<PAGE>
V A N K A M P E N A M E R I C A N C A P I T A L
PACE FUND
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
[PHOTO APPEARS HERE]
__________ A Wealth of Knowledge "A Knowledge of Wealth"__________
VAN KAMPEN AMERICAN CAPITAL
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
-----------------
<S> <C>
Letter to Shareholders................................................ 1
Performance Results................................................... 3
Glossary of Terms..................................................... 4
Portfolio Management Review........................................... 5
Portfolio Highlights.................................................. 8
Portfolio of Investments.............................................. 9
Statement of Assets and Liabilities................................... 23
Statement of Operations............................................... 24
Statement of Changes in Net Assets.................................... 25
Financial Highlights.................................................. 26
Notes to Financial Statements......................................... 29
</TABLE>
<PAGE>
[PHOTOS OF DENNIS J. MCDONNELL AND DON S. POWELL APPEARS HERE]
Letter to Shareholders
February 1, 1998
Dear Shareholder,
The new year ushers in what promises to be an exciting and challenging time
for investors. The Taxpayer Relief Act of 1997 signed into law by President
Clinton in August creates many new opportunities for you and your family to take
a more active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over five
years. The so-called Kiddie Credit gives parents $400 in immediate tax relief
for every child under age 17, and families will find it easier to save for their
children's college expenses through the new Education IRA. The bill also cuts
capital gains tax rates for the first time in over a decade and loosens
restrictions on tax-deductible IRA contributions. Perhaps the most exciting
feature of all is the new Roth IRA, which allows investment earnings to grow tax
free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
These continue to be the best of times for the U.S. economy. Growth is strong,
consumers are optimistic, unemployment is low, the budget is headed for surplus,
and our nation's currency is rising around the world.
Despite the strength in the economy, there is no indication of troublesome
inflation. In fact, the producer price index fell by 1.2 percent during the
year, the largest annual decline in wholesale prices since 1986. Inflation at
the consumer level was also virtually nonexistent, with the consumer price index
rising by only 1.7 percent during 1997. A strong dollar and significant
productivity gains helped offset inflationary pressures caused by rising wages.
After increasing short-term interest rates by 0.25 percent in March, the
Federal Reserve Board left monetary policy unchanged for the remainder of the
year. In addition to signs that the economy was slowing modestly from its
breakneck pace of early 1997, Fed policy-makers were concerned about the impact
that higher U.S. interest rates might have on the struggling economies of
Southeast Asia. Generally, higher U.S. interest rates cause the dollar to rise
relative to other currencies. With nearly all Asian currencies already down
significantly, a hike in U.S. rates would force monetary authorities in Asia to
choose between letting their currencies decline further or matching the rate
increase, thereby slowing their already-sluggish economies.
1 CONTINUED ON PAGE TWO
<PAGE>
MARKET OVERVIEW
Bolstered by solid economic growth and low inflation, stock prices continued
their advance during the reporting period. Over the 12 months through December,
the Wilshire 5000 Index, which measures the performance of all publicly traded
U.S. companies, gained 29.17 percent. And with its 22.64 percent advance in
1997, the Dow Jones Industrial Average completed its third consecutive year of
20 percent-plus gains for the first time in the history of the index.
But while U.S. stocks kept rising, volatility also picked up. During the
spring, stronger-than-expected economic growth and a subsequent hike in short-
term interest rates caused stock prices to fall by 10 percent. Later in the
year, investors were unnerved by the spreading economic crisis in Asia. Between
early August and late October, the DJIA fell by 16 percent before rebounding
sharply to close the reporting period near record-high territory.
Within the equity market, large stocks continued to outperform their small-cap
cousins. For the year, the Russell 1000 Index of large-cap companies returned
30.49 percent, compared to 20.52 percent for the Russell 2000 Index of small
stocks. A wave of consolidations helped make Financial Services the top-
performing industry group. The Dow Jones Financial Index soared 48.44 percent
during 1997.
OUTLOOK
We expect that the recent upheavals in Southeast Asia will have a mixed impact
on the U.S. economy and financial markets. Sales of American goods overseas are
likely to decline in coming months, and competition from relatively inexpensive
imports could pinch profit margins. However, lower currency values in Asia will
likely result in less inflation in the U.S. and a greater likelihood of stable
or falling interest rates. Such a scenario usually benefits stock prices, and we
believe that a portfolio of high-quality domestic stocks should continue to
perform well. We also anticipate that stock selection will play a larger role in
generating investment performance due to the uneven impact of the Asian crisis
on individual companies.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive new
vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
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/ Donald G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL PACE FUND
<TABLE>
<CAPTION>
TOTAL RETURNS A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Six-month total return based on NAV/1/................... 25.10% 24.10% 24.06%
Six-month total return/2/................................ 11.34% 14.15% 22.03%
One-year total return/2/................................. 22.72% 24.24% 28.30%
Five-year average annual total return/2/................. 15.96% 16.18% N/A
Ten-year average annual total return/2/.................. 14.62% N/A N/A
Life-of-Fund average annual total return/2/.............. 13.18% 14.04% 17.02%
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>
GLOSSARY OF TERMS
BLUE-CHIP STOCKS:
Stocks of large, well-known companies that have a long record of growth and a
reputation for quality management. 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 issued and outstanding
shares of stock. Morningstar, Inc., 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, computed by deducting a fund's liabilities
from its total assets and dividing this amount by the number of shares
outstanding. It does not include any initial or contingent deferred sales
charge.
STANDARD AND POOR'S 500-STOCK INDEX:
An index of the 500 largest, most actively traded stocks on the New York Stock
Exchange. It 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 its current price
relative to its earning.
4
<PAGE>
PROTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL PACE FUND
We recently spoke to the management team of the Van Kampen American Capital Pace
Fund about the key events and economic forces that shaped the markets during the
past six months. The team includes Alan T. Sachtleben, chief investment officer
of equity investments, and portfolio co-managers Jeff D. New, B. Robert Baker,
and John Cunniff. The following excerpts reflect their views on the Fund's
performance during the six-month period ended December 31, 1997.
[Q] What was the stock market environment for the Fund during the reporting
period?
[A] Moderate economic growth and low inflation provided a very favorable
environment for equity investments and drove the stock market to record levels
at the beginning of the reporting period. After peaking at 8259 in early August,
the Dow Jones Industrial Average (DJIA) experienced several months of
volatility. This period culminated in October, when the stock market reacted to
economic turmoil in Southeast Asia and the DJIA dropped a record number of
points in a single day. The market rose back up to hover slightly below its all-
time high by year-end.
Market leadership took several twists and turns as well. Although investors
favored blue-chip stocks early in the year, by mid-year momentum had switched to
small-capitalization stocks, which outperformed large caps in almost every major
economic sector in the third quarter. In October, uncertainty surrounding the
situation in Asia prompted investors to seek out large, well-established
companies--as a result, small stocks began to struggle again and large stocks
regained their dominant position.
[Q] Given these events, what was your strategy in managing the Fund to meet its
objective?
[A] We maintained a consistent investment strategy that emphasizes common
stocks of large, well-established companies with above-average growth rates.
Using a "bottom-up" selection process, we evaluate stocks one by one and make
purchases wherever we find good opportunities. As a result, our sector
weightings tend to be a result of where we find favorable investments on a stock
by stock basis, although we make sure that the portfolio is broadly diversified
across many sectors.
The currency collapse in Asia has raised some questions about its future
effects on domestic companies. As often happens in times of economic
uncertainty, many investors have shifted their assets to high-quality stocks
with proven track records--many of which are large-company stocks. Our
management philosophy for the Pace Fund is to concentrate on large stocks with
strong future fundamentals, so our strategy has been compatible with the recent
trend in the market.
[Q] What significant changes did you make to the portfolio?
[A] In general, our sector weightings are very similar to what they were six
months ago. The Fund continues to be overweighted in electric utility stocks,
and some of our strongest performers were in this area. Earlier in the year,
investor sentiment for these stocks was very
5
<PAGE>
negative--many investors were concerned about the impact of industry
deregulation and competition, and stocks were undervalued. However, we increased
our holdings in electric utilities because we believed they were positioned to
appreciate, and that is exactly what happened in the second half of 1997.
