<PAGE>
VAN KAMPEN
PACE FUND
Annual Report
June 30, 1998
[ARTWORK APPEARS HERE]
Van Kampen
FUNDS
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders.................................. 1
Performance Results..................................... 3
Performance in Perspective.............................. 4
Glossary of Terms....................................... 5
Portfolio Management Review............................. 6
Portfolio Highlights.................................... 9
Portfolio of Investments................................ 10
Statement of Assets and Liabilities..................... 21
Statement of Operations................................. 22
Statement of Changes in Net Assets...................... 23
Financial Highlights.................................... 24
Notes to Financial Statements........................... 27
Report of Independent Accountants....................... 32
</TABLE>
PACE ANR 8/98
<PAGE>
Letter to Shareholders
July 16, 1998
[PHOTO APPEARS HERE]
Dennis J. McDonnell and Don G. Powell
Dear Shareholder,
As you may know, Van Kampen American Capital is consolidating all of the
retail mutual funds that we distribute under the single name of Van Kampen
Funds. This move accompanies the change in our legal name to Van Kampen Funds
Inc.
You can be assured that the change in your fund's name will not affect its
management or daily operations. You will begin seeing the application of this
change with this report. In addition, as of August 31, your fund will be listed
in the daily newspapers by share class under the heading "Van Kampen Funds." For
your convenience, we have enclosed a separate brochure that covers additional
details related to these changes.
Economic Review
The U.S. economy continued to expand at a robust pace despite a deepening
recession in a number of Asian nations. The nation's inflation-adjusted output
of goods and services ran at 5.4 percent during the first quarter, an annualized
rate considered by many economists to be virtually unsustainable without leading
to inflation. As the reporting period ended, however, there were indications
that the Asian financial crisis was finally having a moderating impact on the
economy. Also, the Conference Board's index of leading indicators points toward
a slowdown in economic growth later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
Market Review
U.S. stocks continued to post gains during the period, but the sharp
variation in returns across industry groups reflected the growing impact of the
Asian financial crisis on corporate profits. The Wilshire 5000 Index, consisting
of all publicly traded U.S. companies, gained 14.68 percent during the first six
months of 1998. Once again, most of the strength was concentrated in large-
capitalization companies, as the S&P 500 Index of large stocks returned 17.67
percent during the period compared to 4.93 percent for the Russell 2000 Index of
small-cap issues. Even large stocks, however, fell back significantly beginning
in April as the Asian crisis intensified.
Companies with heavy exposure to domestic consumers benefited from a strong
American economy, especially during the latter stages of the reporting period.
Consumer cyclical stocks returned 28.94 percent during the first six months
Continued on page two
1
<PAGE>
of 1998, compared to 6.35 percent for basic materials and 3.01 percent for
energy issues. Eight of the ten top-performing industry groups during the second
quarter were from consumer-related sectors. Meanwhile, the steep decline in
energy and agricultural prices--a consequence of reduced demand from Asia--
undermined the performance of commodity-related stocks. During the three months
through June, five of the ten worst-performing industry sectors were from either
energy, metals, or commodity-based industries.
Outlook
We believe economic growth in the United States is likely to slow in coming
months as the impact of the Asian crisis becomes more apparent. As growth
decelerates, corporate profits will come under pressure, especially among large
companies. Given the difficult year-over-year earnings comparisons that will
begin to appear in coming quarters, we caution investors not to expect a
continuation of the large gains that have become almost routine for U.S. stocks
in recent years. The high valuations and decelerating profit growth could limit
returns in the equity market over the near term.
Still, the overall environment for equities remains positive. Inflation is
low, the economy continues to grow, the bond market is healthy, and monetary
policy is stable. These characteristics usually support relatively high
valuations in the stock market. We remain confident that the domestic equity
asset class will continue to provide solid growth for investors with a long-term
time horizon.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
2
<PAGE>
Performance Results for the Period Ended June 30, 1998
Van Kampen Pace Fund
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return based on NAV/1/............ 29.89% 28.92% 28.87%
One-year total return/2/......................... 22.39% 23.92% 27.87%
Five-year average annual total return/2/......... 18.11% 18.43% N/A
Ten-year average annual total return/2/.......... 14.06% N/A N/A
Life-of-Fund average annual total return/2/...... 13.52% 15.45% 18.64%
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. This performance was achieved during generally
rising stock prices. Fund shares, when redeemed, may be worth more or less than
their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Fund will vary upon the Fund's investment performance.
Foreign securities may magnify volatility due to changes in foreign exchange
rates, the political and economic uncertainties in foreign countries, and the
potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Putting Your Fund's Performance in Perspective
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular 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
conditions
. Help you evaluate the extent to which your Fund's management team has
responded 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-Stock Index is a broad-based statistical composite, and does not reflect any
commissions 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 Pace Fund vs. Standard & Poor's 500-Stock Index and the Lipper
Growth Fund Index (June 30, 1988 through June 30, 1998)
[GRAPH APPEARS HERE]
- -------------------------------
Fund's Total Return
1 Year Avg. Annual = 22.39%
5 Year Avg. Annual = 18.11%
10 Year Avg. Annual = 14.06%
Inception Avg. Annual = 13.52%
- ------------------------------
<TABLE>
<CAPTION>
Van Kampen Standard & Poor's Lipper Growth
Pace Fund 500-Stock Index Fund Index
<S> <C> <C> <C>
Jun 1988 $ 9,426.00 $10,000.00 $10,000.00
Jun 1989 10,118.26 12,043.99 11,770.46
Jun 1990 11,503.33 14,017.98 13,323.02
Jun 1991 11,998.91 15,053.99 14,015.82
Jun 1992 13,268.47 17,064.66 15,955.06
Jun 1993 15,284.68 19,380.75 18,597.47
Jun 1994 15,186.41 19,658.41 18,911.59
Jun 1995 18,317.31 24,768.43 23,286.72
Jun 1996 22,067.78 31,190.54 28,094.44
Jun 1997 28,701.19 41,993.29 35,279.19
Jun 1998 37,279.12 54,628.46 45,256.82
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions 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.
4
<PAGE>
Glossary of Terms
Blue-chip stocks:
Stocks of large, well-known companies that have a long record of growth.
Examples of blue-chip stocks include General Motors, International Business
Machines (IBM), Coca-Cola, and General Electric.
Bottom-up investing:
A management style that emphasizes the analysis of individual stocks,
rather than economic and market cycles.
Dow Jones Industrial Average:
The oldest and most widely recognized stock market average, which reflects
the performance of 30 actively traded stocks of well-established, blue-chip
companies.
Growth investing:
An investment strategy that seeks to identify stocks that tend to offer
greater-than-average earnings growth. Growth stocks typically trade at
higher prices than value stocks, due to their higher expected earnings
growth.
Market capitalization:
The size of a company, as measured by the value of its stock. Morningstar,
an independent mutual fund rating service, defines "small-cap" as less than
$1 billion, "mid-cap" as between $1 billion and $5 billion, and "large-cap"
as more than $5 billion.
Net asset value (NAV):
The value of a mutual fund share, calculated by deducting a fund's
liabilities from its total assets and dividing this amount by the number of
shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
Standard & Poor's 500-Stock Index:
A broad-based measurement of changes in stock-market conditions based on
the average performance of 500 widely held common stocks. The index, which
tracks industrial, transportation, financial, and utility stocks, provides
a guide to the overall health of the U.S. stock market. The S&P 500 is a
much broader index than the Dow Jones Industrial Average and reflects the
stock market more accurately.
Valuation:
The estimated or determined worth of a stock, based on financial measures
such as the stock's current price relative to earnings, revenue, book
value, and cash flow.
5
<PAGE>
Portfolio Management Review
Van Kampen Pace Fund
We recently spoke to the management team of the Van Kampen Pace Fund about the
key events and economic forces that shaped the markets during the past year. The
team includes Dennis J. McDonnell, president of the adviser, and portfolio
comanagers Jeff D. New, B. Robert Baker, Jr., and John M. Cunniff. The following
excerpts reflect their views on the Fund's performance during the year ended
June 30, 1998.
Q Can you describe the stock market environment for the Fund during the
reporting period?
