<PAGE> 1
AMERICAN CAPITAL
HARBOR FUND, INC.
ANNUAL REPORT
December 31, 1994
[Photo of Man handing Woman in boat a life preserver]
[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 Harbor Fund Highlights
[Photo of Man]
For investors seeking income and potential
for growth through convertible securities
and common stocks.
American Capital's Quality Commitment
[Photos of 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
February 8, 1995
[Photo of Don G. Powell]
Dear 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. Limited. 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 convertible mutual fund still is the
one of the best ways to achieve both regular income and the potential for
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
Harbor Fund. The team is led by portfolio manager James H. Behrmann and Alan T.
Sachtleben, executive vice president for equity investments.
Q. SHORT-TERM INTEREST RATES ROSE THROUGH MOST OF 1994. HOW DID THIS
AFFECT THE FUND'S PERFORMANCE?
A. The Federal Reserve Board raised short-term interest rates six times
during 1994 because it was concerned that the economy was growing too quickly,
which could cause inflation to increase. The increases negatively impacted the
performance of most convertible securities funds last year, including your
Fund.
The increases in interest rates hampered the Fund's performance in two
ways. First, the Fund invests primarily in high- and medium-grade convertible
securities, and high-grade convertibles fell in value more than other types as
a result of the rate hikes. Investors worried that higher interest rates would
increase corporate borrowing costs and depress earnings. Second, at the
beginning of the year the Fund was invested heavily in the securities of
cyclical companies, which generally fell in value because these firms are most
susceptible to changes in the economy and investors believed higher interest
rates would cause economic growth to slow.
Q. HOW DID YOU ADJUST THE PORTFOLIO'S STRUCTURE TO DEAL WITH THE IMPACT OF
HIGHER RATES?
A. As the Fed started to raise rates, we began to make the portfolio more
defensive. We reduced the Fund's holdings of common stocks and convertible
preferred stocks, since the latter tend to be more volatile in a turbulent
market. Instead, we increased the Fund's holdings of convertible bonds. Also,
we significantly reduced the percentage of the portfolio that was invested in
cyclical securities.
[Pie Chart indicating Portfolio Composition]
We focused instead on the securities of consumer non-durables
companies. These securities offered a higher yield with less potential for a
decline in value than cyclicals. Some of the companies whose securities we
purchased during the reporting period included tobacco manufacturer American
Brands, the Price Company warehouse chain and Rite Aid Corp., which operates
drug stores.
At the end of December 1994, the top five industries in which the Fund
was invested were tobacco, movies and entertainment, banks, integrated oil
companies and life insurance. The largest long term holding in the portfolio
was media giant Time Warner, Inc. The Fund's cash position also was slightly
higher than normal during the past year because we were very selective about
the issues in which we invested. The diversification of the portfolio at
year-end is illustrated by the chart above.
Not a part of the Prospectus 2
<PAGE> 5
Q. HOW DID THE FUND PERFORM DURING 1994?
A. Class A shares achieved a total return at net asset value (without a sales
charge) of -6.43%, including reinvestment of dividends totalling $.62 per
share. Class B shares achieved a total return at net asset value of -7.11%,
including reinvestment of dividends totalling $.502 per share. C shares
achieved a total return at net asset value of -7.14%, including reinvestment of
dividends totalling $.502 per share. Each class of shares paid a distribution
of $.3275 per share.
Q. HOW DID STOCKS PERFORM LAST YEAR?
A. The Standard & Poor's 500-Stock Index achieved a total return of 1.36%.
The Index is a broad-based, unmanaged index that reflects general stock
market performance. The Merrill Lynch Index of all convertible securities
achieved a total return of -7.1%. This unmanaged index is used as a benchmark
for many convertible securities funds. Neither index reflects any commissions
or fees that would be paid by an investor purchasing the securities they
represent.
Q. WHAT IS THE INVESTMENT OUTLOOK FOR THE NEXT SIX MONTHS?
A. The Fed raised interest rates once more in early 1995. Now, short-term
interest rates should stabilize, creating an environment that typically helps
high-grade securities. The Fund continues to be defensively structured, with
our sell-off of cyclical securities complete, which will help us get through
the period of uncertainty that will remain until investors believe the rate
hikes are over.
Despite the challenges of 1994, convertible securities should continue
to be an attractive investment option for investors who want the potential for
higher income than that generally provided by stocks, along with the potential
for capital appreciation. We will continue to emphasize careful stock selection
to purchase those securities that we believe offer the best potential for
meeting the Fund's investment objectives.
/s/ ALAN T. SACHTLEBEN /s/ JAMES H. BEHRMANN
- -------------------------------- --------------------------------
Alan T. Sachtleben James H. Behrmann
Executive Vice President Portfolio Manager
Equity Investments
Not a part of the Prospectus 3
<PAGE> 6
American Capital Harbor Fund
The American Capital Edge:
An Investment Strategy that Works for You
[Picture showing Man and Woman looking at Computer Screen]
American Capital's overall investment philosophy is founded on the belief that
the most superior long-term performance is based on achieving consistently
above-average short-term results. Our strategy is built around three key
elements:
Security selection
We use our own proprietary computer system to screen the universe of available
securities, including stocks, convertible bonds, and convertible preferred
stocks, to identify those which meet our internal criteria for each American
Capital Fund. Then we research those securities further, using fundamental
security analysis techniques, to refine the selection to the few about which we
can feel confident adding to your Fund's portfolio.
We may attend financial analyst presentations or meet with a company's senior
management one-on-one to find out what makes them tick. Once purchased,
securities in each portfolio are constantly monitored to make sure they still
meet our criteria.
