<PAGE>
Van Kampen American Capital
HARBOR FUND
Semi-Annual Report
June 30, 1997
[PHOTO APPEARS HERE]
A Wealth of Knowledge . A Knowledge of Wealth/SM/
VAN KAMPEN AMERICAN CAPITAL
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders............................ 1
Performance Results............................... 3
Portfolio Highlights.............................. 4
Portfolio Management Review....................... 5
Portfolio of Investments.......................... 8
Statement of Assets and Liabilities............... 15
Statement of Operations........................... 16
Statement of Changes in Net Assets................ 17
Financial Highlights.............................. 18
Notes to Financial Statements..................... 21
</TABLE>
HAR SAR 8/97
<PAGE>
Letter to Shareholders
Dennis J. McDonnell and Don G. Powell
[PHOTO APPEARS HERE]
July 24, 1997
Dear Shareholder,
As you know, Van Kampen American Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter, Discover & Co. agreed to merge. The merger
was completed on May 31, creating the combined company of Morgan Stanley, Dean
Witter, Discover & Co. Additionally, we are very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.
Economic Overview
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the lowest level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S. dollar helped dampen inflationary
pressures resulting from the vigorous domestic economy by making imported goods
less expensive. At the same time, continued moderation in the cost of employee
benefit packages offset mild upward pressure on wages.
In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in
Continued on page two
1
<PAGE>
short-term interest rates in two years. Signs that economic growth slowed
markedly in the second quarter, however, led Fed policymakers to leave rates
unchanged at subsequent meetings.
Market Overview
With a solid underpinning of record profits, strong economic growth, and
low inflation, the U.S. equity market continued its torrid performance during
the first half of 1997. For a brief time this spring, however, investors worried
that growth was too robust and that higher interest rates were on the way. Those
fears pushed stock prices lower by about 10 percent over a one-month period
beginning in mid-March.
By mid-April, signs that the economy was cooling began to emerge, and
stocks skyrocketed to a series of record highs. The Wilshire 5000 Index of all
publicly traded domestic companies gained 16.65 percent during the first six
months of the year and increased by 25.95 percent over the 12 months through
June 30. Low inflation allowed the market's price/earnings multiple to remain
high, while strong growth in corporate profits provided solid support for stock
prices.
Within the equity market, most of the gains were generated by large-
capitalization stocks. The Russell 1000 Index of large companies gained 17.57
percent over the six months through June 30, almost double the return of the
Russell 2000 Index of small-capitalization companies. Consumer non-cyclicals
such as beverages and pharmaceuticals were among the top-performing industry
groups, although the rally broadened by the end of June to include sectors that
had previously been laggards, including cyclicals and small-company stocks.
Outlook
We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the relatively sluggish rate that prevailed during the
second quarter. While we do not believe that economic growth will be rapid
enough to reignite inflation, some warning signs are present, including a tight
labor market and high consumer confidence. In this environment, at least one
additional Federal Reserve interest rate hike remains a possibility.
We believe that equities should continue to do well given the likely
continuation of the moderate-growth, low-inflation environment. We are
concerned, however, that the lengthy series of record highs in the U.S. stock
market is creating unreasonable expectations among some investors. Valuations
are extended and investment sentiment is exceptionally optimistic. Under such
circumstances, a mild correction would not be unusual.
We are fortunate to be experiencing a rare combination of sustained
economic growth, low inflation, and highly favorable performance in the
financial market. Along with our fund shareholders, we celebrate the seemingly
best of economic times. Once again, we encourage you to review your portfolio
with an eye toward correcting allocation imbalances.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
- --------------------------- ----------------------------
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
Performance Results for the Period Ended June 30, 1997
Van Kampen American Capital Harbor Fund
<TABLE>
<CAPTION>
Total Returns A Shares B Shares C Shares
<S> <C> <C> <C>
Six-month total return based on NAV/1/........... 8.61% 8.17% 8.12%
Six month total return/2/........................ 2.35% 3.17% 7.12%
One-year total return/2/......................... 8.15% 8.85% 12.84%
Five-year average annual total return/2/......... 10.29% 10.53% N/A
Ten-year average annual total return/2/.......... 8.97% N/A N/A
Life-of-Fund average annual total return/2/...... 9.76% 10.40% 8.92%
Commencement Date................................ 11/15/56 12/20/91 10/26/93
</TABLE>
N/A = Not Applicable
/1/ Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (5.75% for A shares) or
contingent deferred sales charge for early withdrawal (5% for B shares and
1% for C shares).
/2/ Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
Debt securities acquired by the Fund are not subject to any ratings limitations
and may include high-, medium-, lower- and non-rated debt securities. Lower- and
non-rated securities are regarded as speculative with respect to capacity to pay
interest and repay principal.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Portfolio Highlights
Van Kampen American Capital Harbor Fund
Top Ten Holdings as a Percentage of Long-Term Investments
<TABLE>
<CAPTION>
As of As of
June 30, 1997 December 31, 1996
<S> <C> <C>
Prime Hospitality Corp.................... 2.9% .......... 2.4%
Merrill Lynch............................. 2.7% .......... 1.7%
Potomac Electric Power Co................. 2.1% .......... 1.1%
Time Warner, Inc.......................... 2.0% .......... 1.7%
Sovereign Bancorp, Inc.................... 1.9% .......... 1.3%
HFS, Inc.................................. 1.9% .......... 0.9%
Rogers Communications, Inc................ 1.8% .......... 1.7%
United Technologies Corp.................. 1.8% .......... 1.3%
International Business Machines Corp...... 1.8% .......... 0.5%
Omnicom Group, Inc........................ 1.8% .......... N/A
N/A = Not Applicable
</TABLE>
Top Five Portfolio Sectors as a Percentage of Long-Term Investments
As of June 30, 1997 As of December 31, 1996
Consumer................ 17% Consumer Services........ 16%
Finance................. 17% Finance.................. 16%
Energy.................. 12% Energy................... 13%
Consumer Distribution... 11% Producer Manufacturing... 11%
Technology.............. 10% Utilities................ 9%
Asset Allocation as a Percentage of Total Assets
[PIE CHART APPEARS HERE]
As of June 30, 1997
. Common Stock......... 11%
. U.S. Government...... 5%
. Convertibles......... 80%
. Other................ 4%
[PIE CHART APPEARS HERE]
As of December 31, 1996
. Common Stock......... 16%
. U.S. Government...... 3%
. Convertibles......... 80%
. Other................ 1%
4
<PAGE>
Portfolio Management Review
Van Kampen American Capital Harbor Fund
We recently spoke to the management team of the Van Kampen American Capital
Harbor Fund about the key events and economic forces that shaped the markets
during the past six months. The team includes James Behrmann, portfolio manager,
Christine Drusch, associate portfolio manager, and Alan T. Sachtleben, chief
investment officer for equity investments. The following excerpts reflect their
views on the Fund's performance during the six-month period ended June 30, 1997.
