<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders................................ 1
Performance Results................................... 3
Performance Perspective............................... 4
Portfolio Management Review........................... 5
Your Diversified Portfolio............................ 7
Equity Management Philosophy.......................... 8
Portfolio of Investments.............................. 9
Statement of Assets and Liabilities................... 15
Statement of Operations............................... 16
Statement of Changes in Net Assets.................... 17
Financial Highlights.................................. 18
Notes to Financial Statements......................... 20
Report of Independent Accountants..................... 23
</TABLE>
EMG ANR 10/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
October 3, 1995
Dear Shareholder:
The first eight months of 1995 have been very positive for most investors.
Both the fixed-income and stock markets have made considerable gains for the
period ended August 31, 1995.
This year serves as a reminder of just how quickly markets can move and how
difficult it can be to predict the timing of those movements. Moreover, this
year reinforces the importance of maintaining a long-term perspective and reaf-
firms the principle that it is time--not timing--that leads to investment suc-
cess.
ECONOMIC OVERVIEW
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 1.3 percent, substantially lower than
its first quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 per-
cent. While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent months, the general economic
trends for the year continue to support a "soft landing" scenario.
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed its trend of raising interest rates and lowered short-term rates by
0.25 percent on July 6. Financial markets, perceiving that the Fed's monetary
initiatives had taken hold without driving the economy into a recession, ral-
lied through much of the year.
In a low inflation, low interest rate environment, corporate earnings have
remained quite strong during 1995, helping to push stocks to new highs. The
strongest performance has been in the technology sector of the market and in
stocks of large companies. As the U.S. dollar plunged against several interna-
tional currencies earlier in the year, U.S. companies that had diversified
globally were able to capture additional earnings, while technology stocks
benefited from the continued booming growth in computers and telecommunications
throughout the world.
ECONOMIC OUTLOOK
We believe the Fed will move cautiously before it continues to lower short-
term rates, waiting for further signs that the economy has settled into a slow
growth pattern. We anticipate the economy will grow at an annual rate of be-
tween 2 and 3 percent in the second half of the year and that inflation will
run at an annualized rate of between 3.1 and 3.3 percent. Based upon a gener-
ally modest growth and low inflation outlook, we believe fixed-income markets
will continue to make positive gains. We look for stocks to perform well, par-
ticularly those of smaller companies, which tend to be less cyclical than
larger companies. In the near term, we believe domestic markets will benefit
from a strengthening U.S. dollar and increased business activity driven in part
by a number of recently announced strategic reorganizations of some of the na-
tion's blue chip industry leaders.
1
(Continued on page two)
<PAGE>
This positive outlook is reflected in the public's sentiment toward invest-
ing. According to the Van Kampen American Capital Index of Investor Intentions
for September, a total of 61.1 percent of those individuals surveyed, who de-
scribed themselves as "knowledgeable" investors, said the next 60-90 days would
be a "good" time to invest. The index, computed from an independently conducted
survey, measures the investment climate (the public's confidence) by asking
1,000 individuals about what they intend to do with their money over the next
60-90 days. "Knowledgeable" investors are those respondents who rate their in-
vestment knowledge at five or higher on a seven-point scale and who own stocks,
bonds, or mutual funds. The September index among self-described "knowledge-
able" investors reflected a 27 percent increase from the previous month, and a
17-month high.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the question-
and-answer section helpful.
CORPORATE NEWS
The merger of Van Kampen Merritt and American Capital investment management
companies continues to provide opportunities for our newly created company to
increase operating efficiencies and build upon the strengths of each company.
On September 21, shareholders approved the combination of six pairs of funds
having essentially the same investment objectives and policies. By combining
similar funds, we intend to achieve economies of scale and eliminate many of
the costs associated with operating each of the funds separately. More impor-
tantly, the combination of these funds enhances our primary goal: creating and
preserving wealth for investors over time.
Thank you for your continued confidence in your investment with Van Kampen
American Capital and for the privilege of working with you in seeking to reach
your financial goals.
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 AUGUST 31, 1995
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV/1/............... 33.11% 32.01% 32.01%
One-year total return/2/............................ 25.45% 27.01% 31.01%
Five-year average annual total return/2/............ 22.02% N/A N/A
Ten-year average annual total return/2/............. 14.71% N/A N/A
Life-of-Fund average annual total return/2/......... 17.02% 18.76% 15.27%
Commencement Date................................... 10/02/70 04/20/92 07/06/93
</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; 1% for C shares).
/2/ Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (5.75% for A shares) or
contingent deferred sales charge for the early withdrawal (5% for B shares and
1% for 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.
3
<PAGE>
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular inter-
vals. A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison
can:
. Illustrate the general market environment in which your investments are
being managed
. Reflect the impact of favorable market trends or difficult market condi-
tions
. Help you evaluate the extent to which your fund's management team has re-
sponded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your fund's performance to that of the Standard & Poor's 500-Stock
Index and the Russell 2000 Stock Index over time. These indices are unmanaged
statistical composites, and do not reflect any commissions or fees which would
be incurred by an investor purchasing the securities they represent. Similar-
ly, their performance does not reflect any sales charges or other costs which
would be applicable to an actively managed portfolio, such as that of the
Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Emerging Growth Fund vs Standard & Poor's
500-Stock Index and the
Russell 2000 Stock Index (August 1985 through August 1995)
---------------------------------
Fund's Total Return
1 Year Avg. Annual = 25.45%
5 Year Avg. Annual = 22.02%
10 Year Avg. Annual = 14.71%
Inception Avg. Annual = 17.02%
---------------------------------
<TABLE>
<CAPTION>
Van Kampen American Capital Standard & Poor's-
Emerging Growth Fund Russell 2000 Stock Index 500 Stock Index*
--------------------------- ------------------------ ------------------
<S> <C> <C> <C>
Aug-1985 9,715 10,913 11,429
Dec-1986 10,149 11,533 13,557
Dec-1987 10,555 10,518 14,259
Dec-1988 10,945 13,150 16,611
Dec-1989 14,126 15,288 21,858
Dec-1990 14,405 12,311 21,178
Dec-1991 23,110 17,979 27,602
Dec-1992 25,358 21,289 29,702
Dec-1993 31,423 25,308 32,682
Dec-1994 29,284 24,846 33,126
Aug-1995 39,449 30,690 41,051
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions for the period ended August 31,
1995, and includes payment of the maximum sales charge (5.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
*The Standard & Poor's 500-Stock Index represents general stock market perfor-
mance and was initially selected as a benchmark for the Fund's performance;
however, based upon the Fund's asset composition, we believe the Russell 2000
Stock Index provides a more accurate benchmark for the Fund's performance.
