AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND INC, POS AMI, 1995-04-27

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND INC
POS AMI, 1995-04-27

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<PAGE> 1

REGISTRATION NO. 33-74024

NO. 811-8286

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 (X)
POST-EFFECTIVE AMENDMENT NO. 2 (X)

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 (X)
AMENDMENT NO. 4 (X)
</TABLE>

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2800 POST OAK BLVD., HOUSTON, TEXAS 77056

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 993-0500

NORI L. GABERT, ESQ.

VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL AND CORPORATE SECRETARY

AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.

It is proposed that this filing will become effective:

/ / Immediately upon filing pursuant to paragraph (b)

/X/ On April 30, 1995 pursuant to paragraph (b) of Rule 485

/ / 60 days after filing pursuant to paragraph (a)(i)

/ / On (date) pursuant to paragraph (a)(i)

/ / 75 days after filing pursuant to paragraph (a)(ii)

/ / on (date) pursuant to paragraph (a)(ii) of Rule 485

If appropriate, check the following box:

/ / this post-effective amendment designates a new effective case for a
previously filed post-effective amendment.

The Exhibit Index required by Rule 483(a) under the Securities Act of 1933 is
located at page of the manual copy Registration Statement.

REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES OF CAPITAL STOCK, $0.01
PAR VALUE, UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT FILED A 24F-2 NOTICE FOR THE MOST
RECENT FISCAL YEAR ON OR ABOUT FEBRUARY 28, 1995.

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<PAGE> 2

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<S> <C> <C>
PART A
------
1. Cover Page................................. Front Cover Page
2. Synopsis................................... Expense Synopsis; Prospectus Summary
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Fund and Its Management; Investment
Objectives and Policies; Risk Factors;
Investment Practices and Restrictions
5. Management of the Fund..................... The Fund and Its Management
6. Capital Stock and Other Securities......... Multiple Pricing System; Redemption of
Shares; Dividends, Distributions and Taxes;
Additional Information; The Fund and Its
Management
7. Purchase of Securities Being Offered....... Purchase of Shares; Multiple Pricing System
8. Redemption or Repurchase................... Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>

<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
------ -------------------------------------------
<S> <C> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objective and Policies.......... Investment Policies and Techniques;
Repurchase Agreements; Loans of Portfolio
Securities; Forward Commitments; Options,
Futures Contracts and Options on Futures
Contracts; Investment Restrictions
14. Management of the Fund..................... Investment Advisory Agreement; General
Information; Directors and Executive
Officers
15. Control Persons and Principal Holders of
Securities............................... Investment Advisory Agreement; Directors
and Executive Officers
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Transfer Agent; Other Information;
Portfolio Transactions and Brokerage
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Multiple Pricing
System
20. Tax Status................................. Dividends, Distributions and Federal Taxes
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Prior Performance Information
23. Financial Statements....................... Financial Statements
</TABLE>

PART C
------
Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3

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AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
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2800 Post Oak Boulevard, Houston, Texas 77056, (800) 421-5666

May 1, 1995

American Capital Global Managed Assets Fund, Inc. (the "Fund") is a mutual
fund seeking total return through a managed balance of foreign and domestic
equity and debt securities. There can be no assurance that the Fund will achieve
its investment objective.

This Prospectus tells investors briefly the information they should know
before investing in the Fund. Investors should read and retain this Prospectus
for future reference. A Statement of Additional Information dated the same date
as this Prospectus has been filed with the Securities and Exchange Commission
("SEC") and contains further information about the Fund. A copy of the Statement
of Additional Information may be obtained without charge by calling or writing
the Fund at the telephone number and address printed above. The Statement of
Additional Information is incorporated by reference into this Prospectus.

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

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.

1
<PAGE> 4

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

SHAREHOLDER SERVICE AGENT:

ACCESS Investor 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

INVESTMENT SUBADVISER:

John Govett & Co. Limited

Shackleton House

4 Battle Bridge Lane

London SE1 2HR

England

DISTRIBUTOR:

Van Kampen American Capital

Distributors, Inc.

One Parkview Plaza

Oakbrook Terrace, Illinois 60181

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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus Summary....... 3
Expense Synopsis......... 5
Financial Highlights..... 7
Multiple Pricing
System................. 8
Investment Objective and
Policies............... 11
Risk Factors............. 15
Investment Practices and
Restrictions........... 16
The Fund and Its
Management............. 22
Purchase of Shares....... 24
Distribution Plans....... 32
Shareholder Services..... 34
Redemption of Shares..... 38
Dividends, Distributions
and Taxes.............. 40
Prior Performance
Information............ 42
Additional Information... 43
</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> 5

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PROSPECTUS SUMMARY
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SHARES OFFERED. Capital Stock.

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

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

INVESTMENT OBJECTIVE. The Fund's investment objective is to seek total
return through a managed balance of foreign and domestic equity and debt
securities. There is, however, no assurance that the Fund will be successful in
achieving its objective.

INVESTMENT POLICY. The Fund may, at various times, be substantially
invested in foreign or domestic equity or debt securities based upon Van Kampen
American Capital Asset Management, Inc.'s (the "Adviser") evaluation of economic
and market trends and anticipated relative return available from a particular
kind of security. The Fund will, however, maintain at least 25% of its total
assets in debt 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 bona fide hedging purposes. The Fund may
purchase or sell debt securities and currencies 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 "Investment
Practices and Restrictions -- Using Options, Futures Contracts and Options on
Futures Contracts."

RISK FACTORS. 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 Objective and
Policies -- Risk Factors."

INVESTMENT ADVISERS. The Adviser has served as investment adviser to the
Fund since its inception. The Adviser serves as investment adviser to 50
investment company portfolios. John Govett & Co. Limited (the "Subadviser")
provides sub-advisory services to the Adviser of the Fund with respect to the
Fund's investments in foreign securities. 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

3
<PAGE> 6

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 four percent of
redemption proceeds during the first and second years, declining each year
thereafter to zero percent after the fifth year. See "Redemption of Shares." The
Fund pays a combined annual distribution fee and service fee of up to one
percent 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 one percent 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 one percent 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
distributed quarterly; 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."

4
<PAGE> 7

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

<TABLE>
<CAPTION>
CLASS
A CLASS B CLASS C
SHARES SHARES SHARES
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<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 None None None
reinvestment..............
Deferred sales charge (as a None* 4% during the first year, 1% during the
percentage of original 4% during the second year, first year(b)
purchase price or redemption 3% during the third year,
proceeds, whichever is lower) 2.5% during the fourth year,
1.5% during the fifth year
and 0% after the fifth year(b)
Exchange fee(c)............. $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES(G)
(as a percentage of average
net assets)
Management fees(h)........ .99% .99% .99%
Rule 12b-1 fees(d)........ .04% .90%(f) .48%(f)
Other expenses(e)......... 1.72% 2.03% 1.89%
Total fund operating 2.75% 3.92% 3.36%
expenses(i).............
</TABLE>

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(a) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares" -- page 27.

(b) See "Purchase of Shares -- Class B Shares" and "...-- Class C
Shares" -- pages 30 and 31.

(c) Not Charged in certain circumstances. See "Shareholder
Services -- Systematic Exchange" and "...-- Automatic Exchange" -- page 37.

(d) Up to .25% for Class A Shares and one percent for Class B and C Shares. See
"Distribution Plans" -- page 32.

(e) See "The Fund and Its Management" -- page 22.

(f) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.

(g) Annualized.

(h) After expense reimbursement. In the absence of expense reimbursement,
management fees would be one percent for each class of shares.

(i) After expense reimbursement. In the absence of expense reimbursement, total
fund operating expenses would be 2.76% for Class A shares, 3.93% for Class B
shares and 3.38% 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.

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5
<PAGE> 8

<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
EXAMPLE: 1 YEAR 3 YEARS
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<S> <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 2.75% for Class A shares, 3.92%
for Class B shares and 3.36% for Class C shares, (2) a 5%
annual return throughout the period and (3) redemption at
the end of the period:
Class A.................................................. $74 $129
Class B.................................................. $80 $151
Class C.................................................. $44 $103
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of the
period:
Class A.................................................. $74 $129
Class B.................................................. $39 $120
Class C.................................................. $34 $103
</TABLE>

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

6
<PAGE> 9

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

The following information for the period May 16, 1994 (commencement of
operations) through December 31, 1994 has been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto
included in the Fund's Annual Report to shareholders for the year ended December
31, 1994, which are incorporated by reference in the Statement of Additional
Information.

<TABLE>
<CAPTION>
MAY 16, 1994(1) THROUGH
DECEMBER 31, 1994
--------------------------------------
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(2)
Net asset value, beginning of
period............................ $ 9.44 $ 9.44 $ 9.44
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... .28 .26 .27
Expenses............................ (.18) (.25) (.22)
-------- -------- --------
Net investment income............... .10 .01 .05
Net realized and unrealized gain on
securities........................ (.2475) (.2065) (.2165)
-------- -------- --------
Total from investment operations.... (.1475) (.1965) (.1665)
-------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income............................ (.075) (.046) (.046)
Distributions in excess of
book-basis net realized gains on
securities........................ (.0275) (.0275) (.0275)
-------- -------- --------
Total distributions................. (.1025) (.0735) (.0735)
-------- -------- --------
Net asset value, end of period...... $ 9.19 $ 9.17 $ 9.20
========== ========== ==========
TOTAL RETURN(3)..................... (1.57% ) (2.09% ) (1.77% )
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)........................ $11.5 $ 7.4 $ 1.3
Ratios to average net assets(4)
Expenses.......................... 2.75% 3.92% 3.36%
Expenses, without expense
reimbursement................... 2.76% 3.93% 3.38%
Net investment income............. 1.54% .13% .80%
Net investment income, without
expense reimbursement........... 1.53% .12% .78%
Portfolio turnover rate............. 50% 50% 50%
</TABLE>

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

(1) Commencement of operations.

(2) Based on average month-end shares outstanding.
(3) Total return for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.

(4) Annualized.

(5) Since December 21, 1994, John Govett & Co., LTD has served as investment
subadviser to the Fund. Prior to December 21, 1995, Lombard Odier
International Portfolio Management, LTD served as the Fund's subadviser.

7
<PAGE> 10

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MULTIPLE PRICING SYSTEM
- - ------------------------------------------------------------------------------

The Multiple Pricing System permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.

CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price. Class A shares are
subject to an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Purchase of Shares -- Class A Shares."

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

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

8
<PAGE> 11

substantially compensated for distribution expenses related to the Class B
shares or Class C shares, as the case may be, from the burden of the ongoing
distribution fee.

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

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

FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Expense Synopsis" sets forth examples of the charges applicable to each
class of shares. In this regard, Class A shares may be more beneficial to the
investor who qualifies for reduced initial sales charges or purchases at net
asset value, as described herein under "Purchase of Shares -- Class A Shares."
For these reasons, the Distributor will reject any order of $250,000 or more for
Class B shares or any order of $1 million or more for Class C shares.

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

9
<PAGE> 12

any, which will be realized on such additional funds. For investments held for
ten years or more, the relative value upon liquidation of the three classes
tends to favor Class A or Class B shares, rather than Class C shares.

Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.

Under most circumstances, for investments aggregating less than $100,000 at
the time of purchase, investments originally made in Class C shares will tend to
have a slightly higher value upon liquidation than investments originally made
in either Class A or Class B shares if liquidated within approximately the first
six years after the date of the original investment and investments originally
made in Class B shares will tend to have a slightly higher value upon
liquidation than investments originally made in either Class A or Class C shares
for investments held longer. Under most circumstances, for investments
aggregating $100,000 or more at the time of purchase, investments originally
made in Class C shares will tend to have a slightly higher value upon
liquidation than either investments originally made in Class A or Class B shares
if liquidated within approximately the first two to the first six years after
the date of the original investment, but investments originally made in Class A
and Class B shares will tend to have a slightly higher value upon liquidation
for investments held longer. The foregoing will not, however, be true in all
cases. Particularly, if the Fund experiences a consistently negative or widely
fluctuating total return, results may differ.

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

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

10
<PAGE> 13

the same class of other mutual funds advised by the Adviser. See "Shareholder
Services -- Exchange Privilege."

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

GENERAL. The investment objective of the Fund is to seek total return
through a managed balance of foreign and domestic equity and debt securities.
Total return consists of current income, including dividends, interest and
discount accruals, and capital appreciation. The Adviser, working in conjunction
with the Subadviser, may vary the composition of the Fund from time to time
based upon an evaluation of economic and market trends and the anticipated
relative total return available from a particular type of security. Accordingly,
the Fund may, at any given time, be substantially invested in equity or debt
securities. However, at least 65%, of the Fund's total assets will be invested
in companies or obligations of at least three countries including the United
States and at least 25% of the Fund's assets will be maintained in debt
securities. Achieving the Fund's objective depends on management's abilities to
assess the effect of economic and market trends on different sectors of the
market. There can be no assurances that the investment objective of the Fund
will be achieved. Because of the managed approach of the Fund, portfolio
turnover may be greater resulting in increased brokerage charges to the Fund.
For a discussion of the Fund's practices regarding investment companies see
"Investment Practices and Restrictions -- Investment in Investment Companies."

The Adviser, subject to the direction of the Fund's Directors, provides the
Fund with an overall investment program consistent with the Fund's objective and
policies. The Adviser is solely responsible for advising the Fund with respect
to investments in the United States. The Subadviser, subject to overall review
by the Adviser and the Fund's Directors and other authorized officers, is
responsible for recommending an optimal geographic asset allocation and currency
exposure and is responsible for providing advice with respect to the Fund's
investments in countries other than the United States. Investments may be
shifted among the world's various capital markets and among different types of
securities in accordance with ongoing analysis provided by the Adviser and the
Subadviser of trends and developments affecting such markets and securities. The
Adviser and the Subadviser are sometimes referred to as the Advisers.

The investment objective 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 objective of the Fund,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. For

11
<PAGE> 14

additional information regarding the investment practices of the Fund see
"Investment Practices and Restrictions."

EQUITY SECURITIES. Equity securities include common stocks, preferred
stocks and warrants or options to acquire such securities. In selecting
portfolio securities, the Fund attempts to take advantage of the differences
between economic trends and the anticipated performance of securities markets in
various countries. Normally, the Fund invests in securities of issuers traded on
the market of the world's six largest countries by market capitalization (United
States, Japan, United Kingdom, Germany, France and Canada), but securities of
issuers traded on quoted markets of other countries are also considered for
investment. The next six largest countries, in terms of market capitalization,
are Switzerland, Italy, Netherlands, Australia, Sweden and Spain.

The Advisers select individual countries and securities on the basis of
several factors. Investments are allocated among issuers in countries selected
based on a comparison of values among the equity markets in those countries.
This comparison is based upon criteria such as return on equity, book value,
earnings, dividends, and interest rates in each market. After evaluating these
factors and others for each country and comparing opportunities among countries,
the Advisers select those countries which, in their opinion, have the most
attractive equity markets. This evaluation is influential in deciding the amount
of investment in each equity market. Individual equity securities are selected
within each market. The Advisers seek the most attractive individual equity
securities based on factors such as book value, earnings per share and other
financial data. The Advisers' approach to both country and individual security
selection is characterized as a quantitative method utilizing specific financial
criteria to identify both value and opportunity in the equity markets. The
Advisers also endeavor to identify industry, political, and geographical trends
which may affect equity values within individual countries or among a group of
countries. The Advisers use these financial criteria and analysis of industry,
political, and geographical trends to evaluate and compare equity investment
opportunities among various countries and among securities within each country
with the objective of identifying and investing in those securities which can
best meet the Fund's investment objective. Of course, there is no assurance that
the Advisers will be successful in this endeavor.

The Fund may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. ADRs are publicly traded on
exchanges or over-the-counter in the United States and are issued through
"sponsored" or "unsponsored" arrangements. In a sponsored ADR arrangement, the
foreign issuer assumes the obligation to pay some or all of the depositary's
transaction fees, whereas under an unsponsored arrangement, the foreign issuer
assumes no obligations 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. 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.

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<PAGE> 15

DEBT SECURITIES. The Fund invests primarily in a global portfolio of high
quality debt obligations allocated among diverse international markets and
denominated in various currencies. The Fund may invest in government securities
and high quality debt securities of U.S. and foreign corporations. Government
securities include debt securities issued or guaranteed by the United States or
foreign governments or their agencies, authorities or instrumentalities.
Normally, the Fund focuses on obligations of the United States, the countries of
Western Europe, Japan, Australia, New Zealand and Canada. However, obligations
of any other country may also be considered for investment. Securities of any
one issuer (other than the United States government) will represent no more than
25% of the Fund's total assets. The Fund may purchase securities that are issued
by the government of one nation but denominated in the currency of another
nation (or in a multinational currency unit).

The Fund may also invest in debt obligations of supranational lending
entities organized or supported by several national governments. Such
supranational entities in which the Fund may invest include the following:
International Bank for Reconstruction and Development (World Bank), established
to promote reconstruction and economic development in its member nations;
European Coal and Steel Community, a partnership of 12 European countries
created to establish a common market for coal and steel and to further the
economic development in its member countries; European Investment Bank,
established to finance investment projects that contribute to the balanced
development of the European Economic Community; European Bank for Reconstruction
& Development, whose objectives are to foster the transition toward open market
economies and to promote private and entrepreneurial initiative in countries of
central and eastern Europe; Inter-American Development Bank, established to
further the development of its Latin American member countries; African
Development Bank, established to contribute to the economic development and
social progress of its African member countries; Asian Development Bank,
established to promote economic growth and cooperation in Asia and the Far East.
The Fund may from time to time invest up to 25% of its total assets in these and
other supranational entities.

The Fund limits its purchases of debt securities to high quality
obligations. For debt obligations other than commercial paper, this includes
securities that are rated Aa3 or better by Moody's Investors Service ("Moody's")
or AA- or better by Standard & Poor's Corporation ("S&P"), or that are not rated
but considered by the Advisers to be of equivalent quality. A description of the
Moody's and S&P ratings is included in the Statement of Additional Information.

CURRENCY EFFECTS. The Fund's portfolio is managed in accordance with a
global investment strategy, which means that the Fund's investments are
allocated among securities denominated in the United States dollar and the
currencies of a number of foreign countries and, within each such country, among
different types of debt securities. The Fund's exposure with respect to each
currency is adjusted based on the Advisers' perception of the most favorable
markets and issuers. In this regard, the percentage of assets invested in
securities of a particular country or denominated in a particular currency will
vary in accordance with the Advisers' assessment of the relative yield and
appreciation potential of such securities and the relationship of a country's
currency to the United States dollar. Fundamental economic strength, credit
quality and interest rate

13
<PAGE> 16

trends are the principal factors considered by the Advisers in determining
whether to increase or decrease the emphasis placed upon a particular type of
security within the Fund's investment portfolio.

The returns available from foreign currency denominated securities can be
adversely affected by changes in exchange rates. The Advisers believe that the
use of foreign currency hedging techniques, including "cross-hedges" (see
"Investment Practices and Restrictions -- Forward Foreign Currency Exchange
Contracts" herein), can help protect against changes in the United States dollar
value of income available for distribution to shareholders and declines in the
net asset value of the Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated in
a particular foreign currency would diminish in the event the value of the
United States dollar increased against such currency. Such a decline could be
partially or completely offset by an increase in value of a hedge involving a
foreign currency contract, or by a cross-hedge involving a forward currency
contract, where such contract is available on terms more advantageous to the
Fund than a contract to sell the currency in which the position being hedged is
denominated. It is the Advisers' belief that hedges and cross-hedges can
therefore provide significant protection of net asset value in the event of a
general rise in the United States dollar against foreign currencies. However, a
hedge or cross-hedge cannot protect completely against exchange rate risks, and
if the Advisers are incorrect in their judgment of future exchange rate
relationships, the Fund could be in a less advantageous position than if such a
hedge had not been established.

TEMPORARY SHORT-TERM INVESTMENTS. It is the Fund's policy generally to invest
in a globally diversified portfolio of equity and longer term debt securities.
However, in the interest of preserving shareholders' capital and consistent with
the Fund's investment objectives, the Adviser may employ a temporary defensive
investment strategy if it determines such a strategy to be warranted. Under a
defensive strategy, the Fund may hold cash (United States dollars or foreign
currencies) and/or invest any portion or all of its assets in high quality money
market instruments. It is impossible to predict when or for how long the Fund
will employ defensive strategies. Money market instruments in which the Fund may
invest include, but are not limited to, the following instruments of United
States or foreign issuers: government securities; commercial paper; bank
certificates of deposit and bankers' acceptances; and repurchase agreements
related to any of the foregoing. The Fund will only purchase commercial paper if
it is rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P or, if not rated,
is considered by the Adviser to be of equivalent quality. In addition, for
temporary defensive reasons, such as during time of international political or
economic uncertainty, most or all of the Fund's investments may be made in the
United States and denominated in United States dollars.

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<PAGE> 17

- - ------------------------------------------------------------------------------
RISK FACTORS
- - ------------------------------------------------------------------------------

FOREIGN SECURITIES AND CURRENCIES. Investing in securities issued by foreign
corporations and governments involves considerations and possible risks not
typically associated with investing in obligations issued by domestic
corporations and the United States government. The values of foreign investments
are affected by changes in currency rates or exchange control regulations,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in this country or
abroad) or changed circumstances in dealings between nations. Foreign currency
exchange rates are determined by forces of supply and demand on the foreign
exchange markets. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Moreover, foreign currency exchange
rates may be affected by the regulatory control of the exchanges on which the
currencies trade. Costs are incurred in connection with conversions between
various currencies. In addition, foreign brokerage commissions and dealer
mark-ups are generally higher than in the United States, and foreign securities
markets may be less liquid, more volatile and less subject to governmental
supervision than in the United States. Investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards and potential difficulties in enforcing contractual obligations, and
could be subject to extended settlement periods. Furthermore, issuers of foreign
common stocks are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. Also, foreign
custodial costs relating to the Fund's portfolio securities are higher than
domestic custodial costs.

NON-DIVERSIFICATION. The Fund is a "non-diversified" investment company, which
means the Fund is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, the Fund intends to
conduct its operations so as to qualify as a "regulated investment company" for
purposes of the Code, which will relieve the Fund of any liability for federal
income tax to the extent its earnings are distributed to shareholders. See
"Dividends, Distributions and Taxes." To so qualify, among other requirements,
the Fund will limit its investments so that, at the close of each calendar
quarter, (i) not more than 25% of the market value of the Fund's total assets
are invested in securities of a single issuer (other than the U.S. Government,
its agencies and instrumentalities), and (ii) at least 50% of the market value
of its total assets is invested in cash, securities of the U.S. Government, its
agencies and instrumentalities and other securities limited in respect of any
one issuer to an amount not greater than five percent of the market value of the
Fund's total assets and not more than ten percent of the outstanding voting
securities of such issuer. For purposes of the Fund's requirements to maintain
diversification for tax purposes, the issuer of a loan participation will be the
underlying borrower. In cases where the Fund does not have recourse directly
against the borrower, both the borrower and each agent bank and co-lender
interposed between the Fund and the borrower, will be deemed issuers of the loan
participation for tax diversification purposes. Since the Fund, as a
non-diversified investment company, may invest in a smaller number of individual
issuers than a diversified investment company,

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<PAGE> 18

an investment in the Fund may, under certain circumstances, present greater
risks to an investor than an investment in a diversified company.

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

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic or foreign banks or broker-dealers in order to earn a return on
temporarily available cash. A repurchase agreement is a short-term investment in
which the purchaser, (i.e., the Fund) acquires ownership of a debt security and
the seller agrees to repurchase the obligation at a future time and set price,
thereby determining the yield during the holding period. The Fund will not
invest 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.

PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Advisers are
responsible for the placement of orders for the purchase and sale of portfolio
securities for the Fund 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 debt securities in the Fund's
portfolio generally are traded in the over-the-counter market through dealers. A
dealer is a securities firm or bank which makes a market for securities by
opening a position at one price and closing the position at a slightly more
favorable price. The difference between the prices is known as a spread. Foreign
currency and forward currency exchange contracts are traded in a similar fashion
in a dealer market maintained primarily by large commercial banks. The Fund will
pay brokerage commissions in connection with transactions in exchange-traded
options, futures contracts and related options. Spreads or commissions for
transactions executed in foreign markets often are higher than in the United
States. The Advisers are authorized to place portfolio transactions with
brokerage firms participating in the distribution of shares of the Fund and
other American Capital mutual funds if they reasonably believe

16
<PAGE> 19

that the quality of the execution and the commission are comparable to that
available from other qualified brokerage firms. The Advisers are authorized to
pay higher commissions to brokerage firms that provide them with investment and
research information than to firms which do not provide such services if the
Advisers determine that such commissions are reasonable in relation to the
overall services provided. The information received may be used by the Advisers
in managing the assets of other advisory accounts as well as in the management
of the assets of the Fund.

PORTFOLIO TURNOVER. The Fund may experience a high rate of portfolio
turnover which may vary from year to year with respect to both its equity and
debt securities. The rate of portfolio turnover is not a limiting factor when
the Advisers deem it desirable to purchase or sell securities or to engage in
transactions in options, futures contracts and options on futures contracts. 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 with respect to either
its debt or equity securities will not generally exceed 400%, with the rate of
portfolio turnover tending to be higher with respect to debt securities.

LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
unaffiliated brokers, dealers and financial institutions provided that (a)
immediately after any such loan, the value of the securities loaned does not
exceed 15% of the total value of the Fund's assets, and (b) any securities loan
is collateralized in accordance with applicable regulatory requirements. The
Advisers believe the risk of loss on such transactions is slight, because, if a
borrower were to default for any reason, the collateral should satisfy the
obligation. See the Statement of Additional Information.

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 ("1933 Act") 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 1933 Act 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 Rule
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

17
<PAGE> 20

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 ten percent 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 ten
percent restriction.

SHORT SALES AGAINST THE BOX. The Fund may from time to time make short
sales of securities it owns or has the right to acquire. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold short. In a
short sale, the Fund does not immediately deliver the securities sold and does
not receive the proceeds from the sale. The Fund is said to have a short
position in the securities sold until it delivers the securities sold, at which
time it receives the proceeds of the sale. The Fund may not make short sales or
maintain a short position if to do so would cause more than 25% of its total
assets, taken at market value, to be involved in such sales.

