<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
-----------------------------------------------------
ANNUAL REPORT
-------------
October 31, 1995
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
COMMON STOCK 97.0%
Consumer Distribution 7.9%
22,000 Big B, Inc. $316,250
*22,000 Books-A-Million, Inc. 280,500
11,000 Cardinal Health, Inc. 577,500
* 3,000 Carson Pirie Scott & Co. 50,625
* 4,000 CDW Computer Centers, Inc. 195,000
21,000 Circuit City Stores, Inc. 698,250
42,000 Claire's Stores, Inc. 834,750
*12,000 CompUSA, Inc. 481,500
*14,000 Consolidated Stores Corp. 327,250
1,000 Dole Food, Inc. 38,000
* 9,800 Eckerd Corp. 390,775
52,000 Fingerhut Companies, Inc. 695,500
*46,000 General Nutrition Companies, Inc. 1,115,500
1,000 Great Atlantic & Pacific 20,375
*29,000 Gymboree Corp. 659,750
*11,000 Health Management, Inc. 126,500
* 2,000 Hills Stores Co. 15,250
10,000 Lear Seating Corp. 290,000
*14,000 MacFrugals Bargains Closeouts 164,500
9,000 Medicine Shoppe International, Inc. 389,250
* 6,000 Mens Wearhouse, Inc. 235,500
*15,000 Micro Wharehouse, Inc. 678,750
*38,000 OfficeMax, Inc. 940,500
83,900 Pier 1 Imports. Inc. 818,025
* 5,000 Proffitts, Inc. 118,750
* 6,000 Rexel, Inc. 69,000
3,000 Richfood Holdings, Inc. 74,625
7,000 Ross Stores, Inc. 110,250
*25,000 Staples, Inc. 668,750
*42,800 Stop & Shop Companies, Inc. 877,400
*40,000 Sunglass Hut International, Inc. 1,090,000
4,000 Tiffany & Co. 174,500
*25,000 Viking Office Products, Inc. 1,109,375
*43,000 Waban, Inc. 661,125
* 6,000 Whole Foods Market, Inc. 72,750
* 3,000 Younkers, Inc. 66,375
*32,000 Zale Corp. 472,000
------------
15,904,700
------------
1
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
Consumer Durables 4.2%
3,000 Borg Warner Automotive, Inc. $86,625
50,000 Breed Technologies, Inc. 925,000
47,000 Brunswick Corp. 922,375
*21,000 Champion Enterprises, Inc. 546,000
35,000 Clayton Homes, Inc. 936,250
*23,000 Cobra Golf, Inc. 621,000
* 4,000 Department 56, Inc. 182,500
24,000 Echlin, Inc. 864,000
5,000 Fleetwood Enterprises, Inc. 103,125
14,000 Gencorp, Inc. 148,750
8,400 Harman International Industries, Inc. 389,550
46,000 Leggett & Platt, Inc. 1,115,500
7,000 Lennar Corp. 161,875
14,000 Outboard Marine Corp. 297,500
7,000 Smith (A. O.) Corp. 146,125
6,000 Snap-On Tools, Inc. 254,250
22,000 Toro Co. 632,500
------------
8,332,925
------------
Consumer Non-Durables 4.5%
1,000 Alberto Culver Co., Class B 31,625
34,000 American Greetings Corp., Class A 1,079,500
29,000 Barefoot, Inc. 337,125
* 7,000 Fieldcrest Cannon, Inc. 134,750
* 9,000 Fossil, Inc. 96,750
2,000 Hormel (G. A.) & Co. 46,000
13,000 IBP, Inc. 781,625
41,000 Liz Claiborne, Inc. 1,158,250
*23,000 Nautica Enterprises, Inc. 787,750
*10,000 Nu-Kote Holdings, Inc., Class A 198,750
11,000 Phillips-Van Heusen Corp. 111,375
* 3,000 Scotts Co., Class A 60,000
* 9,000 Smithfield Foods, Inc. 236,250
15,000 Springs Industries, Inc. 643,125
8,000 St. John Knits, Inc. 382,000
*21,000 Starbucks Corp. 834,750
56,000 Topps, Inc. 343,000
1,000 Unifi, Inc. 22,750
9,000 Universal Foods Corp. 309,375
2
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
*18,000 Westpoint Stevens, Inc. $382,500
25,000 Whitman Corp. 534,375
*18,000 Wolverine World Wide, Inc. 549,000
------------
9,060,625
------------