Therefore, the Standard & Poor's 500-Stock Index will not be shown in future
reports.
4
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
The following is an interview with the management team of the Van Kampen
American Capital Emerging Growth Fund. The team is led by Gary M. Lewis,
portfolio manager, and Alan T. Sachtleben, executive vice president, equity
investments.
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1995, THE FUND SIGNIFICANTLY
Q OUTPERFORMED THE STANDARD & POOR'S 500-STOCK INDEX. WHAT FACTORS CONTRIB-
UTED TO THE FUND'S PERFORMANCE?
A Much of the Fund's performance during the past year was driven by the strong
returns provided by technology stocks. The great thing about the rally in
technology stocks is that it has been driven by strong fundamentals--not
speculation. There is tremendous demand for real products that likely will be
with us for some time to come. It's not just Microsoft's Windows 95, which is
positively impacting a variety of industries from hardware to software to
retail. There's also the Internet, which practically no one had heard of only a
year ago, and the changing direction of telecommunications. All of this is cre-
ating such strong demand for semiconductors that many manufacturers cannot keep
up with demand.
Q WHAT IS YOUR OUTLOOK FOR TECHNOLOGY STOCKS?
A I still like technology. The sector has produced the biggest earnings sur-
prises, the demand continues to look strong and the prices of technology stocks
are still relatively low compared to the underlying value of the companies.
Still, while I am very optimistic about technology stocks the Fund remains
diversified in line with our equity investment philosophy. The percentage of the
Fund invested in technology stocks at the end of August (which includes
industries such as computer software, precision instruments, semiconductors, and
telecommunication equipment) was about 31 percent, which was much lower than
many similar funds.
Q WHAT OTHER INDUSTRIES PERFORMED WELL DURING THE PAST YEAR?
A During the latter part of 1994, health care was a strong performer. Howev-
er, as concerns about cost containment increased this year the sector has not
done as well. On the other hand, financial services stocks, which did not do
well in 1994 because of rising interest rates, performed well during the first
eight months of 1995 as rates declined and many banks merged. Two banks in
particular that we had positions in were acquired during the past year: Michigan
National and Midlantic. We also think BayBanks, among others, is a potential
takeover target. BayBanks also meets all of our fundamental criteria, so it was
one of the Fund's ten largest stock holdings as of August 31. (For a list of the
Fund's 10 largest stock holdings as of August 31, 1995, see page seven.)
Q WHAT STOCKS OWNED BY THE FUND PERFORMED PARTICULARLY WELL DURING THE PAST
YEAR?
A The best performers were semiconductor companies. These included:
. Micron Technology, which was up 282 percent for the 12 months and was
the largest holding on August 31; and,
. LSI Logic, up 213 percent and the Fund's second-largest holding on Au-
gust 31.
These stocks increased in value because analysts' estimates for these
companies' earnings are rising, as are their valuations. Of course, not all
stocks owned by the Fund performed as well. The Fund's diversification as of
August 31, 1995, is shown by the chart below.
[PIE CHART APPEARS HERE]
Portfolio Holdings by Sector as of August 31, 1995
Energy....................................... 4%
Health Care.................................. 12%
Finance...................................... 11%
Producer Manufacturing....................... 7%
Consumer Distribution........................ 7%
Technology................................... 31%
Consumer Services............................ 8%
Raw Materials/Processing Industries.......... 4%
Other........................................ 16%
5
<PAGE>
Q HOW DID THE FUND PERFORM DURING THE TWELVE MONTHS ENDED AUGUST 31, 1995?
A Class A shares achieved a total return at net asset value of 33.11 per-
cent/1/, including a capital gains distribution of $0.62 per share. By
comparison, the Standard & Poor's 500-Stock Index achieved a total return for
the same period of 21.42 percent. The S&P 500 is a broad-based, unmanaged index
that reflects general stock market performance. The Russell 2000 Index, which
reflects the general performance of smaller capitalization stocks, achieved a
total return of 20.83 percent during the year ended August 31, 1995. Neither
index reflects any commissions or fees that would be paid by an investor
purchasing the securities they represent. (Please refer to the chart on page
three for additional fund performance.)
Q WHAT'S THE OUTLOOK FOR EMERGING GROWTH STOCKS?
A The outlook is quite positive. While many people are projecting a correc-
tion in the technology sector, and there may well be one, the long-term
fundamentals for technology remain very positive. Demand for computers and
telecommunications equipment should continue to be strong for the foreseeable
future. Most of the recent change in the price of technology stocks was driven
by individual investors taking profits; however, mutual funds and other insti-
tutional investors continue to be heavily invested in technology stocks.
In addition, it appears that the economy is slowing, and in a slow-growth
environment stocks of emerging growth companies historically have provided
superior earnings growth compared to stocks of larger firms. Smaller companies
are much more niche oriented than the blue-chip companies and do not
necessarily depend on the strength of the economy for success. We continue to
follow a strategy of remaining normally fully invested and broadly
diversified, rather than trying to predict which industries will do well or
how the economy will perform.
/s/ Alan T. Sachtleben /s/ Gary M. Lewis
Alan T. Sachtleben Gary M. Lewis
Executive Vice President Portfolio Manager
Equity Investments
6
Please see footnotes on page three.
<PAGE>
YOUR DIVERSIFIED PORTFOLIO
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
Your investment in the Van Kampen American Capital Emerging Growth Fund makes
you a part owner of a diversified portfolio of stocks. Here is a list of the
ten largest stock holdings in the portfolio as of August 31, 1995, and a brief
description of each holding.
TOP TEN STOCK HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS PERCENT OF NET ASSETS
COMPANY AS OF AUGUST 31, 1995 SIX MONTHS AGO
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MICRON TECHNOLOGY, INC. 2.0 1.1
Designs, manufactures and markets semiconductor memory components
for computers.
LSI LOGIC CORP. 1.9 1.5
Designs, manufactures and markets integrated circuits, and pro-
vides related design and technology services.
