<PAGE> 1
SUPPLEMENT, DATED MAY 1, 1995 TO
PROSPECTUSES OF:
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AND
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
1. Effective today, the Distributor has increased the ongoing payments to
broker-dealers and other Service Organizations with respect to Class C shares.
The Distributor will now pay broker-dealers and other Service Organizations
ongoing commissions and transaction fees of up to 0.75% of the average daily net
assets of the Fund's Class C shares for the second through tenth year after
purchase for Class C shares sold on or after May 1, 1995. Broker-dealers and
other Service Organizations will still be paid ongoing commissions and
transaction fees for the second through tenth year after purchase of up to 0.65%
for Class C shares sold before May 1, 1995.
2. The first two paragraphs of "Shareholder Services -- Shareholder Services
Applicable to all Classes -- Exchange Privilege" are amended to read in their
entirety as follows:
EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund
(listed herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts") other than Government Target, may be exchanged for shares of the
same class of any other fund without sales charge, provided that shares of
Corporate Bond, Federal Mortgage, Global Managed, Government Trust, High
Yield, Municipal Bond, Real Estate, Tax-Exempt, Texas Municipal, Utilities,
and the American Capital Global Government Securities Fund of World
Portfolio are subject to a 30-day holding period requirement. Shares of
Government Target may be exchanged for Class A shares of the Fund without
sales charge. Class A shares of Reserve that were not acquired in exchange
for Class B or Class C shares of a Participating Fund may be exchanged for
Class A shares of the Fund upon payment of the excess, if any, of the sales
charge rate applicable to the shares being acquired over the sales charge
rate previously paid. Shares of Reserve acquired through an exchange of
Class B or Class C shares may be exchanged only for the same class of shares
of a Participating Fund without incurring a contingent deferred sales
charge. Shares of any Participating Fund or Reserve may be exchanged for
shares of 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 FEBRUARY 6, 1995,
TO PROSPECTUSES OF:
AMERICAN CAPITAL COMSTOCK FUND, INC.
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
AMERICAN CAPITAL EMERGING GROWTH FUND, INC.
AMERICAN CAPITAL ENTERPRISE FUND, INC.
AMERICAN CAPITAL EQUITY INCOME FUND, INC.
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
AMERICAN CAPITAL GROWTH AND INCOME FUND, INC.
AMERICAN CAPITAL HARBOR FUND, INC.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS, INC.
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
AMERICAN CAPITAL PACE FUND, INC.
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, INC.
AMERICAN CAPITAL TAX-EXEMPT TRUST
AMERICAN CAPITAL TEXAS MUNICIPAL SECURITIES, INC.
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
AND
AMERICAN CAPITAL WORLD PORTFOLIO SERIES, INC.
The description of the classes of investors entitled to purchase shares at net
asset value contained under the Section entitled "Purchase of Shares -- Class A
Shares" are hereby replaced in their entirety as follows:
(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Investment Advisory Corp. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any such fund or an affiliate of
such subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or in any combination of
shares of the Fund and shares of certain other participating American
Capital funds as described herein under "Purchase of Shares -- Class A
Shares -- Volume Discounts", during the 13 month period commencing with
the first investment pursuant hereto equals at least $1 million. The
Distributor may pay Service Organizations through which purchases are made
an amount up to 0.50% of the amount invested, over a twelve month period
following such transaction.
<PAGE> 4
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1% for such purchases.
(6) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000. For such
investments the Fund imposes a contingent deferred sales charge of 1% in
the event of redemptions within one year of the purchase. The contingent
deferred sales charge incurred upon redemption is paid to the Distributor
in reimbursement for distribution-related expenses. A commission will be
paid to dealers who initiate and are responsible for such purchases as
follows: 1% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
999 STK-009
<PAGE> 5
------------------------------------------------------------------------------
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
------------------------------------------------------------------------------
2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666
January 31, 1995
American Capital Utilities Income Fund, Inc. (the "Fund") is a mutual fund
seeking as its primary objective current income. Capital appreciation is a
secondary objective which is sought only when consistent with the primary
objective. The Fund will seek to achieve these investment objectives by
investing in a diversified portfolio of common stocks and income securities
issued by companies engaged in the utilities industry ("Utility Securities").
Companies engaged in the utilities industry include those involved in the
production, generation, transmission, or distribution of electric energy, gas,
telecommunications services or the provision of other utility or utility related
goods or services. Under normal market conditions, at least 65% of the Fund's
total assets will be invested in Utility Securities. The Fund may invest up to
35% of its total assets in securities issued by foreign issuers, some or all of
which may also be Utility Securities. There can be no assurance that the Fund
will achieve its investment objectives.
This Prospectus tells investors briefly the information they should know
before investing in the Fund. Investors should read and retain this Prospectus
for future reference.
A Statement of Additional Information dated the same date as this Prospectus
has been filed with the Securities and Exchange Commission ("SEC") and contains
further information about the Fund. A copy of the Statement of Additional
Information may be obtained without charge by calling or writing the Fund at the
telephone number and address printed above. The Statement of Additional
Information is incorporated by reference into this Prospectus.
THE SHARES OF THIS FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE SHARES OF THIS FUND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
------------------------------------------------------------------------------
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
------------------------------------------------------------------------------
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............ 6
Financial Highlights........ 8
Multiple Pricing System..... 8
Investment Objectives and
Policies.................. 12
Investment Practices and
Restrictions.............. 20
The Fund and Its
Management................ 24
Purchase of Shares.......... 26
Distribution Plans.......... 34
Shareholder Services........ 37
Redemption of Shares........ 41
Dividends, Distributions and
Taxes..................... 44
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> 7
------------------------------------------------------------------------------
PROSPECTUS SUMMARY
------------------------------------------------------------------------------
SHARES OFFERED. Capital Stock.
MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
TYPE OF COMPANY. Diversified, open-end management investment company.
INVESTMENT OBJECTIVE. The Fund's primary investment objective is to seek
current income. Capital appreciation is a secondary objective which is sought
only when consistent with the Fund's primary objective. There is, however, no
assurance that the Fund will be successful in achieving its objectives.
INVESTMENT POLICY AND RISKS. The Fund will seek to achieve its investment
objectives by investing in a diversified portfolio of common stocks and income
securities issued by companies engaged in the utilities industry. Companies
engaged in the utilities industry include those involved in the production,
transmission, or distribution of electric energy, gas, telecommunications
services or the provision of other utility or utility related goods or services.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in Utility Securities. Utility Securities may include securities issued
by foreign or domestic issuers and the Fund must concentrate over 25% of its
total assets in such securities. Under normal market conditions, the Fund may
invest up to 35% of its total assets in other than Utility Securities, including
common stocks and income securities of issuers not engaged in the utilities
industry, U.S. Government securities (securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities), cash and money market
instruments. The Fund's investments in income securities will be rated, at the
time of investment, at least BBB by Standard & Poor's Corporation ("S&P"), Baa
by Moody's Investors Service ("Moody's"), a comparable rating by any other
nationally recognized statistical rating organization or if unrated, considered
by the Fund's investment adviser to be of comparable quality.
Because of the Fund's policy of concentrating its investments in Utility
Securities, the Fund may be more susceptible than an investment company without
such a policy to any single economic, political or regulatory occurrence
affecting the public utilities industry. In addition, the Fund will be affected
by general changes in interest rates which will result in increases or decreases
in the market value of the debt securities (and, to a lesser degree, equity
securities) held by the Fund; the market value of such securities tends to have
an inverse relationship to the movement of interest rates. For additional
information regarding the risk connected with investment in Utility Securities,
see "Investment Objective and Policies -- Portfolio Securities."
3
<PAGE> 8
The Fund may invest up to 35% of its total assets in securities issued by
foreign issuers, some or all of which may also be Utility Securities.
Investments in foreign securities involve certain risks not ordinarily
associated with investments in securities of domestic issuers, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. See "Investment Objectives and
Policies -- Portfolio Securities -- Foreign Securities."
The Fund may sell (write) and purchase call and put options. The Fund may
purchase and sell futures contracts and options on such contracts since such
transactions are entered into for hedging purposes. The Fund may purchase or
sell debt securities on a forward commitment basis and may lend portfolio
securities. The use of options, futures contracts and options on futures
contracts may include additional risks. See "Using Options, Futures Contracts
and Options on Futures Contracts." The Fund's net asset value per share will
fluctuate depending on market conditions and other factors. See "Investment
Objectives and Policies."
INVESTMENT RESULTS. The investment results of the Fund are shown in the
"Financial Highlights" table.
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
4
<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. Dividends from net investment income are declared
daily and paid monthly; net 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."