[Photo of Woman and two Men looking at Computer Screens]
Not a part of the Prospectus 4
<PAGE> 7
[Photo of Woman looking at Computer Printout]
Team expertise
Each portfolio manager benefits from the combined knowledge and insights of
experts in specialized segments of the stock and bond markets. Our equity
management expertise ranges from over-the-counter stocks to international
stocks.
Full market participation
At American Capital, we believe that your investment belongs in the kinds of
securities you wanted when you chose your Fund. Our strategy is to remain
fully invested in the market, because history has demonstrated that, for
long-term appreciation, it is more critical to capture the market upturns than
to avoid any temporary downturns. We also participate in all segments of the
market. Although we may vary the percentage of a fund invested in a particular
industry grouping as market conditions change, we believe that broad
diversification is important to minimize risks and maximize opportunities.
Not a part of the Prospectus 5
<PAGE> 8
American Capital Harbor Fund
American Capital Harbor Fund, Inc.
Growth for the Long-Term Investor
Average Annual Total Returns as of 12/31/94
____________________________________________________________________
Class A Shares (Based on maximum sales charge of 5.75%)
____________________________________________________________________
1 Year: -11.79% 10 Years: 9.83%
5 Years: 5.94% Inception: 9.28%
(11/15/56)
____________________________________________________________________
____________________________________________________________________
Class B Shares Total Return If Withdrawn Early*
____________________________________________________________________
1 Year -7.11% -11.49%
Since Inception (12/20/91) 5.71% 5.02%
____________________________________________________________________
*Early withdrawal figures are adjusted for the applicable
contingent deferred sales charge (maximum 5% in the first year).
____________________________________________________________________
____________________________________________________________________
Class C Shares Total Return If Withdrawn Early*
____________________________________________________________________
1 Year -7.14% -8.02%
Since Inception (10/26/93) -5.34% -5.34%
____________________________________________________________________
*Early withdrawal figures are adjusted for the applicable
contingent deferred sales charge (maximum 1% in the first year).
____________________________________________________________________
Figures shown on the chart represent past performance of the Fund based on a
$10,000 investment in Class A shares using the maximum sales charge of 5.75%.
The actual maximum sales charge prior to June 12, 1989 was 8.50%, so
investments made prior to such date would have resulted in a lower total
return. Past performance is no indication of future performance. 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.
[GRAPH]
Not a part of the Prospectus 6
<PAGE> 9
[Graph continued from bottom of page 6 onto page 7. Shows Total
Value of Investment on 12/31/94. $295,193.
Not a part of the Prospectus 7
<PAGE> 10
American Capital Harbor Fund
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 7A.M. AND 7P.M.
CENTRAL TIME MONDAY THROUGH FRIDAY.
<TABLE>
<CAPTION>
<S> <C>
Service When To help meet the needs of busy shareholders, American Capital offers 24-hour
You Want It 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 Dividends from net investment income for American Capital Harbor Fund are paid
Distribution quarterly and capital gains, if any, are distributed at least annually. You may
Options 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 You can make additional investments in American Capital Harbor Fund for as
Investments little as $25.
Automatic An automatic investment plan can help you carry out a disciplined financial
Investment Plan 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.
</TABLE>
Not a part of the Prospectus 8
<PAGE> 11
INVESTMENT PORTFOLIO
December 31, 1994
<TABLE>
<CAPTION>
Principal Amount
Market Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Corporate Obligations 45.0%
CONSUMER DISTRIBUTION 7.2%
$ 51,000 Best Buy Co., MIPS, 6.50%, 11/3/24 . . . . . . . . . . . . . . . . . . . . . . . $ 2,186,179
1,700,000 Carter Hawley Hale Stores, Inc., 6.25%, 12/3/00 . . . . . . . . . . . . . . . . . 1,309,000
3,400,000 Federated Department Stores, Inc., LYON, Zero Coupon, 2/15/04 . . . . . . . . . . 3,247,000
1,355,000 Fisher Scientific International, Inc., 4.75%, 3/1/03 . . . . . . . . . . . . . . 1,216,112
3,000,000 Home Depot, Inc., 4.50%, 2/15/97 . . . . . . . . . . . . . . . . . . . . . . . . 3,615,000
1,360,000 Lowe's Companies, Inc., 3.00%, 7/22/03 . . . . . . . . . . . . . . . . . . . . . 1,822,400
4,200,000 Office Depot, Inc., LYON, Zero Coupon, 11/1/08 . . . . . . . . . . . . . . . . . 2,289,000
2,550,000 Pep Boys--Manny, Moe & Jack, 4.00%, 9/1/99 . . . . . . . . . . . . . . . . . . . 2,435,250
6,375,000 Price Co., 6.75%, 3/1/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,801,250
17,600,000 Rite Aid Corp., LYON, Zero Coupon, 7/24/06 . . . . . . . . . . . . . . . . . . . 7,920,000
----------------
TOTAL CONSUMER DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 31,841,191
----------------
CONSUMER NON-DURABLES 3.5%
American Brands, Inc.
9,500,000 5.75%, 4/11/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,830,000
4,700,000 7.625%, 3/5/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,664,750
----------------
TOTAL CONSUMER NON-DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . 15,494,750
----------------
CONSUMER SERVICES 7.7%
2,125,000 Hospitality Franchise System, Inc., 4.50%, 10/01/99 . . . . . . . . . . . . . . . 2,055,938
2,000,000 Omnicom Group, 4.50%, 9/1/00 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,040,000
3,520,000 Service Corp. International, 6.50%, 9/01/01 . . . . . . . . . . . . . . . . . . . 4,769,600
Time Warner, Inc.
