<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders............................... 1
Performance Results.................................. 3
Portfolio Highlights................................. 4
Performance Perspective.............................. 5
Portfolio Management Review.......................... 6
Equity Management Philosophy......................... 8
Portfolio of Investments............................. 9
Statement of Assets and Liabilities.................. 14
Statement of Operations.............................. 15
Statement of Changes in Net Assets................... 16
Financial Highlights................................. 17
Notes to Financial Statements........................ 20
Report of Independent Accountants.................... 24
</TABLE>
PACE ANR 8/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement was reached in late June for VK/AC Holding,
Inc., the parent company of Van Kampen American Capital, Inc., to be acquired
by the Morgan Stanley Group Inc. While this announcement may appear common-
place in an ever-changing financial industry, we believe it represents an ex-
citing opportunity for shareholders of our investment products.
With Morgan Stanley's global leadership in investment banking and asset man-
agement and Van Kampen American Capital's reputation for competitive long-term
performance and superior investor services, together we will
offer a broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in all
aspects of our business. And, we expect very little change in the way your mu-
tual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response
for inclusion in the shareholder vote. We value our relationship with you and
look forward to communicating more details of this transaction, which is an-
ticipated to be completed in November.
ECONOMIC REVIEW
The economy demonstrated an acceleration in growth during the last half of the
reporting period. After a nominal 0.3 percent growth rate in the last quarter
of 1995, GDP (the nation's gross domestic product) rose by
2.0 percent in this year's first quarter. And, as anticipated, the economy
grew 4.2 percent in the second quarter, partly reflecting a recovery from the
effects of labor strikes earlier in the year and extreme weather conditions
across the country. Upward momentum has been assisted by consumer spending, as
indicated by a 5.6 percent rise in retail sales in the first five months of
this year versus the comparable 1995 period.
In the manufacturing sector, economic reports, such as the National Associa-
tion of Purchasing Managers Index, suggested a continued rebound in production
from last winter's lower levels. In June, this index reached its highest level
since early 1995. Strong levels of exports and a replenishing of inventories
have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may rise
and the Federal Reserve Board might tighten monetary policy. Inflation remains
modest, however, with consumer prices rising at about a 3 percent annual rate
over the past year. Meanwhile, the closely watched "core" Consumer Price In-
dex, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at
a moderate 2.7 percent. In general, recent reports have suggested an upward
creep in labor-related costs, while indicating that prices of many commodities
have begun to decline.
Continued on page two
1
<PAGE>
EQUITY MARKET REVIEW
The stock market averages posted attractive gains for the 12-month period ended
June 30, 1996, with most major averages posting all-time highs. The Dow Jones
Industrial Average rose 24 percent from 4556 to 5654, and the NASDAQ Composite
Index rose 27 percent from 933 to 1185.
Corporate earnings, which were an important contributor to last year's strong
stock market, continued to move ahead during the reporting period. Unexpectedly
strong economic activity helped lift reported profits above expectations for
the period. Through the rest of 1996, we expect earnings will be supportive,
but perhaps not the primary factor in the movement of the major stock market
averages.
OUTLOOK
We anticipate that reasonably strong economic growth will continue during the
balance of 1996, albeit at more moderate rates than the second quarter's swift
pace. While we expect rates of inflation to remain near current levels, the Fed
may begin to lean toward greater restraint in its monetary policy in the coming
months. That suggests an upward bias for short-term interest rates and for
yields on long-term bonds to remain steady at current levels.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
SIGNATURE LOGO SIGNATURE LOGO
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, 1996
VAN KAMPEN AMERICAN CAPITAL PACE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV/1/................ 20.48% 19.44% 19.74%
One-year total return/2/............................. 13.54% 14.44% 18.74%
Five-year average annual total return/2/............. 11.64% N/A N/A
Ten-year average annual total return/2/.............. 10.39% N/A N/A
Life-of-Fund average annual total return/2/.......... 12.39% 9.65% 11.88%
Commencement Date.................................... 07/22/69 01/10/92 08/27/93
</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 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.
3
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL PACE FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
% OF FUND SIX
AS OF JUNE 30, 1996 MONTHS AGO
VKAC Small Capitalization Fund................... 4.2% ........... 4.5%
Philip Morris Companies, Inc..................... 2.7% ........... 2.0%
U.S. Treasury Bonds, 8.75%....................... 1.9% ........... N/A
U.S. Treasury Notes, 6.375%...................... 1.6% ........... N/A
Williams Companies, Inc.......................... 1.2% ........... 0.6%
Federal National Mortgage Association............ 1.1% ........... 2.1%
Cisco Systems, Inc............................... 1.1% ........... 0.5%
Intel Corporation................................ 1.1% ........... N/A
Bristol Myers Squibb Co.......................... 1.1% ........... 0.6%
Computer Associates International................ 1.0% ........... 0.7%
N/A = Not Applicable
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Technology.............. 15%
Finance................. 14%
Consumer Non-Durables... 10%
Energy.................. 9%
Producer Manufacturing.. 8%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
Finance................. 17%
Technology.............. 14%
Health Care............. 11%
Consumer Non-Durables... 9%
Energy.................. 8%
</TABLE>
ASSET ALLOCATION
PIE CHARTS APPEAR HERE
As of June 30, 1996
Stocks............................. 92%
U.S. Government Obligations........ 3%
Cash Equivalents................... 5%
As of December 31, 1995
Stocks............................. 89%
Cash Equivalents................... 11%
4
<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 intervals. 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 Lipper Growth Fund Index over time. The Standard & Poor's 500
Index is a broad-based, unmanaged statistical composite, and does not reflect
any commssions or fees which would be incurred by an investor purchasing the
securities it represents. The Lipper Growth Fund Index 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 Pace Fund vs. Standard & Poor's 500-Stock Index
and the Lipper Growth Fund Index
(June 1986 through June 1996)
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Van Kampen American Lipper Growth Fund Standard & Poor's
Capital Pace Fund Index* 500-Stock Index
<S> <C> <C> <C>
Jun 1986 9,424 10,000 10,000
Dec 1986 9,296 9,519 9,824
Dec 1987 9,434 9,828 10,333
Dec 1988 10,574 11,218 12,038
Dec 1989 13,596 14,299 15,841
Dec 1990 12,806 13,525 15,347
Dec 1991 16,869 18,439 20,003
Dec 1992 17,609 19,846 21,525
Dec 1993 19,517 22,223 23,685
Dec 1994 18,795 21,874 24,006
Dec 1995 24,960 29,016 32,995
Jun 1996 26,877 31,334 36,321
</TABLE>
Fund's Total Return
1 Year Avg. Annual = 13.54%
5 Year Avg. Annual = 11.64%
10 Year Avg. Annual = 10.39%
Inception Avg. Annual = 12.39%
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 Jund 30, 1996,
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
performance and was initially selected as a benchmark for the Fund's
performance; additionally the Lipper Growth Fund Index was selected to
represent a more narrow-based comparison for the Fund.
