<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Highlights........................ 4
Portfolio Management Review................. 5
Portfolio of Investments.................... 8
Statement of Assets and Liabilities......... 17
Statement of Operations..................... 18
Statement of Changes in Net Assets.......... 19
Financial Highlights........................ 20
Notes to Financial Statements............... 23
</TABLE>
PACE SAR 2/97
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
January 31, 1997
Dear Shareholder,
We are pleased to report that the Van Kampen American Capital Pace Fund has
continued to generate solid investment performance. As noted in earlier re-
ports, VK/AC Holding Inc., the parent company of Van Kampen American Capital,
Inc., was acquired by Morgan Stanley Group Inc., a world leader in asset
management and investment banking. The transaction was completed in October,
and we are excited about the opportunities it creates for investors. As part
of the acquisition, Van Kampen American Capital became the distributor of Mor-
gan Stanley retail funds on January 2, 1997.
ECONOMIC REVIEW
The U.S. economy experienced moderate growth and low inflation during the
reporting period. At the beginning of 1996, economists were concerned that the
tepid economic pace of late 1995 might continue, possibly leading to a reces-
sion by year end. That assumption soon came into question, however, when non-
farm payrolls increased by a stunning 705,000 in February, the biggest one-
month jump in 13 years. Then, a larger-than-expected 4.7 percent rate in real
GDP (the nation's gross domestic product, adjusted for inflation) during the
second quarter confirmed that the economy was back in a strong-growth mode. By
summer, the earlier talk of recession and rate cuts had changed to concerns
about economic overheating and the possibility of interest rate hikes.
Despite mounting evidence of inflation, the Federal Reserve held to a stable
monetary policy, believing the supply-and-demand imbalances in the commodity
markets were temporary and that burdensome consumer debt loads would eventu-
ally slow the economy without the need for higher interest rates. Events dur-
ing the second half of 1996 proved the wisdom of Federal Reserve policy; real
GDP growth moderated to 2.0 percent in the third quarter while commodity
prices receded. For the year, core producer prices rose by 0.6 percent, the
second-lowest annual increase on record. Including the volatile food and en-
ergy sectors, however, prices at the retail level rose by 3.3 percent.
MARKET REVIEW
The combination of steady growth and benign inflation provided the lift for
equity prices to soar still farther into record territory during the past six
months. For the year, the Standard & Poor's 500-Stock Index and the Dow Jones
Industrial Average posted returns of 22.90 percent and 26.01 percent, respec-
tively, following their 37.44 percent and 33.45 percent advance in 1995.
Downside volatility also returned for the first time since the current bull
market began in October 1990. After climbing steadily through the first four
months of 1996,
1
Continued on page two
<PAGE>
stock prices suddenly hit turbulence, with the S&P 500-Stock Industrial Index
falling by about 12 percent between late May and mid-July. The NASDAQ market,
which includes many technology stocks, experienced an even stronger correction.
The sharp drop in stock prices was caused by fears that the Fed would raise
interest rates in response to the stronger-than-expected GDP growth and infla-
tionary warning signals noted earlier. When subsequent data showed those con-
cerns to be overblown, broad-market indices recovered and climbed to a
succession of record highs by year end.
Large-capitalization and growth stocks outperformed their small-cap and value
cousins during 1996, with the financial, technology, and energy sectors turning
in the best returns among industry groups. The most dramatic news was made in
the initial public offering (IPO) market, where volume broke records that were
set the previous year. During the first half of the year, widespread specula-
tion led to overpricing among many IPO issues, especially those from high-tech
industries. Then, after the dust had cleared from the mid-year inflation scare,
sobriety returned to the IPO market and prices became more realistic.
OUTLOOK
We expect a continuation of the moderate growth, low inflation environment
that has characterized the domestic economy in recent years. Steady economic
growth may push corporate profits modestly higher during 1997, while low infla-
tion should allow stocks to maintain current valuation levels. While we do not
anticipate a continuation of the huge gains enjoyed during the last two years,
we believe that further advances in the broad equity market are likely and war-
ranted.
We caution investors to expect bumps along the way. Stock prices have appre-
ciated dramatically during the past six years, and a correction is not outside
the realm of possibility. One trigger for a short-term decline would be a re-
turn of the rapid GDP growth experienced during the first half of 1996, a de-
velopment that might persuade the Fed to raise interest rates. However, our
view is that any such burst of above-trend economic strength would be short-
lived. During the full year, we expect real GDP and inflation numbers will be
to the financial market's liking.
Your Fund's performance during 1996 has dramatically illustrated the benefits
of owning a diversified portfolio of common stocks. While not every year can be
equally profitable, we believe that equities will remain the best-performing
asset class over the long term.
Additional details about your Fund, including a question and answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[LOGO OF DON G. POWELL] [LOGO OF 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 DECEMBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL PACE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV/1/............... 11.96% 11.50% 11.40%
Six-month total return/2/............................ 5.50% 6.50% 10.40%
One-year total return/2/............................. 13.58% 14.50% 18.59%
Five-year average annual total return/2/............. 10.95% N/A N/A
Ten-year average annual total return/2/.............. 11.80% N/A N/A
Life-of-Fund average annual total return/2/.......... 12.61% 11.04% 13.58%
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 shares and 1% for C
shares).
/2/Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.
3
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL PACE FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF AS OF
DECEMBER 31, 1996 JUNE 30, 1996
Philip Morris Companies, Inc......... 3.7% ............. 2.7%
VKAC Small Capitalization Fund....... 3.4% ............. 4.2%
Microsoft Corp....................... 1.6% ............. 0.9%
RJR Nabisco Holdings Corp............ 1.6% ............. N/A
Intel Corporation.................... 1.6% ............. 1.1%
Federal National Mortgage 1.5% ............. 1.1%
Association..........................
WMX Technologies, Inc................ 1.4% ............. 0.1%
International Business Machines 1.3% ............. N/A
Corp.................................
Merck & Co., Inc..................... 1.3% ............. 0.6%
Tele-Communications, Inc., Class A... 1.2% ............. 0.5%
N/A = Not Applicable
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF JUNE 30, 1996
<S> <C> <S> <C>
Finance................ 18% Technology............. 15%
Technology............. 16% Finance................ 14%
Consumer Non-Durables.. 10% Consumer Non-Durables.. 10%
Health Care............ 9% Energy................. 9%
Producer Manufacturing. 7% Producer Manufacturing. 8%
</TABLE>
ASSET ALLOCATION AS A PERCENTAGE OF TOTAL INVESTMENTS
[PIE CHARTS APPEAR HERE]
AS OF DECEMBER 31, 1996
STOCKS ....................... 91%
CASH EQUIVALENTS ............. 9%
AS OF JUNE 30, 1996
STOCKS ....................... 92%
U.S. GOVERNMENT OBLIGATIONS .. 3%
CASH EQUIVALENTS ............. 5%
4
<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 past six months. The team includes Alan T. Sachtleben, chief
investment officer for equity investments, and co-portfolio managers Jeff D.