5
<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 B CLASS C
SHARES(G) SHARES(G) SHARES(G)
---------------------------------------------------------------------------------------------
<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% during the
4% during the second year, first year(b)
3% during the third year,
2.5% during the fourth year,
1.5% during the fifth year
and 0% after the fifth year(b)
Exchange fee................. $5.00(c) $5.00(c) $5.00(c)
ANNUAL FUND OPERATING
EXPENSES (as a percentage
of average net assets)
Management fees (after
reimbursement)............. .00%(h) .00%(h) .00%(h)
Rule 12b-1 fees(d)........... .18% 1.00%(f) 1.00%(f)
Other expenses (after
reimbursement)(e).......... .88%(i) .82%(i) .79%(i)
Total fund operating
expenses................... 1.06% 1.82%(j) 1.79%(j)
---------------------------------------------------------------------------------------------
(a) Reduced for purchases of $100,000 and over. See "Purchase of
Shares -- Class A Shares" -- page 28.
(b) See "Purchase of Shares -- Class B Shares" and "-- Class C Shares"-- pages
32 and 33.
(c) Not charged in certain circumstances. See "Shareholder
Services -- Systematic Exchange" and "-- Automatic Exchange"-- page 40.
(d) Up to .25% for Class A shares and 1.00% for Class B and C shares. See
"Distribution Plans"-- page 34.
(e) See "The Fund and Its Management"-- page 24. "Other expenses" is based on
estimated amounts for the current fiscal year on an annualized basis.
(f) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(g) For the period November 23, 1993 through September 30, 1994 on an
annualized basis.
(h) After a voluntary expense reimbursement. In the absence of such a
reimbursement, management fees for all classes would be .65%.
(i) After expense reimbursement. In the absence of expense reimbursement, other
expenses would be 1.60% for Class A shares, 1.54% for Class B shares and
1.51% for Class shares, respectively.
(j) After expense reimbursement. In the absence of expense reimbursement, total
fund operating expenses would be 2.43% for Class A shares, 3.19% for Class
B shares and 3.16% for Class C shares.
* Investments of $1 million or more are not subject to any sales charge at
the time of purchase, but a contingent deferred sales charge of 1% may be
imposed on certain redemptions made within one year of the purchase.
</TABLE>
6
<PAGE> 11
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment
including, for Class A shares, the
maximum $47.50 front-end sales charge
and for Class B and Class C shares, a
contingent deferred sales charge
assuming (1) an operating expense ratio
of 1.06% for Class A shares, 1.82% for
Class B shares and 1.79% for Class C
shares, (2) a 5% annual return
throughout the period and (3)
redemption at the end of the period:
Class A............................. $58 $80 $103 $171
Class B............................. $60 $90 $116 $175**
Class C............................. $29 $57 $ 99 $214
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of
the period:
Class A............................. $58 $80 $103 $171
Class B............................. $18 $57 $ 99 $175**
Class C............................. $18 $57 $ 99 $214
</TABLE>
--------------------------------------------------------------------------------
** Based on conversion to Class A shares after six years.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. See "Purchase of Shares," "The Fund and Its Management" and
"Redemption of Shares." The example is included to provide a means for the
investor to compare expense levels of funds with different fee structures over
varying investment periods. To facilitate such comparison, all funds are
required to utilize a five percent annual return assumption. This assumption is
unrelated to the Fund's prior performance and is not a projection of future
performance. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
7
<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>
NOVEMBER 23, 1993(1) THROUGH
SEPTEMBER 30, 1994
----------------------------------
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(4)
Net asset value, beginning of period.......... $9.44 $9.44 $9.44
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................. .53 .52 .53
Expenses...................................... (.09) (.14) (.15)
-------- -------- --------
Net investment income......................... .44 .38 .38
Net realized and unrealized losses on
securities.................................. (1.10) (1.096) (1.106)
-------- -------- --------
Total from investment operations.............. (.66) (.716) (.726)
-------- -------- --------
DIVIDENDS FROM NET INVESTMENT INCOME.......... (.39) (.334) (.334)
-------- -------- --------
Net asset value, end of period................ $8.39 $8.39 $8.38
======== ======== ========
TOTAL RETURN(3)............................... (7.24%) (7.72%) (7.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).......... $7.5 $10.7 $1.8
Ratios to average net assets(2)
Expenses.................................... 1.06% 1.82% 1.79%
Expenses, without expense reduction......... 2.43% 3.19% 3.16%
Net investment income....................... 5.48% 4.66% 4.65%
Net investment income, without expense
reduction................................. 4.11% 3.29% 3.28%
Portfolio turnover rate....................... 72% 72% 72%
</TABLE>
------------
(1) Commencement of offering of sales.
(2) Annualized
(3) Total return not annualized. Total return calculated from December 1, 1993
(date the Fund began meeting its investment objective) through September 30,
1994. Total return does not consider the effect of sales charges.
(4) Based on average month-end shares outstanding.
------------------------------------------------------------------------------
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
8
<PAGE> 13
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" below for discussion on applicability of
the conversion feature to Class C shares.
CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the 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.
9
<PAGE> 14
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code, as amended (the "Code"), and (ii) the conversion of
shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares or Class C shares would occur, and shares might continue to be subject to
the distribution fee for an indefinite period which may extend beyond the period
ending six years or ten years, respectively, after the end of the calendar month
in which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Expense Synopsis" sets forth examples of the charges applicable to each
class of shares. In this regard, Class A shares may be more beneficial to the
investor who qualifies for reduced initial sales charges or purchases at net
asset value, as described herein under "Purchase of Shares -- Class A Shares."
For these reasons, the Distributor will reject any order of $250,000 or more for
Class B shares or any order of $1 million or more for Class C shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase, investors in
Class A shares do not have all their funds invested initially and, therefore,
initially own fewer shares. Other investors might determine that it is more
advantageous to purchase either Class B shares or Class C shares and have all
their funds invested initially, although
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remaining subject to ongoing distribution fees and, for a five-year or one-year
period, respectively, being subject to a contingent deferred sales charge.
Ongoing distribution fees on Class B shares and Class C shares will be offset to
the extent of the additional funds originally invested and any return realized
on those funds. However, there can be no assurance as to the return, if any,
which will be realized on such additional funds. For investments held for ten
years or more, the relative value upon liquidation of the three classes tends to
favor Class A or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. In addition, the check writing privilege is only available for Class A
shares (see "Shareholder Services -- Shareholder Services Applicable to Class A
Shareholders Only -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, and/or have a longer-term
investment horizon. Class C shares may be appropriate for investors who wish to
avoid a front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon and/or desire a short
contingent deferred sales charge schedule.
Under most circumstances, for investments aggregating less than $100,000 at
the time of purchase, investments originally made in Class C shares will tend to
have a slightly higher value upon liquidation than investments originally made
in either Class A or Class B shares if liquidated within approximately the first
six years after the date of the original investment and investments originally
made in Class B shares will tend to have a slightly higher value upon
liquidation than investments originally made in either Class A or Class C shares
for investments held longer. Under most circumstances, for investments
aggregating $100,000 or more at the time of purchase, investments originally
made in Class C shares will tend to have a slightly higher value upon
liquidation than either investments originally made in Class A or Class B shares
if liquidated within approximately the first two to the first six years after
the date of the original investment, but investments originally made in Class A
and Class B shares will tend to have a slightly higher value upon liquidation
for investments held 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
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<PAGE> 16
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.
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INVESTMENT OBJECTIVES AND POLICIES
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The Fund's primary investment objective is to provide its shareholders with
current income. Capital appreciation is a secondary objective which is sought
only when consistent with the primary objective. The Fund will seek to achieve
its investment objectives by investing in a diversified portfolio of common
stock and income securities issued by companies engaged in the utilities
industry. Companies engaged in the utilities industry include those engaged in
the production, generation, transmission, or distribution of electric energy and
telecommunications services, the distribution of gas or the provision of other
utility or utility related goods or services. Utility Securities may be issued
by either foreign or domestic issuers. Under normal market conditions, at least
65% of the Fund's total assets will be invested in Utility Securities. As a
fundamental policy, which cannot be changed without shareholder approval, the
Fund must concentrate over 25% of its assets in Utility Securities. The Fund
will not purchase more than 5% of the outstanding voting securities of more than
one public utility company. Under normal market conditions, the Fund may invest
up to 35% of its total assets in other than Utility Securities, including common
stock and income securities of issuers not engaged in the utilities industry,
U.S. Government securities, cash and money market instruments. Income securities
include preferred stock and debt securities of various maturities. The Fund's
investments in income securities will be rated, at the time of investment, at
least BBB by S&P, Baa by Moody's, a comparable rating by any
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<PAGE> 17
other nationally recognized statistical rating organization or if unrated,
determined by the Adviser to be of comparable quality. Ratings at the time of
purchase determine which securities may be acquired, and a subsequent reduction
in ratings does not require the Fund to dispose of a security. Securities rated
BBB by S&P or Baa by Moody's are considered to be medium grade obligations which
possess speculative characteristics so that changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher rated securities. The
ratings of the ratings agencies represent their opinions of the quality of the
debt securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, income securities with the same
maturity, coupon and rating may have different yields while income securities of
the same maturity and coupon with different rates may have the same yield. The
Fund may invest up to 35% of its assets in securities issued by foreign issuers.
