<PAGE> 1
AMERICAN CAPITAL
ENTERPRISE
FUND, INC.
[Photo of Man, Woman and Child]
ANNUAL REPORT
DECEMBER 31, 1994
AMERICAN
CAPITAL
(LOGO)
This brochure includes a prospectus which describes in detail the Fund's
objectives, investment policies, risks, sales charges, fees and other
matters of interest. Please read the prospectus carefully before
you invest or send money.
<PAGE> 2
AMERICAN CAPITAL ENTERPRISE FUND, INC. HIGHLIGHTS
[Photo of Child]
FOR INVESTORS SEEKING CAPITAL APPRECIATION
THROUGH COMMON STOCKS
AMERICAN CAPITAL'S QUALITY COMMITMENT
[Photo of 2 DALBAR Awards]
American Capital has been recognized for providing the highest
quality service in the mutual fund industry in 1994. For the
second consecutive year, DALBAR Surveys, Inc., an independent
research firm in the mutual fund industry, awarded American
Capital its coveted crystal pyramid for ranking number one in
service. This ranking is based on evaluations by investment
professionals across the country.
American Capital also has received the DALBAR
Quality Tested Service Seal for outstanding customer
service five years in a row.
Not a part of the Prospectus
<PAGE> 3
SHAREHOLDERS' MESSAGE
[PHOTO of Don G. Powell]
January 25, 1995
Dear Fellow Shareholder,
For more than six decades, American Capital has helped investors achieve their
financial goals. As a shareholder, you know that American Capital's goal is to
provide you with consistent, competitive returns and outstanding customer
service. Those goals will remain unchanged as we embark on a new era as Van
Kampen American Capital.
In December, shareholders of American Capital funds approved new
agreements with the funds' manager that cleared the way for completion of the
merger between American Capital Management & Research, Inc., the company that
owns your Fund's manager, and The Van Kampen Merritt Companies, Inc. on
December 20, 1994. While this merger will have no direct impact on your Fund
shares, it will create a stronger company that will be able to provide
shareholders with a broader range of investment options and nearly 100 years of
combined investment experience.
The strength and experience of Van Kampen American Capital is enhanced
further by the international and emerging markets expertise of John Govett &
Co., Ltd. Last fall, Van Kampen American Capital Distributors, Inc. (formerly
American Capital Marketing, Inc.) became the exclusive U.S. distributor of The
Govett Funds, Inc. This relationship will provide six additional fund options
for Van Kampen American Capital shareholders who want to add an international
or global component to their portfolios.
Although 1994 was a year of significant change for American Capital,
one thing has not changed: our belief in investing for the long term. The past
year was extremely challenging for both the stock and bond market, as concerns
about rising inflation prompted repeated increases in short-term interest rates
that made many investors nervous. While the markets did not perform as well in
1994 as in previous years, investing in a stock mutual fund still is the one of
the best ways to achieve long-term capital appreciation.
We will continue to communicate with you on a regular basis as we go
forward, providing information about both market conditions and new investment
opportunities. We appreciate your continued confidence in your Fund and Van
Kampen American Capital.
Sincerely,
/s/ Don G. Powell
Don G. Powell
President
Not a part of the Prospectus 1
<PAGE> 4
PORTFOLIO PERSPECTIVE
- ---------------------------------------------------------------------------
The following is an interview with the management team of American
Capital Enterprise Fund. The team is led by Stephen L. Boyd and Jeff
D. New, portfolio managers, and Alan T. Sachtleben, chief investment
officer for equity investments.
- ---------------------------------------------------------------------------
Q. WHAT MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND'S
PERFORMANCE DURING THE REPORTING PERIOD?
A. There were two major factors driving the stock market during 1994.
First and foremost, the economy was very strong. Economic growth
exceeded most analyst's expectations. This was positive because it
helped corporate earnings. But that growth triggered concerns about
inflation, and the Federal Reserve board responded by raising interest
rates six times during the year. The first increases brought interest
rates into a more neutral position - the low rates of the past two
years were designed to spur growth. But the later increases clearly
were implemented with the idea of slowing growth and preventing the
economy from overheating.
This second factor - rising interest rates - put pressure on
stock prices for several reasons. First, investors anticipated that
the rising rates would affect corporate profits by increasing
companies' borrowing costs. Second, they were concerned that if the
economy began slowing, revenues would be affected. And third, toward
the end of the year interest rates reached a level where fixed income
investments such as certificates of deposit were able to compete with
stocks for investors' money.
[Pie Chart showing Industry Holdings]
Q. HOW DID THE INVESTMENT TEAM RESPOND TO THESE MARKET CONDITIONS?
A. The most important thing we did was to stick to our investment
philosophy. We continued to select stocks based on our criteria for
individual companies, which is identifying those companies with stable
or improving fundamentals combined with attractive valuations. No one
can predict the economy - this year has been a lesson in the truth of
that statement. Our approach is always to focus on the potential of
individual companies - and that is even more critical in difficult
markets like the one we experienced in 1994.
Not a part of the Prospectus 2
<PAGE> 5
[Photo of Woman and 2 Men looking at Computer Screens]
Q. WHAT WERE SOME OF THE COMPANIES YOU FAVORED DURING THE YEAR?
A. We focused on a mix of industrial companies benefitting from strong
economic growth and companies with more stable growth characteristics.
Some of the industrial stocks we owned at year-end included
Caterpillar, LSI Logic and Compaq. Growth stocks included Service
Corp. International, Dr Pepper/Seven-Up Companies and Lincare
Holdings. For a complete list of the holdings in the portfolio on
December 31, 1994 see the Investment Portfolio section beginning on
page 9.
Q. DID YOU SHIFT THE INDUSTRY WEIGHTING OF THE FUND SIGNIFICANTLY?
A. Our philosophy is not to make extreme shifts in the industry
weighting. "Chasing sectors" is like trying to predict the economy.
But we did find more opportunities in some segments than others. For
example, technology: even though many companies are cutting costs,
they are still investing in technology because it ultimately enhances
productivity and saves money. We also increased the Fund's health care
holdings, partly because health care companies received a reprieve
from the Clinton health plan, but also because many of them have begun
addressing cost-containment on their own.
We reduced the Fund's holdings in banks, which tend to do
better in an environment of falling interest rates than rising rates.
We also pulled back from some of the heavy industrial areas, including
autos and heavy manufacturing, because these cyclical stocks are at
their best in the early stages of a recovery, and appear to have
peaked for now. At the same time, we increased our emphasis on
consumer companies like Colgate-Palmolive, which we added to the
portfolio this year, because their earnings growth and valuations
became more attractive. The chart on page 2 shows how our industry
weightings looked at the end of the year.