Q What economic factors influenced the stock and bond markets during the past
six months?
A The rare combination of moderate economic growth and historically low
inflation provided a nearly ideal environment for equity investments and
drove the stock market to new heights. The economy grew at a remarkably strong
pace in the first quarter of the year, which caused investors to worry that
inflation might become a problem. This concern increased volatility in stock
prices and precipitated a month-long market correction in mid-March that wiped
out all year-to-date gains. Stocks rebounded quickly after economic data was
released in April showing negligible inflation and hints of a slowdown in
growth. In May, the Dow Jones Industrial Average had rallied to record-breaking
heights and recouped its losses. Generally, large, well-established companies
weathered the past six months better than their smaller competitors. The
reporting period ended on a positive note, as stocks continued to surge ahead
through the end of June.
Conditions in the bond market were not quite as favorable, as the strength of
the economy and concerns about inflation put mild downward pressure on bond
prices during the period. In March, inflationary concerns peaked in conjunction
with a rate increase by the Federal Reserve Board and ignited a period of
volatility in the bond market. However, subsequent indications of benign
inflation and a slowdown in economic growth caused the bond market to rally
through the end of June.
Convertible securities were supported by declining interest rates and
continued strength in the equity market, rising 9.53 percent during the
reporting period, while the underlying common stock appreciated 11.22 percent,
according to the Merrill Lynch Convertible Index. In other words, convertibles
participated in 84 percent of the returns of the underlying common stock, while
enjoying the lower levels of risk inherent in convertible securities.
Q Given this environment, what was your strategy in seeking to meet the
Fund's objective?
A As always, we manage the Harbor Fund for current income, capital
appreciation, and preservation of capital by investing primarily in
convertible securities. In general, we have a prudent investment approach,
focusing on high-quality issues and diversifying across many market sectors. We
see the Harbor Fund as a defensive way to participate in the stock market, as
returns of convertible securities have tended to move in unison with their
underlying common stock while typically offering a higher current yield. As
such, investments in convertible securities can serve to lessen the impact of a
broad market correction.
At the end of the reporting period, the portfolio consisted of 80 percent
convertible securities, 11 percent common stock, and 9 percent U.S. government
obligations and short-term investments. Our weighting in common stock is a bit
low for the Fund, because we believe the recent volatility in the stock market
warrants some caution. However, common stocks do give us exposure to
5
<PAGE>
segments of the market that are inaccessible to convertibles, so we like to
maintain a portion of our assets here. In selecting stocks, we focus on large,
established growth companies because they historically have provided the
potential for capital appreciation with less volatility than small-company
stock.
Q What sectors had the largest impact on the portfolio?
A This year, the best-performing sectors in the convertible securities market
were transportation, technology, and financial services. Transportation
securities make up only 1.9 percent of the convertible market and, consequently,
just a small portion of the Fund's portfolio. As a result, the impact of its
strong performance was modest. Our holdings in the technology and finance
sectors were much larger and had a greater influence on the Fund. In January,
the portfolio benefited from an overweighting in semiconductors, as the
technology sector performed well. April and May saw another surge, and we
increased our exposure, although we were underweighted overall in technology.
February was a strong month for the finance sector, and our overweighting
allowed us to capture some significant gains. However, the Fed raised interest
rates in March and triggered a drop in financial securities, which we believed
was an overreaction to the Fed's decision. This decrease canceled out the
positive returns of the previous month and accounted for the majority of the
Fund's losses during the period. We have reduced our weighting as a result.
Recently, Harbor Fund shareholders approved the Fund to invest in securities
of equity real estate investment trusts (REITs). Currently, REITs comprise about
5 percent of the convertible securities universe, and this authority gives us
the choice to include attractive REIT issues in the portfolio.
Q What specific holdings significantly affected the performance of the Fund?
A Similar to the broad market, convertible securities of large, blue-chip
companies outperformed convertibles of smaller companies. Holdings such as
Chevron, Pennzoil, Host Marriott, and Hilton Hotels allowed us to take advantage
of large-company dominance during the period. Other holdings that appreciated
during the period included Conseco (a financial services holding company), Home
Depot (a home and garden hardware retailer), and Danka Business Systems (an
automated office equipment supplier). Our largest holding at the end of the
period was Prime Hospitality Corp., a hotel owner/operator. Recent increases in
occupancy and rates have allowed Prime Hospitality to generate substantial
profits, and its common stock is up 18 percent so far this year.
One of our favorite success stories is Pier 1 Imports, a retailer of
decorative home furnishings. Although retail industry sales have been slow
lately, Pier 1 has continued to grow. They have increased their product line of
high-profit items, such as clothing and furniture, and this strategy has helped
to bolster the company's net sales. On the other hand, two securities that did
not perform as we would have hoped are Boston Market and U.S. Office Products.