5
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL PACE FUND
We recently spoke with the management team of the Van Kampen American Capital
Pace Fund about the key events and economic forces that shaped the markets
during the Fund's fiscal year. The team is led by Stephen L. Boyd, portfolio
manager, and Alan T. Sachtleben, executive vice president for equity
investments. The following excerpts reflect their views on the Fund's
performance during the 12-month period ended June 30, 1996.
Q DURING EACH OF THE PAST FOUR QUARTERS, WHICH FACTORS HAD THE GREATEST IM-
PACT ON THE FUND'S PERFORMANCE?
A In the third quarter of 1995, two factors had positive effects on the
Fund: continued slow economic growth and an extended rally in technology
stocks. First, the economy's slow but steady growth translated into strong
corporate earnings without arousing fears of inflation. This helped many of
the Fund's holdings, as well as the overall stock market. Second, in anticipa-
tion of the technology stock rally, the Fund overweighted this sector, which
boosted the Fund's returns.
While the Fund benefited from the third quarter technology rally, "tech"
stocks fell victim to dramatic price fluctuations during the last three months
of 1995. However, the Fund's diversification--one of its hallmarks--shielded
the Fund from that sector's roller-coaster ride and aided performance.
In the first quarter of 1996, the Fund's strategy of investing in companies
involved in restructuring appeared to pay off. We like to invest in companies
that are in the process of selling parts of their business, buying or merging
with other companies, or downsizing. Companies such as Union Pacific (a rail-
road that bought Southern Pacific) and Corning Inc. (which recently announced
a major restructuring) are all companies that produced solid returns for the
Fund.
During the second quarter of 1996, energy stocks (especially natural gas
companies) and restructuring companies pushed the Fund to modest gains. Unfor-
tunately, a downward trend in the market during the last few weeks of the
quarter hurt many of the Fund's other holdings.
Q OVERALL, HOW DID THE FUND PERFORM OVER THE LAST 12 MONTHS?
A We were reasonably pleased with the Fund's performance. Class A shares of
the Fund enjoyed a total return at net asset value of 20.48 percent/1/.
By comparison, the Lipper Growth Fund Index achieved a total return of 20.68
percent, and the Standard & Poor's 500-Stock Index returned 26.10 percent. The
S&P 500 Index is a broad-based, unmanaged index that reflects general stock
market performance and does not reflect any commissions or fees that would be
paid by an investor purchasing the securities it represents. The Lipper Growth
Fund Index reflects the average performance of the largest growth funds and
does not reflect any sales charges that would be paid by an investor purchas-
ing the funds it represents. Please refer to the chart on page three for addi-
tional Fund performance results.
Q WHY THE DISPARITY BETWEEN THE FUND AND THE S&P 500 INDEX?
A The bulk of the disparity occurred in the second quarter of 1996. It can
be explained by a large number of small variances which culminated in a
disappointing quarter. Keep in mind that the Lipper Growth Fund Index, which
represents the average performance of the largest growth funds, returned 20.68
percent for the last 12 months, about the same return posted by the Fund. This
difficult quarter kept large growth funds as a group from keeping pace with
the S&P 500 Index.
6
<PAGE>
Q OVER THE PAST 12-MONTH PERIOD, WHICH OF THE FUND'S HOLDINGS HAD THE
STRONGEST PERFORMANCE?
A The Fund's top performers came from a variety of sectors, a testament to
the Fund's broad diversification. The companies listed below are ranked
in terms of stock price appreciation over the past 12 months.
. Worldcom, Inc.
. Service Corp. International
. Praxair, Inc.
. Cascade Communications
. Marriott International, Inc.
Of course not all of the portfolio's holdings performed this well during the
period and there is no guarantee that this appreciation will be achieved in
the future, that the Fund held these securities for the entire period or that
the Fund will continue to own these holdings. Please refer to page four for
Fund portfolio highlights.
Q WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A Three factors could affect the Fund over the next six months: a more cau-
tious stock market, strong economic growth, and ongoing opportunities
overseas.
It appears that investors are taking a cautious approach to the stock mar-
ket. We do not anticipate a major market correction, but we do foresee a
fairly flat market trend for the remainder of 1996. In this type of market en-
vironment, individual stock selection--choosing what we feel may benefit the
Fund most in each sector--becomes increasingly important. Because the Fund
utilizes a disciplined stock-picking approach that is rooted in extensive re-
search, we make every effort to pinpoint the stocks that we feel will show the
most potential.
Second, despite mixed signals in economic reports, we believe the economy
will sustain strong growth and acceptable levels of inflation for the remain-
der of 1996. Although it is highly unlikely we will see a repeat of last
year's record-breaking stock market performance, an economic climate of steady
growth and moderate inflation has historically boded well for corporate earn-
ings and stock prices.
Finally, due to weak European economies, multinational companies with a Eu-
ropean presence have struggled lately. We believe this creates buying opportu-
nities overseas, especially in the technology sector. If these opportunities
persist over the next six months, we may increase the Fund's current weighting
in foreign securities to nine or ten percent from its current level of six
percent.
