a "stand-by commitment" would not affect the
valuation of the underlying Municipal Securities which would continue to be
valued in accordance with the method of valuation employed for the Fund in which
they are held. "Stand-by commitments" acquired by the Fund would be valued at
zero in determining net asset value. Where the Fund paid any consideration
directly or indirectly for a "stand-by commitment," its costs would be reflected
as unrealized depreciation for the period during which the commitment was held
by the Fund.

DELAYED DELIVERY AND WHEN-ISSUED SECURITIES. Municipal Securities may at times
be purchased or sold on a delayed delivery or a when-issued basis. These
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, often a month or more after the
purchase. The payment obligation and the interest rate are each fixed at the
time the Fund enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Fund may sell these securities prior to settlement date if
it is deemed advisable. Purchasing Municipal Securities on a when-issued basis
involves the risk that the

19
<PAGE> 25

yields available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself; if yields so increase, the
value of the when-issued obligation will generally decrease. The Fund maintains
a separate account at its custodian bank consisting of cash or liquid high grade
debt obligations (valued on a daily basis) equal at all times to the amount of
any when-issued commitment.

MONEY MARKET INVESTMENT COMPANIES. The Fund may invest in shares of open-end
investment companies which are tax-exempt money market funds. Such investment
would not exceed 3% of the total outstanding voting stock of the acquired
company; 5% of the value of the total assets of the Fund; or 10% of the total
assets of the acquired company as held by the Fund and all American Capital
funds. When the Fund invests in a tax-exempt money market fund, the Adviser will
reduce its advisory fee by the amount of any investment advisory and
administrative services fees paid to the investment adviser of the money market
fund. Such investments may however result in a duplication of other operating
expenses.

FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may engage in transactions in
listed futures contracts and related options. Such transactions may be in listed
futures contracts based upon The Bond Buyer Municipal Bond Index, a price
weighted measure of the market value of 40 large sized, recent issues of
tax-exempt bonds or in listed contracts based on U.S. Government securities.

Futures contracts and options thereon may be used for defensive hedging or
anticipatory hedging purposes, depending upon the composition of the Fund and
the Adviser's expectations concerning the securities markets. See the Statement
of Additional Information for discussion of futures contracts and related
options.

Potential Risks of Futures Contracts and Related Options. The purchase and
sale of futures contracts and related options involve risks different from those
involved with direct investments in securities. While utilization of futures
contracts and related options may be advantageous to the Fund, if the Adviser is
not successful in employing such instruments in managing the Fund's investments,
the Fund's performance will be worse than if the Fund did not make such
investments. In addition, the Fund would pay commissions and other costs in
connection with such investments, which may increase the Fund's expenses and
reduce its return. The Fund may not purchase or sell futures contracts or
related options for which the aggregate initial margin and premiums exceed five
percent of the fair market value of the Fund's assets. In order to prevent
leverage in connection with the purchase of futures contracts or call options
thereon by the Fund, an amount of cash, cash equivalent or liquid high grade
debt securities equal to the market value of the obligation under the futures
contracts or options (less any related margin deposits) will be maintained in a
segregated account with the custodian.

20
<PAGE> 26

PORTFOLIO TURNOVER. The Fund may purchase or sell securities without regard to
the length of time the security has been held to take advantage of short-term
differentials in bond yields consistent with its objective of seeking tax-exempt
interest income. The Fund may engage in short-term trading if the anticipated
benefits are expected by the Adviser to exceed the transaction costs. The annual
turnover rate for the Fund is expected to vary from year to year depending on
market conditions. The annual turnover rate for the Fund is not expected to
exceed 100%. A 100% turnover rate would occur, for example, if all the
securities in the Fund were replaced in a period of one year. Municipal
Securities with remaining maturities of less than one year are excluded in the
computation of the portfolio turnover rate. Higher portfolio turnover involves
higher transaction costs and may result in realization of short-term capital
gains if securities are held for one year. Such gains are taxable to
shareholders as ordinary income except to the extent such gains are offset by
any capital losses. Portfolio turn-over is not a limiting factor in making
portfolio decisions, except as limited by the Code's requirements for
qualification as a regulated investment company. See "Federal Tax Information"
in the Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND BROKERAGE. The Adviser is responsible for the
placement of orders for the purchase and sale of portfolio securities for the
Fund. The Municipal Securities and other obligations in which the Fund invests
are traded primarily in the over-the-counter market. Such securities are
generally traded on a net basis with dealers acting as principal for their own
accounts without a stated commission, although the prices of the securities
usually include a profit to the dealers. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
It is the policy of the Fund to obtain the best net results taking into account
such factors as price (including the applicable dealer spread), the size, type
and difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved and the provision of supplemental investment research by the firm.
While the Fund generally seeks reasonably competitive spreads or commissions,
the Fund will not necessarily be paying the lowest spread or commission
available. Brokerage commissions are paid on transactions in futures contracts
and options thereon. The Adviser is authorized to place portfolio transactions
with broker-dealers participating in the distribution of shares of the Fund and
other American Capital funds if it reasonably believes that the quality of the
execution and any commission are comparable to that available from other
qualified firms. The Adviser is authorized to pay higher commissions to
brokerage firms that provide it with investment and research information than to
firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided.

