<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Management Review................. 5
Portfolio of Investments.................... 7
Statement of Assets and Liabilities......... 17
Statement of Operations..................... 18
Statement of Changes in Net Assets.......... 19
Financial Highlights........................ 20
Notes to Financial Statements............... 22
</TABLE>
GEQ AR 7/95
<PAGE>
LETTER TO SHAREHOLDERS
DON G. POWELL
July 3, 1995
Dear Shareholder:
During the twelve-month period covered by this report, June 1, 1994 through
May 31, 1995, we saw the close of a challenging and difficult year in the fi-
nancial markets--and the beginning of a new year, with renewed optimism and
strength on many fronts.
MARKET OVERVIEW
Most of 1994 was a difficult period for both domestic and foreign investors
as interest rates worldwide continued to climb. This trend, which was led by
the United States and its tight monetary policy, drove short- and long-term in-
terest rates markedly higher. The yield on 30-year U.S. Treasury securities,
for example, climbed from 6.35 percent as the year began to a high of 8.16 per-
cent by early November. At the same time, interest rates overseas rose and bond
prices fell. For example, interest rates on 10-year German Government bonds
climbed from 6.47 percent to 7.65 percent, June to December.
Stock market investors did not fare much better, despite robust economies
around the world. While the stock markets in many industrialized countries
struggled through the latter part of 1994, emerging markets (developing econo-
mies) suffered the largest declines due to the monetary problems in Latin Amer-
ica. In response to various political and economic events, Mexico was forced to
devalue its currency in December and allow it to trade freely on the world cur-
rency markets. Since then, the Mexican stock market and Latin American markets
have fallen sharply under negative market perception. Many investors began to
shift their attention to developed markets, such as the United States, Europe,
and Canada, in pursuit of higher credit quality and potentially lower volatili-
ty.
In stark contrast, 1995 began more positively as the U.S. market got a boost
from growing sentiment that the Federal Reserve Board had stabilized economic
growth while keeping inflation under control. Subsequently, we saw the yield on
30-year U.S. Treasury securities fall to 6.64 percent at the end of May. Fall-
ing yields have pushed U.S bond prices back up to February 1994 levels. Like-
wise, the U.S. stock market climbed through the first part of the year. The Dow
Jones Industrial Average, for example, broke the 4400 mark in May, setting a
new record high and sustaining expectations for a stronger market in 1995.
This positive climate was apparently reflected in the public's sentiment. At
the end of May, the Van Kampen American Capital Index of Investor Intentions
reached 145, an increase of 5 percent over its April-end level of 138--with a
total of 46 percent of those individuals surveyed saying the next 60-90 days
would be a "good" time to invest. The index, computed from an independently
conducted survey and published by Van Kampen American Capital, measures the in-
vestment climate (the public's confidence) by asking 1,000 individuals about
what they intend to do with their money over the next 60-90 days.
(Continued on page two)
1
<PAGE>
Abroad, bond markets in industrialized countries also rallied during the
first part of 1995, particularly in Canada and Australia, as both economies
showed signs of moderating growth and a trend toward lower interest rates.
Many international currencies, such as the Japanese yen and German mark (two
traditionally strong currencies), have strengthened substantially against the
U.S. dollar over the course of the year. Their appreciation against the U.S.
dollar has been positive for Americans investing overseas, as it has resulted
in better overall returns from these markets over the last twelve months.
Among the mature European stock markets--such as Switzerland and the UK--
stocks on average have appreciated, in dollar terms, 22.8 percent and 17.14
percent, respectively, over the past twelve months. These price gains can be
partially attributed to investors seeking higher investment quality, espe-
cially those who reallocated monies from Latin American countries to more de-
veloped markets.
On the following pages, you can read about your Fund's performance during
the past twelve months, as well as portfolio management's outlook for the Fund
in the coming months. We hope that you will find the information contained in
the question-and-answer section helpful.
CORPORATE NEWS
As you may have already noticed, we have adopted a new design for our share-
holder reports that reflects our new identity as Van Kampen American Capital.
Going forward, we will continue to look for new ways to improve upon the pre-
sentation of information in your Fund's report.
In addition, we have developed a new corporate advertising campaign intro-
ducing Van Kampen American Capital and our wide range of investment opportuni-
ties designed to help you build and preserve wealth. Full page ads appeared in
The Wall Street Journal in the first quarter of 1995--watch for more advertis-
ing throughout the year.
We look forward to communicating with you on a regular basis, providing in-
formation about your Fund's performance, new investment opportunities, and our
newly created company. We appreciate your continued confidence in your invest-
ment with Van Kampen American Capital.
Sincerely,
/s/ Don G. Powell
Don G. Powell Chairman
Van Kampen American Capital
Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED MAY 31, 1995
AMERICAN CAPITAL GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return
based on NAV1........................................ 3.36% 2.62% 2.60%
One-year total return2............................... (2.57%) (2.37%) 1.60%
Three-year average
annual total return2................................. 4.28% 4.60% N/A
Life of Fund average
annual total return2................................. 6.80% 5.81% 7.95%
Commencement Date.................................... 08/05/91 11/15/91 06/21/93
</TABLE>
N/A = Not Applicable
1Assumes reinvestment of all distributions for the period ended May 31, 1995,
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).
2Standardized total return. Assumes reinvestment of all distributions for the
period ended May 31, 1995, and includes 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).
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.
3
<PAGE>
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular inter-
vals. A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison
can:
. Illustrate the general market environment in which your investments are
being managed
. Reflect the impact of favorable market trends or difficult market
conditions
. Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Morgan Stanley Capital Inter-
national World Index over time.
As a broad-based, unmanaged statistical composite, this index does not re-
flect any commissions or fees which would be incurred by an investor purchas-
ing the securities it represents. Similarly, its performance does not reflect
any sales charges or other costs which would be applicable to an actively man-
aged portfolio, such as that of the Fund.
GROWTH OF A $10,000 INVESTMENT
American Capital Global Equity Fund compared to Morgan Stanley Capital
International World Index (August 1991 through May 1995)
LOGO
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions for the period ended May 31, 1995,
and includes payment of the maximum sales charge (5.75% for A shares).
While past performance is not indicative of future performance, the above in-
formation provides a broader vantage point from which to evaluate the discus-
sion of the Fund's performance found in the following pages.
This report is intended for shareholders of the Fund and may not be used as
sales literature with prospective investors unless it is preceded or accompa-
nied by the Fund's current prospectus. The prospectus provides more complete
information about charges and expenses, investment objectives, and operating
policies and should be read carefully by prospective investors before they in-
vest or send money.
4
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
AMERICAN CAPITAL GLOBAL EQUITY FUND
The following is an interview with the management team of American Capital
Global Equity Fund. The Fund is co-managed by portfolio managers Peter Kysel,
John Govett & Co. Limited (international holdings), Jeff D. New, Van Kampen
American Capital (U.S. holdings), and Alan T. Sachtleben, Van Kampen American
Capital's executive vice president of equity investments.
WHAT MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE
Q.DURING THE YEAR ENDED MAY 31, 1995?
The year can be divided into two distinct periods. During the first
half, the U.S. dollar was rising--accompanied by climbing interest rates
and economic growth. Many of the international markets peaked early in the
calendar year, while U.S. stock prices continued to rise.
A.
During the second half of this reporting period, the dollar fell against ma-
jor currencies and economic problems in several countries contributed to
greater volatility in the financial markets. Also during this half, Japanese
markets suffered due to the Kobe earthquake, political uncertainties, trade
friction with the U.S. and a strong yen. All of these factors negatively af-
fected that country's economic activity and the profitability of its compa-
nies.
Meanwhile, the U.S. markets outperformed many international markets, re-
flecting the more advanced stage of its economic cycle and a generally posi-
tive environment for corporate revenues and profits.
Overall, the global economic environment remained broadly positive with sub-
dued inflation and expanding business activity in most developed countries.
HOW DID YOU POSITION THE FUND IN RESPONSE TO THE EVENTS OF THE PAST
YEAR?
Q.
Fund managers maintained the strategy of investing in at least three of
the key equity markets (the United States, Japan and the United King-
dom), as well as holding investments throughout continental Europe.
A.
To help reduce volatility during the period, exposure to potentially risky
emerging markets was eliminated, while investments in developed markets with
strong currencies were emphasized. Accordingly, exposure to the European mar-
kets was increased and U.S. stocks constituted the largest single category of
investments (this was maintained throughout the period). Exposure to Japan has
been gradually reduced in response to the worsening outlook for its corporate
sector.
During the latter part of the review period, Fund managers added investments
in smaller Far Eastern markets. We believe companies in this region should
benefit, as the economic outlook has improved.
In the U.S., we focused on two major themes. First, there was an emphasis on
economically-resilient companies--companies where earnings remain strong, re-
gardless of economic ups and downs. Another consistent, major theme in our
U.S. investment strategy is technology.
We expect "tech" stocks to remain strong, as U.S. companies continue to demand
and support technological advances that increase their profitability.
5
<PAGE>
LOGO
HOW DID THE FUND PERFORM DURING THE YEAR ENDED MAY 31, 1995?
Q.
During the year ended May 31, 1995, the Fund (Class A Shares) achieved a
total return at net asset value of 3.36 percent/1/. By comparison the av-
erage global equity fund in Lipper Analytical Service's 107-fund category,
achieved a total return of 3.5 percent during the same period.
A.
The Fund's focus on investing in strong, established (and relatively lower-
risk) markets has proven particularly effective during the last six months,
during which its total return (at net asset value) appreciated 6.5 percent.
Compared with the 4.3 percent average return of the Lipper peer group, the Fund
ranked in the top one-third of similar funds tracked by Lipper. (For the one-
year period, the fund ranked 58 of 107 funds.)
The Morgan Stanley Capital International World Index (an unmanaged index that
is used as a benchmark for general global equity funds) had a total return of
8.53 percent for the reporting period. The index does not reflect any commis-
sions or fees that would be incurred by an investor purchasing the stocks it
represents. (Please refer to the Chart on page three for additional fund per-
formance.)
WHAT IS YOUR OUTLOOK FOR THE GLOBAL EQUITY MARKET IN 1995 AND, MORE
Q.SPECIFICALLY, FOR THE FUND?
A slowdown in the U.S. economy may lead to further gains in the U.S. bond
market. Providing there is relative currency stability, a further reduc-
tion in U.S. interest rates may spur an upswing in the economy later in the
year.
A.
There are positive prospects for expansion in the international economies,
ultimately including Japan and the emerging markets. The positive economic
growth, with historically low rates of inflation in most developed countries
are expected to have positive influence on the world's stock markets.
Given this outlook, we will continue to seek capital appreciation consistent
with reasonable risk--keeping volatility as low as possible.
/s/ Alan T. Sachtleben /s/ Jeff D. New
Alan T. Sachtleben Jeff D. New
Van Kampen American Capital /s/ Peter Kysel
Van Kampen American Capital
Executive Vice President Peter Kysel
Portfolio Manager
Equity Investments John Govett & Co. Limited
Portfolio Manager
Please see footnotes on page three.