SIGNATURE LOGO SIGNATURE LOGO
Alan T. Sachtleben Stephen L. Boyd
Executive Vice President Portfolio Manager
Equity Investments
Please see footnotes on page three.
7
<PAGE>
MANAGING YOUR EQUITY INVESTMENT FOR LONG-TERM PERFORMANCE
VAN KAMPEN AMERICAN CAPITAL PACE FUND
- --------------------------------------------------------------------------------
Do you ever wonder how a mutual fund invests your money? At Van Kampen American
Capital, we manage our equity funds so that they maintain four key characteris-
tics: a fully invested portfolio, broadly diversified holdings, a clearly de-
fined structure, and a blended investment style. We believe these traits are
vital in helping us achieve our objectives of consistency and excellence in
long-term investment returns.
[_] 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 in-
vested is illustrated by the charts
at right. By missing fewer than 4
percent of the months during the
past 69 years, the value of $1 in-
vested in 1926 was $15.81 at the
end of 1995, compared to $1,113.92
for $1 that was invested for the
entire period. During the five-year
period (1991-1995), the average an-
nual total return for stocks, as
measured by the Standard & Poor's
500-Stock Index, a broad-based, un-
managed index, was 16.60 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 7.57
percent. Of course, past perfor-
mance is no guarantee of future
performance.
[_] BROADLY DIVERSIFIED. A portfo-
lio that is broadly diversified can
help reduce risk and increase rela-
tive stability. Since our goal is
consistency, we emphasize stock
funds that are broadly diversified
both in terms of the number of in-
dustries and the number of stocks
within each industry in which they
invest. Generally, our stock funds
invest in 12 broad economic sec-
tors, and in many individual stocks
within each sector.
[_] CLEARLY DEFINED STRUCTURE.
Maintaining a fund's basic charac-
teristics over time is an important
component in delivering consistent
results. It also is important to
effective asset allocation. The ba-
sic 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. Mar-
ket conditions are constantly
changing, which means the stocks
that perform well should be ex-
pected to change. A rigid invest-
ment 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 ex-
perience rapid growth in earnings,
and value, which focuses on compa-
nies 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.
We constantly evaluate the results of our approach and compare it to other sim-
ilar funds. Although past performance is no guarantee of future results, we re-
main committed to our belief that this approach should help Van Kampen American
Capital shareholders achieve consistent, competitive, long-term performance.
[CHARTS APPEAR HERE]
Fully Invested Approach
Market Returns 1926-1995
$1 Invested in 1926
Stocks 840-Months..................... $1,113.92
T-Bills............................... $12.87
Stocks Minus 30 Best Months........... $15.81
Source: (C) Computed using data from Stocks, Bonds, Bills, and Inflation 1996
Yearbook/(TM)/, Ibbotson Associates, Chicago (annually updates work by
Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All
rights reserved.
Market Returns
S&P 500 Average Annual Total Returns
(12/31/90 - 12/31/95)
Fully Vested.......................... 16.50%
Less 10 Best Days..................... 11.20%
Less 20 Best Days..................... 7.57%
Source: Vestek System
8
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK 91.7%
CONSUMER DISTRIBUTION 7.4%
*170 AutoZone Inc........................................ $ 5,890,125
*335 Best Buy Inc........................................ 7,663,125
120 Cardinal Health Inc................................. 8,655,000
115 Dayton Hudson Corp.................................. 11,859,375
525 Dillard Department Stores Inc....................... 19,162,500
*871 Eckerd Corp......................................... 19,717,687
*400 Federated Department Stores Inc..................... 13,650,000
300 Gap Inc............................................. 9,637,500
*300 Gymboree Corp....................................... 9,150,000
*550 Kroger Co........................................... 21,725,000
190 Lear Corp........................................... 6,697,500
230 May Department Stores Co............................ 10,062,500
*300 Saks Holdings Inc................................... 10,237,500
180 Sears, Roebuck & Co................................. 8,752,500
550 TJX Companies Inc................................... 18,562,500
435 Wal Mart Stores Inc................................. 11,038,125
--------------
192,460,937
--------------
CONSUMER DURABLES 3.0%
150 Black & Decker Corp................................. 5,793,750
235 Chrysler Corp....................................... 14,570,000
*165 Daimler Benz Aktieng, ADS........................... 8,889,375
200 Eastman Kodak Co.................................... 15,550,000
450 Fiat Spa, ADR....................................... 7,650,000
315 General Motors Corp................................. 16,498,125
210 Harley Davidson Inc................................. 8,636,250
--------------
77,587,500
--------------
CONSUMER NON-DURABLES 9.5%
*275 Adidas, ADS......................................... 11,481,250
110 Anheuser Busch Companies Inc........................ 8,250,000
440 Avon Products Inc................................... 19,855,000
125 Campbell Soup Co.................................... 8,812,500
100 Colgate Palmolive Co................................ 8,475,000
170 CPC International Inc............................... 12,240,000
175 Gillette Co......................................... 10,915,625
190 Gucci Group......................................... 12,255,000
375 Liz Claiborne Inc................................... 12,984,375
635 Nabisco Holdings Corp, Class A...................... 22,463,125
640 PepsiCo Inc......................................... 22,640,000
650 Philip Morris Companies Inc......................... 67,600,000
100 Procter & Gamble Co................................. 9,062,500
135 Ralston Purina Group................................ 8,656,875
285 Tambrands Inc....................................... 11,649,375
--------------
247,340,625
--------------
CONSUMER SERVICES 6.0%
*120 Clear Channel Communications........................ 9,843,813
*500 Cox Communications Inc.............................. 10,812,500
175 Equifax Inc......................................... 4,593,750
*390 Grupo Televisa, SA, ADR............................. 11,992,500
320 Harcourt General Inc................................ 16,000,000
160 Hilton Hotels Corp.................................. 18,000,000
</TABLE>
See Notes to Financial Statements
9
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- -------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SERVICES (CONTINUED)
*600 Host Marriott Corp................................. $ 7,875,000
300 Marriott International Inc......................... 16,125,000
*140 Mirage Resorts Inc................................. 7,560,000
350 News Corp Ltd, ADS................................. 8,225,000
375 Service Corp International......................... 21,562,500
*635 Tele Communications, Class A....................... 11,509,375
325 Time Warner Inc.................................... 12,756,250
--------------
156,855,688