Q. WHAT ELSE INFLUENCED YOUR STOCK CHOICES?
A. One other factor we looked at was global exposure. We don't own many
foreign stocks, but we did look for companies with a large percentage
of earnings coming from overseas. We have seen a general economic
recovery in Europe and around the globe running just behind the U.S.
recovery, and companies with a large global market are benefitting
from this trend.
Not a part of the Prospectus 3
<PAGE> 6
Q. HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED DECEMBER 31, 1994?
A. Class A shares achieved a total return at net asset value (without a
sales charge) of -0.18%, including reinvestment of dividends totaling
$.085 per share. Class B shares achieved a total return at net asset
value of -1.07%, and Class C shares achieved a total return at net
asset value of -0.99%. All three classes of shares paid a capital
gains distribution of $.6725 per share.
Q. HOW DID STOCKS PERFORM DURING THE SAME TIME?
A. The Standard & Poor's 500-Stock Index, a broad-based, unmanaged index
that reflects general stock market performance, achieved a total
return of 1.36% during 1994. The Index does not reflect any
commissions or fees that would be paid by an investor purchasing the
securities it represents.
Q. WHAT'S AHEAD FOR THE FUND?
A. We think higher interest rates will continue to have an impact on the
stock market going into 1995, whether or not the Federal Reserve Board
raises rates further. There is a possibility that the Fed will
achieve the "soft landing" that it's aiming for, and the economy will
continue to do well while inflation stays moderate.
We will continue to focus on companies that have specific
reasons to do well despite the ups and downs of the economy. And we
will keep looking for attractive valuations. We may begin adding more
cyclical stocks back to the portfolio, because their prices have been
beaten down below their value, based on our criteria, and that make
them a good buy.
We think 1995 will be a difficult year, as 1994 was. But this
is the kind of market where careful stock selection can make a
tremendous difference, and we believe our investment approach will
prove its value during the months ahead.
/s/ Alan T. Sachtleben /s/ Stephen L. Boyd /s/ Jeff D. New
ALAN T. SACHTLEBEN STEPHEN L. BOYD JEFF D. NEW
Executive Vice President Portfolio Co-Manager Portfolio Co-Manager
Equity Investments
Not a part of the Prospectus 4
<PAGE> 7
AMERICAN CAPITAL ENTERPRISE FUND
YOUR DIVERSIFIED PORTFOLIO
Your investment in American Capital Enterprise Fund makes you a part owner of a
diversified portfolio of stocks. Here's a list of the 10 largest holdings in
the portfolio as of December 31, 1994.
- -------------------------------------------------------------------------------
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
% OF FUND'S
% OF FUNDS NET ASSETS
NET ASSETS 6 MONTHS AGO
---------- ------------
<S> <C> <C>
Archer Daniels Midland Co. 1.72 N.A.
Major producer and distributor of
agricultural products.
Service Corp. International 1.63 N.A.
Owns and operates funeral homes and
related service companies in the
United States and abroad.
Cellular Communications, Inc. 1.41 1.37
Owns and operates cellular systems in
the Midwest and Southeast.
BMC Software, Inc. 1.40 N.A.
Major developer of software to improve
the efficiency of IBM mainframe computers.
Philip Morris Companies, Inc. 1.32 N.A.
Major producer and distributor of food
and tobacco products.
Wal-Mart Stores, Inc. 1.30 N.A.
One of the largest discount retailers
in the world.
Community Health Systems, Inc. 1.30 0.79
Owns and operates health care facilities
nationwide.
International Business Machines Corp. 1.17 1.30
One of the largest manufacturers of
computers and other information
technology equipment.
American International Group 1.15 1.10
Major international insurance company.
General Instrument Corp. 1.13 N.A.
Major supplier of cable television systems
and equipment.
- -------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, see the Investment Portfolio section
beginning on page 9.
Not a part of the Prospectus 5
<PAGE> 8
AMERICAN CAPITAL ENTERPRISE FUND, INC.
AMERICAN CAPITAL ENTERPRISE FUND:
GROWTH FOR THE LONG-TERM INVESTOR
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/94
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Class A Shares (Based on maximum sales charge of 5.75%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Year: -5.95% 10 Years: 12.46%
5 Years: 8.88% Inception: 12.36%
(1/7/54)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Class B Shares Total Return If withdrawn early*
- ---------------------------------------------------------------------------------------------------------
1 Year -1.07% -5.74%
Inception (12/20/91) 8.77% 8.14%
- ---------------------------------------------------------------------------------------------------------
*Early withdrawal figures are adjusted for the applicable contingent deferred sales charge (maximum 5%).
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Class C Shares Total Return If withdrawn early*
- ---------------------------------------------------------------------------------------------------------
1 Year -0.99% -1.92%
Inception (7/20/93) 3.44% 3.44%
- ---------------------------------------------------------------------------------------------------------
*Early withdrawal figures are adjusted for the applicable contingent deferred sales charge (maximum 1%).
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Figures quoted on the chart at right represent past performance based on
$10,000 investment in Class A shares made on January 7, 1954, using the
applicable sales charge of 5.75%. Past performance is not indicative of future
performance.
All figures include reinvestment of all dividends, and capital gains
distributions. Investment results prior to 10/1/89 do not reflect the effect of
fees currently paid pursuant to a plan of distribution which went into effect
9/29/89. No adjustments have been made to reflect any income taxes payable by a
shareholder. Investment return and net asset value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. While the period covered was, on the whole, one
of generally rising common stock prices, it may have included interim periods
of substantial market decline.
Cost of
Investment
$10,000
1/7/54
(GRAPH)
$9,416
Initial Net
Asset Value
Not a part of the Prospectus 6
<PAGE> 9
$1,187,483
[Graph continued from bottom of page 6 to page 7 showing Total Value
of Investment on 12/31/94]
Not a part of the Prospectus 7
<PAGE> 10
AMERICAN CAPITAL ENTERPRISE FUND, INC.
THE AMERICAN CAPITAL ADVANTAGE
As a shareholder in an American Capital fund you have the option of
automatically investing your dividends and capital gains into most other
American Capital funds without a sales charge. This fund-to-fund privilege,
which can help you create a diversified portfolio, is just one of the many
shareholder services available to you at no charge.
[5 DALBAR Quality Tested Service Seals dated 1990 to 1995]
Van Kampen American Capital is extremely proud of its shareholder
services, and is committed to continuing to provide outstanding service. For
the fifth consecutive year, American Capital received the Quality Tested
Service Seal awarded by DALBAR Surveys, Inc., a well-respected independent
research firm in the mutual fund industry. American Capital was one of only
five mutual fund groups in the nation in 1994 to receive this prestigious award
for consistent, quality service, and one of only two fund groups to receive the
award every year since its inception. In addition, our shareholder services
agent, ACCESS, won the 1993 Missouri Quality Award. TO EXPERIENCE OUR
AWARD-WINNING CUSTOMER SERVICE CALL 1-800-421-5666 BETWEEN 7 A.M. AND 7 P.M.