6
<PAGE>
PORTFOLIO OF INVESTMENTS
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- -------------------------------------
<C> <S> <C>
COMMON STOCKS AND EQUIVALENTS 97.4%
AUSTRALIA 1.1%
18,000 CRA Limited.......................................... $ 240,207
16,000 Lend Lease Corp...................................... 209,150
90,000 Pioneer International, Ltd........................... 211,377
60,000 Renison Goldfields................................... 185,305
99,000 Tab Corp Holdings, Ltd............................... 215,449
61,000 Western Mining Corp.................................. 324,650
------------
Total Australia...................................... 1,386,138
------------
BELGIUM 0.3%
9,100 GIB.................................................. 427,423
------------
BRAZIL 0.4%
40,000 Usiminas, UST, SD, Manufacturing..................... 480,000
------------
CANADA 0.6%
* 7,700 BCE, Inc............................................. 241,750
*15,000 Canadian Pacific, Ltd................................ 254,636
11,000 Inco, Ltd............................................ 275,080
------------
Total Canada......................................... 771,466
------------
FINLAND 0.8%
20,000 Kymmene Corp......................................... 558,762
*53,000 Nokian Tyres......................................... 440,545
------------
Total Finland........................................ 999,307
------------
FRANCE 5.2%
700 Carrefour............................................ 346,085
4,450 Castorama Dubois..................................... 712,143
3,500 Christian Dior....................................... 329,437
5,200 Cie De St. Gobain.................................... 650,851
7,500 Credit Local De France............................... 658,924
2,350 LVMH Moet Hennessy................................... 446,649
6,400 Lyonnaise Des Eaux, SA............................... 655,286
3,600 Primagaz (Cie Gaz)................................... 638,517
7,800 Societe ELF Aquitaine................................ 630,414
6,675 Societe Generale..................................... 784,344
3,000 TV Francaise (TF1)................................... 279,351
3,600 Union Assur Federa................................... 426,645
11,600 Union Assur Paris.................................... 325,918
------------
Total France......................................... 6,884,564
------------
GERMANY 3.8%
2,060 Bayer, AG............................................ 497,473
1,800 Bayer Vereinsbank.................................... 522,819
800 Bayerische Motoren Werke............................. 431,048
560 Ckag Colonia Konzern, AG............................. 309,064
1,175 Deutsche Bank, AG.................................... 575,320
2,000 Man, AG.............................................. 532,513
1,000 Preussag, AG......................................... 297,177
1,495 Siemens, AG.......................................... 710,847
</TABLE>
7
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- -------------------------------------
<C> <S> <C>
1,100 Veba, AG............................................. $ 418,191
900 Wella, AG............................................ 706,856
------------
Total Germany........................................ 5,001,308
------------
HONG KONG 3.9%
133,000 China Light & Power.................................. 727,302
215,000 Hong Kong Electric................................... 764,353
50,000 HSBC Holdings........................................ 649,619
305,000 Hong Kong Land....................................... 631,350
135,000 Hutchison Whampoa.................................... 682,391
*1,920,000 Jilin Chemical Industry.............................. 407,069
39,000 Sun Hung Kai Properties.............................. 282,342
100,000 Swire Pacific........................................ 772,433
76,000 Wharf Holdings....................................... 249,557
------------
Total Hong Kong...................................... 5,166,416
------------
HUNGARY 0.1%
10,000 Gredeon Richter...................................... 165,000
------------
IRELAND 0.1%
* 3,000 Elan................................................. 104,625
------------
ISRAEL 0.5%
13,500 ECI Telecom.......................................... 227,813
12,500 Teva Pharmaceutical Industrial, Ltd.................. 410,937
------------
Total Israel......................................... 638,750
------------
ITALY 1.6%
41,500 Burgo (Cartiere), SPA................................ 281,892
90,000 Danieli & Co......................................... 280,719
112,800 Fiat SPA............................................. 444,947
55,900 Rinascente (La)...................................... 315,852
211,700 Telecom Italia....................................... 554,560
33,000 Sirti, SPA........................................... 253,104
------------
Total Italy.......................................... 2,131,074
------------
JAPAN 16.0%
50,000 Ajinomoto Co., Inc................................... 567,208
20,000 Amada, Co............................................ 198,523
13,000 Bank of Tokyo........................................ 230,428
* 10,000 Barclays de Zoete Nikkei Warrants.................... 10,000
* 40,000 Dainippon Screen Manufacturing Co.................... 238,700
* 100,000 Denki Kagaku Kogyo................................... 388,774
114 East Japan Railway................................... 587,344
* 1,000 Ebara Corp........................................... 38,208
32,000 Fuji Bank............................................ 733,589
15,000 Fuji Photo Film Co................................... 359,823
82,000 Hitachi.............................................. 791,657
15,000 ICOM Incorporated.................................... 177,253
35,000 Isetan Co............................................ 471,492
</TABLE>
8
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- -------------------------------------
<C> <S> <C>
* 60,000 Isuzu Motors......................................... $ 245,318
7,000 Ito Yokado Co........................................ 370,576
* 60,000 Japan Air Lines Co................................... 416,898
40,000 Kitano Construction Co............................... 293,530
* 100,000 Kobe Steel........................................... 280,059
25,000 Komatsu.............................................. 194,683
70,000 Kumagai Gumi Co...................................... 330,872
10,000 Maezawa Industries................................... 226,883
130,000 Marubeni Corp........................................ 692,821
9,000 Maruichi Steel Tube.................................. 186,115
50,000 Matsushita Industries................................ 774,003
69,000 Mitsubishi Construction.............................. 371,805
70,000 Mitsubishi Estate.................................... 784,993
80,000 Mitsubishi Heavy Industries.......................... 549,247
45,000 Mitsubishi Trust & Banking Corp. .................... 728,508
60,000 NEC Corp. ........................................... 638,109
50,000 New Oji Paper Co. ................................... 520,532
12,000 Nikkodo Co. ......................................... 83,805
7,500 Nintendo Co. ........................................ 451,994
16,000 Nippon Hodo Co. ..................................... 291,167
100 Nippon Telephone & Telegraph Corp. .................. 827,179
50,000 Nippon Yusen KK...................................... 297,784
16,000 Nishimatsu Construction.............................. 185,099
* 80,000 Nissan Diesel Motor Co. ............................. 374,358
* 250,000 NKK Corp. ........................................... 629,247
20,000 Nomura Securities.................................... 359,232
40,000 Obayashi Corp. ...................................... 304,874
35,000 Omron Corp. ......................................... 653,471
35,000 Onward Kashiyama..................................... 479,764
25,000 Sanwa Bank........................................... 534,712
20,000 Shin Etsu Chemical Co. .............................. 359,232
60,000 Sumitomo Osaka Corp. ................................ 249,572
12,000 TDK Corp. ........................................... 541,684
25,000 Tokio Marine & Fire Insurance Co. ................... 286,558
7,000 Tokyo Electron....................................... 225,820
18,000 Tokyu Corp. ......................................... 116,561
75,000 Tokyu Department Store............................... 451,994
40,000 Toshiba Corp. ....................................... 251,935
* 20,000 Toyota Motor Corp. .................................. 387,592
10,000 Yamanouchi Pharmarcy................................. 223,338
------------
Total Japan.......................................... 20,964,923
------------
</TABLE>
9
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- -------------------------------------
<C> <S> <C>
MALAYSIA 1.0%
115,000 Commerce Asset Holding............................... $ 620,613
123,000 DCB Holdings Berhad.................................. 369,324
* 30,750 DCB Holdings Berhad, Warrants (expiring 12/99)....... 35,186
52,000 Resorts World BDH.................................... 339,704
------------
Total Malaysia....................................... 1,364,827
------------
MEXICO 0.0%
10,010 Grupo Industria Maseca............................... 6,690
------------
NETHERLANDS 4.7%
11,014 ABN Amro Holdings NV, Rights......................... 416,385
4,051 Aegon, NV............................................ 326,784
65,000 Elsevier, NV......................................... 751,991
10,000 KLM.................................................. 312,935
12,609 International Nederlanden Group...................... 683,140
18,000 Kon PTT Nederland.................................... 650,904
27,500 Philips Electronic................................... 1,095,271
6,850 Royal Dutch Petroleum................................ 858,788
3,900 Unilever NV.......................................... 490,644
5,305 Ver Ned Uitgevers.................................... 630,174
------------
Total Netherlands.................................... 6,217,016
------------
NORWAY 0.6%
12,000 Kvaerner, AS......................................... 502,668
21,000 Unitor, Als.......................................... 309,389
------------
Total Norway......................................... 812,057
------------
PHILIPPINES 0.1%
2,500 Philippine Long Distance Telephone................... 179,688
------------
PORTUGAL 0.2%
* 12,000 Investec Consultant.................................. 224,156
------------
SINGAPORE 1.5%
66,000 Cycle & Carriage..................................... 658,578
113,000 Overseas Union Bank.................................. 721,967
66,000 Singapore Airlines................................... 630,151
------------
Total Singapore...................................... 2,010,696
------------
SOUTH KOREA 0.6%
16,374 Samsung Electronic Co. .............................. 851,448
------------
SPAIN 0.8%
14,400 Banco Santander, SA.................................. 544,595
* 37,700 Uralita.............................................. 452,677
------------
Total Spain.......................................... 997,272
------------
SWEDEN 2.7%
22,500 Astra, AB, Series B.................................. 645,529
9,300 Ericsson (LM) Telephone.............................. 665,463
10,600 Electrolux, AB....................................... 489,764
18,000 Hoganas, AG.......................................... 304,211
</TABLE>
10
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- -------------------------------------
<C> <S> <C>
15,000 SKF, AB.............................................. $ 292,354
14,400 Skanska, AB, Series B................................ 325,801
7,000 Stora Kopparbergs.................................... 439,826
13,400 Svedala Industrial................................... 368,925
------------
Total Sweden......................................... 3,531,873
------------
SWITZERLAND 4.1%
* 1,500 Adia, SA............................................. 291,899
240 Baloise Holdings..................................... 514,359
1,000 CS Holdings.......................................... 467,210
1,225 Ciba Geigy, AG....................................... 869,524
750 Nestle, SA........................................... 757,394
400 Publicitas Holdings.................................. 408,058
140 Roche Holdings, AG................................... 862,323
1,000 Alusuisse Lonza Holdings............................. 589,799
650 Schw Bankverein...................................... 232,362
200 SGS Holding.......................................... 346,717
------------
Total Switzerland.................................... 5,339,645
------------
THAILAND 1.3%
90,000 National Financial & Securities...................... 441,248
11,000 Siam Cement Co....................................... 705,105
* 135,000 Telecomasia.......................................... 489,567
------------
Total Thailand....................................... 1,635,920
------------
TURKEY 0.8%
308,000 Cimentas............................................. 232,385
870,000 Esem Sport .......................................... 242,368
1,670,000 KOC Yatirim.......................................... 562,159
------------
Total Turkey......................................... 1,036,912
------------
UNITED KINGDOM 13.1%
80,000 BAA.................................................. 616,166
130,000 Bank of Ireland...................................... 716,373
75,000 Barclay's............................................ 803,954
50,000 BOC Group............................................ 632,841
1,900 British Petroleum, ADR............................... 162,213
147,000 British Petroleum Co., PLC........................... 1,036,494
40,000 British Telecom...................................... 250,913
164,000 Cowie Group, PLC..................................... 726,632
77,000 CRH.................................................. 490,345
70,000 Croda International.................................. 393,521
20,000 De La Rue............................................ 294,743
25,000 Etam................................................. 84,961
48,000 Eurotherm............................................ 341,496
200,000 FKI.................................................. 524,059
12,600 General Accident..................................... 123,759
</TABLE>
11
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- -------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
10,000 Glaxo Wellcome....................................... $ 115,293
93,500 Granada Group........................................ 877,537
165,000 Hanson, PLC, ADR..................................... 627,561
24,000 Inchcape............................................. 121,963
17,000 London Electricity................................... 174,131