Declining interest rates, as well as diminishing competitive and regulatory
concerns, led to strong performance in the second half of the year. Electric
utilities have outperformed the stock market since mid-year, and we still
believe they offer favorable value opportunities in today's market. Key holdings
in this sector were Texas Utilities and Houston Industries, which appreciated 20
percent and 17 percent, respectively, during the past six months.
As of year-end, we are slightly overweighted in consumer nondurables, such as
Dial Corp., RJR Nabisco Holdings, and First Brands. Dial, a manufacturer of soap
and other personal care products, is currently one of the Fund's largest
holdings. Dial recently appointed an experienced CEO who is restructuring the
company and cutting expenses, and the market has begun to look more favorably
upon the company. In fact, the stock price has already risen by almost 34
percent since mid-year.
Finally, we also maintained a sizable exposure to finance stocks. The moderate
growth, low inflation, and favorable interest rate environment we've enjoyed
lately has been positive for this sector. Conseco, an operator of life insurance
firms, continues to be a large holding in the portfolio, and we've seen solid
performance from BankAmerica, Travelers Group, and Chase Manhattan Corp. Of
course, there is no guarantee that these stocks will continue to perform as
favorably. For additional Fund portfolio highlights, please refer to page 8.
[Q] What factors worked against the Fund?
[A] Technology holdings were a drag on the Fund, and approximately 16 percent
of the portfolio is allocated here. The situation in Asia took a toll on this
sector for several reasons. First, many technology companies either sell their
products overseas, manufacture products for companies that do business overseas,
or compete directly with Asian companies--all of which would have hindered
performance during the reporting period. And second, U.S. corporate profits are
expected to slow down in the wake of the Asian crisis. When corporate profits
are reduced, budgets for items such as new technology are often reduced as well,
and this bodes ill for the future earnings of many technology companies.
Within the technology sector, semiconductor stocks were hit hard, because much
of their revenues are dependent upon Asia. In response, we eliminated several
semiconductor names from the portfolio, including Motorola and Intel. Other
areas of the technology sector, however, weathered the past few months much
better. For example, BMC Software (business software), IBM (hardware), EMC Corp.
(data storage), and Compaq Computer Corp. (personal computers) provided positive
returns for the portfolio during the reporting period.
Another area that hasn't performed very well is raw materials--a sector that
includes paper, steel, and wood. Asia is a large consumer of U.S. raw materials,
but demand in that region has tapered off lately. In addition, many Asian
countries are desperate for cash, so they're selling
6
<PAGE>
reserves of paper products very cheaply, which has forced U.S. producers to
lower their prices. The Fund maintains only 6 percent of its assets in this
sector.
[Q] How did the Fund perform during the reporting period?
[A] The Fund achieved a six-month total return of 25.10 percent1 (Class A
shares at net asset value) as of December 31, 1997. By comparison, the Standard
& Poor's 500-Stock Index returned 10.55 percent, and the Lipper Growth Fund
Index, which more closely resembles the Fund, returned 10.98 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.
Keep in mind that these indices are unmanaged statistical composites that do
not include any commissions, fees, or sales charges that would be paid by an
investor purchasing the securities or investments they represent. Please refer
to the chart on page three for additional Fund performance results.
[Q] What is your outlook for the next six months?
[A] We believe that the economic uncertainty in Southeast Asia will be a
double-edged sword for the domestic economy and stock market. On the downside,
we anticipate that U.S. corporate profits could be negatively impacted by lower
foreign sales and increased competition from imports. On the upside, a slowdown
in corporate profits could keep economic growth at a moderate and sustainable
level. Also, we expect that lower currency values in Asia will result in low
price inflation in the U.S. and stable or declining interest rates--a favorable
scenario for stocks.
As investors shift assets back to high-quality stocks, we believe that well-
established, domestically based companies should perform well. In this
environment, the Pace Fund's focus on large-company stocks with strong
fundamentals at reasonable prices is a strategy that we expect will continue to
benefit the Fund in 1998. Overall, we anticipate stock selection will play a
growing role in investment performance, as the stock market may offer more
limited opportunities for strong returns than the broad market advances of
recent years.
/s/ Alan T. Sachtleben /s/ Jeff D. New
Alan T. Sachtleben Jeff D. New
Chief Investment Officer Portfolio Co-Manager
Equity Investments
/s/ B. Robert Baker, Jr. /s/ John M. Cunniff
B. Robert Baker, Jr. John M. Cunniff
Portfolio Co-Manager Portfolio Co-Manager
Please see footnotes on page three
7
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL PACE FUND
Top Ten Holdings as a Percentage of Long Term Investments
<TABLE>
<CAPTION>
As of As of
December 31, 1997 June 30, 1997
<S> <C> <C>
Philip Morris Cos., Inc .................. 2.4% .............. 2.9%
VKAC Small Capitalization Fund ........... 1.9% .............. 3.1%
Conseco, Inc ............................. 1.5% .............. 1.1%
International Business Machines Corp ..... 1.5% .............. 0.9%
Compaq Computer Corp ..................... 1.4% .............. 1.6%
Dial Corp ................................ 1.3% .............. 0.5%
Bristol-Myers Squibb Co .................. 1.2% .............. 1.1%
Texas Utilities Co ....................... 1.2% .............. 0.9%
Ford Motor Co ............................ 1.1% .............. 0.7%
Travelers Group, Inc ..................... 1.1% .............. 0.9%
</TABLE>
Top Five Portfolio Sectors as a Percentage of Long-term Investments
<TABLE>
<CAPTION>
As of December 31, 1997 As of June 30, 1997
<S> <C> <S> <C>
Finance................... 17% Finance................... 17%
Technology................ 16% Technology................ 17%
Utilities................. 12% Health Care............... 11%
Health Care............... 11% Utilities................. 9%
Consumer Non-Durables..... 10% Consumer Non-Durables..... 9%
</TABLE>
Asset Allocation as a Percentage of Total Investments
As of December 31, 1997
[ ] Stocks ................... 93%
[ ] Cash Equivalents ......... 7% [PIE CHART APPEARS HERE]
As of June 30, 1997
[ ] Stocks ................... 95%
[ ] Cash Equivalent .......... 5% [PIE CHART APPEARS HERE]
Pie Chart appears here
8
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
===============================================================================
Number Market
Description of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 93.6%
BUILDINGS & MATERIALSE 0.0%
Hanson PLC--ADR (United Kingdom)...................... 56,250 $ 1,297,266
-----------
CONSUMER DISTRIBUTION 6.6%
American Stores Co.................................... 130,000 2,673,125
Bed Bath & Beyond, Inc. (a)........................... 50,000 1,925,000
Brightpoint, Inc. (a)................................. 220,000 3,052,500
CompUSA, Inc. (a)..................................... 45,000 1,395,000
Costco Cos., Inc. (a)................................. 147,800 6,595,575
CVS Corp.............................................. 165,000 10,570,312
Dayton Hudson Corp.................................... 267,700 18,069,750
Family Dollar Stores, Inc............................. 185,000 5,422,813
Federated Department Stores, Inc. (a)................. 315,000 13,564,687
General Nutrition Cos., Inc. (a)...................... 125,000 4,250,000
Home Depot, Inc....................................... 65,000 3,826,875
Ingram Micro, Inc., Class A (a)....................... 172,000 5,009,500
Jacor Communications, Inc., Class A (a)............... 90,000 4,781,250
Kmart Corp. (a)....................................... 50,000 578,125
Kroger Co. (a)........................................ 581,200 21,468,075
Lear Corp. (a)........................................ 89,800 4,265,500
Lowe's Cos., Inc...................................... 40,000 1,907,500
McKesson Corp......................................... 62,000 6,707,625
Miller Herman, Inc.................................... 5,000 272,813
Office Depot, Inc. (a)................................ 176,000 4,213,000
Proffitt's, Inc. (a).................................. 136,000 3,867,500
Rite Aid Corp......................................... 105,000 6,162,187
Ross Stores, Inc...................................... 230,000 8,366,250
Safeway, Inc. (a)..................................... 425,000 26,881,250
Sears Roebuck & Co.................................... 267,000 12,081,750
Sysco Corp............................................ 135,000 6,150,937
Tech Data Corp. (a)................................... 105,700 4,109,088
TJX Cos., Inc......................................... 514,000 17,668,750
Tricon Global Restaurants, Inc. (a)................... 5,000 145,313
U.S. Office Products Co. (a).......................... 400,500 7,859,812
</TABLE>
9 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
================================================================================
Number Market
Description of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISTRIBUTION (CONTINUED)
Wal-Mart Stores, Inc............................... 110,000 $ 4,338,125
Woolworth Corp. (a)................................ 225,000 4,584,375
------------
222,764,362
------------
CONSUMER DURABLES 3.2%