Consumer Services 8.2%
4,000 Advo, Inc. 102,500
10,000 Banta Corp. 427,500
12,000 Belo( A. H.) Corp. 414,000
*14,000 Boston Chicken, Inc. 476,000
26,000 Bowne & Co., Inc. 481,000
*11,000 Boyd Gaming Corp. 148,500
* 1,000 Casino America, Inc. 7,000
19,000 Equifax, Inc. 722,000
* 9,000 HFS, Inc. 559,125
30,000 Kelly Services, Inc. 765,000
25,000 King World Productions, Inc. 865,625
*21,000 Lone Star Steakhouse Saloon, Inc. 813,750
9,000 Media General, Inc., Class A 250,875
*21,000 Mirage Resorts, Inc. 695,625
19,000 New York Times Co., Class A 529,625
27,760 Ogden Corp. 635,010
16,000 Olsten Corp. 612,000
17,000 Omnicom Group 1,088,000
*26,000 Outback Steakhouse, Inc. 809,250
* 3,000 Papa John's International, Inc. 116,625
13,200 PHH Corp. 580,800
*31,500 Players International, Inc. 342,563
1,000 Pulitzer Publishing Co. 45,375
*19,000 Regal Cinemas, Inc. 741,000
17,000 Reynolds & Reynolds Co. 603,500
*23,000 Rio Hotel & Casino, Inc. 293,250
28,000 Robert Half International, Inc. 1,029,000
26,000 Sbarro, Inc. 549,250
*12,500 Scientific Games Holdings Corp. 415,625
* 6,000 Sonic Corp. 132,000
*13,500 Spelling Entertainment Group, Inc. 173,813
24,000 Wendys International, Inc. 480,000
*32,000 Westcott Communications, Inc. 444,000
------------
16,349,186
------------
3
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
Energy 5.0%
*17,000 BJ Services Co. $401,625
13,000 Brooklyn United Gas Co. 326,625
24,100 Eastern Enterprises 716,975
38,000 El Paso Natural Gas Co. 1,026,000
25,000 KCS Energy, Inc. 246,875
12,000 K.N. Energy, Inc. 307,500
*25,000 Mesa, Inc. 106,250
*91,000 Nabors Industries, Inc. 784,875
14,000 NACCO Industries, Inc., Class A 805,000
2,500 National Fuel Gas Co. 75,000
24,000 NICOR, Inc. 648,000
*15,000 Nuevo Energy Co. 333,750
*16,000 Offshore Logistics, Inc. 198,000
14,400 ONEOK, Inc. 356,400
28,000 Pacific Enterprises 693,000
*48,000 Smith International, Inc. 768,000
1,000 Tidewater, Inc. 26,375
25,000 Union Texas Petroleum Holdings, Inc. 459,375
*12,000 United Meridian Corp. 202,500
24,000 Valero Energy Corp. 567,000
*30,000 Varco International, Inc. 277,500
6,000 Washington Gas & Light Co. 115,500
* 500 Weatherford Enterra, Inc. 12,250
* 3,000 Western Atlas, Inc. 133,500
12,400 WICOR, Inc. 370,450
188 Williams Companies 7,285
------------
9,965,610
------------
Finance 14.5%
12,000 Advanta Corp., Class A 468,000
25,000 Ahmanson (H. F.) & Co. 634,375
15,000 AMBAC, Inc. 643,125
34,000 American Financial Group, Inc. 956,250
25,000 American Re Corp. 956,250
29,000 Bankers Life Holding Corp. 525,625
33,000 Bear Stearns Companies, Inc. 660,000
*24,000 California Federal Bank 357,000
4,000 CCB Financial Corp. 196,000
26,000 Charter One Financial, Inc. 737,750
4
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
58,000 City National Corp. $783,000
10,000 CMAC Investment Corp. 475,000
23,000 Commercial Federal Corp. 750,375
1,500 Countrywide Credit Industries, Inc. 33,188
23,000 Crestar Financial Corp. 1,319,625
41,000 Edwards (A.G.), Inc. 1,040,375
22,000 Finova Group, Inc. 1,001,000
7,000 First American Corp. 306,250
10,000 First Financial Corp. 210,000
18,000 First Tennessee National Corp. 972,000
13,000 First USA, Inc. 606,125
20,300 Fremont General Corp. 596,313
19,000 GATX Corp. 909,625