TELLABS, INC. 1.4 1.7
Designs, manufactures and markets voice and data transport and
network access systems for phone companies.
HBO & CO. 1.3 0.7
Provides information services and systems to hospitals and other
healthcare companies.
MEDTRONIC, INC. 1.2 0.6
Worldwide leading manufacturer of therapeutic medical devices.
ALTERA, CORP. 1.2 0.7
Develops, designs, and markets integrated circuits, and other
software and hardware for computer-aided engineering.
KLA INSTRUMENTS, CORP. 1.1 0.8
Designs, manufactures and markets process monitoring systems for
the semiconductor industry.
GLENAYRE TECHNOLOGIES, INC. 1.1 N/A
Supplies telecommunications equipment and software for paging and
wireless communications in 80 countries.
LINEAR TECHNOLOGY, CO. 1.1 1.0
Designs, manufactures and markets integrated circuits for indus-
trial and consumer uses.
BAYBANKS, INC. 1.1 1.2
Bank holding company with offices in Massachusetts and Connecti-
cut.
</TABLE>
N/A = Not Applicable
7
<PAGE>
MANAGING YOUR EQUITY INVESTMENT FOR LONG-TERM PERFORMANCE
AMERICAN CAPITAL EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Do you ever wonder how a mutual fund invests your money? At Van Kampen American
Capital, we manage our equity funds using a four-step investment process
designed to produce consistently good results over shorter periods of time and
competitive long-term performance.
[_] FULLY INVESTED. The money you invest in one of our stock funds normally will
be fully invested in the market to seek to maximize your potential for long-term
returns. The importance of being fully invested is illustrated by the charts at
right. By missing fewer than 4 percent of the months during the past 68 years,
the value of $1 invested in 1926 was $11.57 at the end of 1994, compared to
$810.54 for $1 that was invested for the entire period. During the most recent
five-year period (1990-1994), the average annual total return for stocks, as
measured by the Standard & Poor's 500-Stock Index, a broad-based, unmanaged
index, was 8.87 percent. However, the average annual return for the S&P 500 for
the same period excluding the 20 best days for stock market performance, was
just 0.67 percent. Of course, past performance is no guarantee of future
performance.
[_] BROADLY DIVERSIFIED. A portfolio that is broadly diversified can help reduce
risk and increase relative stability. Since our goal is consistency, we
emphasize stock funds that are broadly diversified both in terms of the number
of industries and the number of stocks within each industry in which they
invest. Generally, our stock funds invest in 12 broad economic sectors, and in
many individual stocks within each sector.
FULLY INVESTED APPROACH
[BAR GRAPH OF MARKET RETURNS 1926-1994, FOR $1
INVESTED IN 1926 APPEARS HERE]
Stock - $810.54
T-Bills - $12.18
Stocks (minus 30 best months) - $11.57
[_] CLEARLY DEFINED STRUCTURE. Maintaining a fund's basic characteristics over
time is an important component in delivering consistent results. It also is
important to effective asset allocation. The basic characteristics of our funds
are determined by a pre-defined profile which remains constant over time. If
you buy a blue-chip stock fund today, it won't become a small-cap stock fund
tomorrow.
[_] BLENDED INVESTMENT STYLE. Market conditions are constantly changing, which
means the stocks that perform well should be expected to change. A rigid
investment style might cause an investor to suffer when certain types of stocks
lose favor with the market. The two most common investment styles are growth,
which emphasizes companies that are projected to experience rapid growth in
earnings, and value, which focuses on companies whose stock is selling for less
than the company's true worth. At Van Kampen American Capital, our style is
blended between growth and value on a fund-specific basis.
MARKET RETURNS
[BAR GRAPH OF MARKET RETURNS OF S&P 500 AVERAGE ANNUAL TOTAL RETURNS
(12/31/89-12/31/94) APPEARS HERE]
Fully Invested - 8.87%
Less 10 Best Days - 3.27%
Less 20 Best Days - (0.67%)
We constantly evaluate the results of our approach and compare it to other
similar funds. Although past performance is no guarantee of future results, we
remain committed to our belief that this approach should help Van Kampen
American Capital shareholders achieve consistent, competitive, long-term
performance.
8
<PAGE>
PORTFOLIO OF INVESTMENTS
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK 91.8%
CONSUMER DISTRIBUTION 6.7%
150 Alco Standard Corp.................................. $ 12,075,000
*50 Baby Superstore, Inc................................ 2,343,750
*45 Boise Cascade Office Products Corp.................. 1,276,875
150 Casey's General Stores, Inc......................... 3,018,750
*50 CDW Computer Centers, Inc........................... 2,700,000
125 Circuit City Stores, Inc............................ 4,312,500
*275 CompUSA, Inc........................................ 10,175,000
150 Consolidated Stores Corp............................ 3,300,000
*262 Corporate Express, Inc.............................. 6,135,938
*60 Creative Computer, Inc.............................. 1,740,000
200 Dollar General Corp................................. 5,250,000
125 Fastenal Co......................................... 4,125,000
50 Garden Ridge Corp................................... 1,550,000
150 General Nutrition Companies, Inc.................... 6,262,500
41 Gymboree Corp....................................... 1,219,750
150 Hollywood Entertainment Corp........................ 4,275,000
*150 Just For Feet, Inc.................................. 4,368,750
*150 Kroger Co........................................... 4,893,750
*100 Micro Warehouse, Inc................................ 4,775,000
*75 Petco Animal Supplies............................... 1,818,750
125 Richfood Holdings, Inc.............................. 3,031,250
*100 Safeway, Inc........................................ 3,937,500
*200 Sunglass Hut International, Inc..................... 8,500,000
--------------
101,085,063
--------------
CONSUMER DURABLES 0.9%
128 Black & Decker Corp................................. 4,140,762
150 Clayton Homes, Inc.................................. 3,543,750
*75 Photronics, Inc..................................... 2,620,330
*100 Toll Brothers, Inc.................................. 1,787,500
*110 Ultralife Batteries, Inc............................ 2,062,500
--------------
14,154,842
--------------
CONSUMER NON-DURABLES 3.1%
*54 Borders Group, Inc.................................. 1,093,500
*45 Bush Boake Allen, Inc............................... 1,383,750
*200 Canandaigua Wine, Inc............................... 9,450,000
100 Coca-Cola Enterprises, Inc.......................... 2,312,500
100 First Brands Corp................................... 4,362,500
*173 Nu-Kote Holdings, Inc., Class A..................... 3,401,013
*100 Quiksilver, Inc..................................... 2,975,000
*15 Redhook Ale Brewery, Inc............................ 485,625
65 St. John Knits, Inc................................. 2,876,250
*125 Starbucks Corp...................................... 5,000,000
*250 Tommy Hilfiger Corp................................. 8,375,000
*40 USA Detergents, Inc................................. 740,000
188 Wolverine World Wide, Inc........................... 4,570,313
--------------
47,025,451
--------------