21
<PAGE> 27

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

1. Invest in securities other than Municipal Securities, Temporary
Investments (as defined herein), stand-by commitments, futures contracts
described in the next paragraph, and options on such contracts;

2. Purchase or sell commodities or commodity contracts except that the Fund
may purchase, hold and sell listed futures contracts related to U.S.
Government securities, Municipal Securities or to an index of
Municipal Securities;

3. Borrow money, except the Fund may borrow from banks to meet redemptions
or for other temporary or emergency purposes, with such borrowing not to
exceed five percent of the total assets of the Fund at market value at
the time of borrowing. Any such borrowing may be secured provided that
not more than ten percent of the total assets of the Fund at market value
at the time of pledging may be used as security for such borrowings; or

4. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided that this limitation shall not
apply to tax-exempt securities issued by governmental bodies or agencies
or instrumentalities thereof; so that industrial development bonds that
are considered to be issued by non-governmental users are subject to this
industry limitation.

Each state and each political subdivision, agency or instrumentality of such
state, and each multi-state agency of which a state is a member is a separate
"issuer" as that term is used in this Prospectus. The non-government user of
facilities financed by industrial development or pollution control securities is
also considered as a separate issuer. In certain circumstances, the guarantor of
a guaranteed security may also be considered to be an issuer in connection with
such guarantee.

------------------------------------------------------------------------------
MUNICIPAL SECURITIES
------------------------------------------------------------------------------

Municipal Securities include debt obligations of a state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which Municipal Securities may

22
<PAGE> 28

be issued include refunding outstanding obligations, obtaining funds for general
operating expenses and obtaining funds to lend to other public institutions and
facilities. Certain types of Municipal Securities are issued to obtain funding
for privately operated facilities.

Many new issues of Municipal Securities are sold on a "when-issued" basis.
While the Fund has ownership rights to such Municipal Securities, the Fund does
not have to pay for them until they are delivered, normally 15 to 45 days later.
To meet that payment obligation, the Fund sets aside with the Custodian
sufficient cash or liquid securities equal to the amount that will be due. See
"Investment Practices and Restrictions -- Delayed Delivery and When-Issued
Securities."

The yields of Municipal Securities depend on, among other things, general
market conditions, general conditions of the Municipal Securities market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of S&P and Moody's represent their opinions of the quality of
the Municipal Securities they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Securities with the same maturity, coupon and rating may
have different yields while Municipal Securities of the same maturity and coupon
with different ratings may have the same yield.

The Fund considers investments in Municipal Securities not to be subject to
concentration policies and may invest a relatively high percentage of the assets
of the Fund in Municipal Securities issued by entities having similar
characteristics. The issuers may be located in the same geographic area or may
pay their interest obligations from revenue of similar projects such as
hospitals, utility systems and housing finance agencies. This may make the
Fund's investments more susceptible to similar economic, political or regulatory
occurrences. As the similarity in issuers increases, the potential for
fluctuation in the Fund's per share net asset value also increases. The Fund may
invest more than 25% of its total assets in Municipal Securities with similar
characteristics, such as industrial development revenue bonds, including
pollution control revenue bonds, housing finance agency bonds, or hospital
bonds. In such circumstances, economic, business, political or other changes
affecting one bond (such as proposed legislation affecting the financing of a
project; shortages or price increases of needed materials; or declining markets
or needs for the projects) may also affect other bonds in the same segment,
thereby potentially increasing market risk. The Fund may not, however, invest
more than 25% of its total assets in industrial development revenue bonds,
including pollution control bonds, issued for companies in the same industry.
See restriction 4 under "Investment Practices and Restrictions -- Investment
Restrictions." Sizeable investments in such obligations could involve an
increased risk to the Fund should any of such issuers or any such related
projects or facilities experience financial difficulties.

23
<PAGE> 29

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. It may be expected that similar proposals may
be introduced in the future. If any such proposal were to be enacted, the
ability of the Fund to pay "exempt-interest" dividends may be adversely affected
and the Fund would re-evaluate its investment objective and policies and
consider changes in its structure.

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

The Fund is an open-end, non-diversified, management investment company,
generally known as a mutual fund. A mutual fund provides, for those who have
similar investment goals, a practical and convenient way to invest in a non-
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.

A board of eight directors have the responsibility for overseeing the affairs
of the Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056,
determines the investment of the Fund's assets, provides administrative services
and manages the Fund's business and affairs. The Adviser, together with its
predecessors, has been in the investment advisory business since 1926. As of
December 31, 1994, the Adviser provides investment advice to 45 investment
company portfolios with total net assets of approximately $15.8 billion.

The Adviser and the Distributor are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc. a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates LP."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
Alberto Cribiore, Donald J. Gogel and Hubbard C. Howe, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of VKAC own, in the aggregate, not more than 6% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 10% of the common stock of
VK/AC Holding, Inc.

Mr. Don G. Powell is President and Director of the Fund, President, Chief
Executive Officer and Director of the Adviser, and Chairman, Chief Executive
Officer and Director of the Distributor. Most other officers of the Fund are
also officers and/or directors of the Adviser.

24
<PAGE> 30

The Fund retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement dated December 20, 1994 (the "Advisory
Agreement"), the Fund pays the Adviser an annual fee of 0.60% of the first $300
million of the average net assets of the Fund; 0.55% of the next $300 million of
the average net assets of the Fund; and 0.50% of the average net assets in
excess of $600 million. The fees are payable monthly. Under the Advisory
Agreement, the Fund also reimburses the Adviser for the costs of the Fund's
accounting services, which include maintaining its financial books and records
and calculating the daily net asset value of the Fund. Operating expenses paid
by the Fund include shareholder service agency fees, service fees, distribution
fees, custodial fees, legal and accounting fees, the costs of reports and
proxies to shareholders, directors' fees, and all other business expenses not
specifically assumed by the Adviser. Advisory (management) fees and total
operating expense ratios are shown under the caption "Expense Synopsis" herein.