The Fund may close out a short position by purchasing and delivering an
equal amount of the securities sold short, rather than by delivering securities
already held by the Fund, because the Fund may want to continue to receive
interest and dividend payments on securities in its portfolio. However, the Fund
will not purchase and deliver new securities to satisfy its short order if such
purchase and sale would cause such Fund to derive more than 30% of its gross
income from the sale of securities held for less than three months.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may enter into
contracts for the purchase or sale for future delivery of securities or foreign
currencies, or contracts based on financial indices including any stock index or
index of United States Government securities or foreign government securities
("futures contracts") and may purchase and write put and call options to buy or
sell futures contracts ("options on futures contracts"). A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies called for by the contract at a specified price
on a specified date. A "purchase" of a futures contract means the incurring of a
contractual obligation to acquire the securities or foreign currencies called
for by the contract at a specified price on a specified date. The purchaser of a
futures contract on an index agrees to take or make delivery of an amount of
cash equal to the difference between a specified multiple of the value of the
index on the expiration date of the contract ("current contract value") and the
price at which the contract was originally struck. No physical delivery of the
securities underlying the index is made. Options on futures contracts to be
written or purchased by the Fund will be traded on United States or foreign
exchanges. These investment techniques are used to hedge against anticipated
future changes in market values or interest or exchange rates which otherwise
might either adversely affect the value of the Fund's portfolio securities or
adversely affect the price of securities which the Fund intends to purchase at a
later

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<PAGE> 21

date. See the Statement of Additional Information for further discussion of the
use, risks and costs of futures contracts and options on futures contracts.

OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write put and call
options on foreign currencies to increase the Fund's gross income and for the
purpose of protecting against declines in the United States dollar value of
foreign currency denominated portfolio securities and against increases in the
United States dollar cost of such securities to be acquired. As in the case of
other kinds of options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, the Fund may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies written or
purchased by the Fund are traded on United States and foreign exchanges or
over-the-counter. There is no specific percentage limitation on the Fund's
investments in options on foreign currencies. See the Statement of Additional
Information for further discussion of the use, risks and costs of options on
foreign currencies.

OPTIONS ON PORTFOLIO SECURITIES. The Fund may write call options on certain
of its portfolio securities at such time and from time to time as Fund
management shall determine to be appropriate and consistent with the investment
objective of the Fund. Generally, the Fund expects that options written by it
will be conducted on recognized securities exchanges.

In certain instances, however, the Fund may transact options in the
over-the-counter market ("OTC Options"). OTC Options can be closed out only by
agreement with the other party to the transaction. Any OTC Option purchased by
the Fund is considered an illiquid security. Any OTC Option written by the Fund
is with a qualified dealer pursuant to an agreement under which the Fund may
repurchase the option at a formula price. Such options are considered illiquid
to the extent that the formula price exceeds the intrinsic value of the option.
There is no fixed limit on the percentage of the Fund's assets upon which
options may be written.

The Fund will receive a premium (less any commissions) from the writing of
such contracts, consistent with the Fund's investment objective. The writing of
option contracts is a highly specialized activity which involves investment
techniques and risks different from those ordinarily associated with investment
companies, although the Fund believes that the writing of call options listed on
an exchange or traded in the over-the-counter market, where the Fund owns the
underlying security, tends to reduce such risks. The writer foregoes the
opportunity to profit from an increase in market price of the underlying
security above the exercise price so long as the option remains open. See the
Statement of Additional Information for more information.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may purchase or sell
forward foreign currency exchange contracts ("forward contracts") to attempt to
minimize the risk to the Fund from adverse changes in the relationship between
the United States dollar and foreign currencies. A forward contract is an
obligation to

19
<PAGE> 22

purchase or sell a specific currency for an agreed price at a future date which
is individually negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the United States dollar price of the
security ("transaction hedge"). Additionally, for example, when the Fund
believes that a foreign currency may suffer a substantial decline against the
United States dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency, or when the
Fund believes that the United States dollar may suffer a substantial decline
against foreign currency, it may enter into a forward purchase contract to buy
that foreign currency for a fixed dollar amount ("position hedge"). In this
situation, the Fund may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed United States dollar amount where
the Fund believes that the United States dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
United States dollar value of the currency in which portfolio securities of the
Fund are denominated ("cross-hedge"). The Fund custodian will place cash or
United States Government securities or other high-quality debt securities in a
segregated account having a value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in the segregated
account declines, additional cash or securities are placed in the account on a
daily basis so that the value of the account equals the amount of the Fund's
commitments with respect to such contracts. As an alternative to maintaining all
or part of the segregated account, the Fund may purchase a call option
permitting the Fund to purchase the amount of foreign currency being hedged by a
forward sale contract at a price no higher that the forward contract price, or
the Fund may purchase a put option permitting the Fund to sell the amount to
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price. Unanticipated changes in currency prices
may result in poorer overall performance for the Fund than if it had not entered
into such contracts.

POTENTIAL RISKS OF OPTIONS, FUTURES AND FORWARD CONTRACTS. The successful
use of the foregoing investment techniques depends on the ability of the Fund's
Advisers to forecast the markets and interest rate and currency exchange rate
movements correctly. Should the markets or interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of futures
contracts, options or forward contracts or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are no
daily price fluctuation limits with respect to options on currencies and forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, movements in the prices of such
instruments and movements in the price of the securities and currencies hedged
or used for cover may not be closely correlated and could produce unanticipated
losses. The Fund's ability to dispose of its positions in futures contracts,
options and forward contracts will depend on the availability of liquid markets
in such instruments. Markets in options and futures with respect to a number of
securities and currencies are relatively new and still developing. It is
impossible to predict the amount of trading

20
<PAGE> 23

interest that may exist in various types of futures contracts. If a secondary
market does not exist with respect to an option purchased or written by the Fund
over-the-counter, it might not be possible to effect a closing transaction in
the option (i.e., dispose of the option) with the result that (i) an option
purchased by the Fund would have to be exercised in order for the Fund to
realize any profit and (ii) the Fund may not be able to sell currencies or
portfolio securities covering an option written by the Fund until the option
expires or it delivers the underlying futures contract or currency upon
exercise. Therefore, no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes set forth above. The Fund
may not purchase or sell futures contracts or related options for which the
aggregate initial margin and premiums exceed five percent of the fair market
value of the Fund's assets. In order to prevent leverage in connection with the
purchase of futures contracts or call options thereon by the Fund, an amount of
cash, cash equivalents or liquid high grade debt securities equal to the market
value of the obligation under the futures contracts (less any related margin
deposits) will be maintained in a segregated account with the Custodian.
Furthermore, the Fund's ability to engage in options and futures transactions
may be limited by tax considerations. See the Statement of Additional
Information.

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 or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.

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.

INVESTMENT RESTRICTIONS. The Fund has adopted a number of investment
restrictions that may not be changed without the approval of the holders of a
majority of the Fund's shares. See the Statement of Additional Information. The
percentage limitations need only be met at the time the investment is made or
other relevant action taken. These restrictions provide, among other things,
that the Fund may not:

1. Purchase any security (other than obligations of the United States
Government, its agencies or instrumentalities) if more than 25% of its
total assets (taken at

21
<PAGE> 24

current value) would be invested in a single industry except that, if the
value of debt securities owned by the Fund with remaining maturities of
less than 13 months exceeds 35% of the value of the Fund's total assets,
the Fund will invest at least 25% of its assets in securities issued by
banks. Although this policy is not applicable to debt securities issued
by government or political subdivisions because such issues are not
members of any industry, the Fund does not intend to invest more that 25%
of its total assets in debt securities issued or guaranteed by any
government (except U.S. Government, its agencies or instrumentalities).

2. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of its
net assets, or pledge more than ten percent of its net assets in
connection with permissible borrowings or purchase additional securities
when money borrowed exceeds five percent of its net assets. Margin
deposits or payments in connection with the writing of options, or in
connection with the purchase or sale of forward contracts, futures,
foreign currency futures and related options, are not deemed to be a
pledge or other encumbrance.

3. Lend money except through the purchase of (i) United States and foreign
government securities, commercial paper, banker's acceptances,
certificates of deposit and similar evidence of indebtedness, both
foreign and domestic, and (ii) repurchase agreements; or lend securities
in an amount exceeding 15% of the total assets of the Fund. The purchase
of a portion of an issue of securities described under (i) above
distributed publicly, whether or not the purchase is made on the original
issuance, is not considered the making of a loan.

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

The Fund is an open-end, non-diversified management investment company,
incorporated as a Maryland corporation on November 24, 1993. A mutual fund
provides, for those who have similar investment goals, a practical and
convenient way to invest in a more diversified portfolio of securities 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 and the Subadviser are responsible for the
provision of advisory services in relation to the Fund's assets. The Adviser
also provides administrative services and manages the Fund's business and
affairs. The Adviser, together with its predecessors, has been in the investment
advisory business since 1926 and has served as investment adviser to the Fund
since its inception. As of March 31, 1995, the Adviser provided investment
advice to 47 investment company portfolios with total net assets of
approximately $16.4 billion.

The Adviser and the Distributor are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by the Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton,

22
<PAGE> 25

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 Subadviser provides investment advisory services to the Adviser of the
Fund with respect to the Fund's investments in foreign securities, including
recommending optimal geographic asset allocation and currency exposure. The
Subadviser provides investment advisory services to the Adviser of the Fund with
respect to the Fund's investments in foreign securities, including recommending
optimal geographic asset allocation and currency exposure. The Subadviser is a
United Kingdom-based investment management company whose investment management
activities originated in the 1920s, and was incorporated in 1955 to provide a
corporate structure for a management group. Located at 4 Battle Bridge Lane,
London SE1 2HR, England, the Subadviser is a wholly-owned subsidiary of Govett &
Company Limited, a corporation listed on the London Stock Exchange. The Govett
Group, which manages or administers investment funds valued at approximately
$8.6 billion, maintains offices in London, Singapore, Jersey (Channel Islands),
Sacramento, Raleigh, and San Francisco.

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. The Adviser
has entered into a sub-advisory agreement dated December 20, 1994 (the
"Sub-advisory Agreement") with the Subadviser to assist it in performing its
investment advisory functions. The Subadviser will be primarily responsible for
recommending the allocation of investments among various international markets
and currencies; recommendation and selection of particular securities in the
international markets; and placement of portfolio transactions in the foreign
markets. 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 1.00% of the Fund's
average daily net assets. This fee is higher than that charged by most other
mutual funds but the Fund's Board of Directors believes it is justified by the
special international nature of the Fund and its asset allocation features and
is not necessarily higher than the fees charged by certain mutual funds with an
investment objective and investment policies similar to those of the Fund. Under
the Advisory Agreement, the Fund also reimburses the Adviser for the cost of the
Fund's accounting services, which include maintaining its financial books and
records and calculating its daily net asset value. Operating expenses paid by
the Fund include shareholder service agency fees, distribution fees, service
fees, custodial fees, legal and accounting fees, the costs of reports and
proxies to shareholders, directors' fees, and all other business expenses not
specifically assumed by the Adviser. Advisory

23
<PAGE> 26

(management) fee and total operating expense ratios are shown under the caption
"Expense Synopsis" herein. Pursuant to the Sub-advisory Agreement, the
Subadviser receives on an annual basis 50% of the compensation received by the
Adviser. The Adviser and the Subadviser may, from time to time, agree to waive
their respective investment advisory fees or any portion thereof or elect to
reimburse the Fund for ordinary business expenses in excess of an agreed upon
amount.

John R. Reynoldson is primarily responsible for the day-to-day management
of the Fund's investment portfolio with respect to investments in debt
securities in the United States. Mr. Reynoldson is Vice President of the Fund
and has been Senior Investment Vice President of the Adviser since July 1991. He
was previously an investment vice president with the Adviser. The Subadviser has
employed Alan Doyle since April 1994 as an international manager specializing in
emerging markets. He is primarily responsible for allocating the Fund's
investments between United States and non-United States debt securities and the
day-to-day management of the Fund's investments in debt securities in countries
other than the United States. Mr. Doyle was previously an economist in the fixed
income department of World Invest Ltd. in London. Jeff New is primarily
responsible for the day-to-day management of the Fund's investment portfolio
with respect to investments in equity securities in the United States. Mr. New
is Vice President of the Fund. He has been an associate portfolio manager with
the Adviser since 1990. Prior to that he was a securities analyst with Texas
Commerce Investment Management Company. The Subadviser has employed Peter Kysel
as Director and Fund Manager since September 1994. He is primarily responsible
for allocating the Fund's investments between United States and non-United
States equity securities and the day-to-day management of the Fund's investments
in equity securities in countries other than the United States. In addition, Mr.
Kysel is responsible for allocating the Fund's investments among various debt
and equity international markets. Mr. Kysel was previously a managing director
of the investment banking division of Komercni Bank. Messrs. Reynoldson and New
have managed the Fund's investment portfolio since the Fund's inception. Messrs.
Doyle and Kysel have been managing the Fund's investment portfolio since
December 21, 1994.

As of April 12, 1995, the Adviser owned beneficially and of record
approximately 45.86% of the outstanding shares of the Fund, and therefore, may
be deemed to control the Fund.

The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp. (formerly Van Kampen Merritt Investment Advisory
Corp.).

24
<PAGE> 27

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

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. Shares of
the Fund may be sold in foreign countries where permissible. The Fund and the
Distributor reserve the right to refuse any order for the purchase of shares.
The Fund also reserves the right to suspend the sale of the Fund's shares in
response to conditions in the securities markets or for other reasons.

Shares 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, ACCESS Investor 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. Equity securities listed or traded on a
national securities exchange are valued at the last sale price. Unlisted equity
securities and listed equity securities for which the last sales price is not
available are valued at the most recent bid price. The net asset value of debt
securities is computed by (i) valuing long-term debt obligations at the mean of
representative quoted bid or asked prices for such securities or, if such prices
are not available, at prices for securities of comparable maturity, quality and
type; however, when the Advisers deem it appropriate, prices obtained for the
day of valuation from a bond pricing service will be used, (ii) valuing
short-term debt obligations with remaining maturities in excess of 60 days at
the mean of representative quoted bid and asked prices for such securities or,
if such prices are not available, using the prices for securities of comparable
maturity, quality and type, and (iii) valuing short-term debt securities with 60
days or less remaining to maturity by

25
<PAGE> 28

amortizing such securities to maturity based on their cost to the Fund. Options
and futures contracts and options on futures contracts which are traded on
exchanges are valued at their last sale or settlement price as of the close of
such exchanges, or, if no sales are reported, at the mean between the last
reported bid and asked prices. Over-the-counter options are valued at the
average of the last bid prices obtained from dealers. Any other assets will be
valued at fair value as determined in good faith by the Board of Directors of
the Fund.

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

Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan pursuant to which its distribution fee and/or service
fee is paid which relate to a specific class, and (iii) Class B and Class C
shares are subject to a conversion feature. Each class has different exchange
privileges and certain different shareholder service options available. See
"Distribution Plans" and "Shareholder Services -- Exchange Privilege." The net
income attributable to Class B and Class C shares and the dividends payable on
Class B and Class C shares will be reduced by the amount of the distribution fee
and incremental expenses associated with such distribution fees. Sales personnel
of broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class A, Class B or Class C shares.

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

26
<PAGE> 29

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.

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

CLASS A SHARES

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

SALES CHARGE TABLE

<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF NET AMOUNT OFFERING
INVESTMENT INVESTED PRICE
----------------------------------------------------------------
<S> <C> <C>
Less than $100,000.................. 4.99% 4.75%
$100,000 but less than $250,000..... 3.90% 3.75%
$250,000 but less than $500,000..... 2.83% 2.75%
$500,000 but less than $1,000,000... 2.04% 2.00%
$1,000,000 and over................. (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 one percent 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: one percent 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.

In addition to the reallowances from the applicable public offering price
described herein, 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. Dealers which are
reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the 1933 Act.

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

27
<PAGE> 30

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:

(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
which equals at least $1 million. The Distributor may pay Service
Organizations through which purchases are made of an amount up to 0.50%
of the amount invested, over a twelve month period following such
transaction.

(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.

28
<PAGE> 31

(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 in Participating Funds (as hereinafter defined) or American
Capital Reserve Fund, Inc. ("Reserve"). For such investments the Fund
imposes a contingent deferred sales charge of 1% in the event of
redemptions within one year of the purchase other than redemptions
required to make payments to participants under the terms of the plan.
The contingent deferred sales charge incurred upon certain redemptions
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.

Purchase orders made pursuant to clause (4) 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 as described in (3) through (8) above.
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, American Capital
Global Managed Assets Fund, Inc. ("Global Managed"), American Capital Government
Securities, Inc., American Capital Government Target Series ("Government
Target"), American Capital Growth and Income Fund, Inc., American Capital Harbor

29
<PAGE> 32

Fund, Inc., American Capital High Yield Investments, Inc. ("High Yield"),
American Capital Municipal Bond Fund, Inc. ("Municipal Bond"), American Capital
Pace Fund, Inc., American Capital Real Estate Securities Fund, Inc. ("Real
Estate"), American Capital Tax-Exempt Trust ("Tax-Exempt"), American Capital
Texas Municipal Securities, Inc. ("Texas Municipal"), American Capital U.S.
Government Trust for Income ("Government Trust"), American Capital Utilities
Income Fund, Inc. ("Utilities Income") and American Capital World Portfolio
Series, Inc. ("World Portfolio"). A person eligible for a volume discount
includes an individual; members of a family unit comprising husband, wife and
minor children; or a trustee or other fiduciary purchasing for a single
fiduciary account.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
Shares previously purchased are only taken into account, however, if the
Distributor is notified by the investor or the investor's dealer at the time an
order is placed for a purchase which would qualify for a reduced sales charge on
the basis of previous purchases and if sufficient information is furnished to
permit confirmation of such purchases.

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

CLASS B SHARES

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

30
<PAGE> 33

The amount of the contingent deferred sales charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the
purchases of shares, all payments during a month are aggregated and deemed to
have been made on the last day of the month.

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE 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.

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 four percent (the applicable rate in the second year after purchase).

A commission or transaction fee of four percent 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 one percent. The charge is assessed on an
amount equal to the lesser of

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<PAGE> 34

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

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

A commission or transaction fee of one percent 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 0.75% 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.

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

Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment
company to directly or indirectly pay expenses associated with the distribution
of its shares ("distribution expenses") and servicing its shareholders in
accordance with a plan adopted by the investment company's board of directors
and approved by its shareholders. Pursuant to such Rule, the Directors of the
Fund, and the shareholders of each class have adopted three Distribution Plans
hereinafter referred to as the "Class A Plan," the "Class B Plan" and the "Class
C Plan." Each Distribution Plan is in compliance with the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. ("NASD Rules")
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

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<PAGE> 35

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 Distributor uses the Class A, Class B and Class C service fees to
compensate Service Organizations for personal services and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to four
percent 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 0.75% 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 fee received from the Fund in subsequent fiscal
years. Thus, if the Class A Plan were terminated or not continued, no amounts
(other than current amounts accrued but not yet paid) would be owed by the Fund
to the Distributor.

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

Actual distribution expenditures paid by the Distributor with respect to
Class B or Class C shares for any given year are expected to exceed the fees
received pursuant to the Class B Plan and Class C Plan and payments received
pursuant to contingent deferred

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<PAGE> 36

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.

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

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

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

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 shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.

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

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

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<PAGE> 37

to invest predetermined amounts in the Fund. Additional information is available
from the Distributor or authorized investment dealers.

RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP, and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. 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 only if shares of such selected
fund have been registered in the investor's state.

EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund (listed
under "Purchase of Shares -- Class A Shares -- Volume Discounts"), other than
Government Target, may be exchanged for shares of the same class of any other
fund without sales charge, provided that shares of Corporate Bond, Federal
Mortgage, Global Managed, Government Trust, High Yield, Municipal Bond, Real
Estate, Tax-Exempt, Texas Municipal, Utilities Income and the American Capital
Global Government Securities Fund of World Portfolio are subject to a 30-day
holding period requirement. Shares of Government Target may be exchanged for
Class A shares of the Fund without sales charge. 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 that were not acquired
in exchange for Class B or Class C shares of a Participating Fund 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

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<PAGE> 38

available for sale only to existing shareholders of a Participating Fund.
Additional funds may be added from time to time as a Participating Fund.

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

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 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

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<PAGE> 39

any time on 60 days' notice to its shareholders of any termination or material
amendment.

A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.

SYSTEMATIC EXCHANGE. A shareholder may invest regularly 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, semi-annual 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 election to
participate in the plan is made. See "Purchase of Shares -- Waiver of Contingent
Deferred Sales Charge" and the Statement of Additional Information.

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

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<PAGE> 40

- - ------------------------------------------------------------------------------
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 one percent may be imposed on certain redemptions of
Class A shares made within one year of purchase for investments of $1 million or
more 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 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.

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<PAGE> 41

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 involuntary redemption may only occur if
the shareholder account is less than the minimum initial investment due to
shareholder redemptions. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption.

TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits shareholders and the dealer representative of
record to redeem shares by telephone and to have redemption proceeds sent to the
address of record for the account or to the bank account of record as described
below. To establish such privilege a shareholder must complete the appropriate
section of the application form in this Prospectus or call the Fund at (800)
421-5666 to request that a copy of the Telephone Redemption Authorization form
be sent to them for completion. To redeem shares, contact the telephone
transaction line at (800) 421-5684. Van Kampen American Capital and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen American Capital nor the Fund will
be liable for following telephone instructions which it reasonably believes to
be genuine. Van Kampen American Capital and the Fund may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed. ACCESS will record any 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

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<PAGE> 42

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.

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

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

DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main source of income. Substantially all of this income, less
expenses, is distributed quarterly as dividends to shareholders. Dividends are
automatically applied to purchase additional shares of the Fund at the next
determined net asset value. See "Shareholder Services -- Reinvestment Plan."

The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A shares as a result of the distribution fees
and 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 continue to qualify as a
regulated investment company under Subchapter M of the Code. By qualifying as a
regulated investment company, the Fund is not subject to Federal income taxes to
the extent it

40
<PAGE> 43

distributes its net investment income and net realized capital gains. The Fund's
policy is to distribute to its Class A, Class B and Class C shareholders
substantially all of its taxable net income quarterly. 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 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. Investors
may be entitled to claim United States foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code. If
more than 50% in value of the Fund's total assets at the close of its fiscal
year consists of securities of foreign issuers, the Fund will be eligible, and
may file elections with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro rata
portions of such taxes in their United States income tax returns as gross
income, treat such respective pro rata portions as taxes paid by them, and
deduct such respective pro rata portions in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their United States
income taxes to the extent allowable. The Fund will report annually to its
shareholders the amount per share of such withholding.

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<PAGE> 44

Under Code Section 988, certain realized gains or losses on the sale or
retirement of foreign bonds held by the Fund, to the extent attributable to
fluctuations in currency exchange rates, as well as certain other gains or
losses attributable to exchange rate fluctuations, are typically treated as
ordinary income or loss. Such income or loss may increase or decrease (or
possibly eliminate) the Fund's income available for distribution. If, under the
rules governing the tax treatment of foreign currency gains and losses, the
Fund's income available for distribution is decreased or eliminated, all or a
portion of the dividends declared by the Fund may be treated for federal income
tax purposes as a return of capital or, in some circumstances, as capital gain.
Generally, your tax basis in your Fund shares will be reduced to the extent that
an amount distributed to you is treated as a return of capital.

The foregoing is a brief summary of some of the Federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax 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.

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.

42
<PAGE> 45

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, or NASDAQ, other appropriate
indices of investment securities, or with investment or savings vehicles. The
performance information may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Investor's Business Daily, Kiplinger's Personal Finance Magazine,
Money, Mutual Fund Forecaster, Stanger's Investment Advisor, USA Today, U.S.
News & World Report and The Wall Street Journal. Such comparative performance
information will be stated in the same terms in which the comparative data or
indices are stated. Any such advertisement would also include the standard
performance information required by the SEC as described above. For these
purposes, the performance of the Fund, as well as the performance of other
mutual funds or indices, do not reflect sales charges, the inclusion of which
would reduce Fund performance. The Fund will include performance data for Class
A, Class B and Class C shares of the Fund in any advertisement or information
including performance data of the Fund.

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

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

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

ORGANIZATION OF THE FUND. The Fund was incorporated in Maryland on November
24, 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 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.

43
<PAGE> 46

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

PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship between
the Fund, the Adviser, the Subadviser and their respective employees. The Codes
permit directors, officers and employees to buy and sell securities for their
personal account subject to certain restrictions. Persons with access to certain
sensitive information are subject to pre-clearance and other procedures designed
to prevent conflicts of interest.

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.

CUSTODIAN. The Fund's securities and cash in the United States will be held
under a custodian agreement with State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. The Custodian may employ
sub-custodians outside the United States approved by the Directors of the Fund
in accordance with regulations of the SEC.

44
<PAGE> 47

BACKUP WITHHOLDING INFORMATION

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

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

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

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

* A corporation

* Financial institution

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

* United States or any agency or instrumentality thereof

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

* International organization or any agency or instrumentality thereof

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

* Real estate investment trust

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

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

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

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

<PAGE> 48

AMERICAN CAPITAL
GLOBAL MANAGED ASSETS FUND, INC.

Prospectus
May 1, 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

Investment Subadviser
John Govett & Co. Limited
Shackleton House
4 Battle Bridge Lane
London SE1 2HR
England

Transfer, Disbursing, Redemption
and Shareholder Service Agent
ACCESS Investor 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 ACCESS Investor 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
Global Managed P.O. Box 418256
Assets Fund, Inc. Kansas City, MO 64141-9256

Seeking total return through
global stocks and bonds

[AMERICAN CAPITAL LOGO]
PRINTED MATTER
Printed in U.S.A./014-BRO-001
<PAGE> 49

PART B: STATEMENT OF ADDITIONAL INFORMATION

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

MAY 1, 1995

This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated May 1, 1995.
A Prospectus may be obtained without charge by calling or writing Van Kampen
American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook Terrace, IL
60181 at (800) 421-5666.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION................................................................... 2
INVESTMENT POLICIES AND TECHNIQUES.................................................... 3
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS........................... 4
REPURCHASE AGREEMENTS................................................................. 12
LOANS OF PORTFOLIO SECURITIES......................................................... 13
INVESTMENT RESTRICTIONS............................................................... 13
DIRECTORS AND EXECUTIVE OFFICERS...................................................... 15
INVESTMENT ADVISORY AGREEMENTS........................................................ 18
DISTRIBUTOR........................................................................... 20
DISTRIBUTION PLANS.................................................................... 20
TRANSFER AGENT........................................................................ 21
PORTFOLIO TURNOVER.................................................................... 22
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 22
DETERMINATION OF NET ASSET VALUE...................................................... 23
PURCHASE AND REDEMPTION OF SHARES..................................................... 24
EXCHANGE PRIVILEGE.................................................................... 27
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES............................................ 28
PRIOR PERFORMANCE INFORMATION......................................................... 30
OTHER INFORMATION..................................................................... 31
FINANCIAL STATEMENTS.................................................................. 31
</TABLE>

<PAGE> 50

GENERAL INFORMATION

American Capital Global Managed Assets Fund, Inc. (the "Fund") was
incorporated in Maryland on November 24, 1993.

Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") 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. Advantage Capital Corporation, a retail broker-dealer
affiliate of the Distributor, is a wholly owned subsidiary of VK/AC Holding,
Inc. See "The Fund and Its Management" in the Prospectus.

John Govett & Co. Limited (the "Subadviser") is a wholly owned subsidiary
of Govett & Company Limited, a corporation listed on the London Stock Exchange.

As of April 12, 1995, no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding shares of any class of the
Fund except for those listed below:

<TABLE>
<CAPTION>
NAME AND ADDRESS NATURE OF NUMBER OF
OF HOLDER OWNERSHIP CLASS SHARES HELD PERCENT
- - ------------------------------- ---------------- ------ ------------ --------
<S> <C> <C> <C> <C>
Van Kampen American Capital of record A 977,421 71.53%
Asset Management, Inc. and beneficially
2800 Post Oak Blvd.
Houston, TX 77056

Van Kampen American Capital of record B 53,483 6.41%
Asset Management, Inc. and beneficially
2800 Post Oak Blvd.
Houston, TX 77056

Van Kampen American Capital of record C 53,483 32.65%
Asset Management, Inc. and beneficially
2800 Post Oak Blvd.
Houston, TX 77056

Van Kampen American Capital of record A 181,942 13.31%
Trust Company
2800 Post Oak Blvd.
Houston, TX 77056

Van Kampen American Capital of record C 8,800 5.37%
Trust Company
2800 Post Oak Blvd.
Houston, TX 77056

Smith Barney, Inc. of record B 72,945 8.74%
388 Greenwich Street
11th Floor
New York, NY 10013-2375
</TABLE>

2
<PAGE> 51

<TABLE>
<S> <C> <C> <C> <C>
Smith Barney, Inc. of record C 32,185 19.65%
388 Greenwich Street
11th Floor
New York, NY 10013-2375

Merrill Lynch Pierce Fenner & of record B 53,030 6.36%
Smith Inc.
Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484

National Financial Services, of record B 59,179 7.09%
Inc.
200 Liberty
One World Financial Center
New York, NY 10281-1003

National Financial Services, of record C 17,436 10.64%
Inc.
200 Liberty
One World Financial Center
New York, NY 10281-1003
</TABLE>

Because the Adviser, a Delaware corporation, owns in excess of 25% of the
outstanding shares of the Fund, the Adviser may be deemed to control the Fund.
The ownership of the Adviser does not affect the voting rights of other
shareholders except that it would be difficult to obtain shareholder approval of
proxy proposals without the affirmative vote of the Adviser. The Adviser will
vote its shares in favor of the management's proposals.

INVESTMENT POLICIES AND TECHNIQUES

The Fund seeks total return through a managed balance of foreign and
domestic equity and debt securities. The following disclosures supplement
disclosures set forth in the Prospectus. Readers must refer also to the
Prospectus for a complete presentation.

DEPOSITARY RECEIPTS

The Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) or
other securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement. Generally, ADRs in
registered form, are designed for use in United States securities markets and
EDRs, in bearer form, are designed for use in European securities markets.

DESCRIPTION OF BOND RATINGS

Moody's Investors Service ("Moody's") rates the long-term debt securities
issued by various entities from "Aaa" to "C". High quality ratings are as
follows:

Aaa -- Best quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or exceptionally stable margin, and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa -- High quality by all standards. They are rated lower than the
best bond because margins of protection may not be as large as in Aaa
securities, fluctuation of protective elements may be of greater

3
<PAGE> 52

amplitude, or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.

Standard & Poor's Corporation ("S&P") rates the long-term debt securities
of various entities in categories ranging from "AAA" to "D" according to
quality. High quality ratings are as follows:

AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong.

AA -- High grade. Very strong capacity to pay interest and repay
principal. Generally, these bonds differ from AAA issues only in a small
degree.

COMMERCIAL PAPER RATINGS

Moody's employs the designations "Prime-1", "Prime-2" and "Prime-3" to
indicate commercial paper having the highest capacity for timely repayment.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protections; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

S&P ratings of commercial paper are graded into four categories ranging
from "A" for the highest quality obligations to "D" for the lowest. A -- Issues
assigned its highest rating are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with numbers 1, 2, and 3
to indicate the relative degree of safety. A-1 -- This designation indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
A-2 -- Capacity for timely payments on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".

OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Fund may engage in transactions in options, futures contracts and
options on futures contracts. Set forth below is certain additional information
regarding options, futures contracts and options on futures contracts. See
Prospectus for further information.

WRITING CALL AND PUT OPTIONS

Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return or total return than would be
realized on the underlying securities alone. Such returns can be expected to
fluctuate because premiums earned from an option writing program and dividend or
interest income yields on portfolio securities vary as economic and market
conditions change. Writing options on portfolio securities also is likely to
result in a higher portfolio turnover.

Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund would write call
options either on a covered basis or for cross-hedging purposes, a call option
is covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstance, the Fund collateralizes the option
by maintaining in a segregated account with the Fund's Custodian, cash, cash
equivalents or high quality, liquid debt securities in an amount not less than
the market value of the underlying security, marked to market daily, while the
option is outstanding.

4
<PAGE> 53

The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash, cash
equivalents or high quality, liquid debt securities in an amount of not less
than the exercise price of the option, or would hold a put on the same
underlying security at an equal or greater exercise price.

Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.

The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as writer of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a writer, but would provide an asset of
equal value to its obligation under the option written. If the Fund is not able
to enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has written, it will be required to maintain the
securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.

The exercise price of call options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market value of the
underlying securities or futures contracts at the time the options are written.
The converse applies to put options.

Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.

PURCHASING CALL AND PUT OPTIONS

The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire. In
addition, the Fund may purchase call options for capital appreciation. Since the
premium paid for a call option is typically a small fraction of the price of the
underlying security, a given amount of funds will purchase call options covering
a much larger quantity of such security than could be purchased directly. By
purchasing call options, the Fund could benefit from any significant increase in
the price of the underlying security to a greater extent than had it invested
the same amount in the security directly. However, because of the very high
volatility of option premiums, the Fund would bear a significant risk of losing
the entire premium if the price of the underlying security did not rise
sufficiently, or if it did not do so before the option expired.

Conversely, put options could be purchased to protect (i.e., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of the Fund's assets generally. In addition, the Fund may purchase put
options for capital appreciation in anticipation of a price decline in the
underlying security and a corresponding increase in the value of the put option.
The purchase of put options for capital appreciation involves the same
significant risk of loss as described above for call options.

In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.

The Fund will not purchase call or put options on securities if as a
result, more than ten percent of its net assets would be invested in premiums on
such options.

5
<PAGE> 54

The Fund may purchase either listed or over-the-counter options, which are
considered illiquid.

OPTIONS ON STOCK INDEXES

Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the exercise
price of the option, multiplied by a specified dollar multiple. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount.

Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges. The Fund may write or purchase options which are listed on an
exchange as well as options which are traded over-the-counter.

Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.

RISK FACTORS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT SECURITIES

Treasury Bonds and Notes. Because trading interest in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the Exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of bonds or notes will thus be phased out as new options are
listed on more recent issues, and options representing a full range of
expirations will not ordinarily be available for every issue on which options
are traded.

Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian so that it will be
treated as being covered.

Mortgage-Related Securities. The following special considerations will be
applicable to options on mortgage-related securities. Currently such options are
only traded over-the-counter. Since the remaining principal balance of a
mortgage-related security declines each month as a result of mortgage payments,
the Fund as a writer of a mortgage-related call holding mortgage-related
securities as "cover" to satisfy its delivery obligation in the event of
exercise may find that the mortgage-related securities it holds no longer have a
sufficient remaining principal balance for this purpose.

FOREIGN CURRENCY OPTIONS

The Fund may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that in which forward contracts or futures
contracts on foreign currencies will be utilized. For example, a decline in the
dollar value of a foreign currency in which the portfolio dollar value of a
foreign currency in

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<PAGE> 55

which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency does decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.

The Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.

The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, U.S. Government
Securities and other high grade, liquid debt securities in a segregated account
with its Custodian.

The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open,

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<PAGE> 56

significant price and rate movements may take place in the underlying markets
that cannot be reflected in the options markets.

The Fund also intends to write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is not covered, but is designed to provide a hedge against a
decline in the U.S. dollar value of a security which the Fund owns or has the
right to acquire and which is denominated in the currency underlying the option
due to an adverse change in the exchange rate. In such circumstances, the Fund
collateralizes the option by maintaining in a segregated account with the Fund's
Custodian, cash or U.S. Government Securities or other high quality, liquid debt
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.

FUTURES CONTRACTS

The Fund may engage in transactions involving futures contracts and related
options in accordance with rules and interpretations of the Commodity Futures
Trading Commission ("CFTC") under which the Fund is exempt from registration as
a "commodity pool."

The Fund may enter into contracts for the purchase or sale for future
delivery of securities or foreign currencies, or contracts based on financial
indices including any stock index or index of U.S. Government securities,
foreign government securities or corporate debt securities. U.S. futures
contracts have been designed by exchanges which have been designated "contracts
markets" by the CFTC, and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant contract market.
Futures contracts trade on a number of exchange markets, and, through their
clearing corporations, the exchanges guarantee performance of the contracts as
between the clearing members of the exchange. The Fund may enter into futures
contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-related securities and three-month U.S. Treasury Bills. The Fund may
also enter into futures contracts which are based on bonds issued by entities
other than the U.S. Government.

Currently, stock index futures contracts can be purchased with respect to
the Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange
("CME"), the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.
Differences in the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value of the
securities being hedged.

Foreign stock index futures traded outside the United States include the
Nikkei Index of 225 Japanese stocks traded on the Singapore International
Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese stocks traded on
the Osaka Exchange, Financial Times Stock Exchange Index of the 100 largest
stocks on the London Stock Exchange, the All Ordinaries Share Price Index of 307
stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33 stocks on the
Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks on the New
Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto Stock
Exchange. Futures and futures options on the Nikkei Index are traded on the CME
and United States commodity exchanges may develop futures and futures options on
other indices of foreign securities. Futures and options on United States
devised indices of foreign stocks are also being developed.

Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalents or liquid high
grade debt securities equal to a percentage (which will normally range upwards
of two percent) of the contract amount. This amount is known as initial margin.
The nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation

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<PAGE> 57

margin, are made on a daily basis as the price of the underlying securities or
index fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as marking to market.

For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.

At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.

Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs. Ordinarily commissions on futures transactions
are lower than transaction costs incurred in the purchase and sale of
securities.

In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased and/or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.

Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, currency or index, the risk of
market distortion, the illiquidity risk and the risk of error in anticipating
price movement.

There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities, currency or index upon which the
futures contract is based. If the price of the futures contract moves less than
the price of the securities being hedged, the hedge will not be fully effective.
To compensate for this imperfect correlation, the Fund could buy or sell futures
contracts in a greater dollar amount than the dollar amount of securities being
hedged if the historical volatility of the securities being hedged is greater
than the historical volatility of the securities, currency or index underlying
the futures contract. Conversely, the Fund could buy or sell futures contracts
in a lesser dollar amount than the dollar amount of the securities being hedged
if the historical volatility of the securities being hedged is less than the
historical volatility of the securities, currency or index underlying the
futures contract. It is also possible that the value of futures contracts held
by the Fund could decline at the same time as portfolio securities being hedged;
if this occurred, the Fund would lose money on the futures contract in addition
to suffering a decline in value in the portfolio securities being hedged.

There is also the risk that the price of futures contracts may not be
closely correlated with movements in the securities, currency or index
underlying the futures contract due to certain market distortions. First, all
participants in the futures market are subject to margin depository and
maintenance requirements. Rather than meet additional margin depositary
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the futures
market and the securities or index underlying the futures contract. Second, from
the point of view of speculators, the deposit requirements

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<PAGE> 58

in the futures market are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions. Due to the possibility of
price distortion in the futures markets and because of the imperfect correlation
between movements in futures contracts and movements in the securities
underlying them, a correct forecast of general market trends by the Advisers may
still not result in a successful hedging transaction judged over a very short
time frame.

There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.

Successful use of futures is also subject to the Advisers' ability
correctly to predict the direction of movements in the market. For example, if
the Fund hedges against a decline in the market, and market prices instead
advance, the Fund will lose part or all of the benefit of the increase in value
of its securities holdings because it will have offsetting losses in futures
contracts. In such cases, if the Fund has insufficient cash, it may have to sell
portfolio securities at a time when it is disadvantageous to do so in order to
meet the daily variation margin.

CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain other
conditions specified in CFTC regulations) and (ii) that the Fund not enter into
futures and 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 by the
Fund, an amount of cash, cash equivalents or liquid high grade debt securities
equal to the market value of the obligation under the futures contracts (less
any related margin deposits) will be maintained in a segregated account with the
Custodian.

Additional Risks to Options and Futures Transactions. Each of the United
States exchanges has established limitations governing the maximum number of
call or put options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). Option positions of all investment companies
advised by the Adviser and ACAM are combined for purposes of these limits. An
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose other sanctions or restrictions. These position
limits may restrict the number of listed options which the Fund may write.

Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price of the securities being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide

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<PAGE> 59

an offset to losses on the futures contract. Options on futures contracts to be
written or purchased by the Fund will be traded on United States or foreign
exchange or over-the-counter.

OPTIONS ON FUTURES CONTRACTS

The Fund could also purchase and write options on futures contracts.
Options on futures contracts to be written or purchased by the Fund will be
traded on United States or foreign exchanges or over-the-counter. An option on a
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put), at a specified exercise price
at any time during the option period. As a writer of an option on a futures
contract, the Fund is subject to initial margin and maintenance requirements
similar to those applicable to futures contracts. In addition, net option
premiums received by the Fund are required to be included as initial margin
deposits. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as, the sale of a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contract.

Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Advisers will not purchase
options on futures on any exchange unless, in the Advisers' opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However there may be circumstances, such as when there
is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.

FORWARD COMMITMENTS

Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked to market daily) of cash, cash equivalents, liquid high
grade debt securities or U.S. Government securities (which may have maturities
which are longer than the term of 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 continues. Since the market value of both the
securities or currency subject to the Forward Commitment and the securities or
currency held in the segregated account may fluctuate, the use of Forward
Commitments may magnify the impact of interest rate changes on the Fund's net
asset value.

A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities or currency subject to the Forward Commitment.
A Forward Commitment sale is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in value of a security or
currency which the Fund owns or has the right to acquire. In either
circumstance, the Fund maintains in a segregated account (which is marked to
market daily) either the security or currency covered by the Forward Commitment
or cash, cash equivalents, liquid high grade debt securities or U.S. Government
securities (which may have maturities which are longer than the term of 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 sell continues. By
entering into a Forward Commitment sale transaction, the Fund foregoes or
reduces the potential for both gain and loss in the security which is being
hedged by the Forward Commitment sale. See the Prospectus for further
information.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES

Unlike transactions entered into by the Fund in futures contracts, options
on foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain

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<PAGE> 60

foreign currency options) by the Securities and Exchange Commission ("SEC"). To
the contrary, such instruments are traded through financial institutions acting
as market-makers, although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could, therefore, continue to an unlimited extent over
a period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer and a trader of forward contracts could
lose amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the Fund
to liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.

REPURCHASE AGREEMENTS

In order to earn interest on funds available for very short-term
investment, the Fund may enter into repurchase agreements with domestic or
foreign banks or broker-dealers deemed to be creditworthy by the Adviser under
guidelines approved by the Board of Directors. 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, usually not more than seven days from the date of
purchase, thereby determining the yield during the purchaser's holding period.
Repurchase agreements are fully collateralized by the underlying debt securities
and are considered to be loans under the Investment Company Act of 1940 ("1940
Act"). The Fund pays for such securities only upon physical delivery or evidence
of book entry transfer to the account of a custodian or bank acting as agent.
The seller under a repurchase agreement will be required to maintain the value
of the underlying securities marked to market daily at not less than the
repurchase price. The underlying securities (normally securities of the U.S.

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<PAGE> 61

Government, or its agencies and instrumentalities), may have maturity dates
exceeding one year. The Fund does not bear the risk of a decline in value of the
underlying securities unless the seller defaults under its repurchase
obligation. See "Investment Practices and Restrictions -- Repurchase Agreements"
in the Prospectus for further information.

LOANS OF PORTFOLIO SECURITIES

The Fund may lend portfolio securities to unaffiliated brokers, dealers and
financial institutions provided that cash or U.S. Government securities equal in
value to 100% of the market value of the securities loaned is deposited by the
borrower with the Fund and is marked to market daily. While such securities are
on loan, the borrower is required to pay the Fund any income accruing thereon.
Furthermore, the Fund may invest the cash collateral in portfolio securities
thereby increasing the return to the Fund as well as increasing the market risk
to the Fund. The Fund will not lend its portfolio securities if such loans are
not permitted by the laws or regulations of any state in which its shares are
qualified for sale. However, should the Fund believe that lending securities is
in the best interests of its shareholders, it would consider withdrawing its
shares from sale in any such state.

Loans would be made for short-term purposes and subject to termination by
the Fund in the normal settlement time, currently five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Fund and its shareholders, but any gain can be realized only if the borrower
does not default. The Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan.

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions which cannot be changed
without approval by the holders of a majority of its outstanding shares. Such
majority is defined as the lesser of (i) 67% or more of the voting securities
present at the meeting, if the holders of more than 50% of the outstanding
voting securities of the Fund are present or represented by proxy; or (ii) more
than 50% of the Fund's outstanding voting securities. The percentage limitations
contained in the restrictions and policies set forth herein apply at the time of
purchase of securities. These restrictions provide that the Fund shall not:

1. Engage in the underwriting of securities of other issuers, except that
the Fund may sell an investment position even though it may be deemed to
be an underwriter under the federal securities laws.

2. Purchase any security (other than obligations of the United States
Government, its agencies, or instrumentalities) if more than 25% of its
total assets (taken at current value) would then be invested in a single
industry except that, if the value of debt securities owned by the Fund
with remaining maturities of less than 13 months exceeds 35% of the
value of the Fund's total assets, the Fund will invest at least 25% of
its assets in securities issued by banks. Although this policy is not
applicable to debt securities issued by government or political
subdivisions because such issues are not members of any industry, the
Fund does not intend to invest more than 25% of its total assets in the
debt securities issued or guaranteed by any government (except U.S.
Government, its agencies or instrumentalities).

3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than ten percent of its net assets in
connection with permissible borrowings or purchase additional securities
when money borrowed exceeds five percent of its net assets. Margin
deposits or payments in connection with the writing of options, or in
connection with the purchase or sale of forward contracts, futures,
foreign currency futures and related options, are not deemed to be a
pledge or other encumbrance.

4. Lend money except through the purchase of (i) United States and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit and similar evidences of indebtedness, both
foreign and domestic, and (ii) repurchase agreements; or lend securities
in an amount exceeding 15% of the total assets of the Fund. The purchase
of a portion of an issue of securities described under

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<PAGE> 62

(i) above distributed publicly, whether or not the purchase is made on
the original issuance, is not considered the making of a loan.

5. Buy or sell real estate or interests in real estate including real
estate limited partnerships, provided that the foregoing prohibition
does not apply to a purchase and sale of (i) securities which are
secured by real estate, (ii) securities representing interests in real
estate, and (iii) securities of companies principally engaged in
investing or dealing in real estate, including real estate investment
trusts.

6. Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in options, futures contracts or related options
including foreign currency futures contracts and related options and
forward contracts.

7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts, forward contracts, forward commitments and other investment
strategies and instruments that would be considered "senior securities"
but for the maintenance by the Fund of a segregated account with its
custodian or some other form of "cover."

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Fund is subject to the following policies
which may be amended by the Fund's Board of Directors and which apply at the
time of purchase of portfolio securities.

1. The Fund may not make investments for the purpose of exercising control
or management although the Fund retains the right to vote securities
held by it.

2. The Fund may not make short sales of securities, unless at the time of
the sale it owns or has the right to acquire an equal amount of such
securities; provided that this prohibition does not apply to the
writing of options or the sale of forward contracts, futures, foreign
currency futures or related options.

3. The Fund may not purchase securities on margin but the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities. The deposit or payment by the Fund
of initial or maintenance margin in connection with forward contracts,
futures, foreign currency futures or related options is not considered
the purchase of a security on margin.

4. The Fund may not invest in the securities of other open-end investment
companies, or invest in the securities of closed-end investment
companies except through purchase in the open market in a transaction
involving no commission or profit to a sponsor or dealer (other than
the customary broker's commission) or as part of a merger,
consolidation or other acquisition.

5. The Fund may not invest more than five percent of its net assets in
warrants or rights valued at the lower of cost or market, nor more than
two percent of its net assets in warrants or rights (valued on such
basis) which are not listed on the New York or American Stock
Exchanges. Warrants or rights acquired in units or attached to other
securities are not subject to the foregoing limitation.

6. The Fund may not invest in securities of any company if any officer or
director of the Fund or of the Adviser owns more than one-half of one
percent of the outstanding securities of such company, and such
officers and directors who own more than one-half of one percent own in
the aggregate more than five percent of the outstanding securities of
such issuer.

7. The Fund may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Fund may acquire securities of public companies
which themselves are engaged in such activities.

8. The Fund may not invest more than five percent of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years.

14
<PAGE> 63

9. The Fund may not purchase or otherwise acquire any security if, as a
result, more than fifteen percent of its net assets (taken at current
value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market. This policy includes
repurchase agreements maturing in more than seven days and
over-the-counter options held by the Fund and that portion of assets
used to cover such options. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Board of Directors or the Adviser
under Board approved guidelines, may determine are liquid nor does it
apply to other securities for which, notwithstanding legal or
contractual restrictions on resale, a liquid market exists.

The Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.

In addition to the foregoing restrictions the Fund has made undertakings
with several states. The Fund has undertaken that:

1. It will provide written notification to shareholders of any change in
its investment objective at least 30 days prior to implementing such
change.

2. It will limit its investments in each of real estate investment trusts
and investment companies to 10% of its total assets.

3. It will not purchase the securities of any issuer if, as to 75% of its
total assets at the time of purchase, more than 10% of the voting
securities of any issuer would be held by the Fund.

DIRECTORS AND EXECUTIVE OFFICERS

The Fund's Directors and executive officers and their principal occupations
for the past five years are listed below. All persons named as Directors also
serve in similar capacities for other funds advised by the Adviser as indicated
below.

FERNANDO SISTO, Chairman of the Board and Director. Stevens Institute of
Technology, Castle Point Station, Hoboken, New Jersey 07030-5991. Dean of
Graduate School, George M. Bond Professor and formerly Dean of Graduate School
and Chairman, Department of Mechanical Engineering, Stevens Institute of
Technology; Director, Dynalysis of Princeton (engineering research).(1)

J. MILES BRANAGAN, Director. 2300 205th Street, Torrance, California
90501-1452. Co-Founder, Chairman and President, MDT Corporation (medical
equipment).(1)

RICHARD E. CARUSO, Director. Two Radnor Station, Suite 314, 290 King of
Prussia Road, Radnor, Pennsylvania 19087. Chairman and Chief Executive Officer,
Integra LifeSciences Corporation (biotechnology/life sciences); Trustee,
Susquehanna University; Trustee and First Vice President, The Baum School of Art
(community art school); Founder and Director, Uncommon Individual Foundation
(youth development); Director, International Board of Business Performance
Group, London School of Economics; formerly Director, First Sterling Bank;
formerly Director and Executive Vice President, LFC Financial Corporation
(leasing financing).(1)

ROGER HILSMAN, Director. 251-1 Hamburg Cove, Lyme, Connecticut 06371.
Formerly Professor of Government and International Affairs, Columbia
University.(1)

*DON G. POWELL, President and Director. 2800 Post Oak Blvd., 45th Floor,
Houston, Texas 77056. Chairman, President, Chief Executive Officer and Director
of VK/AC Holding, Inc., VKAC and the Adviser; Chairman, Chief Executive Officer
and Director of the Distributor.(1)(2)(4)

DAVID REES, Director. 1601 Country Club Drive, Glendale, California 91208.
Senior Editor, Los Angeles Business Journal.(1)(3)

15
<PAGE> 64

**LAWRENCE J. SHEEHAN, Director. 1999 Avenue of the Stars, Suite 700, Los
Angeles, California 90067-6035. Of Counsel to and formerly Partner (1969-1994)
of the law firm of O'Melveny & Myers, legal counsel to the Fund.(1)(3)(5)

WILLIAM S. WOODSIDE, Director. 712 Fifth Avenue, 40th Floor, New York, New
York 10019. Vice Chairman of the Board, Sky Chefs, Inc. (airline food catering);
formerly Director, Primerica Corporation (currently known as Travelers);
formerly Chairman of the Board and Chief Executive Officer, old Primerica
Corporation (American Can Company); formerly Director, James River Corporation
(paper products); Trustee and formerly President, Whitney Museum of American
Art; Chairman, Institute for Educational Leadership, Inc., Board of Visitors,
Graduate School of The City University of New York, Academy of Political
Science; Committee for Economic Development; Director, Public Education Fund
Network, Fund for New York City Public Education; Trustee, Barnard College;
Member, Dean's Council, Harvard School of Public Health; Member, Mental Health
Task Force, Carter Center.(1)

NORI L. GABERT, Vice President and Secretary. 2800 Post Oak Blvd., Houston,
Texas 77056. Vice President, Associate General Counsel and Corporate Secretary
of the Adviser.(4)

TANYA M. LODEN, Vice President and Controller. 2800 Post Oak Blvd.,
Houston, Texas 77056. Vice President and Controller of most of the investment
companies advised by the Adviser; formerly Tax Manager/Assistant Controller.(4)

DENNIS J. MCDONNELL, Vice President. One Parkview Plaza, Oakbrook Terrace,
IL 60181. Director of VK/AC Holding, Inc. and Van Kampen American Capital, Inc.,
President, Chief Operating Officer and Director of Van Kampen American Capital
Investment Advisory Corp.; and Director of McCarthy, Crisanti & Maffei, Inc.(4)

CURTIS W. MORELL, Vice President and Treasurer. 2800 Post Oak Blvd.,
Houston, Texas 77056. Vice President and Treasurer of most of the investment
companies advised by the Adviser.(4)

RONALD A. NYBERG, Vice President. One Parkview Plaza, Oakbrook Terrace, IL
60181. Executive Vice President, General Counsel and Secretary of VK/AC Holding,
Inc., Vice President of ACCESS Investor Services, Inc. and Van Kampen American
Capital Services, Inc., Vice President, General Counsel and Assistant Secretary
of Van Kampen American Capital Investment Advisory Corp., Senior Vice President
and General Counsel of the Adviser, Executive Vice President and General Counsel
and Director of VKAC Distributors, Inc.(4)

JEFF D. NEW, Vice President. 2800 Post Oak Blvd., Houston, Texas 77056. Mr.
New also serves as Vice President of American Capital Enterprise Fund, Inc. and
the American Capital Global Equity Fund of American Capital World Portfolio
Series, Inc.; formerly Associate Portfolio Manager of the Adviser; formerly
securities analyst with Texas Commerce Investment Management Company.(4)

ROBERT C. PECK, JR., Vice President. 2800 Post Oak Blvd., Houston, Texas
77056. Senior Vice President -- Chief Investment Officer/Fixed Income and
Director of the Adviser; Executive Vice President and Director, VKAC.(4)

JOHN R. REYNOLDSON, Vice President. 2800 Post Oak Boulevard, Houston, Texas
77056. Senior Investment Vice President of the Adviser; Mr. Reynoldson also
serves as Vice President of American Capital Government Securities, Inc.,
Portfolio '97 of American Capital Government Target Series, Government Portfolio
of American Capital Life Investment Trust, and Common Sense Trust -- Common
Sense Government Fund and Common Sense II Government Fund.(4)

ALAN T. SACHTLEBEN, Vice President. 2800 Post Oak Blvd., Houston, Texas
77056. Senior Vice President-Chief Investment Officer/Equity and Director of the
Adviser; Executive Vice President and Director, VKAC.(4)

J. DAVID WISE, Vice President and Assistant Secretary. 2800 Post Oak Blvd.,
Houston, Texas 77056. Vice President, Associate General Counsel, Compliance
Review Officer and Assistant Corporate Secretary of the Adviser.(4)

16
<PAGE> 65

PAUL R. WOLKENBERG, Vice President, 2800 Post Oak Blvd., Houston, Texas
77056. Executive Vice President and Director of VKAC; Senior Vice President of
the Adviser; President, Chief Operating Officer and Director of Van Kampen
American Capital Services, Inc.; Executive Vice President, Chief Operating
Officer and Director of Van Kampen American Capital Trust Company and the
Distributor; Executive Vice President and Director of ACCESS.(4)

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

* Director who is an interested person of the Adviser and of the Fund within
the meaning of the 1940 Act, by virtue of his affiliation with the Adviser.