CONSUMER SERVICES 8.1%
*100 Alternative Resources Corp.......................... 2,975,000
50 American Radio Systems Corp......................... 1,425,000
</TABLE>
9
See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
145 Applebees International, Inc........................ $ 4,350,000
70 Belo (A. H.) Corp................................... 2,458,750
*100 Boston Chicken, Inc................................. 2,400,000
*125 Clear Channel Communications, Inc................... 9,328,125
*175 Corrections Corp. of America........................ 7,875,000
200 Equifax, Inc........................................ 7,775,000
100 Evergreen Media Corp., Class A...................... 3,375,000
*150 Gartner Group, Inc.................................. 4,256,250
75 Hilton Hotels Corp.................................. 4,987,500
*100 Hospitality Franchise System, Inc................... 4,687,500
*250 Infinity Broadcasting Corp.......................... 8,968,750
125 Interpublic Group Companies, Inc.................... 4,859,375
300 La Quinta Inns, Inc................................. 9,000,000
*200 Lone Star Steakhouse & Saloon, Inc.................. 8,025,000
190 Meredith Corp....................................... 7,457,500
*300 Mirage Resorts, Inc................................. 10,312,500
*60 Outback Steakhouse, Inc............................. 1,935,000
*75 Regal Cinemas, Inc.................................. 2,550,000
150 Reynolds & Reynolds Co.............................. 4,818,750
*75 Rock Bottom Restaurants, Inc........................ 1,912,500
*21 Scientific Games Holdings Corp...................... 794,200
*85 Sinclair Broadcast Group, Class A................... 2,571,250
*35 Sitel Corp.......................................... 752,500
*50 ThermoLase Corp..................................... 993,750
50 Wallace Computer Services, Inc...................... 2,887,500
--------------
123,731,700
--------------
ENERGY 3.8%
150 Apache Corp......................................... 4,368,750
*100 Benton Oil & Gas Co................................. 1,037,499
*200 BJ Services Co...................................... 5,000,200
*150 Chesapeake Energy Corp.............................. 3,825,000
*100 DLB Oil & Gas, Inc.................................. 962,500
150 Enron Oil & Gas Co.................................. 3,487,500
*400 Global Marine, Inc.................................. 2,700,000
150 Kerr McGee Corp..................................... 8,250,000
*50 Newfield Exploration Co............................. 1,456,250
50 Phoenix Resource Co................................. 1,831,250
200 Pogo Producing Co................................... 4,750,000
*225 Pride Petroleum Services, Inc....................... 1,996,875
*200 Smith International, Inc............................ 3,500,000
225 Sonat Offshore Drilling, Inc........................ 7,706,250
125 Tidewater, Inc...................................... 3,093,750
150 Union Texas Petroleum Holdings, Inc................. 2,925,000
100 Varco International, Inc............................ 1,100,000
--------------
57,990,824
--------------
FINANCE 11.0%
85 AAMES Financial Corp................................ 2,316,250
175 American Bankers, Inc............................... 6,081,250
325 Bank of Boston Corp................................. 14,300,000
100 Bank of New York, Inc............................... 4,350,000
200 BayBanks, Inc....................................... 16,050,000
75 CMAC Investment Corp................................ 3,787,500
</TABLE>
10
See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
125 Comdisco, Inc....................................... $ 3,812,500
125 Cullen Frost Bankers, Inc........................... 5,750,000
100 Exel Limited........................................ 5,500,000
125 First American Corp................................. 5,343,750
50 First Bank System, Inc.............................. 2,281,250
*10 General Acceptance Corp............................. 295,000
200 Green Tree Financial Corp........................... 11,650,000
150 Household International, Inc........................ 8,418,750
*50 Jayhawk Acceptance Corp............................. 731,250
75 MBNA Corp........................................... 2,662,500
200 Mercantile Bancorporation, Inc...................... 9,050,000
175 Mercury Finance Co.................................. 4,003,125
100 Meridian Bancorp, Inc............................... 4,012,500
75 MGIC Investment Corp................................ 4,200,000
72 Michigan National Corp.............................. 7,761,925
100 Money Store, Inc.................................... 6,562,500
*125 Olympic Financial Limited........................... 2,859,375
*50 Oxford Resources Corp., Class A..................... 1,225,000
50 Penncorp Financial Group, Inc....................... 1,137,500
50 Peoples Heritage Financial Group, Inc............... 1,018,750
50 Reliastar Financial Corp............................ 1,900,000
50 Star Banc Corp...................................... 2,650,000
150 SunAmerica, Inc..................................... 8,962,500
125 TCF Financial Corp.................................. 6,953,125
150 United Companies Financial Corp..................... 9,337,500
50 Vesta Insurance Group, Inc.......................... 1,875,000
*16 WFS Financial, Inc.................................. 352,000
--------------
167,190,800
--------------
HEALTH CARE 11.7%
*50 American Oncology Resources......................... 1,887,500
*50 Amgen, Inc.......................................... 2,393,750
*150 AMSCO International, Inc............................ 2,681,250
*39 Apps Dental, Inc.................................... 1,057,300
75 Becton Dickinson & Co............................... 4,228,125
*300 Boston Scientific Corp.............................. 11,925,000
*100 Community Health Systems, Inc....................... 3,850,000
*225 Dura Pharmaceuticals, Inc........................... 5,512,500
*75 Genzyme Corp........................................ 4,190,625
85 Guidant Corp........................................ 2,146,250
*250 Gulf South Medical Supply, Inc...................... 7,062,500
350 HBO & Co............................................ 19,250,000
*300 Health Management Associates, Inc., Class A......... 10,050,000
*100 Health Management Systems, Inc...................... 3,075,000
*20 HPR, Inc............................................ 500,000
125 Invacare Corp....................................... 5,406,250
*75 Lincare Holdings, Inc............................... 2,240,625
*100 Medaphis Corp....................................... 2,312,500
200 Medtronic, Inc...................................... 18,875,000
75 Mentor Corp......................................... 2,868,750
*80 Minimed, Inc........................................ 920,000
*225 Nellcor, Inc........................................ 11,700,000
*75 OccuSystems, Inc.................................... 1,575,000
250 OmniCare, Inc....................................... 8,312,500
</TABLE>
11
See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
*250 Phycor, Inc......................................... $ 10,437,500
*50 Physician Sales & Service, Inc...................... 2,275,000
*100 Research Industries Corp............................ 2,662,500
100 St. Jude Medical, Inc............................... 5,962,500