Boston Chicken has expanded very quickly and sales have not been able to keep
pace, so we sold our position. However, U.S. Office Products recently acquired
Mail Boxes. Etc.--a decision we feel will contribute to the strength of this
organization going forward. For additional Fund portfolio highlights, please
refer to page four.
6
<PAGE>
Q How did the Fund perform during the reporting period?
A Funds that invest in convertible securities typically underperform the
Standard & Poor's 500-Stock Index in a strong equity market, due to the
bond components of their portfolios. This was the case during the reporting
period, as the Fund achieved a six-month total return of 8.61 percent/1/
(Class A shares at net asset value) as of June 30, 1997. By comparison, the
Standard & Poor's 500-Stock Index returned 20.59 percent, and the Lipper
Convertible Securities Fund Index, which more closely resembles the Fund,
returned 9.44 percent.
The Lipper Convertible Securities Fund Index represents the average
performance of convertible securities funds, and the S&P 500-Stock Index is a
broad-based, unmanaged index that reflects the general performance of the stock
market. Keep in mind that these indices are unmanaged statistical composites
that do not include any commissions, fees, or sales charges that would be paid
by an investor purchasing the securities or investments they represent. Please
refer to the chart on page three for additional Fund performance results.
Q What is your outlook for the Fund for the remainder of the year?
A Currently, the stock market is basking in the best of all possible
environments: low inflation, moderate economic growth, and solid corporate
earnings. We anticipate a continuation of strong but not exorbitant market
returns, which should be very favorable for convertible securities, because they
have traditionally performed well when interest rates are declining and the
stock market is moderately strong. As the stock market continues to climb, it
becomes increasingly sensitive--even minor events can trigger declines. In this
environment, convertibles are considered defensive investments, having performed
competitively in up markets while reducing the negative effects of down markets.
As such, we expect this to be a good year for the Harbor Fund.
/s/ Alan T. Sachtleben /s/ James Behrmann
Alan T. Sachtleben James Behrmann
Chief Investment Officer Portfolio Manager
Equity Investments
7 Please see footnotes on page three
<PAGE>
Portfolio of Investments
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Domestic Convertible Corporate
Obligations 48.7%
Consumer Distribution 8.1%
$ 2,900 Eagle Hardware and Garden, Inc. .............. 6.250% 03/15/01 $ 3,922,250
2,500 Federated Department Stores, Inc. ............ 5.000 10/01/03 2,968,750
4,700 Home Depot, Inc. ............................. 3.250 10/01/01 5,346,250
2,925 InaCom Corp. ................................. 6.000 06/15/06 4,285,125
3,700 Men's Warehouse, Inc. ........................ 5.250 03/01/03 4,107,000
3,200 Pier 1 Imports, Inc. ......................... 5.750 10/01/03 4,960,000
3,860 Rite Aid Corp. ............................... * 07/24/06 3,097,650
2,500 Staples, Inc., 144A-Private Placement (a)..... 4.500 10/01/00 2,993,750
4,825 US Office Products Co. ....................... 5.500 02/01/01 5,886,500
------------
37,567,275
------------
Consumer Non-Durables 0.5%
2,850 Einstein Noah Bagel Corp., 144A-Private
Placement (a)................................. 7.250 06/01/04 2,451,000
------------
Consumer Services 9.9%
6,800 HFS, Inc. .................................... 4.750 03/01/03 7,786,000
2,125 Hilton Hotels Corp............................ 5.000 05/15/06 2,252,500
3,125 National Data Corp. .......................... 5.000 11/01/03 3,312,500
6,235 Omnicom Group, Inc. .......................... 4.250 01/03/07 7,482,000
1,500 Personnel Group of America, Inc., 144A-Private
Placement (a)................................. 5.750 07/01/04 1,605,000
7,050 Prime Hospitality Corp. ...................... 7.000 04/15/02 12,161,250
18,500 Time Warner, Inc., LYON....................... * 06/22/13 8,510,000
6,800 Times Mirror Co., LYON, 144A-Private
Placement (a)................................. * 04/15/17 2,737,000
------------
45,846,250
------------
Energy 6.4%
4,450 Consolidated Natural Gas Co. ................. 7.250 12/15/15 4,806,000
3,200 Diamond Offshore Drilling, Inc. .............. 3.750 02/15/07 3,712,000
2,000 Lomak Petroleum, Inc., 144A-Private
Placement (a)................................. 6.000 02/01/07 2,240,000
1,500 Nabors Industries, Inc. ...................... 5.000 05/15/06 2,250,000
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Energy (Continued)
$ 2,100 Offshore Logistics, Inc., 144A-Private
Placement (a)................................. 6.000% 12/15/03 $ 2,257,500
4,500 Pennzoil Co. (convertible into 76,518 Chevron
Oil Co. common shares)........................ 4.750 10/01/03 5,726,250
5,200 SFP Pipeline Holdings, Inc.................... * 08/15/10 6,346,287
2,000 Swift Energy Co............................... 6.250 11/15/06 2,000,000
-----------
29,338,037
-----------
Finance 5.4%
1,300 Aames Financial............................... 5.500 03/15/06 1,426,750
850 American Travellers Corp. (convertible into
65,416 Conseco Inc. common shares)............ 6.500 10/01/05 2,445,875
3,240 Berkshire Hathaway, Inc....................... * 12/02/01 3,385,800
2,000 Equitable Cos., Inc........................... 6.125 12/15/24 2,687,500
1,750 First Financial Management Corp............... 5.000 12/15/99 3,563,437
STRYPES Merrill Lynch, 125,500 shares (convertible into
102,860 Cox Communication common shares)...... 6.000 06/01/99 2,981,803