The investment objectives and policies, the percentage limitations, and the
kinds of securities in which the Fund may invest are generally not fundamental
policies and may be changed by the Directors, unless expressly governed by
certain limitations as described under "Investment Practices and
Restrictions -- Investment Restrictions" which can be changed only by action of
the shareholders. If there is a change in the objectives of the Fund,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs.
In evaluating particular issuers of Utility Securities, the Adviser will
consider a number of factors, including rates of return on capital, financial
condition and resources, historical growth rates, geographic location and
service area, management skills and such utilities industry factors as
regulatory environment, energy sources, the costs of alternative fuels and, in
the case of electric energy utilities, the extent and nature of their
involvement with nuclear power. The Adviser believes that Utility Securities
provide above-average dividend returns and below-average price/earnings ratios
which in the view of the Adviser are factors that not only provide current
income but also generally tend to moderate risk. The Adviser will buy and sell
securities for the Fund's portfolio with a view toward seeking capital
appreciation together with current income and will select securities which the
Adviser believes entail reasonable credit risk considered in relation to the
investment policies of the Fund. As a result, the Fund will not necessarily
invest in the highest yielding Utility Securities permitted by the investment
policies if the Adviser determines that market risks associated with such
investments would subject the Fund's portfolio to excessive risk. Other than for
tax purposes, frequency of portfolio turnover generally will not be a limiting
factor if the Fund considers it advantageous to purchase or sell securities. The
Fund may have annual portfolio turnover rates in excess of 100%. A high rate of
portfolio turnover involves
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<PAGE> 18
correspondingly greater brokerage commission expenses or dealer costs than a
lower rate, which expenses and costs must be borne by the Fund and its
shareholders. See "Investment Practices and Restrictions -- Portfolio Turnover."
The Fund may enter into repurchase agreements with domestic banks and
broker-dealers which involves certain risks or may lend portfolio securities on
a fully collateralized basis. See "Investment Practices and
Restrictions -- Repurchase Agreements" and "Investment Practices and
Restrictions -- Lending of Securities." When deemed appropriate for temporary
defensive purposes, up to 100% of the Fund's assets may be invested in U.S.
Government securities and investment grade corporate debt securities.
The Fund may dispose of a security whenever, in the opinion of the Adviser,
factors indicate it is desirable to do so. Such factors include a change in
economic or market factors in general or with respect to a particular industry,
a change in the market trend of or other factors affecting an individual
security, changes in the relative market performance or appreciation
possibilities offered by individual securities and other circumstances bearing
on the desirability of a given investment.
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PORTFOLIO SECURITIES
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GENERAL. Utility Securities are common stocks and income securities of
companies engaged in the utilities industry. Such companies may be either
foreign or domestic. Companies engaged in the utilities industry include a
variety of entities involved in (i) production, generation, transmission or
distribution of electric energy, (ii) the provision of natural gas, (iii) the
provision of telephone, mobile communication, satellite, microwave and other
telecommunications services or (iv) the provision of other utility or utility
related goods or services, including entities engaged in cogeneration, waste
disposal system provision, solid waste electric generation and independent power
producers.
The rate of return of issuers of Utility Securities generally are subject to
review and limitation by state public utilities commissions and tend to
fluctuate with marginal financing costs. Rate changes generally lag changes in
financing costs, and thus can favorably or unfavorably affect the earnings or
dividend payments on Utility Securities depending upon whether such rates and
costs are declining or rising.
Companies engaged in the public utilities industry historically have been
subject to a variety of risks depending, in part, on such factors as the type of
utility company involved and its geographic location. Such risks include
increases in fuel and other operating costs, high interest expenses for capital
construction programs, costs associated with compliance with environmental and
nuclear safety regulations, service interruption due to environmental,
operational or other mishaps, the effects
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<PAGE> 19
of economic slowdowns, surplus capacity, competition and changes in the overall
regulatory climate. In particular, regulatory changes with respect to nuclear
and conventionally fueled generating facilities could increase costs or impair
the ability of utility companies to operate such facilities, thus reducing
utility companies' earnings or resulting in losses. There can be no assurance
that regulatory policies or accounting standard changes will not negatively
affect utility companies' earnings or dividends. Companies engaged in the public
utilities industry are subject to regulation by various authorities and may be
affected by the imposition of special tariffs and changes in tax laws. To the
extent that rates are established or reviewed by governmental authorities,
companies engaged in the public utilities industry are subject to the risk that
such authority will not authorize increased rates. In addition, because of the
Fund's policy of concentrating its investments in Utility Securities, the Fund
may be more susceptible than an investment company without such a policy to any
single economic, political or regulatory occurrence affecting the public
utilities industry. Under market conditions that are unfavorable to the
utilities industry, the Adviser may significantly reduce the Fund's investment
in that industry.
GAS AND TELECOMMUNICATIONS UTILITIES. Gas transmission companies, gas
distribution companies and telecommunications companies are undergoing
significant changes. Gas utilities have been adversely affected by declines in
the prices of alternative fuels, oversupply conditions and competition. However,
the better managed companies have utilized their cash flows to diversify into
non-regulated businesses that have helped to offset slow growth in the utility.
Telephone utilities are still experiencing the effects of increased competition
and rapidly developing technologies. Potential sources of competition and new
products are cable television systems, shared tenant services and other
noncarrier systems which are capable of bypassing traditional telephone services
providers' local plant, either completely or partially, through substitutions of
special access for switched access or through concentration of
telecommunications traffic on fewer of the traditional telephone services
providers' lines. Although there can be no assurance that increased competition
and other structural changes will not adversely affect the profitability of such
utilities, or that other negative factors will not develop in the future, in the
Adviser's opinion, competition and technological advances may over time result
in better-positioned utility companies with opportunities for enhanced
profitability.
ELECTRIC UTILITIES. Electric utility companies in general have been favorably
affected by lower fuel costs, the full or near completion of major construction
programs and lower financing costs. Some electric utilities have also taken
advantage of the right to sell power outside of their historical territories.
Certain electric utilities with uncompleted nuclear power facilities may have
problems completing and licensing such facilities, and there is increasing
public, regulatory and governmental concern with the cost and safety of nuclear
power facilities in general. At this time, there are certain institutional
impediments to the wide-scale deregulation
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<PAGE> 20
of electric utilities including among other things, limitations on the
redistribution of power.
Electric utilities are also facing significant change as the industry moves
from a regulated monopoly to full competition. While this process will take
several years to complete, the companies today must enhance efficiency of
operation in order to survive. In some instances, this may require asset
writedowns of uneconomic plants which could place a burden on those companies
with weaker balance sheets. In the opinion of the Adviser, those companies
preparing today for competition in the future will be strong survivors with
opportunities for increased profitability and dividend growth.
OTHER UTILITIES. Other issuers of Utility Securities are emerging as new
technologies develop and as old technologies are refined. Such issuers include
entities engaged in cogeneration, waste disposal system provision, solid waste
electric generation and independent power producers.
INCOME SECURITIES. The Fund may invest its assets in income securities, which
include preferred stocks and debt securities of various maturities. The Fund
will make these investments in securities which, at the time of investment, are
rated at least BBB by S&P, Baa by Moody's, a comparable rating by any other
nationally recognized statistical rating organization or if unrated, of
comparable quality as determined by the Adviser. For a description of such
ratings, see the Appendix included with the Statement of Additional Information.
While the Fund has no policy limiting the maturities of the debt securities in
which it may invest, the Adviser seeks to limit market risk by generally
maintaining a portfolio duration within a range of five to ten years. Duration
is a measure of the expected life of a debt security that was developed as a
more precise alternative to the concept of "term to maturity." Duration
incorporates a debt security's yield, coupon interest payments, final maturity
and call features into one measure.
The Fund may invest in securities convertible into, or ultimately exchangeable
for, Utility Securities. Convertible securities rank senior to common stocks in
a corporation's capital structure. They are consequently of higher quality and
entail less risk than the corporation's common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income security.