A The stock market was influenced by two opposing factors. On the home front,
steady economic growth and low inflation provided a very favorable climate
for stocks. However, a currency collapse in Southeast Asia threatened to slow
the economies of countries around the world. The Dow Jones Industrial Average
struggled through the last few months of 1997, trying to regain its momentum
after being unsettled by the Asian currency crisis in October. The Dow recovered
quickly and proceeded to hit record highs in early 1998. During the final months
of the reporting period, the Dow remained relatively flat, fluctuating around
the 9000 mark.
Investors continued to favor large, well-established companies during the
reporting period because of their uncertainty about how the Asian situation
would affect the U.S. markets. Generally, large-capitalization companies made
greater gains than small-cap companies did.
Q Given these events, what was your strategy in managing the Fund to
meet its objective?
A We maintain a consistent strategy of investing primarily in stocks of
large, well-established companies with above-average growth rates.
In selecting stocks for the portfolio, we use a "bottom up" investment process.
In other words, we evaluate stocks one by one and make purchases wherever we
find good investment opportunities, while preserving an economically diversified
portfolio. We also keep the Fund fully invested in stocks, under normal market
conditions. Accordingly, we didn't move a large portion of the Fund's assets
into cash last October, when U.S. markets declined in response to the Asian
crisis. This strategy proved successful--the Fund's stock holdings recovered
quickly when the market rebounded in November.
Q What significant changes did you make to the portfolio?
A Because we used a bottom-up selection process, our changes to the portfolio
were driven by our preference for individual stock selection rather than
any particular sector of the market. Therefore, our purchases represented a
broad range of industries, while our sector weightings stayed about the same.
Chase Manhattan, Dial, and Microsoft are a few of the stocks that became
top holdings during the reporting period. The stock performance of Chase
Manhattan benefited from the merger mania that swept the financial services
industry earlier this year. Chase strengthened its competitive position in the
past year by acquiring The Bank of New York's credit card business and Morgan
Stanley's global custody business. Based on these positive developments, we
added to our holding in Chase during the reporting period, and the position has
grown even larger due to stock price appreciation. In addition, we doubled the
size of our holding in Dial, a distributor of personal care, detergent, and
household products. Dial's sales have been driven by growth in its key brands,
Dial soap and Purex laundry detergent, while new product introductions and
continued cost cutting sparked favorable earnings growth.
Finally, software giant Microsoft had been under investigation by the
Department of Justice for possible antitrust violations. Among its demands, the
Department of Justice wanted the company to unbundle Internet Explorer, its
Internet browser software, from Microsoft's Windows 98. The stock weakened in
May after the lawsuit was filed. In mid-June, Microsoft gained an advantage when
the U.S. Court of Appeals ruled in favor of the company, and Windows 98 was
launched successfully in late June. In an unusual turn of events, publicity
about the antitrust lawsuit helped Microsoft sell more copies than expected of
its new operating system, with very few advertising expenses. These positive
events helped boost Microsoft's share price at the end of the reporting period.
6
<PAGE>
Q Which stocks supported Fund performance?
A Stocks from many sectors of the market--including autos, technology,
pharmaceuticals, retail, and brokerage stocks--fueled Fund performance
during the reporting period. The auto industry has benefited from steady
economic growth in the United States and in Europe. Ford Motor Company was a
large position in the Fund, and the stock doubled in price during the past year.
Ford has profited from its strong-selling F-series pickup trucks, its cost
reductions, and its lower-than-expected incentive costs.
The technology sector continued to be volatile. Earlier this year, an
oversupply of personal computers overwhelmed many areas of the technology
sector. Manufacturers such as Compaq Computer, which sells computers to
retailers and wholesalers for distribution, had to reduce production of new
computers until inventory supply and consumer demand regained its balance. We
sold most of our position in Compaq Computer at that time but held on to Dell
Computer, which rose more than 200 percent during the reporting period.
Investors also favored pharmaceutical stocks, given their steady earnings
growth and low exposure to Asia. Our large position in Schering Plough, which
appreciated 91 percent in the past year, contributed favorably to the Fund's
performance. The company delivered steady earnings growth through its strong
sales of Claritin, an allergy medication, and Intron A, a drug for the treatment
of hepatitis C.
The combination of low unemployment, rising disposable income, and a
flourishing housing market contributed to healthy gains in the retail sector. We
added to our positions in Tommy Hilfiger, Dayton Hudson, and TJX Companies, all
of which performed well during the reporting period.
Finally, Travelers Group announced in April that it is merging with Citibank
to form a global financial services powerhouse. The new combined entity,
Citigroup, will have asset management, brokerage operations, insurance, and
retail offices around the world. Citigroup hopes to enhance revenues by cross-
selling products and services.
Q What factors worked against the Fund?
A The most significant laggard in the portfolio was Philip Morris, our
largest holding at the end of the reporting period. In the spring, this
stock weakened amid uncertainty surrounding the outcome of a number of legal and
legislative issues. We added to Philip Morris when it became extremely cheap,
reaching historically low valuations, and we believe there are several factors
that could drive the stock upward. The most significant and likely catalyst
would be a more favorable resolution to the tobacco legislation than the
proposals recently debated in Washington. Although the outcome is unknown, we
think the stock adequately reflects the associated risks.
Despite this recent price decline, we held on to Philip Morris for a number of
reasons. First, the stock fits our criteria of strong fundamentals at an
attractive price. Tobacco firms have typically been high-growth companies, and
Philip Morris is very inexpensive right now compared to its historical values.
Second, tobacco stocks have routinely suffered bouts of negative sentiment, but
these periods have usually been followed by rebounds in stock price. Based on
these factors, we've maintained a sizable weighting in the stock. For additional
Fund portfolio highlights, please refer to page nine.
Q How did the Fund perform during the reporting period?
A The Fund achieved a one-year total return of 29.89 percent/1/ (Class A
shares at net asset value) as of June 30, 1998. By comparison, the Standard
& Poor's 500-Stock Index returned 30.09 percent, and the Lipper Growth Fund
Index, which more closely resembles the Fund, returned 28.28 percent. The
S&P 500-Stock Index is a broad-based, unmanaged index that reflects the
general performance of the stock market, and the Lipper Growth Fund Index
reflects the average performance of the largest growth funds.
These indices are statistical composites that do not include any commissions
or sales charges that would be paid by an investor purchasing the securities or
investments represented by these indices. Please refer to the chart on page
three for additional Fund performance results.
7
<PAGE>
Q What is your outlook for the next six months?
A At the time of your last report, the effects of the Asian economic crisis
on the U.S. stock market were unclear but ominous. Today, its effects are
still uncertain, but the domestic outlook is more positive: the crisis has had a
severe impact on a few segments of the U.S. market but otherwise has been fairly
contained. The stock market reached new highs during the reporting period, and
we expect that controlled growth and low inflation will continue to support
stock prices during the remainder of the year. In addition, we believe that
well-established, domestically based companies will remain among the stock
market's better performers. The investment style of the Pace Fund is well suited
for these conditions, as we target large-company stocks with attractive growth
potential.
/s/ Dennis J. McDonnell /s/ B. Robert Baker, Jr.
Dennis J. McDonnell B. Robert Baker, Jr.
President Portfolio Comanager
Van Kampen Asset Management Inc.