** Director who is an interested person of the Fund and may be an interested
person of the Adviser within the meaning of the 1940 Act by virtue of his
affiliation with legal counsel of the Fund.

(1) A director or trustee 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 Government Target Series, American
Capital Growth and Income Fund, Inc., American Capital Harbor Fund, Inc.,
American Capital High Yield Investments, Inc., American Capital Life
Investment Trust, American Capital Municipal Bond Fund, Inc., American
Capital Pace Fund, Inc., American Capital Real Estate Securities Fund,
Inc., American Capital Reserve Fund, Inc., American Capital Small
Capitalization 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.

(2) A director/trustee/managing general partner of American Capital Bond Fund,
Inc., American Capital Convertible Securities, Inc., American Capital
Exchange Fund and American Capital Income Trust, investment companies
advised by the Adviser, and a Trustee of Common Sense Trust, an open-end
investment company for which the Adviser serves as adviser for nine of the
portfolios.

(3) A director of Source Capital, Inc., a closed-end investment company not
advised by the Adviser.

(4) An officer and/or Director/Trustee of other investment companies advised or
subadvised by the Adviser.

(5) A director of FPA Capital Fund, Inc., FPA New Income, Inc. and FPA Perennial
Fund, Inc., investment companies not advised by the Adviser, and TCW
Convertible Securities Fund, Inc., a closed end investment company not
advised by the Adviser.

The Executive Committee, consisting of Messrs. Hilsman, Powell, Sheehan and
Sisto, may act for the Board of Directors between Board meetings except where
board action is required by law.

The Directors and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. During the fiscal year ending December
31, 1994, Directors who were not affiliated with the Adviser or its parent
received as a group $2,590 in Directors' fees from the Fund, in addition to
certain out-of-pocket expenses. Such Directors also received compensation for
serving as directors of other investment companies advised by the Adviser as
identified in the notes to the foregoing table. For legal services rendered
during the fiscal year ended December 31, 1994, the Fund paid legal fees of
$3,000 to the law firm of O'Melveny & Myers, of which Mr. Sheehan is Of Counsel.
The firm also serves as legal counsel to the American Capital Funds listed in
Footnote 1 above.

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<PAGE> 66

Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Directors serve as directors or trustees
noted in Footnote 1 above is set forth below. The compensation shown for the
Fund and the total compensation shown for the Fund and other related mutual
funds for the year ended December 31, 1994, is set forth below. Mr. Powell is
not compensated for his service as Director because of his affiliation with the
Adviser.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANTS
AGGREGATE BENEFITS ACCRUED AND FUND
COMPENSATION AS PART OF FUND COMPLEX PAID TO
NAME OF PERSONS FROM REGISTRANT EXPENSES DIRECTORS(1)(5)
--------------------------------------- --------------- ---------------- -----------------
<S> <C> <C> <C>
J. Miles Branagan...................... $ 800 -0- $64,000
Dr. Richard E. Caruso(2)............... $ 780 -0- 64,000
Dr. Roger Hilsman...................... $ 820 -0- 66,000
David Rees............................. $ 800 -0- 64,000
Lawrence J. Sheehan.................... $ 820 -0- 67,000
Dr. Fernando Sisto(2)(4)............... $ 890 -0- 82,000
William S. Woodside(3)................. $ 300 -0- 54,000
</TABLE>

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

(1) Represents 29 investment company portfolios in the fund complex.

(2) Amount reflects deferred compensation of $780 for Mr. Caruso.

(3) Prior to October 6, 1994, Mr. Woodside's compensation was paid by
the registrant's adviser. As a result, of the amount reflected in
the fourth column, $17,000 was paid by the registrant.

(4) Mr. Caruso has deferred compensation in the past. The cumulative
deferred compensation accrued by the Fund as of December 31, 1994
for Mr. Caruso is $803.

(5) Includes the following amounts for which the various Portfolios were
reimbursed by the Adviser -- Branagan, $2,000; Caruso, $2,000;
Hilsman, $1,000; Rees, $2,000; Sheehan, $2,000; Sisto, $2,000;
Woodside, $1,000 (Mr. Woodside was paid $36,000 directly by the
Adviser as discussed in Footnote 3 above).

INVESTMENT ADVISORY AGREEMENTS

The Fund and the Adviser are parties to an investment advisory agreement,
dated December 20, 1994 (the "Advisory Agreement"). Under the Advisory
Agreement, 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. The
Adviser is responsible for obtaining and evaluating economic, statistical, and
financial data and for formulating and implementing investment programs in
furtherance of the Fund's investment objectives. The Adviser also furnishes at
no cost to the Fund (except as noted herein) the services of sufficient
executive and clerical personnel for the Fund as are necessary to prepare
registration statements, prospectuses, shareholder reports, and notices and
proxy solicitation materials. In addition, the Adviser furnishes at no cost to
the Fund the services of a President of the Fund, one or more Vice Presidents as
needed, and a Secretary.

The Adviser has entered into a subadvisory agreement dated December 20,
1994 (the "Sub-advisory Agreement"), with the Subadviser to assist it in
performing its investment advisory functions. The Subadviser will be primarily
responsible for recommending the allocation of investments among various
international markets and currencies; recommendation and selection of particular
securities in the international markets; and placement of portfolio transactions
in the foreign markets. For its services, the Subadviser receives from the
Adviser a fee at the annual rate of 50% of the compensation received by the
Adviser. The Adviser and Subadviser are hereinafter sometimes referred to as the
"Advisers."

Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of a Treasurer or other principal
financial

18
<PAGE> 67

officer and the personnel operating under his direction. Charges are allocated
among the investment companies advised or subadvised by the Adviser. A portion
of these amounts were paid to the Adviser or its parent in reimbursement of
personnel, office space, facilities and equipment costs attributable to the
provision of accounting services to the Fund. The services provided by the
Adviser are at cost. The Fund also pays shareholder service agency fees,
distribution fees, service fees, custodian fees, legal and auditing fees, the
costs of reports to shareholders and all other ordinary expenses not
specifically assumed by the Adviser. The Advisory Agreement also provides that
the Adviser shall not be liable to the company for any actions or omissions if
it acted without willful misfeasance, bad faith, negligence or reckless
disregard of its obligations.

Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at an annual
rate of 1.00% of the average daily net assets of the Fund.

The average net asset value for purposes of computing the advisory fee is
determined by taking the average of all of the determinations of net asset value
for each business day during a given calendar month. Such fee is payable for
each calendar month as soon as practicable after the end of that month. The fee
payable to the Adviser is reduced by any commissions, tender solicitation and
other fees, brokerage or similar payments received by the Adviser or any direct
or indirect majority owned subsidiary of VK/AC Holding, Inc., in connection with
the purchase and sale of portfolio investments of the Fund, less any direct
expenses incurred by such subsidiary of VK/AC Holding, Inc. in connection with
obtaining such payments. The Adviser agrees to use its best efforts to recapture
tender solicitation fees and exchange offer fees for the Fund's benefit, and to
advise the Board of Directors of the Fund of any other commissions, fees,
brokerage or similar payments which may be possible under applicable laws for
the Adviser or any direct or indirect majority owned subsidiary of VK/AC
Holding, Inc. to receive in connection with the Fund's portfolio transactions or
other arrangements which may benefit the Fund.

The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitations applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses include the investment advisory fee and other operating costs
paid by the Fund except (1) interest and taxes, (2) brokerage commissions, (3)
certain litigation and indemnification expenses as described in the Advisory
Agreement and (4) payments made by the Fund pursuant to the Distribution Plans.

Currently, the most restrictive applicable limitations are 2 1/2% of the
first $30 million, 2% of the next $70 million, and 1 1/2% of the remaining
average net assets.

During the fiscal year ended December 31, 1994, the Adviser received
$101,680 in advisory fees from the Fund. For such period the Fund paid $-0- for
accounting services. A substantial portion of these amounts was paid to the
Adviser in reimbursement of personnel, facilities and equipment costs
attributable to the provision of accounting services to the Fund.

The Advisory Agreement has an initial term of two years and thereafter may
be continued from year to year if specifically approved at least annually (a)(i)
by the Fund's Board of Directors or (ii) by vote of a majority of the Fund's
outstanding voting securities and (b) by the affirmative vote of a majority of
the Directors who are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement provides that it shall terminate automatically if assigned
and that it may be terminated without penalty by either party on not more than
60 days' nor less than 30 days' written notice.

Pursuant to the Advisory Agreement and the Sub-advisory Agreement, the Fund
has agreed to indemnify the Adviser and the Adviser has agreed to indemnify the
Subadviser, respectively, against any taxes imposed by the United Kingdom on the
Fund for its investment related activities as contemplated in each Agreement.
Neither the Adviser nor the Subadviser may be indemnified, however, with respect
to any liabilities incurred

19
<PAGE> 68

by such party's willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Agreements or to the Fund.

DISTRIBUTOR

The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement, dated December 20, 1994 (the "Underwriting
Agreement"). The Distributor has the exclusive right to distribute shares of the
Fund through affiliated and unaffiliated dealers. The Distributor's obligation
is an agency or "best efforts" arrangement under which the Distributor is
required to take and pay for only such shares of the Fund as may be sold to the
public. The Distributor is not obligated to sell any stated number of shares.
The Underwriting Agreement is renewable from year to year if approved (a) by the
Fund's Board of Directors or by a vote of a majority of the Fund's outstanding
voting securities and (b) by the affirmative vote of a majority of Directors who
are not parties to the Underwriting Agreement or interested persons of any
party, by votes cast in person at a meeting called for such purpose. The
Underwriting Agreement provides that it will terminate if assigned, and that it
may be terminated without penalty by either party on 60 days' written notice.
Advantage Capital Corporation is an affiliated dealer of the Distributor.

For the fiscal year ending December 31, 1994, total underwriting
commissions on the sale of shares of the Fund were $37,929. Of such total, the
amount retained by the Distributor was $6,209 and the remainder was reallowed to
dealers. Of such dealer reallowance, $5,860 was received by Advantage Capital
Corporation.

DISTRIBUTION PLANS

The Fund adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan," "Class B Plan" and "Class C
Plan," respectively) to permit the Fund directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").

The Directors have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and Class C
Plans, authorized payments by the Fund include payments at an annual rate of up
to 0.25% of the net assets of the shares of the respective class to reimburse
the Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to four percent of the purchase price of Class B
shares purchased by the clients of broker-dealers and other Service
Organizations, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals and (5) advertising and promotion expenses, including conducting
and organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses. With respect to the Class C Plan, authorized payments
by the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class C shares to reimburse the Distributor for (1) 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 paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature,

20
<PAGE> 69

(4) expenses for promotional incentives to broker-dealers and financial and
industry professionals, and (5) advertising and promotion expenses, including
conducting and organizing sales seminars, marketing support salaries and
bonuses, and travel-related expenses. Such reimbursements are subject to the
maximum sales charge limits specified by the National Association of Securities
Dealers, Inc.

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. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.

As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreement were approved by the Directors, including a majority of the
Directors who are not affiliated persons (as defined in the 1940 Act) of the
Fund and who have no direct or indirect financial interest in the operation of
either Plan or in any agreements related to the Plan ("Independent Directors").
In approving each Plan in accordance with the requirements of Rule 12b-1, the
Directors determined that there is a reasonable likelihood that each Plan will
benefit the Fund and its shareholders.

Each Plan requires the Distributor to provide the Directors at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with their terms, the Plans will continue in effect for a period
of one year and thereafter will continue in effect so long as such continuance
is specifically approved at least annually by the Directors, including a
majority of Independent Directors.

Each Plan may be terminated by vote of a majority of the Independent
Directors, or by vote of a majority of the outstanding voting shares of the
respective class. Any change in any of the Plans that would materially increase
the distribution or service expenses borne by the Fund requires shareholder
approval voting separately by class; otherwise, it may be amended by a majority
of the Directors, including a majority of the Independent Directors, by vote
cast in person at a meeting called for the purpose of voting upon such
amendment. So long as the Plans are in effect, the selection or nomination of
the Independent Directors is committed to the discretion of the Independent
Directors.

For the fiscal year ended December 31, 1994, aggregate expenses under the
Class A Plan were $2,368 or % of the Class A share's average daily net
assets. Such expenses were paid to reimburse the Distributor for payments made
to Service Organizations for servicing Fund shareholders and administering the
Class A Plan.

For the fiscal year ended December 31, 1994, the Fund's aggregate expenses
under the Class B Plan were $27,118 or .59% of the Class B share's average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: (1) $20,338 for commissions and transaction fees paid to
broker-dealers and other Service Organizations in respect of sales of Class B
shares of the Fund, and (2) $6,780 for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.

For the fiscal year ended December 31, 1994, the Fund's aggregate expenses
under the Class C Plan were $3,128 or .33% of the Class C share's average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: (1) $2,346 for commissions and transaction fees paid to
broker-dealers and other Service Organizations in respect of sales of Class C
shares of the Fund, and (2) $782 for fees paid to Service Organizations for
servicing Class C shareholders and administering the Class C Plan.

TRANSFER AGENT

During the fiscal year ended December 31, 1994, ACCESS, shareholder service
agent and dividend disbursing agent for the Fund, received fees aggregating
$-0-. These services are provided at cost plus a profit.

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<PAGE> 70

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The Fund's portfolio turnover rate for prior
years is shown under "Financial Highlights" in the Prospectus. The annual
turnover rate is expected to exceed 100%, which is higher than that of many
other investment companies. A 100% turnover rate would occur if all the Fund's
portfolio securities were replaced during one year.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisers are responsible for decisions to buy and sell securities for
the Fund and for the placement of its portfolio business and the negotiation of
the commissions paid on such transactions. It is the policy of the Advisers to
seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described below)
on a portion of its transactions executed on securities exchanges, the Advisers
seek the best security price at the most favorable commission rate. In selecting
broker-dealers and in negotiating commissions, the Advisers consider the firm's
reliability, the quality of its execution services on a continuing basis and its
financial condition. When more than one firm is believed to meet these criteria,
preference may be given to firms which also provide research services to the
Fund or the Advisers. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking best execution
and such other policies as the Board of Directors may determine, the Advisers
may consider sales of shares of the Fund and of the other American Capital
mutual funds as a factor in the selection of firms to execute portfolio
transactions for the Fund.

Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).

Pursuant to provisions of the Advisory Agreement and the Sub-advisory
Agreement, the Fund's Board of Directors has authorized the Advisers to cause
the Fund to incur brokerage commissions in an amount higher than the lowest
available rate in return for research services provided to the Advisers. The
Advisers are of the opinion that the continued receipt of supplemental
investment research services from dealers is essential to its provision of high
quality portfolio management services to the Fund. The Advisers undertake that
such higher commissions will not be paid by the Fund unless (a) the Advisers
determine in good faith that the amount is reasonable in relation to the
services in terms of the particular transaction or in terms of the Advisers'
overall responsibilities with respect to the accounts as to which they exercise
investment discretion, (b) such payment is made in compliance with the
provisions of Section 28(e) and other applicable state and federal laws, and (c)
in the opinion of the Advisers, the total commissions paid by the Fund are
reasonable in relation to the expected benefits to the Fund over the long term.
The investment advisory fee paid by the Fund under the Advisory Agreement is not
reduced as a result of the Advisers' receipt of research services.

The Advisers place portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Advisers in servicing all of its accounts; not all of such services may be used
by the Advisers in connection with the Fund. In the opinion of the Advisers, the
benefits from research services to each of the accounts (including the Fund)
managed by the Advisers cannot be measured separately. Because

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<PAGE> 71

the volume and nature of the trading activities of the accounts are not uniform,
the amount of commissions in excess of the lowest available rate paid by each
account for brokerage and research services will vary. However, in the opinion
of the Advisers, such costs to the Fund will not be disproportionate to the
benefits received by the Fund on a continuing basis.

The Advisers seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Advisers are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.

During the period May 16, 1994 through December 31, 1994, the Fund paid
$66,428 in brokerage commissions on portfolio transactions. During that same
period, the Fund paid approximately $9,276 in brokerage commissions on
transactions totalling approximately $3,510,276.07 to brokers selected primarily
on the basis of research services provided to the Adviser.

Prior to December 20, 1994, the Fund placed brokerage transactions with
brokers that were considered affiliated persons of the Adviser's former parent,
The Travelers Inc. Such affiliated persons included Smith Barney, Inc. Effective
December 20, 1994, Smith Barney, Inc. ceased to be an affiliate of the Adviser.
The Fund paid Smith Barney, Inc. $192 in commissions, representing 0.29% of
transactions with affiliates to total commissions and 0.28% of value of
brokerage transactions with affiliates to total brokerage transactions.

The Advisers' brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Fund Directors who are not affiliated
persons (as defined in the 1940 Act) of the Advisers.

DETERMINATION OF NET ASSET VALUE

The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m. New York time) on each
business day on which the Exchange is open. The Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the Exchange is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place on all business days in Japanese markets
on certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Fund's net asset value is not
calculated and on which the Fund does not effect sales, redemptions and
repurchases of its shares. There may be significant variations in the net asset
value of Fund shares on days when net asset value is not calculated and on which
shareholders cannot redeem on account of changes in prices of stocks traded in
foreign stock markets.

The Fund calculates net asset value per share, and therefore effects sales,
redemptions and repurchases of its shares, as of the close of the Exchange once
on each day on which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the Board
of Directors.

The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the SEC.

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<PAGE> 72

PURCHASE AND REDEMPTION OF SHARES

The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."

PURCHASE OF SHARES

Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized dealers, including Advantage Capital
Corporation.

MULTIPLE PRICING SYSTEM

The Fund offers three classes of shares: Class A shares are subject to an
initial sales charge; Class B shares and Class C shares are sold at net asset
value and are subject to a contingent deferred sales charge. The three classes
of shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B and Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)
resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.

During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the Securities Act of 1933.

INVESTMENTS BY MAIL

A shareholder investment account may be opened by completing the
application included in this prospectus and forwarding the application, through
the designated dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by the
shareholder service agent. The minimum initial investment of $500 or more, in
the form of a check payable to the Fund, must accompany the application. This
minimum may be waived by the Distributor for plans involving continuing
investments. Subsequent investments of $25 or more may be mailed directly to
ACCESS. All such investments are made at the public offering price of Fund
shares next computed following receipt of payment by ACCESS. Confirmations of
the opening of an account and of all subsequent transactions in the account are
forwarded by ACCESS to the investor's dealer of record, unless another dealer is
designated.

In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.

CUMULATIVE PURCHASE DISCOUNT

The reduced sales charges reflected in the sales charge table as shown in
the Prospectus under "Purchase of Shares -- Sales Charge Table" apply to
purchases of Class A shares of the Fund where the aggregate investment is
$50,000 or more. For purposes of determining eligibility for volume discounts,
spouses and their minor children are treated as a single purchaser, as is a
trustee or other fiduciary purchasing for a single fiduciary account. An
aggregate investment includes all shares of the Fund and all shares of certain
other participating American Capital mutual funds described in the Prospectus
(the "Participating Funds") which have been previously purchased and are still
owned, plus the shares being purchased. The current offering price is used to
determine the value of all such shares. If, for example, an investor has
previously purchased and still holds Class A shares of the Fund and shares of
other Participating Funds having a current offering price of $40,000, and that
person purchases $65,000 of additional Class A shares of the Fund, the charge
applicable to the $65,000 purchase would be four percent of the offering price.
The same reduction is applicable to purchases under a Letter of Intent as
described in the next paragraph. THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE
TIME AN ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED
CHARGE ON THE

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<PAGE> 73

BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN WRITING WHEN
SUCH AN ORDER IS PLACED BY MAIL. The reduced sales charge will not be applied if
such notification is not furnished at the time of the order. The reduced sales
charge will also not be applied should a review of the records of the
Distributor or ACCESS fail to confirm the representations concerning the
investor's holdings.

LETTER OF INTENT

Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount," made pursuant to the Letter of Intent and
the value of all shares of such Participating Funds previously purchased and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal as if it were a single investment. Escrowed
shares totaling five percent of the dollar amount of the Letter of Intent are
held by ACCESS in the name of the shareholder. The effective date of a Letter of
Intent may be back-dated up to 90 days in order that any investments made during
this 90-day period, valued at the investor's cost, can become subject to the
Letter of Intent. The Letter of Intent does not obligate the investor to
purchase the indicated amount. In the event the Letter of Intent goal is not
achieved within the 13-month period, the investor is required to pay the
difference between sales charges otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding the investor in shares of the Fund the amount of excess sales
charges, if any, paid during the 13-month period.

VOLUME DISCOUNTS

The schedule of volume discounts in the Prospectus applies to purchases of
shares made at one time by any purchaser, which term includes (1) an
individual -- or an individual, his or her spouse and children under the age of
21 -- purchasing securities for his or her or their own account; (2) a trustee
or other fiduciary of a single trust estate or a single fiduciary account
(including a pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code (the
"Code")), although more than one beneficiary is involved; and (3) tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the Code.

CONTINGENT DEFERRED SALES CHARGE -- CLASS A

For certain full service participant directed profit sharing and money
purchase plans and qualified 401(K) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), the front-end sales charge will be waived and a contingent deferred
sales charge ("CDSC -- Class A") of one percent is imposed in the event of
certain redemptions within one year of the purchase. If a CDSC -- Class A is
imposed upon redemption, the amount of the CDSC -- Class A will be equal to the
lesser of a specified percentage of the net asset value of the shares at the
time of purchase, or one percent of the net asset value of the shares at the
time of redemption.

The CDSC -- Class A will only be imposed if a Qualified Purchaser redeems
an amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one year period prior to the redemption. The
CDSC -- Class A will be waived in connection with redemptions by certain
Qualified Purchasers (e.g., retirement plans qualified under Section 401(a) of
the Code and deferred compensation plans under Section 457 of the Code) required
to obtain funds to pay distributions to beneficiaries pursuant to the terms of
the plans. Such payments include, but are not limited to, death, disability,
retirement, or separation from service. No CDSC -- Class A will be imposed on
exchanges between funds. For purposes of the CDSC -- Class A, when shares of one
fund are exchanged for shares of another fund, the purchase date for the shares
of the fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an

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<PAGE> 74

exchange, the purchase date is assumed to carry over from the date of the
original election to purchase shares subject to a CDSC -- Class A rather than a
front-end load sales charge. In determining whether a CDSC -- Class A is
payable, it is assumed that shares held the longest are the first to be
redeemed.

Cumulative Purchase Discounts and Letters of Intent will apply to the net
asset value privilege. Also, in order to establish an amount of $1,000,000 or
more, a Qualified Purchaser may aggregate shares of American Capital Reserve
Fund, Inc. with shares of certain other participating American Capital mutual
funds described as "Participating Funds" in the Prospectus.

As described in the Prospectus under "Redemption of Shares," redemption of
Class B and Class C shares will be subject to a contingent deferred sales
charge.

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")

The CDSC -- Class B and C is waived on redemptions of Class B and Class C
shares in the circumstances described below:

(a) Redemption Upon Disability or Death

The Fund will waive the CDSC -- Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. An individual will be
considered disabled for this purpose if he or she meets the definition thereof
in Section 72(m)(7) of the Code, which in pertinent part defines a person as
disabled if such person "is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long-continued and indefinite
duration." While the Fund does not specifically adopt the balance of the Code's
definition which pertains to furnishing the Secretary of Treasury with such
proof as he or she may require, the Distributor will require satisfactory proof
of death or disability before it determines to waive the CDSC -- Class B and C.

In cases of disability or death, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.

(b) Redemption in Connection with Certain Distributions from Retirement
Plans

The Fund will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of American Capital
funds; in such event, as described below, the Fund will "tack" the period for
which the original shares were held onto the holding period of the shares
acquired in the transfer or rollover for purposes of determining what, if any,
CDSC -- Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or disability
of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition,
the charge will be waived on any minimum distribution required to be distributed
in accordance with Code Section 401(a)(9).

The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.

The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and C
upon such involuntary redemption.

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<PAGE> 75

(d) Redemption Pursuant to a Fund's Systematic Withdrawal Plan

A shareholder may elect to participate in a systematic withdrawal plan (the
"Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC -- Class B and C will be waived on
redemptions made under the Plan.

The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.