150,000 MAI.................................................. 633,635
40,000 Marks & Spencer...................................... 263,618
40,000 National Westminster................................. 342,385
125,000 Next, PLC............................................ 666,984
37,500 Reed International................................... 520,486
88,000 Reuters Holdings, PLC, ADR........................... 658,218
15,000 RMC Group............................................ 262,863
49,000 Sainsbury............................................ 350,167
260,000 Senior Engineering................................... 367,477
49,000 Severn Trent......................................... 446,268
15,000 Shell Transportation & Trading....................... 184,135
50,000 Smithkline Beecham................................... 403,764
17,000 Southern Electric.................................... 177,100
100,000 Standard Chartered................................... 558,202
130,000 Storehouse........................................... 551,215
75,000 Tesco................................................ 352,549
22,000 TSB Group............................................ 88,391
18,000 Unilever............................................. 349,452
197,000 Vodafone Group....................................... 647,594
50,000 Wessex Water......................................... 242,179
-----------
Total United Kingdom................................. 17,181,637
-----------
UNITED STATES 31.5%
4,300 Abbott Laboratories.................................. 172,000
* 5,100 ALC Communications Corp.............................. 221,850
2,700 Allied-Signal, Inc................................... 109,013
1,700 Aluminum Co. America................................. 79,050
9,800 American General Corp................................ 338,100
4,100 American Home Products Corp.......................... 301,862
4,300 American International Group, Inc.................... 489,125
4,900 Amgen, Inc........................................... 355,250
4,300 Amoco Corp........................................... 294,013
* 3,800 AMR Corp............................................. 259,350
4,300 Apache Corp.......................................... 124,700
5,800 Applied Materials, Inc............................... 446,600
3,400 Ashland, Inc......................................... 126,225
3,000 AT & T Corp.......................................... 152,250
* 3,200 Atmel Corp........................................... 140,800
</TABLE>
12
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
10,300 Baker Hughes, Inc..................................... $ 231,750
7,000 Bank of Boston Corp................................... 255,500
2,400 BankAmerica Corp...................................... 125,400
6,000 Baxter International, Inc............................. 209,250
3,800 BayBanks, Inc......................................... 275,500
6,600 Bemis, Inc............................................ 188,100
5,000 Black & Decker Corp................................... 165,000
* 15,300 BMC Software, Inc..................................... 983,025
6,800 Bowater, Inc.......................................... 266,900
8,100 Browning Ferris Industries, Inc....................... 288,562
2,300 Capital Cities--ABC, Inc.............................. 221,950
* 9,600 Cellular Communications, Inc., Class A................ 445,200
6,600 Chemical Banking Corp................................. 304,425
* 13,300 Chips & Technologies, Inc............................. 128,013
* 7,700 Cisco Systems, Inc.................................... 336,875
6,000 Citicorp.............................................. 321,000
2,600 Clorox Co............................................. 155,675
4,900 Colgate-Palmolive, Co................................. 377,300
6,400 Columbia/HCA Healthcare Corp.......................... 261,600
* 13,900 Community Health System, Inc.......................... 489,975
* 15,000 Compaq Computer Corp.................................. 586,875
6,400 Conagra, Inc.......................................... 213,600
*1,500 Cordis Corp........................................... 103,500
* 10,600 Cox Communications, Inc., Class A..................... 172,250
2,100 CPC International, Inc................................ 127,575
2,200 Crestar Financial Corp................................ 101,200
* 3,000 Dell Computer Corp.................................... 151,125
7,700 Disney (Walt) Co...................................... 428,313
3,000 Dole Food, Inc........................................ 88,500
11,075 Dollar General Corp................................... 314,253
* 5,600 DSC Communications Corp............................... 207,200
5,700 Du Pont (E.I.) de Nemours & Co., Inc.................. 386,887
1,900 Eastman Chemical Co................................... 114,000
* 11,500 Eckerd Corp........................................... 372,312
* 5,700 Evergreen Media Co.................................... 119,700
4,300 Exxon Corp............................................ 306,913
6,600 Federal Home Loan Mortgage Corp....................... 449,625
4,100 Federal National Mortgage Association................. 381,300
3,200 First Chicago Corp.................................... 183,600
5,300 FPL Group, Inc........................................ 208,025
* 10,000 FTP Software, Inc..................................... 213,750
</TABLE>
13
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
* 3,500 Genentech, Inc........................................ $ 169,750
5,100 General Electric Co................................... 295,800
* 6,400 General Instrument Corp............................... 197,600
3,600 Grace (W.R.) & Co..................................... 231,300
5,100 Green Tree Financial Corp............................. 222,488
6,300 Greenfield Industries, Inc............................ 182,700
* 5,100 Health Management Association, Inc., Class A.......... 139,612
* 4,900 Healthcare Compare Corp............................... 153,125
* 4,700 Healthcare & Retirement Corp.......................... 138,650
3,200 Hercules, Inc......................................... 168,000
2,600 Hewlett-Packard Co.................................... 171,925
5,600 Horizon Healthcare Corp............................... 102,200
6,200 Humana, Inc........................................... 130,975
4,300 Illinois Tool Works, Inc.............................. 213,925
6,600 Illinois Central Corp................................. 233,475
* 6,800 Integrated Device Technology, Inc..................... 295,800
* 5,300 Integrated Health Services, Inc....................... 176,887
5,800 Intel Corp............................................ 651,050
2,600 International Paper Co................................ 204,425
6,400 International Business Machines Corp.................. 596,800
* 8,800 International Rectifier Corp.......................... 236,500
9,400 James River Corp...................................... 253,800
113,200 Jardine Matheson...................................... 888,620
5,100 Johnson & Johnson..................................... 337,875
4,700 Kennametal, Inc....................................... 152,750
* 2,300 KLA Instruments Corp.................................. 160,425
* 7,700 Kroger Co............................................. 200,200
* 5,800 LAM Research Corp..................................... 332,050
5,100 Limited, Inc.......................................... 113,475
* 14,300 Lincare Holdings, Inc................................. 380,737
2,600 Linear Technology Corp................................ 159,250
3,160 Lockheed Martin Corp.................................. 188,020
* 5,100 LSI Logic Corp........................................ 342,975
8,500 Marriott International, Inc........................... 287,937
6,800 McDonald's Corp....................................... 257,550
9,800 Merck & Co. Inc....................................... 461,825
3,400 Michael's Stores, Inc................................. 76,925
8,400 Micron Technology, Inc................................ 374,850
* 1,900 Microsoft Corp........................................ 160,906
4,700 Midlantic Corp........................................ 178,013
* 11,300 Mirage Resorts, Inc................................... 337,587
2,200 Mobil Corp............................................ 220,825
</TABLE>
14
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
95,000 MTC Electronic Technologies, Ltd...................... $ 237,500
12,000 Mylan Laboratories, Inc............................... 343,500
* 6,800 National Semiconductor Corp........................... 170,000
2,800 NationsBank Corp...................................... 158,550
4,300 Nautica Enterprises, Inc.............................. 129,000
* 3,800 Nine West Group, Inc.................................. 132,525
6,200 NIPSCO Industries, Inc................................ 213,900
5,800 Omnicom Group, Inc.................................... 334,225
* 6,800 Oracle System Corp.................................... 236,300
3,200 Pacificare Health System Inc., Class B................ 212,000
7,700 Pacificorp............................................ 152,075
17,100 Panhandle Eastern Corp................................ 429,638
10,500 Pepsico, Inc.......................................... 514,500
10,900 Philip Morris Companies, Inc.......................... 794,337
14,900 Philips Electronics, Inc.............................. 597,862
6,400 Pinnacle West Capital Corp............................ 147,200
17,500 Praxair, Inc.......................................... 435,312
5,100 Procter & Gamble Co................................... 366,562
5,200 Providian Corp........................................ 189,150
10,700 Public Service Co., New Mexico........................ 152,475
6,000 Reliastar Financial Corp.............................. 222,750
7,500 RJR Nabisco Holdings Corp., Class A................... 195,937
* 9,000 Safeway Inc........................................... 328,500
4,500 Sara Lee Corp......................................... 125,437
5,300 Schering-Plough Corp.................................. 417,375
2,100 Schlumberger Limited.................................. 136,500
5,600 Scott Paper Co........................................ 242,900
3,200 Sears Roebuck & Co.................................... 180,400
21,400 Service Corp. International........................... 612,575
* 5,100 Silicon Graphics, Inc................................. 198,263
* 13,000 Smith International, Inc.............................. 232,375
6,100 St. Paul Companies, Inc............................... 310,338
* 11,500 Sun Healthcare Group, Inc............................. 191,187
* 3,800 Sun Microsystems, Inc................................. 171,000
* 12,800 Symantec Corp......................................... 294,400
4,100 Talbots, Inc.......................................... 130,175
* 13,700 Tele-Communications Inc., Class A..................... 289,413
* 3,400 Tellabs, Inc.......................................... 112,200
* 3,400 Teradyne, Inc......................................... 184,025
4,500 Texaco Inc............................................ 308,250
4,500 Texas Instruments, Inc................................ 520,313
3,400 Thermo Fibertek, Inc.................................. 60,775
</TABLE>
15
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- -------------------------------------------------------------------------------
<C> <S> <C>
* 4,100 3Com Corp.......................................... $ 262,400
10,500 TIG Holdings, Inc.................................. 246,750
4,300 Time Warner, Inc................................... 170,388
* 8,300 United Waste Systems, Inc.......................... 258,856
11,100 USX-Marathon Group................................. 220,613
* 4,300 Varity Corp........................................ 185,437
* 4,000 Viacom, Inc., Class B.............................. 186,500
* 26,700 VLSI Technology, Inc............................... 695,869
2,100 Walgreen Co........................................ 101,063
22,200 Wal-Mart Store, Inc................................ 555,000
2,600 Warner Lambert Co.................................. 215,475
* 6,000 Watson Pharmaceuticals, Inc........................ 220,500
800 Wells Fargo & Company.............................. 147,200
10,900 Whitman Corp....................................... 197,563
12,800 WMX Technologies, Inc.............................. 348,800
* 12,900 WorldComm, Inc. Georgia............................ 335,400
-------------
TOTAL UNITED STATES................................ 41,410,786
-------------
TOTAL COMMON STOCKS AND EQUIVALENTS
(Cost $118,646,263)............................... 127,921,617
-------------
Principal
Amount
---------- CONVERTIBLE CORPORATE OBLIGATION 1.1%
$ 290,000 Acer, Inc., 4.00%, 6/10/01......................... 797,500
400,000 United Micro Elect, 1.25%, 06/08/04................ 680,000
-------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS (Cost
$1,461,425)....................................... 1,477,500
-------------
REPURCHASE AGREEMENT 0.4%
560,000 SBC Capital Markets, Inc., dated 5/31/95, 6.15%,
due 6/1/95 (collateralized by U.S. Government
obligations in a pooled cash account) repurchase
proceeds $560,096
(Cost $560,000)................................... 560,000
-------------
TOTAL INVESTMENTS (Cost $120,667,688) 98.9%.................... 129,959,117
OTHER ASSETS AND LIABILITIES, NET 1.1%......................... 1,405,896
-------------
NET ASSETS 100%................................................ $ 131,365,013
-------------
</TABLE>
*Non-income producing security
16
<PAGE>
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $120,667,688)............... $ 129,959,117
Foreign currency, at market value (Cost $1,888,407)............ 1,895,265
Receivable for investments sold................................ 3,647,440
Receivable for Fund shares sold................................ 764,612
Interest and dividends receivable.............................. 460,962
Unrealized appreciation of forward currency exchange contracts. 62,605
Other assets................................................... 37,439
--------------
TOTAL ASSETS.................................................. 136,827,440
--------------
LIABILITIES
Payable for investments purchased.............................. 4,106,246
Payable for Fund shares redeemed............................... 460,867
Bank overdraft................................................. 446,802
Due to Distributor............................................. 108,623
Due to Adviser................................................. 108,595
Due to shareholder service agent............................... 62,725
Deferred directors' fees....................................... 6,760
Accrued expenses and other payables............................ 161,809