Brunswick Corp..................................... 70,000 2,121,875
Chrysler Corp...................................... 232,000 8,163,500
Cooper Tire & Rubber Co............................ 213,200 5,196,750
Dana Corp.......................................... 282,000 13,395,000
Eaton Corp......................................... 143,000 12,762,750
Ford Motor Co...................................... 706,400 34,392,850
General Motors Corp................................ 265,000 16,065,625
Magna International, Inc., Class A................. 85,000 5,339,062
Maytag Corp........................................ 103,000 3,843,188
Oakwood Homes Corp................................. 95,000 3,152,813
Sony Corp.--ADR (Japan)............................ 25,000 2,268,750
Whirlpool Corp..................................... 10,000 550,000
------------
107,252,163
------------
CONSUMER NON-DURABLES 9.0%
AMP, Inc........................................... 20,000 840,000
Anheuser Busch Cos., Inc........................... 99,500 4,378,000
Avon Products, Inc................................. 80,000 4,910,000
Borders Group, Inc. (a)............................ 150,000 4,696,875
Campbell Soup Co................................... 55,000 3,196,875
Clorox Co.......................................... 65,000 5,139,063
Coca Cola Co....................................... 75,000 4,996,875
Colgate-Palmolive Co............................... 102,800 7,555,800
ConAgra, Inc....................................... 200,000 6,562,500
CPC International, Inc............................. 25,000 2,693,750
Dial Corp.......................................... 1,972,800 41,058,900
First Brands Corp.................................. 459,300 12,372,394
Fruit of the Loom, Inc. (a)........................ 95,000 2,434,375
Gallaher Group PLC--ADR (United Kingdom) (a)....... 45,000 961,875
Heinz, H. J. & Co.................................. 50,000 2,540,625
</TABLE>
10 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
===============================================================================
Number Market
Description of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER NON-DURABLES (CONTINUED)
Kimberly Clark Corp................................ 408,000 $ 20,119,500
Liz Claiborne, Inc................................. 187,600 7,844,025
Loews Corp......................................... 35,000 3,714,37
Nautica Enterprises, Inc. (a)...................... 125,000 2,906,25
PepsiCo, Inc....................................... 200,000 7,287,50
Philip Morris Cos., Inc............................ 1,683,800 76,297,18
Procter & Gamble Co................................ 134,000 10,694,87
Quaker Oats Co..................................... 110,000 5,802,50
RJR Nabisco Holdings Corp.......................... 608,000 22,800,00
Sara Lee Corp...................................... 200,000 11,262,50
Tommy Hilfiger Corp. (a)........................... 615,000 21,601,87
Unilever NV--ADR (Netherlands)..................... 64,000 3,996,00
V.F. Corp.......................................... 80,000 3,675,00
------------
302,339,494
------------
CONSUMER SERVICES 6.5%
AccuStaff, Inc. (a)................................ 327,900 7,541,700
Apple South, Inc................................... 165,000 2,165,625
Brinker International, Inc. (a).................... 365,000 5,840,000
Carnival Corp...................................... 125,000 6,921,875
CBS Corp........................................... 380,000 11,186,250
Cendant Corp. (a).................................. 497,441 17,099,534
Chancellor Media Corp. (a)......................... 75,000 5,596,875
CORESTAFF, Inc. (a)................................ 191,000 5,061,500
Cracker Barrel Old Country Store, Inc.............. 160,000 5,340,000
FIRSTPLUS Financial Group, Inc. (a)................ 68,000 2,609,500
Foodmaker, Inc. (a)................................ 260,000 3,916,250
Gannett Co., Inc................................... 266,000 16,442,125
Harcourt General, Inc.............................. 40,600 2,222,850
Hilton Hotels Corp................................. 65,000 1,933,750
Host Marriott Corp. (a)............................ 90,000 1,766,250
International Game Technology...................... 360,000 9,090,000
Knight Ridder, Inc................................. 95,000 4,940,000
Landry's Seafood Restaurants, Inc. (a)............. 140,000 3,360,000
</TABLE>
11 Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Number Market
Description of Shares Value
- ------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Marriot International, Inc....................... 87,000 $ 6,024,750
New York Times Co., Class A...................... 180,000 11,902,500
Omnicom Group, Inc............................... 434,000 18,390,750
Outback Steakhouse, Inc. (a)..................... 89,000 2,558,750
Promus Hotel Corp. (a)........................... 164,800 6,921,600
Service Corp. International...................... 142,200 5,252,513
Tele-Communications, Inc., Class A (a)........... 150,000 4,190,625
Time Warner, Inc................................. 398,700 24,719,400
Tribune Co....................................... 170,000 10,582,500
Walt Disney Co................................... 172,000 17,038,750
-----------
220,616,222
-----------
ENERGY 3.1%
Amoco Corp....................................... 64,900 5,524,613
Atlantic Richfield Co............................ 64,000 5,128,000
British Petroleum Co. PLC--ADR (United Kingdom).. 108,000 8,606,250
Chevron Corp..................................... 118,000 9,086,000
Coastal Corp..................................... 87,800 5,438,113
ENI SPA--ADR (Italy) (a)......................... 148,000 8,445,250
Equitable Resources, Inc......................... 105,000 3,714,375
Schlumberger, Ltd................................ 90,000 7,245,000
Texaco, Inc...................................... 282,400 15,355,500
Tidewater, Inc................................... 70,000 3,858,750
Total SA--ADR (France)........................... 100,000 5,550,000
USX-Marathon Group............................... 153,000 5,163,750
Weatherford Enterra, Inc. (a).................... 80,000 3,500,000
YPF Sociedad Anonima--ADR (Argentina), Class D... 512,000 17,504,000
-----------
104,119,601
-----------
FINANCE 15.8%
Ace Ltd.......................................... 17,000 1,640,500
Ahmanson H.F. & Co............................... 95,000 6,359,062
Allstate Corp.................................... 203,000 18,447,624
AMBAC, Inc....................................... 440,200 20,249,200
American Bankers Insurance Group, Inc............ 481,500 22,118,906
</TABLE>
12 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Number Market
Description of Shares Value
- ------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
American General Corp........................... 20,000 $ 1,081,250
American International Group, Inc............... 30,000 3,262,500
BancOne Corp.................................... 243,000 13,197,938
BankAmerica Corp................................ 303,800 22,177,400
BankBoston Corp................................. 150,000 14,090,625
Bankers Trust New York Corp..................... 50,000 5,621,875
Bear Stearns Cos., Inc.......................... 434,950 20,660,125
Chase Manhattan Corp............................ 246,600 27,002,700
CIGNA Corp...................................... 81,000 14,018,063
Citicorp........................................ 55,000 6,954,062
CMAC Investment Corp............................ 237,800 14,357,175
Comerica, Inc................................... 50,000 4,512,500
Conseco, Inc. 1,047,100 47,577,606
Countrywide Credit Industries, Inc.............. 120,000 5,145,000
Equitable Cos., Inc............................. 110,000 5,472,500
Everest Reinsurance Holdings, Inc............... 170,600 7,037,250
Federal National Mortgage Assn.................. 238,700 13,620,819
First Union Corp................................ 441,500 22,626,875
Green Tree Financial Corp....................... 74,000 1,937,875
GreenPoint Financial Corp....................... 35,000 2,539,688
Hertz Corp., Class A............................ 900 36,225
Household International, Inc.................... 55,000 7,015,937
Jefferson-Pilot Corp............................ 30,000 2,336,250
Lehman Brothers Holdings, Inc................... 95,000 4,845,000
Liberty Financial Cos., Inc..................... 98,550 3,720,263
Lincoln National Corp........................... 45,000 3,515,625
MBIA, Inc....................................... 94,000 6,280,375
Merrill Lynch & Co., Inc........................ 118,000 8,606,625
MGIC Investment Corp............................ 146,200 9,722,300
Money Store, Inc................................ 158,600 3,330,600
NationsBank Corp................................ 50,000 3,040,625
Nationwide Financial Services, Inc., Class A.... 56,800 2,051,900
Norwest Corp.................................... 160,500 6,199,313
</TABLE>
13 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Market
Description of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Providian Financial Corp............................... 40,000 $ 1,807,500
SLM Holding Corp....................................... 47,000 6,538,875
Southtrust Corp........................................ 75,000 4,757,813
SunAmerica, Inc........................................ 374,850 16,024,837
Torchmark, Inc......................................... 302,300 12,715,494
Travelers Group, Inc................................... 618,375 33,314,953
U.S. Bancorp........................................... 78,000 8,731,125
United Asset Management Corp........................... 149,100 3,643,631
Van Kampen American Capital Small Capitalization Fund
EEE(an affiliate of VKAC).............................. 5,487,382 59,867,338
Washington Mutual, Inc................................. 40,000 2,552,500
-----------
532,364,222
-----------
HEALTHCARE 10.4%
Abbott Laboratories, Inc............................... 58,900 3,861,631