New, B. Robert Baker, and John Cunniff. The following excerpts reflect their
views on the Fund's performance during the six-month period ended December 31,
1996.
Q WHAT ECONOMIC FACTORS AND SECTORS DROVE THE STOCK MARKET UPWARD OVER THE
PAST SIX MONTHS? HOW WAS THE FUND AFFECTED?
A Stock market averages continued to advance over the past six months,
buoyed by a favorable economic environment. The economy grew at an un-
even but generally moderate pace during the second half of 1996. A sluggish
third quarter was followed by a strong fourth quarter, bolstered by increased
export demand. Corporate earnings were favorable and achieved levels that were
slightly better than what had been expected at the beginning of the period.
This provided support for the ongoing rise in stock prices. The market was
further aided by healthy investment flows into equity mutual funds. In gener-
al, large, well-established companies generated better sales and earnings than
their smaller competitors, and the Fund's emphasis on these companies worked
to its benefit.
Subdued inflation also lifted the securities markets. Despite solid economic
growth and fairly full resource utilization, inflation remained at histori-
cally low levels. This translated into declining bond market yields which, in
turn, supported an upward move in stock valuation levels.
While the economy advanced as a whole, performance was uneven among the var-
ious economic sectors. In particular, earnings among many industrial commodity
companies proved disappointing, but profits were strong in energy, finance,
technology, and a broad range of consumer staple and pharmaceutical companies.
These profit trends were generally reflected in stock price performance, and
the Fund benefited from substantial exposure to many stocks in these sectors.
Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1996?
A The Fund achieved a total return of 11.96 percent/1/ (Class A shares at
net asset value) during the last six months of 1996. By comparison, the
Standard & Poor's 500-Stock Index returned 11.65 percent while the Lipper
Growth Fund Index returned 8.82 percent. The S&P 500-Stock Index reflects the
general performance of the stock market, and the Lipper Growth Fund Index re-
flects the average performance of the largest growth funds. Keep in mind that
these indices are unmanaged statistical composites that do not reflect any
commissions, fees, or sales charges that would be incurred by an investor pur-
chasing the securities or investments they represent. Please refer to the
chart on page three for additional Fund performance results.
5
<PAGE>
Q WHAT FACTORS CONTRIBUTED MOST TO THE FUND'S SUCCESS OVER THE PAST SIX
MONTHS?
A Much of our success was due to the Fund's position in stocks of large
capitalization companies that showed good consistent growth in sales and
earnings. Currently, the outlook for economic growth in 1997 is quite posi-
tive, but this was not the case during the second half of 1996. At that time,
many portfolio managers feared a slowdown in economic growth and corporate
profits, so they focused on companies they believed had the potential to gen-
erate earnings in a sluggish economy. The Fund was well positioned in these
companies during the period and benefited from their performance.
Q WHICH OF THE FUND'S HOLDINGS CONTRIBUTED TO ITS POSITIVE PERFORMANCE
DURING THE REPORTING PERIOD?
A The Fund benefited from strong individual stock performances across a
wide range of economic sectors. However, the biggest impact came from
substantial holdings in technology, financial services, energy, and health
care. In the technology sector, the "Wintel" dynamic duo (Microsoft/Intel) and
IBM added greatly to the Fund's performance. In the finance sector, the Fund
benefited from its holdings in two large banks, BankAmerica (1 percent) and
Chase Manhattan (0.9 percent). PanEnergy (0.6 percent), a major gas pipeline
company, led the way in the Fund's energy sector, and strong performance from
several pharmaceutical companies, including Merck (1.3 percent) and Bristol
Myers Squibb (0.9 percent) also boosted the Fund's performance (percentages
are of total investments as of December 31, 1996). For additional Fund portfo-
lio highlights, please refer to page four.
Q WHAT IS YOUR OUTLOOK FOR THE FUND IN THE NEXT SIX MONTHS?
A As always, general market trends will be the dominant factor in determin-
ing the performance of a broadly diversified stock fund such as the Pace
Fund. We expect a continuation of moderate growth and low inflation, which
have characterized the domestic economy in recent years. Steady economic
growth should push corporate profits modestly higher during 1997 and provide
continued support for stock prices.
However, we view the near term with a mild degree of caution, because we see
1997 as a year of increased risk for the stock market. Valuations are extend-
ed, which suggests that certain events could cause a significant correction in
U.S. stock prices. For example, such a decline might be triggered by a return
of the rapid GDP growth experienced during the first half of 1996, which could
prompt the Fed to raise interest rates.
We believe the Fund's focus on strong companies with good earnings prospects
would hold it in good stead during a market correction. Further, we do not
think the conditions are in place for an extended bear market, and we continue
to hold a positive long-term view of the equity market.
6
<PAGE>
That said, we believe a review of your portfolio's asset mix is especially
appropriate at this time. Stock prices have appreciated substantially over the
last six years and dramatically over the last two. This may have increased
your portfolio's equity exposure well above levels you considered appropriate
a few years ago, possibly calling for some rebalancing of your assets.