/s/ John M. Cunniff /s/ Jeff D. New
John M. Cunniff Jeff D. New
Portfolio Comanager Portfolio Comanager
Please see footnotes on page three
8
<PAGE>
Portfolio Highlights
Van Kampen Pace Fund
<TABLE>
<CAPTION>
Portfolio Holdings as a Percentage of Long-Term Investments
Percentage of
Top Ten Holdings These Investments
as of June 30, 1998 Six Months Ago
<S> <C> <C>
Philip Morris Cos., Inc............................................... 2.4% .................... 2.4%
Van Kampen Small Capitalization Fund.................................. 1.7% .................... 1.9%
Chase Manhattan Corp.................................................. 1.3% .................... 0.8%
Bristol-Myers Squibb Co............................................... 1.3% .................... 1.2%
Dial Corp............................................................. 1.3% .................... 1.3%
Microsoft Corp........................................................ 1.3% .................... 0.6%
Conseco, Inc.......................................................... 1.2% .................... 1.5%
Lucent Technologies, Inc.............................................. 1.1% .................... 0.7%
Texas Utilities Co.................................................... 1.0% .................... 1.2%
Houston Industries, Inc............................................... 1.0% .................... 1.0%
</TABLE>
Top Five Portfolio Sectors as a Percentage of Long-Term Investments
<TABLE>
<CAPTION>
As of June 30, 1998 As of December 31, 1997
<S> <C> <C> <C>
Technology........................... 17% Finance........................... 17%
Finance.............................. 16% Technology........................ 16%
Health Care.......................... 13% Utilities......................... 12%
Utilities............................ 11% Health Care....................... 11%
Consumer Non-Durables................ 9% Consumer Non-Durables............. 10%
</TABLE>
Asset Allocation as a Percentage of Total Investments
As of June 30, 1998
[_] Stocks.....................98% [PIE CHART APPEARS HERE]
[_] Cash Equivalents........... 2%
As of December 31, 1997
[_] Stocks.....................93% [PIE CHART APPEARS HERE]
[_] Cash Equivalents........... 7%
9
<PAGE>
Portfolio of Investments
June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks 98.8%
Buildings & Materials 0.1%
Hanson PLC - ADR (United Kingdom)............... 56,250 $ 1,705,078
------------
Consumer Distribution 7.3%
American Stores Co.............................. 130,000 3,144,375
Brightpoint, Inc.(a)............................ 235,000 3,407,500
CompUSA, Inc.(a)................................ 675,000 12,192,188
Costco Cos., Inc.(a)............................ 157,800 9,951,263
CVS Corp........................................ 240,000 9,345,000
Dayton Hudson Corp.............................. 557,400 27,033,900
Family Dollar Stores, Inc....................... 396,000 7,326,000
Federated Department Stores, Inc.(a)............ 449,200 24,172,575
General Nutrition Cos., Inc.(a)................. 20,000 622,500
Herman Miller, Inc.............................. 10,000 243,125
Home Depot, Inc................................. 65,000 5,399,063
Kroger Co.(a)................................... 525,800 22,543,675
Lear Corp.(a)................................... 128,800 6,609,050
Lowe's Cos., Inc................................ 348,000 14,115,750
McKesson Corp................................... 133,000 10,806,250
Proffitt's, Inc.(a)............................. 407,100 16,436,663
Rite Aid Corp................................... 225,000 8,451,562
Ross Stores, Inc................................ 285,000 12,255,000
Safeway, Inc.(a)................................ 888,000 36,130,500
Sears Roebuck & Co.............................. 182,700 11,156,119
Tech Data Corp.(a).............................. 25,000 1,071,875
TJX Cos., Inc................................... 1,074,000 25,910,250
Venator Group, Inc.(a).......................... 225,000 4,303,125
Wal-Mart Stores, Inc............................ 100,000 6,075,000
------------
278,702,308
------------
Consumer Durables 2.8%
Brunswick Corp.................................. 70,000 1,732,500
Chrysler Corp................................... 170,000 9,583,750
Cooper Tire & Rubber Co......................... 60,000 1,237,500
Dana Corp....................................... 368,000 19,688,000
Eaton Corp...................................... 40,000 3,110,000
Ford Motor Co................................... 585,400 34,538,600
General Motors Corp............................. 265,000 17,705,312
Magna International, Inc., Class A.............. 85,000 5,833,125
Maytag Corp..................................... 139,000 6,863,125
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
<TABLE>
<CAPTION>
===============================================================================
Number
Description of Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Consumer Durables (Continued)
Oakwood Homes Corp............................. 95,000 $ 2,850,000
Sony Corp. - ADR (Japan)....................... 25,000 2,151,563
------------
105,293,475
------------
Consumer Non-Durables 8.9%
Anheuser Busch Cos., Inc....................... 170,000 8,021,875
Bestfoods...................................... 50,000 2,903,125
Borders Group, Inc.(a)......................... 208,000 7,696,000
Campbell Soup Co............................... 55,000 2,921,875
Coca-Cola Co................................... 60,000 5,130,000
Colgate - Palmolive Co......................... 161,800 14,238,400
ConAgra, Inc................................... 180,000 5,703,750
Dial Corp...................................... 1,844,800 47,849,500
First Brands Corp.............................. 222,800 5,709,250
Fruit of the Loom, Inc.(a)..................... 95,000 3,152,812
Gallaher Group PLC - ADR (United Kingdom)...... 45,000 984,375
Heinz, H. J. & Co.............................. 50,000 2,806,250
Jones Apparel Group, Inc.(a)................... 53,000 1,937,813
Kimberly Clark Corp............................ 498,000 22,845,750
Liz Claiborne, Inc............................. 231,600 12,101,100
Loews Corp..................................... 35,000 3,049,375
PepsiCo, Inc................................... 50,000 2,059,375
Philip Morris Cos., Inc........................ 2,248,200 88,522,875
Procter & Gamble Co............................ 90,000 8,195,625
Quaker Oats Co................................. 120,000 6,592,500
RJR Nabisco Holdings Corp...................... 1,554,600 36,921,750
Sara Lee Corp.................................. 65,000 3,635,937
Tommy Hilfiger Corp.(a)........................ 576,000 36,000,000
Unilever NV - ADR (Netherlands)................ 80,000 6,315,000
V.F. Corp...................................... 80,000 4,120,000
------------
339,414,312
------------
Consumer Services 6.0%
AccuStaff, Inc.(a)............................. 350,900 10,965,625
Brinker International, Inc.(a)................. 489,000 9,413,250
Carnival Corp.................................. 200,000 7,925,000
CBS Corp....................................... 476,000 15,113,000
Cendant Corp.(a)............................... 507,155 10,586,861
Chancellor Media Corp.(a)...................... 161,000 7,994,656
CKE Restaurants, Inc........................... 177,000 7,301,250
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Consumer Services (Continued)
Foodmaker, Inc. (a)................................... 278,000 $ 4,691,250
Gannett Co., Inc...................................... 276,000 19,613,250
Harcourt General, Inc................................. 40,600 2,415,700
Hilton Hotels Corp.................................... 337,100 9,607,350
Host Marriott Corp. (a)............................... 90,000 1,603,125
International Game Technology......................... 70,000 1,697,500
Jacor Communications, Inc., Class A (a)............... 135,000 7,965,000
Knight Ridder, Inc.................................... 95,000 5,230,938
Metamor Worldwide, Inc. (a)........................... 191,000 6,720,813
New York Times Co., Class A........................... 210,000 16,642,500
News Corp. Ltd. - ADR (Australia) (a)................. 112,200 3,169,650
Omnicom Group, Inc.................................... 464,000 23,142,000
Promus Hotel Corp. (a)................................ 171,800 6,614,300
Service Corp. International........................... 120,000 5,145,000
Tele-Communications, Inc., Class A (a)................ 175 6,727
Time Warner, Inc...................................... 204,000 17,429,250
Tribune Co............................................ 181,000 12,455,062
Viacom, Inc., Class B (a)............................. 70,000 4,077,500
Walt Disney Co........................................ 105,000 11,031,562
------------
228,558,119
------------
Energy 3.4%
Amoco Corp............................................ 282,000 11,738,250
Atlantic Richfield Co................................. 78,200 6,109,375
British Petroleum Co. PLC - ADR (United Kingdom)..... 141,000 12,443,250
Chevron Corp.......................................... 149,000 12,376,313
Coastal Corp.......................................... 134,000 9,354,875
Cooper Cameron Corp. (a).............................. 113,100 5,768,100
El Paso Natural Gas Co................................ 375,000 14,343,750
ENI - ADR (Italy)..................................... 148,000 9,620,000
Enron Corp............................................ 150,000 8,109,375
EVI Weatherford, Inc. (a)............................. 152,500 5,661,563
Rowan Cos., Inc. (a).................................. 161,700 3,143,044
Texaco, Inc........................................... 108,000 6,446,250
Total SA - ADR (France)............................... 110,000 7,191,250
USX - Marathon Group.................................. 110,100 3,777,806
YPF Sociedad Anonima - ADR (Argentina), Class D....... 500,000 15,031,250
------------
131,114,451
------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Finance 16.2%
Ace Ltd............................................... 51,000 $ 1,989,000
Ahmanson H.F. & Co.................................... 60,000 4,260,000
Allstate Corp......................................... 210,000 19,228,125