Aetna, Inc............................................. 139,000 9,808,188
Agouron Pharmaceuticals, Inc. (a)...................... 30,000 881,250
American Home Products Corp............................ 301,200 23,041,800
Amgen, Inc. (a)........................................ 12,000 649,500
Bausch & Lomb, Inc..................................... 341,000 13,512,124
Bristol-Myers Squibb Co................................ 401,800 38,020,325
Columbia/HCA Healthcare Corp........................... 170,000 5,036,250
ESC Medical Systems Ltd. (a)........................... 218,000 8,447,500
Guidant Corp........................................... 200,000 12,450,000
HBO & Co............................................... 130,000 6,240,000
Health Care & Retirement Corp. (a)..................... 197,000 7,929,250
Health Management Assn., Inc., Class A (a)............. 262,500 6,628,125
HEALTHSOUTH Corp. (a).................................. 645,000 17,898,750
ICN Pharmaceuticals, Inc............................... 10,000 488,125
Johnson & Johnson, Inc................................. 215,000 14,163,125
Lilly Eli & Co......................................... 95,000 6,614,375
Lincare Holdings, Inc. (a)............................. 356,100 20,297,700
Merck & Co., Inc....................................... 186,000 19,762,500
Mylan Laboratories, Inc................................ 479,000 10,029,063
</TABLE>
14 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Market
Description of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
PacifiCare Health Systems, Class B (a)................... 304,500 $ 15,948,187
Pfizer, Inc.............................................. 126,000 9,394,875
Pharmacia & Upjohn, Inc.................................. 321,000 11,756,625
Phycor, Inc. (a)......................................... 150,000 4,050,000
Renal Treatment Centers, Inc. (a)........................ 130,000 4,696,250
Schering-Plough Corp..................................... 427,600 26,564,650
Tenet Healthcare Corp. (a)............................... 260,000 8,612,500
Teva Pharmaceutical Industries Ltd.--ADR (Israel)........ 30,000 1,419,375
Total Renal Care Holdings, Inc. (a)...................... 128,333 3,529,158
U.S. Surgical Corp....................................... 75,000 2,198,438
United Healthcare Corp................................... 10,000 496,875
Universal Health Services, Inc., Class B (a)............. 165,000 8,311,875
Warner-Lambert Co........................................ 48,400 6,001,600
Watsons Pharmaceuticals, Inc. (a)........................ 300,000 9,731,250
Wellpoint Health Networks, Inc., Class A (a)............. 249,500 10,541,375
-----------
349,012,614
-----------
PRODUCER MANUFACTURING 5.9%
Aeroquip Vickers, Inc.................................... 61,500 3,017,343
AlliedSignal, Inc........................................ 50,000 1,946,874
American Standard Cos., Inc. (a)......................... 20,000 766,250
ASM Lithography Holding NV (Netherlands) (a)............. 65,000 4,387,500
Bouygues Offshore SA--ADR (France)....................... 356,400 7,751,700
Canadian Pacific Ltd..................................... 295,000 8,038,750
Case Corp................................................ 10,000 604,375
Caterpillar, Inc......................................... 70,000 3,399,375
Cognex Corp. (a)......................................... 80,400 2,190,900
Cooper Industries, Inc................................... 97,800 4,792,200
Deere & Co............................................... 20,000 1,166,250
General Electric Co...................................... 195,800 14,366,825
Hartford Financial Services Group, Inc................... 10,000 935,625
Illinois Tool Works, Inc................................. 60,000 3,607,500
Ingersoll-Rand Co........................................ 213,150 8,632,575
ITT Corp. (a)............................................ 131,000 10,856,625
</TABLE>
15 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
=========================================================================================
Number Market
Description of Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
ITT Industries, Inc.................................... 30,000 $ 941,250
Johnson Controls, Inc.................................. 30,000 1,432,500
LucasVarity PLC--ADR (United Kingdom) (a).............. 309,000 10,776,375
Minnesota Mining & Manufacturing Co.................... 5,000 410,313
Paccar, Inc............................................ 90,000 4,725,000
Parker Hannifin Corp................................... 22,500 1,032,188
Philips Electronics N.V.--ADR (Netherlands)............ 150,000 9,075,000
Republic Industries, Inc. (a).......................... 10,000 233,125
Stewart & Stevenson Services, Inc...................... 2,800 71,400
Textron, Inc........................................... 220,000 13,750,000
Tubos De Acero De Mexico SA--ADR (Mexico) (a).......... 100,000 2,162,500
Tyco International Ltd................................. 250,000 11,265,625
United Technologies Corp............................... 243,000 17,693,437
USA Waste Services, Inc. (a)........................... 386,000 15,150,500
Waste Management, Inc.................................. 1,170,000 32,175,000
------------
197,354,880
------------
RAW MATERIALS/PROCESSING INDUSTRIES 5.6%
Air Products & Chemicals, Inc.......................... 41,100 3,380,475
Alcan Aluminum, Ltd.................................... 20,000 552,500
Barrick Gold Corp...................................... 840,900 15,661,762
Bethlehem Steel Corp. (a).............................. 579,000 4,993,875
Boise Cascade Corp..................................... 494,000 14,943,500
Bowater, Inc........................................... 115,000 5,110,313
British Steel PLC--ADR (United Kingdom)................ 1,073,000 23,002,438
Crompton & Knowles Corp................................ 221,000 5,856,500
Crown Cork & Seal Co., Inc............................. 25,000 1,253,125
Cytec Industries, Inc. (a)............................. 215,000 10,091,562
Dow Chemical Co........................................ 85,000 8,627,500
Du Pont (E. I.) de Nemours & Co........................ 100,000 6,006,250
Fort James Corp........................................ 118,000 4,513,500
Georgia Pacific Corp................................... 56,000 3,402,000
Georgia Pacific Corp. (a).............................. 56,000 1,270,500
Homestake Mining Co.................................... 1,413,000 12,540,375
</TABLE>
16 See Note to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
=========================================================================================
Number Market
Description of Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
Imperial Chemical Industries PLC--ADR (United Kingdom)...... 89,000 $ 5,779,437
International Paper Co...................................... 115,000 4,959,375
Louisiana-Pacific Corp...................................... 332,000 6,308,000
Mead Corp................................................... 125,000 3,500,000
Morton International, Inc................................... 23,500 807,813
Newmont Mining Corp......................................... 340,000 9,987,500
Nucor Corp.................................................. 60,000 2,898,750
Owens Illinois, Inc. (a).................................... 50,000 1,896,875
Phelps Dodge Corp........................................... 92,000 5,727,000
Placer Dome, Inc............................................ 888,800 11,276,650
Praxair, Inc................................................ 111,000 4,995,000
Temple Inland, Inc.......................................... 49,000 2,563,313
Union Carbide Corp.......................................... 40,000 1,717,500
USX U.S. Steel Group, Inc................................... 150,000 4,687,500
------------
188,310,888
------------
TECHNOLOGY 15.2%
3Com Corp. (a).............................................. 307,800 10,753,762
Adaptec, Inc. (a)........................................... 100,000 3,712,500
Advanced Fibre Communications, Inc. (a)..................... 40,000 1,165,000
Alcatel Alsthom CGE--ADR (France)........................... 100,000 2,531,250
Altera Corp. (a)............................................ 60,200 1,994,125
America Online, Inc. (a).................................... 2,500 222,969
Analog Devices, Inc. (a).................................... 113,000 3,128,688
Applied Materials, Inc. (a)................................. 240,000 7,230,000
Avnet, Inc.................................................. 110,000 7,260,000
AVX Corp.................................................... 85,000 1,567,188
Bay Networks, Inc. (a)...................................... 150,000 3,834,375
BMC Software, Inc. (a)...................................... 352,600 23,139,375
Boeing Co................................................... 13,800 675,338
Cadence Design Systems, Inc. (a)............................ 326,600 8,001,700
Ceridian Corp. (a).......................................... 20,000 916,250
Check Point Software Tech Ltd. (a).......................... 7,200 293,400
CIENA Corp. (a)............................................. 121,000 7,396,125
</TABLE>
17 See Note to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
=========================================================================================
Number Market
Description of Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Technology (Continued)
Cisco Systems, Inc. (a).................................... 311,700 $ 17,377,275
Citrix Systems, Inc. (a)................................... 82,500 6,270,000
Compaq Computer Corp....................................... 783,950 44,244,178
Computer Associates International, Inc..................... 198,900 10,516,837
Compuware Corp. (a)........................................ 99,800 9,225,600
Data General Corp. (a)..................................... 35,000 610,313