From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.

Robert B. Evans has been primarily responsible for the day-to-day management
of the Fund's investment portfolio since its inception. Mr. Evans is Vice
President of the Fund. Mr. Evans has been associated with the Adviser since
1987.

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

GENERAL

The Fund offers three classes of shares to the general public. Class A shares
are sold with an initial sales charge; Class B and Class C shares are sold
without an initial sales charge and are subject to a contingent deferred sales
charge upon certain redemptions. See "Multiple Pricing System" for a discussion
of factors to consider in selecting which class of shares to purchase. Contact
the Service Department at (800) 421-5666 for further information and appropriate
forms.

Shares of the Fund are offered continuously for sale by the Distributor, and
are available through authorized investment dealers. Initial investments in the
Fund must be at least $500 and subsequent investments must be at least $25. Both
minimums may be waived by the Distributor for shares 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

25
<PAGE> 31

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 Van
Kampen/American Capital Shareholder Services, Inc. ("ACCESS"). When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A,
Class B or Class C shares.

Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per share is computed as of the close of trading (currently 4:00
p.m. New York time) on the New York Stock Exchange (the "Exchange") on each day
such exchange is open for trading. Net asset value per share for each class is
determined by dividing the value of all portfolio securities held by the Fund,
cash and other assets (including accrued interest), attributable to such class
less all liabilities (including accrued expenses) by the total number of shares
of the class outstanding. The Fund's investments are valued by an independent
pricing service.

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

Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan pursuant to which its distribution fee and/or service
fee is paid which relate to a specific class, and (iii) Class B and Class C
shares are subject to a conversion feature. Each class has

26
<PAGE> 32

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.

Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund, with subsidiaries of The Travelers Inc.

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

CLASS A SHARES

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

<TABLE>
<CAPTION>
REALLOWED
TO DEALERS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)
<S> <C> <C> <C>
----------------------------------------------------------------------------
Less than $100,000.............. 4.99% 4.75% 4.25%
$100,000 but less than
$250,000...................... 3.90% 3.75% 3.25%
$250,000 but less than
$500,000...................... 2.83% 2.75% 2.25%
$500,000 but less than
$1,000,000.................... 2.04% 2.00% 1.75%
$1,000,000 and over............. (see herein) (see herein) (see herein)
----------------------------------------------------------------------------
</TABLE>

No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of certain redemptions within one year
of the purchase.

27
<PAGE> 33

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.

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

In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. The Distributor is
sponsoring a sales incentive program for A.G. Edwards & Sons, Inc. ("A.G.
Edwards"). The Distributor will reallow its portion of the Fund's sales
concession to A.G. Edwards on sales of Class A shares of the Fund relating to
the "rollover" of any savings into an Individual Retirement Account ("IRA"), the
transfer of assets into an IRA and contributions to an IRA, commencing on
January 1, 1995 and terminating on April 15, 1995.

The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to dealers described in the preceding table.
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

28
<PAGE> 34

laws regarding registration of banks and other financial institutions may differ
from the interpretation of federal law expressed herein and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.

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

29
<PAGE> 35

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 under clause (g) 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 (g) above for transactions of $1
million or more an amount up to 0.50% of the amount invested, over a
twelve-month period following the pertinent transaction. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.

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

VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund
alone, or in any combination of shares of the Fund and shares of certain other
participating American Capital mutual funds (the "Participating Funds"),
although other Participating Funds may have different sales charges. The
Participating Funds are American Capital Comstock Fund, Inc., American Capital
Corporate Bond Fund, Inc. ("Corporate Bond"), American Capital Emerging Growth
Fund, Inc. ("Emerging Growth"), American Capital Enterprise Fund, Inc., American
Capital Equity Income Fund, Inc., American Capital Federal Mortgage Trust
("Federal Mortgage"), American Capital Global Managed Assets Fund, Inc. ("Global
Managed"), American Capital Government Securities, Inc., American Capital
Government Target Series ("Government Target"), American Capital Growth and
Income Fund, Inc., American Capital Harbor Fund, Inc., American Capital High
Yield Investments, Inc. ("High Yield"), American Capital Municipal Bond Fund,
Inc. ("Municipal Bond"), American Capital Pace Fund, Inc., American Capital Real
Estate Securities Fund, Inc. ("Real Estate"), American Capital Tax-Exempt Trust
("Tax-Exempt"), American Capital Texas Municipal Securities, Inc., American
Capital U.S. Government Trust for Income ("Government Trust"), American Capital
Utilities Income Fund, Inc. ("Utilities Income") and American Capital World
Portfolio Series, Inc. ("World Portfolio"). A person eligible for a volume
discount includes an individual; members of a family unit comprising husband,
wife and minor children; or a trustee or other fiduciary purchasing for a single
fiduciary account.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of

30
<PAGE> 36

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 reduced sales charge on
the basis of previous purchases and if sufficient information is furnished to
permit confirmation of such purchases.

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

CLASS B SHARES

Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions.

The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
shares, all

31
<PAGE> 37

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 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 lower of the then current market value or the cost of the shares
being redeemed.

32
<PAGE> 38

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

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

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

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." A contingent deferred sales
charge is 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.

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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 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

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<PAGE> 39

is in compliance with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD Rules") applicable to mutual fund sales charges.
The NASD Rules limit the annual distribution charges and service fees 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 or Class C shares to
reimburse the Distributor for service fees paid by it to Service Organizations
and for its distribution costs.