--------------
ENERGY 9.0%
450 Apache Corp........................................ 14,793,750
265 Baker Hughes Inc................................... 8,711,875
95 British Petroleum, PLC, ADR........................ 10,153,125
500 Coastal Corp....................................... 20,875,000
*165 Diamond Offshore Drilling.......................... 9,446,250
250 Dresser Industries Inc............................. 7,375,000
112 Mobil Corp......................................... 12,558,000
425 Occidental Petroleum Corp.......................... 10,518,750
700 PanEnergy Corp..................................... 23,012,500
275 Phillips Petroleum Co.............................. 11,515,625
550 Repsol SA, ADR..................................... 19,112,500
475 Sonat Inc.......................................... 21,375,000
265 Texaco Inc......................................... 22,226,875
581 Williams Companies Inc............................. 28,759,500
700 YPF Sociedad Anonima, ADS.......................... 15,750,000
--------------
236,183,750
--------------
FINANCE 13.9%
275 Bank of Boston Corp................................ 13,612,500
235 BankAmerica Corp................................... 17,801,250
100 BayBanks Inc....................................... 10,775,000
225 Chase Manhattan Corp............................... 15,890,625
175 Citicorp........................................... 14,459,375
280 Corestates Financial Corp.......................... 10,780,000
9 Donaldson, Lufkin & Jenrette Co.................... 288,300
825 Federal National Mortage Association............... 27,637,500
280 First Bank System Inc.............................. 16,240,000
165 First Union Corp................................... 10,044,375
300 Green Tree Financial Corp.......................... 9,375,000
590 Greenpoint Financial Corp.......................... 16,667,500
120 Merrill Lynch & Co Inc............................. 7,815,000
270 MGIC Investment Corp............................... 15,153,750
65 Morgan Stanley Group Inc........................... 3,173,475
200 NationsBank Corp................................... 16,525,000
425 SunAmerica Inc..................................... 24,012,500
375 Travelers Group Inc................................ 17,109,375
Van Kampen American Capital Small Capitalization
7,957 Fund (Cost $87,703,537--see Note 2)................ 104,712,541
50 Wells Fargo & Co................................... 11,943,750
--------------
364,016,816
--------------
HEALTH CARE 8.0%
180 Abbott Laboratories................................ 7,830,000
230 American Home Products Corp........................ 13,828,750
*250 Amgen Inc.......................................... 13,500,000
</TABLE>
See Notes to Financial Statements
10
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE (CONTINUED)
300 Astra, AB, Series A, ADR............................ $ 13,125,000
160 Becton Dickinson & Co............................... 12,840,000
290 Bristol Myers Squibb Co............................. 26,100,000
*120 Genzyme Corp........................................ 6,030,000
200 Guidant Corp........................................ 9,850,000
*475 Healthsouth Rehabilitation.......................... 17,100,000
210 Mallinckrodt Group Inc.............................. 8,163,750
240 Merck & Co Inc...................................... 15,510,000
250 Pfizer Inc.......................................... 17,843,750
365 Schering Plough Corp................................ 22,903,750
200 SmithKline Beecham, PLC, ADR........................ 10,875,000
240 Warner Lambert Co................................... 13,200,000
--------------
208,700,000
--------------
PRODUCER MANUFACTURING 8.3%
225 Allied Signal Inc................................... 12,853,125
500 Canadian Pacific Ltd................................ 11,000,000
360 Cooper Industries Inc............................... 14,940,000
525 Corning Inc......................................... 20,146,875
160 Fluor Corp.......................................... 10,460,000
250 General Electric Co................................. 21,625,000
375 Honeywell Inc....................................... 20,437,500
175 Illinois Tool Works Inc............................. 11,834,375
250 Ingersoll Rand Co................................... 10,937,500
*195 ITT Corp............................................ 12,918,750
*250 Litton Industries Inc............................... 10,875,000
145 TRW Inc............................................. 13,031,875
125 United Technologies Corp............................ 14,375,000
*290 USA Waste Services Inc.............................. 8,591,250
725 Westinghouse Electric Corp.......................... 13,593,750
300 WMX Technologies Inc................................ 9,825,000
--------------
217,445,000
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.2%
225 Air Products & Chemicals Inc........................ 12,993,750
100 AK Steel Holding Corp............................... 3,912,500
80 Dow Chemical Co..................................... 6,080,000
105 Kimberly Clark Corp................................. 8,111,250
150 Mead Corp........................................... 7,781,250
525 Morton International Inc............................ 19,556,250
200 Praxair Inc......................................... 8,450,000
105 Raychem Corp........................................ 7,546,875
190 Rohm & Haas Co...................................... 11,922,500
300 Union Carbide Corp.................................. 11,925,000
180 Willamette Industries Inc........................... 10,710,000
--------------
108,989,375
--------------
TECHNOLOGY 15.2%
*180 ADC Telecommunications Inc.......................... 8,100,000
*400 Analog Devices Inc.................................. 10,200,000
*140 Ascend Communications Inc........................... 7,875,000
*125 Aspect Telecommunications Corp...................... 6,187,500
*233 BMC Software Inc.................................... 13,891,875
185 Boeing Co........................................... 16,118,125
</TABLE>
See Notes to Financial Statements
11
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY (CONTINUED)
*385 Cadence Design Systems Inc.......................... $ 12,993,750
*160 Cascade Communications Corp......................... 10,880,000
*480 Cisco Systems Inc................................... 27,180,000
360 Computer Associates International Inc............... 25,650,000
575 Ericsson (L M), Class B, ADR........................ 12,362,500
135 First Data Corp..................................... 10,749,375
*230 General Instrument Corp............................. 6,641,250
100 Hewlett Packard Co.................................. 9,962,500
360 Intel Corp.......................................... 26,437,500
300 Linear Technology Corp.............................. 9,000,000
470 Loral Corp.......................................... 6,403,750
350 Lucent Technologies Inc............................. 13,256,250
*225 McAfee Associates Inc............................... 11,025,000
165 McDonnell Douglas Corp.............................. 8,002,500
*180 Microsoft Corp...................................... 21,622,500
400 Motorola Inc........................................ 25,150,000
*190 Newbridge Networks Corp............................. 12,445,000