(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption

A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC -- Class C paid on the redeemed shares,
any portion or all of his or her redemption proceeds (plus that amount necessary
to acquire a fractional share to round off his or her purchase to the nearest
full share) in Class C shares of the Fund, provided that the reinvestment is
effected within 120 days after such redemption and the shareholder has not
previously exercised this reinvestment privilege with respect to Class C shares
of the Fund. Shares acquired in this manner will be deemed to have the original
cost and purchase date of the redeemed shares for purposes of applying the
CDSC -- Class C to subsequent redemptions.

(f) Redemption by Adviser

The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.

REDEMPTION OF SHARES

Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.

The Fund may amend the signature guarantee procedures set forth in the
Prospectus under "Redemption of Shares" if a viable signature guarantee program
is established.

EXCHANGE PRIVILEGE

The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:

By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. 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

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<PAGE> 76

and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed.

For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.

Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES

The Fund's policy is to distribute substantially all of its taxable net
investment income at least quarterly to shareholders of Class A, Class B and
Class C shares. 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 transfer agency fees applicable to the Class B and
Class C shares. The Fund intends similarly to distribute to shareholders any
taxable net realized capital gains. Taxable net realized capital gains are the
excess, if any, of the Fund's 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 the tax laws. Such capital
gains, if any, are distributed at least once a year. All income dividends and
capital gains distributions are reinvested in shares of the Fund at net asset
value without sales charge on the record date, except that any shareholder may
otherwise instruct the shareholder service agent in writing and receive cash.
Shareholders are informed as to the sources of distributions at the time of
payment.

The Fund has elected to be taxed as a regulated investment company under
Sections 851-855 of the Code. This means the Fund must pay all or substantially
all its taxable net investment income and taxable net realized capital gains to
shareholders and meet certain diversification and other requirements. By
qualifying as a regulated investment company, the Fund is not subject to federal
income taxes to the extent it distributes its taxable net investment income and
taxable net realized capital gains. If for any taxable year the Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of its taxable income, including any net realized capital gains, would be
subject to tax at regular corporate rates (without any deduction for
distributions to shareholders).

The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders during any calendar year at least 98% of its
ordinary net investment income for the twelve months ended December 31, plus 98%
of its capital gains net income for the twelve months ended October 31 of such
calendar year. The Fund intends to distribute sufficient amounts to avoid
liability for the excise tax.

Dividends from net investment income and distributions from any short-term
capital gains are taxable to shareholders as ordinary income. A portion of
dividends taxable as ordinary income qualify for the 70% dividends received
deduction for corporations. To qualify for the dividends received deduction, a
corporate shareholder must hold the shares on which the dividend is paid for
more than 45 days.

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<PAGE> 77

Dividends and distributions declared payable to shareholders of record
after September 30th of any year and paid before February 1st of the following
year are considered taxable income to shareholders on the record date even
though paid in the next year.

Distributions from long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held Fund
shares. Such dividends and distributions from short-term capital gains are not
eligible for the dividends received deduction referred to above. Any loss on the
sale of Fund shares held for less than six months is treated as a long-term
capital loss to the extent of any long-term capital gain distribution paid on
such shares, subject to any exception that may be provided by IRS regulations
for losses incurred under certain systematic withdrawal plans. All dividends and
distributions are taxable to the shareholder whether or not reinvested in
shares. Shareholders are notified annually by the Fund as to the federal tax
status of dividends and distributions paid by the Fund unless such amount is
less than $10.00, in which case no notice is provided.

If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized on
the basis of the subsequent shares.

Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident shareholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.

Dividends and capital gains distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.

The Fund may qualify and may make an election permitted under Section 853
of the Code so that shareholders will be able to claim a credit or deduction on
their income tax returns for, and will be required to treat as part of the
amounts distributed to them, their pro rata portion of qualified taxes paid by
the Fund to foreign countries (which taxes relate primarily to investment
income). The shareholders of the Fund may claim a foreign tax credit by reason
of the Fund's election under Section 853 of the Code subject to the certain
limitations imposed by Section 904 of the Code. Also under Section 63 of the
Code, no deduction for foreign taxes may be claimed by shareholders who do not
itemize deductions on their Federal income tax returns, although any such
shareholder may claim a credit for foreign taxes and in any event will be
treated as having taxable income in respect to the shareholder's pro rata share
of foreign taxes paid by the Fund. It should also be noted that a tax-exempt
shareholder, like other shareholders, will be required to treat as part of the
amounts distributed to it a pro rata portion of the income taxes paid by the
Fund to foreign countries. However, that income will generally be exempt from
United States taxation by virtue of such shareholder's tax-exempt status and
such a shareholder will not be entitled to either a tax credit or a deduction
with respect to such income.

BACK-UP WITHHOLDING

The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and that he is not subject to withholding. (An

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<PAGE> 78

individual's taxpayer identification number is his social security number.) The
31% "back-up withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

The Code includes special rules applicable to listed options (excluding
equity options as defined in the Code), futures contracts, and options on
futures contracts which the Fund may write, purchase or sell. Such options and
contracts are classified as Section 1256 contracts under the Code. The character
of gain or loss resulting from the sale, disposition, closing out, expiration or
other terminations of Section 1256 contracts is generally treated as long-term
capital gain or loss to the extent of 60% thereof and short-term capital gain or
loss to the extent of 40% thereof ("60/40 gain or loss"). Such contracts, when
held by the Fund at the end of a fiscal year, generally are required to be
treated as sold at market value on the last day of such fiscal year for federal
income tax purposes ("marked-to-market"). Over-the-counter options are not
classified as Section 1256 contracts and are not subject to the mark-to-market
rule or to 60/40 gain or loss treatment. Any gains or losses recognized by the
Fund from transactions in over-the-counter options generally constitute
short-term capital gains or losses. If over-the-counter call options written, or
over-the-counter put options purchased, by the Fund are exercised, the gain or
loss realized on the sale of the underlying securities may be either short-term
or long-term, depending on the holding period of the securities. In determining
the amount of gain or loss, the sales proceeds are reduced by the premium paid
for over-the-counter puts or increased by the premium received for
over-the-counter calls.

Certain of the Fund's transactions in options, futures contracts, and
options on futures contracts, particularly its hedging transactions, may
constitute "straddles" which are defined in the Code as offsetting positions
with respect to personal property. A straddle in which at least one (but not
all) of the positions are Section 1256 contracts is a "mixed straddle" under the
Code if certain identification requirements are met.

The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period and (iii) "short sale" rules which may terminate the holding
period of securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.

The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.

PRIOR PERFORMANCE INFORMATION

The Fund's aggregate total return for Class A shares of the Fund for the
period May 16, 1994 through December 31, 1994 was -7.27%. The Fund's aggregate
total return for Class B shares of the Fund for the same period was -5.97%. The
Fund's aggregate total return for Class C shares for the same period was -2.74%.
These results are based on historical earnings and asset value fluctuations and
are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objectives and policies as well as
the risks incurred in the Fund's investment practices. Future results will be
affected by changes in the general level of prices of securities available for
purchase and sale by the Fund.

From time to time VKAC will announce the results of its monthly polls of
U.S. investor intentions -- the Van Kampen American Capital Index of Investor
Intentions and the Van Kampen American Capital Mutual Fund Index -- which polls
measure how Americans plan to use their money.

From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors, and may refer to the
Missouri

30
<PAGE> 79

Quality Award received by ACCESS, the Fund's transfer agent, in 1993. In
addition, the Adviser may also refer to the Houston Awards for Quality received
by American Capital in 1994.

The Funds may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Funds.

OTHER INFORMATION

CUSTODY OF ASSETS -- State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 serves as Custodian for the Fund. It is also
anticipated that foreign sub-custodians will be used for certain of the Fund's
investments in foreign securities. Any such sub-custodian shall be utilized
pursuant to an agreement between the Custodian and the foreign sub-custodian
that has been approved by the Directors pursuant to Rule 17-5 under the 1940
Act. The Custodian and sub-custodians generally domestically, and frequently
abroad, do not actually hold certificates for the securities in their custody,
but instead have book records with domestic and foreign securities depositories,
which in turn have book records with the transfer agents of the issuers of the
securities.

SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.

INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, perform annual audits of the
Fund's financial statements.

FINANCIAL STATEMENTS

Financial statements, including Investment Portfolio, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets, Notes
to Financial Statements, Financial Highlights and Report of Independent
Accountants on such financial statements, are hereby incorporated by reference
to the Fund's Annual Report to shareholders for the period ended December 31,
1994, previously filed with the SEC on or about March 13, 1995. The Fund will
furnish, without charge, a copy of such Annual Report on request by calling or
writing the Fund at 2800 Post Oak Boulevard, Houston, Texas 77056, (800)
421-5666.

The following information is not included in the Annual Report. This example
assumes a purchase of Class A shares of the Fund aggregating less than $100,000
subject to the schedule of sales charges set forth in the Prospectus at a price
based upon the net asset value of Class A shares of the Fund.

<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
<S> <C>
Net Asset Value per Class A Share $9.19
Class A Per Share Sales Charge -- 4.75% of offering price
(4.99% of net asset value per share) $ .46
------
Class A Per Share Offering Price to the Public $9.65
</TABLE>

31
<PAGE> 80

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements

<TABLE>
<CAPTION>
INCLUDED IN
PART B
-----------
<S> <C>
Investment Portfolio
December 31, 1994 *

Statement of Assets and Liabilities
As of December 31, 1994 *

Statement of Operations
For the period May 16, 1994 through December 31, 1994 *

Statement of Changes in Net Assets
For the period May 16, 1994 through December 31, 1994 *

Notes to Financial Statements *

Financial Highlights *

Report of Independent Accountants *
</TABLE>

The Statement of Sources of Net Assets and Schedules II and III are omitted
because the required information is included in the financial statements filed
herewith, or because the conditions requiring their filing do not exist.

(b) Exhibits

<TABLE>
<S> <C>
1 -- Articles of Amendment and Restatement dated May 10, 1994 incorporated
by reference (Exhibit 1 to Form N-1A of Registrant, Registration No.
33-74024, Post- Effective Amendment No. 2, filed October 28, 1994).

2 -- Bylaws as amended March 3, 1995.

3 -- Inapplicable.

4.1 -- Specimen Stock Certificate (Class A shares), incorporated by
reference (Exhibit 4.1 to Form N-1A of Registrant, Registration No.
33-74024, Post-Effective Amendment No. 2, filed October 28, 1994).

4.2 -- Specimen Stock Certificate (Class B shares), incorporated by
reference (Exhibit 4.2 to Form N-1A of Registrant, Registration No.
33-74024, Post-Effective Amendment No. 2, filed October 28, 1994).

4.3 -- Specimen Stock Certificate (Class C shares), incorporated by
reference (Exhibit 4.3 to Form N-1A of Registrant, Registration No.
33-74024, Post-Effective Amendment No. 2, filed October 28, 1994).

5.1 -- Investment Advisory Agreement between Registrant and American Capital
Asset Management, Inc. dated December 20, 1994.

5.2 -- Investment Sub-advisory Agreement between American Capital Asset
Management, Inc. and John Govett & Co. Limited dated December 20,
1994.

6.1 -- Underwriting Agreement dated December 20, 1994.

6.2 -- Form of Selling Group Agreement incorporated herein by reference
(Exhibit 6.2 to Registrant's Registration No. 33-74024, Pre-Effective
Amendment No. 1, filed March 28, 1994).

6.3 -- Form of Selling Agreement for bank affiliated broker/dealers and
banks incorporated herein by reference (Exhibit 6.3 to Registrant's
Registration No. 33-74024, Pre-Effective Amendment No. 1, filed March
28, 1994).
</TABLE>

C-1
<PAGE> 81

<TABLE>
<C> <S>
7 -- Inapplicable.
8 -- Form of Custodian Contract dated December 2, 1993 incorporated herein
by reference (Exhibit 8 to Form N-1A of American Capital Utilities
Income Fund, Inc., Registration No. 33-68452, Post-Effective
Amendment No. 1, filed on May 19, 1994).
9.1 -- Transfer Agency and Service Agreement (January 1, 1995) Incorporated
herein by reference to Exhibit 8.2 to Form N-1A of American Capital
Tax-Exempt Trust, Registration No. 2-96030, Post-Effective Amendment
No. 15, filed on March 29, 1995.
9.2 -- Form of Data Access Services Agreement dated December 2, 1993
incorporated herein by reference (Exhibit 9.2 to Form N-1A of
American Capital Utilities Income Fund, Inc., Registration No.
33-68452, Post-Effective Amendment No. 1, filed on May 19, 1994).
10 -- Not applicable for this filing.
11 -- Consent of Independent Accountants.
12 -- Inapplicable.
13 -- Investment Letter incorporated herein by reference (Exhibit 13 to
Form N-1A of Registration No. 33-74024, Pre-Effective Amendment No.
2, filed on May 6, 1994).
14.1 -- Individual Retirement Account Brochure with Application incorporated
herein by reference (Exhibit 14.2 to Form N-1A of American Capital
Reserve Fund, Inc., Registration No. 2-50870, Post-Effective
Amendment No. 31, filed on September 24, 1993).
14.2 -- 403(b)(7) Custodial Account incorporated herein by reference (Exhibit
14.2 to Form N-1A of American Capital Reserve Fund, Inc.,
Registration No. 2-50870, Post-Effective Amendment No. 30, filed on
September 24, 1992).
14.3 -- ORP 403(b)(7) Custodial Account incorporated herein by reference
(Exhibit 14.3 to Form N-1A of American Capital Reserve Fund, Inc.,
Registration No. 2-50870, Post-Effective Amendment No. 30, filed on
September 24, 1992).
14.4 -- Retirement Plans for the Small Business-Forms Package and Plan
Documents incorporated herein by reference (Exhibit 14.4 to Form N-1A
of American Capital Government Securities, Inc., Registration No.
2-90482, Post-Effective Amendment No. 18, filed on February 25,
1994).
14.5 -- Prototype Profit Sharing/Money Purchase Plan and Trust incorporated
herein by reference (Exhibit 14.5 to Form N-1A of American Capital
Growth and Income Fund, Inc., Registration No. 2-21657,
Post-Effective Amendment No. 61, filed on March 26, 1991).
14.6 -- Prototype 401(k) Plan and Trust incorporated herein by reference
(Exhibit 14.6 to Form N-1A of American Capital Growth and Income
Fund, Inc., Registration No. 2-21657, Post-Effective Amendment No.
61, filed on March 26, 1991).
14.7 -- Salary Reduction Simplified Employee Pension Plan incorporated herein
by reference (Exhibit 14.7 to Form N-1A of American Capital World
Portfolio Series, Inc., Registration No. 33-37879, Post-Effective
Amendment No. 9, filed on September 24, 1993).
15.1 -- Plan of Distribution for Class A shares, as amended dated October 7,
1994.
15.2 -- Plan of Distribution for Class B shares, as amended dated October 7,
1994.
15.3 -- Plan of Distribution for Class C shares, as amended dated October 7,
1994.
</TABLE>

C-2
<PAGE> 82

<TABLE>
<S> <C>
15.4 -- Form of Servicing Agreement incorporated herein by reference (Exhibit
15.4 to Registrant's Registration No. 33-74024, Pre-Effective
Amendment No. 1, filed March 28, 1994).
15.5 -- Form of Servicing Agreement for banks and bank affiliated
broker/dealers incorporated herein by reference (Exhibit 15.5 to
Registrant's Registration No. 33-74024, Pre-Effective Amendment No.
1, filed March 28, 1994).
16 -- Computation Measure for Performance Information.
17 -- Not applicable for this filing.
18 -- Multiple Class Plan dated April 7, 1995 incorporated herein by
reference (Exhibit 18 to Form N-1A, Post-Effective Amendment No. 16
of American Capital Federal Mortgage Trust, Registration No. 33-1705,
filed April 24, 1995).
19.1 -- Powers-of-Attorney for J. Miles Branagan, Richard E. Caruso, Don G.
Powell, David Rees, Lawrence J. Sheehan and Fernando Sisto
incorporated herein by reference (Exhibit 18.1 to Registrant's
Registration No. 33-74024, Pre-Effective Amendment No. 1, filed March
28, 1994).
19.2 -- Powers-of-Attorney for Roger Hilsman and William Woodside
incorporated herein by reference (Exhibit 18.2 to Form N-1A of
Registrant's Registration No. 33-74024, Pre-Effective Amendment No.
2, filed on May 6, 1994).
27 -- Financial Data Schedules.
</TABLE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Common Sense II Government Fund 25.4%
Common Sense II International Equity Fund 34.57%

Each of the above mentioned companies is a series of a
Massachusetts business trust.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

AS OF MARCH 31, 1995

<TABLE>
<CAPTION>
(2)
NUMBER OF RECORD HOLDERS
(1) ---------------------------
TITLE OF CLASS CLASS A CLASS B CLASS C
-------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
American Capital Global Managed Assets Fund, Inc.
Capital Stock, Par Value $0.01 Per Share 1,847 1,905 1,229
</TABLE>

ITEM 27. INDEMNIFICATION.

Item 27 of Part C is incorporated herein by reference to Form N-1A of
Registrant's Registration No. 33-74024, Pre-Effective Amendment No. 2, filed on
May 6, 1994.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

During the last two fiscal years, the investment adviser has not engaged in
any business of a substantial nature except as investment adviser to the
American Capital Funds Group (listed below) and to the Emerging Growth Portfolio
of the Smith Barney Series Fund, and as adviser to Common Sense Trust, Western
Reserve Life-Emerging Growth Portfolio and Smith Barney/Travelers Series Fund
Inc. -- American Capital Enterprise Portfolio, all registered open-end
investment companies. The American Capital Funds Group and Common Sense Trust
are all located at 2800 Post Oak Blvd., Houston, Texas 77056. The Emerging
Growth Portfolio of the Smith Barney Series Fund and the American Capital
Enterprise Portfolio of the Smith Barney/Travelers Series Fund Inc. are located
at Two World Trade Center, New York, New York 10048. Western Reserve
Life-Emerging Growth Portfolio is located at 201 Highland Avenue, Largo, Florida
34640.

C-3
<PAGE> 83

The American Capital Funds Group of registered investment companies for
which Van Kampen American Capital Asset Management, Inc. (formerly American
Capital Asset Management, Inc.) currently serves as investment adviser are
listed below:

American Capital Bond Fund, Inc.
American Capital Comstock Fund, Inc.
American Capital Convertible Securities, 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 Exchange Fund
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Income Trust
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Small Capitalization 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.
American Capital World Portfolio Series, Inc.
Mosher, Inc.

During the last two fiscal years, no officer or director of the investment
adviser has engaged in any other business, profession, vocation or employment of
a substantial nature except as follows:

William N. Brown; Senior Vice President

Vice President and Director;

ACCESS Investor Services, Inc.

Advantage Capital Corporation

American Capital Shareholders Corporation

Van Kampen American Capital Advisors, Inc.

Van Kampen American Capital Exchange Corp.

Van Kampen American Capital Services, Inc.

Van Kampen American Capital Trust Company

Vice President;

Advantage Capital Credit Services, Inc.

American Capital Contractual Services, Inc.

Huey P. Falgout, Jr.; Vice President and Assistant Secretary

Vice President and Assistant Corporate Secretary;

ACCESS Investor Services, Inc.

Advantage Capital Corporation

C-4
<PAGE> 84

Advantage Capital Credit Services, Inc.

Advantage Capital Insurance Agency, Inc.

Advantage Capital Insurance Agency of Alabama, Inc.

Advantage Capital Insurance Agency of Hawaii, Inc.

Advantage Capital Insurance Agency of Massachusetts, Inc.

Advantage Capital Insurance Agency of Ohio, Inc.

Advantage Capital Insurance Agency of Oklahoma, Inc.

Advantage Capital Insurance Agency of Texas, Inc.

American Capital Shareholders Corporation

Van Kampen American Capital Advisors, Inc.

Van Kampen American Capital Exchange Corp.

Van Kampen American Capital Services, Inc.

ACCESS Investor Services, Inc.

Van Kampen American Capital Trust Company

Nori L. Gabert; Vice President, Associate General Counsel and Secretary

Vice President, Corporate Secretary and Counsel;

American Capital Contractual Services, Inc.

Vice President and Corporate Secretary;

American Capital Shareholders Corporation

Van Kampen American Capital Advisors, Inc.

Van Kampen American Capital Exchange Corp.

Vice President and Assistant Corporate Secretary;

ACCESS Investor Services, Inc.

Advantage Capital Corporation

Advantage Capital Credit Services, Inc.

Van Kampen American Capital Services, Inc.

Van Kampen American Capital Trust Company

Wayne D. Godlin; Vice President -- Portfolio Manager;

Vice President;

Van Kampen American Capital Advisors, Inc.

Ronald A. Nyberg; Senior Vice President and General Counsel

Executive Vice President, General Counsel and Corporate Secretary;

Van Kampen American Capital, Inc.

VK/AC Holding, Inc.

Executive Vice President, General Counsel and Director;

Van Kampen American Capital Distributors, Inc.

Van Kampen American Capital Investment Advisory Corp.

Van Kampen American Capital Management, Inc.

Vice President, General Counsel and Assistant Corporate Secretary;

American Capital Shareholders Corporation

Van Kampen American Capital Advisors, Inc.

Van Kampen American Capital Exchange Corp.

Vice President and Assistant Corporate Secretary;

American Capital Contractual Services, Inc.

C-5
<PAGE> 85

Vice President;

ACCESS Investor Services, Inc.

Advantage Capital Corporation

Advantage Capital Credit Services, Inc.

Van Kampen American Capital Services, Inc.

Van Kampen American Capital Trust Company

General Counsel and Assistant Secretary;

McCarthy, Crisanti & Maffei, Inc.

McCarthy, Crisanti & Maffei Acquisition Corporation

Robert C. Peck, Jr.; Senior Vice President, Chief Investment
Officer -- Fixed-Income Department and Director

Senior Vice President, Chief Investment Officer -- Fixed-Income Department
and Director; Van Kampen American Capital Advisors, Inc.

Don G. Powell; President, Chief Executive Officer and Director

President, Chief Executive Officer and Director;

Van Kampen American Capital, Inc.

Van Kampen American Capital Advisors, Inc.

Van Kampen American Capital Exchange Corp.

Van Kampen American Capital Holding, Inc.

VK/AC Holding, Inc.

Chairman, Chief Executive Officer and Director;

Van Kampen American Capital Distributors, Inc.

Van Kampen American Capital Investment Advisory Corp.

Van Kampen American Capital Management, Inc.

Executive Vice President and Director;

ACCESS Investor Services, Inc.

Advantage Capital Corporation
Advantage Capital Credit Services, Inc.

American Capital Contractual Services, Inc.

American Capital Shareholders Corporation

Van Kampen American Capital Services, Inc.

Van Kampen American Capital Trust Company

Director;

McCarthy, Crisanti & Maffei, Inc.

McCarthy, Crisanti & Maffei Acquisition Corporation

William R. Rybak; Senior Vice President, Chief Financial Officer and Treasurer

Executive Vice President, Chief Financial Officer and Director;

Van Kampen American Capital Distributors, Inc.

Van Kampen American Capital Investment Advisory Corp.

Van Kampen American Capital Management, Inc.

Executive Vice President and Chief Financial Officer;

Van Kampen American Capital, Inc.

VK/AC Holding, Inc.

Vice President, Chief Financial Officer and Treasurer;

ACCESS Investor Services, Inc.

Van Kampen American Capital Advisors, Inc.

C-6
<PAGE> 86

Van Kampen American Capital Exchange Corp.

Van Kampen American Capital Services, Inc.

Van Kampen American Capital Trust Company

Vice President and Chief Financial Officer;

Advantage Capital Corporation

American Capital Contractual Services, Inc.

Vice President and Treasurer;

Advantage Capital Credit Services, Inc.

Treasurer;

Advantage Capital Insurance Agency, Inc.

Advantage Capital Insurance Agency of Alabama, Inc.

Advantage Capital Insurance Agency of Hawaii, Inc.

Advantage Capital Insurance Agency of Massachusetts, Inc.

Advantage Capital Insurance Agency of Ohio, Inc.

Advantage Capital Insurance Agency of Oklahoma, Inc.

Alan T. Sachtleben; Senior Vice President, Chief Investment Officer -- Equity
Department and Director

Executive Vice President;

Van Kampen American Capital, Inc.

VK/AC Holding, Inc.

Senior Vice President, Chief Investment Officer -- Equity Department and
Director;

Van Kampen American Capital Advisors, Inc.

J. David Wise; Vice President, Associate General Counsel, Compliance Review
Officer and Assistant Secretary

Vice President, General Counsel and Corporate Secretary;

Van Kampen American Capital Trust Company

Vice President and Assistant Corporate Secretary;

Van Kampen American Capital Services, Inc.

Vice President;

ACCESS Investor Services, Inc.

Paul R. Wolkenberg; Senior Vice President

President, Chief Operating Officer and Director;

Van Kampen American Capital Services, Inc.

Executive Vice President, Chief Operating Officer and Director;

Van Kampen American Capital Trust Company

Executive Vice President and Director;

ACCESS Investor Services, Inc.

Executive Vice President;

American Capital Shareholders Corporation

Director;
Advantage Capital Corporation
Advantage Capital Credit Services, Inc.

American Capital Contractual Services, Inc.

C-7
<PAGE> 87

Lea S. Zeitman; Assistant Secretary

Senior Vice President, Chief Administrative Officer, General Counsel and
Corporate Secretary;
Advantage Capital Corporation

Vice President, General Counsel and Corporate Secretary;
Advantage Capital Credit Services, Inc.
Advantage Capital Insurance Agency, Inc.
Advantage Capital Insurance Agency of Alabama, Inc.
Advantage Capital Insurance Agency of Hawaii, Inc.
Advantage Capital Insurance Agency of Ohio, Inc.
Advantage Capital Insurance Agency of Oklahoma, Inc.

Vice President and Assistant Corporate Secretary;

Van Kampen American Capital T.A., Inc.

Vice President;

Van Kampen American Capital Trust Company

Van Kampen American Capital Contractual Services, Inc.

Assistant Corporate Secretary;

Van Kampen American Capital Advisors, Inc.

Clerk;
Advantage Capital Insurance Agency of Massachusetts, Inc.

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) Van Kampen American Capital Distributors, Inc. acts as principal
underwriter for the following registered investment companies:

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 Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve 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.
American Capital World Portfolio Series, Inc.