AMBAC, Inc............................................ 461,800 27,015,300
American Bankers Insurance Group, Inc................. 365,300 21,963,662
American General Corp................................. 120,000 8,542,500
American International Group, Inc..................... 30,000 4,380,000
Associates First Capital Corp., Class A............... 150,238 11,549,546
BancOne Corp.......................................... 88,280 4,927,128
BankAmerica Corp...................................... 245,200 21,194,475
BankBoston Corp....................................... 302,600 16,832,125
Bankers Trust New York Corp........................... 40,000 4,642,500
Bear Stearns Cos., Inc................................ 443,950 25,249,656
Chase Manhattan Corp.................................. 669,400 50,539,700
CIGNA Corp............................................ 105,000 7,245,000
Citicorp.............................................. 40,000 5,970,000
CMAC Investment Corp.................................. 314,400 19,335,600
Comerica, Inc......................................... 75,000 4,968,750
Conseco, Inc.......................................... 969,800 45,338,150
Countrywide Credit Industries, Inc.................... 120,000 6,090,000
Equitable Cos., Inc................................... 90,000 6,744,375
Everest Reinsurance Holdings, Inc..................... 162,800 6,257,625
Federal Home Loan Mortgage Corp....................... 20,000 941,250
Federal National Mortgage Assn........................ 297,400 18,067,050
First Union Corp...................................... 311,896 18,167,942
Green Tree Financial Corp............................. 40,000 1,712,500
GreenPoint Financial Corp............................. 70,000 2,633,750
Household International, Inc.......................... 241,000 11,989,750
Jefferson-Pilot Corp.................................. 45,000 2,607,188
LandAmerica Financial Group, Inc...................... 141,700 8,112,325
Lehman Brothers Holdings, Inc......................... 80,000 6,205,000
Liberty Financial Cos., Inc........................... 106,350 3,669,075
Lincoln National Corp................................. 45,000 4,111,875
MBIA, Inc............................................. 94,000 7,038,250
Merrill Lynch & Co., Inc.............................. 75,000 6,918,750
MGIC Investment Corp.................................. 156,200 8,913,163
NationsBank Corp...................................... 50,000 3,825,000
Nationwide Financial Services, Inc., Class A.......... 56,800 2,896,800
</TABLE>
13 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
<TABLE>
<CAPTION>
==============================================================================================
Number
Description of Shares Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Finance (Continued)
Norwest Corp......................................................... 230,200 $ 8,603,725
Providian Financial Corp............................................. 40,000 3,142,500
SLM Holding Corp..................................................... 17,500 857,500
SouthTrust Corp...................................................... 112,500 4,893,750
St. Paul Cos., Inc................................................... 110,000 4,626,875
SunAmerica, Inc...................................................... 292,050 16,774,622
Torchmark, Inc....................................................... 315,300 14,424,975
Travelers Group, Inc................................................. 523,575 31,741,734
U.S. Bancorp......................................................... 250,000 10,750,000
United Asset Management Corp......................................... 213,300 5,559,131
Van Kampen Small Capitalization Fund (an affiliate of Van Kampen)....5,487,382 64,531,612
Washington Mutual, Inc............................................... 477,600 20,745,750
------------
618,725,059
------------
Healthcare 12.6%
Abbott Laboratories, Inc............................................. 100,000 4,087,500
Aetna, Inc........................................................... 137,900 10,497,638
American Home Products Corp.......................................... 664,000 34,362,000
Bausch & Lomb, Inc................................................... 369,000 18,496,125
Becton Dickinson & Co................................................ 116,000 9,004,500
Bristol-Myers Squibb Co.............................................. 419,800 48,250,762
Columbia / HCA Healthcare Corp....................................... 170,000 4,951,250
ESC Medical Systems Ltd. (a)......................................... 240,000 8,100,000
Guidant Corp......................................................... 255,200 18,198,950
HBO & Co............................................................. 260,000 9,165,000
Health Care & Retirement Corp. (a)................................... 211,000 8,321,313
Health Management Assn., Inc., Class A (a)........................... 280,500 9,379,219
HEALTHSOUTH Corp. (a)................................................ 648,600 17,309,512
Johnson & Johnson, Inc............................................... 165,000 12,168,750
Lincare Holdings, Inc. (a)........................................... 321,200 13,510,475
Merck & Co., Inc..................................................... 128,000 17,120,000
Mylan Laboratories, Inc.............................................. 657,000 19,751,062
PacifiCare Health Systems, Class B (a)............................... 296,800 26,229,700
Pfizer, Inc.......................................................... 93,200 10,129,675
Pharmacia & Upjohn, Inc.............................................. 262,000 12,084,750
Phycor, Inc. (a)..................................................... 150,000 2,484,375
Rhodia, SA - ADR (France) (a)........................................ 71,600 1,951,100
Rhone-Poulenc, SA - ADR (France), Class A............................ 379,000 21,295,062
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
==============================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Healthcare (Continued)
Schering-Plough Corp............................... 372,200 $ 34,102,825
Tenet Healthcare Corp.(a).......................... 1,134,800 35,462,500
Total Renal Care Holdings, Inc.(a)................. 322,883 11,139,464
U.S. Surgical Corp................................. 75,000 3,421,875
United Healthcare Corp............................. 107,000 6,794,500
Universal Health Services, Inc., Class B(a)........ 177,000 10,332,375
Warner-Lambert Co.................................. 60,000 4,162,500
Watsons Pharmaceuticals, Inc.(a)................... 318,000 14,846,625
Wellpoint Health Networks, Inc., Class A(a)........ 296,500 21,941,000
------------
479,052,382
------------
Producer Manufacturing 7.5%
Aeroquip Vickers, Inc.............................. 75,100 4,383,963
AlliedSignal, Inc.................................. 50,000 2,218,750
Alstom SA - ADR (France)(a)........................ 441,100 14,363,319
American Power Conversion Corp.(a)................. 492,100 14,763,000
ASM Lithography Holding NV (Netherlands)(a)........ 120,000 3,487,500
Bouygues Offshore SA - ADR (France)................ 282,500 5,967,813
Canadian Pacific Ltd............................... 295,000 8,370,625
Caterpillar, Inc................................... 90,000 4,758,750
Cognex Corp.(a).................................... 491,200 9,087,200
Cooper Industries, Inc............................. 87,800 4,823,513
Deere & Co......................................... 90,000 4,758,750
General Electric Co................................ 195,800 17,817,800
Hartford Financial Services Group, Inc............. 45,000 5,146,875
Illinois Tool Works, Inc........................... 109,000 7,268,937
Ingersoll-Rand Co.................................. 126,300 5,565,094
ITT Industries, Inc................................ 30,000 1,121,250
Johnson Controls, Inc.............................. 30,000 1,715,625
LucasVarity PLC - ADR (United Kingdom)(a).......... 273,000 10,868,812
Navistar International Corp.(a).................... 232,900 6,724,987
Paccar, Inc........................................ 90,000 4,702,500
Philips Electronics NV - ADR (Netherlands)......... 110,000 9,350,000
Republic Services, Inc............................. 141,700 3,400,800
Textron, Inc....................................... 231,000 16,559,812
The St. Joe Co..................................... 276,100 7,558,237
Tyco International Ltd............................. 268,000 16,884,000
United States Filter Corp.(a)...................... 287,600 8,070,775
United Technologies Corp........................... 253,000 23,402,500
</TABLE>
See Notes to Financial Statements
15
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
==============================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Producer Manufacturing (Continued)
USA Waste Services, Inc.(a)........................ 520,000 $ 25,675,000
Waste Management, Inc.............................. 1,008,000 35,280,000
------------
284,096,187
------------
Raw Materials/Processing Industries 4.8%
Air Products & Chemicals, Inc...................... 82,200 3,288,000
Barrick Gold Corp.................................. 619,100 11,878,981
Bethlehem Steel Corp.(a)........................... 287,300 3,573,294
Boise Cascade Corp................................. 287,000 9,399,250
British Steel PLC - ADR (United Kingdom)........... 1,026,000 23,341,500
Champion International Corp........................ 57,000 2,803,688
Crompton & Knowles Corp............................ 236,000 5,944,250
Crown Cork & Seal Co., Inc......................... 25,000 1,187,500
Cytec Industries, Inc.(a).......................... 222,000 9,823,500
Dow Chemical Co.................................... 85,000 8,218,437
Du Pont (E. I.) de Nemours & Co.................... 197,000 14,701,125
Freeport-McMoRan Copper & Gold, Inc., Class B...... 403,000 6,120,563
Homestake Mining Co................................ 1,542,000 15,998,250
Imperial Chemical Industries PLC -
ADR (United Kingdom)............................ 92,000 5,934,000
Louisiana-Pacific Corp............................. 747,000 13,632,750