STRYPES Merrill Lynch, 60,000 shares (convertible into
49,998 MGIC Investment Corp. common shares)... 6.500 08/15/98 4,920,421
STRYPES Merrill Lynch, 92,500 shares (convertible into
76,451 IMC Global Inc. common shares)......... 6.250 07/01/01 3,468,149
-----------
24,879,735
-----------
Healthcare 8.0%
6,200 Alza Corp..................................... 5.000 05/01/06 6,231,000
5,000 Chiron Corp................................... 1.900 11/17/00 4,575,000
1,350 Phycor, Inc................................... 4.500 02/15/03 1,458,000
2,500 Quintiles Transnational Corp.................. 4.250 05/31/00 2,700,000
2,425 Renal Treatment Centers, Inc., 144A-Private
Placement (a)................................. 5.625 07/15/06 2,388,625
10,000 Roche Hldgs, Inc., 144A-Private Placement (a). * 05/06/12 4,350,000
1,350 Rotech Med Corp............................... 5.250 06/01/03 1,323,000
840 Sepracor, Inc., 144A-Private Placement (a).... 7.000 12/01/02 1,209,600
2,500 Sunrise Assisted Living, Inc., 144A-
Private Placement (a)......................... 5.500 06/15/02 2,818,750
1,575 Tenet Healthcare Corp......................... 6.000 12/01/05 1,992,375
</TABLE>
9 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Healthcare (Continued)
$ 3,500 United Technologies Corp., PEN
(convertible into cash equal to change
in level of S&P pharmaceutical index)......... * 09/08/97 $ 7,638,750
------------
36,685,100
------------
Producer Manufacturing 4.1%
4,250 Cemex SA...................................... 4.250% 11/01/97 4,191,563
2,700 Robbins and Myers, Inc........................ 6.500 09/01/03 3,645,000
5,000 Thermo Electron Corp., 144A-Private
Placement (a)................................. 4.250 01/01/03 5,462,500
2,040 USA Waste Services, Inc....................... 4.000 02/01/02 2,198,100
3,617 WMX Technologies, Inc......................... 2.000 01/24/05 3,354,768
------------
18,851,931
------------
Technology 5.3%
2,550 Adaptec Inc., 144A-Private Placement (a)...... 4.750 02/01/04 2,530,875
1,000 Applied Magnetics Corp........................ 7.000 03/15/06 1,382,500
2,000 Comverse Technology, Inc., 144A-Private
Placement (a)................................. 5.750 10/01/06 2,600,000
1,670 Dovatron International, Inc., 144A-Private
Placement (a)................................. 6.000 10/15/02 2,204,400
2,000 Gilat Satellite Networks Ltd., 144A-Private
Placement (a)................................. 6.500 06/03/04 2,010,000
5,100 Motorola, Inc., LYON.......................... * 09/27/13 4,500,750
1,250 SCI Systems, Inc., 144A-Private Placement (a) 5.000 05/01/06 1,803,125
1,800 Titan Corp.................................... 8.250 11/01/03 2,412,000
2,550 Xerox Credit Corp............................. 2.875 07/01/02 2,559,562
1,900 Xilinx, Inc., 144A-Private Placement (a)...... 5.250 11/01/02 2,189,750
------------
24,192,962
------------
Utilities 1.0%
4,701 Potomac Electric Power Co..................... 7.000 01/15/18 4,759,763
------------
Total Domestic Convertible Corporate Obligations............. 224,572,053
------------
Foreign Convertible Corporate Obligations 6.7%
1,700 Altos Hornos De Mexico SA (Mexico)............ 5.500 12/15/01 1,615,000
3,080 Danka Business Systems PLC (United Kingdom)... 6.750 04/01/02 4,543,000
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Foreign Convertible Corporate Obligations (Continued)
$10,400 Deutsche Bank Finance (Netherlands),
144A-Private Placement (convertible into
51,511 Daimler Benz common shares)(a).......... * 02/12/17 $ 4,771,000
2,100 IMAX Corp. (Canada), 144A-Private
Placement (a).................................. 5.750% 04/01/03 2,688,000
3,400 Indorayon (Indonesia).......................... 5.500 10/01/02 4,046,000
3,400 Lai Fung Overseas (Hong Kong).................. 5.750 02/05/98 3,153,500
18,725 Rogers Communications, Inc., LYON (Canada)..... * 05/20/13 7,724,063
1,700 Swiss Re Finance Bermuda Ltd. (Switzerland),
144A-Private Placement (a)..................... 2.000 07/06/00 2,337,500
------------
Total Foreign Convertible Corporate Obligations............. 30,878,063
------------
</TABLE>
11 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Number
Description of Shares Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred Stock 24.6%
Consumer Distribution 1.5%
Kmart Financing I Trust, 7.75%............................................. 130,000 $ 7,133,750
-----------
Consumer Services 5.2%
Apple South Financing Inc., TECONS, 7.00%, 144A -Private Placement (a)..... 42,500 2,656,250
Evergreen Media Corp., 6.00%, 144A - Private Placement (a)................. 75,000 4,106,250
Golden Books Financing Trust, 8.75%, 144A - Private Placement (a).......... 92,800 5,730,400
Host Marriott Financial Trust, 6.75%, 144A - Private Placement (a)......... 85,000 4,908,750
SFX Broadcasting, Inc., 6.50%, 144A - Private Placement (a)................ 50,500 2,777,500
TCI Communications, $2.125 dividend per share.............................. 85,000 3,676,250
-----------
23,855,400
Energy 2.1%
MCN Corp., PRIDES, 8.75%................................................... 92,400 2,543,815
Unocal Capital Corp., 6.25%................................................ 125,000 7,046,875
-----------
9,590,690
-----------
Finance 7.7%
American Bankers Insurance Group, Inc., 6.50%.............................. 60,300 4,341,600
American Heritage Life Investment Corp., PRIDES, 8.50%..................... 25,000 1,375,000
Conseco, Inc., PRIDES, 7.00%............................................... 19,000 2,465,250
Frontier Financing Trust, 6.25%, 144A - Private Placement (a).............. 45,000 3,358,125