--------------
TOTAL LIABILITIES............................................. 5,462,427
--------------
NET ASSETS, equivalent to $11.79 per share for Class A, $11.50
per share for Class B and $11.61 per share for Class C shares. $ 131,365,013
--------------
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 5,094,280 Class A, 5,624,671 Class B and
571,734 Class C shares outstanding............................ $ 11,291
Capital surplus................................................ 125,802,905
Accumulated net realized loss on securities.................... (3,732,923)
Net unrealized appreciation (depreciation) of securities
Investments................................................... 9,291,429
Forward currency exchange contracts........................... 62,605
Foreign currency.............................................. 6,858
Other foreign denominated assets and liabilities.............. (7,787)
Accumulated net investment loss................................ (69,365)
--------------
NET ASSETS..................................................... $ 131,365,013
--------------
</TABLE>
17
<PAGE>
See Notes to Financial Statements
STATEMENT OF OPERATIONS
Year Ended May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of $218,672 of foreign taxes withheld at source).... $1,888,505
Interest........................................................... 444,043
----------
Total income...................................................... 2,332,548
----------
EXPENSES
Management fees.................................................... 1,200,835
Shareholder service agent's fees and expenses...................... 684,374
Accounting services................................................ 28,800
Service fees--Class A.............................................. 136,131
Distribution and service fees--Class B............................. 594,069
Distribution and service fees--Class C............................. 62,244
Directors' fees and expenses....................................... 11,154
Audit fees......................................................... 81,001
Custodian fees..................................................... 264,559
Legal fees......................................................... 6,380
Reports to shareholders............................................ 68,988
Registration and filing fees....................................... 94,730
Organization expenses.............................................. 14,539
Miscellaneous...................................................... 3,603
----------
Total expenses.................................................... 3,251,407
----------
Net investment loss............................................... (918,859)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments....................................................... (1,724,952)
Foreign currency and forward currency exchange contracts.......... 71,588
Net unrealized appreciation (depreciation) of securities during the
period
Investments....................................................... 5,977,159
Foreign currency.................................................. 3,908
Forward currency exchange contracts............................... 155,303
Other foreign denominated assets and liabilities.................. (9,262)
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 4,473,744
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $3,554,885
----------
</TABLE>
18
<PAGE>
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended May 31
-------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period .................... $ 95,717,344 $19,645,729
------------ -----------
Operations
Net investment loss................................ (918,859) (456,521)
Net realized gain (loss) on securities............. (1,653,364) 2,131,835
Net unrealized appreciation of securities during
the period........................................ 6,127,108 1,503,543
------------ -----------
Increase in net assets resulting from operations... 3,554,885 3,178,857
------------ -----------
Distributions to shareholders from
Net realized gain on securities
Class A............................................ -- (92,844)
Class B............................................ -- (104,235)
Class C............................................ -- (8,409)
------------ -----------
-- (205,488)
------------ -----------
Excess of book-basis net realized gain on
securities
Class A............................................ (1,311,980) --
Class B............................................ (1,438,472) --
Class C............................................ (155,182) --
------------ -----------
(2,905,634) --
------------ -----------
Total distributions................................ (2,905,634) (205,488)
------------ -----------
Capital transactions
Proceeds from shares sold
Class A........................................... 42,797,541 41,722,355
Class B........................................... 29,086,706 47,632,240
Class C........................................... 4,030,850 5,489,462
------------ -----------
75,915,097 94,844,057
------------ -----------
Proceeds from shares issued for distributions
reinvested
Class A........................................... 1,240,023 84,865
Class B........................................... 1,341,370 98,060
Class C........................................... 131,350 7,850
------------ -----------
2,712,743 190,775
------------ -----------
Cost of shares redeemed
Class A........................................... (26,555,840) (14,329,235)
Class B........................................... (14,514,920) (7,126,354)
Class C........................................... (2,558,662) (480,997)
------------ -----------
(43,629,422) (21,936,586)
------------ -----------
Increase in net assets resulting from capital
transactions...................................... 34,998,418 73,098,246
------------ -----------
INCREASE IN NET ASSETS.............................. 35,647,669 76,071,615
------------ -----------
NET ASSETS, end of period........................... $131,365,013 $95,717,344
------------ -----------
</TABLE>
19
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------
Aug. 5
Year Ended May 31 1991(/1/) to
---------------------------- May 31,
1995(/2/) 1994 1993(/2/) 1992(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period. $11.67 $10.76 $10.44 $ 9.33
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... .23 .26 .235 .21
Expenses............................ (.27) (.32) (.325) (.185)
Expense reimbursement(/3/).......... -- -- .035 --
------ ------ ------ ------
Net investment income (loss)......... (.04) (.06) (.055) .025
Net realized and unrealized gain on
securities.......................... .42 1.0125 .7775 1.145
------ ------ ------ ------
Total from investment operations..... .38 .9525 .7225 1.17
------ ------ ------ ------
DISTRIBUTIONS FROM
Net realized gains on securities.... -- (.0425) (.4025) (.06)
Excess of book-basis net realized
gain on securities.................. (.26) -- -- --
------ ------ ------ ------
Total distributions.................. (.26) (.0425) (.4025) (.06)
------ ------ ------ ------
Net asset value, end of period....... $11.79 $11.67 $10.76 $10.44
------ ------ ------ ------
TOTAL RETURN (/4/)................... 3.36% 9.17% 7.13% 12.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions). $60.1 $41.8 $12.7 $8.4
Average net assets (millions)........ $54.5 $25.8 $9.2 $6.2
Ratios to average net assets
(annualized)(/3/)
Expenses............................ 2.29% 2.46% 2.93% 2.07%
Expenses, without expense
reimbursement....................... -- -- 3.28% --
Net investment income............... (.35%) (.46%) (.57%) .29%
Net investment income, without
expense reimbursement............... -- -- (.92%) --
Portfolio turnover rate.............. 120% 116% 120% 135%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) See Note 2.
(4) Total return for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
20
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C (/2/)
------------------------------------------ ---------------------
Novem-
ber 15, Year
Year Ended May 31 1991(/1/) to Ended June 21,
---------------------------- May 31, May 31, 1993(/1/) to
1995(/2/) 1994 1993(/2/) 1992(/2/) 1995 May 31, 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period..... $11.48 $10.67 $10.46 $ 9.78 $11.59 $10.29
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Investment income...... .22 .22 .235 .16 .22 .24
Expenses............... (.35) (.35) (.435) (.165) (.35) (.37)
Expense
reimbursement(/3/)..... -- -- .065 -- -- --
------ ------ ------ ------ ------ ------
Net investment loss..... (.13) (.13) (.135) (.005) (.13) (.13)
Net realized and
unrealized gain on
securities.............. .41 .9825 .7475 .745 .41 1.4725
------ ------ ------ ------ ------ ------
Total from investment
operations.............. .28 .8525 .6125 .74 .28 1.3425
------ ------ ------ ------ ------ ------
DISTRIBUTIONS FROM
Net realized gains on
securities ............ -- (.0425) (.4025) (.06) -- (.0425)
Excess of book-basis
net realized gain on
securities............ (.26) -- -- -- (.26) --
------ ------ ------ ------ ------ ------
Total distributions..... (.26) (.0425) (.4025) (.06) (.26) (.0425)
------ ------ ------ ------ ------ ------
Net asset value, end of
period.................. $11.50 $11.48 $10.67 $10.46 $11.61 $11.59
------ ------ ------ ------ ------ ------
TOTAL RETURN (/4/)...... 2.62% 8.21% 6.15% 7.58% 2.60% 13.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)....... $64.7 $48.8 $6.9 $1.2 $6.6 $5.1
Average net assets
(millions).............. $59.4 $26.4 $2.8 $0.5 $6.2 $2.4
Ratios to average net
assets (annualized)(/3/)
Expenses............... 3.05% 3.21% 3.88% 3.11% 3.05% 3.21%
Expenses, without
expense reimbursement. -- -- 4.50% -- -- --
Net investment income.. (1.11%) (1.19%) (1.41%) (.12%) (1.13%) (1.15%)
Net investment income,
without expense
reimbursement......... -- -- (2.02%) -- -- --
Portfolio turnover rate. 120% 116% 120% 135% 120% 116%
</TABLE>
(1) Commencement of offering of shares.
(2) Based on average month-end shares outstanding.
(3) See Note 2.
(4) Total return for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital World Portfolio Series is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management invest-
ment company which offers shares in two separate portfolios, one of which is
described in this report: American Capital Global Equity Fund (the "Fund").
The investment objective of the Fund is to provide long-term growth of capital
through investments in an internationally diversified portfolio of equity se-
curities. Investments in foreign securities involve certain risks not ordinar-
ily associated with investments in securities of domestic issuers, including
fluctuations in foreign exchange rates, future political and economic develop-
ments, and the possible imposition of exchange controls or other foreign gov-
ernmental laws or restrictions. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements.
A. INVESTMENT VALUATIONS-Securities listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the most
recent bid price. Securities for which market quotations are not readily
available are valued at fair value under a method approved by the Board of Di-
rectors.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
B. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
C. FOREIGN CURRENCY TRANSLATION-The market values of foreign securities, for-
ward currency exchange contracts and other assets and liabilities stated in
foreign currency are translated into U.S. dollars based on quoted exchange
rates as of noon Eastern
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Time. The cost of securities is determined using historical exchange rates.
Income and expenses are translated at prevailing exchange rates when accrued
or incurred. Gains and losses on the sale of securities are not segregated for
financial reporting purposes between amounts arising from changes in exchange
rates and amounts arising from changes in the market prices of securities. Re-
alized gain and loss on foreign currency includes the net realized amount from
the sale of currency and the amount realized between trade date and settlement
date on security transactions.
D. FORWARD CURRENCY EXCHANGE CONTRACTS-The Fund enters into forward currency
exchange contracts in order to hedge its exposure to changes in foreign cur-
rency exchange rates on its foreign portfolio holdings or settle transactions.
A forward currency exchange contract is a commitment to buy or sell a foreign
security at a set price on a future date. Changes in the value of the contract
are recognized by marking the contract to market on a daily basis to reflect
current currency translation rates. The Fund realizes gains or losses at the
time the forward currency exchange contract is closed. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts, and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. FUTURES CONTRACTS-Transactions in futures contracts are utilized in strate-
gies to manage the market risk of the Fund's investments by increasing or de-
creasing the percentage of assets effectively invested. The purchase of a
futures contract increases the impact on net asset value of changes in the
market price of investments. There is also a risk that the market movement of
such instruments may not be in the direction forecasted.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. A portion of these funds is held as collateral in
an account in the name of the broker, the Fund's agent in acquiring the
futures position. During the period the futures contract is open, changes in
the value of the contract ("variation margin") are recognized by marking the
contract to market on a daily basis. As unrealized gains or losses are in-
curred, variation margin payments are received from or made to the broker.
Upon the closing or cash settlement of a contract, gains or losses are real-
ized. The cost of securities acquired through delivery under a contract is ad-
justed by the unrealized gain or loss on the contract.
F. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized gains on investments to its shareholders.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
The Fund designates $1,241,000 as a capital gain dividend for the purpose of
the dividend paid deduction. Additionally, approximately $3.7 million of post
October losses are deferred for tax purposes to the 1996 fiscal year.
G. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
Under the applicable foreign tax laws, a withholding tax may be imposed on
interest, dividends and realized gains generated from foreign investments.
Such withholding taxes are reflected on the Statement of Operations as a re-
duction of the related income or gain.
H. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
or distributions may result in dividends or distributions in excess of finan-
cial statement earnings.