11,500,000 LYON, Zero Coupon, 12/17/12 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,507,500
9,000,000 LYON, Zero Coupon, 6/22/13 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,172,500
11,503,350 8.75%, 1/10/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,841,907
8,550,000 Turner Broadcasting, LYON, Zero Coupon, 2/13/07 . . . . . . . . . . . . . . . . . 3,355,875
3,470,000 Wendy's International, Inc., 7.00%, 4/01/06 . . . . . . . . . . . . . . . . . . . 4,385,213
----------------
TOTAL CONSUMER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,128,533
----------------
ENERGY 5.8%
4,750,000 Ashland Oil, Inc., 6.75%, 7/1/14 . . . . . . . . . . . . . . . . . . . . . . . . 4,263,125
6,350,000 Consolidated Natural Gas Co., 7.25%, 12/15/15 . . . . . . . . . . . . . . . . . . 6,127,750
*4,350,000 ORYX Energy Co., 7.50%, 5/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . 3,012,375
2,580,000 Pogo Producing Co., 5.50%, 3/15/04 . . . . . . . . . . . . . . . . . . . . . . . 2,457,450
5,650,000 SFP Pipeline Holdings, 10.42%, 8/15/10 . . . . . . . . . . . . . . . . . . . . . 6,593,409
7,705,000 USX-Marathon Group, LYON, Zero Coupon, 8/9/05 . . . . . . . . . . . . . . . . . . 3,370,937
----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,825,046
----------------
FINANCE 5.4%
9,637,000 Alexander & Alexander Services, Inc., 11.00%, 4/15/07 . . . . . . . . . . . . . . 9,685,185
5,850,000 Chubb Corp., 6.00%, 5/15/98 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,908,500
3,200,000 Statesman Group, Inc., 6/25%, 5/1/03 . . . . . . . . . . . . . . . . . . . . . . 3,264,000
5,110,000 USLICO Corp., 8.50%, 12/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . . 5,058,900
----------------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,916,585
----------------
HEALTH CARE 1.3%
10,000,000 Alza Corp., LYON, Zero Coupon, 7/14/14 . . . . . . . . . . . . . . . . . . . . . 3,300,000
1,700,000 Genesis Health Ventures, Inc., 6.00%, 11/30/03 . . . . . . . . . . . . . . . . . 2,407,625
----------------
TOTAL HEALTH CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,707,625
----------------
</TABLE>
Not a part of the Prospectus 9
<PAGE> 12
INVESTMENT PORTFOLIO, CONTINUED
<TABLE>
<CAPTION>
Principal Amount
Market Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 4.0%
$ 4,600,000 Browning-Ferris Industries, Inc., 6.75%, 7/18/05 . . . . . . . . . . . . . . . . $ 4,117,000
215,000 Cooper Industries, Inc., 7.05%, 1/1/15 . . . . . . . . . . . . . . . . . . . . . 4,407,500
3,400,000 Flagstar Corp., 10.00%, 11/1/14 . . . . . . . . . . . . . . . . . . . . . . . . . 2,346,000
8,500,000 Valhi, Inc., LYON, Zero Coupon, 10/20/07 . . . . . . . . . . . . . . . . . . . . 2,550,000
12,750,000 Waste Management, Inc., LYON, Zero Coupon, 4/13/12 . . . . . . . . . . . . . . . 4,494,375
----------------
TOTAL PRODUCER MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . . . . 17,914,875
----------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.3%
80,500 Atlantic Richfield Co., ELKS, 9.00%, 9/15/97 . . . . . . . . . . . . . . . . . . 2,095,137
5,000,000 Freeport-McMoRan, Inc., Zero Coupon, 8/5/06 . . . . . . . . . . . . . . . . . . . 1,793,750
2,700,000 Stone Container Corp., 6.75%, 2/15/07 . . . . . . . . . . . . . . . . . . . . . . 2,025,000
----------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES . . . . . . . . . . . . . . . . . . . 5,913,887
----------------
TECHNOLOGY 7.5%
2,500,000 Arrow Electronics, Inc., 5.75%, 10/15/02 . . . . . . . . . . . . . . . . . . . . 2,881,250
17,200,000 Automatic Data Processing, Inc., LYON, Zero Coupon, 2/20/12 . . . . . . . . . . . 7,224,000
3,900,000 Data General Corp., 7.75%, 6/1/01 . . . . . . . . . . . . . . . . . . . . . . . 3,393,000
2,500,000 General Instrument Corp., 5.00%, 6/15/00 . . . . . . . . . . . . . . . . . . . . 3,331,250
5,950,000 Motorola, Inc., LYON, Zero Coupon, 9/27/13 . . . . . . . . . . . . . . . . . . . 4,179,875
5,100,000 Silicon Graphics, Inc., Zero Coupon, 11/2/13 . . . . . . . . . . . . . . . . . . 2,715,750
5,200,000 Texas Instruments, Inc., 2.75%, 9/29/02 . . . . . . . . . . . . . . . . . . . . . 5,018,000
3,000,000 Unisys Corp., 8.25%, 8/1/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,045,000
1,500,000 3Com Corp., 10.25%, 11/1/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,582,500
----------------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,370,625
----------------
UTILITIES 1.3%
7,375,000 Potomac Electric Power Co., 5.00%, 9/1/02 . . . . . . . . . . . . . . . . . . . . 5,789,375
----------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS
(Cost $206,107,960) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,902,492
----------------
Number Foreign Securities 9.1%
of Shares Common Stock 0.4%
---------------
ENERGY 0.4%
25,000 British Petroleum Co., PLC, ADR (Cost $1,747,500) . . . . . . . . . . . . . . . . 1,996,875
----------------
Principal
Amount Convertible Corporate Obligations 8.7%
---------------
CONSUMER DISTRIBUTION 0.8%
$ 3,100,000 President Enterprises, Zero Coupon, 7/22/01 . . . . . . . . . . . . . . . . . . . 3,355,682
----------------
CONSUMER NON-DURABLES 1.2%
5,350,000 S.A.B. Finance Corp., 7.50%, 8/2/98 . . . . . . . . . . . . . . . . . . . . . . . 5,309,875
----------------
FINANCE 2.2%
3,590,000 Aegon, N.V., 4.75%, 11/1/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,733,600
2,295,000 Central International, 10.00%, 8/7/96 . . . . . . . . . . . . . . . . . . . . . . 1,537,650
4,720,000 Henderson Capital International, 4.50%, 10/27/96 . . . . . . . . . . . . . . . . 4,507,600
----------------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,778,850
----------------
</TABLE>
Not a part of the Prospectus 10
<PAGE> 13
INVESTMENT PORTFOLIO, CONTINUED
<TABLE>
<CAPTION>
Principal Amount
Market Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 2.3%
$ 2,500,000 CEMEX, S.A., 4.25%, 11/1/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000,000
3,400,000 CRH Capital, 5.75%, 4/30/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,080,000
5,432,000 Hanson, PLC, ADR, 2.39%, 3/1/01 . . . . . . . . . . . . . . . . . . . . . . . . . 3,883,880
----------------
TOTAL PRODUCER MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . . . . 9,963,880
----------------
RAW MATERIALS 1.7%
1,300,000 Inco, Ltd., 7.75%, 3/15/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,280,500
4,700,000 NTS Steel, 4.00%, 12/16/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,843,500
1,135,000 PT Indorayon, 7.00%, 5/2/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,051,280