*350 Oracle System Corp.................................. 13,803,125
*355 Sun Microsystems Inc................................ 20,900,625
*205 Tellabs Inc......................................... 13,709,375
*140 3Com Corp........................................... 6,405,000
*95 US Robotics Corp.................................... 8,122,500
435 Xerox Corp.......................................... 23,272,500
--------------
398,347,500
--------------
TRANSPORTATION 1.6%
*105 AMR Corp............................................ 9,555,000
450 Canadian National Railway........................... 8,268,750
175 Conrail Inc......................................... 11,615,625
180 Union Pacific Corp.................................. 12,577,500
--------------
42,016,875
--------------
UTILITIES 5.6%
160 DTE Energy Co....................................... 4,940,000
200 Empresa Nacional Electric, SA, ADR.................. 12,525,000
635 Frontier Corp....................................... 19,446,875
*400 LCI International Inc............................... 12,550,000
450 MCI Communications Corp............................. 11,531,250
250 Portugal Telecom, SA, ADR........................... 6,562,500
*131 PT Telekomuniskasi, ADR............................. 3,897,250
*330 PT Pasifik Satelite, ADR............................ 6,600,000
295 Sprint Corp......................................... 12,390,000
295 Telefonica de Espana, SA, ADR....................... 16,261,875
320 Texas Utilities Co.................................. 13,680,000
*450 WorldCom Inc........................................ 24,918,750
--------------
145,303,500
--------------
TOTAL COMMON STOCKS (Cost $2,076,596,361)........... 2,395,247,566
--------------
</TABLE>
See Notes to Financial Statements
12
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT
OBLIGATIONS 3.4%
$ **40,000 United States Treasury Bonds.... 8.750% 05/15/17 $ 47,381,200
40,000 United States Treasury Notes.... 6.375 07/15/99 40,081,200
--------------
TOTAL UNITED STATES GOVERNMENT
OBLIGATIONS (Cost $86,726,563).. 87,462,400
--------------
SHORT-TERM INVESTMENTS 4.9%
REPURCHASE AGREEMENTS+ 4.2%
57,595 BA Securities, repurchase
proceeds $57,621,158............ 5.450 07/01/96 57,595,000
4,445 Lehman Government Securities,
repurchase proceeds $4,446,982.. 5.350 07/01/96 4,445,000
46,855 SBC Capital Markets, Inc.
repurchase proceeds $46,876,163. 5.420 07/01/96 46,855,000
--------------
108,895,000
--------------
UNITED STATES AGENCIES AND
GOVERNMENT OBLIGATIONS 0.7%
**3,720 Federal Home Loan Banks......... 5.250 12/19/96 3,624,173
5,000 Tennessee Valley Authority...... 5.335 08/20/96 4,962,529
**5,000 Treasury Bills.................. 5.044 07/25/96 4,982,708
**5,000 Treasury Bills.................. 5.130 07/11/96 4,992,361
--------------
18,561,771
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost
$127,456,978).................................... 127,456,771
--------------
TOTAL INVESTMENTS (Cost $2,290,779,902) 100.0%............... 2,610,166,737
OTHER ASSETS AND LIABILITIES, NET 0.0%....................... 744,992
--------------
NET ASSETS 100%.............................................. $2,610,911,729
--------------
</TABLE>
*Non-income producing security
**Securities with a market value of $59.2 million were placed as collateral for
futures contracts (see Note 1B)
+Dated 6/28/96, collateralized by U.S. Government Obligations in a pooled cash
account
See Notes to Financial Statements
13
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $2,290,779,902).............. $2,610,166,737
Cash............................................................ 1,073
Receivable for investments sold................................. 59,241,747
Receivable for Fund shares sold................................. 10,607,115
Dividends and interest receivable............................... 4,601,095
Other assets and receivables.................................... 128,931
--------------
Total Assets................................................... 2,684,746,698
--------------
LIABILITIES
Payable for investments purchased............................... 65,278,153
Payable for Fund shares redeemed................................ 5,778,302
Due to Adviser.................................................. 995,206
Due to Distributor.............................................. 768,024
Due to shareholder service agent................................ 452,512
Deferred trustees' compensation................................. 184,155
Due to broker-variation margin.................................. 3,500
Accrued expenses and liabilities................................ 375,117
--------------
Total Liabilities.............................................. 73,834,969
--------------
NET ASSETS, equivalent to $11.92 per share for Class A, $11.81
per share for Class B, and $11.83 per share for Class C shares. $2,610,911,729
--------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 212,622,907 Class A,
6,103,794 Class B, and 377,788 Class C shares outstanding...... $ 2,191,045
Capital surplus................................................. 2,076,215,544
Undistributed net realized gain on securities................... 200,704,405
Net unrealized appreciation of securities
Investments.................................................... 319,386,835
Futures contracts.............................................. 598,102
Undistributed net investment income............................. 11,815,798
--------------
NET ASSETS...................................................... $2,610,911,729
--------------
</TABLE>
14
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
Year Ended June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends ($4,179,133 from an affiliate--see Note 2)............. $ 41,112,554
Interest......................................................... 8,213,613
------------
Investment income............................................... 49,326,167
------------
EXPENSES
Management fees.................................................. 11,589,844
Shareholder service agent's fees and expenses.................... 5,347,809
Accounting services.............................................. 351,270
Service fees--Class A............................................ 5,084,251
Distribution and service fees--Class B........................... 604,923
Distribution and service fees--Class C........................... 29,833
Trustees' fees and expenses...................................... 92,559
Audit fees....................................................... 55,163
Custodian fees................................................... 98,156
Legal fees....................................................... 14,487
Reports to shareholders.......................................... 410,793
Registration and filing fees..................................... 186,146
Insurance expense................................................ 30,905
Miscellaneous.................................................... 305,096
Retirement plan expense reimbursement (see Note 4)............... (7,500)
------------
Total expenses.................................................. 24,193,735
------------
NET INVESTMENT INCOME............................................ 25,132,432
------------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities
Investments..................................................... 379,086,590