Dell Computer Corp. (a).................................... 213,600 17,942,400
Digital Equipment Corp. (a)................................ 140,000 5,180,000
EMC Corp. (a).............................................. 389,000 10,673,187
Ericsson L M Telephone Co., Class B--ADR (Sweden).......... 26,000 970,125
First Data Corp............................................ 50,000 1,462,500
Gateway 2000, Inc. (a)..................................... 114,000 3,719,250
General Dynamics Corp...................................... 75,000 6,482,813
General Signal Corp........................................ 65,000 2,742,188
Harris Corp................................................ 110,000 5,046,250
Hewlett-Packard Co......................................... 75,000 4,687,500
Intel Corp................................................. 267,600 18,798,900
International Business Machines Corp....................... 447,800 46,823,087
Jabil Circuit, Inc. (a).................................... 10,000 397,500
KLA--Tencor Corp. (a)...................................... 55,000 2,124,375
Lattice Semiconductor Corp. (a)............................ 30,000 1,421,250
Legato Systems, Inc. (a)................................... 8,000 352,000
Linear Technology Corp..................................... 85,000 4,898,125
Lockheed Martin Corp....................................... 77,000 7,584,500
LSI Logic Corp. (a)........................................ 56,000 1,106,000
Lucent Technologies, Inc................................... 285,300 22,788,337
Maxim Integrated Products, Inc. (a)........................ 40,000 1,380,000
Micron Electronics, Inc. (a)............................... 20,000 182,500
Micron Technology, Inc. (a)................................ 278,400 7,238,400
Microsoft Corp. (a)........................................ 142,700 18,443,975
Motorola, Inc.............................................. 15,000 855,938
National Semiconductor Corp. (a)........................... 160,000 4,150,000
Networks Associates, Inc. (a).............................. 242,700 12,832,762
</TABLE>
18 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
========================================================================================
Number Market
Description of Shares Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Nokia Corp.--NADR (Finland)...................................... 102,500 $ 7,175,000
Northern Telecom Ltd............................................. 28,100 2,500,900
Northrop Grumman Corp............................................ 55,000 6,325,000
Oracle Systems Corp. (a)......................................... 130,400 2,909,550
PairGain Technologies, Inc. (a).................................. 40,000 775,000
Peoplesoft, Inc. (a)............................................. 75,000 2,925,000
Pitney Bowes, Inc................................................ 75,000 6,745,312
Quantum Corp. (a)................................................ 866,800 17,390,175
Rational Software Corp. (a)...................................... 11,300 128,538
Raytheon Co., Class A............................................ 16,899 833,332
Raytheon Co., Class B............................................ 130,000 6,565,000
Remedy Corp. (a)................................................. 60,000 1,260,000
SCI Systems, Inc. (a)............................................ 324,000 14,114,250
Seagate Technology, Inc. (a)..................................... 35,000 673,750
Silicon Graphics, Inc. (a)....................................... 100,000 1,243,750
Storage Technology Corp. (a)..................................... 10,000 619,375
Sun Microsystems, Inc. (a)....................................... 199,400 7,951,075
Sundstrand Corp.................................................. 70,000 3,526,250
SunGard Data Systems, Inc. (a)................................... 641,900 19,898,900
Tellabs, Inc. (a)................................................ 155,000 8,195,625
Teradyne, Inc. (a)............................................... 20,000 640,000
Texas Instruments, Inc........................................... 40,000 1,800,000
Thomas & Betts Corp.............................................. 40,000 1,890,000
Unisys Corp. (a)................................................. 30,000 416,250
Viasoft, Inc. (a)................................................ 8,700 367,575
VLSI Technology, Inc. (a)........................................ 402,200 9,501,975
Western Digital Corp. (a)........................................ 115,000 1,847,188
Xerox Corp....................................................... 31,600 2,332,475
-----------
512,901,355
-----------
TRANSPORTATION 1.4%
AMR Corp. (a).................................................... 45,000 5,782,500
British Airways PLC--ADR (United Kingdom)........................ 25,000 2,342,188
Canadian National Railway Co..................................... 155,000 7,323,750
</TABLE>
19 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
==========================================================================================
Number Market
Description of Shares Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION (CONTINUED)
CNF Transportation, Inc.......................................... 150,000 $ 5,756,250
Continental Airlines, Inc., Class B (a).......................... 95,000 4,571,875
Delta Air Lines, Inc............................................. 25,000 2,975,000
Federal Express Corp. (a)........................................ 155,000 9,464,687
Illinois Central Corp............................................ 110,000 3,746,875
Norfolk Southern Corp............................................ 15,000 462,188
U.S. Airways Group, Inc. (a).................................... 25,000 1,562,500
UAL Corp. (a).................................................... 20,000 1,850,000
-----------
45,837,813
-----------
UTILITIES 10.9%
Ameritech Corp................................................... 245,000 19,722,500
AT & T Corp...................................................... 100,000 6,125,000
Baltimore Gas & Electric Co...................................... 137,500 4,683,594
Bell Atlantic Corp............................................... 221,000 20,111,000
BellSouth Corp................................................... 199,000 11,206,188
Boston Edison Co................................................. 324,000 12,271,500
Cincinnati Bell, Inc............................................. 127,000 3,937,000
CMS Energy Corp.................................................. 250,000 11,015,625
DTE Energy Co.................................................... 259,000 8,984,062
Duke Power Co.................................................... 106,896 5,919,366
Edison International............................................. 93,000 2,528,438
Endesa SA--ADR (Spain)........................................... 277,700 5,050,669
FPL Group, Inc................................................... 114,000 6,747,375
GPU, Inc......................................................... 373,700 15,742,112
GTE Corp......................................................... 40,000 2,090,000
Houston Industries, Inc.......................................... 1,219,400 32,542,737
Idaho Power Co................................................... 462,200 17,390,275
Illinova Corp.................................................... 296,000 7,973,500
NCR Corp. (a).................................................... 80,000 2,225,000
New Century Energies, Inc........................................ 104,500 5,009,469
Nipsco Industries, Inc........................................... 120,000 5,932,500
Northeast Utilities.............................................. 375,400 4,434,413
Northern States Power Co. MN..................................... 155,000 9,028,750
</TABLE>
20 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
================================================================================================
Number Market
Description of Shares Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
OGE Energy Corp......................................................... 386,900 $ 21,158,594
PacifiCorp.............................................................. 399,000 10,897,687
Pinnacle West Capital Corp.............................................. 491,000 20,806,125
Public Service Co. of New Mexico........................................ 710,000 16,818,125
SBC Communications, Inc................................................. 245,000 17,946,250
Sierra Pacific Resources................................................ 66,000 2,475,000
Texas Utilities Co...................................................... 897,300 37,294,031
U.S. West Media Group................................................... 465,000 20,983,124
369,050,009
TOTAL LONG-TERM INVESTMENTS 93.6%
(Cost $2,435,050,318).................................................. 3,153,220,889
-------------
SHORT-TERM INVESTMENTS 7.2%
REPURCHASE AGREEMENTS 1.8%
DLJ Mortgage Acceptance Corp. ($31,650,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated 12/31/97,
to be sold on 01/02/98 at $31,661,429).................................. 31,650,000
SBC Warburg, Corp. ($28,020,000 par collaterized by U.S. Government
obligations in a pooled cash account, dated 12/31/97, to be sold on
01/02/98 at $28,029,496)................................................ 28,020,000
-------------
TOTAL REPURCHASE AGREEMENTS............................................. 59,670,000
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 5.4%
Federal Home Loan Mortgage Corp. Discount Notes
($25,000,000 par, yielding 5.62%, 02/23/98 maturity) (b)................ 24,792,250
Federal Home Loan Mortgage Discount Notes
($10,000,000 par, yielding 5.63%, 01/14/98 maturity).................... 9,978,261
Federal Home Loan Mortgage Discount Notes
($17,155,000 par, yielding 5.70%, 01/02/98 maturity).................... 17,149,545
Federal National Mortgage Assn.