[LOGO OF ALAN T. SACHTLEBEN] [LOGO OF B. ROBERT BAKER]
Alan T. Sachtleben B. Robert Baker
Chief Investment Officer Co-Portfolio Manager
Equity Investments
[LOGO OF JEFF D. NEW] [LOGO OF JOHN CUNNIFF]
Jeff D. New John Cunniff
Co-Portfolio Manager Co-Portfolio Manager
7
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 91.7%
CONSUMER DISTRIBUTION 5.7%
Bed Bath & Beyond, Inc. (b)................................ 50,000 $ 1,213
Cardinal Health, Inc....................................... 90,000 5,242
CompUSA, Inc. (b).......................................... 300,000 6,187
Dayton Hudson Corp......................................... 267,800 10,511
Dillard Department Stores, Inc., Class A................... 265,000 8,182
Eckerd Corp. (b)........................................... 67,039 2,145
Federated Department Stores, Inc. (b)...................... 487,000 16,619
Gap, Inc................................................... 150,000 4,519
General Nutrition Cos., Inc. (b)........................... 125,000 2,109
Home Depot, Inc............................................ 45,000 2,256
Kroger Co. (b)............................................. 369,200 17,168
Lear Corp. (b)............................................. 170,600 5,822
Lowe's Cos., Inc........................................... 105,000 3,727
Pier 1 Imports, Inc........................................ 316,200 5,573
Ross Stores, Inc........................................... 100,000 5,000
Safeway, Inc. (b).......................................... 430,000 18,382
Saks Holdings, Inc......................................... 50,000 1,350
Sears Roebuck & Co......................................... 144,000 6,642
TJX Cos., Inc.............................................. 250,000 11,844
Tupperware Corp............................................ 53,000 2,842
U.S. Office Products Co. (b)............................... 125,000 4,266
Wal-Mart Stores, Inc....................................... 450,000 10,294
Woolworth Corp. (b)........................................ 170,000 3,719
----------
155,612
----------
CONSUMER DURABLES 3.1%
Black & Decker Corp........................................ 135,200 4,073
Brunswick Corp............................................. 70,000 1,680
Chrysler Corp.............................................. 589,000 19,437
Cooper Tire & Rubber Co.................................... 160,000 3,160
Dana Corp.................................................. 40,000 1,305
Eastman Kodak Co........................................... 55,000 4,414
Ford Motor Co.............................................. 500,000 15,937
General Motors Corp........................................ 205,000 11,429
Harley Davidson, Inc....................................... 159,000 7,473
Masco Corp................................................. 86,000 3,096
Maytag Corp................................................ 247,000 4,878
Newell Co.................................................. 153,000 4,819
Oakwood Homes Corp......................................... 145,000 3,317
----------
85,018
----------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER NON-DURABLES 9.7%
Adidas--ADS (Germany) (b)................................ 55,000 $ 2,344
American Brands, Inc..................................... 241,000 11,960
Anheuser Busch Cos., Inc................................. 114,500 4,580
Avon Products, Inc....................................... 145,000 8,283
Campbell Soup Co......................................... 35,000 2,809
Coca Cola Co............................................. 385,000 20,261
Colgate Palmolive Co..................................... 58,900 5,434
CPC International, Inc................................... 60,000 4,650
Fila Holdings S.p.A.--ADR (Italy) (b).................... 25,000 1,453
First Brands Corp........................................ 169,800 4,818
Fruit of the Loom, Inc. (b).............................. 40,000 1,515
Gillette Co.............................................. 161,900 12,588
Hershey Foods Corp....................................... 25,000 1,094
Liz Claiborne, Inc....................................... 210,000 8,111
Nabisco Holdings Corp., Class A.......................... 75,000 2,916
Nautica Enterprises, Inc. (b)............................ 125,000 3,156
Nike, Inc., Class B...................................... 115,000 6,871
Pepsico, Inc............................................. 30,000 877
Philip Morris Cos., Inc.................................. 834,000 93,929
Procter & Gamble Co...................................... 97,000 10,427
Quaker Oats Co........................................... 86,000 3,279
RJR Nabisco Holdings Corp................................ 1,178,000 40,052
Tambrands, Inc........................................... 126,500 5,171
Unilever NV--ADR (Netherlands)........................... 58,000 10,164
----------
266,742
----------
CONSUMER SERVICES 6.2%
Boston Chicken, Inc. (b)................................. 140,000 5,022
Clear Channel Communications, Inc. (b)................... 120,000 4,335
Comcast Corp., Class A................................... 260,000 4,631
Cox Communications, Inc., Class A (b).................... 315,200 7,289
Equifax, Inc............................................. 265,000 8,116
Evergreen Media Corp., Class A (b)....................... 100,000 2,500
Gannett, Inc............................................. 74,000 5,541
Gartner Group, Inc., Class A (b)......................... 40,000 1,558
Grupo Televisa SA--GDR (Mexico) (b)...................... 60,000 1,538
Harcourt General, Inc.................................... 240,000 11,070
HFS, Inc. (b)............................................ 80,000 4,780
Hilton Hotels Corp....................................... 150,000 3,919
Host Marriott Corp. (b).................................. 130,000 2,080
International Game Technology............................ 170,000 3,102
</TABLE>
See Notes to Financial Statements
9
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Knight Ridder, Inc....................................... 127,300 $ 4,869
Marriot International, Inc............................... 215,000 11,879
McDonalds Corp........................................... 30,000 1,358
Omnicom Group............................................ 170,000 7,777
Reuters Holdings PLC--ADR (United Kingdom)............... 25,000 1,912
Scripps Co. (EW), Class A................................ 55,000 1,925
Service Corp. International.............................. 538,100 15,067
Tele-Communications, Inc., Class A (b)................... 2,323,700 30,353
Time Warner, Inc......................................... 672,700 25,226
Tribune Co............................................... 10,000 789
Walt Disney Co........................................... 47,000 3,272
----------
169,908
----------
ENERGY 5.2%
Amerada Hess Corp........................................ 167,000 9,665
Amoco Corp............................................... 67,900 5,466
Apache Corp.............................................. 140,700 4,977
Atlantic Richfield Co.................................... 51,000 6,757
Baker Hughes, Inc........................................ 104,800 3,616
British Petroleum PLC--ADR (United Kingdom).............. 28,900 4,086
Coastal Corp............................................. 92,800 4,536
Coflexip SA--ADR (France) (b)............................ 150,000 3,937
J. Ray McDermott SA (b).................................. 253,000 5,566
Occidental Petroleum Corp................................ 172,000 4,020
PanEnergy Corp........................................... 331,000 14,895
Phillips Petroleum Co.................................... 190,000 8,407
Repsol SA--ADR (Spain)................................... 216,600 8,258
Seagull Energy Corp. (b)................................. 213,000 4,686
Smith International, Inc. (b)............................ 50,000 2,244
Sonat, Inc............................................... 20,800 1,071
Texaco, Inc.............................................. 130,000 12,756
Total SA--ADR (France)................................... 93,000 3,743
Transocean Offshore, Inc................................. 60,000 3,758
Unocal Corp.............................................. 162,600 6,606
USX Marathon Group....................................... 255,000 6,088
Williams Cos., Inc....................................... 236,850 8,882
YPF Sociedad Anonima, Class D--ADR (Argentina)........... 384,100 9,699
----------
143,719
----------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 18.1%