The Distribution Plans provide that the Distributor shall use the Class A,
Class B and Class C service fees to compensate Service Organizations for
personal services and/or the maintenance of shareholder accounts. Under the
Class B Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class B shares as reimbursement for (i) upfront commissions and
transaction fees of up to 4% of the purchase price of Class B shares purchased
by the clients of broker-dealers and other Service Organizations, and (ii) other
distribution expenses as described in the Statement of Additional Information.
Under the Class C Plan, the Distributor receives additional payments from the
Fund at the annual rate of up to 0.75% of the net assets of the Class C shares
as reimbursements for (i) upfront commissions and transaction fees of up to
0.75% of the purchase price of Class C shares purchased by the clients of
broker-dealers and other Service Organizations and ongoing commissions and
transaction fees of up to 0.65% of the average daily net assets of the Fund's
Class C shares and (ii) other distribution expenses as described in the
Statement of Additional Information.

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

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

34
<PAGE> 40

current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.

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

Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward, without
interest charges unless permitted under SEC regulations, and may be reimbursed
by the Fund or its shareholders from payments received through contingent
deferred sales charges in future years and from payments under the Class B Plan
and Class C Plan so long as such Plans are in effect. For example, if in a
fiscal year the Distributor incurred distribution expenses under the Class B
Plan of $1 million, of which $500,000 was recovered in the form of contingent
deferred sales charges paid by investors and $400,000 was reimbursed in the form
of payments made by the Fund to the Distributor under the Class B Plan, the
balance of $100,000 would be subject to recovery in future fiscal years from
such sources. For the plan year ended June 30, 1994, the unreimbursed expenses
incurred by the Distributor under the Class B Plan and carried forward were
approximately $377,000 or 4.29% of the Class B shares' net assets. For the plan
year ended June 30, 1994, the unreimbursed expenses incurred by the Distributor
under the Class C Plan and carried forward were approximately $20,000 or 1.75%
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.

35
<PAGE> 41

------------------------------------------------------------------------------
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. Below is a
description of such services.

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Share certificates are not issued except upon
shareholder requests. Most shareholders elect not to receive certificates in
order to facilitate redemptions and transfers. A shareholder may incur an
expense to replace a lost certificate. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder who has an account in any of the
Participating Funds listed under "Purchase of Shares -- Class A Shares -- Volume
Discounts," or Reserve, may receive statements quarterly from ACCESS showing any
reinvestments of dividends and capital gains distributions and any other
activity in the account since the preceding statement. Such shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the record date. The reinvestment privilege is automatic unless the
shareholder instructs otherwise. The investor may, on the initial application or
prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in shares of the Fund. Additional
information is available from the Distributor or authorized investment dealers.

FUND TO FUND DIVIDENDS. A shareholder may, upon written request or by
completing the appropriate section of the application form in this Prospectus
elect to have all dividends and other distributions paid on a Class A, Class B
or Class C account in the Fund 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. If a qualified,
pre-existing account does not exist, the shareholder must establish a new
account subject to minimum investment and other

36
<PAGE> 42

requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution only if shares of such selected fund have
been registered for sale in the investor's state.

EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund (listed
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts") other
than Government Target, may be exchanged for shares of the same class of the
Fund without sales charge, provided that shares of the Fund and shares of
Corporate Bond, Federal Mortgage, Global Managed, Government Trust, High Yield,
Municipal Bond, Real Estate, Tax-Exempt, Utilities Income and the Global
Government Securities Fund of World Portfolio are subject to a 30-day holding
period requirement. Shares of Government Target may be exchanged for Class A
shares of the Fund without sales charge. Shares of Reserve may be exchanged for
Class A shares of 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. Exchanges may only be made for funds that are eligible for sale
in the shareholder's state of residence. The Fund is only available for sale in
Arkansas, Louisiana, New Mexico, Oklahoma and Texas. All other Participating
Funds are available for sale in all 50 states. Shares of any Participating Fund
or Reserve may be exchanged for shares of any other Participating Fund if shares
of that Participating Fund are available for sale; however, during periods of
suspension of sales, shares of a Participating Fund may be available for sale
only to existing shareholders of the Participating Fund. Additional funds may be
added from time to time as a Participating Fund.

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
remain subject to the contingent deferred sales charge imposed by the fund
initially purchased by the shareholder upon their redemption from the American
Capital complex of funds. 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." Ex-

37
<PAGE> 43

changes of shares are sales and may result in a gain or loss for federal income
tax purposes, although if the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired. See the Statement of Additional Information.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form included in this Prospectus. VKAC
and its subsidiaries, including ACCESS (collectively, "Van Kampen American
Capital"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither Van Kampen American Capital nor the
Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Van Kampen American Capital and the Fund may be liable
for any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. Exchanges are effected at the net asset value per
share next calculated after the request is received in good order with
adjustment for any additional sales charge. See both "Purchase of Shares" and
"Redemption of Shares." If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital 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 the Participating 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

38
<PAGE> 44

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 Service
Department at (800) 421-5666 for further information on how to utilize this
option.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly withdrawal plan. Any investor whose shares
in a single account total $5,000 or more may establish a withdrawal plan on a
quarterly, semiannual or annual basis. This plan provides for the orderly use of
the entire account, not only the income but also the capital, if necessary. Each
withdrawal constitutes a redemption of shares on which any capital gain or loss
will be recognized. The planholder may arrange for monthly, quarterly,
semiannual, or annual checks in any amount not less than $25.

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

Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchase of additional shares ordinarily will
be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon the
redemption of shares.

SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY

CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the AUTHORIZATION FOR REDEMPTION BY CHECK
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to ACCESS, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to the Class A shareholder. These

39
<PAGE> 45

checks may be made payable by the Class A shareholder to the order of any person
in any amount of $100 or more.

When a check is presented to State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the shareholder's Class A account by ACCESS at the next determined net
asset value. Check writing redemptions represent the sale of Class A shares. Any
gain or loss realized on the sale of shares is a taxable event. Since the net
asset value per share of the Fund is likely to fluctuate daily, check writing
redemptions can result in such a taxable event. See "Redemption of Shares."

Checks will not be honored for redemption of Class A 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 value of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or
State Street Bank. Accounts that are subject to backup withholding are not
eligible for the privilege. A "stop payment" system is not available on these
checks. See the Statement of Additional Information for further information
regarding the establishment of the privilege.

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REDEMPTION OF SHARES
------------------------------------------------------------------------------

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

As described herein under "Purchase of Shares," redemptions of Class B or
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

40
<PAGE> 46

Shares." A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.

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

Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian and forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7) or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.

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

The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum initial investment as
specified by the Board of Directors. Any involuntary redemption may only occur
if the shareholder account is less than the minimum initial investment due to
shareholder redemptions. At least 60 days' advance written notice of any such
involuntary

41
<PAGE> 47

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. Van Kampen American
Capital and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither Van Kampen American Capital nor the
Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Van Kampen American Capital and the Fund may be liable
for any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. Telephone redemptions may not be available if the
shareholder cannot reach ACCESS by telephone, whether because all telephone
lines are busy or for any other reason; in such case, a shareholder would have
to use the Fund's regular redemption procedure previously described. Requests
received by ACCESS prior to 4:00 p.m., New York time, on a regular business day
will be processed at the net asset value per share determined that day. These
privileges are available for 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

42
<PAGE> 48

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

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

DIVIDEND POLICY. The Fund declares dividends from net investment income on
each business day. Such dividends are distributed monthly. The daily dividend is
a fixed amount determined at least monthly which is not expected to exceed the
net income of the Fund for the month divided by the number of business days
during the month. The Fund intends to distribute after the end of a fiscal year
the net capital gains, if any, realized during the fiscal year except to the
extent that such gains are offset by capital loss carryovers. Unless the
shareholder instructs otherwise, dividends and distributions are automatically
reinvested in additional shares of the Fund. See "Shareholder Services --
Reinvestment Plan."

Shares become entitled to daily dividends declared on the business day of
receipt by ACCESS of payment for the shares. A check order or draft will
normally be converted into federal funds on the second business day following
receipt of payment by ACCESS. It is the investor's responsibility to see that
the dealer promptly forwards payment for shares purchased through the dealer.
All shares earn daily dividends through the day before such shares are processed
for payment or redemption.

The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the distribution fees and
incremental transfer agency fees applicable to such classes of shares.

FEDERAL INCOME TAXES. The Fund has qualified and intends to be taxed as a
"regulated investment company" under the Code by meeting certain requirements of
the Code. In addition, the Fund intends to invest in sufficient Municipal
Securities to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
Municipal Securities qualify as exempt-interest dividends if, at the close of
each quarter of the fiscal year, at least 50% of the value of the total assets
of the Fund consists of Municipal

43
<PAGE> 49

Securities. See "Federal Tax Information" in the Statement of Additional
Information.

Exempt-interest dividends paid to shareholders are not includable in the
shareholders' gross income for federal income tax purposes. The percentage of
the total dividends paid by the Fund during any taxable year that qualify as
exempt-interest dividends will be the same for all shareholders of the Fund
receiving dividends during such year. Shareholders not subject to tax on their
income will not be required to pay tax on amounts distributed to them.

Interest on certain "private-activity bonds" issued after August 7, 1986, is
an item of tax preference subject to the alternative minimum tax on individuals
and corporations. The Fund invests a portion of its assets in Municipal
Securities subject to this provision so that a portion of its exempt-interest
dividends will be an item of tax preference to the extent such dividends
represent interest received from these private-activity bonds. For the fiscal
period ending September 30, 1993, approximately 12.23% of the Fund's income
consisted of interest on private-activity bonds. The Tax Reform Act also imposes
per capita volume limitations on certain private-activity bonds which could
limit the amount of such bonds available for investment by the Fund.

The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gains. One such provision affects tax-exempt
securities by requiring that gains on such securities purchased at a market
discount be treated as ordinary income to the extent of the accrued market
discount, if the securities are acquired after April 30, 1993. Such securities
were exempt from the market discount rules under prior law.

The Fund is subject to the requirement that at least 80% of its assets be
invested in securities the income from which is exempt from both regular federal
income tax and the federal alternative minimum tax.

Distributions of net investment income received by the Fund from investments
in debt securities other than Municipal Securities, and any net realized
short-term capital gains distributed by the Fund are taxable to shareholders as
ordinary income. Any distribution of net long-term capital gains by the Fund is
subject to capital gains tax rates. Interest on indebtedness which is incurred
to purchase or carry shares of a mutual fund which distributes exempt-interest
dividends during the year is not deductible for federal income tax purposes.

Shareholders are notified annually of the federal tax status of dividends and
any distributions paid by the Fund during the fiscal year.

Individuals whose modified income exceeds a base amount are subject to federal
income tax on up to one-half of their Social Security benefits. Modified income

44
<PAGE> 50

includes adjusted gross income, one-half of Social Security benefits and
tax-exempt interest, including tax-exempt interest dividends from the Fund.