I. ORGANIZATION COSTS-Organization expenses of approximately $75,000 were de-
ferred and are being amortized over a five year period ending September, 1996.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager to the Fund. The Adviser has entered
into a subadvisory agreement with John Govett & Co., Ltd. (the "Subadviser"),
who provides advisoryservices to the Fund and the Adviser with respect to the
Fund's investments in foreign securities. Prior to December 21, 1994, Lombard
Odier International Portfolio Management Ltd. served as subadviser to the
Fund. Management fees are calculated monthly, based on the average daily net
assets of the Fund at the annual rate of 1.00%. The Adviser pays 50% of its
management fee to the Subadviser.
Under the terms of the advisory agreement, if the total ordinary business
expenses of the Fund, exclusive of taxes, interest and distribution plans, ex-
ceed the most restrictive expense limitation applicable in the states where
the Fund's shares are qualified for sale, the Adviser will reimburse the Fund
for the excess. Such reimbursement shall be made monthly. The most restrictive
expense limitation in effect was California's which aggregated 2 1/2% of the
first $30 million of average daily net assets, 2% of the next $70 million of
average daily net assets and 1 1/2% of the average daily net assets in excess
of $100 million. No reimbursement was made during the current period.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
ACCESS Investor Services, an affiliate of the Adviser, serves as the Fund's
shareholder service agent. These services are provided at cost plus a profit.
For the period, such fees aggregated $586,655.
The Fund was advised that Van Kampen American Capital Distributors, Inc. (the
"Distributor") and Advantage Capital Corporation (the "Retail Dealer"), both
affiliates of the Adviser, received $1,104 and $43,099, respectively, as their
portion of the commissions charged on sales of Fund shares during the period.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to the Distributor for expenses and service fees in-
curred. Class B shares and Class C shares pay an additional fee of up to .75%
per annum of their average daily net assets to reimburse the Distributor for
its distribution expenses. Actual distribution expenses incurred by the Dis-
tributor for Class B and Class C shares may exceed the amounts reimbursed to
the Distributor by the Fund. At the end of the period, the unreimbursed ex-
penses incurred by the Distributor under the Class B and Class C plans aggre-
gated approximately $1.7 million and $94,600, respectively, and may be carried
forward and reimbursed through either the collection of the contingent deferred
sales charges from share redemptions or, subject to the annual renewal of the
plans, future Fund reimbursements of distribution fees.
During the period, the Fund paid brokerage commissions of $3,545 to companies
which are deemed affiliates of the Adviser's parent because it owns more than
5% of the companies' outstanding voting securities. As of December 20, 1994,
the companies were no longer considered affiliates.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $167,950,137 and $132,013,519,
respectively.
For federal income tax purposes, the identified cost of portfolio securities
and foreign currency was $122,629,621. Net unrealized appreciation aggregated
$9,224,761, gross unrealized appreciation aggregated $13,301,536 and gross
unrealized depreciation aggregated $4,076,775.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
At the end of the period, the Fund held the following open forward currency
exchange contracts:
<TABLE>
<CAPTION>
Settlement U.S. Dollar Unrealized
CURRENCY Date Value Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
French Franc
24,827,500 (payable)....................... 7/03/95 $4,996,496 $ 3,504
Japanese Yen
409,400,000 (payable)...................... 11/02/95 4,940,899 59,101
---------- -------
$9,937,395 $62,605
---------- -------
</TABLE>
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $900 plus a fee of $25 per day for Board and Commit-
tee meetings attended. The Chairman receives additional fees from the Fund at
the annual rate of $340. During the period, such fees aggregated $9,529.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered by the Plan elects to be credited with
an earning component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.
NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B and Class C shares). All classes of shares have the same
rights, except that Class B and Class C shares bear the cost of distribution
fees and certain other class specific expenses. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions. Realized and unrealized
gains or losses, investment income and expenses (other than class specific ex-
penses) are allocated daily to each class of shares based upon the relative
proportion of net assets of each class.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
The Fund has 200 million of each class of shares of $.001 par value capital
stock authorized. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended May 31
----------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A............................................... 3,727,775 3,663,156
Class B............................................... 2,555,706 4,223,622
Class C............................................... 350,959 479,149
---------- ----------
6,634,440 8,365,927
---------- ----------
Shares issued for distributions reinvested
Class A............................................... 114,288 7,564
Class B............................................... 126,187 8,850
Class C............................................... 12,253 701
---------- ----------
252,728 17,115
---------- ----------
Shares redeemed
Class A............................................... (2,333,611) (1,268,856)
Class B............................................... (1,306,968) (629,979)
Class C............................................... (229,693) (41,635)
---------- ----------
(3,870,272) (1,940,470)
---------- ----------
Increase in shares outstanding.......................... 3,016,896 6,442,572
---------- ----------
</TABLE>
NOTE 6--SHAREHOLDER MEETING
On July 21, 1995, a shareholder meeting of the Fund will be held to vote on:
(1) the Reorganization of the Fund from a Maryland corporation to a Delaware
Business trust and (2) an election of fourteen directors.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL GLOBAL EQUITY FUND, A SERIES OF AMERICAN CAPITAL WORLD
PORTFOLIO SERIES, INC.
In our opinion, the accompanying statement of assets and liabilities, includ-
ing the portfolio of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of American Capital Global Equity
Fund, a series of American Capital World Portfolio Series, Inc., at May 31,
1995, and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted au-
diting standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by corre-
spondence with the custodian and brokers, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
July 20, 1995
28
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
VKM Short-Term Global Income Fund
VKM Strategic Income Fund
EQUITY
Growth
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
Growth & Income
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
--High Yield Municipal Portfolio
--Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
29
<PAGE>
AMERICAN CAPITAL GLOBAL EQUITY FUND
BOARD OF DIRECTORS
J. MILES BRANAGAN
RICHARD E. CARUSO
ROGER HILSMAN
DON G. POWELL
DAVID REES
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WILLIAM S. WOODSIDE
*Chairman of the Board
OFFICERS
DON G. POWELL
President
CURTIS W. MORELL
Vice President and Treasurer
DENNIS J. MCDONNEIL
RONALD A. NYBERG
ROBERT C. PECK, JR.
JOHN R. REYNOLDSON
ALAN T. SACHTLEBEN
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
HUEY P. FALGOUT, JR.
Assistant Secretary
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Blvd.
Houston, Texas 77056
INVESTMENT SUBADVISER
JOHN GOVETT & CO., LTD.
Shackleton House
4 Battle Bridge Lane
London, SE1 2HR England
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook, Terrace, IL 60181
SHAREHOLDER SERVICE AGENT
ACCESS INVESTORS SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST CO.
225 Franklin Street
Boston, Massachusetts 02110
COUNSEL
O'MELVENY & MYERS
400 South Hope Street
Los Angeles, California 90071
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1201 Louisiana
Houston, Texas 77002
(CVan)Kampen American Capital Distributors, Inc., 1995
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 un-
less it has been preceded or is accompanied by an effective prospectus of the
Fund which contains additional information on how to purchase shares, the
sales charge, and other pertinent data. If used for distribution to prospec-
tive Investors after 09/30/95, this annual report must be accompanied by an
American Capital Global Equity Fund performance data update for the most re-
cent quarter.
30
<PAGE>
AMERICAN CAPITAL GLOBAL EQUITY FUND
THIS PAGE INTENTIONALLY LEFT BLANK
31
<PAGE>
AMERICAN CAPITAL GLOBAL EQUITY FUND
THIS PAGE INTENTIONALLY LEFT BLANK
32
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Performance Perspective..................... 4
Portfolio Management Review................. 5
Portfolio of Investments.................... 7
Statement of Assets and Liabilities......... 8
Statement of Operations..................... 9
Statement of Changes in Net Assets.......... 10
Financial Highlights........................ 11
Notes to Financial Statements............... 14
</TABLE>
GGS AR 7/95
<PAGE>
LETTER TO SHAREHOLDERS
DON G. POWELL
July 3, 1995
Dear Shareholder:
During the twelve-month period covered by this report, June 1, 1994 through
May 31, 1995, we saw the close of a challenging and difficult year in the fi-
nancial markets--and the beginning of a new year, with renewed optimism and
strength on many fronts.
MARKET OVERVIEW
Most of 1994 was a difficult period for both domestic and foreign investors
as interest rates worldwide continued to climb. This trend, which was led by
the United States and its tight monetary policy, drove short- and long-term
interest rates markedly higher. The yield on 30-year U.S. Treasury securities,
for example, climbed from 6.35 percent as the year began to a high of 8.16
percent by early November. At the same time, interest rates overseas rose and
bond prices fell. For example, interest rates on 10-year German Government
bonds climbed from 6.47 percent to 7.65 percent, June to December.
Stock market investors did not fare much better, despite robust economies
around the world. While the stock markets in many industrialized countries
struggled through the latter part of 1994, emerging markets (developing econo-
mies) suffered the largest declines due to the monetary problems in Latin
America. In response to various political and economic events, Mexico was
forced to devalue its currency in December and allow it to trade freely on the
world currency markets. Since then, the Mexican stock market and Latin Ameri-
can markets have fallen sharply under negative market perception. Many invest-
ors began to shift their attention to developed markets, such as the United
States, Europe, and Canada, in pursuit of higher credit quality and poten-
tially lower volatility.
In stark contrast, 1995 began more positively as the U.S. market got a boost
from growing sentiment that the Federal Reserve Board had stabilized economic
growth while keeping inflation under control. Subsequently, we saw the yield
on 30-year U.S. Treasury securities fall to 6.64 percent at the end of May.
Falling yields have pushed U.S bond prices back up to February 1994 levels.
Likewise, the U.S. stock market climbed through the first part of the year.
The Dow Jones Industrial Average, for example, broke the 4400 mark in May,
setting a new record high and sustaining expectations for a stronger market in
1995.
This positive climate was apparently reflected in the public's sentiment. At
the end of May, the Van Kampen American Capital Index of Investor Intentions
reached 145, an increase of 5 percent over its April-end level of 138--with a
total of 46 percent of those individuals surveyed saying the next 60-90 days
would be a "good" time to invest. The index, computed from an independently
conducted survey and published by Van Kampen American Capital, measures the
investment climate (the public's confidence) by asking 1,000 individuals about
what they intend to do with their money over the next 60-90 days.
(Continued on page two)
1
<PAGE>
Abroad, bond markets in industrialized countries also rallied during the
first part of 1995, particularly in Canada and Australia, as both economies
showed signs of moderating growth and a trend toward lower interest rates.
Many international currencies, such as the Japanese yen and German mark (two
traditionally strong currencies), have strengthened substantially against the
U.S. dollar over the course of the year. Their appreciation against the U.S.
dollar has been positive for Americans investing overseas, as it has resulted
in better overall returns from these markets over the last twelve months.
Among the mature European stock markets--such as Switzerland and the UK--
stocks on average have appreciated, in dollar terms, 22.8 percent and 17.14
percent, respectively, over the past twelve months. These price gains can be
partially attributed to investors seeking higher investment quality, espe-
cially those who reallocated monies from Latin American countries to more de-
veloped markets.
On the following pages, you can read about your Fund's performance during
the past twelve months, as well as portfolio management's outlook for the Fund
in the coming months. We hope that you will find the information contained in
the question-and-answer section helpful.
CORPORATE NEWS
As you may have already noticed, we have adopted a new design for our share-
holder reports that reflects our new identity as Van Kampen American Capital.
Going forward, we will continue to look for new ways to improve upon the pre-
sentation of information in your Fund's report.
In addition, we have developed a new corporate advertising campaign intro-
ducing Van Kampen American Capital and our wide range of investment opportuni-
ties designed to help you build and preserve wealth. Full page ads appeared in
The Wall Street Journal in the first quarter of 1995--watch for more advertis-
ing throughout the year.