2,690,000 Repap Enterprises, Inc., 8.50%, 8/1/97 . . . . . . . . . . . . . . . . . . . . . 2,528,600
----------------
TOTAL RAW MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,703,880
----------------
UTILITIES 0.5%
2,500,000 Technology RES Industries, 2.75%, 11/28/04 . . . . . . . . . . . . . . . . . . . 2,381,250
----------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS
(Cost $40,413,346) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,493,417
----------------
TOTAL FOREIGN SECURITIES (COST $42,160,846) . . . . . . . . . . . . . . . . . . 40,490,292
----------------
Non-Convertible Corporate Obligation 0.8%
4,465,000 Enquirer/Star, Inc., Zero Coupon, 5/15/97 (Cost $3,576,065) . . . . . . . . . . . 3,527,350
----------------
Number of
Shares Convertible Preferred Stock 14.7%
CONSUMER DISTRIBUTION 1.6%
---------------
125,000 Sears, Roebuck & Co., Series A, PERCS, $3.75 . . . . . . . . . . . . . . . . . . 6,953,125
----------------
CONSUMER NON-DURABLES 0.4%
300,000 RJR Nabisco Holdings Corp., Inc., PERCS, $.60125 . . . . . . . . . . . . . . . . 1,800,000
----------------
CONSUMER SERVICES 0.8%
71,400 SCI Finance N.V., LLC, 6.25% . . . . . . . . . . . . . . . . . . . . . . . . . . 3,712,800
----------------
ENERGY 2.2%
87,000 Occidental Petroleum Co., $7.75 . . . . . . . . . . . . . . . . . . . . . . . . . 4,219,500
66,500 Snyder Oil Corp., $1.50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,338,313
52,900 Transco Energy Co., $3.50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,406,950
42,500 USX Corp., Series A, $3.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,901,875
----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,866,638
----------------
FINANCE 5.1%
175,000 Citicorp., $1.22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,346,875
46,300 Citicorp., $5.375 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,289,775
96,000 Conseco, Inc., Series D, $3.25 . . . . . . . . . . . . . . . . . . . . . . . . . 3,912,000
85,850 First Chicago Corp., $2.875 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,056,413
79,000 Great Western Financial Corp., $4.375 . . . . . . . . . . . . . . . . . . . . . . 3,959,875
39,000 Roosevelt Financial Group, Inc., $3.25 . . . . . . . . . . . . . . . . . . . . . 2,310,750
----------------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,875,688
----------------
PRODUCER MANUFACTURING 0.5%
170,000 Westinghouse Electric Co., PERCS, $1.53 . . . . . . . . . . . . . . . . . . . . . 2,252,500
----------------
</TABLE>
Not a part of the Prospectus 11
<PAGE> 14
INVESTMENT PORTFOLIO, CONTINUED
<TABLE>
<CAPTION>
Principal Amount
Market Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 2.7%
120,000 Boise Cascade Corp., Series E, ACES, $1.58 . . . . . . . . . . . . . . . . . . . 2,865,000
58,400 Reynolds Metals Co., PRIDES, 7.00% . . . . . . . . . . . . . . . . . . . . . . . 2,825,100
47,500 Sonoco Products Co., $2.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,280,000
93,500 WHX Corp., Series B, $3.75 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,997,125
----------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES . . . . . . . . . . . . . . . . . . . 11,967,225
----------------
TECHNOLOGY 1.4%
81,000 General Motors, Corp., $3.25 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,647,375
45,000 Unisys Corp., Series A, $3.75 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,428,750
----------------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,076,125
----------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $67,630,139) . . . . . . . . . . . . . 65,504,101
----------------
Common Stock 15.6%
CONSUMER DISTRIBUTION 0.3%
71,000 Limited, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,286,875
----------------
CONSUMER NON-DURABLES 2.4%
70,000 Anheuser-Busch Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 3,561,250
75,000 Philip Morris Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,312,500
47,000 Proctor & Gamble Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,914,000
----------------
TOTAL CONSUMER NON-DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . 10,787,750
----------------
CONSUMER SERVICES 0.5%
51,000 Walt Disney Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,352,375
----------------
ENERGY 1.7%
85,000 Exxon Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,163,750
26,000 Mobil Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,190,500
----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,354,250
----------------
HEALTH CARE 1.6%
93,000 Baxter International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,627,250
66,000 Upjohn Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,029,500
29,300 Warner Lambert Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,256,100
----------------
TOTAL HEALTH CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,912,850
----------------
PRODUCER MANUFACTURING 1.4%
*171,700 Chemical Waste Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,609,688
56,676 Tenneco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,408,730
30,000 TRW, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,980,000
----------------
TOTAL PRODUCER MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . . . . 5,998,418
----------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.0%
80,000 DuPont (E.I.) de Nemours & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . 4,500,000
----------------
TECHNOLOGY 1.6%
50,000 Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,337,500
20,000 International Business Machines Corp. . . . . . . . . . . . . . . . . . . . . . . 1,470,000
98,000 Rockwell International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,503,500
----------------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,311,000
----------------
</TABLE>
Not a part of the Prospectus 12
<PAGE> 15
INVESTMENT PORTFOLIO, CONTINUED
<TABLE>
<CAPTION>
Principal Amount
Market Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES 5.1%
50,000 Ameritech Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,018,750
50,000 AT&T Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,512,500
75,000 Bellsouth Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,059,375
158,000 CMS Energy Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,614,250
223,000 Illinova Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,850,250
174,000 PECO Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,263,000
67,000 Southern Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,340,000