*150 Steris Corp......................................... 4,406,250
*100 Sybron Corp......................................... 4,100,000
*50 Target Therapeutics, Inc............................ 2,437,500
*150 Thermedics, Inc..................................... 2,887,500
*200 Watsons Pharmaceuticals, Inc........................ 8,275,000
--------------
177,464,175
--------------
PRODUCER MANUFACTURING 7.4%
75 Camco International, Inc............................ 1,706,250
150 Case Corp........................................... 5,662,500
*85 Cognex Corp......................................... 4,239,375
150 Crane Co............................................ 5,400,000
200 Danaher Corp........................................ 6,600,000
50 Dover Corp.......................................... 3,987,500
*75 FMC Corp............................................ 5,775,000
*250 Glenayre Technologies............................... 16,312,500
175 Greenfield Industries, Inc.......................... 5,906,250
250 Harnischfeger Industries, Inc....................... 9,187,500
50 Helix Technology Corp............................... 2,545,312
150 Illinois Tool Works, Inc............................ 9,187,500
100 Kennametal, Inc..................................... 3,800,000
75 Measurex Corp....................................... 2,212,500
*50 Mueller Industries, Inc............................. 2,762,500
175 Parker Hannifin Corp................................ 6,934,375
75 Precision Castparts Co.............................. 2,540,625
*150 Sanifill, Inc....................................... 4,781,250
*150 United Waste Systems, Inc........................... 5,812,500
*150 Varity Corp......................................... 6,825,000
--------------
112,178,437
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.3%
50 Albany International Corp, Class A.................. 1,212,500
150 Avery Dennison Corp................................. 6,150,000
75 Boise Cascade Corp.................................. 3,215,625
125 Bowater, Inc........................................ 5,968,750
100 Eastman Chemical Co................................. 6,462,500
75 Federal Paper Board, Inc............................ 2,971,875
100 Hercules, Inc....................................... 5,562,500
125 IMC Global, Inc..................................... 7,906,250
170 Millipore Corp...................................... 5,928,750
130 Mineral Technologies, Inc........................... 4,712,500
75 Potash Corp. Sask, Inc.............................. 4,265,625
85 Rayonier, Inc....................................... 3,261,875
*40 Sealed Air Corp..................................... 2,110,000
*85 UCAR International, Inc............................. 2,337,500
75 Westvaco Corp....................................... 3,309,375
--------------
65,375,625
--------------
TECHNOLOGY 30.9%
*150 ADC Telecommunications, Inc......................... 5,812,500
*100 Allen Group, Inc.................................... 3,262,500
</TABLE>
12
See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
*300 Altera Corp.......................................... $ 18,787,500
*300 Analog Devices, Inc.................................. 10,387,500
*113 Andrew Corp.......................................... 6,553,125
*50 Applied Materials, Inc............................... 5,200,000
*200 Ascend Communications, Inc........................... 12,900,000
*35 Aspen Technology, Inc................................ 945,000
*500 Atmel Corp........................................... 15,812,500
65 BMC Industrials, Inc................................. 2,405,000
*44 CP Clare Corp........................................ 1,056,000
*250 Cadence Design Systems, Inc.......................... 9,062,500
*150 Ceridian Corp........................................ 6,562,500
*200 Cerner Corp.......................................... 6,850,000
*50 Coherent, Inc........................................ 1,775,000
*150 Credence Systems Corp................................ 5,287,500
*100 Cycare Systems, Inc.................................. 3,662,500
*250 Cypress Semiconductor Corp........................... 11,406,250
*20 Desktop Data, Inc.................................... 567,500
*12 Discreet Logic, Inc.................................. 506,250
*100 DSC Communications Corp.............................. 5,250,000
*200 Frame Technology..................................... 5,275,000
*150 FSI International, Inc............................... 5,287,500
*400 Informix Corp........................................ 11,200,000
*200 Input/Output, Inc.................................... 7,450,000
*150 Integrated Device Technology, Inc.................... 8,643,750
*100 Kemet Corp........................................... 5,700,000
*200 KLA Instruments Corp................................. 17,100,000
*105 Komag, Inc........................................... 6,536,250
*75 Kronos, Inc.......................................... 3,468,750
200 Linear Technology Corp............................... 16,200,000
*600 LSI Logic Corp....................................... 29,550,000
*100 Macromedia, Inc...................................... 4,975,000
*200 Medic Computer Systems, Inc.......................... 8,800,000
400 Micron Technology, Inc............................... 30,750,000
200 National Data Corp................................... 5,150,000
*22 Novadigm, Inc........................................ 440,000
*17 Oak Technology, Inc.................................. 743,750
*12 On Technology Corp................................... 192,000
*35 Ontrak Systems, Inc.................................. 940,625
*110 Optical Data Systems, Inc............................ 3,602,500
*13 Paradigm Technology, Inc............................. 412,500
*150 Picturetel Corp...................................... 8,437,500
*110 PRI Automation....................................... 4,152,500
*25 Pure Software, Inc................................... 693,750
*85 Robotic Vision Systems, Inc.......................... 1,583,125
*85 S3, Inc.............................................. 3,336,250
*50 SDL, Inc............................................. 1,587,500
*125 Sierra On-Line, Inc.................................. 4,875,000
*225 Sierra Semiconductor Corp............................ 11,109,375
*60 Spectrian Corp....................................... 2,775,000
100 Sundstrand Corp...................................... 6,812,500
*350 Sunguard Data Systems, Inc........................... 9,712,500
*450 Tellabs, Inc......................................... 21,037,500
*300 Tencor Instruments................................... 13,012,500
</TABLE>
13
See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- ------------------------------------------------------------------------------
<C> <S> <C>
*250 Teradyne, Inc...................................... $ 9,468,750
*35 Thermospectra Corp................................. 625,625
*350 3COM Corp.......................................... 13,650,000
*100 U S Robotics Corp.................................. 14,025,000
*250 Ultratech Stepper, Inc............................. 9,875,000
*150 Vicor Corp......................................... 7,050,000
*18 Videoserver, Inc................................... 632,250
*368 Vishay Intertechnology, Inc........................ 14,883,750