($1,660,000 par, yielding 5.71%, 01/05/98 maturity)..................... 1,658,686
Federal National Mortgage Assn.
($10,000,000 par, yielding 5.55%, 02/04/98 maturity) (b)................ 9,946,771
Federal National Mortgage Assn.
($13,000,000 par, yielding 5.62%, 05/04/98 maturity) (b)................ 12,753,650
Federal National Mortgage Assn.
($20,000,000 par, yielding 5.48%, 01/20/98 maturity) (b)................ 19,940,000
</TABLE>
21 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
================================================================================================
Market
Description Value
- ------------------------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage Assn.
($25,000,000 par, yielding 5.71%, 06/09/98 maturity) (b).................... $ 24,397,750
Federal National Mortgage Assn.
($5,000,000 par, yielding 5.52%, 04/06/98 maturity)......................... 4,926,650
Federal National Mortgage Assn.
($50,000,000 par, yielding 5.67%, 06/05/98 maturity)........................ 48,827,500
Federal National Mortgage Assn.
($6,369,000 par, yielding 5.58%, 03/20/98 maturity) (b)..................... 6,291,808
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.................................... 180,662,871
--------------
TOTAL SHORT-TERM INVESTMENTS 7.2%
(Cost $240,301,659)........................................................ 240,332,871
--------------
TOTAL INVESTMENTS 100.8%
(Cost $2,675,351,977)...................................................... 3,393,553,760
LIABILITIES IN EXCESS OF OTHER ASSETS (0.8%)............................... (26,199,519)
--------------
NET ASSETS 100.0%.......................................................... $3,367,354,241
--------------
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated as collateral for open futures transactions.
22 See Notes to Financial Statements
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
================================================================================================
<S> <C>
ASSETS:
Total Investments, at Market Value (Cost $2,675,351,977)....................... $3,393,553,760
Cash........................................................................... 4,674
Receivables:
Investments Sold.............................................................. 9,865,551
Dividends..................................................................... 5,277,504
Fund Shares Sold.............................................................. 3,764,531
Other.......................................................................... 83,496
---------------
Total Assets............................................................... 3,412,549,516
---------------
LIABILITIES:
Payables:
Fund Shares Repurchased....................................................... 25,046,673
Investments Purchased......................................................... 8,387,458
Income Distributions.......................................................... 7,902,805
Distributor and Affiliates.................................................... 2,001,951
Investment Advisory Fee....................................................... 1,234,648
Variation Margin on Futures................................................... 19,250
Accrued Expenses............................................................... 321,419
Trustees' Deferred Compensation and Retirement Plans........................... 281,071
---------------
Total Liabilities.......................................................... 45,195,275
---------------
NET ASSETS..................................................................... $3,367,354,241
===============
NET ASSETS CONSIST OF:
Capital........................................................................ $2,564,344,542
Net Unrealized Appreciation.................................................... 718,119,078
Accumulated Net Realized Gain.................................................. 87,320,509
Accumulated Distributions in Excess of Net Investment Income................... (2,429,888)
---------------
NET ASSETS..................................................................... $3,367,354,241
===============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share
(Based on net assets of $3,246,277,078 and 251,235,291
shares of beneficial interest issued and outstanding)........................ $ 12.92
Maximum sales charge (5.75%* of offering price).............................. .79
---------------
Maximum offering price to public............................................. $ 13.71
===============
Class B Shares:
Net asset value and offering price per share
(Based on net assets of $112,639,796 and 8,804,633
shares of beneficial interest issued and outstanding)........................ $ 12.79
===============
Class C Shares:
Net asset value and offering price per share
(Based on net assets of $8,437,367 and 658,444
shares of beneficial interest issued and outstanding)........................ $ 12.81
===============
</TABLE>
* On sales of $50,000 or more, the sales charge will be reduced.