Aames Financial Corp..................................... 120,000 $ 4,305
Ace Ltd.................................................. 10,000 601
Aetna, Inc............................................... 230,000 18,400
Allstate Corp............................................ 84,000 4,862
AMBAC, Inc............................................... 94,000 6,239
American Bankers Insurance Group, Inc.................... 222,600 11,380
American International Group, Inc........................ 20,000 2,165
Bank of Boston Corp...................................... 200,000 12,850
BankAmerica Corp......................................... 246,400 24,578
Bankers Trust New York Corp.............................. 77,000 6,641
Bear Stearns Cos., Inc................................... 375,000 10,453
Charles Schwab Corp...................................... 100,000 3,200
Chase Manhattan Corp..................................... 265,600 23,705
CIGNA Corp............................................... 84,400 11,531
Citicorp................................................. 95,000 9,785
CMAC Investment Corp..................................... 204,000 7,497
Comerica, Inc............................................ 50,000 2,619
Conseco, Inc............................................. 364,000 23,205
Corestates Financial Corp................................ 87,000 4,513
Everest Reinsurance Holdings, Inc........................ 180,000 5,175
Federal National Mortgage Association.................... 1,000,000 37,250
First Bank System, Inc................................... 143,000 9,760
First Union Corp......................................... 80,000 5,920
First USA, Inc........................................... 113,000 3,913
Great Western Financial Corp............................. 112,800 3,271
Green Tree Financial Corp................................ 300,000 11,588
GreenPoint Financial Corp................................ 75,000 3,544
J.P. Morgan & Co., Inc................................... 84,000 8,201
Lehman Brothers Holdings, Inc............................ 126,000 3,953
MBIA, Inc................................................ 105,000 10,631
Merrill Lynch & Co., Inc................................. 222,500 18,134
MGIC Investment Corp..................................... 153,700 11,681
Money Store, Inc......................................... 200,000 5,525
NationsBank Corp......................................... 60,000 5,865
PNC Bank Corp............................................ 74,000 2,784
Southtrust Corp.......................................... 45,000 1,569
Student Loan Marketing Association....................... 110,000 10,244
SunAmerica, Inc.......................................... 409,900 18,189
Travelers Group, Inc..................................... 538,867 24,451
</TABLE>
See Notes to Financial Statements
11
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Van Kampen American Capital Foreign Securities Fund...... 1,938,966 $ 20,185
Van Kampen American Capital Small Capitalization Fund.... 6,445,189 86,559
----------
496,921
----------
HEALTHCARE 8.8%
Abbott Laboratories...................................... 138,900 7,049
American Home Products Corp.............................. 341,100 19,997
Amgen, Inc. (b).......................................... 235,000 12,778
Becton Dickinson & Co.................................... 6,900 299
Bristol Myers Squibb Co.................................. 198,400 21,576
Columbia / HCA Healthcare Corp........................... 225,000 9,169
Guidant Corp............................................. 63,600 3,625
Health Management Association, Inc., Class A (b)......... 175,000 3,938
Healthsouth Corp. (b).................................... 305,000 11,781
Johnson & Johnson........................................ 450,000 22,388
Lincare Holdings, Inc. (b)............................... 242,000 9,922
Mallinckrodt, Inc........................................ 362,000 15,973
Medtronic, Inc........................................... 85,000 5,780
Merck & Co., Inc......................................... 410,000 32,492
Pfizer, Inc.............................................. 245,000 20,304
Renal Treatment Centers, Inc. (b)........................ 50,000 1,275
Schering Plough Corp..................................... 240,000 15,540
SmithKline Beecham PLC--ADR (United Kingdom)............. 115,000 7,820
Universal Health Services, Inc., Class B (b)............. 50,000 1,431
Warner Lambert Co........................................ 209,200 15,690
Watsons Pharmaceuticals, Inc. (b)........................ 55,000 2,472
Wellpoint Health Networks, Inc., Class A................. 20,500 705
----------
242,004
----------
PRODUCER MANUFACTURING 7.2%
Allied Signal, Inc....................................... 210,000 14,070
Bouygues Offshore SA--ADR (France) (b)................... 401,000 5,163
Browning Ferris Industries, Inc.......................... 354,000 9,292
Canadian Pacific Ltd..................................... 135,000 3,578
Caterpillar, Inc......................................... 97,000 7,299
Cooper Industries, Inc................................... 77,800 3,277
Corning, Inc............................................. 64,500 2,983
Deere & Co............................................... 170,000 6,906
Dover Corp............................................... 200,000 10,050
Fluor Corp............................................... 68,000 4,267
General Electric Co...................................... 187,900 18,579
Hanson PLC--ADR (United Kingdom) (b)..................... 250,000 1,688
</TABLE>
See Notes to Financial Statements
12
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
Honeywell, Inc........................................... 67,500 $ 4,438
Illinois Tool Works, Inc................................. 70,000 5,591
Ingersoll Rand Co........................................ 258,600 11,508
Johnson Controls, Inc.................................... 25,000 2,072
LucasVarity PLC--ADR (United Kingdom) (b)................ 120,000 4,560
Minnesota Mining & Manufacturing Co...................... 15,000 1,243
Rockwell International Corp.............................. 46,000 2,800
Stewart & Stevenson Services, Inc........................ 125,000 3,641
Textron, Inc............................................. 50,000 4,713
TRW, Inc................................................. 70,000 3,465
Tyco International, Ltd.................................. 125,000 6,609
United Technologies Corp................................. 200,000 13,200
United Waste Systems, Inc. (b)........................... 210,000 7,219
USA Waste Services, Inc. (b)............................. 125,000 3,984
WMX Technologies, Inc.................................... 1,120,000 36,540
----------
198,735
----------
RAW MATERIALS/PROCESSING INDUSTRIES 4.9%
Air Products & Chemicals, Inc............................ 181,100 12,519
Bethlehem Steel Corp. (b)................................ 1,233,000 11,097
Boise Cascade Corp....................................... 510,000 16,192
British Steel PLC--ADR (United Kingdom).................. 100,000 2,750
Cytec Industries, Inc. (b)............................... 90,000 3,656
Dow Chemical Co.......................................... 85,000 6,662
Du Pont (E. I.) De Nemours Co............................ 45,000 4,247
Exxon Corp............................................... 75,000 7,350
International Paper Co................................... 105,600 4,264
LTV Corp................................................. 425,500 5,053
Lyondell Petrochemical Co................................ 174,000 3,828
Mead Corp................................................ 123,000 7,149
Morton International, Inc................................ 98,500 4,014
Phelps Dodge Corp........................................ 42,000 2,835
PPG Industries, Inc...................................... 10,000 561
Praxair, Inc............................................. 300,000 13,837
Raychem Corp............................................. 123,800 9,919
Stone Container Corp..................................... 180,000 2,678
Union Carbide Corp....................................... 130,000 5,314
USX U.S. Steel Group, Inc................................ 60,000 1,883
Weyerhaeuser Co.......................................... 100,000 4,737
Willamette Industries, Inc............................... 57,000 3,969
----------
134,514
----------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 15.7%
3Com Corp. (b)............................................ 190,000 $ 13,941