The net asset value of the Fund will change with changes in the value of its
portfolio securities. The values of income securities may change as interest
rate levels fluctuate. To the extent that the Fund invests in income securities,
the net asset value of the Fund can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested in income securities generally can be expected to rise. Conversely,
when interest rates rise, the
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<PAGE> 21
value of a portfolio invested in income securities generally can be expected to
decline. Volatility may be greater during periods of general economic
uncertainty.
The foregoing policies with respect to credit quality of portfolio investments
will apply only at the time of purchase of a security, and the Fund will not be
required to dispose of a security in the event that S&P or Moody's (or any other
nationally recognized statistical rating organization) or, in the case of
unrated income securities, the Adviser, downgrades its assessment of the credit
characteristics of a particular issuer. In determining whether the Fund will
retain or sell such a security, in addition to the factors described above, the
Adviser may consider such factors as the Adviser's assessment of the credit
quality of the issuer of such security, the price at which such security could
be sold and the rating, if any, assigned to such security by other nationally
recognized statistical rating organizations.
COMMON STOCK. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
after making required payments to holders of such entity's preferred stock and
other senior equity. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so. In selecting common stocks for
investment, the Fund will focus both on the security's potential for
appreciation and on its dividend paying capacity.
FOREIGN SECURITIES. The Fund may invest up to 35% of its assets in securities
issued by foreign issuers of similar quality as the securities described above
as determined by the Adviser. Some of such securities may also be Utility
Securities. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments. Since the Fund may invest in
securities denominated or quoted in currencies other than the United States
dollar, changes in foreign currency exchange rates may affect the value of
investments in the portfolio and the accrued income and unrealized appreciation
or depreciation of investments. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets.
The Fund may also purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
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<PAGE> 22
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition,certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Dividends,
Distributions and Taxes." Foreign financial markets, while growing in volume,
have, for the most part, substantially less volume than United States markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The foreign markets
also have different clearance and settlement procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund are not invested and no return is earned thereon. The inability of
the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Costs associated with transactions in
foreign securities, including custodial costs and foreign brokerage commissions,
are generally higher than with transactions in United States securities. In
addition, the Fund will incur costs in connection with conversions between
various currencies. There is generally less government supervision and
regulation of exchanges, financial institutions and issuers in foreign countries
than there is in the United States.
The Adviser believes that many foreign issuers of Utility Securities have yet
to experience the growth that certain issuers of Utility Securities located in
the United States have experienced and that as such foreign issuers develop
their domestic markets, they may become attractive investments. In addition, the
Adviser believes that certain foreign governments may engage in programs of
privatization of issuers of Utility Securities and that the Utility Securities
issued by privatized companies
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<PAGE> 23
may offer attractive investment opportunities with the potential for long-term
growth. However, it is not possible to predict the terms of offerings by
privatized companies or the effect of privatization in the domestic securities
market of such privatized companies. There can be no assurance that securities
of privatized companies will be offered to the public or to foreign companies
such as the Fund.
FOREIGN CURRENCY TRANSACTIONS. The value of the Fund's portfolio securities
that are traded in foreign markets may be affected by changes in currency
exchange rates and exchange control regulations. In addition, the Fund will
incur costs in connection with conversions between various currencies. The
Fund's foreign currency exchange transactions generally will be conducted on a
spot basis (that is, cash basis) at the spot rate for purchasing or selling
currency prevailing in the foreign currency exchange market. The Fund purchases
and sells foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund does not
purchase and sell foreign currencies as an investment.
The Fund also may enter into contracts with banks or other foreign currency
brokers and dealers to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts
to hedge against changes in foreign currency exchange rates. A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
The Fund may attempt to hedge against changes in the value of the United
States dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency futures contract for
such amount. Such hedging strategies may be employed before the Fund purchases a
foreign security traded in the hedged currency which the Fund anticipates
acquiring or between the date the foreign security is purchased or sold and the
date on which payment therefor is made or received. Hedging against a change in
the value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
move in the direction opposite to the hedged position. The Fund will not
speculate in foreign currency forward or futures contracts or through the
purchase and sale of foreign currencies.
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INVESTMENT PRACTICES AND RESTRICTIONS
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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. It is the current policy of the
Fund not to invest at the time of purchase more than 25% of its total assets in
securities subject to repurchase agreements, nor more than 15% of its net assets
in securities subject to repurchase agreements that do not mature within seven
days and in any other illiquid securities. In the event of the bankruptcy of the
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities, and the Fund could incur a loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights. See the Statement of Additional Information.
For the purpose of investing in repurchase agreements, the Adviser aggregates
the cash that substantially all of the funds advised or subadvised by the
Adviser would otherwise invest separately into a joint account. The cash in the
joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund than would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order
authorizing this practice, which conditions are designed to ensure the fair
administration of the joint account and to protect the amounts in that account.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund
expects to utilize options, futures contracts and options on futures contracts
in several different ways, depending upon the status of the Fund's portfolio and
the Adviser's expectations concerning the securities markets. See the Statement
of Additional Information for a discussion of options, futures contracts and
options on futures contracts.
POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities. While
utilization of options, futures contracts and similar instruments may be
advantageous to the
20
<PAGE> 25
Fund, if the Adviser is not successful in employing such instruments in managing
the Fund's investments, the Fund's performance will be worse than if the Fund
did not make such investments. In addition, the Fund would pay commissions and
other costs in connection with such investments, which may increase the Fund's
expenses and reduce its return. The Fund may write or purchase options in
privately negotiated transactions ("OTC Options") as well as listed options. OTC
Options can be closed out only by agreement with the other party to the
transaction. Any OTC Option purchased by the Fund is considered an illiquid
security. Any OTC Option written by the Fund is with a qualified dealer pursuant
to an agreement under which the Fund may repurchase the option at a formula
price. Such options are considered illiquid to the extent that the formula price
exceeds the intrinsic value of the option. The Fund may not purchase or sell
futures contracts or related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of the Fund's assets. In
order to prevent leverage in connection with the purchase of futures contracts
or call options thereon by the Fund, an amount of cash, cash equivalents or
liquid high-grade debt securities equal to the market value of the obligation
under the futures contract or option (less any related margin deposits) will be
maintained in a segregated account with the Custodian. The Fund may not invest
more than 15% of its net assets in illiquid securities and repurchase agreements
which have a maturity of longer than seven days. A more complete discussion of
the potential risks involved in transactions involving options or futures
contracts and related options, is contained in the Statement of Additional
Information.
FORWARD COMMITMENTS. The Fund may purchase or sell debt securities on a
"when-issued" or "delayed delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, frequently a month or more
after such transaction. This price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment take place. At the time of settlement, the
market value of the securities may be more or less than the purchase or sale
price.
The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in another
Forward Commitment. The Fund's use of Forward Commitments may increase its
overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the other party to complete
the transaction, should the other party fail to do so, the fund might lose a
purchase of sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.
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The Fund maintains a segregated account (which is marked to market daily) of
cash, U.S. Government securities or the security covered by the Forward
Commitment with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to purchase or sell continues.
LENDING OF SECURITIES. In order to generate additional income, the Fund may
lend its portfolio securities in an amount up to 33 1/3% of total assets to
broker-dealers, major banks or other recognized domestic institutional borrowers
of securities not affiliated with the Adviser. The borrower at all times during
the loan must maintain cash equal to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities, and
the Fund may invest the cash collateral in short-term instruments and earn
additional income. There are risks of delay in recovery and in some cases even
loss of rights in the collateral should the borrower of the securities fail
financially.
RESTRICTED SECURITIES. The Fund may invest up to 15% of its net assets in
restricted securities and other illiquid assets (but see below for information
regarding state restrictions). As used herein, restricted securities are those
that have been sold in the United States without registration under the
Securities Act of 1933 and are thus subject to restrictions on resale. Excluded
from the limitation, however, are any restricted securities which are eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 and which have
been determined to be liquid by the Board of Directors or by the Adviser
pursuant to Board-approved guidelines. The determination of liquidity is based
on the volume of reported trading in the institutional secondary market for each
security. The Directors will carefully monitor the Fund's investment in 144A
securities focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. These difficulties and delays could result in the Fund's
inability to realize a favorable price upon disposition of restricted
securities, and in some cases might make disposition of such securities at the
time desired by the Fund impossible. Since market quotations are not readily
available for restricted securities, such securities will be valued by a method
that the Fund's Board of Directors believes accurately reflects fair value.
Notwithstanding the foregoing, due to various state regulations, the Fund will
not invest more than 10% of its net assets in restricted securities; restricted
securities eligible for resale pursuant to Rule 144A are not included within
this limitation. In the event that the Fund's shares cease to be qualified under
the laws of such states or if such regulations are amended or otherwise cease to
be operative, the Fund would not be subject to this 10% restriction.