Jefferson Pilot Corp., ACES 7.25%.......................................... 53,000 6,081,750
National Australia Bank, 7.875%............................................ 180,000 5,028,750
Sovereign Bancorp, Inc. $3.125 dividend per share.......................... 85,000 8,075,000
Sunamerica, Inc., PERCS, $3.188 dividend per share......................... 110,200 4,807,475
-----------
35,532,950
-----------
Raw Materials/Processing Industries 3.5%
Boise Cascade Corp. $1.58 dividend per share............................... 181,000 5,158,500
Crown, Cork and Seal, Inc., 4.50%.......................................... 20,000 1,010,000
Freeport McMoran, Inc., Copper and Gold, $1.25 dividend per share.......... 75,000 2,053,125
International Paper Capital Trust, 5.25%................................... 98,000 5,169,500
Timet Capital Trust Inc., 6.625%, 144A - Private Placement (a)............. 49,000 2,572,500
-----------
15,963,625
-----------
Technology 0.6%
Microsoft Corp. $2.196 dividend per share.................................. 35,000 3,045,000
-----------
See Notes to Financial Statements
</TABLE>
12
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
===================================================================================================
Number
Description of Shares Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation 1.4%
CNF Trust I, Series A, TECONS, 5.00%.................................. 25,000 $ 1,400,000
Hvide Capital Trust, 6.50%, 144A - Private Placement (a).............. 25,000 1,306,250
Royal Caribbean Cruises Limited, Series A, 7.25%...................... 60,000 3,705,000
-----------
6,411,250
-----------
Utilities 2.6%
Calenergy Capital Trust II, 6.25%, 144A - Private Placement (a)....... 42,500 2,395,937
Citizens Utilities Trust, 5.00%....................................... 45,000 1,968,750
Nextel Trust, STRYPES, 7.25%.......................................... 127,500 2,342,812
Nortel Inversora S A, MEDS (Argentina)................................ 53,500 2,628,187
Salomon Inc., DECS (convertible into
154,031 Cincinnati Bell common shares)................................ 42,500 2,689,739
-----------
12,025,425
-----------
Total Convertible Preferred Stock.................................................... 113,558,090
-----------
Common Stocks 11.4%
Consumer Non-Durables 1.2%
Philip Morris Cos., Inc............................................... 70,000 3,106,250
RJR Nabisco Holdings Corp............................................. 79,200 2,613,600
-----------
5,719,850
-----------
Energy 2.5%
Amoco Corp............................................................ 34,000 2,955,875
British Petroleum PLC--ADR (United Kingdom)........................... 20,000 1,497,500
Exxon Corp............................................................ 24,000 1,476,000
Texaco Inc............................................................ 27,200 2,958,000
USX-Marathon Group.................................................... 90,000 2,598,750
-----------
11,486,125
-----------
Finance 2.7%
Chase Manhattan Corp.................................................. 53,200 5,163,725
Citicorp.............................................................. 19,500 2,350,969
First Bank System, Inc................................................ 60,000 5,122,500
-----------
12,637,194
-----------
Health Care 0.3%
FPA Medical Management, Inc. (b)...................................... 50,000 1,184,375
-----------
</TABLE>
13 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
=============================================================================================================
Number
Description of Shares Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 3.3%
Compaq Computer Corp. (b)................................................ 50,000 $ 4,962,500
International Business Machines Corp..................................... 83,500 7,530,656
Lucent Technologies, Inc................................................. 38,000 2,738,375
------------
15,231,531
------------
Utilities 1.4%
Potomac Electric Power Co................................................ 172,500 3,989,062
SBC Communications, Inc.................................................. 40,000 2,475,000
------------
6,464,062
------------
Total Common Stocks............................................................................ 52,723,137
------------
Total Long-Term Investments 91.4% (Cost $376,862,835).......................................... 421,731,343
------------
Short-Term Investments 8.4%
Commercial Paper 3.6%
Prudential Funding Corp. ($16,765,000 par yielding 6.031%, 07/01/97 maturity).................. 16,762,192
------------
U.S. Government Agency Obligations 4.8%
Federal Home Loan Bank ($12,000,000 par, yielding 5.701%, 09/23/97 maturity)................... 11,847,000
Federal Home Loan Mortgage Corp. Discount Notes
($10,000,000 par, yielding 5.399%, 07/07/97 maturity).......................................... 9,989,519
------------
Total U.S. Government Agency Obligations....................................................... 21,836,519
------------
Total Short-Term Investments (Cost $38,594,461)................................................ 38,598,711
------------
Total Investments 99.8% (Cost $415,457,296).................................................... 460,330,054
Other Assets in Excess of Liabilities 0.2%..................................................... 894,435
------------
Net Assets 100.0%.............................................................................. $461,224,489
============
</TABLE>
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Non-income producing security as this stock currently does not declare
dividends.