----------------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,658,125
----------------
TOTAL COMMON STOCK (COST $69,930,427) . . . . . . . . . . . . . . . . . . . . . 69,161,643
----------------
Principal
Amount Short-Term Investments 14.2%
---------------
$ 10,000,000 Federal Home Loan Mortgage Association, 5.83%, 2/21/95 . . . . . . . . . . . . . 9,916,944
21,000,000 General Electric Capital Corp., 5.50%, 1/3/95 . . . . . . . . . . . . . . . . . . 20,990,375
31,935,000 Repurchase Agreement with Lehman Brothers, Inc., dated 12/30/94, 5.35%, due
1/3/95 (Collateralized by U.S. Government obligations in a pooled cash
account) repurchase proceeds $31,953,984 . . . . . . . . . . . . . . . . . . . 31,935,000
----------------
TOTAL SHORT-TERM INVESTMENTS (COST $62,842,319) . . . . . . . . . . . . . . . . 62,842,319
----------------
TOTAL INVESTMENTS (Cost $452,247,756) 99.4% . . . . . . . . . . . . . . . . . . 441,428,197
Other assets and liabilities, net 0.6% . . . . . . . . . . . . . . . . . . . . . 2,705,549
----------------
NET ASSETS 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 444,133,746
================
</TABLE>
*Non-income producing security.
ACES-Automatically convertible equity securities
ELKS-Equity linked securities, traded in shares
LYON-Liquid yield option notes
MIPS-Monthly income paying security
PERCS-Preferred equity redeemable cumulative stock
PRIDES-Preferred redeemable increased dividend equity security
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 $452,247,756) . . . . . . . . . . . . . . . . . $441,428,197
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,017
Dividends and interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . 4,510,705
Receivable for investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . 694,369
Receivable for Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 452,458
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,089
------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447,101,835
------------
LIABILITIES
Payable for Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . 1,215,845
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,402
Due to Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295,466
Due to Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,481
Accrued expenses and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 151,395
Due to shareholder service agent . . . . . . . . . . . . . . . . . . . . . . . . . 87,500
------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,968,089
------------
NET ASSETS, equivalent to $13.24 per share for Class A shares, $13.20 per share
for Class B shares and $13.25 per share for Class C shares . . . . . . . . . . . . $444,133,746
============
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 27,921,051 Class A shares, 5,391,367 Class B shares and
246,428 Class C shares outstanding . . . . . . . . . . . . . . . . . . . . . . . $ 33,558,846
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421,854,460
Accumulated net realized loss on securities . . . . . . . . . . . . . . . . . . . . (1,407,669)
Net unrealized depreciation of securities . . . . . . . . . . . . . . . . . . . . . (10,819,559)
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . 947,668
------------
NET ASSETS at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . $444,133,746
============
</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
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,756,525
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,017,729
------------
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,774,254
------------
EXPENSES
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,547,927
Shareholder service agent's fees and expenses . . . . . . . . . . . . . . . . 987,115
Service fees-Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 834,614
Distribution and service fees-Class B . . . . . . . . . . . . . . . . . . . . 696,897
Distribution and service fees-Class C . . . . . . . . . . . . . . . . . . . . 28,033
Accounting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,119
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . 97,348
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,026
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,613
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . 20,835
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,281
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,855
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,125
------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,505,788
------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,268,466
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain on securities . . . . . . . . . . . . . . . . . . . . . . . 3,548,005
Net unrealized depreciation of securities during the year . . . . . . . . . . (55,725,504)
------------
Net realized and unrealized loss on securities . . . . . . . . . . . . . . . (52,177,499)
------------
Decrease in net assets resulting from operations . . . . . . . . . . . . . . $(31,909,033)
============
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 15
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1994 1993
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of year . . . . . . . . . . . . . . . . . . . . . . $493,332,696 $414,079,079
------------ ------------
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 20,268,466 19,780,727
Net realized gain on securities . . . . . . . . . . . . . . . . . . . . 3,548,005 36,909,393
Net unrealized appreciation (depreciation) of
securities during the year . . . . . . . . . . . . . . . . . . . . . . (55,725,504) 514,599
------------ ------------
Increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,909,033) 57,204,719
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,430,212) (17,646,870)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,534,008) (1,449,378)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108,062) (7,692)
------------ ------------
(20,072,282) (19,103,940)
------------ ------------
From net realized gain on securities
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,000,509) (30,269,541)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (527,033) (3,865,288)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,463) (61,690)
------------ ------------
(3,548,005) (34,196,519)
------------ ------------
In excess of book-basis net realized gain on securities
(see Note 1F)
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,103,576) --