ADC Telecommunications, Inc. (b).......................... 210,000 6,536
Alcatel Alsthom Compagnie Generale d' Electricite--ADR
(France) (b).............................................. 50,000 800
Altera Corp. (b).......................................... 105,000 7,632
Analog Devices, Inc. (b).................................. 75,000 2,541
Applied Materials, Inc. (b)............................... 135,000 4,852
Ascend Communications, Inc. (b)........................... 125,000 7,766
Atmel Corp. (b)........................................... 155,000 5,134
Avnet, Inc................................................ 85,000 4,951
BMC Industries, Inc....................................... 20,000 630
BMC Software, Inc. (b).................................... 487,800 20,183
Boeing Co................................................. 175,000 18,616
Cadence Design Systems, Inc. (b).......................... 181,300 7,207
Cascade Communications Corp. (b).......................... 45,000 2,481
Cisco Systems, Inc. (b)................................... 422,900 26,907
Compaq Computer Corp. (b)................................. 127,800 9,489
Computer Associates International, Inc.................... 395,000 19,651
Compuware Corp. (b)....................................... 50,000 2,506
Dell Computer Corp. (b)................................... 95,000 5,047
EMC Corp. (b)............................................. 90,000 2,981
Ericsson L M Telephone Co., Class B--ADR (Sweden)......... 319,000 9,630
First Data Corp........................................... 20,000 730
Gateway 2000, Inc. (b).................................... 87,000 4,660
General Dynamics Corp..................................... 55,000 3,877
Harris Corp............................................... 45,000 3,088
Hewlett Packard Co........................................ 160,000 8,040
Intel Corp................................................ 304,000 39,805
International Business Machines Corp...................... 225,000 33,975
Linear Technology Corp.................................... 85,000 3,729
Lockheed Martin Corp...................................... 47,000 4,300
Lucent Technologies, Inc.................................. 250,200 11,572
McAfee Associates, Inc. (b)............................... 85,000 3,740
McDonnell Douglas Corp.................................... 50,000 3,200
Microsoft Corp. (b)....................................... 490,000 40,486
Molex, Inc................................................ 30,000 1,174
Motorola, Inc............................................. 40,000 2,455
Nokia Corp.--ADR (Finland)................................ 147,500 8,500
Northrop Corp............................................. 45,000 3,724
Oracle Systems Corp. (b).................................. 150,400 6,279
</TABLE>
See Notes to Financial Statements
14
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
PairGain Technologies, Inc. (b)............................ 120,000 $ 3,652
Parametric Technology Corp. (b)............................ 30,000 1,541
Pitney Bowes, Inc.......................................... 67,000 3,651
Raytheon Co................................................ 25,000 1,203
SCI Systems, Inc. (b)...................................... 175,000 7,809
Shiva Corp. (b)............................................ 70,000 2,441
Sun Microsystems, Inc. (b)................................. 545,000 14,000
SunGuard Data Systems, Inc. (b)............................ 132,100 5,218
Tellabs, Inc. (b).......................................... 265,000 9,971
Texas Instruments, Inc..................................... 50,000 3,188
U. S. Robotics Corp. (b)................................... 62,000 4,464
Wind River Systems, Inc. (b)............................... 60,000 2,843
Xerox Corp................................................. 106,600 5,610
Xilinx, Inc. (b)........................................... 55,000 2,025
----------
430,431
----------
TRANSPORTATION 0.5%
British Airways PLC--ADR (United Kingdom).................. 15,000 1,541
Canadian National Railway Co. (b).......................... 185,000 7,030
Illinois Central Corp...................................... 40,000 1,280
Union Pacific Corp......................................... 84,900 5,105
----------
14,956
----------
UTILITIES 6.6%
Ameritech Corp............................................. 86,000 5,214
AT & T Corp................................................ 469,000 20,401
Baltimore Gas & Electric Co................................ 100,000 2,675
Bell Atlantic Corp......................................... 93,000 6,022
Bellsouth Corp............................................. 71,800 2,899
Boston Edison Co........................................... 112,000 3,010
Carolina Power & Light Co.................................. 85,000 3,103
Central & South West Corp.................................. 100,000 2,563
Cincinnati Bell, Inc....................................... 92,250 5,685
CMS Energy Corp............................................ 86,000 2,892
DTE Energy Co.............................................. 238,000 7,705
Entergy Corp............................................... 100,000 2,775
FPL Group, Inc............................................. 70,000 3,220
GPU, Inc................................................... 116,000 3,900
Houston Industries, Inc.................................... 380,000 8,597
Idaho Power Co............................................. 150,700 4,691
Illinova Corp.............................................. 218,300 6,003
LCI International, Inc. (b)................................ 18,800 404
</TABLE>
See Notes to Financial Statements
15
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
MCI Communications Corp............................... 823,100 $ 26,905
Nipsco Industries, Inc................................ 48,000 1,902
Oklahoma Gas & Electric Co............................ 223,500 9,331
Pacificorp............................................ 110,000 2,255
Peco Energy Co........................................ 180,000 4,545
Pinnacle West Capital Corp............................ 120,000 3,810
Public Service Co. of New Mexico...................... 200,000 3,925
SBC Communications, Inc............................... 150,000 7,762
Sierra Pacific Resources.............................. 66,000 1,898
Southwestern Public Service Co........................ 110,000 3,891
Sprint Corp........................................... 210,000 8,374
Telefonica de Espana SA--ADR (Spain).................. 30,000 2,078
Texas Utilities Co.................................... 276,400 11,263
Worldcom, Inc. (b).................................... 125,000 3,258
----------
182,956
----------
TOTAL LONG-TERM INVESTMENTS 91.7%
(Cost $2,143,989,669) (a).................................... 2,521,516
----------
SHORT-TERM INVESTMENTS 8.6%
Federal Farm Credit Bank Discount Note ($1,055,000 par,
yielding 5.35%, 01/08/97 maturity) (c)........................ 1,054
Federal Home Loan Bank Discount Note ($20,000,000 par,
yielding 5.39%, 01/16/97 maturity) (c)........................ 19,952
Federal Home Loan Mortgage Corp. Discount Note ($36,000,000
par, yielding 6.50%, 01/02/97 maturity) (c)................... 35,987
Federal Home Loan Mortgage Corp. Discount Note ($25,000,000
par, yielding 5.43%, 01/17/97 maturity)....................... 24,936
Federal National Mortgage Association Discount Note
($25,000,000 par, yielding 5.23%, 01/24/97 maturity) (c)...... 24,913
Federal National Mortgage Association Discount Note
($20,000,000 par, yielding 5.33%, 03/14/97 maturity) (c)...... 19,786
Federal National Mortgage Association Discount Note
($73,000,000 par, yielding 5.33%, 03/17/97 maturity) (c)...... 72,187
Federal National Mortgage Association Discount Note
($20,000,000 par, yielding 5.35%, 04/21/97 maturity) (c)...... 19,676
Student Loan Marketing Association Discount Note ($17,460,000
par, yielding 6.50%, 01/02/97 maturity)....................... 17,454
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $235,943,556) (a)...................................... 235,945
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%).................. (9,330)
----------
NET ASSETS 100.0%............................................. $2,748,131
----------
</TABLE>
(a) At December 31, 1996, for federal income tax purposes cost, including
short-term investments, is $2,385,703,016; the aggregate gross unrealized
appreciation is $402,231,672 and the aggregate gross unrealized
depreciation is $30,895,603, resulting in net unrealized appreciation
including open future transactions of $371,336,069.