Mead Corp.......................................... 125,000 3,968,750
Newmont Mining Corp................................ 543,000 12,828,375
Nucor Corp......................................... 60,000 2,760,000
Owens Illinois, Inc.(a)............................ 50,000 2,237,500
Phelps Dodge Corp.................................. 92,000 5,261,250
Placer Dome, Inc................................... 842,500 9,899,375
Stone Container Corp.(a)........................... 265,000 4,140,625
Union Carbide Corp................................. 40,000 2,135,000
USX U.S. Steel Group, Inc.......................... 150,000 4,950,000
------------
184,025,963
------------
Technology 17.2%
3Com Corp.(a)...................................... 45,000 1,380,938
ADC Telecommunications, Inc........................ 13,600 496,825
Alcatel Alsthom CGE - ADR (France)................. 100,000 4,068,750
Altera Corp.(a).................................... 60,200 1,779,662
America Online, Inc.(a)............................ 9,000 954,000
Amkor Technology, Inc.(a).......................... 384,500 3,592,672
Applied Materials, Inc.(a)......................... 160,000 4,720,000
Ascend Communications, Inc.(a)..................... 187,000 9,268,187
</TABLE>
See Notes to Financial Statements
16
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
==============================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Technology (Continued)
Autodesk Inc....................................... 180,000 $ 6,952,500
Avnet, Inc......................................... 125,600 6,868,750
AVX Corp........................................... 85,000 1,365,313
Bay Networks, Inc.(a).............................. 180,000 5,805,000
BMC Software, Inc.(a).............................. 490,600 25,480,537
Cadence Design Systems, Inc.(a).................... 406,600 12,706,250
Cambridge Technology Partners, Inc.(a)............. 14,200 775,675
Check Point Software Tech Ltd.(a).................. 14,900 487,975
CIENA Corp.(a)..................................... 50,000 3,481,250
Cisco Systems, Inc.(a)............................. 318,700 29,340,319
Citrix Systems, Inc.(a)............................ 131,750 9,008,406
Compaq Computer Corp............................... 300,000 8,512,500
Computer Associates International, Inc............. 452,950 25,167,034
Computer Sciences Corp.(a)......................... 238,000 15,232,000
Compuware Corp.(a)................................. 446,000 22,801,750
Comverse Technology, Inc.(a)....................... 107,000 5,550,625
Cypress Semiconductor Corp.(a)..................... 37,900 315,044
Dell Computer Corp.(a)............................. 178,400 16,557,750
Electronics for Imaging, Inc.(a)................... 307,200 6,489,600
EMC Corp.(a)....................................... 688,000 30,831,000
Etec Systems, Inc.(a).............................. 131,600 4,630,675
First Data Corp.................................... 50,000 1,665,625
Gateway 2000, Inc.(a).............................. 20,000 1,012,500
General Dynamics Corp.............................. 150,000 6,975,000
General Signal Corp................................ 65,000 2,340,000
Harris Corp........................................ 110,000 4,915,625
Hewlett-Packard Co................................. 65,000 3,891,875
Hexcel Corp.(a).................................... 155,000 3,506,875
Intel Corp......................................... 210,000 15,566,250
International Business Machines Corp............... 237,000 27,210,562
KLA - Tencor Corp.(a).............................. 55,000 1,522,813
Lattice Semiconductor Corp.(a)..................... 30,000 852,188
Legato Systems, Inc.(a)............................ 31,800 1,240,200
Linear Technology Corp............................. 76,000 4,583,750
Lockheed Martin Corp............................... 55,000 5,823,125
Lucent Technologies, Inc........................... 514,800 42,824,925
Maxim Integrated Products, Inc.(a)................. 295,700 9,369,994
Micron Technology, Inc.(a)......................... 407,300 10,106,131
</TABLE>
See Notes to Financial Statements
17
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
==============================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Technology (Continued)
Microsoft Corp. (a)................................ 435,200 $ 47,164,800
Networks Associates, Inc. (a)...................... 409,050 19,583,269
Nokia Corp. - ADR (Finland) (a).................... 248,600 18,039,037
Northern Telecom Ltd............................... 80,000 4,540,000
Northrop Grumman Corp.............................. 55,000 5,671,875
Oracle Systems Corp. (a)........................... 123,100 3,023,644
Parametric Technology Co........................... 29,600 802,900
Peoplesoft, Inc. (a)............................... 210,000 9,870,000
Pitney Bowes, Inc.................................. 150,000 7,218,750
Quantum Corp. (a).................................. 943,400 19,575,550
Rational Software Corp. (a)........................ 11,300 172,325
Raytheon Co., Class B.............................. 120,000 7,095,000
Sanmina Corp. (a).................................. 113,000 4,901,375
SCI Systems, Inc. (a).............................. 338,000 12,717,250
Software AG Systems, Inc. (a)...................... 23,000 672,750
Sterling Software, Inc. (a)........................ 310,000 9,164,375
Storage Technology Corp. (a)....................... 198,000 8,588,250
Sun Microsystems, Inc. (a)......................... 230,000 9,990,625
Sundstrand Corp.................................... 70,000 4,007,500
SunGard Data Systems, Inc. (a)..................... 641,900 24,632,912
Synopsys, Inc. (a)................................. 20,000 915,000
Tellabs, Inc. (a).................................. 165,000 11,818,125
Texas Instruments, Inc............................. 20,000 1,166,250
Thomas & Betts Corp................................ 40,000 1,970,000
VERITAS Software Co. (a)........................... 24,600 1,017,825
VLSI Technology, Inc. (a).......................... 329,000 5,521,031
Western Digital Corp. (a).......................... 115,000 1,358,438
Xerox Corp......................................... 31,600 3,211,350
Xilinx, Inc........................................ 139,700 4,749,800
------------
657,188,431
------------
Transportation 1.6%
AMR Corp. (a)...................................... 243,000 20,229,750
British Airways PLC - ADR (United Kingdom)......... 20,000 2,151,250
Canadian National Railway Co....................... 184,100 9,780,313
Continental Airlines, Inc., Class B (a)............ 170,500 10,379,188
Delta Air Lines, Inc............................... 80,000 10,340,000
FDX Corp. (a)...................................... 90,000 5,647,500
</TABLE>
See Notes to Financial Statements
18
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
==============================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Transportation (Continued)
U.S. Airways Group, Inc.(a)...................... 25,000 $ 1,981,250
UAL Corp.(a)...................................... 20,000 1,560,000
------------
62,069,251
------------
Utilities 10.4%
Ameritech Corp.................................... 611,000 27,418,625
AT & T Corp....................................... 107,000 6,112,375
Baltimore Gas & Electric Co....................... 71,100 2,208,544
BEC Energy........................................ 431,000 17,886,500
Bell Atlantic Corp................................ 614,000 28,013,750
BellSouth Corp.................................... 180,000 12,082,500
CMS Energy Corp................................... 245,400 10,797,600
DTE Energy Co..................................... 254,000 10,255,250
Edison International.............................. 93,000 2,749,313
Endesa SA - ADR (Spain)........................... 408,400 8,831,650
FPL Group, Inc.................................... 57,000 3,591,000
GPU, Inc.......................................... 373,700 14,130,531
GTE Corp.......................................... 40,000 2,225,000
Houston Industries, Inc........................... 1,243,200 38,383,800
Idaho Power Co.................................... 487,200 16,869,300
Illinova Corp..................................... 340,000 10,200,000
NCR Corp.(a)...................................... 80,000 2,600,000
New Century Energies, Inc......................... 90,500 4,112,094
Niagara Mohawk Power Corp.(a)..................... 117,100 1,749,181
NIPSCO Industries, Inc............................ 116,000 3,248,000
Northeast Utilities(a)............................ 375,400 6,358,337
Northern States Power Co. MN...................... 300,000 8,587,500
OGE Energy Corp................................... 534,200 14,423,400
PacifiCorp........................................ 862,000 19,502,750
Pinnacle West Capital Corp........................ 373,000 16,785,000
Public Service Co. of New Mexico.................. 524,000 11,888,250
SBC Communications, Inc........................... 491,000 19,640,000
Sierra Pacific Resources.......................... 35,000 1,270,938
Texas Utilities Co................................ 941,300 39,181,612
US West, Inc...................................... 734,700 34,530,900
------------
395,633,700
------------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
<TABLE>
<CAPTION>
================================================================================================================
Description Market Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Total Long-Term Investments 98.8%
(Cost $2,714,081,869).......................................................................... $3,765,578,716
--------------
Short-Term Investments 2.0%
Repurchase Agreement 0.6%
BA Securities ($22,420,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 06/30/98, to be sold on 07/01/98 at $22,423,768)............... 22,420,000
--------------
U.S. Government Agency Obligations 1.4%
Federal Home Loan Mortgage Discount Notes ($20,000,000 par, yielding 5.45%, 07/20/98 maturity)... 19,939,777
Federal Home Loan Mortgage Discount Notes ($10,000,000 par, yielding 5.48%, 07/31/98 maturity)... 9,953,155
Federal Home Loan Mortgage Discount Notes ($25,000,000 par, yielding 5.51%, 08/28/98 maturity)... 24,777,111
--------------