CENTRAL TIME MONDAY THROUGH FRIDAY.
SERVICE WHEN YOU WANT IT
To help meet the needs of busy shareholders, American Capital offers 24-hour
account information through ACCESS PLUS, our automated telephone service. Just
call 1-800-847-2424 from a Touch-Tone phone to check your account balance,
obtain current fund prices, exchange between funds and more.
VARIETY OF DISTRIBUTION OPTIONS
Dividends from net investment income and distributions from capital gains, if
any, for American Capital Enterprise Fund are paid annually. You may
automatically reinvest these distributions into additional shares to build your
account value, take them in cash, or have them automatically invested into any
other American Capital fund.
LOW SUBSEQUENT INVESTMENTS
You can make additional investments in American Capital Enterprise Fund for as
little as $25.
AUTOMATIC INVESTMENT PLAN
An automatic investment plan can help you carry out a disciplined financial
plan by allowing you to invest regularly into your mutual fund account through
automatic deductions from your personal bank account. With our Step Up option,
you also can increase your investment amount on a pre-established schedule.
Not a part of the Prospectus 8
<PAGE> 11
INVESTMENT PORTFOLIO
December 31, 1994
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock 92.8%
CONSUMER DISTRIBUTION 9.4%
140,000 American Stores Co. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,762,500
20,000 Dayton Hudson Corp. . . . . . . . . . . . . . . . . . . . . . . . . 1,415,000
90,000 Dillard Department Stores, Inc. . . . . . . . . . . . . . . . . . . 2,407,500
240,000 Dollar General Corp. . . . . . . . . . . . . . . . . . . . . . . . 7,200,000
*270,000 Eckerd Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,066,250
*210,000 Federated Department Stores, Inc. . . . . . . . . . . . . . . . . . 4,042,500
95,000 Gap, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,897,500
*180,000 Kroger Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,342,500
120,000 Limited, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,175,000
*105,000 Michael's Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,648,750
*90,000 Nine West Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . 2,553,750
55,000 Nordstrom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,310,000
*40,000 Officemax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,060,000
160,000 Premark International, Inc. . . . . . . . . . . . . . . . . . . . . 7,160,000
*85,000 Proffitts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,891,250
*210,000 Safeway, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,693,750
95,000 Talbots, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,968,750
100,000 Walgreen Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,375,000
520,000 Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . 11,050,000
------------
TOTAL CONSUMER DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 80,020,000
------------
CONSUMER DURABLES 1.3%
100,000 Callaway Golf Co. . . . . . . . . . . . . . . . . . . . . . . . . . 3,312,500
140,000 Ford Motor Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920,000
150,000 Harley Davidson, Inc. . . . . . . . . . . . . . . . . . . . . . . . 4,200,000
------------
TOTAL CONSUMER DURABLES . . . . . . . . . . . . . . . . . . . . . . 11,432,500
------------
CONSUMER NON-DURABLES 10.7%
100,000 Anheuser-Busch Companies, Inc. . . . . . . . . . . . . . . . . . . . 5,087,500
710,000 Archer Daniels Midland Co. . . . . . . . . . . . . . . . . . . . . 14,643,750
65,000 Campbell Soup Co. . . . . . . . . . . . . . . . . . . . . . . . . . 2,868,125
60,000 Clorox Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,532,500
85,000 Colgate-Palmolive Co. . . . . . . . . . . . . . . . . . . . . . . . 5,386,875
150,000 ConAgra, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,687,500
50,000 CPC International, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,662,500
*325,000 Dr Pepper/Seven-Up Companies, Inc. . . . . . . . . . . . . . . . . 8,328,125
80,000 IBP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,420,000
*100,000 Nautica Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . 3,025,000
75,000 Pepsico, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,718,750
195,000 Philip Morris Companies, Inc. . . . . . . . . . . . . . . . . . . . 11,212,500
120,000 Procter & Gamble Co. . . . . . . . . . . . . . . . . . . . . . . . 7,440,000
*165,000 Ralcorp Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,671,250
70,000 Reebok International, Ltd. . . . . . . . . . . . . . . . . . . . . 2,765,000
700,000 RJR Nabisco Holdings Corp. . . . . . . . . . . . . . . . . . . . . 3,850,000
105,000 Sara Lee Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,651,250
255,000 Whitman Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,398,750
------------
TOTAL CONSUMER NON-DURABLES . . . . . . . . . . . . . . . . . . . . 91,349,375
------------
</TABLE>
Not a part of the Prospectus 9
<PAGE> 12
INVESTMENT PROTFOLIO, Continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES 6.0%
30,000 Capital Cities ABC, Inc. . . . . . . . . . . . . . . . . . . . . . . $ 2,557,500
*175,000 Hospitality Franchise Systems, Inc. . . . . . . . . . . . . . . . . 4,637,500
*300,000 Host Marriott Corp. . . . . . . . . . . . . . . . . . . . . . . . . 2,887,500
200,000 Marriott International, Inc. . . . . . . . . . . . . . . . . . . . 5,625,000
220,000 Mirage Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . 4,510,000
180,000 Omnicom Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,315,000
500,000 Service Corp. International . . . . . . . . . . . . . . . . . . . . 13,875,000
100,000 Time Warner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 3,512,500
95,000 Walt Disney Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,381,875
------------
TOTAL CONSUMER SERVICES . . . . . . . . . . . . . . . . . . . . . . 51,301,875
------------
ENERGY 5.5%
110,000 Amoco Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,503,750
100,000 Apache Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000
80,000 Ashland Oil, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 2,760,000
60,000 Atlantic Richfield Co. . . . . . . . . . . . . . . . . . . . . . . 6,105,000
140,000 Baker Hughes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 2,555,000
45,000 British Petroleum Co., PLC, ADR . . . . . . . . . . . . . . . . . . 3,594,375
140,000 Exxon Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,505,000
100,000 Halliburton Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,312,500
105,000 Mobil Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,846,250
*175,000 Smith International, Inc. . . . . . . . . . . . . . . . . . . . . . 2,187,500
------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,869,375
------------
FINANCE 7.4%
100,000 American International Group, Inc. . . . . . . . . . . . . . . . . 9,800,000
55,000 BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 2,172,500
55,000 Baybanks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,901,250
140,000 Citicorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,792,500
90,000 Crestar Financial Corp. . . . . . . . . . . . . . . . . . . . . . . 3,386,250
130,000 Federal Home Loan Mortgage Corp. . . . . . . . . . . . . . . . . . 6,565,000
95,000 Federal National Mortgage Association . . . . . . . . . . . . . . . 6,923,125
75,000 First Chicago Corp. . . . . . . . . . . . . . . . . . . . . . . . . 3,581,250
50,000 First Interstate Bancorp . . . . . . . . . . . . . . . . . . . . . . 3,381,250
30,000 Green Tree Financial Corp. . . . . . . . . . . . . . . . . . . . . 911,250
110,000 Midlantic Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,915,000
85,000 St. Paul Companies, Inc. . . . . . . . . . . . . . . . . . . . . . 3,803,750
30,000 Wells Fargo & Co. . . . . . . . . . . . . . . . . . . . . . . . . . 4,350,000
230,000 West One Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . 6,095,000
------------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,578,125
------------
HEALTH CARE 14.8%
100,000 Abbott Laboratories . . . . . . . . . . . . . . . . . . . . . . . . 3,262,500