(b) Non-income producing security as this stock currently does not declare
dividends.
(c) Assets segregated for open future transactions.
See Notes to Financial Statements
16
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
All amounts, except for Maximum Offering Price information, reported in
thousands
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $2,143,990) (Note 1).. $2,521,516
Short-Term Investments (Cost $235,943) (Note 1).................... 235,945
Cash............................................................... 19
Receivables:
Securities Sold................................................... 48,006
Dividends......................................................... 4,064
Fund Shares Sold.................................................. 635
Other.............................................................. 31
----------
Total Assets...................................................... 2,810,216
----------
LIABILITIES:
Payables:
Securities Purchased.............................................. 47,527
Fund Shares Repurchased........................................... 4,194
Income and Capital Gain Distributions............................. 4,185
Variation Margin on Futures (Note 5).............................. 3,285
Distributor and Affiliates (Notes 2 and 6)........................ 1,307
Investment Advisory Fee (Note 2).................................. 1,049
Accrued Expenses................................................... 337
Deferred Compensation and Retirement Plans (Note 2)................ 201
----------
Total Liabilities................................................. 62,085
----------
NET ASSETS......................................................... $2,748,131
----------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................... $2,200,267
Net Unrealized Appreciation on Securities.......................... 377,106
Accumulated Net Realized Gain on Securities........................ 170,775
Accumulated Distributions in Excess of Net Investment Income....... (17)
----------
NET ASSETS......................................................... $2,748,131
----------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $2,669,479,090 and 223,673,489 shares of beneficial
interest issued and outstanding).................................. $ 11.93
Maximum sales charge (5.75%* of offering price)................... .73
----------
Maximum offering price to public.................................. $ 12.66
----------
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $75,063,492 and 6,330,250 shares of beneficial interest issued
and outstanding).................................................. $ 11.86
----------
Class C Shares:
Net asset value and offering price per share (Based on net assets
of $3,588,720 and 302,378 shares of beneficial interest issued and
outstanding)...................................................... $ 11.87
----------
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1996 (Unaudited)
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................ $ 21,438
Interest............................................................. 4,916
--------
Total Income........................................................ 26,354
--------
EXPENSES:
Investment Advisory Fee (Note 2)..................................... 6,015
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and
C of $2,789, $364 and $21, respectively) (Note 6)................... 3,174
Shareholder Services (Note 2)........................................ 2,911
Legal (Note 2)....................................................... 159
Trustees Fees and Expenses (Note 2).................................. 35
Other ............................................................... 1,381
--------
Total Expenses...................................................... 13,675
Less Expenses Reimbursed (Note 2) .................................. 12
--------
Net Expenses........................................................ 13,663
--------
NET INVESTMENT INCOME................................................ $ 12,691
--------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments......................................................... $228,814
Futures............................................................. 250
--------
Net Realized Gain on Securities...................................... 229,064
--------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................. 319,985
--------
End of the Period:
Investments......................................................... 377,528
Futures............................................................. (422)
--------
377,106
--------
Net Unrealized Appreciation on Securities During the Period.......... 57,121
--------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES....................... $286,185
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................... $298,876
--------
</TABLE>
See Notes to Financial Statements
18
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1996 and the Year Ended June 30, 1996
(Unaudited)
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1996 June 30, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................ $ 12,691 $ 25,132
Net Realized Gain on Securities.............. 229,064 388,484
Net Unrealized Appreciation on Securities
During the Period............................ 57,121 51,719
---------- ----------
Change in Net Assets from Operations......... 298,876 465,335
---------- ----------
Distributions from Net Investment Income..... (24,507) (28,471)
Distributions in Excess of Net Investment
Income (Note 1).............................. (17) -0-
---------- ----------
Distributions from and in Excess of Net
Investment Income*........................... (24,524) (28,471)
Distributions from Net Realized Gain on
Securities* (Note 1)......................... (258,993) (339,492)
---------- ----------
Total Distributions......................... (283,517) (367,963)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... 15,359 97,372
---------- ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.................... 858,725 1,607,080
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 262,459 340,171
Cost of Shares Repurchased................... (999,324) (1,768,286)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 121,860 178,965
---------- ----------
TOTAL INCREASE IN NET ASSETS................. 137,219 276,337
NET ASSETS:
Beginning of the Period...................... 2,610,912 2,334,575
---------- ----------
End of the Period (Including accumulated
undistributed net investment income of $(17)
and $11,816, respectively).................. $2,748,131 $2,610,912
---------- ----------
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class December 31, 1996 June 30, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares.............................. $ (24,363) $ (28,239)
Class B Shares.............................. (153) (223)
Class C Shares.............................. (8) (9)
---------- ----------
$ (24,524) (28,471)
---------- ----------
Distributions from Net Realized Gain on
Securities:
Class A Shares.............................. $ (251,588) $ (331,335)
Class B Shares.............................. (7,064) (7,831)
Class C Shares.............................. (341) (326)
---------- ----------
$ (258,993) $ (339,492)
---------- ----------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Six Months Ended ------------------------------------
Class A Shares December 31, 1996 1996(a) 1995(a) 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $11.92 $11.62 $11.05 $12.95 $13.21
-------- -------- -------- -------- --------
Net Investment Income.. .066 .12 .14 .13 .165
Net Realized and
Unrealized Gain/Loss
on Securities........ 1.319 2.09 1.85 (.1475) 1.69
-------- -------- -------- -------- --------
Total from Investment
Operations.............. 1.385 2.21 1.99 (.0175) 1.855
-------- -------- -------- -------- --------
Less:
Distributions from and
in Excess of Net
Investment Income
(Note 1)............. .121 .15 .1225 .135 .145
Distributions from Net
Realized Gain on
Securities (Note 1).. 1.250 1.76 1.2975 1.7475 1.97
-------- -------- -------- -------- --------
Total Distributions..... 1.371 1.91 1.42 1.8825 2.115
-------- -------- -------- -------- --------
Net Asset Value, End of
the Period.............. $11.934 $11.92 $11.62 $11.05 $12.95
-------- -------- -------- -------- --------
Total Return (b)........ 11.96%* 20.48% 20.62% (.64%) 15.20%
Net Assets at End of the
Period (In millions).... $2,669.5 $2,534.3 $2,279.4 $2,152.5 $2,446.2
Ratio of Expenses to
Average Net Assets (c).. 1.01% .94% 1.04% 1.02% 1.06%
Ratio of Net Investment
Income to Average Net
Assets (c)............ .99% 1.02% 1.24% .99% 1.22%
Portfolio Turnover...... 90%* 213% 248% 112% 113%
Average Commission Paid
Per Equity Share
Traded (d)............ $.0592 $.0550 -- -- --
</TABLE>
(a) Based on average shares outstanding.