Total U.S. Government Agency Obligations......................................................... 54,670,043
--------------
Total Short-Term Investments 2.0%
(Cost $77,090,043)............................................................................. 77,090,043
--------------
Total Investments 100.8%
(Cost $2,791,171,912).......................................................................... 3,842,668,759
Liabilities in Excess of Other Assets (0.8%)..................................................... (29,223,056)
--------------
Net Assets 100.0%................................................................................ $3,813,445,703
==============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
20 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $2,791,171,912)........................ $3,842,668,759
Receivables:
Dividends.................................................... 6,655,518
Investments Sold............................................. 4,658,116
Fund Shares Sold............................................. 4,277,122
Other.......................................................... 114,085
--------------
Total Assets................................................. 3,858,373,600
--------------
Liabilities:
Payables:
Fund Shares Repurchased...................................... 32,740,324
Investments Purchased........................................ 7,071,413
Distributor and Affiliates................................... 2,612,073
Investment Advisory Fee...................................... 1,320,436
Accrued Expenses............................................... 855,298
Trustees' Deferred Compensation and Retirement Plans........... 328,353
--------------
Total Liabilities.......................................... 44,927,897
--------------
Net Assets..................................................... $3,813,445,703
==============
Net Assets Consist of:
Capital........................................................ $2,478,104,833
Net Unrealized Appreciation.................................... 1,051,496,847
Accumulated Net Realized Gain.................................. 268,846,068
Accumulated Undistributed Net Investment Income................ 14,997,955
--------------
Net Assets..................................................... $3,813,445,703
==============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share
(Based on net assets of $3,661,449,547 and 244,569,116
shares of beneficial interest issued and outstanding)...... $ 14.97
Maximum sales charge (5.75%* of offering price)............ .91
--------------
Maximum offering price to public........................... $ 15.88
==============
Class B Shares:
Net asset value and offering price per share
(Based on net assets of $140,264,625 and 9,498,871
shares of beneficial interest issued and outstanding)...... $ 14.77
==============
Class C Shares:
Net asset value and offering price per share
(Based on net assets of $11,731,531 and 793,372
shares of beneficial interest issued and outstanding)...... $ 14.79
==============
*On sales of $50,000 or more, the sales charge will be reduced.
</TABLE>
21 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Year Ended June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends ($971,179 from affiliates of Van Kampen)..................... $ 49,774,060
Interest............................................................... 8,880,824
--------------
Total Income...................................................... 58,654,884
--------------
Expenses:
Investment Advisory Fee................................................ 15,236,351
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C
of $7,664,713, $1,151,207 and $82,505, respectively)................. 8,898,425
Shareholder Services................................................... 5,735,785
Custody................................................................ 234,468
Legal.................................................................. 88,994
Trustees' Fees and Expenses............................................ 73,197
Other.................................................................. 1,380,135
--------------
Total Expenses.................................................... 31,647,355
--------------
Net Investment Income.................................................. $ 27,007,529
==============
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments ($20,161,960 from affiliates of Van Kampen).............. $ 440,324,582
Futures.............................................................. 11,012,682
--------------
Net Realized Gain...................................................... 451,337,264
--------------
Unrealized Appreciation/Depreciation:
Beginning of the Period.............................................. 623,187,786
End of the Period:
Investments.......................................................... 1,051,496,847
--------------
Net Unrealized Appreciation During the Period.......................... 428,309,061
--------------
Net Realized and Unrealized Gain....................................... $ 879,646,325
==============
Net Increase in Net Assets From Operations............................. $ 906,653,854
==============
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Years Ended June 30, 1998 and 1997
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income......................................... $ 27,007,529 $ 27,093,350
Net Realized Gain............................................. 451,337,264 403,968,224
Net Unrealized Appreciation During the Period................. 428,309,061 303,202,849
--------------- ---------------
Change in Net Assets from Operations.......................... 906,653,854 734,264,423
--------------- ---------------
Distributions from Net Investment Income*..................... (30,494,141) (24,489,713)
Distributions from Net Realized Gain*......................... (524,699,711) (259,006,785)
--------------- ---------------
Total Distributions.......................................... (555,193,852) (283,496,498)
--------------- ---------------
Net Change in Net Assets from Investment Activities........... 351,460,002 450,767,925
--------------- ---------------
From Capital Transactions:
Proceeds from Shares Sold..................................... 1,921,901,750 1,643,070,575
Net Asset Value of Shares Issued Through Dividend Reinvestment 515,581,788 262,459,571
Cost of Shares Repurchased.................................... (2,070,189,122) (1,872,518,515)
--------------- ---------------
Net Change in Net Assets from Capital Transactions............ 367,294,416 33,011,631
--------------- ---------------
Total Increase in Net Assets.................................. 718,754,418 483,779,556
Net Assets:
Beginning of the Period....................................... 3,094,691,285 2,610,911,729
--------------- ---------------
End of the Period (Including accumulated
undistributed net investment income
of $14,997,955 and $15,027,238, respectively)............... $ 3,813,445,703 $ 3,094,691,285
=============== ===============
Year Ended Year Ended
*Distributions by Class June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------------
Distributions from Net Investment Income:
Class A Shares.............................................. $ (30,092,754) $ (24,328,961)
Class B Shares.............................................. (375,733) (153,305)
Class C Shares.............................................. (25,654) (7,447)
--------------- ---------------
$ (30,494,141) $ (24,489,713)
--------------- ---------------
Distributions from Net Realized Gain:
Class A Shares.............................................. $ (507,041,781) $ (251,595,348)
Class B Shares.............................................. (16,529,561) (7,068,097)
Class C Shares.............................................. (1,128,369) (343,340)
--------------- ---------------
$ (524,699,711) $ (259,006,785)
--------------- ---------------
</TABLE>
23 See Notes to Financial Statements
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
=====================================================================================================================
Year Ended June 30,
--------------------------------------------------------
Class A Shares 1998 1997 1996(a) 1995(a) 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $ 13.872 $ 11.92 $ 11.62 $ 11.05 $ 12.95
-------- -------- -------- -------- --------
Net Investment Income..................................... .122 .132 .12 .14 .13
Net Realized and Unrealized Gain/Loss..................... 3.541 3.191 2.09 1.85 (.1475)
-------- -------- -------- -------- --------
Total from Investment Operations.......................... 3.663 3.323 2.21 1.99 (.0175)
-------- -------- -------- -------- --------
Less:
Distributions from and in Excess of Net Investment Income. .144 .121 .15 .1225 .135
Distributions from Net Realized Gain...................... 2.420 1.250 1.76 1.2975 1.7475
-------- -------- -------- -------- --------
Total Distributions....................................... 2.564 1.371 1.91 1.42 1.8825
-------- -------- -------- -------- --------
Net Asset Value, End of the Period........................ $ 14.971 $ 13.872 $ 11.92 $ 11.62 $ 11.05
======== ======== ======== ======== ========
Total Return (b).......................................... 29.89% 30.06% 20.48% 20.62% (.64%)
Net Assets at End of the Period (In millions)............. $3,661.4 $2,992.2 $2,534.3 $2,279.4 $2,152.5
Ratio of Expenses to Average Net Assets (c)............... .88% .97% .94% 1.04% 1.02%
Ratio of Net Investment Income to Average Net Assets (c).. .80% 1.01% 1.02% 1.24% .99%
Portfolio Turnover........................................ 67% 144% 213% 248% 112%
</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) For the years ended June 30, 1996 and June 30, 1997 the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
24 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
========================================================================================================================
Year Ended June 30,
---------------------------------------------------
Class B Shares 1998 1997 1996(a) 1995(a) 1994(a)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......................... $13.730 $ 11.81 $11.53 $ 10.96 $ 12.86