95,000 American Home Products Corp. . . . . . . . . . . . . . . . . . . . 5,961,250
*115,000 Amgen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,785,000
140,000 Baxter International, Inc. . . . . . . . . . . . . . . . . . . . . 3,955,000
150,000 Columbia/HCA Healthcare Corp. . . . . . . . . . . . . . . . . . . . 5,475,000
*405,000 Community Health Systems, Inc. . . . . . . . . . . . . . . . . . . 11,036,250
*125,000 Elan Corp., PLC, ADR . . . . . . . . . . . . . . . . . . . . . . . . 4,453,125
*83,000 Genentech, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,766,125
115,000 Healthcare Compare Corp. . . . . . . . . . . . . . . . . . . . . . 3,924,375
*175,000 Healthcare & Retirement Corp. . . . . . . . . . . . . . . . . . . . 5,271,875
*200,000 Health Management Association, Inc., Class A . . . . . . . . . . . 5,000,000
</TABLE>
Not a part of the Prospectus 10
<PAGE> 13
INVESTMENT PROTFOLIO, Continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE - Continued
*130,000 Horizon Healthcare Corp. . . . . . . . . . . . . . . . . . . . . . $ 3,640,000
124,000 Integrated Health Services, Inc. . . . . . . . . . . . . . . . . . 4,898,000
55,000 Johnson & Johnson . . . . . . . . . . . . . . . . . . . . . . . . . 3,011,250
145,000 Lilly (Eli) & Co. . . . . . . . . . . . . . . . . . . . . . . . . . 9,515,625
*220,000 Lincare Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . 6,380,000
170,000 Merck & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 6,481,250
280,000 Mylan Labs, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 7,560,000
*75,000 Nellcor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,475,000
125,000 Schering-Plough Corp. . . . . . . . . . . . . . . . . . . . . . . . 9,250,000
*240,000 Sun Healthcare Group . . . . . . . . . . . . . . . . . . . . . . . . 6,090,000
60,000 Warner-Lambert Co. . . . . . . . . . . . . . . . . . . . . . . . . 4,620,000
*110,000 Watsons Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . . 2,887,500
-------------
TOTAL HEALTH CARE . . . . . . . . . . . . . . . . . . . . . . . . . 125,699,125
-------------
PRODUCER MANUFACTURING 6.0%
120,000 Allied-Signal, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 4,080,000
275,000 Browning Ferris Industries, Inc. . . . . . . . . . . . . . . . . . 7,803,125
120,000 Caterpillar, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 6,615,000
80,000 General Electric Corp. . . . . . . . . . . . . . . . . . . . . . . 4,080,000
130,000 Greenfield Industries, Inc. . . . . . . . . . . . . . . . . . . . . 3,120,000
100,000 Illinois Tool Works, Inc. . . . . . . . . . . . . . . . . . . . . . 4,375,000
250,000 Philips N.V., ADR . . . . . . . . . . . . . . . . . . . . . . . . . 7,343,750
*125,000 Thermo Fibertek, Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,984,375
*100,000 Varity Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,625,000
300,000 WMX Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . 7,875,000
-------------
TOTAL PRODUCER MANUFACTURING . . . . . . . . . . . . . . . . . . . 50,901,250
-------------
RAW MATERIALS/PROCESSING INDUSTRIES 6.6%
*135,000 AK Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,151,250
20,000 Aluminum Co. of America . . . . . . . . . . . . . . . . . . . . . . 1,732,500
265,000 American Barrick Resource Corp. . . . . . . . . . . . . . . . . . . 5,896,250
338,800 Battle Mountain Gold Co. . . . . . . . . . . . . . . . . . . . . . 3,726,800
75,000 Birmingham Steel Corp. . . . . . . . . . . . . . . . . . . . . . . 1,500,000
90,000 Bowater, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,396,250
55,000 DuPont (E.I.) de Nemours & Co., Inc. . . . . . . . . . . . . . . . 3,093,750
25,000 Georgia Pacific Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,787,500
25,000 Hercules, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,884,375
60,000 International Paper Co. . . . . . . . . . . . . . . . . . . . . . . 4,522,500
35,000 Lyondell Petrochemical Co. . . . . . . . . . . . . . . . . . . . . 905,625
35,000 Mead Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,701,875
23,700 Newmont Gold Co. . . . . . . . . . . . . . . . . . . . . . . . . . 844,313
270,000 Placer Dome, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 5,872,500
410,000 Praxair, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,405,000
65,000 Scott Paper Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,493,125
40,000 Williamette Industries, Inc. . . . . . . . . . . . . . . . . . . . 1,900,000
-------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES . . . . . . . . . . . . . 55,813,613
-------------
TECHNOLOGY 21.2%
35,000 Adobe Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 1,041,250
140,000 Apple Computer, Inc. . . . . . . . . . . . . . . . . . . . . . . . 5,460,000
*135,000 Applied Materials, Inc. . . . . . . . . . . . . . . . . . . . . . . 5,703,750
</TABLE>
Not a part of the Prospectus 11
<PAGE> 14
INVESTMENT PROTFOLIO, Continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY - Continued
*75,000 Atmel Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,512,500
210,000 BMC Software, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 11,943,750
*80,000 Cabletron Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,720,000
*165,000 Cadence Design Systems, Inc. . . . . . . . . . . . . . . . . . . . 3,403,125
*40,000 Chipcom Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
*180,000 Cisco Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 6,322,500
*205,000 Compaq Computer Corp. . . . . . . . . . . . . . . . . . . . . . . . 8,097,500
110,000 Computer Association International, Inc. . . . . . . . . . . . . . . 5,335,000
*130,000 Compuware Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,680,000
*200,000 DSC Communications Corp. . . . . . . . . . . . . . . . . . . . . . 7,175,000
*200,000 Exabyte Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,275,000
*150,000 Filenet Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,050,000
*125,000 FTP Software, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 3,953,125
*320,000 General Instrument Corp. . . . . . . . . . . . . . . . . . . . . . 9,600,000
30,000 Hewlett Packard Co. . . . . . . . . . . . . . . . . . . . . . . . . 2,996,250
*200,000 Integrated Device Technology, Inc. . . . . . . . . . . . . . . . . . 5,900,000
65,000 Intel Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,151,875
135,000 International Business Machines Corp. . . . . . . . . . . . . . . . 9,922,500
*50,000 KLA Instruments Corp. . . . . . . . . . . . . . . . . . . . . . . . 2,450,000
60,000 Linear Technology Corp. . . . . . . . . . . . . . . . . . . . . . . 2,970,000
*165,000 LSI Logic Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,661,875
50,000 Micron Technology, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,206,250
45,000 Motorola, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,375
40,000 Netmanage, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,620,000
80,000 Picturetel Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 1,920,000
*200,000 Read-Rite Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,712,500
*130,000 Seagate Technology . . . . . . . . . . . . . . . . . . . . . . . . 3,120,000
*175,000 Sequent Computer Systems, Inc. . . . . . . . . . . . . . . . . . . 3,456,250
*105,000 Silicon Graphics, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,241,875
*115,000 Stratus Computer, Inc. . . . . . . . . . . . . . . . . . . . . . . 4,370,000
*230,000 Sun Microsystems, Inc. . . . . . . . . . . . . . . . . . . . . . . 8,165,000
*200,000 Symantec Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000
*40,000 Tellabs, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,230,000
*130,000 Teradyne, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,403,750
45,000 Texas Instruments, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,369,375
*55,000 Wall Data, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,186,250
40,000 Watkins Johnson Co. . . . . . . . . . . . . . . . . . . . . . . . . 1,190,000
*95,000 3Com Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,898,437