100 Watkins Johnson Co................................. 5,025,000
--------------
470,829,625
--------------
TRANSPORTATION 2.0%
187 Comair Holdings, Inc............................... 4,734,375
*85 Continental Airlines, Inc., Class B................ 2,518,125
*24 Fritz Companies, Inc............................... 1,745,625
*200 Northwest Airlines, Inc., Class A.................. 7,225,000
150 Southwest Airlines Co.............................. 3,881,250
*50 UAL Corp........................................... 7,875,000
*100 ValuJet Airlines, Inc.............................. 2,912,500
--------------
30,891,875
--------------
UTILITIES 1.9%
200 Cincinnati Bell, Inc............................... 5,450,000
250 Frontier Corp...................................... 6,968,750
*200 LCI International, Inc............................. 7,975,000
*85 Midcom Communications, Inc......................... 1,338,750
*85 Palmer Wireless, Inc............................... 1,955,000
75 Telecom New Zealand, ADR........................... 4,790,625
--------------
28,478,125
--------------
TOTAL COMMON STOCK (Cost $972,793,654)............ 1,396,396,542
--------------
CONVERTIBLE PREFERRED STOCK 0.2%
*70 Cellular Communications, Inc. (Cost
$2,570,000)........................................ 3,815,000
--------------
WARRANT 0.0%
*40 BJ Services Co. (Cost $195,000) expiring
04/13/00........................................... 210,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Par
Amount
(000)
- --------
<C> <S> <C>
SHORT-TERM INVESTMENTS 7.7%
COMMERCIAL PAPER 2.2%
$33,985 General Electric Capital Corp., 5.67%,
09/01/95........................................... 33,979,506
--------------
UNITED STATES AGENCY AND GOVERNMENT OBLIGATIONS 5.5%
#20,000 Federal Home Loan Bank, 5.76%, 12/14/95............ 19,678,000
#15,000 Federal Home Loan Bank, 5.72%, 12/26/95............ 14,730,900
9,000 Federal Home Loan Mortgage Corp., 5.62%,
10/12/95........................................... 8,941,830
13,835 Federal National Mortgage Association,
5.78%, 10/10/95.................................... 13,747,840
#7,255 Federal National Mortgage Association,
5.74%, 10/18/95.................................... 7,200,539
5,000 Federal National Mortgage Association,
5.79%, 12/18/95.................................... 4,916,000
10,000 Federal National Mortgage Association,
5.59%, 01/17/96.................................... 9,787,600
#4,000 United States Treasury Bills, 5.57%,
02/22/96........................................... 3,895,960
--------------
82,898,669
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost
$116,872,455).................................... 116,878,175
--------------
TOTAL INVESTMENTS 99.7% (Cost $1,092,431,109)................ 1,517,299,717
OTHER ASSETS AND LIABILITIES, NET 0.3%....................... 4,257,951
--------------
NET ASSETS 100%.............................................. $1,521,557,668
==============
</TABLE>
*Non-income producing security.
#Securities with a market value of $42.2 million were placed as collateral for
futures contracts (see Note 1B)
14
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments at market value (Cost $1,092,431,109).............. $1,517,299,717
Cash........................................................... 8,964
Receivable for investments sold................................ 35,596,691
Receivable for Fund shares sold................................ 8,707,204
Dividends receivable........................................... 721,537
Receivable from broker-variation margin........................ 127,500
Other assets and receivables................................... 5,427
--------------
Total Assets................................................. 1,562,467,040
--------------
LIABILITIES
Payable for investments purchased.............................. 32,196,848
Payable for Fund shares redeemed............................... 6,495,081
Due to Distributor............................................. 846,510
Due to Adviser................................................. 608,043
Due to shareholder service agent............................... 379,174
Deferred Trustees' compensation................................ 76,128
Accrued expenses............................................... 307,588
--------------
Total Liabilities............................................ 40,909,372
--------------
NET ASSETS, equivalent to $31.59 per share for Class A, $30.65
per share for Class B, and $31.02 per share for Class C
shares........................................................ $1,521,557,668
--------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 32,580,888 Class A,
14,699,101 Class B and 1,348,492 Class C shares outstanding... $ 486,285
Capital surplus................................................ 1,009,180,887
Undistributed net realized gain on securities.................. 85,363,241
Net unrealized appreciation of securities
Investments................................................... 424,868,608
Futures contracts............................................. 1,734,775
Accumulated net investment loss................................ (76,128)
--------------
NET ASSETS..................................................... $1,521,557,668
--------------
</TABLE>
15
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.......................................................... $ 8,544,701
Dividends......................................................... 6,413,724
------------
Investment income............................................... 14,958,425
------------
EXPENSES
Management fees................................................... 5,810,837
Shareholder service agent's fees and expenses..................... 4,112,547
Accounting services............................................... 158,937
Service fees--Class A............................................. 1,478,686
Distribution and service fees--Class B............................ 3,258,777
Distribution and service fees--Class C............................ 302,301
Trustees' fees and expenses....................................... 45,388
Audit fees........................................................ 33,400
Custodian fees.................................................... 36,176
Legal fees........................................................ 16,040
Reports to shareholders........................................... 303,533
Registration and filing fees...................................... 126,426
Miscellaneous..................................................... 64,220
------------
Total expenses.................................................. 15,747,268
------------
NET INVESTMENT LOSS............................................... (788,843)
------------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities
Investments...................................................... 92,972,850
Futures contracts................................................ 8,092,725
Net unrealized appreciation of securities during the period
Investments...................................................... 261,883,582
Futures contracts................................................ 917,587
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.................... 363,866,744
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $363,077,901
------------
</TABLE>
16
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31