ACES--Automatically convertible equity securities
ADR--American Depository Receipt
DECS--Debt exchangeable for common stock, traded in shares
LYON--Liquid yield option note
MEDS--Mandatorily exchangeable debt security
PEN--Pharmaceutical exchange note
PERCS--Preferred equity redemption cumulative stock
PRIDES--Preferred redeemable increased dividend equity security, traded in
shares
STRYPES--Structured yield product exchangeable for stock, traded in shares
TECONS--Trust convertible securities
14 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
===============================================================================================
<S> <C>
Assets:
Total Investments (Cost $415,457,296).......................................... $460,330,054
Cash........................................................................... 2,921
Receivables:
Investments Sold............................................................. 4,000,312
Interest..................................................................... 2,614,166
Dividends.................................................................... 276,008
Fund Shares Sold............................................................. 136,847
Other.......................................................................... 2,847
------------
Total Assets................................................................. 467,363,155
------------
Liabilities:
Payables:
Investments Purchased........................................................ 3,642,180
Fund Shares Repurchased...................................................... 1,365,153
Income Distributions......................................................... 459,058
Distributor and Affiliates................................................... 301,452
Investment Advisory Fee...................................................... 204,713
Deferred Compensation and Retirement Plans..................................... 88,016
Accrued Expenses............................................................... 78,094
------------
Total Liabilities............................................................ 6,138,666
------------
Net Assets..................................................................... $461,224,489
============
Net Assets Consist of:
Capital........................................................................ $383,208,957
Net Unrealized Appreciation.................................................... 44,872,758
Accumulated Net Realized Gain.................................................. 30,437,061
Accumulated Undistributed Net Investment Income................................ 2,705,713
------------
Net Assets..................................................................... $461,224,489
============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$375,740,948 and 23,488,074 shares of beneficial interest issued and
outstanding)............................................................... $ 16.00
Maximum sales charge (5.75%* of offering price)............................ .98
------------
Maximum offering price to public........................................... $ 16.98
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$81,511,142 and 5,117,799 shares of beneficial interest issued and
outstanding)............................................................... $ 15.93
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$3,972,399 and 247,944 shares of beneficial interest issued and
outstanding)............................................................... $ 16.02
============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
15 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Six Months Ended June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
===============================================================================================
<S> <C>
Investment Income:
Interest........................................................................ $ 6,959,105
Dividends....................................................................... 4,089,816
-----------
Total Income............................................................... 11,048,921
-----------
Expenses:
Investment Advisory Fee......................................................... 1,219,562
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of
$431,541, $395,198 and $18,358, respectively)................................. 845,097
Shareholder Services............................................................ 352,530
Legal........................................................................... 22,682
Trustees Fees and Expenses...................................................... 14,161
Other........................................................................... 202,010
-----------
Total Expenses............................................................. 2,656,042
-----------
Net Investment Income........................................................... $ 8,392,879
===========
Realized and Unrealized Gain:
Net Realized Gain............................................................... $30,577,952
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period....................................................... 46,088,714
End of the Period............................................................. 44,872,758
-----------
Net Unrealized Depreciation During the Period................................. (1,215,956)
-----------
Net Realized and Unrealized Gain................................................ $29,361,996
===========
Net Increase in Net Assets From Operations...................................... $37,754,875
===========
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Six Months Year Ended
Ended December 31,
June 30, 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income....................................... $ 8,392,879 $ 15,957,003
Net Realized Gain........................................... 30,577,952 30,086,825
Net Unrealized Appreciation/Depreciation
During the Period......................................... (1,215,956) 5,783,287
------------ -------------
Change in Net Assets from Operations.................... 37,754,875 51,827,115
------------ -------------
Distributions from Net Investment Income:
Class A Shares.......................................... (6,194,769) (13,429,245)
Class B Shares.......................................... (1,034,310) (2,188,814)
Class C Shares.......................................... (48,678) (101,256)
------------ -------------
(7,277,757) (15,719,315)
------------ -------------
Distributions from Net Realized Gain:
Class A Shares.......................................... (1,799,607) (28,014,766)
Class B Shares.......................................... (394,519) (5,855,197)
Class C Shares.......................................... (18,019) (274,459)
------------ -------------
(2,212,145) (34,144,422)
------------ -------------
Total Distributions..................................... (9,489,902) (49,863,737)
------------ -------------
Net Change in Net Assets
from Investment Activities................................ 28,264,973 1,963,378
------------ -------------
From Capital Transactions:
Proceeds from Shares Sold................................... 48,833,641 87,167,694
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 7,495,543 40,889,008
Cost of Shares Repurchased.................................. (78,958,027) (150,653,873)
------------ -------------
Net Change in Net Assets
from Capital Transactions................................. (22,628,843) (22,597,171)
------------ -------------
Total Increase/Decrease in Net Assets....................... 5,636,130 (20,633,793)
Net Assets:
Beginning of the Period..................................... 455,588,359 476,222,152
------------ -------------
End of the Period (Including accumulated undistributed net
investment income of $2,705,713 and $1,590,591,
respectively)............................................. $461,224,489 $ 455,588,359
============ =============
</TABLE>
See Notes to Financial Statements
17
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
=======================================================================================================
Six Months Year Ended December 31,
Ended ----------------------------------
Class A Shares June 30, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $15.054 $ 15.05 $13.24 $ 15.12 $14.95
------- ------- ------ -------- ------
Net Investment Income........................... .303 .566 .68 .63 .69
Net Realized and Unrealized Gain/Loss........... .975 1.173 2.25 (1.5625) 1.365
------- ------- ------ -------- ------
Total from Investment Operations................ 1.278 1.739 2.93 (.9325) 2.055