22
<PAGE> 27
PORTFOLIO TURNOVER. The Fund may experience a high rate of portfolio turnover
which may vary from year to year. The rate of portfolio turnover is not a
limiting factor when the Adviser deems it desirable to purchase or sell
securities or to engage in transactions in options, future contracts and related
options. A 100% turnover rate would occur, for example, if all the securities
held by the Fund were replaced in a period of one year. Higher portfolio
turnover involves correspondingly greater brokerage commissions and other
transaction costs, which are borne directly by the Fund, and may result in
realization of short-term capital gains if securities are held for one year or
less which may be subject to applicable income taxes. See "Dividends,
Distributions and Taxes." Although no assurance can be given with respect to
future portfolio turnover rates, it is anticipated that the Fund's rate of
portfolio turnover will not generally exceed 400%.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The Adviser is authorized to place portfolio transactions
with brokerage firms participating in the distribution of shares of the Fund and
other American Capital mutual funds if it reasonably believes that the quality
of the execution and the commission are comparable to that available from other
qualified brokerage firms. The Adviser is authorized to pay higher commissions
to brokerage firms that provide it with investment and research information than
to firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. The
information received may be used by the Adviser in managing the assets of other
advisory accounts as well as in the management of the assets of the Fund.
INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. See the Statement of
Additional Information for further information. These restrictions provide,
among other things that the Fund may not:
1. Borrow in excess of five percent of the market or other fair value of its
total assets; or pledge its assets to an extent greater than five percent
of the market or other fair value of its total assets. Any such borrowings
shall be from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Margin deposits or payments in
connection with the writing of options, or in connection with the purchase
or sale of forward contracts, futures contracts and foreign currency
futures and options thereon, are not deemed to be a pledge or other
encumbrance.
23
<PAGE> 28
2. Invest more than five percent of its assets in the securities of any one
issuer (except the U.S. Government, its agencies and instrumentalities) or
purchase more than ten percent of the outstanding voting securities of any
one issuer.
3. Write, purchase or sell puts, calls or combinations thereof, except that
the Fund may (a) write covered or fully collateralized call options, write
secured put options, and enter into closing or offsetting purchase
transactions with respect to such options, (b) purchase options to the
extent that the premiums paid for all such options owned at any time do not
exceed ten percent of its total assets, and enter into closing or
offsetting transactions with respect to such options, and (c) engage in
transactions in interest rate futures contracts and related options
provided that such transactions are entered into for bona fide hedging
purposes (or that the underlying commodity value of the Fund's long
positions do not exceed the sum of certain identified liquid investments as
specified in CFTC regulations), provided further that the aggregate initial
margin and premiums do not exceed five percent of the fair market value of
the Fund's total assets, and provided further that the Fund may not
purchase futures contracts or related options if more than 30% of the
Fund's total assets would be so invested.
4. Make loans of money or securities, except (a) by investment in repurchase
agreements in accordance with applicable requirements set forth in the
Fund's Prospectus or (b) by lending its portfolio securities in amounts not
to exceed 33 1/3% of the Fund's total assets, provided that such loans are
secured by cash collateral that is at least equal to the market value. See
"Investment Practices and Restrictions" herein.
------------------------------------------------------------------------------
THE FUND AND ITS MANAGEMENT
------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company,
incorporated as a Maryland corporation on August 31, 1993. A mutual fund
provides, for those who have similar investment goals, a practical and
convenient way to invest in a diversified portfolio of securities by combining
their resources in an effort to achieve such goals.
A board of eight directors has the responsibility for overseeing the affairs
of the Fund. The Adviser, determines the investment of the Fund's assets,
provides administrative services and manages the Fund's business and affairs.
The Adviser, together with its predecessors, has been in the investment advisory
business since 1926 and has served as investment adviser to the Fund since its
inception. As of November 30, 1994, the Adviser provides investment advice to 45
investment company portfolios with total net assets of approximately $16.1
billion. The Adviser may utilize at its own expense credit analysis, research
and trading support services provided by its affiliate, Van Kampen American
Capital Investment Advisory Corp.
24
<PAGE> 29
The Adviser and the Distributor are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
Alberto Cribiore, Donald J. Gogel and Hubbard C. Howe, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of VKAC own, in the aggregate, not more than 6% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 10% of the common stock of
VK/AC Holding, Inc.
Mr. Don G. Powell is President and Director of the Fund, President, Chief
Executive Officer and Director of the Adviser, and Chairman, Chief Executive
Officer and Director of the Distributor. Most other officers of the Fund are
also officers and/or directors of the Adviser.
The Fund retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement dated December 20, 1994 (the "Advisory
Agreement"), the Fund pays the Adviser a monthly fee computed on average daily
net assets of the Fund at the annual rate of 0.65% of the Fund's average daily
net assets. Under the Advisory Agreement, the Fund also reimburses the Adviser
for the cost of the Fund's accounting services, which include maintaining its
financial books and records and calculating its daily net asset value. Operating
expenses paid by the Fund include shareholder service agency fees, service fees,
distribution fees, custodial fees, legal and accounting fees, the costs of
reports and proxies to shareholders, directors' fees, and all other business
expenses not specifically assumed by the Adviser. Advisory (management) fee and
total operating expense ratios are shown under the caption "Expense Synopsis"
herein.
Mary Jayne Byrne is primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Byrne has been primarily responsible for
managing the Fund's investment portfolio since May 20, 1994. Prior to that she
was associate portfolio manager of the Fund. Ms. Byrne is Vice President of the
Fund and has been a portfolio manager with the Adviser since 1994. Ms. Byrne was
an associate portfolio manager with the Adviser from 1992 to 1994. Prior to that
time, Ms. Byrne was a senior equity analyst at Texas Commerce Investment
Management Company. Thomas Copper is associate portfolio manager of the Fund. In
that role he assists Ms. Byrne in the day-to-day management of the Fund's
investment portfolio. He has served in that capacity since the inception of the
Fund.
25
<PAGE> 30
Mr. Copper is also Vice President of the Fund and has been an associate
portfolio manager of the Adviser since 1992. Prior to that time Mr. Copper was a
credit analyst with the Adviser.
------------------------------------------------------------------------------
PURCHASE OF SHARES
------------------------------------------------------------------------------
GENERAL
The Fund offers three classes of shares to the general public. Class A shares
are sold with an initial sales charge; Class B shares and Class C shares are
sold without an initial sales charge and are subject to a contingent deferred
sales charge upon certain redemptions. See "Multiple Pricing System" for a
discussion of factors to consider in selecting which class of shares to
purchase. Contact the Service Department at (800) 421-5666 for further
information and appropriate forms.
Shares of the Fund are offered continuously for sale by the Distributor and
are available through authorized investment dealers. Initial investments must be
at least $500 and subsequent investments must be at least $25. Both minimums may
be waived by the Distributor for plans involving periodic investments. The Fund
and the Distributor reserve the right to refuse any order for the purchase of
shares. Shares of the Fund may be sold in foreign countries where permissible.
The Fund also reserves the right to suspend the sale of the Fund's shares in
response to conditions in the securities markets or for other reasons.
Shares of the Fund may be purchased on any business day through authorized
dealers. Shares may also be purchased by completing the application included in
this Prospectus and forwarding the application, through the designated dealer,
to the shareholder service agent, 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 determined once daily as of the close of trading on the
New York Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time)
each day the Exchange is open. Net asset value per share for each class is
determined by dividing the value of the Fund's securities, cash and other assets
(including accrued interest) attributable to such class less all liabilities
(including accrued expenses) attributable to such class, by the total number of
shares of the class outstanding. Such computation is made by using prices as of
the close of trading on the Exchange and (i) valuing securities listed or traded
on a national securities exchange at the last reported sale price, or if there
has been no sale that day, at the last reported bid price, (ii) valuing
over-the-counter securities for which the last sale price is
26
<PAGE> 31
available from the National Association of Securities Dealers Automated
Quotations ("NASDAQ") at that price, and (iii) valuing any securities for which
market quotations are not readily available, and any other assets at fair value
as determined in good faith by the Board of Directors of the Fund. Short-term
investments with a maturity of 60 days or less when purchased are valued at cost
plus interest earned (amortized cost), which approximates market value.
Short-term investments with a maturity of more than 60 days when purchased are
valued based on market quotations until the remaining days to maturity becomes
less than 61 days. From such time, until maturity, the investments are valued at
amortized cost using the value of the investment on the 61st day. See the notes
to financial statements in the Statement of Additional Information.
Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and the higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the next
calculation of net asset value (plus applicable Class A sales charges) after an
order is received by a dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by dealers after the close of the Exchange are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
orders received by them to the Distributor so they will be received prior to
such time. Orders of less than $500 are mailed by the dealer and processed at
the offering price next calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan pursuant to which its distribution fee and/or service
fee is paid which relate to a specific class, and (iii) Class B and Class C
shares are subject to a conversion feature. Each class has different exchange
privileges and certain different shareholder service options available. See
"Distribution Plans" and "Shareholder Services -- Exchange Privilege." The net
income attributable to Class B and Class C shares and the dividends payable on
Class B and Class C shares will be reduced by the amount of the higher
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.
27
<PAGE> 32
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.
SALES CHARGE TABLE
<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. 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
28
<PAGE> 33
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 herein. Such financial
institutions, other industry professionals and dealers are hereinafter referred
to as "Service Organizations." Banks are currently prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretation of federal law
expressed herein and banks and other financial institutions may be required to
register as dealers pursuant to certain state laws.
Class A shares of the Fund may be purchased at net asset value, upon written
assurance that the purchase is made for investment purposes and that the shares
will not be resold except through redemption by the Fund, by (a) current or
retired Directors of the Fund; current or retired employees of VK/AC Holding,
Inc. or any
29
<PAGE> 34
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 or
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
in the Prospectus under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto at net asset value, equals at least $1 million. Purchase orders
made pursuant to clause (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 dealer or financial institution may charge a
transaction fee for placing an order to purchase shares pursuant to this
provision or for placing a redemption order with respect to such shares. Service
Organizations will be paid a service fee as described herein under "Distribution
Plans" on purchases made on behalf of registered investment advisers, trust
companies and bank trust departments described in clause (g) herein and for
registered representatives' accounts.
30
<PAGE> 35
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., American Capital Enterprise Fund, Inc., American Capital Equity
Income Fund, Inc., American Capital Federal Mortgage Trust ("Federal Mortgage"),
American Capital Global Managed Assets, Inc. ("Global Managed"), American
Capital Government Securities, Inc., American Capital Government Target Series
("Government Target"), American Capital Growth and Income Fund, Inc., American
Capital Harbor Fund, Inc., American Capital High Yield Investments, Inc. ("High
Yield"), American Capital Municipal Bond Fund, Inc. ("Municipal Bond"), American
Capital Pace Fund, Inc., American Capital Real Estate Securities Fund, Inc.
("Real Estate"), American Capital Tax-Exempt Trust ("Tax-Exempt"), American
Capital Texas Municipal Securities, Inc. ("Texas Municipal"), American Capital
U.S. Government Trust for Income ("Government Trust"), American Capital
Utilities Income Fund, Inc. and American Capital World Portfolio Series, Inc.
("World Portfolio"). A person eligible for a volume discount includes an
individual; members of a family unit comprising husband, wife and minor
children; or a trustee or other fiduciary purchasing for a single fiduciary
account.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
Shares previously purchased are only taken into account, however, if the
Distributor is notified by the investor or the investor's dealer at the time an
order is placed for a purchase which would qualify for a reduced sales charge on
the basis of previous purchases and if sufficient information is furnished to
permit confirmation of such purchases.
31
<PAGE> 36
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the Participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the Participating
Funds previously purchased and still owned. An investor may elect to compute the
13-month period starting up to 90 days before the date of execution of a Letter
of Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
charges applicable to the purchases made and the charges previously paid. The
initial purchase must be for an amount equal to at least five percent of the
minimum total purchase amount of the level selected. If trades not initially
made under a Letter of Intent subsequently qualify for a lower sales charge
through the 90-day back-dating provisions, an adjustment will be made at the
expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form included in this Prospectus.
CLASS B SHARES
Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions.
The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchases
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.
32
<PAGE> 37
------------------------------------------------------------------------------
<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 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
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<PAGE> 38
initial purchase price. In addition, no charge is assessed on shares derived
from reinvestment of dividends or capital gains distributions.
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares in the shareholder's Fund account that are not subject to
a contingent deferred sales charge and second of shares held for more than one
year or shares acquired pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of 1% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase. Broker-
dealers and other Service Organizations will also be paid ongoing commissions
and transaction fees of up to 0.65% of the average daily net assets of the
Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation to Service Organizations
that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account, and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." The contingent deferred sales
charge is also waived on redemptions of Class C shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See the Statement of Additional Information
for further discussion of waiver provisions.
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DISTRIBUTION PLANS
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Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing of its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Directors of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
National
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Association of Securities Dealers, Inc. ("NASD Rules") applicable to mutual fund
sales charges. The NASD Rules limit the annual distribution charges that a
mutual fund may impose on a class of shares. The NASD Rules also limit the
aggregate amount which the Fund may pay for such distribution costs. Under the
Class A Plan, the Fund pays a service fee to the Distributor at an annual rate
of up to 0.25% of the Fund's aggregate average daily net assets attributable to
the Class A shares. Under the Class B Plan and Class C Plan, the Fund pays a
service fee to the Distributor at an annual rate of up to 0.25% and a
distribution fee at an annual rate of up to 0.75% of the Fund's aggregate
average daily net assets attributable to the Class B shares or Class C shares to
reimburse the Distributor for service fees paid by it to Service Organizations
and for its distribution costs.
The 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 in the form of a distribution fee at the annual rate of up to 0.75% of the
net assets of the Class C shares as reimbursements for (i) upfront commissions
and transaction fees of up to 0.75% of the purchase price of Class C shares
purchased by the clients of broker-dealers and other Service Organizations and
ongoing commissions and transaction fees of up to 0.65% of the average daily net
assets of the Fund's Class C shares and (ii) other distribution expenses as
described in the Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Directors of the Fund determined that there was a reasonable likelihood that
such Plans would benefit the Fund and its shareholders. Information with respect
to distribution and service revenues and expenses is presented to the Directors
each year for their consideration in connection with their deliberations as to
the continuance of the Distribution Plans. In their review of the Distribution
Plans, the Directors are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.
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
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<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 period November 23, 1993 through June 30, 1994, the
unreimbursed expenses incurred by the Distributor under the Class B Plan and
carried forward were approximately $405,000 or 4.4% of the Class B shares' net
assets. The unreimbursed expenses incurred by the Distributor under the Class C
Plan and carried forward were approximately $25,000 or 1.6% 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 and has no liability to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
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<PAGE> 41
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SHAREHOLDER SERVICES
------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investments in its shares at little or no extra cost to the investor. Below is a
description of such services.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Stock certificates are not issued except upon
shareholder request. Most shareholders elect not to receive certificates in
order to facilitate redemptions and transfers. A shareholder may incur an
expense to replace a lost certificate. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder who has an account in any of the
Participating Funds listed under "Purchase of Shares -- Class A Shares -- Volume
Discounts," or Reserve, may receive statements quarterly from ACCESS showing any
reinvestments of dividends and capital gains distributions and any other
activity in the account since the preceding statement. Such shareholder also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the record date. Unless the shareholder instructs otherwise, the
reinvestment plan is automatic. The investor may, on the initial application or
prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized investment dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP, and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
informa-
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<PAGE> 42
tion regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
FUND TO FUND DIVIDENDS. A shareholder may, upon written request or by
completing the appropriate section of the application form in this Prospectus,
elect to have all dividends and other distributions paid on a Class A, Class B
or Class C account in the Fund invested into a pre-existing Class A, Class B or
Class C account in any of the Participating Funds listed under "Purchase of
Shares -- Class A Shares -- Volume Discounts," or Reserve.
Both accounts must be of the same class and of the same type, either non-
retirement or retirement. Any two non-retirement accounts can be used. If the
accounts are retirement accounts, they must both be for the same class and of
the same type of retirement plan (e.g., IRA, 403(b)(7), 401(k), Keogh) and for
the benefit of the same individual. If a qualified, pre-existing account does
not exist, the shareholder must establish a new account subject to minimum
investment and other requirements of the fund into which distributions would be
invested. Distributions are invested into the selected fund at its net asset
value as of the payable date of the distribution.
EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund (listed
under "Purchase of Shares -- Class A Shares -- Volume Discounts"), other than
Government Target, may be exchanged for shares of the same class of shares of
any other fund without sales charge, provided that shares of the Fund, Corporate
Bond, Federal Mortgage, Global Managed, Government Trust, High Yield, Municipal
Bond, Real Estate, Tax-Exempt, Texas Municipal and the American Capital Global
Government Securities Fund of World Portfolio are subject to a 30-day holding
period requirement. Shares of Government Target may be exchanged for Class A
shares of the Fund without sales charge. Shares of Reserve may be exchanged for
Class A shares of any Participating Fund upon payment of the excess, if any, of
the sales charge rate applicable to the shares being acquired over the sales
charge rate previously paid. Shares of any Participating Fund or Reserve may be
exchanged for shares of any other Participating Fund if shares of that
Participating Fund are available for sale; however, during periods of suspension
of sales, shares of a Participating Fund may be available for sale only to
existing shareholders. Additional funds may be added from time to time as a
Participating Fund.
Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other
American Capital fund that offers such class of shares ("new shares") in an
amount equal to the aggregate net asset value of the original shares, without
the payment of any contingent deferred sales charge otherwise due upon
redemption of the original
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<PAGE> 43
shares. For purposes of computing the contingent deferred sales charge payable
upon a disposition of the new shares, the holding period for the original shares
is added to the holding period of the new shares. Class B and Class C
shareholders may exchange their shares for shares of Reserve without incurring
the contingent deferred sales charge that otherwise would be due upon redemption
of such Class B or Class C shares. Class B or Class C shareholders would remain
subject to the contingent deferred sales charge imposed by the original fund
upon their redemption from the American Capital complex of funds. Shares of
Reserve acquired through an exchange of Class B or Class C shares may be
exchanged only for the same class of shares of a Participating Fund without
incurring a contingent deferred sales charge.
Shares of the fund to be acquired must be registered for sale in the
investor's state and an exchange fee, currently $5 per transaction, is charged
by ACCESS except as described herein under "Systematic Exchange" and "Automatic
Exchange." Exchanges of shares are sales and may result in a gain or loss for
federal income tax purposes, although if the shares exchanged have been held for
less than 91 days, the sales charge paid on such shares is not included in the
tax basis of the exchanged shares, but is carried over and included in the tax
basis of the shares acquired. See the Statement of Additional Information for
more 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 gain options (except fund to
fund dividends) and dealer of record as the account from which shares are
exchanged, unless otherwise specified by the shareholder. In order to establish
a systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging
39
<PAGE> 44
shareholder must file a specific written request. The Fund reserves the right to
reject any order to acquire its shares through exchange, or otherwise to modify,
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for information regarding such fund prior
to investing.
SYSTEMATIC EXCHANGE. A shareholder may invest regularly in any Participating
Fund by systematically exchanging from the Fund into such other fund account
($25 minimum for existing account, $100 minimum for establishing new account).
Both accounts must be of the same type and class. The exchange fee as described
under "Shareholder Services -- Exchange Privilege" will be waived for such
systematic exchanges. Additional information on how to establish this option is
available from the Distributor.
AUTOMATIC EXCHANGE. The exchange fee described above under "Shareholder
Services -- Exchange Privilege" will be waived for any exchange transmitted
through ACCESS Plus, FUNDSERV or via computer transmission. Contact the Service
Department at (800) 421-5666 for further information on how to utilize this
option.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly withdrawal plan. Any investor whose shares
in a single account total $5,000 or more may establish a withdrawal plan on a
quarterly, semiannual or annual basis. This plan provides for the orderly use of
the entire account, not only the income but also the capital, if necessary. Each
withdrawal constitutes a redemption of shares on which any capital gain or loss
will be recognized. The planholder may arrange for monthly, quarterly,
semiannual or annual checks in any amount not less than $25. Such a systematic
withdrawal plan may also be maintained by an investor purchasing Class B shares
for a retirement plan established on a form made available by the Fund. See
"Shareholder Services -- Retirement Plans."
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
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<PAGE> 45
net asset value. If periodic withdrawals continuously exceed reinvested
dividends and capital gains distributions, the shareholder's original investment
will be correspondingly reduced and ultimately exhausted. Withdrawals made
concurrently with the purchase of additional shares ordinarily will be
disadvantageous to the shareholder because of the duplication of sales charges.
Any taxable gain or loss will be recognized by the shareholder upon redemption
of shares.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the Authorization for Redemption by Check
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to the Class A shareholder. Those
checks may be made payable by the shareholder to the order of any person in any
amount of $100 or more.
When a check is presented to State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the shareholder's Class A account by ACCESS at the next determined net
asset value. Check writing redemptions represent the sale of Class A shares. Any
gain or loss realized on the sale of shares is a taxable event. See "Redemption
of Shares."
Checks will not be honored for redemption of Class A shares held less than 15
calendar days, unless such Class A shares have been paid for by bank wire. Any
Class A shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or
State Street Bank. Retirement plans and accounts that are subject to backup
withholding are not eligible for the privilege. A "stop payment" system is not
available on these checks. See the Statement of Additional Information for
further information regarding the establishment of the privilege.
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<PAGE> 46
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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. A contingent
deferred sales charge of 1% may be imposed on certain redemptions of Class A
shares made within one year of purchase for investments of $1 million or more
and for certain qualified 401(k) retirement plans. The contingent deferred sales
charge incurred upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses. See "Purchase of Shares." A custodian of a
retirement plan account may charge fees based on the custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 60 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen
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<PAGE> 47
American Capital Trust Company serves as IRA custodian, special IRA, 403(b)(7),
or Keogh distribution forms must be obtained from and be forwarded to Van Kampen
American Capital Trust Company, P. O. Box 944, Houston, Texas 77001-0944.
Contact the custodian for information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received in proper form. Payment for shares redeemed will be made by check
mailed within seven days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payment may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms the purchase check has cleared, usually a
period of 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 investment as specified by the
Board of Directors. At least 60 days advance written notice of any such
involuntary redemption is required and the shareholder is given an opportunity
to purchase the required value of additional shares at the next determined net
asset value without sales charge. Any applicable contingent deferred sales
charge will be deducted from the proceeds of this redemption. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
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 herein. 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. ACCESS will record any
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<PAGE> 48
calls. Telephone redemptions may not be available if the shareholder cannot
reach ACCESS by telephone, whether because all telephone lines are busy or for
any other reason; in such case, a shareholder would have to use the Fund's
regular redemption procedure previously described. Requests received by ACCESS
prior to 4:00 p.m., New York time, on a regular business day will be processed
at the net asset value per share determined that day. These privileges are
available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
an account has multiple owners, ACCESS may rely on the instructions of any one
owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed once in each 30-day period. The proceeds must be payable to the
shareholder(s) of record and sent to the address of record for the account or
wired directly to their predesignated bank account. This privilege is not
available if the address of record has been changed within 60 days prior to a
telephone redemption request. Proceeds from redemptions are expected to be wired
on the next business day following the date of redemption. The Fund reserves the
right at any time to terminate, limit or otherwise modify this redemption
privilege.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class A shares of the Fund. A Class C shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of the Fund with credit given for any contingent
deferred sales charge paid upon such redemption. Such reinstatement is made at
the net asset value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by 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
------------------------------------------------------------------------------
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.
DIVIDENDS. Income dividends are paid each business day and distributed
monthly. The daily dividend is a fixed amount determined for each class at least
monthly. Shares become entitled to dividends on the day ACCESS receives payment
for the shares, and remain entitled to dividends through the day before the
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<PAGE> 49
day such shares are priced for redemption purposes, which is the day a valid
redemption request with respect to such shares is received by ACCESS. Therefore,
if a dealer delays forwarding to ACCESS payment for shares which an investor has
made to the dealer, this will in effect cost the investor money because it will
delay the date upon which he or she becomes entitled to dividends.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the distribution fees and
higher incremental transfer agency fees applicable to such classes of shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund at least annually distributes to
shareholders the excess, if any, of its total profits on the sale of securities
during the year over its total losses on the sale of securities, including
capital losses carried forward from prior years in accordance with tax laws. As
in the case of dividends, capital gains distributions are automatically
reinvested in additional shares of the Fund at net asset value. See "Shareholder
Services -- Reinvestment Plan."
TAXES. The Fund has qualified and intends to be taxed as a regulated
investment company under the Code. By qualifying as a regulated investment
company, the Fund is not subject to federal income taxes to the extent it
distributes its net investment income and net realized capital gains. Dividends
from net investment income and distributions from any net realized short-term
capital gains are taxable to shareholders as ordinary income. Long-term capital
gains distributions constitute long-term capital gains for federal income tax
purposes. All such dividends and distributions are taxable to the shareholder
whether or not reinvested in shares. However, shareholders not subject to tax on
their income will not be required to pay tax on amounts distributed to them.
Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions.
To avoid being subject to a 31% federal backup withholding on dividends,
distributions and redemption payments, shareholders must furnish the Fund with a
certification of their correct taxpayer identification number.
Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution paid shortly after the purchase of shares
by an investor would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so purchased) even though
subject to income taxes as discussed above.