We look forward to communicating with you on a regular basis, providing in-
formation about your Fund's performance, new investment opportunities, and our
newly created company. We appreciate your continued confidence in your invest-
ment with Van Kampen American Capital.
Sincerely,
/s/ Don G. Powell
Don G. Powell Chairman
Van Kampen American Capital
Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED MAY 31, 1995
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return
based on NAV1........................................ 7.52% 6.69% 6.60%
One-year total return2............................... 2.43% 2.70% 5.61%
Three-year average
annual total return2................................. 4.22% 4.28% N/A
Life of Fund average
annual total return2................................. 3.73% 3.91% 4.18%
Commencement Date.................................... 11/15/91 11/15/91 04/12/93
DISTRIBUTION RATE AND YIELD
Distribution Rate3................................... 6.38% 5.94% 5.99%
SEC Yield4........................................... 4.36% 3.81% 3.82%
</TABLE>
N/A = Not Applicable
1Assumes reinvestment of all distributions for the period ended May 31, 1995,
and does not include payment of the maximum sales charge (4.75% for A shares)
or contingent deferred sales charge for early withdrawal (4% for B shares and
1% for C shares).
2Standardized total return. Assumes reinvestment of all distributions for the
period ended May 31, 1995, and includes payment of the maximum sales charge
(4.75% for A shares) or contingent deferred sales charge for early withdrawal
(4% for B shares and 1% for C shares).
3Distribution Rate represents the monthly annualized distributions of the Fund
at the end of May 1995, and not the earnings of the Fund.
4SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending May 31, 1995.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.
3
<PAGE>
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular inter-
vals. A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison
can:
. Illustrate the general market environment in which your investments are
being managed
. Reflect the impact of favorable market trends or difficult market con-
ditions
. Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over
the period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the JP Morgan Global Traded Gov-
ernment Index over time.
As a broad-based, unmanaged statistical composite, this index does not re-
flect any commissions or fees which would be incurred by an investor purchas-
ing the securities it represents. Similarly, its performance does not reflect
any sales charges or other costs which would be applicable to an actively man-
aged portfolio, such as that of the Fund.
GROWTH OF A $10,000 INVESTMENT
American Capital Global Government Securities Fund compared to JP
Morgan Global Traded Government Index (December 1991 through May 1995)
LOGO
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions for the period ended May 31, 1995,
and includes payment of the maximum sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above in-
formation provides a broader vantage point from which to evaluate the discus-
sion of the Fund's performance found in the following pages.
This report is intended for shareholders of the Fund and may not be used as
sales literature with prospective investors unless it is preceded or accompa-
nied by the Fund's current prospectus. The prospectus provides more complete
information about charges and expenses, investment objectives, and operating
policies and should be read carefully by prospective investors before they in-
vest or send money.
4
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND
The following is an interview with the management team of American Capital
Global Government Securities Fund. The Fund is co-managed by portfolio
managers Alan Doyle, John Govett & Co. Limited (international holdings), John
R. Reynoldson, Van Kampen American Capital (U.S. holdings), and Robert C.
Peck, Jr., Van Kampen American Capital's executive vice president for fixed-
income investments.
Q. WHAT MARKET CONDITIONS HAD THE GREATEST IMPACT ON WORLD BOND MARKETS
DURING THE YEAR ENDED MAY 31, 1995?
A. Three developments impacted the global fixed-income markets during the
past year.
First, global bond market prices fell sharply during the second half of 1994
as economic growth and interest rates, particularly in the United States, ac-
celerated rapidly. (Rising interest rates cause bond values to decrease, while
falling interest rates cause their value to increase.)
Second, beginning in early 1995 it became clear that economic growth was
stayed and interest rates had probably peaked. This led to a world bond market
rally that continued through the first half of 1995--helping the bond markets
to recover their 1994 losses.
Last, apart from a brief period of U.S. dollar strength late in 1994, the
dollar has been weakening against the other major currencies since the begin-
ning of 1994. At times, the dollar has moved in a particularly volatile fash-
ion against the other currencies.
The root cause of all three of these developments can be traced to the ad-
justment of monetary policy by the U.S. Federal Reserve--from the very low in-
terest rates of 1993, to the more neutral position which was reached after the
U.S. Congressional elections late in 1994. As interest rates increased in the
U.S. and other countries, economic growth slowed to a more sustainable pace.
As such, both the fixed-income markets and international exchange rate sce-
nario have stabilized.
Q. HOW DID YOU POSITION THE FUND IN RESPONSE TO THE EVENTS OF THE PAST SIX
MONTHS?
A. To reduce volatility, the Fund's duration (a measure of a fund's
sensitivity to changes in interest rates) was reduced late in 1994 as bond
markets fell. As the rally in bond markets accelerated in 1995, the duration of
the portfolio was lengthened, to enable the fund to maximize its upside
potential.
In terms of portfolio weightings, the Fund's exposure has been largely con-
centrated on the U.S. bond market, where we saw the best value. European bond
markets played a smaller role. There, the Fund's exposure has been increas-
ingly concentrated in Germany, whose bond market has been least affected by
currency pressures within the European Exchange Rate Mechanism. In terms of
currency exposure, the Fund has most recently maintained a heavy position in
U.S. dollars as a defensive measure against currency volatility.
Furthermore, the Portfolio's high quality standards has helped to limit
downside potential. By prospectus, its investments must be rated at least AA-
or the equivalent. And, as of May 31, 1995, 100 percent of its investments
were rated AAA or the equivalent (the highest credit rating assigned to bonds
by Standard & Poor's Ratings Group).
5
<PAGE>
American Capital Q HOW DID THE FUND PERFORM DURING THE YEAR
Global Government ENDED MAY 31,
Securities Fund 1995?
A Class A Shares achieved a total return at
Countries Represented net asset value of 7.52 percent/1/ including
in the Portfolio reinvestment of dividends totaling $0.604 per
as of May 31, 1995 share.
The same period, the J.P. Morgan Global Traded
Government Index achieved a total return of 10.01
percent. The Index is an unmanaged index of major
foreign and U.S. Government bonds,
United States
Germany
Sweden
weighted by the total market value of each country's securities, and reflects
variations in currency value. It does not reflect any commissions or fees that
would be paid by an investor purchasing the securities it represents. (Please
refer to the chart on page three for additional fund performance.)
Q WHAT IS YOUR OUTLOOK FOR THE GLOBAL BOND MARKET IN 1995 AND, MORE
SPECIFICALLY, FOR THE FUND?
A After the very weak point reached late in 1994, fixed-income market con-
ditions have stabilized substantially. In fact, since the beginning of
1995, the market has experienced a long and sustained rally. Economic growth
worldwide has decelerated from the particularly fast pace of late 1994, and
the threat of sharply higher inflation has consequently been significantly re-
duced. We accordingly do not expect renewed turmoil in fixed-income markets
over the remainder of this year.
Quieter conditions in fixed-income markets should be matched in the currency
markets, where exchange rate reaction to economic imbalances has already taken
place. While we expect further dollar depreciation against other major curren-
cies, we expect this to be much less volatile than the movements of early
1995.
/s/ Robert C. Peck, Jr. /s/ John R. Reynoldson
Robert C. Peck, Jr. John R. Reynoldson
Van Kampen American Capital Van Kampen American Capital
Executive Vice President Portfolio Manager
Fixed Income Investments
/s/ Alan Doyle
Alan Doyle
John Govett & Co. Limited
Portfolio Manager
Please see footnotes on page three
6
<PAGE>
See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT OBLIGATIONS
96.6%
$*33,000 Treasury Notes....................... 7.500% 02/15/05 $ 35,774,310
*30,500 Treasury Notes....................... 8.000 10/15/96 31,362,845
*65,650 Treasury Notes....................... 8.875 02/15/96 67,014,864
32,000 Treasury Notes....................... 9.250 01/15/96 32,650,240
*16,250 Treasury Notes....................... 9.500 11/15/95 16,516,662
------------
TOTAL UNITED STATES GOVERNMENT
OBLIGATIONS
(Cost $181,697,227)................. 183,318,921
------------
REPURCHASE AGREEMENT 0.4%
800 SBC Capital Markets, Inc., dated
5/31/95 (collateralized by U.S.
Government obligations in a pooled
cash account) repurchase proceeds
$800,137 (Cost $800,000)............ 6.150 06/01/95 800,000
------------
TOTAL INVESTMENTS (Cost $182,497,227) 97.0%.................... 184,118,921
OTHER ASSETS AND LIABILITIES, NET 3.0%......................... 5,660,695
------------
NET ASSETS 100%................................................ $189,779,616
------------
</TABLE>
*Securities with a market value of approximately $104.8 million were placed as
collateral for forward commitments and future contracts (Note 1D).