(b) Total Return is based upon Net Asset Value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
* Non-Annualized
See Notes to Financial Statements
20
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Six Months Ended ------------------------------------
Class B Shares December 31, 1996 1996 (a) 1995 (a) 1994 (a) 1993 (a)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $11.81 $11.53 $10.96 $12.86 $13.13
------- ------ ------ ------- ------
Net Investment Income.. .017 .02 .05 .03 .03
Net Realized and
Unrealized Gain/Loss
on Securities......... 1.308 2.07 1.85 (.1575) 1.705
------- ------ ------ ------- ------
Total from Investment
Operations.............. 1.325 2.09 1.90 (.1275) 1.735
------- ------ ------ ------- ------
Less:
Distributions from and
in Excess of Net
Investment Income (Note
1)..................... .027 .05 .0325 .025 .035
Distributions from Net
Realized Gain on
Securities (Note 1)... 1.250 1.76 1.2975 1.7475 1.97
------- ------ ------ ------- ------
Total Distributions..... 1.277 1.81 1.33 1.7725 2.005
------- ------ ------ ------- ------
Net Asset Value, End of
the Period.............. $11.858 $11.81 $11.53 $10.96 $12.86
------- ------ ------ ------- ------
Total Return (b)........ 11.50%* 19.44% 19.73% (1.46%) 12.84%
Net Assets at End of the
Period (In millions).... $75.1 $72.1 $53.0 $35.8 $27.7
Ratio of Expenses to
Average Net Assets (c).. 1.82% 1.75% 1.84% 1.79% 1.98%
Ratio of Net Investment
Income to Average Net
Assets (c)............. .18% .21% .44% .21% .25%
Portfolio Turnover...... 90%* 213% 248% 112% 113%
Average Commission Paid
Per Equity Share Traded
(d).................... $.0592 $.0550 -- -- --
</TABLE>
(a) Based on average shares outstanding.
(b) Total Return is based upon Net Asset Value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
*Non-Annualized
See Notes to Financial Statements
21
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year August 27, 1993
Ended Ended (Commencement
Six Months Ended June 30, June 30, of Distribution) to
Class C Shares December 31, 1996 1996(a) 1995(a) June 30, 1994(a)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $11.83 $11.52 $10.99 $13.25
------- ------ ------ ------
Net Investment Income.. .012 .02 .05 .02
Net Realized and
Unrealized Gain/Loss
on Securities......... 1.303 2.10 1.81 (.4375)
------- ------ ------ ------
Total from Investment
Operations.............. 1.315 2.12 1.86 (.4175)
------- ------ ------ ------
Less:
Distributions from and
in Excess of Net
Investment Income
(Note 1).............. .027 .05 .0325 .095
Distributions from Net
Realized Gain on
Securities (Note 1)... 1.250 1.76 1.2975 1.7475
------- ------ ------ ------
Total Distributions..... 1.277 1.81 1.33 1.8425
------- ------ ------ ------
Net Asset Value, End of
the Period.............. $11.868 $11.83 $11.52 $10.99
------- ------ ------ ------
Total Return (b)........ 11.40%* 19.74% 19.27% (3.70%)*
Net Assets at End of the
Period (In millions).... $3.6 $4.5 $2.2 $1.2
Ratio of Expenses to
Average Net Assets (c).. 1.80% 1.75% 1.84% 1.81%
Ratio of Net Investment
Income to Average Net
Assets (c)............. .18% .15% .44% .24%
Portfolio Turnover...... 90%* 213% 248% 112%
Average Commission Paid
per Equity Share
Traded (d)............. $.0592 $.0550 -- --
</TABLE>
(a) Based on average shares outstanding.
(b) Total Return is based upon Net Asset Value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
*Non-Annualized
See Notes to Financial Statements
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Pace Fund (the "Fund") is organized as a Delaware
business trust, and is registered as a diversified open-end management invest-
ment company under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to provide long-term growth of capital by investing
principally in common stock. The Fund commenced investment operations on July
22, 1969. The distribution of the Fund's Class B and Class C shares commenced
on January 10, 1992 and August 27, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prep-
aration of financial statements in conformity with generally accepted account-
ing principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of con-
tingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION-Investments in securities listed on a securities ex-
change are valued at their sale price as of the close of such securities ex-
change. Fixed income investments are stated at value using market quotations.
Unlisted securities and listed securities for which the last sales price is
not available are valued at the last bid price. For those securities where
quotations or prices are not available, valuations are determined in accor-
dance with procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued
at amortized cost.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term invest-
ments in which the Fund acquires ownership of a debt security and the seller
agrees to repurchase the security at a future time and specified price. The
Fund may invest independently in repurchase agreements, or transfer uninvested
cash balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser")
or its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. The Fund will make payment for such securities only upon physi-
cal delivery or evidence of book entry transfer to the account of the custo-
dian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
C. INVESTMENT INCOME-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discount is
amortized over the life of each applicable security. Premiums on debt securi-
ties are not amortized. Market discounts are recognized at the time of sale as
realized gains for book purposes and ordinary income for tax purposes.
D. FEDERAL INCOME TAXES-It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment compa-
nies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
Net realized gain differs for financial reporting and tax purposes as a re-
sult of the deferral for tax purposes of losses resulting from wash sales.
E. DISTRIBUTION OF INCOME AND GAINS-The Fund declares and pays dividends annu-
ally from net investment income and from net realized gains on securities, if
any. Distributions from net realized gains for book purposes may include
short-term capital gains and gains on futures transactions. All short-term
capital gains and a portion of futures gains are included in ordinary income
for tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular peri-
od. These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide facilities and investment advice to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------------------
<S> <C>
First $1 billion.................................................... .50 of 1%
Next $1 billion..................................................... .45 of 1%
Next $1 billion..................................................... .40 of 1%
Over $3 billion..................................................... .35 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended December 31, 1996, the Fund recognized expenses of
approximately $180,000 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months
ended December 31, 1996, the Fund recognized expenses of approximately
$2,565,600, representing ACCESS' cost of providing transfer agency and share-
holder services plus a profit.