*Van Kampen Merritt California Tax Free Income Fund

Van Kampen Merritt Equity Trust

*Van Kampen Merritt Michigan Tax Free Income Fund

*Van Kampen Merritt Missouri Tax Free Income Fund

C-8
<PAGE> 88

Van Kampen Merritt Money Market Trust

*Van Kampen Merritt Ohio Tax Free Income Fund

Van Kampen Merritt Pennsylvania Tax Free Income Fund

Van Kampen Merritt Prime Rate Income Trust

Van Kampen Merritt Series Trust

Van Kampen Merritt Tax Free Fund

Van Kampen Merritt Tax Free Money Fund

Van Kampen Merritt Trust

Van Kampen Merritt U.S. Government Trust

Van Kampen Merritt Insured Tax Free Income Fund

Van Kampen Merritt Tax Free High Income Fund

Van Kampen Merritt California Insured Tax Free Fund

Van Kampen Merritt Municipal Income Fund

Van Kampen Merritt Limited Term Municipal Income Fund

Van Kampen Merritt Florida Insured Tax Free Income Fund

Van Kampen Merritt New Jersey Tax Free Income Fund

Van Kampen Merritt New York Tax Free Income Fund

Van Kampen Merritt High Yield Fund

Van Kampen Merritt Short-Term Global Income Fund

Van Kampen Merritt Adjustable Rate U.S. Government Fund

Van Kampen Merritt Strategic Income Fund

Van Kampen Merritt Emerging Markets Income Fund

Van Kampen Merritt Growth Fund

Van Kampen Merritt Growth and Income Fund

Van Kampen Merritt Utility Fund

Van Kampen Merritt Balanced Fund

Van Kampen Merritt Total Return Fund

Van Kampen Merritt Pennsylvania Tax Free Income Fund

Van Kampen Merritt Money Market Fund

Van Kampen Merritt Tax Free Money Fund

Van Kampen Merritt Prime Rate Income Trust

<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust Series 1
Insured Municipals Income Trust Series 1 through 342
Insured Municipals Income Trust (Discount) Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) Series 1 through 96
Insured Municipals Income Trust (Intermediate Term) Series 5 through 81
Insured Municipals Income Trust (Limited Term) Series 9 through 78
Insured Municipals Income Trust (Premium Bond Series) Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) Series 1 and 2
Insured Tax Free Bond Trust Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) Series 1
Investors' Quality Tax-Exempt Trust Series 1 through 88
Investors' Quality Tax-Exempt Trust-Intermediate Series 1
Investors' Corporate Income Trust Series 1 through 12
Investors' Governmental Securities Income Trust Series 1 through 7
Van Kampen Merritt International Bond Income Trust Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust Series 1
Alabama Insured Municipals Income Trust Series 1 through 8
Arizona Investors' Quality Tax-Exempt Trust Series 1 through 16
Arizona Insured Municipals Income Trust Series 1 through 12
Arkansas Insured Municipals Income Trust Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust Series 1
California Insured Municipals Income Trust Series 1 through 136
</TABLE>

C-9
<PAGE> 89

<TABLE>
<S> <C>
California Insured Municipals Income Trust (Premium Bond Series) Series 1
California Insured Municipals Income Trust (1st Intermediate
Series) Series 1 through 3
California Investors' Quality Tax-Exempt Trust Series 1 through 20
California Insured Municipals Income Trust (Intermediate
Laddered) Series 1 through 16
Colorado Insured Municipals Income Trust Series 1 through 73
Colorado Investors' Quality Tax-Exempt Trust Series 1 through 18
Connecticut Insured Municipals Income Trust Series 1 through 26
Connecticut Investors' Quality Tax-Exempt Trust Series 1
Delaware Investor's Quality Tax-Exempt Trust Series 1 and 2
Florida Insured Municipal Income Trust -- Intermediate Series 1 and 2
Florida Insured Municipals Income Trust Series 1 through 88
Florida Investors' Quality Tax-Exempt Trust Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) Series 1 through 14
Georgia Insured Municipals Income Trust Series 1 through 73
Georgia Investors' Quality Tax-Exempt Trust Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust Series 1
Investors' Quality Municipals Trust (AMT) Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust Series 1 through 53
Louisiana Insured Municipals Income Trust Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust Series 1
Maryland Investors' Quality Tax-Exempt Trust Series 1 through 69
Massachusetts Insured Municipals Income Trust Series 1 through 30
Massachusetts Insured Municipals Income Trust
(Premium Bond Series) Series 1
Michigan Insured Municipals Income Trust Series 1 through 124
Michigan Insured Municipals Income Trust (Premium Bond Series) Series 1
Michigan Insured Municipals Income Trust (1st Intermediate
Series) Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust Series 1 through 30
Minnesota Insured Municipals Income Trust Series 1 through 54
Minnesota Investors' Quality Tax-Exempt Trust Series 1 through 21
Missouri Insured Municipals Income Trust Series 1 through 88
Missouri Insured Municipals Income Trust (Premium Bond Series) Series 1
Missouri Investors' Quality Tax-Exempt Trust Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1
Nebraska Investors' Quality Tax-Exempt Trust Series 1 through 9
New Mexico Insured Municipals Income Trust Series 1 through 16
New Jersey Insured Municipals Income Trust Series 1 through 98
New Jersey Investors' Quality Tax-Exempt Trust Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1 and 4
New York Insured Municipals Income Trust -- Intermediate Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) Series 1
New York Insured Municipals Income Trust Series 1 through 123
New York Insured Tax-Free Bond Trust Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 1 through 14
New York Investors' Quality Tax-Exempt Trust Series 1
North Carolina Investors' Quality Tax-Exempt Trust Series 1 through 80
Ohio Insured Municipals Income Trust Series 1 through 94
Ohio Insured Municipals Income Trust (Premium Bond Series) Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) Series 1
</TABLE>

C-10
<PAGE> 90

<TABLE>
<S> <C>
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust Series 1 through 16
Oklahoma Insured Municipal Income Trust Series 1 through 14
Oregon Investors' Quality Tax-Exempt Trust Series 1 through 53
Pennsylvania Insured Municipals Income Trust -- Intermediate Series 1 through 6
Pennsylvania Insured Municipals Income Trust Series 1 through 196
Pennsylvania Insured Municipals Income Trust (Premium Bond
Series) Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust Series 1 through 78
Tennessee Insured Municipals Income Trust Series 1-3 and 5-30
Texas Insured Municipals Income Trust Series 1 through 39
Texas Insured Municipals Income Trust (Intermediate Ladder) Series 1
Virginia Investors' Quality Tax-Exempt Trust Series 1 through 63
Van Kampen Merritt Utility Income Trust Series 1 through 6
Van Kampen Merritt Insured Income Trust Series 1 through 36
Van Kampen Merritt Insured Income Trust (Intermediate Term) Series 1 through 33
Van Kampen Merritt Select Equity Trust Series 1
Van Kampen Merritt Select Equity and Treasury Trust Series 1
Washington Insured Municipals Income Trust Series 1
West Virginia Insured Municipals Income Trust Series 1 through 5
</TABLE>

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

*Has not yet commenced investment operations.

Van Kampen American Capital Distributors, Inc. also acts as principal
underwriter or depositor for American Capital Monthly Accumulation Plans, a
registered unit investment trust.

(b) The following information is furnished with respect to each officer and
director of Van Kampen American Capital Distributors, Inc.

C-11
<PAGE> 91

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS PRINCIPAL UNDERWRITER WITH REGISTRANT
- - --------------------------- ------------------------------- ----------------------
<S> <C> <C>
Michael L. Stallard(2) 1st Vice President --
David M. Swanson(2) 1st Vice President --
Patricia A. Bettlach(2) Vice President --
Carol S. Biegel(2) Vice President --
Linda Mae Brown(2) Vice President --
William F. Burke, Jr.(2) Vice President --
Thomas M. Byron(2) Vice President --
Glenn M. Cackovic(2) Vice President --
Joseph N. Caggiano(2) Vice President --
Richard J. Charlino(2) Vice President --
Eleanor M. Cloud(2) Vice President --
Dominick Cogliandro(2) Vice President and Assistant --
Treasurer
David B. Dibo(2) Vice President --
Howard A. Doss(2) Vice President --
Charles Edward Fisher(2) Vice President --
William J. Fow(2) Vice President --
Erich P. Gerth(2) Vice President --
John A. Hanhauser(2) Vice President --
Eric J. Hargens(2) Vice President --
J. Christopher Jackson(2) Vice President, Associate --
General Counsel and Assistant
Secretary
Dana R. Klein(2) Vice President --
Ann Marie Klingenhagen(2) Vice President --
David R. Kowalski(2) Vice President and Director of --
Compliance
S. William Lehew III(2) Vice President --
Walter Lynn(2) Vice President --
Deborah A. Lysacek(2) Vice President --
Michele L. Manley(2) Vice President --
Kevin S. Marsh(2) Vice President --
Ruth L. McKeel(2) Vice President --
Ronald E. Pratt(2) Vice President --
Craig S. Prichard(2) Vice President --
Michael W. Rohr(2) Vice President --
James B. Ross(2) Vice President --
James J. Ryan(2) Vice President --
Heather R. Sabo(2) Vice President --
Lisa A. Schomer(2) Vice President --
Ronald J. Schuster(2) Vice President --
Diane H. Snowden(2) Vice President --
Darren D. Stabler(2) Vice President --
Christopher J. Vice President --
Staniforth(2)
William C. Strafford(2) Vice President --
James C. Taylor(2) Vice President --
John F. Tierney(2) Vice President --
Curtis L. Ulvestad(2) Vice President --
Jeffrey A. Urbina(2) Vice President --
Sandra A. Waterworth(2) Vice President and Assistant --
Secretary
Steven T. West(2) Vice President --
</TABLE>

C-12
<PAGE> 92

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

(1) 2800 Post Oak Blvd., Houston, Texas 77056

(2) One Parkview Plaza, Oakbrook Terrace, IL 60181

(c) Commissions and other compensation received by each principal
underwriter who is not an affiliated person of the Registrant or an affiliated
person of such an affiliated person, directly or indirectly, from the Registrant
during the Registrant's last fiscal year:

Inapplicable.

ITEM 30. LOCATION OF BOOKS AND RECORDS.

Unless otherwise stated below, the books or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are in the physical possession of:

Fund Treasurer
Mutual Fund Accounting
2800 Post Oak Boulevard
Houston, Texas 77056

<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
- - ---- ----------------------------
<S> <C>
31a-1(b)(1)(2)(i)(ii) State Street Bank and Trust Company
(iii),(3)(7)(8)(9) 225 Franklin Street
(10)(12) Boston, Massachusetts 02110

(b)(2)(iv) ACCESS Investor Services, Inc.
7501 Tiffany Springs Parkway
Kansas City, Missouri 64153

(b)(4) Van Kampen American Capital Asset Management, Inc.

(b)(5)(6)(11) John Govett & Co. Limited
Shackleton House
4 Battle Bridge Lane
London, SE1 2HR
England
</TABLE>

ITEM 31. MANAGEMENT SERVICES.

There are no management related services contracts not discussed in Part A
or Part B.

ITEM 32. UNDERTAKINGS.

Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940.

Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.

C-13
<PAGE> 93

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, and State of Texas, on the 26th day of
April, 1995.

AMERICAN CAPITAL GLOBAL MANAGED ASSETS
FUND, INC.

By: /s/ DON G. POWELL
----------------------------------
(Don G. Powell, President)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 26, 1995.

Principal Executive Officer:

<TABLE>
<S> <C>
/s/ DON G. POWELL President and Director
- - ----------------------------------------
(Don G. Powell)

Principal Financial Officer and
Accounting Officer:

/s/ CURTIS W. MORELL Vice President and Treasurer
- - ----------------------------------------
(Curtis W. Morell)

Directors:

*J. MILES BRANAGAN Director
- - ----------------------------------------
(J. Miles Branagan)

*RICHARD E. CARUSO Director
- - ----------------------------------------
(Richard E. Carus

*ROGER HILSMAN Director
- - ----------------------------------------
(Roger Hilsman)

*DAVID REES Director
- - ----------------------------------------
(David Rees)

*LAWRENCE J. SHEEHAN Director
- - ----------------------------------------
(Lawrence J. Sheehan)

*FERNANDO SISTO Director
- - ----------------------------------------
(Fernando Sisto)

*WILLIAM S. WOODSIDE Director
- - ----------------------------------------
(William S. Woodside)
</TABLE>

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

* Signed by the undersigned pursuant to a Power-of-Attorney previously filed
with the Commission.

/s/ NORI L. GABERT
----------------------------------
Nori L. Gabert
Attorney-in-Fact

<PAGE> 94

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

INDEX TO EXHIBITS TO FORM N-1A

REGISTRATION STATEMENT

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- - ---------------------------------------------------------------------------------------------
<C> <S>
2 -- Bylaws as amended March 3, 1995.
5.1 -- Investment Advisory Agreement between Registrant and American Capital
Asset Management, Inc. dated December 20, 1994.
5.2 -- Investment Subadvisory Agreement between American Capital Asset
Management, Inc. and John Govett & Co. Limited dated December 20,
1994.
6.1 -- Underwriting Agreement dated December 20, 1994.
11 -- Consent of Independent Accountants.
15.1 -- Plan of Distribution for Class A shares as amended October 7, 1994.
15.2 -- Plan of Distribution for Class B shares as amended October 7, 1994.
15.3 -- Plan of Distribution for Class C shares as amended October 7, 1994.
16 -- Computation Measure for Performance Information.
27 -- Financial Data Schedules.
</TABLE>

<PAGE> 1
EXHIBIT 2

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

BY-LAWS

(As amended March 3, 1995)

ARTICLE I.

STOCKHOLDERS

SECTION 1.01. Annual Meetings. The Corporation is not required to hold an
annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940. If the Corporation is required by the Investment Company Act of 1940 to
hold a meeting of stockholders to elect directors, such meeting shall be held
at a date and time set by the Board of Directors in accordance with the
Investment Company Act of 1940 and no later than 120 days after the occurrence
of the event requiring the meeting. Any stockholders' meeting held in
accordance with the preceding sentence shall for all purposes constitute the
annual meeting of stockholders for the fiscal year of the Corporation in which
the meeting is held. Except as the charter or statute provides otherwise, any
business may be considered at an annual meeting without the purpose of the
meeting having been specified in the notice. Failure to hold an annual meeting
does not invalidate the Corporation's existence or affect any otherwise valid
corporate acts.

SECTION 1.02. Special Meetings. At any time in the interval between annual
meetings, a special meeting of stockholders may be called by the Chairman of
the Board or the President or by a majority of the Board of Directors by vote
at a meeting or in writing (addressed to the Secretary of the Corporation) with
or without a meeting. The Secretary of the Corporation shall call a special
meeting of stockholders on the written request of stockholders entitled to cast
at least ten percent of all the votes entitled to be cast at the meeting. A
request for a special meeting shall state the purpose of the meeting and the
matters proposed to be acted on at it. The Secretary shall inform the
stockholders who make the request of the reasonably estimated costs of
preparing and mailing a notice of the meeting and, on payment of these costs to
the Corporation, notify each stockholder entitled to notice of the meeting.
Unless requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at any
special meeting of stockholders held in the preceding 12 months.

SECTION 1.03. Place of Meetings. Meetings of stockholders shall be held at
such place in the United States as is set from time to time by the Board of
Directors.

SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than ten nor
more than 90 days before each stockholders' meeting, the Secretary shall give
written notice of

<PAGE> 2
the meeting to each stockholder entitled to vote at the meeting and each other
stockholder entitled to notice of the meeting. The notice shall state the time
and place of the meeting and, if the meeting is a special meeting or notice of
the purpose is required by statute, the purpose of the meeting. Notice is given
to a stockholder when it is personally delivered to him, left at his residence
or usual place of business, or mailed to him at his address as it appears on
the records of the Corporation. Notwithstanding the foregoing provisions, each
person who is entitled to notice waives notice if he before or after the
meeting signs a waiver of the notice which is filed with the records of
stockholders' meetings, or is present at the meeting in person or by proxy.

SECTION 1.05. Quorum; Voting. Unless statute or the charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes
cast at a meeting at which a quorum is present is sufficient to elect a
director.

SECTION 1.06. Adjournments. Whether or not a quorum is present, a meeting
of stockholders convened on the date for which it was called may be adjourned
from time to time without further notice by a majority vote of the stockholders
present in person or by proxy to a date not more than 120 days after the
original record date. Any business which might have been transacted at the
meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.

SECTION 1.07. General Right to Vote; Proxies. Unless the Charter provides
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock, regardless of class, is entitled to
one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock the stockholder
owns of record either in person or by proxy. A stockholder may sign a writing
authorizing another person to act as proxy. Signing may be accomplished by the
stockholder or the stockholder's authorized agent signing the writing or
causing the stockholder's signature to be affixed to the writing by any
reasonable means, including facsimile signature. A stockholder may authorize
another person to act as proxy by transmitting, or authorizing the transmission
of, a telegram, cablegram, datagram, or other means of electronic transmission
to the person authorized to act as proxy or to a proxy solicitation firm, proxy
support service organization, or other person authorized by the person who will
act as proxy to receive the transmission. Unless a proxy provides otherwise, it
is not valid more than 11 months after its date. A proxy is revocable by a
stockholder at any time without condition or qualification unless the proxy
states that it is irrevocable and the proxy is coupled with an interest. A
proxy may be made irrevocable for so long as it is coupled with an interest.
The interest with which a proxy may be coupled includes an interest in the
stock to be voted under the proxy or another general interest in the
Corporation or its assets or liabilities.

SECTION 1.08. List of Stockholders. At each meeting of stockholders,
a full,

<PAGE> 3
true and complete list of all stockholders entitled to vote at such meeting,
showing the number and class or series of shares held by each and certified by
the transfer agent for such class or series or by the Secretary, shall be
furnished by the Secretary.

SECTION 1.09. Conduct of Business and Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these
By-Laws, the charter or law, shall be decided or determined by the chairman of
the meeting. If demanded by stockholders, present in person or by proxy,
entitled to cast ten percent in number of votes entitled to be cast, or if
ordered by the chairman, the vote upon any election or question shall be taken
by ballot and, upon like demand or order, the voting shall be conducted by one
or more inspectors, in which event the proxies and ballots shall be received,
and all questions touching the qualification of voters and the validity of
proxies and the acceptance or rejection of votes shall be decided, by such
inspectors. Unless so demanded or ordered, no vote need be by ballot and voting
need not be conducted by inspectors. The stockholders at any meeting may choose
an inspector or inspectors to act at such meeting, and in default of such
election the chairman of the meeting may appoint an inspector or inspectors.
No candidate for election as a director at a meeting shall serve as an
inspector thereat.

SECTION 1.10. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings an
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.

ARTICLE II.

BOARD OF DIRECTORS

SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board
of Directors, except as conferred on or reserved to the stockholders by statute
or by the charter or By-Laws. It shall be the duty of the Board of Directors to
ensure that the purchase, sale, retention and disposal of portfolio securities
and the other investment practices of the Corporation are at all times
consistent with the investment policies and restrictions of the Corporation and
the Investment Company Act of 1940. The Board, however, may delegate the duty
of management of the assets and the administration of the day-to-day operations
of the Corporation to one or more entities or individuals pursuant to a written
contract or contracts which have obtained the approvals, including the approval
of renewals thereof, required by the Investment Company Act of 1940.

<PAGE> 4
SECTION 2.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are fewer than three stockholders, the number
of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
its charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the charter to not exceed 25
nor less than the minimum number then permitted herein, but the action may not
affect the tenure of office of any director.

SECTION 2.03. Election and Tenure of Directors. At each annual meeting,
the stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify; provided, however,
that through June 30, 1996 the term of office of each director shall end at the
time such director reaches the age of 76 1/2 or 74 1/2 for persons first
elected on or after January 1, 1986 as a director of any open end investment
company managed by Van Kampen American Capital Asset Management, Inc. and that
on and after July 1, 1996 the term of office of each director shall end at the
time such director reaches the age of 76 1/2 or 72 1/2 for persons first
elected on or after January 1, 1986 as a director of any open end investment
company managed by Van Kampen American Capital Asset Management, Inc.

SECTION 2.04. Removal of Directors. Unless statute or the charter provides
otherwise, the stockholders may remove any director, with or without cause, by
the affirmative vote of a majority of all the votes entitled to be cast for the
election of directors.

SECTION 2.05. Vacancy on Board. The stockholders may elect a successor to
fill a vacancy on the Board of Directors which results from the removal of a
director by the stockholders. A director elected by the stockholders to fill a
vacancy which results from the removal of a director serves for the balance of
the term of the removed director. Unless otherwise provided by statute or the
charter, a majority of the remaining directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of directors. A director elected by the Board of Directors to
fill a vacancy serves until the next annual meeting of stockholders and until
his successor is elected and qualifies.

SECTION 2.06. Regular Meetings. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of
other business. In the event that no other time and place are specified by
resolution of the Board, the President or Chairman with notice in accordance
with Section 2.08, the Board of Directors shall meet immediately following the
close of, and at the place of, such stockholders' meeting. Any other regular
meeting of the Board of Directors shall be held on such date and at any place
as may be designated from time to time by the Board of Directors.

<PAGE> 5
SECTION 2.07. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board or the President or by a
majority of the Board of Directors by vote at a meeting, or in writing with or
without a meeting. A special meeting of the Board of Directors shall be held on
such date and at any place as may be designated from time to time by the Board
of Directors. In the absence of designation such meeting shall be held at such
place as may be designated in the call.

SECTION 2.08. Notice of Meetings; Waiver of Notice. Except as provided in
Section 2.06, the Secretary shall give notice to each director of each regular
and special meeting of the Board of Directors. The notice shall state the time
and place of the meeting. Notice is given to a director when it is delivered
personally to him, left at his residence or usual place of business, or sent by
telegraph, facsimile transmission or telephone, at least 24 hours before the
time of the meeting or, in the alternative, by mail to his address as it shall
appear on the records of the Corporation at least 72 hours before the time of
the meeting. Unless statute, the By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the business to be
transacted at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any meeting of the Board of Directors need be given to
any director who attends, or to any director who, in a writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no notice need be given of any such adjourned meeting other than by
announcement.

SECTION 2.09. Action by Directors. Unless statute or the charter or the
By-Laws requires a greater proportion, the action of a majority of the
directors present at a meeting at which a quorum is present is action of the
Board of Directors. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a
quorum, the directors present by majority vote and without notice other than by
announcement may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. Unless otherwise provided by statute or regulation, any
action required or permitted to be taken at a meeting of the Board of Directors
may be taken without a meeting, if an unanimous written consent which sets
forth the action is signed by each member of the Board and filed with the
minutes of proceedings of the Board.

SECTION 2.10. Telephone Meetings. Members of the Board of Directors may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Unless provided otherwise by statute or
regulation, participation in a meeting by these means constitutes presence in
person at the meeting.

SECTION 2.1 1. Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the

<PAGE> 6
Corporation in any other capacity also may receive compensation for such other
services, pursuant to a resolution of the Board of Directors.

ARTICLE III.

COMMITTEES

SECTION 3.01. Committees. The Board of Directors may appoint from among
its members an Executive Committee and other committees composed of two or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to declare dividends or other distributions on
stock, elect directors, issue stock other than as provided in the next
sentence, recommend to the stockholders any action which requires stockholder
approval, amend the By-Laws, or approve any merger or share exchange which does
not require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in
accordance with a general formula or method specified by the Board by
resolution or by adoption of a stock option or other plan, may fix the terms of
stock subject to classification or reclassification and the terms on which any
stock may be issued, including all terms and conditions required or permitted
to be established or authorized by the Board of Directors.

SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the action of a
majority of those present at a meeting at which a quorum is present shall be
action of the committee. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member. Any action required or permitted to be taken at a
meeting of a committee may be taken without a meeting, if an unanimous written
consent which sets forth the action is signed by each member of the committee
and filed with the minutes of the committee. The members of a committee may
conduct any meeting thereof by telephone in accordance with the provisions of
Section 2.10.

SECTION 3.03. Emergency. In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Corporation by its directors and officers as contemplated by the charter
and these By-Laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
composed of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed
from time to time for that purpose,

<PAGE> 7
and any provisions of the By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of
any such implementing resolutions shall be suspended until it shall be
determined by any interim Executive Committee acting under this Section that it
shall be to the advantage of the Corporation to resume the conduct and
management of its affairs and business under all the other provisions of these
By-Laws.

ARTICLE IV.

OFFICERS

SECTION 4.01. Executive and Other Officers. The Corporation shall have a
President, a Secretary and a Treasurer. It may also have a Chairman of the
Board. The Board of Directors shall designate who shall serve as chief
executive officer, who shall have general supervision of the business and
affairs of the Corporation, and may designate a chief operating officer, who
shall have supervision of the operations of the Corporation. In the absence of
any designation the President, shall serve as chief executive officer. The
Corporation may also have one or more Vice-Presidents, assistant officers and
subordinate officers as may be established by the Board of Directors. A person
may hold more than one office in the Corporation except that no person may
serve concurrently as both President and Vice-President of the Corporation. The
other officers may be directors.

SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; and, in general, he shall perform
all such duties as are from time to time assigned to him by the Board of
Directors. The Chairman of the Board shall be a director. The Chairman of the
Board, if one be elected, shall not be an officer of the corporation unless
expressly designated as an officer by the Board of Directors; the Chairman
shall be an executive officer if also expressly designated as the chief
executive officer of the Corporation.

SECTION 4.03. President. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. Unless otherwise specified by the Board of
Directors, the President shall be the chief operating officer of the
Corporation and perform the duties customarily performed by chief operating
officers. He may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation. In general, he
shall perform all duties usually performed by a president of a corporation and
such other duties as are from time to time assigned to him by the Board of
Directors or the chief executive officer of the Corporation.

<PAGE> 8

SECTION 4.04. Vice-President. The Vice-President or Vice-Presidents, at
the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties
and exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice-President, the Board of
Directors may determine which one or more of the Vice-Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the chief executive officer or the
President may make such determination; otherwise any of the Vice-Presidents may
perform any of such duties or exercise any of such functions. The
Vice-President or Vice-Presidents shall have such other powers and perform such
other duties, and have such additional descriptive designations in their titles
(if any), as are from time to time assigned to them by the Board of Directors,
the chief executive officer, or the President.

SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for that purpose; he shall see that all notices are duly
given in accordance with the provisions of the By-Laws or as required by law;
he shall be custodian of the records of the Corporation; he may witness any
document on behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same; and, in general, he shall perform all duties incident to the office of a
secretary of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.

SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by the
Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as are from time
to time assigned to him by the Board of Directors, the chief executive officer,
or the President.

SECTION 4.07. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board
of Directors, the chief executive officer, or the President.