-------------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . 180,519,062
-------------
TRANSPORTATION 0.8%
*40,000 Federal Express Corp. . . . . . . . . . . . . . . . . . . . . . . . 2,410,000
75,000 Illinois Central Corp. . . . . . . . . . . . . . . . . . . . . . . 2,306,250
90,000 Pittston Co. Services Group . . . . . . . . . . . . . . . . . . . . 2,385,000
-------------
TOTAL TRANSPORTATION . . . . . . . . . . . . . . . . . . . . . . . 7,101,250
-------------
UTILITIES 3.1%
*120,000 ALC Communications Corp. . . . . . . . . . . . . . . . . . . . . . 3,735,000
*25,000 Cellular Communications, Inc., Class A . . . . . . . . . . . . . . . 1,337,500
125,000 FPL Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,390,625
145,000 NIPSCO Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . 4,313,750
</TABLE>
Not a part of the Prospectus 12
<PAGE> 15
INVESTMENT PROTFOLIO, Continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES - Continued
180,000 Pacificorp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,262,500
*25,000 PT Indostat, ADS . . . . . . . . . . . . . . . . . . . . . . . . . . 893,750
175,000 Public Service Co. of Colorado . . . . . . . . . . . . . . . . . . . 5,140,625
*250,000 Public Service Co. of New Mexico . . . . . . . . . . . . . . . . . . 3,250,000
--------------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 26,323,750
--------------
TOTAL COMMON STOCK (COST $741,428,085) . . . . . . . . . . . . . . . 789,909,300
--------------
Convertible Preferred Stock 1.3%
*200,000 Cellular Communications, Inc. (Cost $6,587,298) . . . . . . . . . . . 10,700,000
--------------
<CAPTION>
Principal
Amount Short-Term Investments 8.4%
- ------------------
$ 8,000,000 Federal Home Loan Mortgage Corp., 5.88%, 1/31/95 . . . . . . . . . . 7,959,700
Federal National Mortgage Association
33,000,000 5.85%, 2/8/95 . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,792,650
**15,000,000 5.93%, 1/5/95 . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,987,688
5,520,000 Repurchase Agreement with Lehman Government Securities, Inc.
dated 12/30/94, 5.35%, due 1/3/95 (Collateralized
by U.S. Government obligations in a pooled cash
account) repurchase proceeds $5,523,281 . . . . . . . . . . . . . . 5,520,000
**10,000,000 United States Treasury Bill, 4.95%, 1/12/95 . . . . . . . . . . . . . 9,983,700
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $71,243,738) . . . . . . . . . . 71,243,738
TOTAL INVESTMENTS (Cost $819,259,121) 102.5% . . . . . . . . . . . . 871,853,038
Other assets and liabilities, net (2.5%) . . . . . . . . . . . . . . (21,058,622)
--------------
NET ASSETS 100% . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850,794,416
==============
</TABLE>
* Non-income producing security.
** Securities with a market value of approximately $19.7 million were
maintained in a segregated account and placed as collateral for
futures contracts (Note 1B).
See Notes to Financial Statements.
Not a part of the Prospectus 13
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $819,259,121) . . . . . . . . . . . . . . . . . $ 871,853,038
Receivable for investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . 13,046,404
Receivable for Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 2,091,929
Dividends and interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . 903,980
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,672
------------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,903,023
------------------
LIABILITIES
Payable for investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . 30,851,336
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,257,455
Payable for Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . 1,608,637
Due to Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479,451
Due to Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349,283
Due to shareholder service agent . . . . . . . . . . . . . . . . . . . . . . . . . 232,000
Due to broker-variation margin . . . . . . . . . . . . . . . . . . . . . . . . . . 185,125
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,320
------------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,108,607
------------------
NET ASSETS, equivalent to $11.43 per share for Class A shares,
$11.37 per share for Class B shares and $11.42 per share for
Class C shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850,794,416
==================
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 65,606,367 Class A, 8,235,391 Class B and
649,445 Class C shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . $ 74,491,203
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717,308,313
Undistributed net realized gain on securities . . . . . . . . . . . . . . . . . . . 6,212,797
Net unrealized appreciation of securities
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,593,917
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,123
Accumulated net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . (86,937)
------------------
NET ASSETS at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850,794,416
==================
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 14
<PAGE> 17
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,533,221
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,354,394
-----------------
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,887,615
-----------------
EXPENSES
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,227,519
Shareholder service agent's fees and expenses . . . . . . . . . . . . . . . . . . . . 2,423,997
Service fees-Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,366,149
Distribution and service fees-Class B . . . . . . . . . . . . . . . . . . . . . . . . 812,681
Distribution and service fees-Class C . . . . . . . . . . . . . . . . . . . . . . . . 58,590
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,567
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,231
Accounting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,798
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,433
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,626
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,022
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,748
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,034
-----------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,593,395
-----------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,294,220
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,019,540
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (666,518)
Net unrealized appreciation (depreciation) of securities during the year
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,929,877)
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,155
-----------------
Net realized and unrealized loss on securities . . . . . . . . . . . . . . . . . . . (6,256,700)
-----------------
Decrease in net assets resulting from operations . . . . . . . . . . . . . . . . . . $ (962,480)
=================
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 15
<PAGE> 18
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1994 1993
----------------- ------------------
<S> <C> <C>
NET ASSETS, beginning of year . . . . . . . . . . . . . . . . $ 847,216,585 $ 757,859,810
----------------- ------------------
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . 5,294,220 3,451,666
Net realized gain on securities . . . . . . . . . . . . . . 56,353,022 74,005,674
Net unrealized appreciation (depreciation)
of securities during the year . . . . . . . . . . . . . . . (62,609,722) 6,095,273
----------------- ------------------
Increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . (962,480) 83,552,613
----------------- ------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . (5,421,487) (3,278,363)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . -- (12,497)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
----------------- ------------------
(5,421,487) (3,290,860)
----------------- ------------------
Net realized gain on securities
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . (42,823,112) (95,744,730)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . (5,142,630) (6,617,603)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . (417,302) (154,017)