Additionally, for the six months ended December 31, 1996, the Fund paid VKAC
approximately $235,600 related to the direct cost of consolidating the VKAC
open-end fund complex. Payment was contingent upon the realization by the Fund
of cost efficiencies in shareholder services resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer
all or a portion of their compensation to a later date. The retirement plan
covers those trustees who are not officers of VKAC. During the six months
ended December 31, 1996, VKAC reimbursed the Fund for all expenses related to
the retirement plan.
At December 31, 1996, VKAC owned 30,298 shares of Class A of the Fund.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1996 the Fund owned approximately 46% and 42% of the Van
Kampen American Capital Small Capitalization Fund and the Van Kampen American
Capital Foreign Securities Fund, respectively. These entities do not charge an
investment advisory fee or sales charge and the shares of these entities may
only be purchased by other funds in the Van Kampen American Capital fund com-
plex.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Clas-
ses A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At December 31, 1996, capital aggregated $2,122,775,360, $74,336,153 and
$3,155,181 for Classes A, B, and C, respectively. For the six months ended De-
cember 31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A........................................... 57,013,491 $ 702,510,476
Class B........................................... 10,686,460 130,063,481
Class C........................................... 2,146,063 26,151,031
----------- -------------
Total Sales........................................ 69,846,014 $ 858,724,988
----------- -------------
Dividend Reinvestment:
Class A........................................... 21,956,046 $ 255,568,391
Class B........................................... 568,820 6,581,245
Class C........................................... 26,765 309,935
----------- -------------
Total Dividend Reinvestment........................ 22,551,631 $ 262,459,571
----------- -------------
Repurchases:
Class A........................................... (67,918,955) $(837,319,044)
Class B........................................... (11,028,824) (134,537,051)
Class C........................................... (2,248,238) (27,468,359)
----------- -------------
Total Repurchases.................................. (81,196,017) $(999,324,454)
----------- -------------
</TABLE>
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $2,002,015,537, $72,228,478 and
$4,162,574 for Classes A, B, and C, respectively. For the six months ended
June 30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A........................................ 107,853,497 $1,289,182,633
Class B........................................ 22,765,160 270,611,054
Class C........................................ 3,991,112 47,285,828
------------ ---------------
Total Sales..................................... 134,609,769 $ 1,607,079,515
------------ ---------------
Dividend Reinvestment:
Class A........................................ 30,359,648 $ 332,438,649
Class B........................................ 682,294 7,437,204
Class C........................................ 27,055 294,778
------------ ---------------
Total Dividend Reinvestment..................... 31,068,997 $ 340,170,631
------------ ---------------
Repurchases:
Class A........................................ (121,801,653) $(1,461,520,981)
Class B........................................ (21,936,339) (261,183,146)
Class C........................................ (3,834,141) (45,581,507)
------------ ---------------
Total Repurchases............................... (147,572,133) $(1,768,285,634)
------------ ---------------
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and
C shares will be imposed on most redemptions made within five years of the
purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule. The Class B and C shares bear the expense of their re-
spective deferred sales arrangements, including higher distribution and serv-
ice fees and incremental transfer agency costs.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE
---------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
First........................................................... 5.00% 1.00%
Second.......................................................... 4.00% None
Third........................................................... 3.00% None
Fourth.......................................................... 2.50% None
Fifth........................................................... 1.50% None
Sixth and Thereafter............................................ None None
</TABLE>
For the six months ended December 31, 1996, VKAC, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of ap-
proximately $123,000 and CDSC on the redeemed shares of Classes B and C of ap-
proximately $59,000. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $2,238,700,775 and
$2,482,651,900, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of
its portfolio or generate potential gain. All of the Fund's portfolio hold-
ings, including derivative instruments, are marked to market each day with the
change in value reflected in the unrealized appreciation/depreciation on secu-
rities. Upon disposition, a realized gain or loss is recognized accordingly,
except when taking delivery of a security underlying a futures contract. In
this instance, the recognition of gain or loss is postponed until the disposal
of the security underlying the futures contract.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
During the period, the Fund invested in futures contracts, a type of
deriviative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in stock index futures. These contracts are generally used
to provide the return of an index without purchasing all of the securities un-
derlying the index and to manage the Funds overall exposure to the equity mar-
kets. 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. During the period the futures contract
is open, payments are received from or made to the broker based upon changes
in the value of the contract (the variation margin).
Transactions in futures contracts for the six months ended December 31,
1996, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1996......................................... 330
Futures Opened....................................................... 1,142
Futures Closed....................................................... (1,022)
------
Outstanding at December 31, 1996..................................... 450
------
</TABLE>
The futures contracts outstanding as of December 31, 1996, and the descrip-
tion and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index Futures
March 1997--Buys to Open (current notional value of
$372,250 per contract).............................. 450 $422,359
--- --------
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 and a service plan (col-
lectively the "Plans"). The Plans govern payments for the distribution of the
Fund's shares, ongoing shareholder services and maintenance of shareholder ac-
counts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these
fees for the six months ended December 31, 1996, are payments to VKAC of ap-
proximately $362,100.
29
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
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
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or
1-800-282-4404 for Morgan Stanley retail funds.
30
<PAGE>
RESULT OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Fund was held on October 25, 1996
where shareholders voted on a new investment advisory agreement, changes to
investment policies and the ratification of Price Waterhouse LLP as indepen-
dent public accountants. With regard to the approval of a new investment advi-
sory agreement between Van Kampen American Capital Asset Management, Inc. and
the Fund, 112,436,505 shares voted for the proposal, 3,986,777 shares voted
against and 12,941,001 shares abstained. With regard to the approval of cer-
tain changes to the Fund's fundamental investment policies with respect to in-
vestment in other investment companies, 101,622,304 shares voted for the
proposal, 5,126,630 shares voted against and 13,499,347 shares abstained. With
regard to the ratification of Price Waterhouse LLP as independent public ac-
countants for the Fund, 114,627,548 shares voted for the proposal, 2,097,597
shares voted against and 12,639,202 shares abstained.
Tax Notice to Corporate
Shareholders
For 1996, 20.7% of the
dividends taxable as
ordinary income qualified
for the 70% dividends
received deduction for
corporations.
31
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PACE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
JACK E. NELSON
JEROME L. ROBINSON
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1201 Louisiana
Houston, Texas 77002
*"Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C)Van Kampen American Capital Distribu-
tors, Inc., 1997
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 un-
less 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.
32