----------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.................. $ 954,412,776 $593,737,150
-------------- ------------
OPERATIONS
Net investment loss............................. (788,843) (3,699,373)
Net realized gain on securities................. 101,065,575 25,654,512
Net unrealized appreciation (depreciation) of
securities during the period................... 262,801,169 (43,151,364)
-------------- ------------
Increase (decrease) in net assets resulting
from operations............................. 363,077,901 (21,196,225)
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED
GAINS ON SECURITIES
Class A........................................ (17,526,137) (34,197,716)
Class B........................................ (7,315,354) (7,449,021)
Class C........................................ (662,660) (402,667)
-------------- ------------
(25,504,151) (42,049,404)
-------------- ------------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A........................................ 1,085,793,746 747,070,310
Class B........................................ 150,468,438 218,458,300
Class C........................................ 25,757,240 26,549,184
-------------- ------------
1,262,019,424 992,077,794
-------------- ------------
Proceeds from shares issued for distributions
reinvested
Class A........................................ 16,392,292 31,162,468
Class B........................................ 6,692,531 6,869,825
Class C........................................ 556,128 339,541
-------------- ------------
23,640,951 38,371,834
-------------- ------------
Cost of shares redeemed
Class A........................................ (980,641,481) (571,657,960)
Class B........................................ (57,495,439) (32,231,372)
Class C........................................ (17,952,313) (2,639,041)
-------------- ------------
(1,056,089,233) (606,528,373)
-------------- ------------
Increase in net assets from capital transac-
tions....................................... 229,571,142 423,921,255
-------------- ------------
INCREASE IN NET ASSETS......................... 567,144,892 360,675,626
-------------- ------------
NET ASSETS, end of period (including accumulated
net investment loss of $76,128 and $69,344)..... $1,521,557,668 $954,412,776
-------------- ------------
</TABLE>
17
See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------
Year Ended August 31
-----------------------------------------------
1995(/1/) 1994 1993 1992(/1/) 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFOR-
MANCE
Net asset value, beginning of
period....................... $24.37 $26.46 $19.03 $20.06 $14.44
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERA-
TIONS
Investment income............ .34 .33 .15 .195 .23
Expenses..................... (.29) (.44) (.20) (.21) (.195)
-------- ------- ------- ------- -------
Net investment income (loss).. .05 (.11) (.05) (.015) .035
Net realized and unrealized
gain or loss on securities... 7.79 (.32) 8.6375 .9275 6.035
-------- ------- ------- ------- -------
Total from investment opera-
tions........................ 7.84 (.43) 8.5875 .9125 6.07
-------- ------- ------- ------- -------
LESS DISTRIBUTIONS FROM
Net investment income........ -- -- -- (.0325) (.0775)
Net realized gains on
securities.................. (.62) (1.66) (1.1575) (1.91) (.3725)
-------- ------- ------- ------- -------
Total distributions........... (.62) (1.66) (1.1575) (1.9425) (.45)
-------- ------- ------- ------- -------
Net asset value, end of peri-
od........................... $31.59 $24.37 $26.46 $19.03 $20.06
-------- ------- ------- ------- -------
TOTAL RETURN (/2/)............ 33.11% (1.67%) 46.73% 4.28% 43.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of the period
(millions)................... $1,029.2 $677.1 $517.8 $312.3 $283.6
Average net assets (millions). $ 768.2 $599.4 $405.2 $320.6 $235.8
Ratios to average net assets
Expenses..................... 1.14% 1.18% 1.10% 1.04% 1.14%
Net investment income (loss). .19% (.30%) (.27%) (.08%) .21%
Portfolio turnover rate....... 101% 64% 47% 61% 69%
</TABLE>
(1) Based on average shares outstanding
(2) Total return does not consider the effect of sales charges.
18
See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------- --------------------------------
April 20, July 6,
1992(/1/) Year Ended 1993(/1/)
Year Ended August 31 through August 31 through
---------------------------- August 31, -------------------- August 31,
1995(/2/) 1994 1993(/2/) 1992(/2/) 1995(/2/) 1994(/2/) 1993(/2/)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, begin-
ning of period......... $23.86 $26.14 $18.98 $19.66 $24.14 $26.42 $25.07
------ ------ ------- ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Investment income...... .34 .24 .19 .08 .34 .24 .03
Expenses............... (.50) (.51) (.435) (.145) (.50) (.49) (.075)
------ ------ ------- ------ ------ ------ ------
Net investment loss..... (.16) (.27) (.245) (.065) (.16) (.25) (.045)
Net realized and
unrealized gain or loss
on securities.......... 7.57 (.35) 8.5625 (.615) 7.66 (.37) 1.395
------ ------ ------- ------ ------ ------ ------
Total from investment
operations............. 7.41 (.62) 8.3175 (.68) 7.50 (.62) 1.35
------ ------ ------- ------ ------ ------ ------
DISTRIBUTIONS FROM NET
REALIZED GAINS ON SECU-
RITIES................. (.62) (1.66) (1.1575) -- (.62) (1.66) --
------ ------ ------- ------ ------ ------ ------
Net asset value, end of
period................. $30.65 $23.86 $26.14 $18.98 $31.02 $24.14 $26.42
------ ------ ------- ------ ------ ------ ------
TOTAL RETURN (/3/)...... 32.01% (2.46%) 45.41% (3.51%) 32.01% (2.46%) 5.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of the
period (millions)...... $450.5 $252.9 $74.5 $5.2 $41.8 $24.5 $1.4
Average net assets
(millions)............. $325.9 $163.1 $28.4 $2.8 $30.2 $12.8 $0.5
Ratios to average net
assets (annualized)
Expenses............... 1.97% 2.01% 1.89% 1.86% 1.96% 2.02% 2.31%
Net investment loss.... (.64%) (1.07%) (1.07%) (.80%) (.63%) (1.04%) (1.37%)
Portfolio turnover rate. 101% 64% 47% 61% 101% 64% 47%
</TABLE>
(1) Commencement of offering of sales
(2) Based on average shares outstanding
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Emerging Growth Fund (the "Fund", formerly American
Capital Emerging Growth Fund, Inc.) is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment com-
pany. The following is a summary of significant accounting policies consist-
ently 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 and listed securities for
which the last sale price is not available are valued at the mean between the
last reported bid and asked prices.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
B. 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 in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
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 makes
payment for such securities only upon physical delivery or evidence of book en-
try 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. FUTURES CONTRACTS-Transactions in futures contracts are utilized in strate-
gies 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 mar-
ket price of investments. There is also a risk that the market movement of such
instruments may not be in the direction forecasted. Note 3--Investment Activity
contains additional information.