----------------- ------------------
(48,383,044) (102,516,350)
----------------- ------------------
Total dividends and distributions . . . . . . . . . . . . . (53,804,531) (105,807,210)
----------------- ------------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071,449,681 642,316,525
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . 87,294,376 75,563,479
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . 22,435,417 2,177,088
----------------- ------------------
1,181,179,474 720,057,092
----------------- ------------------
Proceeds from shares issued for dividends and
distributions reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . 42,222,983 87,642,926
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . 4,813,913 6,227,140
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . 371,079 129,594
----------------- ------------------
47,407,975 93,999,660
----------------- ------------------
Cost of shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . (1,094,738,045) (667,670,800)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . (58,634,738) (34,633,064)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . (16,869,824) (141,516)
----------------- ------------------
(1,170,242,607) (702,445,380)
----------------- ------------------
Increase in net assets resulting from Fund
share transactions . . . . . . . . . . . . . . . . . . . . 58,344,842 111,611,372
----------------- ------------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . 3,577,831 89,356,775
----------------- ------------------
NET ASSETS, end of year . . . . . . . . . . . . . . . . . . . $ 850,794,416 $ 847,216,585
================= ==================
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 16
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
Note 1-Significant Accounting Policies
American Capital Enterprise Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. Investment Valuations
Securities listed or traded on a national securities exchange are valued at
the last sale price. Unlisted securities and listed securities for which
the last sale price is not available are valued at the mean between the
last reported bid and asked price.
Short-term investments with a maturity of 60 days or less when purchased
are valued at amortized cost, which approximates market value. Short-term
investments with a maturity of more than 60 days when purchased are valued
based on market quotations until the remaining days to maturity becomes
less than 61 days. From such time, until maturity, the investments are
valued at amortized cost.
B. Futures Contracts
Transactions in futures contracts are utilized in strategies to manage the
market risk of the Fund's investments by increasing or decreasing the
percentage of assets effectively invested. The purchase of a futures
contract increases the impact of changes in the market price of investments
on net asset value. There is a risk that the market movement of such
instruments may not be in the direction forecasted.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. A portion of these funds is held as collateral
in an account in the name of the broker. During the period the futures
contract is open, changes in the value of the contract ("variation margin")
are recognized by marking the contract to market on a daily basis. As
unrealized gains or losses are incurred, variation margin payments are
received from or made to the broker. Upon the closing or cash settlement of
a contract, gains or losses are realized. The cost of securities acquired
through delivery under a contract is adjusted by the unrealized gain or
loss on the contract.
C. Repurchase Agreements
A repurchase agreement is a short-term investment in which the Fund
acquires ownership of a debt security and the seller agrees to repurchase
the security at a future time and specified price. The Fund may invest
independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised or subadvised by Van Kampen American Capital Asset Management, Inc.
(the "Adviser"), the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are collateralized by the underlying debt
security. The Fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of the custodian
bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
D. Federal Income Taxes
No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification by annually
distributing all of its taxable net investment income and taxable net
realized gains on investments to its shareholders. It is anticipated that
no distributions of capital gains will be made until tax basis capital loss
carryforwards, if any, expire or are offset by net realized capital gains.
Not a part of the Prospectus 17
<PAGE> 20
E. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gains
and losses on investments are determined on the basis of identified cost.
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily.
F. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the record
date. The Fund decreased capital surplus and accumulated net investment
loss and increased undistributed realized gain by $3,072,549, $241,023 and
$3,313,572, respectively, in order to reflect distributions of tax basis
earnings in accordance with the minimum distribution requirements of the
Internal Revenue Code. Such dividends or distributions may differ from
generally accepted accounting principles and may exceed financial statement
earnings. Net investment income, net realized gains, net assets and net
asset value per share were not affected by such reclassification.
Note 2-Management Fees and Other Transactions with Affiliates
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate of
.50% of the first $1 billion, .45% of the next $1 billion, .40% of the next $1
billion, and .35% of the amount in excess of $3 billion.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are
allocated among all investment companies advised or subadvised by the Adviser.
For the year ended December 31, 1994, these charges included $16,492 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services to the Fund. The services provided by the
Adviser are at cost.
Van Kampen American Capital Shareholder Services, Inc., an affiliate of the
Adviser, serves as shareholder service agent of the Fund. These services are
provided at cost plus a profit. For the year ended December 31, 1994, such fees
aggregated $2,104,575.
The Fund was advised that Van Kampen American Capital Distributors, Inc. (the
"Distributor"), and Advantage Capital Corporation (the "Retail Dealer"), both
affiliates of the Adviser, received $88,546 and $70,021, respectively, as their
portion of the commissions charged on sales of Fund shares during the year.
Under the Distribution Plans, each class of shares pays up to .25% per annum of
its average daily net assets to the Distributor for expenses and service fees
incurred. The Class B shares and Class C shares pay an additional fee of up to
.75% per annum of their average daily net assets to reimburse the Distributor
for its distribution expenses. Actual distribution expenses incurred by the
Distributor for Class B shares and Class C shares may exceed the amounts
reimbursed to the Distributor by the Fund. At December 31, 1994, the
unreimbursed expenses incurred by the Distributor under the Class B and Class C
plans aggregated approximately $5.6 million and $87,000, respectively, and may
be carried forward and reimbursed through either the collection of the
contingent deferred sales charges from share redemptions or, subject to the
annual renewal of the plans, future Fund reimbursements of distribution fees.
During the year, the Fund paid brokerage commissions of $184,109 to companies
which are deemed affiliates of the Adviser's parent because it owns more than
5% of the companies' outstanding voting securities.
Not a part of the Prospectus 18
<PAGE> 21
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
Note 3-Investment Activity
During the year, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $1,394,508,056 and $1,358,862,138,
respectively.