To avoid being subject to a 31% federal back-up withholding tax on dividends
(except exempt-interest dividends), capital gains distributions and redemption
payments, shareholders must furnish the Fund with a certification of their
correct taxpayer identification number.

The foregoing is a brief summary of some of the important tax considerations
generally affecting the Fund and its investors who are U.S. residents or U.S.
corporations. Additional tax information of relevance to particular investors,
including corporations and investors who may be "substantial users" of
facilities financed by Municipal Securities, is contained in the Statement of
Additional Information. Investors are urged to consult their tax advisers with
specific reference to their own tax situation. Foreign investors should consult
their own counsel for further information as to the U.S. and their country of
residence or citizenship tax consequences of receipt of dividends and
distributions from the Fund.

FEDERAL INCOME TAX ASPECTS OF FUTURES AND OPTIONS. The Fund's ability to
engage in transactions in listed futures contracts and related options may be
limited by provisions of the Code, including the requirement that the Fund
derive less than 30% of its gross income from the sale or other disposition of
securities held for less than three months. Gains and losses recognized by the
Fund from transactions in futures contracts and options thereon constitute
capital gains and losses for federal income tax purposes. See "Federal Tax
Information" in the Statement of Additional Information. To the extent such
activities result in net realized short-term capital gains which are distributed
to shareholders, such distributions constitute taxable ordinary income. To the
extent such activities result in net realized long-term capital gains which are
distributed to shareholders, such distributions constitute taxable long-term
capital gains.

STATE AND LOCAL TAXES. The exemption of interest income for federal income tax
purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that investors consult their tax advisers for information in this
regard. Dividends and distributions paid by the Fund from sources other than
tax-exempt interest are generally subject to taxation at the state and local
levels. Dividends or distributions paid by the Fund to Texas residents are not
subject to taxation by Texas, because Texas does not impose a personal income
tax at this time.

45
<PAGE> 51

------------------------------------------------------------------------------
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, five and ten-year periods or 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 paid 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.

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 and other fees, the total returns for each of the classes will
differ.

In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding. The Fund's "tax-equivalent
yield" is calculated by determining the rate of return that would have to be
achieved on a fully taxable investment to produce the aftertax equivalent of the
Fund's yield, assuming certain tax brackets for a Fund shareholder.

46
<PAGE> 52

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 Fund's yield the Adviser may, from time to time, absorb a
certain amount of the future ordinary business expenses. The Adviser may stop
absorbing these expenses at any time without prior notice.

Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions.

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 municipal bond indices, such as Lehman
Brothers Municipal Bond Index or Bond Buyer's Index of 25 Revenue Securities or
with the Consumer Price Index, Dow Jones Industrial Average, Standard & Poor's,
NASDAQ, other appropriate indices of investment securities, or with investment
or savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Investor's Business Daily, Kiplinger's Personal
Finance Magazine, Money, Mutual Fund Forecaster, Stanger's Investment Advisor,
USA Today, U.S. News & World Report and The Wall Street Journal. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Any such advertisement would also
include the standard performance information

47
<PAGE> 53

required by the SEC as described above. For these purposes, the performance of
the Fund, as well as the performance of other mutual funds or indices, do not
reflect sales charges, the inclusion of which would reduce Fund performance. The
Fund will include performance data for Class A, Class B and Class C shares of
the Fund in any advertisement or information including performance data of the
Fund.

The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.

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

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

ORGANIZATION OF THE FUND. The Fund was incorporated in the State of Maryland
on September 6, 1991. The Fund may offer three classes of shares: Class A, Class
B and Class C shares. Each class of shares represents interests in the assets of
the Fund and has identical voting, dividend, liquidation and other rights on the
same terms and conditions except that the distribution fees and/or service fees
related to each class of shares are borne solely by that class and each class of
shares has exclusive voting rights with respect to provisions of the Fund's
Class A Plan, Class B Plan and Class C Plan, which pertain to a particular
class. An order has been received from the SEC permitting the issuance and sale
of multiple classes of shares representing interest in the Fund's existing
portfolio. Shares issued are fully paid, non-assessable and have no preemptive
or conversion rights.

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

VOTING RIGHTS. The Bylaws of the Fund provide that shareholder meetings are
required to be held to elect directors only when required by the 1940 Act. Such
event is likely to occur infrequently. In addition, a special meeting of the
shareholders will be called, if requested by the holders of ten percent of the
Fund's outstanding shares, for the purposes, and to act upon the matters,
specified in the request (which may include election or removal of directors).
When matters are submitted for a shareholder vote, each shareholder is entitled
to one vote for each share owned. The shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors if

48
<PAGE> 54

they choose to do so, and in such an event, the holders of the remaining less
than 50% of the shares voting for the election of directors will not be able to
elect any person to the Board of Directors.