------- ------- ------ -------- ------
Less:
Distributions from and in Excess of
Net Investment Income....................... .260 .555 .7025 .62 .66
Distributions from and in Excess of
Net Realized Gain........................... .075 1.180 .4175 .3275 1.225
------- ------- ------ -------- ------
Total Distributions............................. .335 1.735 1.12 .9475 1.885
------- ------- ------ -------- ------
Net Asset Value, End of the Period.............. $15.997 $15.054 $15.05 $ 13.24 $15.12
======= ======= ====== ======== ======
Total Return (a)................................ 8.61%* 12.08% 22.46% (6.43%) 13.56%
Net Assets at End of the Period (In millions)... $ 375.7 $ 373.1 $394.5 $ 369.7 $432.3
Ratio of Expenses to Average Net Assets......... 1.02% 1.09% 1.00% 1.04% 1.02%
Ratio of Net Investment Income to
Average Net Assets............................ 3.85% 3.60% 4.62% 4.39% 4.37%
Portfolio Turnover.............................. 72%* 129% 130% 105% 134%
Average Commission Paid Per
Equity Share Traded (b)..................... $ .0588 $ .0605 -- -- --
</TABLE>
(a) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
* Non-Annualized
18 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Six Months Year Ended December 31,
Ended ----------------------------------------
Class B Shares June 30, 1997 1996 1995 1994 1993(a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.............. $14.992 $14.99 $13.20 $15.07 $14.90
------- ------- ------ ------- ------
Net Investment Income............................... .234 .437 .56 .51 .56
Net Realized and Unrealized Gain/Loss............... .976 1.180 2.23 (1.5505) 1.375
------- ------- ------ ------- ------
Total from Investment Operations...................... 1.210 1.617 2.79 (1.0405) 1.935
------- ------- ------ ------- ------
Less:
Distributions from and in Excess of
Net Investment Income............................. .200 .435 .5825 .502 .54
Distributions from and in Excess of
Net Realized Gain.................................. .075 1.180 .4175 .3275 1.225
------- ------- ------ ------- ------
Total Distributions................................... .275 1.615 1.00 .8295 1.765
------- ------- ------ ------- ------
Net Asset Value, End of the Period.................... $15.927 $14.992 $14.99 $13.20 $15.07
======= ======= ====== ======= ======
Total Return (b)...................................... 8.17%* 11.19% 21.46% (7.11)% 12.68%
Net Assets at End of the Period (In millions)......... $81.5 $ 78.9 $78.1 $71.1 $60.1
Ratio of Expenses to Average Net Assets............... 1.83% 1.88% 1.81% 1.84% 1.73%
Ratio of Net Investment Income to
Average Net Assets.................................. 3.03% 2.81% 3.81% 3.63% 3.62%
Portfolio Turnover.................................... 72%* 129% 130% 105% 134%
Average Commission Paid Per
Equity Share Traded (c)............................ $.0588 $.0605 -- -- --
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
* Non-Annualized
19 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
October 26, 1993
Six Months Year Ended December 31, (Commencement
Ended ---------------------------- of Distribution) to
Class C Shares June 30, 1997 1996 1995 1994 December 31, 1993(a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................................. $15.079 $ 15.07 $13.25 $ 15.13 $ 16.14
------- ------- ------ --------- --------
Net Investment Income...................... .225 .439 .56 .52 .15
Net Realized and Unrealized
Gain/Loss................................ .992 1.185 2.26 (1.5705) (.0325)
------- ------- ------ --------- --------
Total from Investment Operations............. 1.217 1.624 2.82 (1.0505) .1175
------- ------- ------ --------- --------
Less:
Distributions from and in Excess
of Net Investment Income................. .200 .435 .5825 .502 .125
Distributions from and in Excess
of Net Realized Gain..................... .075 1.180 .4175 .3275 1.0025
------- ------- ------ --------- --------
Total Distributions.......................... .275 1.615 1.00 .8295 1.1275
------- ------- ------ --------- --------
Net Asset Value, End of the Period........... $16.021 $15.079 $15.07 $ 13.25 $ 15.13
======= ======= ====== ========= ========
Total Return (b)............................. 8.12%* 11.20% 21.52% (7.14)% .93%*
Net Assets at End of the Period
(In millions).............................. $ 4.0 $ 3.6 $ 3.6 $ 3.3 $ 1.1
Ratio of Expenses to
Average Net Assets......................... 1.84% 1.88% 1.80% 1.84% 1.90%
Ratio of Net Investment Income to
Average Net Assets......................... 3.02% 2.81% 3.80% 3.72% 3.88%
Portfolio Turnover........................... 72%* 129% 130% 105% 134%*
Average Commission Paid Per
Equity Share Traded (c).................... $ .0588 $ .0605 -- -- --
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
* Non-Annualized
20 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen American Capital Harbor Fund (the "Fund") is organized as a Delaware
business trust, and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek income, capital appreciation, and
conservation of capital by investing primarily in convertible bonds and
preferred stocks. The Fund commenced investment operations on November 15, 1956.
The distribution of the Fund's Class B and Class C shares commenced on December
20, 1991 and October 26, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation-Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sales price is not
available are valued at the last bid price. Unlisted convertible securities are
valued at the higher of their last bid price or the value of the securities
issuable on conversion. Fixed income investments are stated at values using
market quotations. For those securities where quotations or prices are not
available, valuations are determined in accordance with procedures established
in good faith by the Board of Trustees. Short-term securities with remaining
maturities of 60 days or less 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 33% of the investment portfolio at
the end of the period.
B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1997, there were no when
issued or delayed delivery purchase commitments.
21
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements, which are short-term investments
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 by Van Kampen American Capital Asset Management, Inc. (the "Adviser") or
its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. The Fund will make payment for such security 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.
C. Investment Income-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. The Fund accounts for discounts
and premiums on the same basis as is used for federal income tax reporting.
Accordingly, original issue debt discounts are accreted daily 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.
D. Federal Income Taxes-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales.
At June 30, 1997, for federal income tax purposes the cost of long- and short-
term investments is $415,457,296; the aggregate gross unrealized appreciation is
$50,086,670 and the aggregate gross unrealized depreciation is $5,213,912,
resulting in net unrealized appreciation of $44,872,758.
E. Distribution of Income and Gains-The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains which are included in ordinary income for
tax purposes.
22
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
Average Net Assets % Per Annum
- --------------------------------------------------------------------------------
<S> <C>
First $350 million................................................... .55 of 1%
Next $350 million.................................................... .50 of 1%
Next $350 million.................................................... .45 of 1%
Over $1.05 billion................................................... .40 of 1%
</TABLE>
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $22,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $39,400 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser, serves
as the shareholder servicing agent for the Fund. For the six months ended June
30, 1997, the Fund recognized expenses of approximately $261,000, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its trustees
who are not officers of VKAC. Under the deferred compensation plan, trustees may
elect to defer all or a portion of their compensation to a later date. The
retirement plan covers those trustees who are not officers of VKAC. Benefits
under the retirement plan are payable for a ten-year period and are based upon
each trustee's years of service of the Fund. The maximum annual benefit per
trustee under the plan is equal to $2,500.