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,072,081) --
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,626) --
------------ ------------
(7,217,283) --
------------ ------------
Total dividends and distributions . . . . . . . . . . . . . . . . . . . (30,837,570) (53,300,459)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,987,593 45,662,847
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,149,379 41,077,755
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,699,355 1,098,738
------------ ------------
108,836,327 87,839,340
------------ ------------
Proceeds from shares issued for dividends and
distributions reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,238,092 38,674,664
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,463,734 4,575,838
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,241 51,917
------------ ------------
24,816,067 43,302,419
------------ ------------
Cost of shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105,939,736) (50,899,052)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,924,220) (4,881,855)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,240,785) (11,495)
------------ ------------
(120,104,741) (55,792,402)
------------ ------------
Increase in net assets resulting from Fund
share transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 13,547,653 75,349,357
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . . (49,198,950) 79,253,617
------------ ------------
NET ASSETS, end of year . . . . . . . . . . . . . . . . . . . . . . . . . $444,133,746 $493,332,696
============ ============
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 16
<PAGE> 19
Notes to Financial Statements
Note 1--Significant Accounting Policies
The American Capital Harbor 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 most recent bid
price, except unlisted convertible securities, which are valued at the
higher of their bid price or the value of the securities issuable on
conversion.
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.
Fund investments include lower rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade
holdings. These securities are often subordinated to the prior claims of
other senior lenders and uncertainties exist as to an issuer's ability to
meet principal and interest payments. Debt securities rated below
investment grade and comparable unrated securities represented
approximately 22% of the investment portfolio at December 31, 1994.
B. Futures Contracts
Transactions in futures contracts are utilized in strategies to manage the
market risk of the Fund's investments. The purchase of a futures contract
increases the impact on net asset value of changes in the market price of
investments. There is also 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 are held as
collateral in an account in the name of the broker, the Fund's agent in
acquiring the futures position. 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.
Not a part of the Prospectus 17
<PAGE> 20
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 to its shareholders. It is anticipated that no distribution
of capital gains will be made until tax basis capital loss carryforwards,
if any, expire or are offset by net realized capital gains to its
shareholders.
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 distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue Code, which may
differ from generally accepted accounting principles. Such dividends or
distributions may exceed financial statement earnings.
G. Debt Discount and Premium
For financial reporting purposes, debt discounts or premiums are accounted
for on the same basis as is followed for federal income tax reporting.
Accordingly, original issue debt discounts are amortized over the life of
the security. Premiums on debt securities are not amortized. Market
discounts are recognized at the time of sale as realized gains for book
purposes and ordinary income for tax purposes.
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 .55% of the first $350 million, .50% of the next $350
million, .45% of the next $350 million, and .40% of the amount in excess of
$1.05 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
$11,797 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 the Fund's shareholder service agent. These services are
provided at cost plus a profit. For the year ended December 31, 1994, the
fees for these services aggregated $841,263.
The Fund has been advised that Van Kampen American Capital Distributors,
Inc. (the "Distributor") and Advantage Capital Corporation (the "Retail
Dealer"), both affiliates of the Adviser, received $83,923 and $107,787,
respectively, as their portion of the commissions charged on sales of Fund
shares during the year.
The Fund paid brokerage commissions of $59,348 to a company which is deemed
an affiliate of the Adviser's parent because it owns more than 5% of the
company's outstanding voting securities.
Under the Distribution Plans, each class of shares pays up to .25% per
annum of their average 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
Not a part of the Prospectus 18
<PAGE> 21
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
$2.8 million and $66,000, 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.
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 $458,872,031 and
$502,165,566, respectively.
For federal income tax purposes, the identified cost of investments owned
at December 31, 1994 was $452,371,501. Net unrealized depreciation of
investments aggregated $10,943,304, gross unrealized appreciation of
investments aggregated $10,017,537 and gross unrealized depreciation of
investments aggregated $20,960,841. Additionally, approximately $1.8
million of financial statement losses are deferred for federal income tax
purposes to the 1995 fiscal year.
Note 4--Director Compensation
Fund directors who are not affiliated with the Adviser are compensated by
the Fund at the annual rate of $1,440 plus a fee of $35 per day for Board
and Committee meetings attended. The Chairman receives additional fees from
the Fund at the annual rate of $540. During the year, such fees aggre-
gated $18,928.
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 $52,228. 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.
Not a part of the Prospectus 19
<PAGE> 22
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). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. 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. 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.