------- ------- ------ ------- -------
Net Investment Income............................................. .045 .046 .02 .05 .03
Net Realized and Unrealized Gain/Loss............................. 3.466 3.151 2.07 1.85 (.1575)
------- ------- ------ ------- -------
Total from Investment Operations.................................. 3.511 3.197 2.09 1.90 (.1275)
------- ------- ------ ------- -------
Less:
Distributions from Net Investment Income.......................... .055 .027 .05 .0325 .025
Distributions from Net Realized Gain.............................. 2.420 1.250 1.76 1.2975 1.7475
------- ------- ------ ------- -------
Total Distributions............................................... 2.475 1.277 1.81 1.33 1.7725
------- ------- ------ ------- -------
Net Asset Value, End of the Period................................ $14.766 $13.730 $11.81 $ 11.53 $ 10.96
======= ======= ====== ======= =======
Total Return (b).................................................. 28.92% 29.08% 19.44% 19.73% (1.46%)
Net Assets at End of the Period (In millions)..................... $ 140.3 $ 95.5 $ 72.1 $ 53.0 $ 35.8
Ratio of Expenses to Average Net Assets (c)....................... 1.66% 1.74% 1.75% 1.84% 1.79%
Ratio of Net Investment Income to Average Net Assets (c).......... .03% .23% .21% .44% .21%
Portfolio Turnover................................................ 67% 144% 213% 248% 112%
</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) For the years ended June 30, 1996 and June 30, 1997 the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
25 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated.
================================================================================
<TABLE>
<CAPTION>
August 27, 1993
Year Ended June 30, (Commencement
------------------------------------------ of Distribution) to
Class C Shares 1998 1997 1996(a) 1995(a) June 30, 1994 (a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................ $13.752 $ 11.83 $11.52 $ 10.99 $ 13.25
------- ------- ------ ------- ---------
Net Investment Income................................... .028 .036 .02 .05 .02
Net Realized and Unrealized Gain/Loss................... 3.482 3.163 2.10 1.81 (.4375)
------- ------- ------ ------- ---------
Total from Investment Operations........................ 3.510 3.199 2.12 1.86 (.4175)
------- ------- ------ ------- ---------
Less:
Distributions from and in Excess of Net Investment
Income................................................ .055 .027 .05 .0325 .095
Distributions from Net Realized Gain.................... 2.420 1.250 1.76 1.2975 1.7475
------- ------- ------ ------- ---------
Total Distributions..................................... 2.475 1.277 1.81 1.33 1.8425
------- ------- ------ ------- ---------
Net Asset Value, End of the Period...................... $14.787 $13.752 $11.83 $ 11.52 $ 10.99
======= ======= ====== ======= =========
Total Return (b)........................................ 28.87% 29.04% 19.74% 19.27% (3.70%)*
Net Assets at End of the Period (In millions)........... $ 11.7 $ 7.0 $ 4.5 $ 2.2 $ 1.2
Ratio of Expenses to Average Net Assets (c)............. 1.66% 1.74% 1.75% 1.84% 1.81%
Ratio of Net Investment Income to Average Net
Assets (c)............................................ .04% .23% .15% .44% .24%
Portfolio Turnover...................................... 67% 144% 213% 248% 112%
</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) For the years ended June 30, 1996 and June 30, 1997 the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
*Non-Annualized
See Notes to Financial Statements
26
<PAGE>
Notes to Financial Statements
June 30, 1998
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Pace Fund, formerly known as Van Kampen American Capital Pace Fund,
(the "Fund") is organized as a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to 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
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation--Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sale price is not
available are valued at the mean of the bid and asked prices or, if not
available, their fair value as determined in accordance with procedures
established in good faith by the Board of Trustees. Short-term securities with
remaining maturities of 60 days or less are valued at amortized cost.
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
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen 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 physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. Income and Expenses--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discounts on
debt securities purchased are amortized over the expected life of each
applicable security. Premiums on debt securities are not amortized. Expenses of
the Fund are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gain differs for financial reporting and tax purposes as a
result of the deferral for tax purposes of losses resulting from wash sales.
At June 30, 1998, for federal income tax purposes, cost of long- and short-
term investments is $2,797,906,284; the aggregate gross unrealized appreciation
is $1,121,214,760 and the aggregate gross unrealized depreciation is
$76,452,285, resulting in net unrealized appreciation of $1,044,762,475.
27
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998
- --------------------------------------------------------------------------------
E. Distribution of Income and Gains--The Fund declares and pays dividends
annually from net investment income and from net realized gains on securities.
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 income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the current fiscal year have been identified and appropriately reclassified.
A permanent difference related to short-term gains totaling $3,457,329 has been
reclassified from accumulated net realized gain to accumulated net investment
income.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
Average Net Assets % Per Annum
- ---------------------------------------------------------------------
First $1 billion.......................................... .50 of 1%
Next $1 billion........................................... .45 of 1%
Next $1 billion........................................... .40 of 1%
Over $3 billion........................................... .35 of 1%
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $88,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $424,800 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1998, the Fund recognized expenses of approximately $4,409,800. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
For the year ended June 30, 1998, the Fund paid brokerage commissions to
Morgan Stanley Dean Witter and Co., which is an affiliate of Van Kampen, of
$1,000.
During the year ended June 30, 1998, the Fund entered into transactions
with the following Van Kampen Fund which was managed by the Adviser:
<TABLE>
<CAPTION>
Transactions
During the Period
% of ----------------------
Net Assets at Cost of Proceeds
June 30, 1998 Purchases of Sales
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Capitalization Fund................. 1.69% -0- 39,976,722
</TABLE>
28
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998
================================================================================
At June 30, 1998, the Fund owned 100% of the Van Kampen Small
Capitalization Fund. This entity does not charge an investment advisory fee or
sales charge and the shares of this entity may only be purchased by other funds
in the Van Kampen fund complex.
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At June 30, 1998, capital aggregated $2,352,705,544, $115,697,048 and
$9,702,241 for Classes A, B, and C, respectively. For the year ended June 30,
1998, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
=============================================================================
<S> <C> <C>
Sales:
Class A..................................... 114,528,015 $ 1,658,797,819
Class B..................................... 15,697,912 224,894,498
Class C..................................... 2,661,609 38,209,433
------------ ---------------
Total Sales................................... 132,887,536 $ 1,921,901,750
============ ===============
Dividend Reinvestment:
Class A..................................... 39,614,547 $ 499,143,289
Class B..................................... 1,243,314 15,504,133
Class C..................................... 74,809 934,366
------------ ---------------
Total Dividend Reinvestment................... 40,932,670 $ 515,581,788
============ ===============
Repurchases:
Class A..................................... (125,272,563) $(1,827,462,304)
Class B..................................... (14,397,387) (207,460,144)
Class C..................................... (2,449,887) (35,266,674)
------------ ---------------
Total Repurchases............................. (142,119,837) $(2,070,189,122)
============ ===============
</TABLE>
29
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998
================================================================================
At June 30, 1997, capital aggregated $2,022,226,740, $82,758,561 and
$5,825,116 for Classes A, B, and C, respectively. For the year ended June 30,
1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
Sales:
<S> <C> <C>
Class A................................ 105,486,346 $ 1,322,487,505
Class B................................ 21,645,218 268,448,586
Class C................................ 4,201,247 52,134,484
------------- ---------------
Total Sales.............................. 131,332,811 $ 1,643,070,575
============= ===============
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................................ (124,366,182) $(1,557,255,115)
Class B................................ (21,362,800) (264,482,526)
Class C................................ (4,098,959) (50,780,874)
------------- ---------------
Total Repurchases........................ (149,827,941) $(1,872,518,515)
============= ===============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year. 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.