<TABLE>
<C> <S> <C> <C> <C>
FORWARD PURCHASE COMMITMENTS
<CAPTION>
Par Unrealized
Amount Appreciation
(000) Description Coupon Maturity (Depreciation)
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GERMANY
DM 5,200 Treuhandanstalt, settlement
7/95............................ 6.750% 05/13/04 $ 198,025
49,000 Treuhandanstalt, settlement
7/95............................ 6.750 05/13/04 1,777,234
UNITED STATES
$ 8,000 Federal Home Loan Mtg Corp.,
settlement 6/95................. 7.500 01/01/99 363,810
8,000 Government National Mtg
Association, settlement 6/95.... 8.000 01/01/99 357,560
26,000 Treasury Notes, settlement 8/95. 5.750 08/15/03 422,874
----------
3,119,503
----------
Skr 87,000 SWEDEN (Kingdom of) settlement
9/95............................ 6.000 02/09/05 (36,192)
----------
TOTAL FORWARD PURCHASE
COMMITMENTS
(Total obligation $85,380,324). $3,083,311
----------
</TABLE>
7
<PAGE>
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $182,497,227)............... $ 184,118,921
Foreign currency, at market value (Cost $337,861).............. 336,411
Cash........................................................... 615
Receivable for offsetting forward bond commitments............. 49,089,975
Interest receivable............................................ 3,932,003
Unrealized appreciation of forward commitments and currency
exchange contracts ............................................ 4,488,334
Receivable for Fund shares sold................................ 61,396
Other assets................................................... 26,851
--------------
TOTAL ASSETS.................................................. 242,054,506
--------------
LIABILITIES
Payable for offsetting forward bond commitments................ 47,970,865
Unrealized depreciation of forward commitments and currency
exchange contracts............................................. 2,849,514
Payable for Fund shares redeemed............................... 591,597
Dividends payable.............................................. 411,755
Due to Distributor............................................. 166,620
Due to Adviser................................................. 118,604
Due to shareholder service agent............................... 37,593
Deferred Directors' compensation............................... 7,588
Accrued expenses............................................... 120,754
--------------
TOTAL LIABILITIES............................................. 52,274,890
--------------
NET ASSETS, equivalent to $8.24 per share for Class A shares,
$8.28 per share for Class B shares and $8.22 per share for
Class C shares................................................ $ 189,779,616
--------------
NET ASSETS WERE COMPRISED OF:
Capital stock, at par, 5,806,674 Class A shares, 14,898,886
Class B shares and 2,254,823 Class C shares outstanding....... $ 22,960
Capital surplus................................................ 216,994,358
Accumulated net realized loss on securities.................... (30,285,888)
Net unrealized appreciation (depreciation) of securities
Investments................................................... 1,621,694
Forward purchase commitments.................................. 3,083,311
Foreign currency.............................................. (1,450)
Forward currency exchange contracts........................... (1,444,491)
Offsetting forward bond commitments........................... (395,352)
Other foreign denominated assets and liabilities.............. (2,485)
Undistributed net investment income............................ 186,959
--------------
NET ASSETS..................................................... $ 189,779,616
--------------
</TABLE>
8
<PAGE>
See Notes to Financial Statements
STATEMENT OF OPERATIONS
Year Ended May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.......................................................... $17,955,444
-----------
EXPENSES
Management fees................................................... 1,568,102
Shareholder service agent's fees and expenses..................... 482,159
Accounting services............................................... 28,800
Service fees--Class A............................................. 136,286
Distribution and service fees--Class B............................ 1,333,464
Distribution and service fees--Class C............................ 212,195
Directors' fees and expenses...................................... 15,705
Audit fees........................................................ 84,700
Custodian fees.................................................... 136,937
Legal fees........................................................ 6,922
Reports to shareholders........................................... 52,054
Registration and filing fees...................................... 69,202
Organization expenses............................................. 3,531
Miscellaneous..................................................... 7,171
-----------
Total expenses................................................... 4,137,228
-----------
NET INVESTMENT INCOME............................................. 13,818,216
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments and forward commitments.............................. (15,527,210)
Futures contracts................................................ (2,520,491)
Foreign currency................................................. (578,259)
Foreign currency exchange contracts.............................. 4,971,405
Net unrealized appreciation (depreciation) of securities during
the period
Investments...................................................... 9,276,259
Forward purchase commitments..................................... 3,930,883
Futures contracts................................................ 889,812
Foreign currency................................................. (800)
Forward currency exchange contracts.............................. (2,327,336)
Offsetting forward bond commitments.............................. 564,564
Other foreign denominated assets and liabilities................. (13,888)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.................... (1,335,061)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $12,483,155
-----------
</TABLE>
9
<PAGE>
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1995 May 31, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period................... $233,762,956 $ 94,230,500
------------ ------------
OPERATIONS
Net investment income............................ 13,818,216 13,326,143
Net realized loss on securities.................. (13,654,555) (10,167,253)
Net unrealized depreciation of securities during
the period...................................... 12,319,494 (8,701,117)
------------ ------------
Increase (decrease) in net assets resulting from
operations...................................... 12,483,155 (5,542,227)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A.......................................... (4,034,848) (4,525,369)
Class B.......................................... (8,907,916) (7,929,152)
Class C.......................................... (1,423,252) (1,079,158)
------------ ------------
(14,366,016) (13,533,679)
------------ ------------
Excess of book-basis net realized gain on
securities (Note 1I)
Class A.......................................... -- (1,471,681)
Class B.......................................... -- (2,832,074)
Class C.......................................... -- (422,757)
------------ ------------
-- (4,726,512)
------------ ------------
Total distributions............................... (14,366,016) (18,260,191)
------------ ------------
NET EQUALIZATION CREDITS (DEBITS)................. (902,657) 2,966,330
------------ ------------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A.......................................... 8,153,327 55,343,301
Class B.......................................... 19,270,979 117,773,109
Class C.......................................... 3,154,166 28,158,811
------------ ------------
30,578,472 201,275,221
------------ ------------
Proceeds from shares issued for distributions
reinvested
Class A.......................................... 2,361,328 3,860,318
Class B.......................................... 5,045,660 6,498,875
Class C.......................................... 875,506 987,589
------------ ------------
8,282,494 11,346,782
------------ ------------
Cost of shares redeemed
Class A.......................................... (24,576,393) (26,423,074)
Class B.......................................... (46,690,375) (21,393,617)
Class C.......................................... (8,792,020) (4,436,768)
------------ ------------
(80,058,788) (52,253,459)
------------ ------------
Increase (decrease) in net assets resulting from
capital transactions............................. (41,197,822) 160,368,544
------------ ------------
INCREASE (DECREASE) IN NET ASSETS................. (43,983,340) 139,532,456
------------ ------------
NET ASSETS, end of period......................... $189,779,616 $233,762,956
------------ ------------
</TABLE>
10
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------
November 15,
Year Ended May 31 1991(/1/) to
--------------------- May 31,
1995 1994 1993 1992(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................. $8.26 $9.01 $9.07 $ 9.43
----- ------- ----- -------
Income from investment operations
Investment income................. .72 .92 .98 .62
Expenses.......................... (.12) (.14) (.135) (.03)
----- ------- ----- -------
Net investment income.............. .60 .78 .845 .59
Net realized and unrealized loss on
securities......................... (.016) (.5715) (.123) (.5245)
----- ------- ----- -------
Total from investment operations... .584 .2085 .722 .0655
----- ------- ----- -------
Less distributions from
Net investment income............. (.604) (.726) (.782) (.4255)
Excess of book-basis net realized
gain on securities (Note 1I)...... -- (.2325) -- --
----- ------- ----- -------
Total distributions................ (.604) (.9585) (.782) (.4255)
----- ------- ----- -------
Net asset value, end of period .... $8.24 $ 8.26 $9.01 $ 9.07
----- ------- ----- -------
TOTAL RETURN(/3/).................. 7.52% 1.89% 8.47% .71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)......................... $47.9 $ 62.8 $36.1 $ 25.0
Average net assets (millions)...... $54.5 $ 55.6 $32.4 $ 14.0
Ratios to average net assets
(annualized)(/4/)
Expenses.......................... 1.42% 1.45% 1.52% .50%
Expenses, without expense
reimbursement..................... -- -- -- 1.29%
Net investment income............. 7.18% 8.12% 9.33% 10.41%
Net investment income, without
expense reimbursement............ -- -- -- 9.62%
Portfolio turnover rate............ 209% 236% 301% 289%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total returns for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
(4) See Note 2.
11
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------
November 15
Year Ended May 31 1991(/1/)
-------------------------- to May 31,
1995 1994 1993(/2/) 1992(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $ 8.30 $ 9.04 $9.09 $ 9.43
------ ------- ----- -------
Income from investment operations
Investment income...................... .71 .90 .98 .605
Expenses............................... (.18) (.21) (.20) (.055)
------ ------- ----- -------
Net investment income................... .53 .69 .78 .55
Net realized and unrealized loss on
securities.............................. (.006) (.5435) (.12) (.5005)
------ ------- ----- -------
Total from investment operations........ .524 .1465 .66 .0495
------ ------- ----- -------
Less distributions from
Net investment income.................. (.544) (.654) (.71) (.3895)
Excess of book-basis net realized gain
on securities
(Note 1I)............................. -- (.2325) -- --
------ ------- ----- -------
Total distributions..................... (.544) (.8865) (.71) (.3895)
------ ------- ----- -------
Net asset value, end of period.......... $ 8.28 $ 8.30 $9.04 $ 9.09
------ ------- ----- -------
TOTAL RETURN(/3/)....................... 6.69% 1.07% 7.95% .53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).... $123.4 $ 147.5 $56.7 $ 22.5
Average net assets (millions)........... $133.3 $ 107.1 $39.6 $ 11.0
Ratios to average net assets
(annualized)(/4/).......................
Expenses............................... 2.18% 2.22% 2.19% 1.02%
Expenses, without expense
reimbursement.......................... -- -- -- 1.82%
Net investment income.................. 6.41% 7.30% 8.66% 9.86%
Net investment income, without expense
reimbursement.......................... -- -- -- 9.07%
Portfolio turnover rate................. 209% 236% 301% 289%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total returns for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
(4) See Note 2.
12
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
------------------------------
Year Ended April 12,
May 31 1993(/1/) to
----------------- May 31,
1995 1994(/2/) 1993(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $ 8.25 $ 8.99 $9.00
------ ------- -----
Income from investment operations
Investment income.............................. .69 .83 .12
Expenses....................................... (.18) (.20) (.025)
------ ------- -----
Net investment income........................... .51 .63 .095
Net realized and unrealized gain (loss) on
securities...................................... .004 (.4835) .011
------ ------- -----
Total from investment operations................ .514 .1465 .106
------ ------- -----
Less distributions from
Net investment income.......................... (.544) (.654) (.116)
Excess of book-basis net realized gain on
securities (Note 1I)........................... -- (.2325) --
------ ------- -----
Total distributions............................. (.544) (.8865) (.116)
------ ------- -----
Net asset value, end of period.................. $ 8.22 $ 8.25 $8.99
------ ------- -----
TOTAL RETURN(/3/)............................... 6.60% 1.19% 8.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............ $ 18.5 $ 23.5 $ 1.4
Average net assets (millions)................... $ 21.2 $ 14.1 $ 0.4
Ratios to average net assets (annualized).......
Expenses....................................... 2.18% 2.22% 2.63%
Net investment income.......................... 6.42% 7.13% 10.06%
Portfolio turnover rate......................... 209% 236% 301%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total returns for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital World Portfolio Series, Inc. is registered under the Invest-
ment Company Act of 1940, as amended, as an open-end, non-diversified manage-
ment investment company which offers shares in two separate portfolios, one of
which is described in this report: American Capital Global Government Securi-
ties Fund (the "Fund"). The investment objective of the Fund is to seek total
return through a managed balance of foreign and domestic debt securities. In-
vestments in foreign securities involve certain risks not ordinarily associated
with investments in securities of domestic issuers, including fluctuations in
foreign exchange rates, future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial state-
ments.
A. INVESTMENT VALUATIONS-Securities listed or traded on a national securities
exchange are valued at the mean between the bid and asked prices. Unlisted se-
curities, and listed securities for which prices are not available, are valued
at prices of comparable securities. Futures contracts are valued at the last
sale price or, if no sales are reported, at the mean between the bid and asked
prices. Securities for which market quotations are not readily available are
valued at fair value under a method approved by the Board of Directors.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost. U.S. Treasury Notes are held in the portfolio chiefly to support foreign
future or forward positions.
B. FOREIGN CURRENCY TRANSLATION-The market values of foreign securities, for-
ward currency contracts and other assets and liabilities stated in foreign cur-
rency are translated into U.S. dollars based on quoted exchange rates as of
noon Eastern Time. The cost of securities is determined using historical ex-
change rates. Income and expenses are translated at prevailing exchange rates
when accrued or incurred. Gains and losses on the sale of securities are not
segregated for financial reporting purposes between amounts arising from
changes in exchange rates and amounts arising from changes in the market prices
of securities. Realized gain and loss on foreign currency includes the net re-
alized amount from the sale of currency and the amount realized between trade
date and settlement date on security transactions.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
C. FORWARD CURRENCY EXCHANGE CONTRACTS-The Fund enters into forward currency
exchange contracts in order to hedge its exposure to changes in foreign cur-
rency exchange rates on its foreign portfolio holdings or settle transactions.
A forward currency exchange contract is a commitment to buy or sell a foreign
currency at a set price on a future date. Changes in the value of the contract
are recognized by marking the contract to market on a daily basis to reflect
current currency translation rates. The Fund realizes gains or losses at the
time the forward currency exchange contract is closed. Risks may arise as a re-
sult of the potential inability of the counterparties to meet the terms of
their contracts, and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
D. FUTURES CONTRACTS AND FORWARD COMMITMENTS-General--Transactions in futures
contracts and forward commitments are utilized in strategies to manage the mar-
ket risk of the Fund's investments. The purchase of a futures contract or for-
ward commitment increases the impact of changes in the market price of
investments on net asset value. Forward commitments have a risk of loss due to
nonperformance of counterparties. There is also a risk that the market movement
of such instruments may not be in the direction forecasted. Note 3--Investment
Activity contains additional information.