Futures contracts............................................... 9,314,867
Options......................................................... 82,678
Net unrealized appreciation of securities during the period
Investments..................................................... 51,120,615
Futures contracts............................................... 598,102
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES................... 440,202,852
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $465,335,284
------------
</TABLE>
15
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period............... $2,334,574,828 $2,189,514,914
-------------- --------------
OPERATIONS
Net investment income......................... 25,132,432 26,893,772
Net realized gain on securities............... 388,484,135 230,051,826
Net unrealized appreciation of securities
during the period............................. 51,718,717 160,102,867
-------------- --------------
Increase in net assets resulting from
operations................................... 465,335,284 417,048,465
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A...................................... (28,239,265) (22,916,396)
Class B...................................... (222,479) (141,014)
Class C...................................... (9,253) (5,920)
-------------- --------------
(28,470,997) (23,063,330)
-------------- --------------
Net realized gain on securities
Class A...................................... (331,334,720) (242,510,817)
Class B...................................... (7,831,468) (5,629,695)
Class C...................................... (325,710) (236,324)
-------------- --------------
(339,491,898) (248,376,836)
-------------- --------------
Total distributions.......................... (367,962,895) (271,440,166)
-------------- --------------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A...................................... 1,289,182,633 800,964,139
Class B...................................... 270,611,054 152,874,778
Class C...................................... 47,285,828 14,211,717
-------------- --------------
1,607,079,515 968,050,634
-------------- --------------
Proceeds from shares issued for distributions
reinvested
Class A...................................... 332,438,649 242,657,855
Class B...................................... 7,437,204 4,892,097
Class C...................................... 294,778 176,726
-------------- --------------
340,170,631 247,726,678
-------------- --------------
Cost of shares redeemed
Class A...................................... (1,461,520,981) (1,059,520,324)
Class B...................................... (261,183,146) (143,264,491)
Class C...................................... (45,581,507) (13,540,882)
-------------- --------------
(1,768,285,634) (1,216,325,697)
-------------- --------------
Increase (decrease) in net assets resulting
from capital transactions.................... 178,964,512 (548,385)
-------------- --------------
INCREASE IN NET ASSETS........................ 276,336,901 145,059,914
-------------- --------------
NET ASSETS, end of period (including
undistributed net investment income of
$11,815,798 and $15,141,317, respectively)... $2,610,911,729 $2,334,574,828
-------------- --------------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
Year Ended June 30
--------------------------------------------------
1996(/1/) 1995(/1/) 1994 1993 1992
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period....................... $11.62 $11.05 $12.95 $13.21 $12.37
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Investment income........... .23 .25 .26 .305 .335
Expenses.................... (.11) (.11) (.13) (.14) (.14)
-------- -------- -------- -------- --------
Net investment income........ .12 .14 .13 .165 .195
Net realized and unrealized
gain (loss) on securities... 2.09 1.85 (.1475) 1.69 1.095
-------- -------- -------- -------- --------
Total from investment
operations................... 2.21 1.99 (.0175) 1.855 1.29
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income....... (.15) (.1225) (.135) (.145) (.2375)
Net realized gain on
securities.................. (1.76) (1.2975) (1.7475) (1.97) (.2125)
-------- -------- -------- -------- --------
Total distributions.......... (1.91) (1.42) (1.8825) (2.115) (.45)
-------- -------- -------- -------- --------
Net asset value, end of
period....................... $11.92 $11.62 $11.05 $12.95 $13.21
-------- -------- -------- -------- --------
TOTAL RETURN(/2/)............ 20.48% 20.62% (.64%) 15.20% 10.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)................... $2,534.3 $2,279.4 $2,152.5 $2,446.2 $2,350.2
Average net assets
(millions)................... $2,459.0 $2,146.7 $2,378.3 $2,409.9 $2,456.5
Ratios to average net
assets(/3/)
Expenses.................... .94% 1.04% 1.02% 1.06% 1.00%
Expenses, without expense
reimbursement............... .94% -- -- -- --
Net investment income....... 1.02% 1.24% .99% 1.22% 1.38%
Net investment income,
without expense
reimbursement............... 1.02% -- -- -- --
Portfolio turnover rate...... 213% 248% 112% 113% 54%
Average commission rate per
equity stock traded.......... $0.055 -- -- -- --
</TABLE>
(1) Based on average shares outstanding.
(2) Total return does not consider the effect of sales charges.
(3) See Note 4.
See Notes to Financial Statements
17
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B(/2/)
----------------------------------------------
January 10,
1992(/1/)
Year Ended June 30 through
--------------------------------- June 30,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.......................... $11.53 $10.96 $12.86 $13.13 $13.87
------ ------- ------- ------- ------
INCOME FROM OPERATIONS
Investment income.............. .23 .25 .25 .29 .15
Expenses....................... (.21) (.20) (.22) (.26) (.10)
------ ------- ------- ------- ------
Net investment income........... .02 .05 .03 .03 .05
Net realized and unrealized gain
(loss) on securities............ 2.07 1.85 (.1575) 1.705 (.79)
------ ------- ------- ------- ------
Total from investment
operations...................... 2.09 1.90 (.1275) 1.735 (.74)
------ ------- ------- ------- ------
LESS DISTRIBUTIONS FROM
Net investment income.......... (.05) (.0325) (.025) (.035) --
Net realized gain on
securities..................... (1.76) (1.2975) (1.7475) (1.97) --
------ ------- ------- ------- ------
Total distributions............. (1.81) (1.33) (1.7725) (2.005) --
------ ------- ------- ------- ------
Net asset value, end of period.. $11.81 $11.53 $10.96 $12.86 $13.13
------ ------- ------- ------- ------
TOTAL RETURN(/3/)............... 19.44% 19.73% (1.46%) 12.84% (5.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)...................... $72.1 $53.0 $35.8 $27.7 $11.7
Average net assets (millions)... $60.5 $41.9 $31.5 $16.8 $3.9
Ratios to average net assets
(annualized)(/4/)
Expenses....................... 1.75% 1.84% 1.79% 1.98% 1.82%
Expenses, without expense
reimbursement.................. 1.75% -- -- -- --
Net investment income.......... .21% .44% .21% .25% .56%
Net investment income, without
expense reimbursement.......... .21% -- -- -- --
Portfolio turnover rate......... 213% 248% 112% 113% 54%
Average commission rate per
equity stock traded............. $0.055 -- -- -- --
</TABLE>
(1)Commencement of offering of sales.