Upon entering into futures contracts, the Fund maintains, in a segregated ac-
count with its custodian, securities with a value equal to its obligation under
the futures contracts. A portion of these funds is held as collateral in an ac-
count in the name of the broker, the Fund's agent in acquiring the futures po-
sition. 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 secu-
rities acquired through delivery under a contract is adjusted by the unrealized
gain or loss on the contract.
D. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized gains on investments to its shareholders.
During the period, the Fund utilized approximately $2.8 million in capital
loss carryforward to offset capital gains.
E. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment trans-
actions are accounted for on the trade date. Realized gains and losses on in-
vestments 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 accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may result in dividends or distributions in excess of financial statement
earnings.
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
.575% of the first $350 million, .525% of the next $350 million, .475% of the
next $350 million and .425% of the excess of $1.05 billion.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $22,322 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.
ACCESS Investor Services, an affiliate of the Adviser, serves as the Fund's
shareholder service agent. These services are provided at cost plus a profit.
For the period, the fees for such services were $3,515,039.
The Fund has been advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both af-
filiates of the Adviser, received $334,943 and $146,147, respectively, as their
portion of the commissions on sales of Fund shares during the period.
Under the Distribution Plans, each class pays up to .25% per annum of its av-
erage daily net assets to reimburse the Distributor for expenses and service
fees incurred. Class B 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 Dis-
tributor for Class B and Class C shares may exceed the amounts reimbursed to
the Distributor by the Fund. At the end of the period, the unreimbursed ex-
penses incurred by the Distributor under the Class B and Class C plans aggre-
gated approximately $13 million and $290,000, respectively, and may be carried
forward and reimbursed through either the collection of the contingent deferred
sales charges from share redemptions or, subject to the annual renewal of the
plans, future Fund reimbursements of distribution fees.
During the period, the Fund paid brokerage commissions of $8,143 to a company
which was deemed an affiliate of the Adviser's parent because it owned more
than 5% of the Company's outstanding voting securities. As of December 20,
1994, the company was no longer considered an affiliate.
Legal fees of $16,014 were for services rendered by O'Melveny & Myers, coun-
sel for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a trustee of
the Fund.
Certain officers and trustees of the Fund are officers and trustees of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $1,212,202,984 and
$1,006,827,496, respectively.
At the end of the period, the Fund held 150 long Standard & Poor's 500 Index
futures contracts expiring in September 1995. The market value of such con-
tracts was $42,213,750 and the unrealized appreciation was $1,734,775.
For federal income tax purposes, the identified cost of investments owned at
the end of the period was $1,092,543,605. Net unrealized appreciation aggre-
gated $424,756,112, gross unrealized appreciation of investments aggregated
$430,270,834, and gross unrealized depreciation aggregated $5,514,722.
NOTE 4--TRUSTEE COMPENSATION
Fund trustees who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $2,300 plus a fee of $60 per day for Board and Com-
mittee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $860. During the period, such fees aggregated $30,592.
The trustees 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. Each trustee 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.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 ba-
sis (the Class B and Class C shares). All classes of shares have the same
rights, except that Class B and Class C shares bear the cost of distribution
fees and certain other class specific expenses. Realized and unrealized gains
or losses, investment income and expenses (other than class specific expenses)
are allocated daily to each class of shares based upon the relative proportion
of net assets of each class. Class B and Class C shares automatically convert
to Class A shares six years and ten years after purchase, respectively, subject
to certain conditions.
The Fund has an unlimited number of shares of $.01 par value beneficial in-
terest authorized. Transactions in shares of beneficial interest were as fol-
lows:
<TABLE>
<CAPTION>
Year Ended August 31
------------------------
1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A........................................ 41,742,312 29,869,198
Class B........................................ 6,061,426 8,777,044
Class C........................................ 1,006,637 1,054,495
----------- -----------
48,810,375 39,700,737
----------- -----------
Shares issued for distributions reinvested
Class A........................................ 721,895 1,268,167
Class B........................................ 302,136 284,112
Class C........................................ 24,801 13,881
----------- -----------
1,048,832 1,566,160
----------- -----------
Shares redeemed
Class A........................................ (37,660,418) (22,927,742)
Class B........................................ (2,263,921) (1,311,636)
Class C........................................ (697,504) (107,283)
----------- -----------
(40,621,843) (24,346,661)
----------- -----------
Increase in Fund shares outstanding............ 9,237,364 16,920,236
----------- -----------
</TABLE>
NOTE 6--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to a
Delaware Business Trust and the election of fourteen trustees. On August 5,
1995, the reorganization became effective.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all mate-
rial respects, the financial position of Van Kampen American Capital Emerging
Growth Fund at August 31, 1995, the results of its operations, the changes in
its net assets and the financial highlights for each of the fiscal periods pre-
sented, in conformity with generally accepted accounting principles. These fi-
nancial statements and financial highlights (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 per-
form 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 presenta-
tion. We believe that our audits, which included confirmation of securities at
August 31, 1995 by correspondence with the custodian and brokers and the appli-
cation of alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
October 12, 1995
23
<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
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
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
Limited 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
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies 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 direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
24
<PAGE>
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
PHILIP P. GAUGHAN
LINDA H. HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DONALD C. MILLER
JACK E. NELSON
DON G. POWELL
DAVID REES
JEROME L. ROBINSON
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WAYNE W. WHALEN
WILLIAM S. WOODSIDE
*Chairman of the Board
OFFICERS
DON G. POWELL
President
CURTIS W. MORELL
Vice President and Treasurer
GARY M. LEWIS
DENNIS J. MCDONNELL
RONALD A. NYBERG
ALAN T. SACHTLEBEN
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
HUEY P. FALGOUT, JR.
Assistant Secretary
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 SERVICE AGENT
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256 Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST CO.
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
(C) Van Kampen American Capital Distributors, Inc., 1995
All rights reserved.
(SM) denotes a service mark of
Van Kampen Armerican 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. If used for distributions to
prospective investors after 12/31/95, this annual report must be accompanied
by a Van Kampen American Capital Emerging Growth Fund performance data update
for the most recent quarter.
25