Futures Contracts--Upon entering into futures contracts, the Fund maintains
securities with a value equal to its obligation under the futures contracts in
a segregated account with its custodian. A portion of these funds is held as
collateral in an account in the name of the broker, the Fund's agent in acquir-
ing the futures position. During the period the futures contract is open,
changes in the value of the contract ("variation margin") are recognized by
marking the contract to market on a daily basis. As unrealized gains or losses
are incurred, variation margin payments are received from or made to the bro-
ker. Upon the closing or cash settlement of a contract, gains or losses are re-
alized. The cost of securities acquired through delivery under a contract is
adjusted by the unrealized gain or loss on the contract.
Forward Commitments--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs at
a specified future date. Forward commitments are privately negotiated transac-
tions between the Fund and dealers. Upon executing a forward commitment and
during the period of obligation, the Fund maintains collateral of cash or secu-
rities in a segregated account with its custodian in an amount sufficient to
relieve the obligation. If the intent of the Fund is to accept delivery of a
security traded under a forward purchase commitment, the commitment is recorded
as a long-term purchase. For forward purchase and sale commitments which secu-
rity settlement is not intended by the Fund, changes in the value of the com-
mitment are recognized by marking the commitment to market on a daily basis.
During the commitment, the Fund may either resell or
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
repurchase the forward commitment and enter into a new forward commitment, the
effect of which is to extend the settlement date. In addition, the Fund may
close such forward commitments prior to delivery. Gains and losses are realized
upon the ultimate closing or cash settlement of forward commitments.
E. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
F. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized gains on investments to its shareholders. It is anticipated that no
distributions of capital gains will be made until tax basis capital loss
carryforwards expire or are offset by net realized capital gains.
The net realized capital loss carryforward of approximately $22.3 million for
federal income tax purposes at the end of the period may be utilized to offset
future capital gains until expiration in 2003. Additionally, approximately $9.8
million of post October losses are being deferred for tax purposes to the 1996
fiscal year.
G. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on invest-
ments are determined on the basis of identified cost. Interest income is
accrued daily. Under the applicable foreign tax laws, a withholding tax may be
imposed on interest and realized gains generated from foreign investments.
H. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on
the same basis as is used for federal income tax reporting. Accordingly, origi-
nal issue discounts on debt securities purchased are amortized over the life of
the security. Premiums on debt
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
securities are not amortized. Market discounts are recognized at the time of
sale as realized gains for book purposes and ordinary income for tax purposes.
I. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.
J. EQUALIZATION-At May 31, 1995, the Fund discontinued the accounting practice
of equalization, which it had used since its inception. Equalization is a prac-
tice whereby a portion of the proceeds from sales and costs of redemptions of
Fund shares, equivalent on a per-share basis to the amount of the undistributed
net investment income, is charged or credited to undistributed net investment
income.
The balance of equalization included in undistributed net investment income
at the date of change, which was $3,058,279, was reclassified to capital sur-
plus. Such reclassification had no effect on net assets, results of operations,
or net asset value per share of the Fund.
K. ORGANIZATION COSTS-Organization expenses of approximately $13,000 were de-
ferred and are being amortized over a five year period ending December, 1996.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager to the Fund. The Adviser has entered
into a subadvisory agreement with John Govett & Co., Ltd. (the "Subadviser"),
who provides advisory services to the Fund and the Adviser with respect to the
Fund's investments in foreign securities. Prior to December 21, 1994, Lombard
Odier International Portfolio Management Ltd. served as the Fund's subadviser.
Management fees are calculated monthly, based on the average daily net assets
of the Fund at the annual rate of .75%. The Adviser pays 50% of its management
fee to the Subadviser. From time to time, the Adviser may elect to reimburse
the Fund for a portion of its management fee. The reimbursement is voluntary
and may be discontinued at any time without prior notice.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, such fees aggregated $399,072.
The Fund was advised that Van Kampen American Capital Distributors, Inc. (the
"Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both affili-
ates of the Adviser, received
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
$16,151 and $15,083, respectively, as their portion of the commissions charged
on sales of Fund shares during the period.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to reimburse the Distributor for expenses and serv-
ice fees incurred. Class B and Class C shares pay an additional fee of up to
.75% per annum of their average net assets to reimburse the Distributor for
its distribution expenses. Actual distribution expenses incurred by the Dis-
tributor for Class B and Class C shares may exceed the amounts reimbursed to
the Distributor by the Fund. At the end of the period, the unreimbursed ex-
penses incurred by the Distributor under the Class B and Class C plans aggre-
gated approximately $4.8 million and $277,000, respectively, and may be
carried forward and reimbursed through either the collection of the contingent
deferred sales charges from share redemptions or, subject to the annual re-
newal of the plans, future Fund reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund, Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments and forward commitments, were
$433,590,609 and $472,159,927, respectively.
For federal income tax purposes, the identified cost of investments and for-
eign currency owned at the end of the period was $182,841,856. Net unrealized
appreciation of investments aggregated $1,613,476, gross unrealized apprecia-
tion of investments aggregated $1,732,725 and gross unrealized depreciation of
investments aggregated $119,249.
At the end of the period, the Fund held the following forward currency ex-
change contracts and offsetting forward bond commitments.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
FORWARD CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
U.S. Dollar
Settlement Value at Unrealized Unrealized
Currency Date May 31, 1995 Appreciation (Depreciation)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CANADIAN DOLLAR
15,465,000 (payable)...... 06/26/95 $ 11,278,064 $ -- $ (349,508)
403,375 (receivable)...... 06/26/95 294,167 2,077 --
15,061,624 (receivable)... 06/26/95 10,983,896 330,605 --
DEUTSCHE MARK
42,355,000 (payable)...... 06/26/95 30,002,812 343,967 --
13,495,580 (payable)...... 06/26/95 9,559,802 240,199 --
63,500,000 (receivable)... 06/26/95 44,981,196 -- (1,153,648)
15,371,000 (receivable)... 06/26/95 10,888,283 338,523 --
26,436,310 (receivable)... 06/26/95 18,726,565 -- (373,435)
14,574,100 (payable)...... 06/26/95 10,323,787 -- (390,174)
9,380,000 (payable)....... 06/26/95 6,644,537 113,460 --
JAPANESE YEN
1,588,567,500
(receivable).............. 08/10/95 18,953,442 -- (546,557)
------------ ---------- -----------
Total Forward Currency Exchange
Contracts............................ $172,636,551 $1,368,831 $(2,813,322)
------------ ---------- -----------
</TABLE>
OFFSETTING FORWARD BOND COMMITMENTS
<TABLE>
<CAPTION>
Principal U.S. Dollar U.S. Dollar Unrealized
Amount (000) Settlement Value of Value of Currency
(Local Currency) Security Date Payable Receivable (Depreciation)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
12,800 GERMANY
(Treuhandanstalt)
6.750%, 05/13/04........ 07/03/95 $ 8,660,805 $ 9,038,899 $(395,352)
UNITED STATES
8,000 FMNA, 8.500%, 1/1/99.... 06/13/95 8,006,250 8,160,000 0
8,000 GNMA, 8.500%, 1/15/99... 06/19/95 8,021,250 8,297,500 0
6,000 GNMA, 9.000%, 1/1/99.... 06/19/95 6,132,187 6,240,000 0
18,000 Treasury Bonds, 7.125%,
2/15/23................. 06/15/95 17,150,373 17,353,576 0
----------- ----------- ---------
$47,970,865 $49,089,975 $(395,352)
----------- ----------- ---------
</TABLE>
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the adviser are compensated by the
Fund at the annual rate of $1,020 plus a fee of $25 per day for Board and Com-
mittee meetings attended. The Chairman receives additional fees from the Fund
at an annual rate of $380. During the period, such fees aggregated $13,287.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered by the Plan elects to be credited with
an earnings component on amounts deferred equal to the income earned by the
Fund on its short-term investments or equal to the total return of the Fund.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B and Class C shares). All classes of shares have the same
rights, except that Class B and Class C shares bear the cost of distribution
fees and certain other class specific expenses. Class B and Class C shares au-
tomatically convert to Class A shares six years and ten years after purchase,
respectively, subject to certain conditions. Realized and unrealized gains or
losses, investment income, and expenses (other than class specific expenses)
are allocated daily to each class of shares based upon the relative proportion
of net assets of each class.
The Fund has 100 million of each class of shares of $.001 par value capital
stock authorized. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended May 31
-----------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A............................................... 1,027,970 6,149,279
Class B............................................... 2,425,271 13,207,063
Class C............................................... 390,014 3,096,494
----------- ----------
3,843,255 22,452,836
----------- ----------
Shares issued for distributions reinvested
Class A............................................... 298,501 436,534
Class B............................................... 637,479 737,461
Class C............................................... 109,085 110,930
----------- ----------
1,045,065 1,284,925
----------- ----------
Shares redeemed
Class A............................................... (3,117,182) (2,994,702)
Class B............................................... (5,919,339) (2,462,695)
Class C............................................... (1,096,832) (511,178)
----------- ----------
(10,133,353) (5,968,575)
----------- ----------
Increase (decrease) in shares outstanding.............. (5,245,033) 17,769,186
----------- ----------
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 6--SUBSEQUENT DIVIDENDS
The Board of Directors of the Fund declared a dividend of $.046 per share for
Class A shares and $.041 per share for both Class B and Class C shares from net
investment income, payable July 14, 1995 to shareholders of record June 30,
1995.
NOTE 7--SHAREHOLDER MEETING
On July 21, 1995, a shareholder meeting of the Fund will be held to vote on:
(1) the Reorganization of the Fund from a Maryland corporation to a Delaware
Business Trust and (2) an election of fourteen directors.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND,
A SERIES OF AMERICAN CAPITAL WORLD PORTFOLIO SERIES, INC.
In our opinion, the accompanying statement of assets and liabilities, includ-
ing the portfolio of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of American Capital Global Govern-
ment Securities Fund, a series of American Capital World Portfolio Series,
Inc., at May 31, 1995, and the results of its operations, the changes in its
net assets and the financial highlights for each of the fiscal periods pre-
sented, in conformity with generally accepted accounting principles. These fi-
nancial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accor-
dance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the finan-
cial statements are free of material misstatement. An audit includes examin-
ing, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of secu-
rities at May 31, 1995 by correspondence with the custodian and brokers, pro-
vide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
July 25, 1995
22
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
VKM Short-Term Global Income Fund
VKM Strategic Income Fund
EQUITY
Growth
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
Growth & Income
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
--High Yield Municipal Portfolio
--Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
23
<PAGE>
AMERICAN CAPITAL GLOBAL GOVERNMENT SECURITIES FUND
BOARD OF DIRECTORS
J. MILES BRANAGAN
RICHARD E. CARUSO
ROGER HILSMAN
DON G. POWELL
DAVID REES
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WILLIAM S. WOODSIDE
*Chairman of the Board
OFFICERS
DON G. POWELL
President
CURTIS W. MORELL
Vice President and Treasurer
DENNIS J. MCDONNEIL
RONALD A. NYBERG
ROBERT C. PECK, JR.
JOHN R. REYNOLDSON
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
HUEY P. FALGOUT, JR.
Assistant Secretary
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Blvd.,
Houston, Texas 77056
INVESTMENT SUBADVISER
JOHN GOVETT & CO., LTD.
4 Battle Bridge Lane
London, SEI 24R England
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook, Terrace, IL 60181
SHAREHOLDER SERVICE AGENT
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256,
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST CO.
225 Franklin Street,
Boston, Massachusetts 02110
COUNSEL
O'MELVENY & MYERS
400 South Hope Street,
Los Angeles, California 90071
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1201 Louisiana
Houston, Texas 77002
(C) Van Kampen American Capital Distributors, Inc., 1995
All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund
which contains additional information on how to purchase shares, the sales
charge and other pertinent data. If used for distibution to prospective Invest-
ors after 9/30/95, this annual report must be accompanied by an American Capi-
tal Global Government Securities Fund performance data update for the most
recent quarter.
24