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................................................. 5,205,597 2,926,491
Class B................................................. 2,088,330 2,644,303
Class C................................................. 256,253 68,792
--------- ---------
7,550,180 5,639,586
--------- ---------
Shares issued for dividends and distributions reinvested 1,510,720 2,569,605
Class A................................................. 248,107 306,555
Class B................................................. 8,217 3,496
Class C................................................. --------- ---------
1,767,053 2,879,656
--------- ---------
Shares redeemed
Class A................................................. (7,381,835) (3,269,313)
Class B................................................. (919,838) (314,635)
Class C................................................. (89,612) (718)
--------- ---------
(8,391,285) (3,584,666)
--------- ---------
Increase in shares outstanding.......................... 925,948 4,934,576
========= =========
</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 . . . . . $15.12 $14.95 $14.92 $12.93 $14.05
------- ------ ------- ------ -------
INCOME FROM OPERATIONS
Investment income . . . . . . . . . . . . . . .78 .85 .90 .955 1.115
Expenses . . . . . . . . . . . . . . . . . . (.15) (.16) (.15) (.13) (.12)
------- ------ ------- ------ -------
Net investment income . . . . . . . . . . . . .63 .69 .75 .825 .995
Net realized and unrealized gains or
losses on securities . . . . . . . . . . . (1.5625) 1.365 .6275 2.085 (1.1525)
------- ------ ------- ------ -------
Total from investment operations . . . . . . (.9325) 2.055 1.3775 2.91 (.1575)
------- ------ ------- ------ -------
LESS DISTRIBUTIONS
Dividends from net investment income . . . . (.62) (.66) (.84) (.92) (.87)
Distributions from net realized gains
on securities . . . . . . . . . . . . . . . (.108) (1.225) (.5075) -- (.0925)
Distributions in excess of book-basis net
realized gain on securities (see Note 1F) . (.2195) -- -- -- --
------- ------ ------- ------ -------
Total distributions . . . . . . . . . . . . . (.9475) (1.885) (1.3475) (.92) (.9625)
------- ------ ------- ------ -------
Net asset value, end of year . . . . . . . . $ 13.24 $15.12 $ 14.95 $14.92 $ 12.93
======= ====== ======= ====== =======
TOTAL RETURN (1) . . . . . . . . . . . . . . (6.43%) 13.56% 9.63% 23.08% (1.23%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions) . . . . . $369.7 $423.3 $394.1 $385.5 $336.9
Average net assets (millions) . . . . . . . . $402.1 $419.1 $381.6 $356.4 $359.6
Ratios to average net assets
Expenses . . . . . . . . . . . . . . . . . 1.04% 1.02% .99% .91% .89%
Net investment income . . . . . . . . . . . 4.39% 4.37% 5.00% 5.86% 7.29%
Portfolio turnover rate . . . . . . . . . . . 105% 134% 85% 91% 71%
</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
------------------------------------ -----------------------------
OCTOBER 26,
YEAR ENDED DECEMBER 31 YEAR ENDED 1993(3) THROUGH
------------------------------------ DECEMBER DECEMBER 31,
1994 1993(2) 1992(2) 31, 1994 1993(2)
------- ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year . . . . . $ 15.07 $14.90 $14.91 $ 15.13 $ 16.14
------- ------ ------ ------- -------
INCOME FROM OPERATIONS
Investment income . . . . . . . . . . . . . . .77 .83 .87 .78 .22
Expenses . . . . . . . . . . . . . . . . . . (.26) (.27) (.275) (.26) (.07)
------- ------ ------ ------- -------
Net investment income . . . . . . . . . . . . .51 .56 .595 .52 .15
Net realized and unrealized gains or losses
on securities . . . . . . . . . . . . . . . (1.5505) 1.375 .63 (1.5705) (.0325)
------- ------ ------ ------- -------
Total from investment operations . . . . . . (1.0405) 1.935 1.225 (1.0505) .1175
------- ------ ------ ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income . . . . (.502) (.54) (.7275) (.502) (.125)
Distributions from net realized
gains on securities . . . . . . . . . . . . (.108) (1.225) (.5075) (.108) (1.0025)
Distributions in excess of book-basis
net realized gain on securities
(see Note 1F) . . . . . . . . . . . . . . . (.2195) -- -- (.2195) --
------- ------ ------ ------- -------
Total distributions . . . . . . . . . . . . . (.8295) (1.765) (1.235) (.8295) (1.1275)
------- ------ ------ ------- -------
Net asset value, end of year . . . . . . . . $ 13.20 $15.07 $14.90 $ 13.25 $ 15.13
======= ====== ====== ======= =======
TOTAL RETURN(4) . . . . . . . . . . . . . . . (7.11%) 12.68% 8.56% (7.14%) .93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions) . . . . . $71.1 $60.1 $20.0 $3.3 $1.1
Average net assets (millions) . . . . . . . . $69.7 $40.1 $7.9 $2.8 $0.7
Ratios to average net assets
Expenses . . . . . . . . . . . . . . . . . . 1.84% 1.73% 1.88% 1.84% 1.90%(5)
Net investment income . . . . . . . . . . . 3.63% 3.62% 4.08% 3.72% 3.88%(5)
Portfolio turnover rate . . . . . . . . . . 105% 134% 85% 105% 134%
</TABLE>
(1) Sales of Class B shares commenced on December 20, 1991 at a net asset
value of $14.32 per share. At December 31, 1991, there were 15,738
Class B shares outstanding with a per share net asset value of $14.91.