(2)Based on average shares outstanding.
(3)Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(4)See Note 4.
See Notes to Financial Statements
18
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C(/2/)
---------------------------
August 27,
Year Ended 1993(/1/)
June 30 through
--------------- June 30,
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............. $11.52 $10.99 $13.25
------ ------- -------
INCOME FROM OPERATIONS
Investment income................................ .23 .25 .17
Expenses......................................... (.21) (.20) (.15)
------ ------- -------
Net investment income............................. .02 .05 .02
Net realized and unrealized gain (loss) on
securities........................................ 2.10 1.81 (.4375)
------ ------- -------
Total from investment operations.................. 2.12 1.86 (.4175)
------ ------- -------
LESS DISTRIBUTIONS FROM
Net investment income............................ (.05) (.0325) (.095)
Net realized gain on securities.................. (1.76) (1.2975) (1.7475)
------ ------- -------
Total distributions............................... (1.81) (1.33) (1.8425)
------ ------- -------
Net asset value, end of period.................... $11.83 $11.52 $10.99
------ ------- -------
TOTAL RETURN(/3/)................................. 19.74% 19.27% (3.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............. $4.5 $2.2 $1.2
Average net assets (millions)..................... $3.0 $1.8 $0.7
Ratios to average net assets (annualized)(/4/)
Expenses......................................... 1.75% 1.84% 1.81%
Expenses, without expense reimbursement.......... 1.75% -- --
Net investment income............................ .15% .44% .24%
Net investment income, without expense
reimbursement.................................... .15% -- --
Portfolio turnover rate........................... 213% 248% 112%
Average commission rate per equity stock traded... $0.055 -- --
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average shares outstanding.
(3) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(4) See Note 4.
See Notes to Financial Statements
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Pace Fund (the "Fund", formerly American Capital
Pace Fund, Inc.) is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management investment company. The Fund
seeks growth of capital by investing principally in common stocks.
The following is a summary of significant accounting policies consistently fol-
lowed by the Fund in the preparation of its financial statements. The prepara-
tion of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported. Actual amounts may differ from the estimates.
A. INVESTMENT VALUATIONS--Securities, including options, listed or traded on a
national securities exchange or NASDAQ, are valued at the last sale price. Un-
listed securities and listed securities for which the last sale price is not
available are valued at the most recent bid price. Options are valued at the
last sale price or, if no sales are reported, at the mean between the 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. OPTIONS AND FUTURES CONTRACTS--General--Transactions in options and futures
contracts are utilized in strategies to manage the market risk of the Fund's
investments. The purchase of a futures contract or call option (or the writing
of a put option) 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.
Call and Put Options--The Fund may write covered call options and collateral-
ized put options. Options written on futures contracts require initial margin
deposits. Options purchased are recorded as investments; options written (sold)
are accounted for as liabilities. When an option expires, the premium (original
option value) is realized as a gain if the option was written or realized as a
loss if the option was purchased. When the exercise of an option results in a
cash settlement, the difference between the premium and the settlement proceeds
is realized as a gain or loss. When securities are acquired or delivered upon
exercise of an option, the acquisition cost or sale proceeds are adjusted by
the amount of the premium. When an option is closed, the difference between the
premium and the cost to close the position is realized as a gain or loss.
Futures Contracts--Upon entering into futures contracts, the Fund maintains, in
a segregated account with its custodian, securities with a value equal to its
obligation under the futures contracts. A portion of these funds are held as
collateral in an account in the name of the broker, the Fund's agent in acquir-
ing the futures position. During the period the futures contract is open,
changes in the value of the contract ("variation margin") are recognized by
marking the contracts to market on a daily basis. As unrealized gains or losses
are incurred, variation margin payments are received from or made to the bro-
ker. Upon the closing or cash settlement of a contract, gains or losses are re-
alized. The cost of securities acquired through delivery under a contract is
adjusted by the unrealized gain or loss on the contract.
C. REPURCHASE AGREEMENTS--A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may 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 will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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.
E. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--Investment transac-
tions are accounted for on the trade date. Realized gains and losses on invest-
ments 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 differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.
G. DEBT DISCOUNT AND PREMIUM--The Fund accounts for discounts and premiums on
the same basis as is used for federal income tax reporting. Accordingly, origi-
nal issue discounts on debt securities purchased are amortized over the life of
the security. Premiums on debt securities are not amortized. Market discounts
are recognized at the time of sale as realized gains for book purposes and as
ordinary income for tax purposes.
NOTE 2-MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate of
.50% of the first $1 billion, .45% of the next $1 billion, .40% of the next $1
billion, and .35% of the amount in excess of $3 billion.
Accounting services include the salaries and overhead expenses of the Fund's
Chief Accounting Officer and the personnel operating under his direction.
Charges are allocated among investment companies advised by the Adviser. For
the period, these charges included $26,983 as the Fund's share of the employee
costs attributable to the Fund's accounting officers. A portion of the account-
ing services expense was paid to the Adviser in reimbursement of personnel, fa-
cilities 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, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, the fees for such services were $4,762,121.
The Fund has been advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor") and Advantage Capital Corporation (the "Retail Dealer"),
both affiliates of the Adviser, received $789,307 and $46,686, respectively, as
their portion of the commissions charged on sales of Fund shares during the pe-
riod. As of January 2, 1996, the Retail Dealer was no longer an affiliate of
the Adviser.