Gains or losses on the Fund's transactions in listed options (except certain
equity options) on securities or indices, futures and options on futures
generally are treated
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<PAGE> 50
as 60% long-term and 40% short-term, and positions held by the Fund at the end
of its fiscal year generally are required to be marked to market, with the
result that unrealized gains and losses are treated as realized. Gains and
losses realized by the Fund from writing over-the-counter options constitute
short-term capital gains or losses unless the option is exercised, in which case
the character of the gain or loss is determined by the holding period of the
underlying security. The Code contains certain "straddle" rules which require
deferral of losses incurred in certain transactions involving hedged positions
to the extent the Fund has unrealized gains in offsetting positions and
generally terminate the holding period of the subject position. Additional
information is set forth in the Statement of Additional Information.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under Code Section 988, foreign currency gains or losses from certain forward
contracts not traded in the interbank market generally are treated as ordinary
income or loss. Such Code Section 988 gains or losses will increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to make any ordinary dividend
distributions, and any distributions made before the losses were realized but in
the same taxable year would be recharacterized as a return of capital to
shareholders, thereby reducing each shareholder's basis in his or her Fund
shares.
The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisers for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Fund.
------------------------------------------------------------------------------
PRIOR PERFORMANCE INFORMATION
------------------------------------------------------------------------------
From time to time the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one, five and ten-year periods or for the life of the Fund. Other
total return quotations, aggregate or average, over other time periods may also
be included.
46
<PAGE> 51
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.
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.
Total return is calculated separately for Class A, Class B and Class C shares.
Class A total return figures include the maximum sales charge of 4.75%; Class B
and Class C total return figures include any applicable contingent deferred
sales charge. Because of the differences in sales charges and distribution fees,
the total returns for each of the classes will differ.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average Index, Standard & Poor's, NASDAQ, other appropriate indices
of investment securities, or with investment or savings vehicles. The
performance information may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Investor's Business Daily, Kiplinger's Personal Finance Magazine,
Money, Mutual Fund Forecaster, Stanger's Investment Advisor, USA Today, U.S.
News & World Report and The Wall Street Journal. Such comparative performance
information will be stated in the same terms in which the comparative data or
indices are stated. Any such advertisement would also include the standard
performance information required by the SEC as
47
<PAGE> 52
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 Maryland on August 31,
1993. The Fund may offer three classes of shares: Class A, Class B and Class C
shares. Each class of shares represents interests in the assets of the Fund and
has identical voting, dividend, liquidation and other rights on the same terms
and conditions except that the distribution fees and/or service fees related to
each class of shares are borne solely by that class and each class of shares has
exclusive voting rights with respect to provisions of the Fund's Class A Plan,
Class B Plan and Class C Plan which pertain to that class. An order has been
received from the SEC permitting the issuance and sale of multiple classes of
shares representing interests in the Fund's existing portfolio. Shares issued
are fully paid, non-assessable and have no preemptive or conversion rights.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors, officers and employees to
buy and sell securities for their personal accounts subject to preclearance and
other procedures designed to prevent conflicts of interest.
VOTING RIGHTS. The Bylaws of the Fund provide that shareholder meetings are
required to be held to elect directors only when required by the 1940 Act. Such
event is likely to occur infrequently. In addition, a special meeting of the
shareholders will be called, if requested by the holders of ten percent of the
Fund's outstanding shares, for the purposes, and to act upon the matters,
specified in the request (which may include election or removal of directors).
When matters are submitted for a shareholder vote, each shareholder is entitled
to one vote for each share owned. The shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of directors can elect
48
<PAGE> 53
100% of the directors if they choose to do so, and in such an event the holders
of the remaining less than 50% of the shares voting for the election of
directors will not be able to elect any person to the Board of Directors.
SHAREHOLDER INQUIRIES. Shareholder inquiries should be directed to the Fund
at 2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666.
SHAREHOLDER SERVICE AGENT. ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256, serves as transfer agent, shareholder service agent and dividend
disbursing agent for the Fund. ACCESS, a wholly owned subsidiary of the
Adviser's parent, provides these services at cost plus a profit.
LEGAL COUNSEL. O'Melveny & Myers, 400 South Hope Street, Los Angeles,
California 90071 is legal counsel to the Fund.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1201 Louisiana, Suite 2900,
Houston, Texas 77002, are the independent accountants for the Fund.
49
<PAGE> 54
------------------------------------------------------------------------------
INVESTMENT HOLDINGS
------------------------------------------------------------------------------
September 30, 1994
CORPORATE OBLIGATIONS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------------------------------
<S> <C>
CONSUMER SERVICES
$ 600,000 Tele-Communications,
Inc., 7.25%, 8/1/05
ENERGY
500,000 Colorado Interstate Gas
Co., 10.00%, 6/15/05
95,000 Enron Corp., 6.75%,
7/1/05
400,000 ENSERCH Corp., 6.375%,
2/1/04
330,000 Laclede Gas Co., 8.50%,
11/15/04
75,000 Occidental Petroleum,
10.125%, 9/15/09
500,000 Panhandle Eastern
Corp., 7.875%, 8/15/04
400,000 Southern Union Co.,
7.60%, 2/1/24
100,000 Texas Eastern
Transmission Corp.,
8.00%, 7/15/02
Union Oil of California
100,000 6.375%, 2/1/04
85,000 8.75%, 8/15/01
TECHNOLOGY
485,000 Motorola, Inc., 7.60%,
1/1/07
UTILITIES
380,000 Alabama Power Co.,
6.375%, 8/1/99
600,000 American Telephone &
Telegraph Corp., 7.50%,
6/1/06
100,000 Baltimore Gas &
Electric Co., 7.50%,
1/15/07
200,000 Cincinnati Gas &
Electric Co., 6.45%,
2/15/04
100,000 Duke Power Co., 7.00%,
6/1/00
355,000 GTE Corp., 9.375%,
12/1/00 Hydro-Quebec
200,000 7.375%, 2/1/03
500,000 8.05%, 7/7/24
500,000 Idaho Power Co., 8.00%,
3/15/04
300,000 Iowa Electric Light &
Power, 8.625%, 5/15/01
<CAPTION>
PRINCIPAL
AMOUNT
------------------------------------
<S> <C>
$ 390,000 MCI Communications
Corp., 7.50%, 8/20/04
80,000 Northwestern Bell
Telephone Co., 9.50%,
5/1/00
450,000 Pacific Telephone &
Telegraph Co., 6.00%,
11/1/02
200,000 San Diego Gas &
Electric Co., 7.625%,
6/15/02
250,000 Texas Utilities
Electric Co., 6.25%,
10/1/04
500,000 Union Electric Co.,
7.375%, 12/15/04
617,000 United
Telecommunications,
Inc., 9.75%, 4/1/00
Virginia Electric &
Power Co.
200,000 6.00%, 8/1/01
200,000 8.875%, 6/1/99
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
NUMBER
OF SHARES
------------------------------------
<S> <C>
ENERGY
13,500 Nicor, Inc.
22,100 Pacific Enterprises
FINANCE
7,500 Equity Residential
Properties Trust
6,100 Weingarten Realty
Investors
UTILITIES
14,600 Ameritech Corp.
20,500 Baltimore Gas &
Electric Co.
9,600 Bellsouth Corp.
13,100 CMS Energy Corp.
25,800 DPL, Inc.
12,600 Duke Power Co.
16,600 FPL Group, Inc.
14,100 NYNEX Corp.
14,200 Pacific Telesis Group
28,500 Pacificorp
17,100 Peco Energy Co.
15,500 Public Service Company
of Colorado
16,800 Public Service
Enterprise Group
10,600 SCANA Corp.
24,100 Southern Co.
16,900 Western Resources, Inc.
</TABLE>
50
<PAGE> 55
<TABLE>
<S> <C>
CONVERTIBLE PREFERRED STOCK
10,000 Transco Energy Co.,
$3.50
(Cost $461,250)
CORPORATE OBLIGATIONS
<CAPTION>
PRINCIPAL
AMOUNT
------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS
$560,000 Prudential Funding
Corp., 4.70%, 10/3/94
200,000 United States Treasury
Note, 7.75%, 2/15/95
</TABLE>
51
<PAGE> 56
BACKUP WITHHOLDING INFORMATION
STEP 1. Please make sure that the social security number or taxpayer
identification number (TIN) which appears on the Application complies with
the following guidelines:
<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
Plan Trust Trust, Estate, Pension Plan Trust (NOT
personal TIN of fiduciary)
--------------------------------------------------------------------------------
Corporation, Partnership,
Other Organization Corporation, Partnership, Other
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> 57
AMERICAN CAPITAL
UTILITIES INCOME FUND, INC.
PROSPECTUS
January 31, 1995
National Distributor
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Advisor
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
Utilities Income P.O. Box 418256
Fund, Inc. Kansas City, MO 64141-9256
For conservative investors seeking
current income and the potential
for capital appreciation through
a combination of utility bonds
and stocks.
PRINTED MATTER
Printed in U.S.A./03 PRO-001