For the six months ended June 30, 1997, the Fund paid brokerage commissions to
Morgan Stanley Group Inc. of $9,025.
At June 30, 1997, VKAC owned 9,557 Class A shares of the Fund.
23
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At June 30, 1997, capital aggregated $302,353,023, $77,108,572 and $3,747,362
for Classes A, B, and C, respectively. For the six months ended June 30, 1997,
transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
==============================================================================
Sales:
<S> <C> <C>
Class A.......................................... 2,784,491 $ 42,116,602
Class B.......................................... 394,566 6,028,718
Class C.......................................... 44,701 688,321
---------- -------------
Total Sales........................................ 3,223,758 $ 48,833,641
========== ============
Dividend Reinvestment:
Class A.......................................... 402,145 $ 6,253,027
Class B.......................................... 77,195 1,194,546
Class C.......................................... 3,080 47,970
---------- -------------
Total Dividend Reinvestment........................ 482,420 $ 7,495,543
========== ============
Repurchases:
Class A.......................................... (4,482,127) $(68,947,295)
Class B.......................................... (618,627) (9,457,071)
Class C.......................................... (36,062) (553,661)
---------- -------------
Total Repurchases.................................. (5,136,816) $(78,958,027)
========== ============
</TABLE>
24
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
At December 31, 1996, capital aggregated $322,930,689, $79,342,379 and
$3,564,732 for Classes A, B, and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................... 4,875,165 $ 75,494,408
Class B...................... 703,001 10,764,426
Class C...................... 58,788 908,860
---------- -------------
Total Sales.................... 5,636,954 $ 87,167,694
========== =============
Dividend Reinvestment:
Class A...................... 2,263,498 $ 33,723,663
Class B...................... 463,576 6,871,379
Class C...................... 19,718 293,966
---------- -------------
Total Dividend Reinvestment.... 2,746,792 $ 40,889,008
========== =============
Repurchases:
Class A...................... (8,572,686) $(132,355,144)
Class B...................... (1,109,391) (16,975,680)
Class C...................... (85,772) (1,323,049)
---------- -------------
Total Repurchases.............. (9,767,849) $(150,653,873)
========== =============
</TABLE>
25
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C
- ---------------------------------------------------------------------
<S> <C> <C>
First........................................... 5.00% 1.00%
Second.......................................... 4.00% None
Third........................................... 3.00% None
Fourth.......................................... 2.50% None
Fifth........................................... 1.50% None
Sixth and Thereafter............................ None None
</TABLE>
For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$26,100 and CDSC on the redeemed shares of Classes B and C of approximately
$76,000. Sales charges do not represent expenses of the Fund.
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $304,031,707 and $349,969,624,
respectively.
5. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00% each
of Class B and Class C net assets are accrued daily. Included in these fees for
the six months ended June 30, 1997, are payments to VKAC of approximately
$330,400.
26
<PAGE>
Funds Distributed by Van Kampen American Capital
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m.
Central time at 1-800-341-2911 for Van Kampen American Capital funds or Morgan
Stanley retail funds.
27
<PAGE>
Results of Shareholder Votes
A Special Meeting of Shareholders of the Fund was held on May 28, 1997
where shareholders voted on a new investment advisory agreement, the election of
Trustees, approval of an amendment to fundamental investment policies and the
ratification of Price Waterhouse LLP as independent public accountants. With
regard to the approval of a new investment advisory agreement between Van Kampen
American Capital Asset Management, Inc. and the Fund, 18,349,755 shares voted
for the proposal, 324,266 shares voted against and 1,214,752 shares abstained.
With regard to the election of J. Miles Branagan as elected trustee of the Fund,
19,501,093 shares voted in his favor and 367,681 shares withheld. With regard to
the election of Richard M. DeMartini as elected trustee of the Fund, 19,490,527
shares voted in his favor and 398,247 shares withheld. With regard to the
election of Linda Hutton Heagy as elected trustee of the Fund, 19,478,319 shares
voted in her favor and 410,455 shares withheld. With regard to the election of
R. Craig Kennedy as elected trustee of the Fund, 19,502,546 shares voted in his
favor and 386,227 shares withheld. With regard to the election of Jack E. Nelson
as elected trustee of the Fund, 19,503,879 shares voted in his favor and 384,895
shares withheld. With regard to the election of Jerome L. Robinson as elected
trustee of the Fund, 19,494,639 shares voted in his favor and 394,135 shares
withheld. With regard to the election of Phillip B. Rooney as elected trustee of
the Fund, 19,502,798 shares voted in his favor and 385,976 shares withheld. With
regard to the election of Fernando Sisto as elected trustee of the Fund,
19,493,064 shares voted in his favor and 395,710 shares withheld. With regard to
the election of Wayne W. Whalen as elected trustee of the Fund, 19,505,000
shares voted in his favor and 383,773 shares withheld. With regard to the
approval of an amendment to fundamental investment policies of the Fund,
14,999,307 shares voted for the proposal, 143,892 shares voted against and
1,019,504 shares abstained and 3,166,210 shares represented broker non-votes.
With regard to the ratification of Price Waterhouse LLP as independent public
accountants for the Fund, 18,725,378 shares voted for the proposal, 143,892
shares voted against and 1,019,504 shares abstained.
28
<PAGE>
Van Kampen American Capital Harbor Fund
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Jerome L. Robinson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen* - Chairman
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen American Capital
Asset Management, Inc.
2800 Post Oak Blvd.
Houston, Texas 77056
Distributor
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, Texas 77002
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
/SM/ denotes a service mark of Van Kampen American Capital Distributors, Inc.
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. After December 31, 1997, the report must be accompanied by
a quarterly performance update, if applicable.
29
<PAGE>
----------------
Bulk Rate
Van Kampen American Capital Distributors, Inc. U.S. Postage
One Parkview Plaza PAID
Oakbrook Terrace, Illinois 60181 VAN KAMPEN
AMERICAN CAPITAL
----------------