SECTION 4.08. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the pleasure of the
Board. The Board of Directors (or, as to any assistant or subordinate officer,
any committee or officer authorized by the Board) may remove an officer at any
time. The removal of an officer does not

<PAGE> 9
prejudice any of his contract rights. The Board of Directors (or, as to any
assistant or subordinate officer, any committee or officer authorized by the
Board) may fill a vacancy which occurs in any office for the unexpired portion
of the term.

SECTION 4.09. Compensation. The Board of Directors shall have power to fix
the salaries and other compensation and remuneration, of whatever kind, of all
officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.

ARTICLE V.

INDEMNIFICATION

SECTION 5.01. Indemnification of Directors and Officers. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than a
proceeding by or in the right of the Corporation in which such person shall
have been adjudged to be liable to the Corporation), by reason of being or
having been a director or officer of the Corporation, or serving or having
served at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another entity in which the Corporation has a
interest as a shareholder, creditor or otherwise (a "Covered Person"), against
all liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable expenses
(including attorney's fees) actually incurred by the Covered Person in
connection with such action, suit or proceeding, except (i) liability in
connection with any proceeding in which it is determined that (A) the act or
omission of the Covered Person was material to the matter giving rise to the
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty, or (B) the Covered Person actually received an improper
personal benefit in money, property or services, or (C) in the case of any
criminal proceeding, the Covered Person had reasonable cause to believe that
the act or omission was unlawful and (ii) liability to the Corporation or its
security holders to which the Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office (any or all of
the conduct referred to in clauses (i) and (ii) being hereinafter referred to
as "Disabling Conduct").

SECTION 5.02. Procedure For Indemnification. Any indemnification under
this By-law shall (unless ordered by a court) be made by the Corporation only
as authorized for a specific proceeding by (i) a final decision on the merits
by a court or other body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by reason of Disabling Conduct,
(ii) dismissal of the proceeding against the Covered Person for insufficiency
of evidence of any Disabling Conduct, or (iii) a reasonable determination,
based

<PAGE> 10
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the 40 Act nor
parties to the proceeding ("disinterested, non-party directors"), or an
independent legal counsel in a written opinion, that the Covered Person was not
liable by reason of Disabling Conduct. The termination of any proceeding by
judgment, order or settlement shall not create a presumption that the Covered
Person did not meet the required standard of conduct; the termination of any
proceeding by conviction, or a plea of nolo contendere or its equivalent, or an
entry of an order of probation prior to judgment, shall create a rebuttable
presumption that the Covered Person did not meet the required standard of
conduct. Any determination pursuant to this Section 5.02 shall not prevent
recovery from any Covered Person of any amount paid to him in accordance with
this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.

SECTION 5.03. Advance Payment of Expenses. Reasonable expenses (including
attorney's fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or
proceeding upon receipt by the Corporation of (i) a written affirmation by the
Covered Person of his good faith belief that the standard of conduct necessary
for indemnification under this By-Law has been met and (ii) a written
undertaking by or on behalf of the Covered Person to repay the amount if it is
ultimately determined that such standard of conduct has not been met, so long
as either (A) the Covered Person has provided a security for his undertaking,
(B) the Corporation is insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum of the disinterested, non-party
directors, or an independent legal counsel in a written opinion, has
determined, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.

SECTION 5.04. Exclusively, Etc. The indemnification and advance of
expenses provided by this By-Law shall not be deemed exclusive of any other
rights to which a Covered Person seeking indemnification or advance of expenses
may be entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is consistent
with law, both as to action in an official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for the
Corporation, shall continue in respect of all events occurring while the
Covered Person was a director or officer after such Covered Person has ceased
to be a director or officer, and shall inure to the benefit of the estate,
heirs, executors and administrators of such Covered person. All rights to
indemnification and advance of expenses under the Charter and hereunder shall
be deemed to be a contract between the Corporation and each director or officer
of the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any Covered Person
hereunder with respect to events occurring or claims made before its adoption
or as to claims made after its adoption in respect of events occurring before
its adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights

<PAGE> 11
to indemnification or advance of expenses of a Covered Person or the
obligations of the Corporation arising hereunder with respect to events
occurring, or claims made, while this By-Law or any provision hereof is in
force.

SECTION 5.05. Insurance. The Corporation may purchase and maintain
insurance on behalf of any Covered Person against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such; provided, however, that the Corporation shall not purchase
insurance to indemnify any Covered Person against liability for Disabling
Conduct.

SECTION 5.06. Severability: Definitions. The invalidity or
unenforceability of any provision of this Article V shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article V means this Article V in its entirety.

ARTICLE VI.

STOCK

SECTION 6.01. Certificates for Stock. If the Board of Directors authorizes
the issue of a class or series of stock with certificates, each holder of
shares of that class or series, upon written request therefor in accordance
with such procedures as may be established by the Board from time to time, is
entitled to certificates which represent and certify the shares of that class
or series he holds in the Corporation. Each stock certificate shall include on
its face the name of the Corporation, the name of the stockholder or other
person to whom it is issued, and the class or series of stock and number of
shares it represents. It shall be in such form, not inconsistent with law or
with the charter, as shall be approved by the Board of Directors or any officer
of officers designated for such purpose by resolution of the Board of
Directors. Each stock certificate shall be signed by the Chairman of the Board,
the President, or a Vice-President, and countersigned by the Secretary, an
Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate
may be sealed with the actual corporate seal or a facsimile of it or in any
other form and the signatures may be either manual or facsimile signatures. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. The Board of Directors may authorize the
issue of some or all of the shares of any or all classes or series without
certificates. Such authorization shall not affect shares already represented by
certificates until they are surrendered to the Corporation. At the time of
issue or transfer of shares without certificates the Corporation shall send
each stockholder a written statement of the information required by the
Maryland General Corporation Law.

SECTION 6.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of shares of stock; and may
appoint transfer agents and registrars thereof

<PAGE> 12
The duties of transfer agent and registrar may be combined.

SECTION 6.03. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be prior to the close of business on the
day the record date is fixed nor, subject to Section 1.06, more than 90 days
before the date on which the action requiring the determination will be taken;
the transfer books may not be closed for a period longer than 20 days; and, in
the case of a meeting of stockholders, the record date or the closing of the
transfer books shall be at least ten days before the date of the meeting.

SECTION 6.04. Stock Ledger. The Corporation shall maintain a stock ledger
which contains the name and address of each stockholder and the number of
shares of stock of each class or series which the stockholder holds. The stock
ledger may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. The original
or a duplicate of the stock ledger shall be kept at the offices of a transfer
agent for the particular class or series of stock, or, if none, at the
principal office in the State of Maryland or the principal executive offices of
the Corporation.

SECTION 6.05. Certification of Beneficial Owners. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered
in the name of the stockholder are held for the account of a specified person
other than the stockholder. The resolution shall set forth the class of
stockholders who may certify, the purpose for which the certification may be
made, the form of certification and the information to be contained in it, if
the certification is with respect to a record date or closing of the stock
transfer books, the time after the record date or closing of the stock transfer
books within which the certification must be received by the Corporation, and
any other provisions with respect to the procedure which the Board considers
necessary or desirable. On receipt of a certification which complies with the
procedure adopted by the Board in accordance with this Section, the person
specified in the certification is, for the purpose set forth in the
certification, the holder of record of the specified stock in place of the
stockholder who makes the certification.

SECTION 6.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen or destroyed, including
the requirement that the owner furnish a bond as indemnity against any claim
that may be made against the Corporation in respect of the lost, stolen or
destroyed certificate, or the Board of Directors may delegate such power to any
officer or officers of the Corporation. In their discretion, the Board of
Directors or such officer or officers may refuse to issue such new certificate
save upon the order of some court having jurisdiction in the premises.

<PAGE> 13
ARTICLE VII.

FINANCE

SECTION 7.01. Checks, Drafts, Etc. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.

SECTION 7.02. Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a statement of net assets and a
financial statement of operations for the preceding fiscal year. The statement
of affairs shall be placed on file at the Corporation's principal office within
120 days after the end of the fiscal year.

SECTION 7.03. Fiscal Year. The fiscal year of the Corporation shall be the
twelve-calendar-month period ending November 30 in each year, unless otherwise
provided by the Board of Directors.

SECTION 7.04. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the charter of the
Corporation.

SECTION 7.05. Net Asset Value. Except in the event of emergency conditions
or as otherwise permitted by the Investment Company Act of 1940, the net asset
value per share of each class or series of stock shall be determined no less
frequently than once daily, Monday through Friday, at such time or times as the
Board of Directors sets at least annually. In valuing portfolio investments for
the determination of the net asset value per share of any class or series,
securities for which market quotations are readily available shall be valued at
prices which, in the opinion of the Board of Directors or the person designated
by the Board of Directors to make the determination, most nearly represent the
current market value of such securities, and other securities and assets shall
be valued on the basis of their fair value as determined by or pursuant to the
direction of the Board of Directors, which in the case of debt obligations,
commercial paper and repurchase agreements may, but need not, be on the basis
of yields for securities of comparable maturity, quality and type, or on the
basis of amortized cost.

SECTION 7.06. Employment of Custodian. The Corporation shall place and
maintain its securities and similar investments in the custody of one or more
custodians meeting the requirements of the Investment Company Act of 1940 or
may serve as its own custodian but only in accordance with such rules and
regulations or orders as the Securities and Exchange Commission may from time
to time prescribe for the protection of investors. Securities held by a
custodian may be registered in the name of the Corporation, including the
designation of the

<PAGE> 14
particular class or series to which such assets belong, or any such custodian,
or the nominee of either of them. Subject to such rules, regulations, and
orders as the Commission may adopt as necessary or appropriate for the
protection of investors, the Corporation or any custodian, with the consent of
the Corporation, may deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities, pursuant to
which system all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.

ARTICLE VIII.

SUNDRY PROVISIONS

SECTION 8.01. Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
these By-Laws shall be kept at the principal office of the Corporation.

SECTION 8.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule or regulation relating to a corporate seal to
place the word "Seal" adjacent to the signature of the person authorized to
sign the document on behalf of the Corporation.

SECTION 8.03. Bonds. The Board of Directors may require any officer, agent
or employee of the Corporation to give a bond to the Corporation, conditioned
upon the faitful discharge of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.

SECTION 8.04. Voting Shares in Other Corporations. Shares of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.

SECTION 8.05. Mail. Any notice or other document which is required by these

14
<PAGE> 15
By-Laws to be mailed shall be deposited in the United States mails, postage
prepaid.

SECTION 8.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer.

SECTION 8.07. Amendments. Subject to the special provisions of Section
2.02, (i) any and all provisions of these By-Laws may be altered or repealed
and new by-laws may be adopted at any annual meeting of the stockholders, or at
any special meeting called for that purpose, and (ii) the Board of Directors
shall have the power, at any regular or special meeting thereof, to make and
adopt new by-laws, or to amend, alter or repeal any of the By-Laws of the
Corporation.

***

<PAGE> 1
EXHIBIT 5.1

INVESTMENT ADVISORY AGREEMENT

AGREEMENT (herein so called) made this 20th day of December, 1994, by and
between AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC., a Maryland
corporation (referred to as the "FUND"), and AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").

The FUND and the ADVISER agree as follows:

1. Services Rendered and Expenses Paid by ADVISER

The ADVISER, subject to the control, direction and supervision of the FUND's
Directors and in conformity with applicable laws, the FUND's Articles of
Incorporation ("Articles of Incorporation"), By-laws, registration
statements, prospectus and stated investment objectives, policies and
restrictions, shall:

a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;

b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected
by the ADVISER;

c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
routine legal services except for services provided by outside counsel to the
FUND selected by the Directors, and the supervision of the FUND's Treasurer and
the personnel working under his direction; and

d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND director and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.

In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Directors of appropriate policies and procedures, the ADVISER may, to the
extent authorized by law, cause the FUND to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of

<PAGE> 2
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction. In the event of such authorization and to the extent
authorized by law, the ADVISER shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of such action.

Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its directors and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the FUND which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such financial statements and other FUND documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the FUND's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the FUND selected by the Directors; (vi) custodian,
registrar and shareholder service agent fees and expense; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the FUND and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the FUND; (xi) all other expenses incidental to holding meetings of the FUND's
stockholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Directors; and (xv) such nonrecurring
expenses as may arise, including those associated with actions, suits or
proceedings to which the FUND is a party and the legal obligation which the
FUND may have to indemnify its officers and directors with respect thereto. To
the extent that any of the foregoing expenses are allocated between the FUND
and any other party, such allocations shall be pursuant to methods approved by
the Directors.

2. Role of ADVISER

<PAGE> 3
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.

Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, directors, officers and employees of the FUND
may be a stockholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.

Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or
to any shareholder of the FUND, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.

3. Compensation Payable to ADVISER

The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee at the
annual rate of 1.00% of the FUND's average daily net assets.

Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Articles of Incorporation. Such fee shall be
payable for each calendar month as soon as practicable after the end of that
month.

The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall be
reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of American Capital Management & Research, Inc., or
its successor, in connection with the purchase and sale of portfolio
investments of the FUND, less any direct expenses incurred by such person, in
connection with obtaining such commissions, fees, brokerage or similar
payments. The ADVISER shall use its best efforts to recapture all available
tender offer solicitation fees and exchange offer fees in connection with the
FUND's portfolio transactions and shall advise the Directors of any other
commissions, fees, brokerage or similar payments which may be possible for the
ADVISER or any other direct or indirect majority owned subsidiary of American
Capital Management & Research, Inc., or its successor, to receive in connection
with the FUND's portfolio transactions or other arrangements which may benefit
the FUND.

<PAGE> 4
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the FUND's shares are qualified for sale, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and directors and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to American Capital Marketing, Inc., the distributor of the FUND's
shares, in connection with a distribution plan adopted by the FUND's Directors
pursuant to Rule 12b-1 under the Investment Company Act of 1940.

If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.

4. Duration of Agreement

This Agreement shall have an initial term of 2 years from the date hereof, and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved at least annually by the vote of a majority of the
FUND's Directors who are not parties to this Agreement or interested persons of
any such parties, cast in person at a meeting called for the purpose of voting
on such approval, and by a vote of a majority of the FUND's Directors or a
majority of the FUND's outstanding voting securities.

This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Directors, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
60 days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.

5. Miscellaneous Provisions

For the purposes of this Agreement, the terms "affiliated person,"

4
<PAGE> 5
"assigment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.

The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

By: /s/ CURTIS W. MORELL

Name: Curtis W. Morell

Its: Vice President

AMERICAN CAPITAL ASSET MANAGEMENT, INC.

By: /s/ NORI L. GABERT

Name: Nori L. Gabert

Its: Vice President

<PAGE> 1
EXHIBIT 5.2
INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN
AMERICAN CAPITAL ASSET MANAGEMENT, INC.
and
JOHN GOVETT & CO. LIMITED

THIS AGREEMENT is made as of this 20th day of December, 1994 by and between
JOHN GOVETT & CO. LIMITED ("JOHN GOVETT") of Shackleton House, 4 Battle Bridge
Lane, London SE1 2HR, England, and AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ACAM") of 2800 Post Oak Boulevard, Houston, Texas 77056.

WHEREAS, ACAM has heretofore sponsored and acts as Investment Adviser to
American Capital Global Managed Assets Fund, Inc. (the "Fund"); and

WHEREAS, JOHN GOVETT has available a staff of experienced investment personnel
and facilities for providing investment sub-advisory services applicable to
that portion of the investment portfolio invested in non-U.S. securities; and

WHEREAS, ACAM represents that it is a non-private investor with regard to the
Investment Management Regulatory Organization Limited ("IMRO") rules.

WHEREAS, JOHN GOVETT is a member of IMRO, a self-regulating organization
recognized under the Financial Services Act 1986 of the United Kingdom and is
willing to provide ACAM with investment advisory services on the terms and
conditions hereinafter set forth; and

WHEREAS, ACAM and JOHN GOVETT (jointly referred to as "the Advisers") desire to
enter into an agreement for JOHN GOVETT to provide sub-advisory services to the
Fund and to ACAM with respect to the Fund's non-U.S. investments.

NOW THEREFORE it is mutually agreed:

1. Investment Sub-Advisory Services

1.1 Investment Advice

a) Subject to the overall policies, control, direction and review of the
Fund's Board of Directors, JOHN GOVETT shall keep under review the non-U.S.
investments of the Fund and continuously furnish to the Fund and to ACAM (1)
investment advice primarily for investments in securities for which the
principal trading market(s) are in non-U.S. countries; (2) economic,
statistical and research information and advice, including advice on the
allocation of investments among countries, relating only to such portion of the
Fund's assets as the Advisers shall from time to time designate ("Non-U.S.
Securities"), generally with respect to securities

<PAGE> 2
issued outside the United States and Canada; (3) recommendations as to the
voting of proxies solicited by or with respect to Non-U.S. Securities; and (4)
an investment program with respect to Non-U.S. Securities and recommendations
as to what securities shall be purchased, sold or exchanged, and what portion,
if any, of the Non-U.S. Securities shall be held in money market instruments.

b) The Advisers are responsible for the allocation of the Fund's assets among
the various securities markets of the world. The Advisers will determine at
least quarterly the percentage of the assets that shall be allocated to each of
the Advisers (the "Asset Allocation"). The Asset Allocation will specify the
percentage and nature of the assets of the Fund allocated to each of the
Advisers for management on the effective date of the determination and will
apply to cash inflows or outflows and income and expense accruals thereafter
until such time as the Asset Allocation is redetermined. Each of the Advisers
will be responsible for the allocation of assets among the securities markets
within the area for which it is responsible. If the Advisers cannot agree on an
Asset Allocation, the Board shall make the final determination since the Board
retains in all events the control and management of the business and affairs of
the Fund.

c) Unless otherwise instructed by ACAM or the Board, and subject to the
provisions of this Agreement and to any guidelines or limitations specified
from time to time by ACAM or by the Board, JOHN GOVETT shall determine the
Non-U.S. Securities to be purchased and sold by the Fund and shall place orders
for the purchase, sale or exchange of Non-U.S. Securities for the Fund's
accounts with brokers or dealers and to that end JOHN GOVETT is authorized by
the Board to give instructions to the Custodian and any Sub-Custodian of the
Fund as to deliveries of such Non-U.S. Securities, transfers of currencies and
payments of cash for the account of the Fund.

d) In performing these services, JOHN GOVETT shall adhere to the Fund's
investment objectives, restrictions and limitations as contained in its
Prospectus, Statement of Additional Information, or Charter and shall comply
with all statutory and regulatory restrictions, limitations and requirements
applicable to the activity of the Fund.

e) Unless otherwise instructed by ACAM or the Board, and subject to the
provisions of this Agreement and to any guidelines or limitations specified
from time to time by ACAM or by the Board, JOHN GOVETT shall have executed and
performed on behalf of and at the expense of the Fund:

i) Purchases, sales, exchanges, conversions, and placement or orders for
execution, and

ii) Reporting of all transactions to ACAM and to other entities as

<PAGE> 3
directed by ACAM or by the Board.

f) JOHN GOVETT shall provide the Board at least quarterly, in advance of the
regular meetings of the Board, a report of its activities hereunder on behalf
of the Fund and its proposed strategy for the next quarter, all in such form
and detail as requested by the Board. JOHN GOVETT shall also make an investment
officer available to attend such meetings of the Board as the Board may
reasonably request.

1.2 Restriction of JOHN GOVETT's Powers

(a) JOHN GOVETT shall not commit the Fund to any extent beyond the amount of
the cash and securities placed by the Fund under the control of the JOHN GOVETT.

(b) In carrying out its duties hereunder JOHN GOVETT shall comply with all
reasonable instruction of the Fund or ACAM in connection therewith. Such
instructions may be given by letter, telex, telefax or telephone confirmed by
telex, by the Board or by any other person authorized by a resolution of the
Board provided a certified copy of such resolution has been supplied to JOHN
GOVETT.

(c) All securities, cash, and other assets of the Fund shall be placed and
maintained in the care of a member bank of the Federal Reserve System of the
United States approved by the Board as custodian and one or more "Eligible
Foreign Custodians" (as defined in Rule 17f-5 under the Investment Company Act
of 1940 (the "1940 Act")) approved by the Board as sub-custodians.

(d) Persons authorized by resolution of the Board shall have the right to
inspect and copy contracts, notes, vouchers, and copies of entries in books or
electronic recording media relating to the Fund's transactions at the
registered office of JOHN GOVETT at any time during normal business hours. Such
records, in relation to each transaction effected by JOHN GOVETT on behalf of
the Fund shall be maintained by JOHN GOVETT for a period of seven years from
the date of such transaction.

1.3 Purchase and Sale of Securities

In performing the services described above, JOHN GOVETT shall use its best
efforts to obtain for the Fund the most favorable price and execution
available. Subject to prior authorization of appropriate policies and
procedures by the Board, JOHN GOVETT may, to the extent authorized by law,
cause the Fund to pay a broker or dealer who provides brokerage and research
services an amount of commission for effecting the Fund's investment
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction, in recognition of the
brokerage and research services provided by the broker or dealer.

<PAGE> 4
To the extent authorized by law, JOHN GOVETT shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of such action.

1.4 Custodian

JOHN GOVETT shall not act as Custodian for the securities or any other assets
of the Fund. All such assets shall be held by the Custodian or Sub-Custodian
appointed by the Board.

2. Duties of ACAM

2.1 Provision of Information

ACAM shall advise JOHN GOVETT from time to time with respect to the Fund of its
investment objectives and of any changes or modifications thereto, as well as
any specific investment restrictions or limitations by sending to JOHN GOVETT a
copy of each registration statement relating to the Fund as filed with the
Securities and Exchange Commission. As requested by JOHN GOVETT, ACAM shall
furnish such information to JOHN GOVETT as to holdings, purchases, and sales of
the securities under its management as will reasonably enable JOHN GOVETT to
furnish its investment advice under this Agreement.

2.2 Compensation to JOHN GOVETT

The fee for the services provided under this Agreement will be determined as
follows:

(a) An amount for each month (or such other valuation period as may be
mutually agreed upon) equivalent, on an annual basis, to 50% of the
compensation actually received by ACAM pursuant to the investment advisory fee
schedule set forth in the Investment Advisory Agreement between the Fund and
ACAM taking into account any waiver or return to the Fund of any or all of such
advisory fee by ACAM (with any such return of fees to be treated as if not
actually received). The value of the assets of the Fund shall be computed as of
the close of business on the last day of each valuation period for the Fund,
using the average of all the daily determinations of the net value of the
assets of the Fund.

(b) The foregoing fee shall be paid in cash by ACAM to JOHN GOVETT within
five (5) business days after the last day of the valuation period.

3. Miscellaneous

3.1 Activities of JOHN GOVETT

The services of JOHN GOVETT as Sub-Adviser to ACAM under this

4
<PAGE> 5
Agreement are not to be deemed exclusive, JOHN GOVETT and its affiliates being
free to render services to others. It is understood that shareholders,
directors, officers and employees of JOHN GOVETT may become interested in the
Fund or ACAM as a shareholder, trustee, officer, partner or otherwise.

3.2 Services to Other Clients

ACAM acknowledges that JOHN GOVETT may have investment responsibilities, or
render investment advice to, or perform other investment advisory services for,
other individuals or entities, ("Clients"). Subject to the provisions of this
paragraph, ACAM agrees that JOHN GOVETT may give advice or exercise investment
responsibility and take such other action with respect to such Clients which
may differ from advice given or the timing or nature of action taken with
respect to the Fund, provided that JOHN GOVETT acts in good faith, and
provided, further, that it is JOHN GOVETT policy to allocate, within its
reasonable discretion, investment opportunities to the Fund over a period of
time on a fair and equitable basis relative to the Clients, taking into account
the investment objectives and policies of the Fund and any specific investment
restrictions applicable thereto. ACAM acknowledges that one or more of the
Clients may at any time hold, acquire, increase, decrease, dispose of or
otherwise deal with positions in investments in which the Fund may have an
interest from time to time, whether in transactions which may involve the Fund
or otherwise. JOHN GOVETT shall have no obligation to acquire for the Fund a
position in any investment which any Client may acquire, and ACAM shall have no
first refusal, coinvestment or other rights in respect of any such investment,
either for the Fund or otherwise.

3.3 Best Efforts

It is understood and agreed that in furnishing the investment advice and other
services as herein provided, JOHN GOVETT shall use its best professional
judgment to recommend actions which will provide favorable results for the
Fund. JOHN GOVETT shall not be liable to the Fund or to any shareholder of the
Fund to any greater degree than ACAM.

3.4 Indemnity for Taxes

a) Notwithstanding any other provision of this Agreement, ACAM shall
indemnify and save JOHN GOVETT and each of its affiliates, officers, directors
and employees (each an "Indemnified Party") harmless from, against, for and in
respect of all taxes imposed by the United Kingdom on ACAM or the Fund, in
relation to the matters contemplated by this Agreement in the event that any
such tax is assessed or charged on an Indemnified Party as a branch or agent of
ACAM or the Fund.

<PAGE> 6
b) ACAM will not be liable under this indemnification provision with respect
to any liabilities incurred by reason of an Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the Fund.

c) ACAM will not be liable under this indemnification provision with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified ACAM in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated agent). In
case any such action is brought against the Indemnified Parties, ACAM will be
entitled to participate, at its own expense, in the defense thereof. ACAM also
will be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from ACAM to such party of ACAM's
election to assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and ACAM will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof.

3.5 Duration of Agreement

a) This Agreement, unless terminated pursuant to paragraph b or c below,
shall have an initial term of two years, and thereafter shall continue in
effect from year to year, provided its continued applicability is specifically
approved at least annually by the Board or by a vote of the holders of a
majority of the outstanding shares of the Fund. In addition, such continuation
shall be approved by vote of a majority of the Directors who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. As used in this
paragraph, the term "interested person" shall have the same meaning as set
forth in the 1940 Act.

b) This Agreement may be terminated by sixty (60) days' written notice by
either ACAM or JOHN GOVETT to the other party. The Agreement may also be
terminated at any time, without the payment of any penalty, by the Fund (by
vote of the Board or, by the vote of a majority of the outstanding voting
securities of such Fund), on sixty (60) days' written notice to both ACAM and
JOHN GOVETT. This Agreement shall automatically terminate in the event of the
termination of the investment advisory agreement between ACAM and the Fund.

c) This Agreement shall terminate in the event of its assignment. The term
"assignment" for this purpose shall have the same meaning

<PAGE> 7
set forth in Section 2(a)(4) of the 1940 Act.

d) Termination shall be without prejudice to the completion of any
transactions which JOHN GOVETT shall have committed to on behalf of the Fund
prior to the time of termination. JOHN GOVETT shall not effect and the Fund
shall not be entitled to instruct JOHN GOVETT to effect any further
transactions on behalf of the Fund subsequent to the time termination takes
effect.

e) This Agreement shall terminate forthwith by notice in writing on the
happening of any of the following events:

i) if ACAM or JOHN GOVETT shall go into liquidation (except a voluntary
liquidation for the purpose of and followed by a bona fide reconstruction or
amalgamation upon terms previously approved in writing by the party not in
liquidation) or if a receiver or receiver and manager of any of the assets of
any of them is appointed; or

ii) if either of the parties hereto shall commit any breach of the provisions
hereof and shall not have remedied such breach within 30 days after the service
of notice by the party not in breach on the other requiring the same to be
remedied.

f) On the termination of this Agreement and completion of all matters
referred to in the foregoing paragraph (d) JOHN GOVETT shall deliver or cause
to be delivered to the Fund copies of all documents, records and books of the
Fund required to be maintained pursuant to Rules 31a-1 or 31a-2 of the 1940 Act
which are in JOHN GOVETT's possession, power or control and which are valid and
in force at the date of termination.