<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 year ended June 30, 1998, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$374,900 and CDSC on redeemed shares of approximately $117,300. Sales charges do
not represent expenses of the Fund.
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $2,250,893,598 and $2,273,952,335,
respectively.
30
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998
================================================================================
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 holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. 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.
During the period, the Fund invested in futures contracts, a type of
derivative. 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
underlying the index or to manage the Fund's overall exposure to the equity
markets.
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 year ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
Contracts
================================================================================
<S> <C>
Outstanding at June 30, 1997.......................................... 250
Futures Opened........................................................ 740
Futures Closed........................................................ (990)
-----
Outstanding at June 30, 1998.......................................... -0-
=====
</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 (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended June 30, 1998, are payments retained by Van Kampen of
approximately $1,179,700.
31
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Van Kampen 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 Pace Fund (the "Fund")
at June 30, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for each of the 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
July 28, 1998
32
<PAGE>
Van Kampen Pace Fund
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Don G. Powell*
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen*--Chairman
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
Van Kampen 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
PricewaterhouseCoopers LLP
200 E. Randolph Drive
Chicago, IL 60601
- --------------------------------------------------------------------------------
Tax Notice to Corporate
Shareholders
For the fiscal year ended June 30, 1998, 18.35% of the dividends taxable as
ordinary income qualified for the 70% dividends received deduction for
corporations.
For the calendar year ended December 31, 1997, 19.38% of the dividends
taxable as ordinary income qualified for the 70% dividends received
deduction for corporations.
- --------------------------------------------------------------------------------
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen Funds Inc., 1998
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
33
<PAGE>
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> PACE FUND A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 2,791,171,912 <F1>
<INVESTMENTS-AT-VALUE> 3,842,668,759 <F1>
<RECEIVABLES> 15,590,756 <F1>
<ASSETS-OTHER> 0 <F1>
<OTHER-ITEMS-ASSETS> 114,085 <F1>
<TOTAL-ASSETS> 3,858,373,600 <F1>
<PAYABLE-FOR-SECURITIES> 7,071,413 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 37,856,484 <F1>
<TOTAL-LIABILITIES> 44,927,897 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,352,705,544
<SHARES-COMMON-STOCK> 244,569,116
<SHARES-COMMON-PRIOR> 215,699,117
<ACCUMULATED-NII-CURRENT> 14,997,955 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> 268,846,068 <F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 1,051,496,847 <F1>
<NET-ASSETS> 3,661,449,547
<DIVIDEND-INCOME> 49,774,060 <F1>
<INTEREST-INCOME> 8,880,824 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (31,647,355) <F1>
<NET-INVESTMENT-INCOME> 27,007,529 <F1>
<REALIZED-GAINS-CURRENT> 451,337,264 <F1>
<APPREC-INCREASE-CURRENT> 428,309,061 <F1>
<NET-CHANGE-FROM-OPS> 906,653,854 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (30,092,754)
<DISTRIBUTIONS-OF-GAINS> (507,041,781)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114,528,015
<NUMBER-OF-SHARES-REDEEMED> (125,272,563)
<SHARES-REINVESTED> 39,614,547
<NET-CHANGE-IN-ASSETS> 669,223,957
<ACCUMULATED-NII-PRIOR> 15,027,238 <F1>
<ACCUMULATED-GAINS-PRIOR> 345,665,844 <F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 15,236,351 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 31,647,355 <F1>
<AVERAGE-NET-ASSETS> 3,374,265,888
<PER-SHARE-NAV-BEGIN> 13.872
<PER-SHARE-NII> 0.122
<PER-SHARE-GAIN-APPREC> 3.541
<PER-SHARE-DIVIDEND> (0.144)
<PER-SHARE-DISTRIBUTIONS> (2.420)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.971
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> PACE FUND B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 2,791,171,912<F1>
<INVESTMENTS-AT-VALUE> 3,842,668,759<F1>
<RECEIVABLES> 15,590,756<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 114,085<F1>
<TOTAL-ASSETS> 3,858,373,600<F1>
<PAYABLE-FOR-SECURITIES> 7,071,413<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 37,856,484<F1>
<TOTAL-LIABILITIES> 44,927,897<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,697,048
<SHARES-COMMON-STOCK> 9,498,871
<SHARES-COMMON-PRIOR> 6,955,032
<ACCUMULATED-NII-CURRENT> 14,997,955<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 268,846,068<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 1,051,496,847<F1>
<NET-ASSETS> 140,264,625
<DIVIDEND-INCOME> 49,774,060<F1>
<INTEREST-INCOME> 8,880,824<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (31,647,355)<F1>
<NET-INVESTMENT-INCOME> 27,007,529<F1>
<REALIZED-GAINS-CURRENT> 451,337,264<F1>
<APPREC-INCREASE-CURRENT> 428,309,061<F1>
<NET-CHANGE-FROM-OPS> 906,653,854<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (375,733)
<DISTRIBUTIONS-OF-GAINS> (16,529,561)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,697,912
<NUMBER-OF-SHARES-REDEEMED> (14,397,387)
<SHARES-REINVESTED> 1,243,314
<NET-CHANGE-IN-ASSETS> 44,768,788
<ACCUMULATED-NII-PRIOR> 15,027,238<F1>
<ACCUMULATED-GAINS-PRIOR> 345,665,844<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 15,236,351<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 31,647,355<F1>
<AVERAGE-NET-ASSETS> 115,127,336
<PER-SHARE-NAV-BEGIN> 13.730
<PER-SHARE-NII> 0.045
<PER-SHARE-GAIN-APPREC> 3.466
<PER-SHARE-DIVIDEND> (0.055)
<PER-SHARE-DISTRIBUTIONS> (2.420)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.766
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> PACE FUND C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 2,791,171,912<F1>
<INVESTMENTS-AT-VALUE> 3,842,668,759<F1>
<RECEIVABLES> 15,590,756<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 114,085<F1>
<TOTAL-ASSETS> 3,858,373,600<F1>
<PAYABLE-FOR-SECURITIES> 7,071,413<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 37,856,484<F1>
<TOTAL-LIABILITIES> 44,927,897<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,702,241
<SHARES-COMMON-STOCK> 793,372
<SHARES-COMMON-PRIOR> 506,841
<ACCUMULATED-NII-CURRENT> 14,997,955<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 268,846,068<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 1,051,496,847<F1>
<NET-ASSETS> 11,731,531
<DIVIDEND-INCOME> 49,774,060<F1>
<INTEREST-INCOME> 8,880,824<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (31,647,355)<F1>
<NET-INVESTMENT-INCOME> 27,007,529<F1>
<REALIZED-GAINS-CURRENT> 451,337,264<F1>
<APPREC-INCREASE-CURRENT> 428,309,061<F1>
<NET-CHANGE-FROM-OPS> 906,653,854<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (25,654)
<DISTRIBUTIONS-OF-GAINS> (1,128,369)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,661,609
<NUMBER-OF-SHARES-REDEEMED> (2,449,887)
<SHARES-REINVESTED> 74,809
<NET-CHANGE-IN-ASSETS> 4,761,673
<ACCUMULATED-NII-PRIOR> 15,027,238<F1>
<ACCUMULATED-GAINS-PRIOR> 345,665,844<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 15,236,351<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 31,647,355<F1>
<AVERAGE-NET-ASSETS> 8,254,790
<PER-SHARE-NAV-BEGIN> 13.752
<PER-SHARE-NII> 0.028
<PER-SHARE-GAIN-APPREC> 3.482
<PER-SHARE-DIVIDEND> (0.055)
<PER-SHARE-DISTRIBUTIONS> (2.420)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.787
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>