Under the Distribution Plans, each class of shares pays up to .25% per annum of
its average net assets to reimburse the Distributor for expenses and service
fees incurred. Class B and C shares pay an additional fee of up to .75% per an-
num of their average net assets to reimburse the Distributor for its distribu-
tion expenses. Actual distribution expenses incurred by the Distributor for
Class B and C shares may exceed the amounts reimbursed to the Distributor by
the Fund. At the end of the period, the unreimbursed expenses incurred by the
Distributor under the Class B and C plans aggregated approximately $2.1 million
and $7,700, respectively, and may be carried forward and reimbursed through ei-
ther the collection of the contingent deferred sales charges from share repur-
chases or, subject to the annual renewal of the plans, future Fund
reimbursements of distribution fees.
Legal fees during the period were for services rendered by former counsel of
the Fund, O'Melveny & Myers. A former trustee was of counsel to that firm.
At the end of the period, certain officers and trustees of the Fund are offi-
cers and trustees of the Adviser, the Distributor, and the shareholder service
agent.
At the end of the period, the Fund owned approximately 47% of the Van Kampen
American Capital Small Capitalization Fund ("Small Cap"), an investment company
managed by the Adviser. Small Cap comprised approximately 4%
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
of the fund's total net assets. During the period, the Fund purchased and sold
shares of Small Cap. Cost of additional purchases aggregated $82,500,000 and
the proceeds from the sale were $38,768,477, resulting in a net realized loss
to the Fund of $1,269,049.
NOTE 3-INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $5,036,880,688 and
$5,226,210,286.
For federal income tax purposes, the identified cost of investments owned at
the end of the period was $2,297,214,688. Net unrealized appreciation of in-
vestments aggregated $312,952,049, gross unrealized appreciation of investments
aggregated $345,825,774 and gross unrealized depreciation of investments aggre-
gated $32,873,725.
At the end of the period, the Fund held the following long futures:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF MARKET APPRECIATION
CONTRACTS DESCRIPTION VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
250 Simex Nikkei 225 Index (Japan),
expiring 09/96................... $25,727,082 $601,602
80 Standard & Poor's 500 Index,
expiring 09/96................... 27,072,000 (3,500)
----------- --------
$52,799,082 $598,102
----------- --------
</TABLE>
During the period, the Fund had the following option activity:
OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
- --------------------------------------------------------------------------------
<S> <C> <C>
Beginning of the period balance............................ 0 $ 0
Written.................................................... 440 82,678
Expired.................................................... (440) (82,678)
---- --------
End of the period balance.................................. 0 $ 0
---- --------
</TABLE>
NOTE 4-TRUSTEE COMPENSATION
Fund trustees who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $3,605 plus a fee of $206 per day for Board and Com-
mittee meetings attended. During the period, such fees aggregated $77,776.
The Fund has a deferred compensation plan and a defined benefits retirement
plan for its trustees not affiliated with the Adviser. These plans are not
funded, and obligations under the plans 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 plans by any form of trust or escrow.
Under the deferred compensation plan, trustees may elect to defer all or a por-
tion of their compensation to a later date. Each trustee covered under the plan
elects to earn on the deferred balances an amount equal to the total return of
the Fund or equal to the income earned by the Fund on its short-term invest-
ments.
Under the retirement plan which became effective in January 1996, benefits
which are based on years of service will be received by the trustee for a ten-
year period. The maximum annual benefit for each trustee is $2,500. Retirement
plan expenses for the period aggregated $7,500. During the calendar year 1996,
the Adviser has agreed to reimburse the Fund for these plan expenses.
22
<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
(Class A) or at the time of redemption on a contingent deferred basis (Class B
and C). All classes of shares have the same rights, except that Class B and C
shares bear the cost of distribution fees and certain other class specific ex-
penses. Realized and unrealized gains or losses, investment income, and ex-
penses (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 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 JUNE 30
--------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A............................................ 107,853,497 73,542,303
Class B............................................ 22,765,160 14,291,211
Class C............................................ 3,991,112 1,350,739
------------ ------------
134,609,769 89,184,253
------------ ------------
Shares issued for distributions reinvested
Class A............................................ 30,359,648 25,119,379
Class B............................................ 682,294 507,973
Class C............................................ 27,055 18,312
------------ ------------
31,068,997 25,645,664
------------ ------------
Shares redeemed
Class A............................................ (121,801,653) (97,327,563)
Class B............................................ (21,936,339) (13,469,993)
Class C............................................ (3,834,141) (1,284,346)
------------ ------------
(147,572,133) (112,081,902)
------------ ------------
Increase in shares outstanding..................... 18,106,633 2,748,015
------------ ------------
</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 31,
1995, the reorganization became effective.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL PACE 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 material respects, the financial position of Van Kampen
American Capital Pace Fund (the "Fund") at June 30, 1996, and the results of
its operations, the changes in its net assets and the financial highlights for
each of the fiscal periods presented, in conformity with generally accepted
accounting principles. These financial 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 perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at June 30, 1996 by
correspondence with the custodian and the application of alternative
procedures where confirmations were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
August 2, 1996
24
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PACE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL
DONALD C. MILLER*
JACK E. NELSON
DON G. POWELL
JEROME L. ROBINSON
FERNANDO SISTO*
WAYNE W. WHALEN
WILLIAM S. WOODSIDE
*Co-Chairman of the Board
OFFICERS
DON G. POWELL
President and Chief Executive Officer
DENNIS J. MCDONNELL
Executive Vice 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
WILLIAM N. BROWN
PETER W. HEGEL
ROBERT C. PECK, JR.
ALAN T. SACHTLEBEN
PAUL R. WOLKENBERG
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1201 Louisiana
Houston, Texas 77002
(C)Van Kampen American Capital
Distributors, Inc., 1996
All rights reserved.
SMdenotes 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. If used for distribution to
prospective investors after 9/30/96, this annual report must be accompanied by
a Van Kampen American Capital Pace Fund performance data update for the most
recent quarter.
25