The increase in net asset value was due principally to unrealized
appreciation; there were no dividends or distributions paid during the
period. Other financial highlights for the Class B shares for this
short period are not presented as they are not meaningful.
(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 Harbor Fund, Inc.
In our opinion, the accompanying statement of 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 Harbor Fund, Inc.
at December 31, 1994, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended 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
February 8, 1995
Not a part of the Prospectus 23
<PAGE> 26
Fund Performance Update
Management Discussion
American Capital Harbor Fund invests primarily in convertible bonds and
convertible preferred stock, with the objective of seeking current income,
capital appreciation and conservation of capital. In 1994, the Fund's
performance was negatively impacted by the effect of repeated increases in
short-term interest rates.
For additional details on market conditions and their impact on your Fund, see
pages 2-3 of this report.
Change in Value of $10,000 Investment in
American Capital Harbor Fund vs.
the Standard & Poor's 500-Stock Index
12/31/74- 12/31/94
[CHART]
$175,000
150,000 Standard & Poor's 500-Stock Index* $151,059
125,000 American Capital Harbor Fund (Class A) at Net Asset Value $132,552
100,000 American Capital Harbor Fund (Class A) $124,955
75,000 at Maximum Offering Price
50,000
25,000
5,000
12/31/74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 12/31/94
Past performance is not indicative of future performance. Performance of other
classes of the fund will be greater or less than the lines shown based on the
differences in loads or fees paid by shareholders 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 Harbor Fund Class A shares with ending value of $124,955. 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>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Average Annual Total Return - Class A (as of 12/31/94) | 1 Year | 5 Years | 10 Years
- ---------------------------------------------------------------------------------------------------
At Net Asset Value | - 6.43% | 7.21% | 10.49%
- ---------------------------------------------------------------------------------------------------
With Maximum 5.75% Sales Charge | -11.79% | 5.94% | 9.83%
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Average Annual Total Return - Class B (as of 12/31/94) | 1 Year | Since Inception (12/20/91)
- ---------------------------------------------------------------------------------------------------
At Net Asset Value | - 7.11% | 5.71%
- ---------------------------------------------------------------------------------------------------
With Applicable Contingent Deferred Sales Charge | |
Upon Redemption (Maximum 5%) | -11.49% | 5.02%
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Average Annual Total Return - Class C (as of 12/31/94) | 1 Year | Since Inception (10/26/93)
- ---------------------------------------------------------------------------------------------------
At Net Asset Value | - 7.14% | -5.34%
- ---------------------------------------------------------------------------------------------------
With Applicable Contingent Deferred Sales Charge | |
Upon Redemption (Maximum 1%) | - 8.02% | -5.34%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Not a part of the Prospectus 24
<PAGE> 27
American Capital Harbor Fund, Inc.
Board of Directors
J. Miles Branagan
Richard E. Caruso Fernando Sisto*
Roger Hilsman William S. Woodside
Don G. Powell
David Rees *Chairman of the Board
Lawrence J. Sheehan
Officers
Don G. Powell Nori L. Gabert
President Vice President and
Secretary
Curtis W. Morell J. David Wise
Vice President Vice President and
and Treasurer Assistant Secretary
James H. Behrmann
Alan T. Sachtleben Perry F. Farrell
Paul R. Wolkenberg M. Robert Sullivan
Vice Presidents Assistant Treasurers
Tanya M. Loden Huey P. Falgout, Jr.
Vice President and Assistant Secretary
Controller
_______________________________________________________
Investment Adviser
Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Blvd., Houston, Texas 7705
_______________________________________________________
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
_______________________________________________________
_________________________________________
Tax Notice to Corporate
Shareholders
For 1994, 43% of the dividends taxable
as ordinary income qualified for the
70% dividends received deduction for
corporations.
_________________________________________
________________________________________________________________________________
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 Harbor Fund performance data update for the most recent calendar
quarter.
________________________________________________________________________________
Not a part of the Prospectus
<PAGE> 28
American Capital Family of Funds
<TABLE>
<CAPTION>
<S> <C>
Emerging Growth Fund Corporate Bond Funds
American Capital Emerging Growth Fund, Inc. American Capital High Yield Investments, Inc.
American Capital Corporate Bond Fund, Inc.
Midcap Fund
American Capital Enterprise Fund, Inc. Government Securities Funds
American Capital Global Government Securities Fund
Core Growth Funds American Capital U.S. Government Trust for Income
American Capital Pace Fund, Inc. American Capital Government Securities, Inc.
American Capital Global Equity Fund American Capital Federal Mortgage Trust
Real Estate Fund Tax-Free Funds
American Capital Real Estate Securities Fund, Inc. American Capital Tax-Exempt Trust
High Yield Municipal Portfolio
Growth-Income Funds American Capital Texas Municipal Securities, Inc.
American Capital Comstock Fund, Inc. American Capital Municipal Bond Fund, Inc.
American Capital Growth and Income Fund, Inc. American Capital Tax-Exempt Trust
American Capital Equity Income Fund, Inc. Insured Municipal Portfolio
American Capital Global Managed Assets Fund, Inc.
American Capital Harbor Fund, Inc. Money Market Fund
American Capital Reserve Fund, Inc.
Income-Growth Fund
American Capital Utilities Income Fund, Inc.
</TABLE>
The Govett Funds, Inc.
Nationally Distributed by Van Kampen American Capital Distributors, Inc.
(Formerly American Capital Marketing, Inc.)
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
For more complete information about any 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
Harbor Fund, Inc.
C/O ACCESS
P.O. Box 418256
Kansas City, MO 64141-9256