23 See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
==============================================================================================
<S> <C>
INVESTMENT INCOME:
Dividends.................................................................. $ 24,397,592
Interest................................................................... 4,028,955
--------------
Total Income............................................................. 28,426,547
--------------
EXPENSES:
Investment Advisory Fee.................................................... 7,381,462
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C
of $3,632,518, $528,670 and $36,650, respectively)....................... 4,197,838
Shareholder Services....................................................... 2,871,002
Custody.................................................................... 130,821
Legal...................................................................... 51,290
Trustees' Fees and Expenses................................................ 16,124
Other...................................................................... 743,706
--------------
Total Expenses........................................................... 15,392,243
--------------
NET INVESTMENT INCOME...................................................... $ 13,034,304
==============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments ($20,161,960 from affiliates of VKAC)......................... $ 259,397,505
Futures................................................................... 6,922,600
--------------
Net Realized Gain.......................................................... 266,320,105
--------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................................... 623,187,786
--------------
End of the Period:
Investments.............................................................. 718,201,783
Futures.................................................................. (82,705)
--------------
718,119,078
--------------
Net Unrealized Appreciation During the Period.............................. 94,931,292
--------------
NET REALIZED AND UNREALIZED GAIN........................................... $ 361,251,397
==============
NET INCREASE IN NET ASSETS FROM OPERATIONS................................. $ 374,285,701
==============
</TABLE>
24 See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For Six Months Ended December 31, 1997 and the Year Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
===========================================================================================================
Six Months Ended Year Ended
December 31, 1997 June 30, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................................. $ 13,034,304 $ 27,093,350
Net Realized Gain.................................................. 266,320,105 403,968,224
Net Unrealized Appreciation During the Period...................... 94,931,292 303,202,849
--------------- ---------------
Change in Net Assets from Operations............................... 374,285,701 734,264,423
--------------- ---------------
Distributions from Net Investment Income........................... (28,061,542) (24,489,713)
Distributions in Excess of Net Investment Income................... (2,429,888) -0-
--------------- ---------------
Distributions from and in Excess of Net Investment Income*......... (30,491,430) (24,489,713)
Distributions from Net Realized Gain*.............................. (524,665,440) (259,006,785)
--------------- ---------------
Total Distributions............................................. (555,156,870) (283,496,498)
--------------- ---------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............................................. (180,871,169) 450,767,925
--------------- ---------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................................... 814,332,016 1,643,070,575
Net Asset Value of Shares Issued Through
Dividend Reinvestment............................................. 515,581,788 262,459,571
Cost of Shares Repurchased......................................... (876,379,679) (1,872,518,515)
--------------- ---------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............................................... 453,534,125 33,011,631
--------------- ---------------
TOTAL INCREASE IN NET ASSETS....................................... 272,662,956 483,779,556
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 $(2,429,888) and $15,027,238, respectively).................... $ 3,367,354,241 $ 3,094,691,285
=============== ===============
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class December 31, 1997 June 30, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares.................................................... (30,090,249) (24,328,961)
Class B Shares.................................................... (375,525) (153,305)
Class C Shares.................................................... (25,656) (7,447)
--------------- ---------------
(30,491,430) (24,489,713)
--------------- ---------------
Distributions from Net Realized Gain:
Class A Shares.................................................... (507,016,568) (251,595,348)
Class B Shares.................................................... (16,520,397) (7,068,097)
Class C Shares.................................................... (1,128,475) (343,340)
--------------- ---------------
(524,665,440) (259,006,785)
--------------- ---------------
</TABLE>
25 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 (Unaudited)
<TABLE>
<CAPTION>
==================================================================================================================
Six Months Ended Year Ended June 30,
---------------------------------------
Class A Shares December 31, 1997 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............................. .066 .132 .12 .14 .13
Net Realized and Unrealized
Gain/Loss....................................... 1.547 3.191 2.09 1.85 (.1475)
-------- -------- -------- -------- --------
Total from Investment Operations.................. 1.613 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................ $ 12.921 $ 13.872 $ 11.92 $ 11.62 $ 11.05
======== ======== ======== ======== ========
Total Return (b).................................. 25.10%* 30.06% 20.48% 20.62% (.64%)
Net Assets at End of the Period
(In millions)................................... $3,246.3 $2,992.2 $2,534.3 $2,279.4 $2,152.5
Ratio of Expenses to Average
Net Assets (c).................................. .89% .97% .94% 1.04% 1.02%
Ratio of Net Investment Income
to Average Net Assets (c)....................... .80% 1.01% 1.02% 1.02% .99%
Portfolio Turnover................................ 36%* 144% 213% 248% 112%
Average Commission Paid
Per Equity Share Traded (d)..................... $ .0599 $ .0597 $ .0550 -- --
</TABLE>
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended June 30, 1996 through June 30, 1997 the impact on the
Ratios of Expenses and Net Investment Income to Average Net Assets due to
VKACOs reimbursement of certain expenses was less than 0.01%.
(d) Represents the Average Brokerage Commission Paid Per Equity Share Traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
* Non-Annualized
26 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated (Unaudited)
<TABLE>
<CAPTION>
==================================================================================================================
Six Months Ended Year Ended June 30,
---------------------------------------
Class B Shares December 31, 1997 1997 1996(a) 1995(a) 1994
- ------------------------------------------------------------------------------------------------------------------
<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/Loss.......................... .035 .046 .02 .05 .03
Net Realized and Unrealized
Gain/Loss......................................... 1.503 3.151 2.07 1.85 (.1575)
-------- ------- ------- ------- -------
Total from Investment Operations.................... 1.538 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.................. $ 12.793 $13.730 $ 11.81 $ 11.53 $ 10.96
======== ======= ======= ======= =======
Total Return (b).................................... 24.10%* 29.08% 19.44% 19.73% (1.46%)
Net Assets at End of the Period
(In millions)..................................... $ 112.6 $ 95.5 $ 72.1 $ 53.0 $ 35.8
Ratio of Expenses to Average
Net Assets (c).................................... 1.68% 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.................................. 36%* 144% 213% 248% 112%
Average Commission Paid
Per Equity Share Traded (d)....................... $ .0599 $ .0597 $.0550 N N
</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 through June 30, 1997 the impact on the
Ratios of Expenses and Net Investment Income to Average Net Assets due to
VKACOs reimbursement of certain expenses was less than 0.01%.
(d) Represents the Average Brokerage Commission Paid Per Equity Share Traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
* Non-Annualized
27 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated (Unaudited)
<TABLE>
<CAPTION>
==============================================================================================================================
August 27, 1993
(Commencement
Six Months Ended Year Ended June 30, of Distribution) to
-----------------------------
Class B Shares December 31, 1997 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 .019 .036 .02 .05 .02
Net Realized and Unrealized
Gain/Loss 1.518 3.163 2.10 1.81 (.4375)
-------- ------- ------ ------- ---------
Total from Investment Operations 1.537 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 $ 12.814 $13.752 $11.83 $ 11.52 $ 10.99
======== ======= ====== ======= =========
Total Return (b) 24.06%* 29.04% 19.74% 19.27% (3.70%)*
Net Assets at End of the Period
(In millions) $ 8.4 $ 7.0 $ 4.5 $ 2.2 $ 1.2
Ratio of Expenses to
Average Net Assets (c) 1.68% 1.74% 1.75% 1.84% 1.81%
Ratio of Net Investment Income to
Average Net Assets (c) .05% .23% .15% .44% .24%
Portfolio Turnover 36%* 144% 213% 248% 112%
Average Commission Paid Per
Equity Share Traded (d) $ .0599 $ .0597 $.0555 -- --
</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 through June 30, 1997 the impact on the
Ratios of Expenses and Net Investment Income to Average Net Assets due to
VKACOs reimbursement of certain expenses was less than 0.01%.
(d) Represents the Average Brokerage Commission Paid Per Equity Share Traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
*Non-Annualized
28 See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (Unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Pace Fund (the "Fund") is organized as a Delaware
business trust, and is registered as a diversified open-end management
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 American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such securities only
upon 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
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
================================================================================
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 December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $2,680,913,400; the aggregate gross unrealized
appreciation is $798,543,439 and the aggregate gross unrealized depreciation is
$85,985,784, resulting in net unrealized appreciation including open futures
contracts of $712,557,655.
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 expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
===================================================
<S> <C>
First $1 billion...................... .50 of 1%
Next $1 billion....................... .45 of 1%
Next $1 billion....................... .40 of 1%
Over $3 billion....................... .35 of 1%
</TABLE>
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
================================================================================
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $50,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $193,200 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
December 31, 1997, the Fund recognized expenses of approximately $2,218,900,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. 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 equal to $2,500.
For the six months ended December 31, 1997, the Fund paid brokerage
commissions to Dean Witter and Morgan Stanley Group, Inc., both of which are
affiliates of VKAC, of $0 and $1,000, respectively.
During the six months ended December 31, 1997, the Fund entered into
transactions with the following Van Kampen American Capital Fund which was
managed by the Adviser:
<TABLE>
<CAPTION>
TRANSACTIONS
% of During the Period
-------------------
Net Assets at Cost of Proceeds
December 31, 1997 Purchases of Sales
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Capitalization Fund............. 1.78% -0- 39,976,722
</TABLE>
At December 31, 1997, the Fund owned 100% of the Van Kampen American
Capital 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 American Capital fund complex.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
================================================================================
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At December 31, 1997, capital aggregated $2,451,339,924, $105,397,721 and
$7,606,897 for Classes A, B, and C, respectively. For the six months ended
December 31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
=============================================================================
<S> <C> <C>
Sales:
Class A.................................. 46,784,366 $692,509,464
Class B.................................. 7,061,555 103,474,200
Class C.................................. 1,249,959 18,348,352
----------- --------------
Total Sales................................ 55,095,880 $ 814,332,016
=========== ==============
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.................................. (50,862,739) $ (762,539,569)
Class B.................................. (6,455,268) (96,339,173)
Class C.................................. (1,173,165) (17,500,937)
----------- --------------
Total Repurchases.......................... (58,491,172) $ (876,379,679)
=========== ==============
</TABLE>
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
================================================================================
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
================================================================================
<S> <C> <C>
Sales:
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). 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>
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
================================================================================
For the six months ended December 31, 1997, VKAC, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $144,400 and CDSC on redeemed shares of approximately $47,900.