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

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

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

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

49
<PAGE> 55

------------------------------------------------------------------------------
INVESTMENT HOLDINGS
------------------------------------------------------------------------------
September 30, 1994

MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
EDUCATION
$ 375,000 Clear Creek Texas,
Independent School
District, G.O., 6.25%,
2/1/11
500,000 Houston, Texas, Higher
Education Finance Corp.,
Rev. (University of
St. Thomas Project), 7.25%,
12/1/07
500,000 North Texas Higher
Education Authority Inc.,
Texas Student Loan Rev.,
Refunding, Series D, 6.30%,
4/1/09
500,000 Victoria, Texas,
Independent School
District, Refunding, Zero
Coupon, 2/15/08

HOSPITALS
105,000 Abilene, Texas, Health
Facilities Development
Corp. (Hendrick Medical
Center Project), FGIC,
9.50%, 9/1/13
170,000 Bell County, Texas, Health
Facilities Development
Corp. (King's Daughters
Hospital), 9.25%, 7/1/08
500,000 Bexar County, Texas, Health
Facilities Development
Corp., Rev. Southwest Texas
Methodist Hospital, AMBAC,
6.75%, 11/1/21
750,000 Denton, Texas, Health
Facilities Development
Corp., Refunding (Lutheran
Good Samaritan Hospitals),
AMBAC, 6.00%, 6/1/18
500,000 Ector County, Texas,
Hospital District, Medical
Center Hospital, 7.125%,
4/15/02

<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
$ 175,000 Edinburg, Texas, Hospital
Authority, Rev. (Edinburg
General Hospital Project
86), 10.00%, 7/1/11
Harris County, Texas,
Health Facilities
Development Corp., Health
Care System Rev.
250,000 Memorial Hospital System
Project, 7.125%, 6/1/15
375,000 Sisters of Charity,
7.10%, 7/1/21
90,000 Jefferson County, Texas,
Health Facility Authority
(Baptist Health Care
Project), 8.30%, 10/1/14
185,000 Lubbock, Texas, Health
Facilities Development
Corp., Rev. (Methodist
Hospital), AMBAC, 7.25%,
12/1/19
155,000 Montgomery County, Texas,
Health Facilities
Development Corp., Hospital
Mortgage Rev. (Woodlands
Medical Center Project),
8.85%, 8/15/14
500,000 Richardson, Texas, Hospital
Authority, Refunding &
Improvement Rev.
(Richardson Medical
Center), 6.75%, 12/1/23
300,000 Rusk County, Texas, Health
Facility Corp., Refunding,
Hospital Rev. (Henderson
Memorial Hospital Project),
7.75%, 4/1/13
</TABLE>

50
<PAGE> 56

MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
$ 500,000 Tarrant County, Texas,
Health Facilities
Development Corp.,
Refunding & Improvement,
Hospital Rev. (Fort Worth
Osteopathic Hospital),
7.00%, 5/15/28
250,000 Texas Health Facilities
Development Corp., Hospital
Rev., (Fort Worth Childrens
Center), FGIC, 6.25%,
12/1/12
Tyler, Texas, Health
Facilities Development
Corp., Refunding Rev. (East
Texas Medical
Center -- Regional Health)
150,000 Series A, 8.25%, 11/1/06
500,000 Series B, 6.75%, 11/1/25
210,000 Weslaco, Texas, Health
Facilities Development
Corp., Hospital Rev.
(Weslaco Health Facility),
10.375%, 6/1/16

HOUSING
500,000 Austin, Texas, Housing
Finance Corp., Multi-family
Mtg., 6.50%, 10/1/10
500,000 Baytown, Texas, Property
Management & Development
Corp., Series A (Baytown
Terrace Project), 6.10%,
8/15/21
355,000 Bexar County, Texas,
Housing Finance Corp.,
Rev., Series B, 9.25%,
4/1/16
115,000 East Texas Housing Finance
Corp., Single Family Mtg.
Rev., 7.20%, 1/1/26
250,000 El Paso, Texas, Housing
Authority, Multi-Family
Mtg. Rev., Series A, 6.25%,
12/1/09
150,000 El Paso, Texas, Property
Finance Authority, Inc.,
Single Family Mtg. Rev.,
Series A, 8.70%, 12/1/18

<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
$ 165,000 Galveston, Texas, Property
Finance Authority, Inc.,
Single Family Mtg. Rev.,
Series A, 8.50%, 9/1/11
Harris County, Texas,
Housing Financing Corp.,
Single Family Mtg. Rev.,
30,000 Series 1983-A, 10.125%,
7/15/03
110,000 Series 1983-A, 10.375%,
7/15/14
15,000 11.25%, 4/15/06
25,000 Houston, Texas, Housing
Finance Corp., Single
Family Mtg. Rev., 10.00%,
9/15/14
240,000 Texas Housing Agency,
Single Family Mtg. Rev.,
Refunding, Series A, 7.15%,
9/1/12
190,000 Travis County, Texas,
Housing Finance Corp.,
Single Family Mtg. Rev.,
8.20%, 4/1/22

MISCELLANEOUS
60,000 Fort Bend County, Texas,
Levee Improvement, District
No. 11, G.O., 8.70%, 3/1/10
250,000 Lockhart, Texas,
Correctional Facilities
Rev., Financing Corp.,
MBIA, 6.625%, 4/1/12
250,000 Garland, Texas, Economic
Development Authority, IDR
(Yellow Freight System,
Inc. Project), 8.00%,
12/1/16
Sabine River Authority,
Texas, Refunding, PCR
(Texas Utilities Co.)
60,000 Series 1986, 9.00%, 9/1/07
500,000 7.75%, 4/1/16
295,000 Texas General Services
Community Partner
Interests, (Office Building
and Land Acquisition
Project), 7.00%, 8/1/09
</TABLE>

51
<PAGE> 57

MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
Texas State, G.O.,
$ 250,000 National Research Lab
Commission, 7.125%,
4/1/20
1,000,000 Public Financing
Authorities, Series A,
5.60%, 10/1/06
500,000 Refunding (Superconducting
Project), Series C,
6.00%, 4/1/12
250,000 Refunding, Veterans Land,
6.50%, 12/1/21
250,000 Travis County, Texas, G.O.,
Refunding, Series A, MBIA,
5.50%, 3/1/03