49,000 Mercury Financial Co. 943,250
7,300 MGIC Investment Corp. 415,188
9,000 North American Mtg., Co. 185,625
21,000 North Fork Bancorporation 459,375
22,000 Northern Trust Corp. 1,050,500
12,880 Norwest Corp. 388,010
2,000 Ohio Casualty Corp. 71,500
10,000 Penncorp Financial Group, Inc. 238,750
32,000 Peoples Heritage Financial 620,000
25,000 Protective Life Corp. 712,500
18,000 Regions Financial Corp. 720,000
109,000 Reliance Group Holding 803,875
17,000 Reliastar Financial Corp. 716,125
3,000 Roosevelt Financial Group, Inc. 48,375
38,000 Southtrust Corp. 959,500
5,000 Sovereign Bancorp, Inc. 50,000
19,300 Star Banc Corp. 1,061,500
16,000 TCF Financial Corp. 936,000
6,000 TIG Holdings, Inc. 151,500
6,000 Transatlantic Holdings, Inc. 405,750
28,000 Union Planters Corp. 854,000
5,000 Vesta Insurance Group, Inc. 203,125
38,000 Washington Mutual, Inc. 980,875
15,000 Webb Del Corp. 313,125
9,000 Zions Bancorporation 623,250
------------
29,048,949
------------
5
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
Health Care 8.1%
*25,000 Amsco International, Inc. $409,375
24,000 Bausch & Lomb, Inc. 840,000
* 5,000 Bio Rad Labs, Inc., Class A 190,625
*19,000 CNS, Inc. 199,500
*11,000 Community Health Systems, Inc. 349,250
*52,000 Cor Therapeutics, Inc. 533,000
* 1,000 Cordis Corp. 110,625
4,000 Dentsply International, Inc. 138,000
*29,000 Foundation Health Corp. 1,236,125
2,000 HBO & Co. 143,250
20,000 Healthcare Compare Corp. 770,000
* 8,000 Healthsouth Rehabilitation 211,000
*39,000 Horizon/CMS Healthcare 784,875
*37,073 ICN Pharmaceuticals, Inc. 759,997
24,000 Integrated Health Services, Inc. 519,000
*29,000 Lincare Holdings, Inc. 725,000
3,000 Manor Care, Inc. 98,625
* 1,000 Maxicare Health Plans 17,625
*32,000 Medisense, Inc. 716,000
47,500 Mylan Labs, Inc. 890,625
*16,000 Nellcor Puritan Bennett, Inc. 924,000
* 8,000 North American Biological 65,000
* 2,000 Orthofix International, NV 19,500
*16,000 Oxford Health Plans, Inc. 1,260,000
* 6,000 Pacific Physician Services 94,500
* 3,000 Quintiles Transnational Corp. 192,750
*17,000 Renal Treatment Centers, Inc. 612,000
* 6,000 Rexall Sundown, Inc. 90,000
* 3,000 Target Therapeutics, Inc. 229,500
*18,000 Thermo Cardiosystems, Inc. 877,500
* 2,000 United American Healthcare Corp. 22,250
*12,000 Universal Health Services, Inc., Class B 448,500
*20,000 Vivra, Inc. 660,000
*25,320 Watsons Pharmaceuticals, Inc. 1,145,730
------------
16,283,727
------------
6
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
Producer Manufacturing 7.4%
16,000 Agco Corp. $754,000
* 3,000 Alliant Techsystems, Inc. 139,500
5,000 Ametek, Inc. 88,750
14,600 Aptar Group, Inc. 501,875
7,000 Blount, Inc., Class A 305,375
21,000 Briggs & Stratton Corp. 847,875
* 6,000 Cognex Corp. 363,000
22,000 Cummins Engine Co., Inc. 792,000
26,000 Danaher Corp. 812,500
*22,000 Detroit Diesel Corp. 396,000
*11,000 Duracraft Corp. 239,250
6,000 Granite Construction, Inc. 171,750
18,500 IDEX Corp. 698,375
* 7,000 INDRESCO, Inc. 120,750
1,000 Johnson Controls, Inc. 58,500
20,000 Juno Lighting, Inc. 292,500
2,000 Kent Electrics Corp. 97,750
16,000 Kulicke & Sofa Industries, Inc. 560,000
*24,000 Mueller Industries, Inc. 561,000
4,000 National Service Industries, Inc. 119,500
* 9,000 Navistar International Corp. 93,375