For federal income tax purposes, the identified cost of investments owned at
December 31, 1994 was $820,316,403. Net unrealized appreciation of investments
aggregated $51,536,635, gross unrealized appreciation of investments aggregated
$71,451,509 and gross unrealized depreciation of investments aggregated
$19,914,874.
For federal income tax purposes, the net realized capital loss carryforward of
approximately $843,000 at December 31, 1994 may be utilized to offset current
or future capital gains until expiration in 1995.
At December 31, 1994, the Fund held 85 long Standard & Poor's 500 Index futures
contracts expiring in March 1995. The market value of such contracts was
$19,607,375, and the unrealized appreciation was $275,123.
Note 4-Director Compensation
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $2,060 plus a fee of $50 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the
Fund at the annual rate of $770. During the year, such fees aggregated $23,846.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. At December 31, 1994, the liability for the Plan aggregated
$86,937. Each director covered under the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.
Note 5-Capital
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred
basis (the Class B shares and Class C shares). Each class of shares has the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.
Not a part of the Prospectus 19
<PAGE> 22
The Fund has 200 million of each class of shares of $1.00 par value capital
stock authorized. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
1994 1993
--------------- --------------
<S> <C> <C>
Shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . . . 88,756,758 50,267,405
Class B . . . . . . . . . . . . . . . . . . . . . . . . . 7,241,495 5,927,750
Class C . . . . . . . . . . . . . . . . . . . . . . . . . 1,852,492 169,417
--------------- --------------
97,850,745 56,364,572
--------------- --------------
Shares issued for dividends and distributions reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . . . 3,777,078 7,256,156
Class B . . . . . . . . . . . . . . . . . . . . . . . . . 432,428 519,744
Class C . . . . . . . . . . . . . . . . . . . . . . . . . 33,138 10,908
--------------- --------------
4,242,644 7,786,808
--------------- --------------
Shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . . . (90,630,945) (52,081,586)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . (4,873,905) (2,707,611)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . (1,404,906) (11,604)
--------------- --------------
(96,909,756) (54,800,801)
--------------- --------------
Increase in shares outstanding . . . . . . . . . . . . . 5,183,633 9,350,579
=============== ==============
</TABLE>
Not a part of the Prospectus 20
<PAGE> 23
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year Ended December 31
------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year . . . . . $12.23 $12.64 $13.83 $10.76 $11.52
------ ------ ------ ------ ------
INCOME FROM OPERATIONS
Investment income . . . . . . . . . . . . . . .21 .19 .27 .295 .35
Expenses . . . . . . . . . . . . . . . . . . (.13) (.13) (.135 ) (.125) (.11)
Net investment income . . . . . . . . . . . . .08 .06 .135 .17 .24
Net realized and unrealized gains
or losses on securities . . . . . . . . . . (.1225) 1.2525 .9325 3.9625 (.5475)
------ ------ ------ ------ ------
Total from investment operations . . . . . . (.0425) 1.3125 1.0675 4.1325 (.3075)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income . . . . (.085) (.0575) (.145) (.1725) (.23)
Dividends from net realized gains
on securities . . . . . . . . . . . . . . . (.6725) (1.665) (2.1125) (.89) (.2225)
------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . . (.7575) (1.7225) (2.2575) (1.0625) (.4525)
------ ------ ------ ------ ------
Net asset value, end of year . . . . . . . . $11.43 $12.23 $12.64 $13.83 $10.76
====== ====== ====== ====== ======
TOTAL RETURN(1) . . . . . . . . . . . . . . . (.18%) 10.96% 8.39% 39.23% (2.87%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions) . . . . . $749.7 $778.9 $736.4 $713.1 $542.4
Average net assets (millions) . . . . . . . . $758.4 $759.0 $683.8 $625.8 $557.7
Ratios to average net assets
Expenses . . . . . . . . . . . . . . . . . . 1.05% .99% .99% .97% .94%
Net investment income . . . . . . . . . . . .71% .48% 1.00% 1.33% 2.13%
Portfolio turnover rate . . . . . . . . . . . 176% 196% 161% 103% 105%
</TABLE>
(1) Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
Not a part of the Prospectus 21
<PAGE> 24
FINANCIAL HIGHLIGHTS, continued
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
<CAPTION>
Class B(1) Class C(2)
--------------------------------- ------------------------------
Year July 20, 1993(3)
Year Ended December 31 Ended through
--------------------------------- December 31, December 31,
1994 1993 1992(2) 1994 1993
------ ------ ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year . . . . $12.19 $12.66 $13.82 $12.23 $12.66
------ ------ ------ ------ ------
INCOME FROM OPERATIONS
Investment income . . . . . . . . . . . . . .04 .16 .26 .06 .08
Expenses . . . . . . . . . . . . . . . . . (.04) (.20) (.245) (.06) (.11)
------ ------ ------ ------ ------
Net investment income (loss) . . . . . . . -- (.04) .015 -- (.03)
Net realized and unrealized gains or
losses on securities . . . . . . . . . . . (.1475) 1.24 .9675 (.1375) .765
------ ------ ------ ------ ------
Total from investment operations . . . . . (.1475) 1.20 .9825 (.1375) .735
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income . . . -- (.005) (.03) -- --
Dividends from net realized gains on
securities . . . . . . . . . . . . . . . . (.6725) (1.665) (2.1125) (.6725) (1.165)
------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . (.6725) (1.67) (2.1425) (.6725) (1.165)
------ ------ ------ ------ ------
Net asset value, end of year . . . . . . . $11.37 $12.19 $12.66 $11.42 $12.23
====== ====== ====== ====== ======
TOTAL RETURN(4) . . . . . . . . . . . . . . (1.07%) 10.00% 7.67% (.99%) 6.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions) . . . . $93.7 $66.2 $21.5 $7.4 $2.1
Average net assets (millions) . . . . . . . $81.3 $43.6 $8.3 $5.9 $0.8
Ratios to average net assets
Expenses . . . . . . . . . . . . . . . . . 1.89% 1.81% 1.90% 1.90% 1.83%(5)
Net investment income (loss) . . . . . . . (.11%) (.37%) .12% (.12%) (.48%)(5)
Portfolio turnover rate . . . . . . . . . . 176% 196% 161% 176% 196%
</TABLE>
(1) Sales of Class B commenced December 20, 1991 at a net asset value of
$12.55 per share. At December 31, 1991, there were 763 Class B shares
outstanding with a per share net asset value of $13.82. The increase in
net asset value was due principally to unrealized appreciation. There were
no dividends or distributions to shareholders during the period. Other
financial highlights for the Class B shares for this short period are not
meaningful and therefore are not presented.
(2) Based on average month-end shares outstanding.
(3) Commencement of offering of sales.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(5) Annualized.
See Notes to Financial Statements.