3.6 Notices

Any notice, request, instruction, or other document to be given under this
Agreement by any party hereto to the other parties shall be in writing and
delivered personally or sent by mail or telecopy (with a hard copy to follow),

If to JOHN GOVETT, to:

Shackleton House
4 Battle Bridge Lane
London SE1 2HR
England
attn: The Hon. Kevin Pakenham

<PAGE> 8
with a copy to:

650 California Street
28th Floor
San Francisco, CA 94108
telecopy: (415) 249-0554
attn: Michael J. Mayer

and a copy to:

650 California Street
28th Floor
San Francisco, CA 94108
telecopy: (415) 249-0553
attn: Robert A. Cornman, Esq.

and a copy to:

Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
telecopy: (415) 772-6268
attn: Mitchell E. Nichter, Esq.

If to ACAM, to:

2800 Post Oak Blvd.
Houston, TX 77056
telecopy: (713) 993-4300
attn: Don Powell

with a copy to:

2800 Post Oak Blvd.
Houston, TX 77056
telecopy: (713) 993-4317
attn: Nori L. Gabert, Esq.

or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be presumed to have
been duly given to the party to which it is addressed, on the date three (3)
days after mailing, and in the case of delivery by telecopy, on the date the
hard copy is received.

3.7 IMRO Rules

As a member of IMRO and in light of IMRO Rules, the Sub-Adviser

<PAGE> 9
places on record that it regards this Agreement as not necessitating any
ancillary agreement with the Fund or ACAM on the grounds that, within meanings
of the IMRO Rules (a) the Fund is an open-ended investment company and a
business investor, (b) ACAM is a professional investor and (c) the subject
matter of this Agreement is a scheme management activity.

3.8 Choice of Law

This Agreement shall be construed according to, and the rights and liabilities
of the parties hereto shall be governed by, the laws of the United States and
the State of California.

IN WITNESS WHEREOF, the Agreement has been executed as of the date first above
given.

JOHN GOVETT & CO. LIMITED

By: /s/ KEVIN PAKENHAM

Name: The Honorable K.J.T. Pakenham

Its: Chief Executive

AMERICAN CAPITAL ASSET MANAGEMENT, INC.

By: /s/ NORI L. GABERT

Name: Nori L. Gabert

Its: Vice President

<PAGE> 1
EXHIBIT 6.1

UNDERWRITING AGREEMENT
between
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.
and
AMERICAN CAPITAL MARKETING, INC.

THIS AGREEMENT made this 20th day of December, 1994 by and between AMERICAN
CAPITAL GLOBAL MANAGED ASSETS FUND, INC., a Maryland corporation, hereinafter
referred to as the "Fund", and AMERICAN CAPITAL MARKETING, INC., a Texas
corporation, hereinafter referred to as the "Underwriter".

WHEREAS, the Fund proposes to issue its shares in three classes: Class A, Class
B and Class C, all as described in the Fund's current prospectus at the time of
sale;

W I T N E S S E T H:

In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:

FIRST: The Fund hereby appoints the Underwriter as its exclusive agent for
the sale of shares of the Fund to the public through investment dealers in the
United States and throughout the world.

SECOND: The Fund shall not sell any of its shares except through the
Underwriter and under the terms and conditions set forth in paragraph FOURTH
below. Notwithstanding the provisions of the foregoing sentence, however,

(A) the Fund may issue its shares to any other investment company or personal
holding company, or to the shareholders thereof, in exchange for all or a
majority of the shares or assets of any such company;

(B) the Fund may issue its shares at net asset value to any shareholder of
the Fund purchasing such shares with dividends or other cash distributions
received from the Fund pursuant to an offer made to all shareholders; and

THIRD: The Underwriter hereby accepts appointment as exclusive agent for the
sale of all classes of shares of the Fund and agrees that it will use its best
efforts to sell such shares; provided, however, that:

(A) the Underwriter may, and when requested by the Fund shall, suspend its
efforts to effectuate sales for any or all classes of

<PAGE> 2
shares of the Fund or limit such sales efforts to existing shareholders of the
Fund at any time when, in the opinion of the Underwriter, after consultation
with the investment adviser to the Fund, or in the opinion of the Fund, sales
efforts should be limited or suspended because of market or other economic
considerations (including a determination by the Fund's investment adviser that
it would be in the best interests of existing shareholders of the Fund to
suspend sales of shares of the Fund or limit such sales to existing
shareholders of the Fund) or abnormal circumstances of any kind;

(B) upon the limiting or suspension of sales efforts by the Underwriter
pursuant to clause (A) above, the Fund may in its discretion suspend the sale
of shares through the Underwriter or limit such sales to existing shareholders
of the Fund; and

(C) the Fund may withdraw the offering of its shares (i) at any time with the
consent of the Underwriter, or (ii) without such consent when so required by
the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction. It is mutually understood and agreed
that the Underwriter does not undertake to sell any specific amount of shares
of the Fund. The Fund shall have the right to specify minimum amounts for
initial and subsequent orders for the purchase of shares.

FOURTH: The offering price of shares of the Fund (the "offering price") shall
be the net asset value per share plus, in the case of Class A shares, any
applicable initial sales charge. Net asset value per share shall be determined
in the manner provided in the then current prospectus of the Fund. The sales
charge for shares shall be established by the Underwriter. The Underwriter may
designate a scale of reducing sales charges on the basis of the value of shares
purchased or owned in accordance with Rule 22d-1 under the Investment Company
Act of 1940 (the "Act"). Included in the scale of reducing sales charges may be
a level at which no sales charges are added to the net asset value in computing
the public offering price. The Underwriter may also designate eliminations of
sales charges to particular classes of investors or transactions in accordance
with Rule 22d-1, provided such eliminations are approved by the Fund and
described in the prospectus. The Fund shall allow, directly to investment
dealers through whom shares of the Fund are sold, such portion of the sales
charge as may be payable to them and specified by the Underwriter up to, but
not exceeding, the amount of the total sales charge. The difference between any
portion of the sales charge so payable to investment dealers and the total
sales charges included in the offering price shall be paid to the Underwriter.

The offering price of Class B and Class C shares of the Fund shall be the net
asset value per share without an initial sales charge. However, the Fund agrees
that the Underwriter shall impose certain

<PAGE> 3

contingent deferred sales charges in connection with the redemption of Class B
and Class C shares of the Fund, not to exceed a specified percentage of the
original purchase price of the shares as from time to time set forth in the
prospectus of the Fund. The Underwriter may retain (or receive from the Fund,
as the case may be) all of such contingent deferred sales charges. Net asset
value per share shall be determined in the manner provided in the then current
prospectus of the Fund. The Underwriter may designate eliminations of
contingent deferred sales charges to particular classes of investors or
transactions in accordance with Rule 22d-1 provided such eliminations are
approved by the Fund and described in the prospectus. The Underwriter proposes
to pay to investment dealers through whom Class B and Class C shares of the
Fund are sold a dealer commission of a specified percentage of the purchase
price of Class B and Class C shares purchased through them and as from time to
time set forth in the prospectus of the Fund.

The Underwriter shall act as agent of the Fund in connection with the sale and
repurchase of shares of the Fund. Except with respect to such sales and
repurchases, the Underwriter shall act as principal in all matters relating to
the promotion of the sale of shares of the Fund and shall enter into all of its
own engagements, agreements and contracts as principal on its own account. The
Underwriter shall enter into selling group agreements with investment dealers
selected by the Underwriter, authorizing such investment dealers to offer and
sell shares of the Fund to the public upon the terms and conditions set forth
therein, which shall not be inconsistent with the provisions of this Agreement.
Each selling group agreement shall provide that the investment dealer shall act
as a principal, and not as an agent of the Fund.

FIFTH: The Underwriter shall bear

(A) the expenses of printing from the final proof and distributing
registration statements and prospectuses relating to public offerings made by
the Underwriter pursuant to this Agreement and annual and semi-annual
shareowner reports used as sales literature (not, however, including
typesetting costs), as well as all printing and distribution costs of any other
sales literature used by the Underwriter or furnished by the Underwriter to
dealers in connection with such public offerings except as otherwise agreed by
the Board of Directors;

(B) expenses of advertising in connection with such public offerings except
as otherwise agreed by the Board of Directors; and

SIXTH: The Underwriter will accept orders for shares of the Fund only to the
extent of purchase orders actually received and not in excess of such orders,
and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders.

<PAGE> 4
SEVENTH:

(A) The Fund and the Underwriter shall each comply with all applicable
provisions of the Act, the Securities Act of 1933 (the "Securities Act") and of
all other federal and state laws, rules and regulations governing the issuance
and sale of shares of the Fund.

(B) The Fund agrees to indemnify the Underwriter against any and all claims,
demands, liabilities and expenses which the Underwriter may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.

(C) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of or
based upon any act or deed of the Underwriter or its sales representatives
which has not been authorized by the Fund in its prospectus or in this
Agreement. The Underwriter agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.

(D) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur under the Securities
Act, or common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in any prospectus of the Fund
prepared for use under Rule 482 of the Securities Act, or any omission to state
a material fact therein.

EIGHTH: Nothing herein contained shall require the Fund to take any action
contrary to any provision of its Articles of Incorporation or to any applicable
statute or regulation.

NINTH: This Agreement shall become effective on the date hereof, shall have
an initial term of two years from the date hereof, and shall continue in force
and effect from year to year thereafter, provided, that such continuance is
specifically approved at least annually (a)(i) by the Board of Directors of the
Fund, or (ii) by vote of a majority of the Fund's outstanding voting securities
(as

<PAGE> 5
defined in Section 2(a)(42) of the Act); and (b) by vote of a majority of
the Fund's Board of Directors who are not parties to this Agreement or
interested persons (as defined in Section 2(a)(19) of the Act) of any party
to this Agreement, cast in person at a meeting called for the purpose of voting
on such approval.

TENTH:

(A) This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board of Directors of the Fund or by vote of a majority
of the outstanding voting securities of the Fund, or by the Underwriter, on
sixty days written notice to the other party.

(B) This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the Act).

ELEVENTH: Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed, postage paid, to the other party at such address as such
other party may designate for the receipt of such notices. Until further
notice to the other party, it is agreed that the address of both the Fund and
the Underwriter shall be 2800 Post Oak Boulevard, Houston, Texas 77056.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate on the day and year first above written.

AMERICAN CAPITAL MARKETING, INC.

By: /s/ FRED SHEPHERD

Name: Fred Shepherd

Its: Vice President

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

By: /s/ J. DAVID WISE

Name: J. David Wise

Its: Vice President and Assistant Secretary

<PAGE> 1

EXHIBIT 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 2, Amendment No. 4 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 17, 1995, relating to the
financial statements and financial highlights appearing in the December 31, 1994
Annual Report to Shareholders of American Capital Global Managed Assets Fund,
Inc., which are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in the Prospectus and under the
heading "Independent Accountants" in the Statement of Additional Information.

/s/ PRICE WATERHOUSE LLP

Houston, Texas

April 26, 1995

<PAGE> 1
EXHIBIT 15.1

CLASS A
DISTRIBUTION PLAN
OF
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

Section 1. American Capital Global Managed Assets Fund, Inc. (the "Fund") may
act as a distributor of any shares of any series of any Portfolio ((herein
called) into which the Fund's assets have been divided that are designated as
"Class A shares", pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "Act") , according to the terms of this Distribution Plan (the
"Plan"). (The term "Shares" shall be used to refer to Class A shares of any
series of any Portfolio of the Fund).

Section 2. The Fund may incur as a distributor of Shares, expenses of up to
twenty-five one-hundredths of one percent (0.25%) per annum of the average
daily net assets of the Portfolio to which those Shares relate.

Section 3. Amounts set forth in Section 2 may be expended when and if
authorized in advance by the Fund's Directors. Such amounts may be used to
finance any activity which is primarily intended to result in the sale of the
Fund's Shares or the retention of Shares by investors, including but not
limited to, expenses of organizing and conducting sales seminars, printing of
prospectuses and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental
payments to dealers under a dealer incentive program to be established by
American Capital Marketing, Inc. ("Marketing") as the Fund's Distributor in
accordance with Section 4, and the costs of administering such a program. All
amounts expended pursuant to the Plan shall be paid to Marketing. Marketing
shall be required to use such amounts exclusively to finance those activities
set forth in Sections 3 and 4 of the Plan.

Section 4. (a) Amounts expended by the Fund under the Plan shall be used
primarily for the implementation by Marketing of a dealer incentive program and
to pay the cost of administering the calculation of payments under such
program.

(b) Pursuant to this program, Marketing may enter into agreements ("Servicing
Agreements") with such broker/dealers ("Dealers") as may be selected from time
to time by Marketing for the provision of distribution assistance in connection
with the sale of Shares to the Dealers' clients and customers ("Customers") and
for the provision of administrative support services to Customers who may from
time to time directly or beneficially own Shares. The distribution assistance
and administrative support services to be rendered by Dealers under the
Servicing Agreements may include, but shall not be limited to, the following:
distributing sales

<PAGE> 2
literature; answering routine Customer inquiries concerning the Fund; assisting
Customers in changing dividend options, account designations and addresses, and
in enrolling into the pre-authorized check plan, systematic withdrawal plan or
any of several tax sheltered retirement plans offered in connection with the
purchase of Shares; assisting in the establishment and maintenance of Customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and capital gains distributions automatically
in Shares and providing such other information and services as the Fund or the
Customer may reasonably request.

Section 5. This Plan shall not take effect with respect to any Portfolio until
it has been approved by a vote of at least a majority (as defined in the Act) of
the outstanding Shares of that Portfolio.

Section 6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of the majority of both (a) the Directors
of the Fund and (b) those Directors of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Directors"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.

Section 7. Unless sooner terminated pursuant to Section 9, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 6.

Section 8. Marketing shall provide to the Fund's Directors and the Directors
shall review, at least quarterly, a written report of the amounts expended under
the Plan and the purposes for which such expenditures were made.

Section 9. This Plan may be terminated with respect to any Portfolio at any time
by vote of a majority of the Disinterested Directors, or by vote of a majority
of the outstanding Shares of that Portfolio.

Section 10. Any agreement related to this Plan shall be in writing, and shall
provide:

(a) That such agreement may be terminated with respect to any Portfolio at any
time on not more than sixty days' written notice to any other party to the
agreement, without payment of any penalty, by vote of a majority of the
Disinterested Directors, or by a vote of the outstanding Shares of that
Portfolio; and

<PAGE> 3

(b) That such agreement shall terminate automatically in the event of its
assignment.

Section 11. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 5 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
6 hereof.

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

By: /s/ NORI L. GABERT

Name: Nori L. Gabert

Its: Vice President

Plan effective as of: May 4, 1994
as amended October 7, 1994

<PAGE> 1
EXHIBIT 15.2

CLASS B
DISTRIBUTION PLAN
OF
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

WHEREAS, American Capital Global Managed Assets Fund, Inc. (the "Fund"),
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act");

WHEREAS, the Fund proposes to offer shares of the Portfolio(s) (herein so
called) into which the Fund's assets have been divided that are designated as
"Class B shares" at net asset value without initial sales charge but with a
contingent deferred sales charge ("CDSC") (the term "Shares" shall be used to
refer to Class B shares of any series of any Portfolio of the Fund);

WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of Shares, to make payments in
connection with the distribution of Shares and to engage American Capital
Marketing, Inc. ("Marketing") to act as principal underwriter (as defined in
the Act) of Shares, and desires to adopt a Class B Shares Distribution Plan
pursuant to Rule 12b-1 under the Act;

WHEREAS, Marketing proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Shares and to compensate
financial and other industry professionals that provide services to facilitate
transactions in Shares for their clients (such broker-dealers, other persons,
financial institutions and other industry professionals being collectively
referred to as "Service Organizations");

WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by Marketing to such Service Organizations;

WHEREAS, Marketing may provide additional promotional incentives to certain or
all Service Organizations and proposes to incur substantial additional expenses
in rendering distribution services for Shares, including but not limited to,
printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;

<PAGE> 2
WHEREAS, the Directors of the Fund have determined that there is a reasonable
likelihood that adoption of this Class B Distribution Plan will benefit the
Fund, each Portfolio and holders of Shares;

NOW, THEREFORE, each Portfolio hereby adopts this Class B Distribution Plan
(the "Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:

1. Subject to the supervision of the Directors of the Fund, Marketing will
provide the Fund with such distribution services and facilities as the Fund may
from time to time consider necessary to enhance the sale of Shares.

2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Shares rendered by Marketing, the Fund
shall pay Marketing out of the assets attributable to the Shares an annual
distribution and service fee ("Distribution and Service Fee") calculated daily
and payable weekly. The Distribution and Service Fee shall equal on an annual
basis up to 1.00% of the average daily net assets of the Portfolio to which
the Shares relate. Only distribution expenditures of a type and amount
authorized in advance by the Fund's Directors and properly attributable to the
sale of Shares will be used to justify any fee paid pursuant to this Plan.

3. This Plan shall not take effect with respect to any Portfolio until it has
been approved by a vote of at least a majority (as defined in the Act) of the
outstanding Shares of that Portfolio.

4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Directors"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.

5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as directors of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Directors then in office
who are not "interested persons" of the Fund.

6. Unless sooner terminated pursuant to Section 8, this Plan shall continue
in effect for a period of one year from the date it takes effect (which shall
be the date of the commencement of the public offering of Shares, provided that
the conditions of Sections 3 and 4 above have been met).

7. Marketing shall provide to the Fund's Directors and the Directors shall
review, at least quarterly, a written report of the

<PAGE> 3
expenses incurred hereunder and the purposes for which such expenditures were
made.

8. The Plan may be terminated with respect to any Portfolio, without payment
of any penalty, at any time by vote of a majority of the Disinterested
Directors, or by vote of a majority of the outstanding Shares of that
Portfolio.

9. Any agreement related to this Plan shall be in writing, and shall provide:

(a) That such agreement may be terminated with respect to any Portfolio at any
time on not more than sixty days' written notice to any other party to this
agreement, without payment of any penalty, by vote of a majority of the
Disinterested Directors or by a vote of the outstanding Class B Shares of that
Portfolio; and

(b) That such agreement shall terminate automatically in the event of its
assignment.

10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.

11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

By: /s/ NORI L. GABERT
Name: Nori L. Gabert
Its: Vice President

Plan effective as of: May 4, 1994
as amended October 7, 1994

<PAGE> 1
EXHIBIT 15.3

CLASS C
DISTRIBUTION PLAN
OF
AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

WHEREAS, the Fund proposes to offer shares of the Portfolio(s) (herein so
called) into which the Fund's assets have been divided that are designated as
"Class C shares" at net asset value without initial sales charge but with a
contingent deferred sales charge ("CDSC");

WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class C shares, to make payments
in connection with the distribution of its Class C shares and to engage
American Capital Marketing, Inc. ("Marketing") to act as principal underwriter
(as defined in the Act) of its Class C shares, and desires to adopt a Class C
Shares Distribution Plan pursuant to Rule 12b-1 under the Act;

WHEREAS, Marketing proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class C shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class C shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");

WHEREAS, Marketing may provide additional promotional incentives to certain or
all Service Organizations and proposes to incur substantial additional expenses
in rendering distribution services for Class C shares, including but not
limited to, printing prospectuses and reports for other than existing
shareholders, preparation and distribution of advertising material and sales
literature, expenses of organizing and conducting sales seminars, and other
operating expenses;

<PAGE> 2
WHEREAS, the Directors of the Fund have determined that there is a reasonable
likelihood that adoption of this Class C Distribution Plan will benefit the
Fund, each Portfolio and its Class C shareholders;

NOW, THEREFORE, each Portfolio hereby adopts this Class C Distribution Plan
(the "Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:

2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class C shares rendered by Marketing,
the Fund shall pay Marketing out of the assets attributable to the Class C
shares an annual distribution and service fee ("Distribution and Service Fee")
calculated daily and payable weekly. The Distribution and Service Fee shall
equal on an annual basis up to 1.00% of the average daily net assets of the
Portfolio to which the Class C shares relate. Only distribution expenditures of
a type and amount authorized in advance by the Fund's Directors and properly
attributable to the sale of Class C shares will be used to justify any fee paid
pursuant to this Plan.

3. This Plan shall not take effect with respect to any Portfolio until it has
been approved by a vote of at least a majority (as defined in the Act) of the
outstanding Class C shares of that Portfolio.

4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Directors") , cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.

6. Unless sooner terminated pursuant to Section 8, this Plan shall continue
in effect for a period of one year from the date it takes effect (which shall
be the date of the commencement of the public offering of Class C shares,
provided that the conditions of Sections 3 and 4 above have been met).

<PAGE> 3
7. Marketing shall provide to the Fund's Directors and the Directors shall
review, at least quarterly, a written report of the expenses incurred hereunder
and the purposes for which such expenditures were made.

9. Any agreement related to this Plan shall be in writing, and shall provide:

(a) That such agreement may be terminated with respect to any Portfolio at any
time, without payment of any penalty, by vote of a majority of the
Disinterested Directors or by a vote of the outstanding voting securities of
that Portfolio, on not more than sixty days' written notice to any other party
to this agreement; and

(b) That such agreement shall terminate automatically in the event of its
assignment.

AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND, INC.

By: /s/ NORI L. GABERT
Name: Nori L. Gabert
Its: Vice President

Plan effective as of: May 4, 1994
as amended October 7, 1994

<PAGE> 1

EXHIBIT 16

COMPUTATION MEASURE FOR PERFORMANCE INFORMATION

CALCULATION OF TOTAL RETURN -- CLASS A SHARES

The Fund calculates its average annual total return quotations for Class A
shares for the period ended December 31, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the 1, 5, and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:

P(1+T)n=ERV

<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods, at the end of the 1, 5, or 10 year
periods, or fractional portion thereof
</TABLE>

These calculations incorporate the following assumptions:

1. The maximum sales load, or other charges deducted from payments,
is deducted from the initial $1,000 payment.

2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period,
i.e., any sales load charged upon reinvestment of dividends would be
reflected.

3. All recurring fees, if any, charged to all shareholder accounts
are included.

4. The ending redeemable value assumes a complete redemption at the
end of the 1, 5, or 10 year periods and the deduction of all nonrecurring
charges, if any, deducted at the end of each period.

CALCULATION OF TOTAL RETURN -- CLASS B SHARES

The Fund calculates its average annual total return quotations for Class B
shares for the period ended December 31, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P(1+T)n=ERV

<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period, at the end of the period, or fractional portion
thereof
</TABLE>

<PAGE> 2

These calculations incorporate the following assumptions:

1. Assumes an initial $1,000 payment with the maximum contingent
deferred sales charge incurred.

2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.

3. All recurring fees, if any, charged to all shareholder accounts
are included.

4. The ending redeemable value assumes a complete redemption at the
end of the period and the deduction of all nonrecurring charges, if any,
deducted at the end of such period or periods.

CALCULATION OF TOTAL RETURN -- CLASS C SHARES

The Fund calculates its average annual total return quotations for Class C
shares for the period ended December 31, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P(1+T)n=ERV

<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period, at the end of the period, or fractional portion
thereof
</TABLE>

These calculations incorporate the following assumptions:

1. Assumes an initial $1,000 payment with a one percent contingent
deferred sales charge incurred.

2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.

3. All recurring fees, if any, charged to all shareholder accounts
are included.

4. The ending redeemable value assumes a complete redemption at the
end of the period and the deduction of all nonrecurring charges, if any,
deducted at the end of such period or periods.

<ARTICLE> 6
<CIK> 0000917547
<NAME> AC GLOBAL MANAGED - A
<SERIES>
<NUMBER> 1
<NAME> Class A Shares
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAY-16-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 20243
<INVESTMENTS-AT-VALUE> 19846
<RECEIVABLES> 515
<ASSETS-OTHER> 68
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20429
<PAYABLE-FOR-SECURITIES> 61
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216
<TOTAL-LIABILITIES> 277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20677
<SHARES-COMMON-STOCK> 1256
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (127)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (422)
<NET-ASSETS> 20152
<DIVIDEND-INCOME> 69
<INTEREST-INCOME> 364
<OTHER-INCOME> 0
<EXPENSES-NET> 321
<NET-INVESTMENT-INCOME> 112
<REALIZED-GAINS-CURRENT> (70)
<APPREC-INCREASE-CURRENT> (422)
<NET-CHANGE-FROM-OPS> (381)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 83
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 34
<NUMBER-OF-SHARES-SOLD> 1262
<NUMBER-OF-SHARES-REDEEMED> 19
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> 20051
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 322
<AVERAGE-NET-ASSETS> 10100
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> (0.247)
<PER-SHARE-DIVIDEND> 0.075
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.027
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 2.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>expense ratio is annualized
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000917547
<NAME> AC GLOBAL MANAGED - B
<SERIES>
<NUMBER> 2
<NAME> Class B Shares
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAY-16-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 803
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 22
<NUMBER-OF-SHARES-SOLD> 853
<NUMBER-OF-SHARES-REDEEMED> 54
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 4600
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.207)
<PER-SHARE-DIVIDEND> 0.046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.027
<PER-SHARE-NAV-END> 9.17
<EXPENSE-RATIO> 3.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>expense ratio is annualized
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000917547
<NAME> AC GLOBAL MANAGED - C
<SERIES>
<NUMBER> 3
<NAME> Class C Shares
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAY-16-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 136
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4
<NUMBER-OF-SHARES-SOLD> 142
<NUMBER-OF-SHARES-REDEEMED> 7
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 700
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.217)
<PER-SHARE-DIVIDEND> 0.046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.027
<PER-SHARE-NAV-END> 9.20
<EXPENSE-RATIO> 3.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>expense ratio is annualized
</FN>

</TABLE>