MUNICIPAL UTILITY DISTRICT (MUD)
250,000 Brazoria County, Texas, MUD
No. 2, Refunding, 7.00%,
9/1/08
60,000 Fort Bend County, Texas,
MUD No. 25, Refunding,
8.00%, 10/1/15
250,000 Harris County, Texas, MUD
No. 120, Refunding, 8.00%,
8/1/14
500,000 Harris County, Texas, MUD
No. 322, 6.25%, 5/1/18
500,000 Mills Road, Texas, MUD,
Refunding, 6.50%, 9/1/14
125,000 Mission Bend, Texas, MUD
No. 2, 10.00%, 9/1/00
Montgomery County, Texas,
MUD,
250,000 MBIA, 6.25%, 3/1/10
50,000 No. 4 (Water Works System),
8.90%, 9/1/02
250,000 6.00%, 9/1/16
250,000 6.00%, 9/1/19

<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
$ 100,000 West Harris County, Texas,
MUD No. 1, Refunding,
7.00%, 4/1/05
300,000 Woodlands, Texas, Metro
Center, MUD, Refunding,
Series B, 7.10%, 4/1/07

NURSING HOMES
250,000 San Antonio, Texas, Health
Facilities Development
Corp., Rev. (Encore Nursing
Center Partner), 8.25%,
12/1/19

TRANSPORTATION
Dallas-Fort Worth, Texas,
International Airport
Facility, Inc., Rev.
60,000 American Airlines Inc.,
7.50%, 11/1/25
140,000 Delta Airlines, Inc.,
7.60%, 11/1/11
250,000 Harris County, Texas, Toll
Road Rev., 6.75%, 8/1/94
250,000 Texas State Turnpike
Authority, Dallas North
Toll Road, Tollway Rev.,
6.00%, 1/1/20

UTILITIES -- COMBINATION ELECTRIC, GAS
AND/OR WATER
Austin, Texas, Utility
System Rev.
500,000 Refunding, 6.00%, 5/15/15
220,000 Series B, 7.80%, 11/15/12
435,000 City of Brownsville, Texas,
Utilities System Priority
Rev., Series 1990, AMBAC,
6.50%, 9/1/17
250,000 Colorado River, Texas,
Municipal Water District
(Water Transmission
Facilities Project -- A),
AMBAC, 6.625%, 1/1/21
</TABLE>

52
<PAGE> 58

MUNICIPAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
$ 250,000 Guadalupe Blanco River
Authority, Texas, IDR,
6.35%, 7/1/22
Port of Corpus Christi,
Texas, IDR (Valero Refining
& Marketing Co.)
385,000 Series A, 10.25%, 6/1/17
100,000 Series B, 10.625%, 6/1/08
220,000 San Antonio, Texas,
Electric and Gas Rev.,
Series A, 6.50%, 2/1/12
500,000 Willow Fork, Texas,
Drainage District, 7.00%,
3/1/11

UTILITIES -- ELECTRIC
125,000 Brazos River Authority
Texas, PCR (Texas Utilities
Electric Co. Project A),
9.875%, 10/1/17
100,000 Matagorda County, Texas,
Navigation District I,
Control Rev. (Central Power
& Light Co. Project),
7.875%, 12/1/16

<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------
<S> <C>
$ 435,000 Texas Municipal Power
Agency, Rev., 5.50%, 9/1/13

UTILITIES -- WATER AND SEWER
250,000 Coastal Water Authority,
Texas Water Rev., AMBAC,
6.25%, 12/15/17
250,000 Dallas, Texas, Waterworks
and Sewer System, Rev.,
Series A, 5.50%, 10/1/06
100,000 Harris County, Texas, Water
Control and Improvement
District No. 75, 7.00%,
3/1/14
500,000 Houston, Texas, Water and
Sewer System, Refunding
Rev., Series B, 6.375%,
12/1/14
250,000 Tarrant County, Texas,
Water Control and
Improvement Rev., 6.00%,
3/1/10
</TABLE>

---------------
G.O. -- General Obligation bond
IDR -- Industrial Development Revenue bond
PCR -- Pollution Control Revenue bond
Rev. -- Revenue bond

Insurers:
AMBAC -- AMBAC Indemnity Corp.
FGIC -- Financial Guaranty Insurance Co.
MBIA -- Municipal Bond Investor's Assurance Corp.

53
<PAGE> 59

BACKUP WITHHOLDING INFORMATION

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

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

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

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

* A corporation

* Financial institution

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

* United States or any agency or instrumentality thereof

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

* International organization or any agency or instrumentality thereof

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

* Real estate investment trust

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

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

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

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

<PAGE> 60

AMERICAN CAPITAL
TEXAS MUNICIPAL
SECURITIES, INC.

PROSPECTUS
JANUARY 31, 1995
National Distributor
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181

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

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

Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, TX 77002

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

Inquiries concerning transfer of
registration, distributions, redemptions
and shareholder service should be
directed to the Shareholder Service Agent,
Van Kampen/American Capital Shareholder
Services, Inc. (ACCESS), P.O. Box 418256,
Kansas City, MO 64141-9256.
Inquiries concerning sales should be
directed to the Distributor,
Van Kampen American Capital Distributors, Inc.,
One Parkview Plaza
Oakbrook Terrace, IL 60181

American Capital C/O ACCESS
Texas Municipal P.O. Box 418256
Securities, Inc. Kansas City, MO 64141-9256

Income exempt from Federal
income taxes and Texas state
income taxes, if any, through
a portfolio of municipal
securities issued primarily
in the State of Texas.

PRINTED MATTER
Printed in U.S.A./027 PRO-001