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 $1,149,149,899 and $1,270,408,755,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio 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 six months ended December 31,
1997, were as follows:
<TABLE>
<CAPTION>
Contracts
========================================================
<S> <C>
Outstanding at June 30, 1997............... 250
Futures Opened............................. 640
Futures Closed............................. (505)
-----
Outstanding at December 31, 1997........... 385
-----
</TABLE>
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
================================================================================
The futures contracts outstanding at June 30, 1997, and the description and
unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
========================================================================
<S> <C> <C>
Long Contracts--S&P 500 Index Futures
March 1998--(Current notional value of
$244,775 per contract)................. 385 $ 82,705
========= ============
</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 six months ended December 31, 1997, are payments retained by VKAC of
approximately $546,700.
35
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MSU.S. Real Estate
VKAC Utility
MS Value
International /Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
VKAC Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term
Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen American Capital or Morgan Stanley fund prospectus
or to receive additional fund information, choose from one of the following:
. visit our web site at WWW.VKAC.COM - to view prospectuses, select
Investors' Place, then Download a Prospectus
. call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central
time (Telecommunications Device for the Deaf users, call 1-800-421-2833)
. e-mail us by visiting WWW.VKAC.COM and selecting Investors' Place
36
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PACE FUND
Board of Trustees
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN*-Chairman
Officers
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Alan T. Sachtleben*
PAUL R. WOLKENBERG*
Vice Presidents
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 E. Randolph Drive
Chicago, IL 60601
- --------------------------------------------------------------------------------
TAX NOTICE TO CORPORATE SHAREHOLDERS
For 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 American Capital Distributors, Inc., 1998
All rights reserved.
/SM/ denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 1998, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
37
<PAGE>
Bulk Rate
U.S. Postage
PAID
VAN KAMPEN
AMERICAN CAPITAL
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> PACE CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,675,351,977<F1>
<INVESTMENTS-AT-VALUE> 3,393,553,760<F1>
<RECEIVABLES> 18,907,586<F1>
<ASSETS-OTHER> 83,496<F1>
<OTHER-ITEMS-ASSETS> 4,674<F1>
<TOTAL-ASSETS> 3,412,549,516<F1>
<PAYABLE-FOR-SECURITIES> 8,387,458<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 36,807,817<F1>
<TOTAL-LIABILITIES> 45,195,275<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,451,339,924
<SHARES-COMMON-STOCK> 251,235,291
<SHARES-COMMON-PRIOR> 215,699,117
<ACCUMULATED-NII-CURRENT> (2,429,888)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 87,320,509<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 718,119,078<F1>
<NET-ASSETS> 3,246,277,078
<DIVIDEND-INCOME> 24,397,592<F1>
<INTEREST-INCOME> 4,028,955<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (15,392,243)<F1>
<NET-INVESTMENT-INCOME> 13,034,304<F1>
<REALIZED-GAINS-CURRENT> 266,320,105<F1>
<APPREC-INCREASE-CURRENT> 94,931,292<F1>
<NET-CHANGE-FROM-OPS> 374,285,701<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (30,090,249)
<DISTRIBUTIONS-OF-GAINS> (507,016,568)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,784,366
<NUMBER-OF-SHARES-REDEEMED> (50,862,739)
<SHARES-REINVESTED> 39,614,547
<NET-CHANGE-IN-ASSETS> 254,051,488
<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> 7,381,462<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 15,392,243<F1>
<AVERAGE-NET-ASSETS> 3,216,291,858
<PER-SHARE-NAV-BEGIN> 13.872
<PER-SHARE-NII> 0.066
<PER-SHARE-GAIN-APPREC> 1.547
<PER-SHARE-DIVIDEND> (0.144)
<PER-SHARE-DISTRIBUTIONS> (2.420)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.921
<EXPENSE-RATIO> 0.89
<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> 12
<NAME> PACE CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,675,351,977<F1>
<INVESTMENTS-AT-VALUE> 3,393,553,760<F1>
<RECEIVABLES> 18,907,586<F1>
<ASSETS-OTHER> 83,496<F1>
<OTHER-ITEMS-ASSETS> 4,674<F1>
<TOTAL-ASSETS> 3,412,549,516<F1>
<PAYABLE-FOR-SECURITIES> 8,387,458<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 36,807,817<F1>
<TOTAL-LIABILITIES> 45,195,275<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105,397,721
<SHARES-COMMON-STOCK> 8,804,633
<SHARES-COMMON-PRIOR> 6,955,032
<ACCUMULATED-NII-CURRENT> (2,429,888)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 87,320,509<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 718,119,078<F1>
<NET-ASSETS> 112,639,796
<DIVIDEND-INCOME> 24,397,592<F1>
<INTEREST-INCOME> 4,028,955<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (15,392,243)<F1>
<NET-INVESTMENT-INCOME> 13,034,304<F1>
<REALIZED-GAINS-CURRENT> 266,320,105<F1>
<APPREC-INCREASE-CURRENT> 94,931,292<F1>
<NET-CHANGE-FROM-OPS> 374,285,701<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (375,525)
<DISTRIBUTIONS-OF-GAINS> (16,520,397)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,061,555
<NUMBER-OF-SHARES-REDEEMED> (6,455,268)
<SHARES-REINVESTED> 1,243,314
<NET-CHANGE-IN-ASSETS> 17,143,959
<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> 7,381,462<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 15,392,243<F1>
<AVERAGE-NET-ASSETS> 104,877,412
<PER-SHARE-NAV-BEGIN> 13.730
<PER-SHARE-NII> 0.035
<PER-SHARE-GAIN-APPREC> 1.503
<PER-SHARE-DIVIDEND> (0.055)
<PER-SHARE-DISTRIBUTIONS> (2.420)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.793
<EXPENSE-RATIO> 1.68
<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 CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,675,351,977<F1>
<INVESTMENTS-AT-VALUE> 3,393,553,760<F1>
<RECEIVABLES> 18,907,586<F1>
<ASSETS-OTHER> 83,496<F1>
<OTHER-ITEMS-ASSETS> 4,674<F1>
<TOTAL-ASSETS> 3,412,549,516<F1>
<PAYABLE-FOR-SECURITIES> 8,387,458<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 36,807,817<F1>
<TOTAL-LIABILITIES> 45,195,275<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,606,897
<SHARES-COMMON-STOCK> 658,444
<SHARES-COMMON-PRIOR> 506,841
<ACCUMULATED-NII-CURRENT> (2,429,888)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 87,320,509<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 718,119,078<F1>
<NET-ASSETS> 8,437,367
<DIVIDEND-INCOME> 24,397,592<F1>
<INTEREST-INCOME> 4,028,955<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (15,392,243)<F1>
<NET-INVESTMENT-INCOME> 13,034,304<F1>
<REALIZED-GAINS-CURRENT> 266,320,105<F1>
<APPREC-INCREASE-CURRENT> 94,931,292<F1>
<NET-CHANGE-FROM-OPS> 374,285,701<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (25,656)
<DISTRIBUTIONS-OF-GAINS> (1,128,475)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,249,959
<NUMBER-OF-SHARES-REDEEMED> (1,173,165)
<SHARES-REINVESTED> 74,809
<NET-CHANGE-IN-ASSETS> 1,467,509
<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> 7,381,462<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 15,392,243<F1>
<AVERAGE-NET-ASSETS> 7,271,111
<PER-SHARE-NAV-BEGIN> 13.752
<PER-SHARE-NII> 0.019
<PER-SHARE-GAIN-APPREC> 1.518
<PER-SHARE-DIVIDEND> (0.055)
<PER-SHARE-DISTRIBUTIONS> (2.420)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.814
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class
basis.
</FN>
</TABLE>