Not a part of the Prospectus 22
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
American Capital Enterprise Fund, Inc.
In our opinion, the accompanying statement of net assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of American Capital Enterprise
Fund, Inc. at December 31, 1994, the results of its operations, the changes in
its net assets and the selected per share data and ratios for each of the
fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
January 26, 1994
Not a part of the Prospectus 23
<PAGE> 26
FUND PERFORMANCE DATA
American Capital Enterprise Fund seeks capital appreciation through investments
in common stocks that the Adviser believes have above-average potential for
capital appreciation. During 1994, the performance of stocks was adversely
impacted by repeated increases in short-term interest rates and concerns about
rising inflation.
For additional information on market conditions and the Fund's
performance during the reporting period, see pages 2-4 of this report.
[Graph showing Change in Value of a $10,000 Investment]
Past performance is not indicative of future performance. Performance of other
classes of the Fund will be less than the Class A lines shown based on the
differences in loads or fees paid by shareowners investing in the different
classes.
* The Standard & Poor's 500-Stock Index is a broad-based unmanaged index of
stocks. The Index does not reflect any commissions or fees which would be
incurred by an investor purchasing the stocks it represents. All sales
charges and all other fees and expenses are included in the performance
shown for American Capital Enterprise Fund Class A shares with ending value
of $172,536. In addition, since investors purchase shares of the Fund with
varying sales charges depending primarily on volume purchased, the Fund's
Class A performance at net asset value also is shown.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return - Class A (as of 12/31/94) 1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At Net Asset Value -0.18% 10.17% 13.13%
- -------------------------------------------------------------------------------------------------------------
With Maximum 5.75% Sales Charge -5.95% 8.88% 12.46%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return - Class B (as of 12/31/94) 1 Year Since Inception (12/20/91)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
At Net Asset Value -1.07% 8.77%
- -------------------------------------------------------------------------------------------------------------
With Applicable Contingent Deferred Sales Charge
Upon Redemption (Maximum 5%) -5.74% 8.14%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return - Class C (as of 12/31/94) 1 Year Since Inception (7/20/93)
- -------------------------------------------------------------------------------------------------------------
At Net Asset Value -0.99% 3.44%
- -------------------------------------------------------------------------------------------------------------
With Applicable Contingent Deferred Sales Charge
Upon Redemption (Maximum 1%) -1.92% 3.44%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Not a part of the Prospectus 24
<PAGE> 27
AMERICAN CAPITAL ENTERPRISE FUND, INC.
Board of Directors
<TABLE>
<S> <C> <C>
J. Miles Branagan Lawrence J. Sheehan
Richard E. Caruso Fernando Sisto*
Roger Hilsman William S. Woodside
Don G. Powell *************************************
David Rees *Chairman of the Board * Tax Notice to Corporate *
* Shareholders *
* *
Officers * For 1994, 100% of the dividends *
* taxable as ordinary income *
Don G. Powell Nori L. Gabert * qualified for the 70% dividends *
President Vice President and * received deduction for *
Secretary * corporations. *
Curtis W. Morell *************************************
Vice President J. David Wise
and Treasurer Vice President and
Assistant Secretary
Stephen L. Boyd
Jeff D. New Perry F. Farrell
Alan T. Sachtleben M. Robert Sullivan
Paul R. Wolkenberg Assistant Treasurers
Vice Presidents
Huey P. Falgout, Jr.
Tanya M. Loden Assistant Secretary
Vice President and
Controller
</TABLE>
- ------------------------------------------------------
Investment Adviser
Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Blvd., Houston, Texas 77056
- ------------------------------------------------------
Distributor
Van Kampen American Capital Distributors, Inc.
2800 Post Oak Blvd., Houston, Texas 77056
- ------------------------------------------------------
Shareholder Service Agent
Van Kampen American Capital Shareholder Services, Inc.
P.O. Box 418256, Kansas City, Missouri 64141-9256
- ------------------------------------------------------
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts 02110
- ------------------------------------------------------
Counsel
O'Melveny & Myers
400 South Hope Street, Los Angeles, California 90071
- ------------------------------------------------------
Independent Accountants
Price Waterhouse LLP
1201 Louisiana, Houston, Texas 77002
- ------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data. If used for distribution to prospective
investors after 3/31/95, this annual report must be accompanied by an American
Capital Enterprise Fund, Inc. performance data update for the most recent
calendar quarter.
Not a part of the Prospectus
<PAGE> 28
AMERICAN CAPITAL FAMILY OF FUNDS
<TABLE>
<S> <C>
Emerging Growth Fund Corporate Bond Funds
American Capital Emerging Growth Fund, Inc. American Capital High Yield Investments, Inc.
Midcap Fund American Capital Corporate Bond Fund, Inc.
American Capital Enterprise Fund, Inc. Government Securities Funds
Core Growth Funds American Capital Global Government Securities Fund
American Capital Pace Fund, Inc. American Capital U.S. Government Trust for Income
American Capital Global Equity Fund American Capital Government Securities, Inc.
Real Estate Fund American Capital Federal Mortgage Trust
American Capital Real Estate Securities Fund, Inc. Tax-Free Funds
Growth-Income Funds American Capital Tax-Exempt Trust
American Capital Comstock Fund, Inc. High Yield Municipal Portfolio
American Capital Growth and Income Fund, Inc. American Capital Texas Municipal Securities, Inc.
American Capital Equity Income Fund, Inc. American Capital Municipal Bond Fund, Inc.
American Capital Global Managed Assets Fund, Inc. American Capital Tax-Exempt Trust
American Capital Harbor Fund, Inc. Insured Municipal Portfolio
Income-Growth Fund Money Market Fund
American Capital Utilities Income Fund, Inc. American Capital Reserve Fund, Inc.
</TABLE>
THE GOVETT FUNDS, INC.
Nationally Distributed by Van Kampen American Capital Distributors, Inc.
(Formerly American Capital Marketing, Inc.)
<TABLE>
<S> <C>
Govett Latin America Fund Govett Smaller Companies Fund
Govett Pacific Strategy Fund Govett International Equity Fund
Govett Emerging Markets Fund Govett Global Government Income Fund
</TABLE>
For more complete information about any Van Kampen American Capital or Govett
Fund, including charges and expenses, obtain a prospectus from your investment
professional or write Van Kampen American Capital Distributors, Inc., P.O. Box
1411, Houston, TX 77251-1411. Read the prospectus carefully before you invest
or send money.
American Capital ********************
Enterprise Fund, Inc. * Bulk Rate *
* U.S. Postage *
* PAID *
C/O ACCESS * Houston, Texas *
P.O. Box 418256 * Permit No. 3736 *
Kansas City, MO 64141-9256 ********************
PRINTED MATTER
Printed in U.S.A./012RPT-001