19,000 PACCAR, Inc. 798,000
*30,000 Southdown, Inc. 495,000
*90,000 Sterling Chemicals, Inc. 731,250
11,000 Teledyne, Inc. 275,000
*28,300 Thermo Instrument Systems, Inc. 856,075
26,000 Timken Co. 1,036,750
* 8,000 United Waste Systems, Inc. 316,000
*31,000 Varity Corp. 1,108,250
6,000 Watts Industries, Inc., Class A 123,750
32,000 Wellman, Inc. 752,000
9,000 Wolverine Tube, Inc. 319,500
------------
14,825,200
------------
7
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
Raw Materials / Processing Industries 8.7%
17,000 Cleveland Cliffs, Inc. $641,750
16,000 Cyprus Amax Minerals 428,000
* 4,000 Cytec Industries, Inc. 218,000
6,000 First Mississippi Corp. 123,750
14,000 Geon Co. 346,500
24,000 Georgia Gulf Corp. 801,000
15,000 Goodrich (B. F.) Co. 990,000
46,000 Handy & Harman 644,000
8,000 Inland Steel Industries, Inc. 186,000
2,000 International Specialty Products, Inc. 17,500
*62,000 Jefferson Smurfit Corp. 759,500
40,000 J&L Specialty Steel, Inc. 660,000
44,000 Longview Fibre Co. 643,500
15,000 Lubrizol Corp. 435,000
41,000 Lyondell Petrochemical Co. 881,500
46,000 Magma Copper Co., Class B 770,500
6,000 Medusa Corp. 149,250
3,000 NCH Corp. 163,125
14,000 Olin Corp. 904,750
*51,000 Owens-Illinois, Inc. 643,875
12,000 Potlatch Corp. 505,500
3,000 Quanex Corp. 58,875
11,000 Rayonier, Inc. 418,000
*69,000 Rexene Corp. 621,000
*20,000 Sealed Air Corp. 522,500
5,000 Sigma-Aldrich Corp. 240,000
33,000 Sonoco Products Co. 833,250
43,000 Stone Container Corp. 736,375
46,000 Terra Industries, Inc. 580,750
1,000 Texas Industries, Inc. 52,875
*23,000 USG Corp. 669,875
15,000 Vigoro Corp. 652,500
5,000 Vulcan Materals Co. 277,500
43,500 Worthington Industries, Inc. 744,938
------------
17,321,438
------------
8
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
Technology 19.5%
* 6,000 Adaptec, Inc. $264,000
*20,000 Alantec Corp. 710,000
* 4,000 Altera Corp. 244,000
*15,000 America Online, Inc. 1,215,000
3,000 Analysts International Corp. 90,000
*28,000 Aspect Telecommunications Corp. 973,000
*19,000 Atmel Corp. 594,936
* 1,000 Auspex Systems, Inc. 14,812
27,000 Autodesk, Inc. 911,250
21,400 Avnet, Inc. 1,080,700
10,000 BMC Industries, Inc. 386,250
*18,000 BMC Software, Inc. 641,250
*56,000 Borland International, Inc. 777,000
*36,000 Cadence Design Systems, Inc. 1,174,500
*19,000 Cascade Communications 1,344,250
*21,000 Cidco, Inc. 588,000
* 2,000 Computer Network Technology 13,125
*60,000 Conner Peripherals, Inc. 1,095,000
*22,000 Credence Systems Corp. 825,000
1,000 Dallas Semiconductor Co. 21,250
*13,000 Dovatron International, Inc. 399,750
*22,000 Dynatech Corp. 335,500
*12,000 Electroglas, Inc. 867,000
*13,000 Electronics For Imaging, Inc. 1,082,250
* 4,000 FTP Software, Inc. 108,188
*34,000 Gateway 2000, Inc. 1,160,250
9,000 Harris Corp. 525,375
*23,000 In Focus Systems, Inc. 730,250
*44,000 Integrated Device Technology, Inc. 844,250
*22,000 International Rectifier Corp. 1,009,250
*37,000 Intervoice, Inc. 689,125
24,000 KLA Instruments Corp. 1,050,000
9
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
3,000 Komag, Inc. $172,875
13,000 Lam Research Corp. 809,250
* 3,000 Littelfuse, Inc. 98,625
*17,000 McAfee Associates, Inc. 998,750
*10,000 Microchip Technology, Inc. 397,500
*26,000 Netmanage, Inc. 542,750
*14,000 Network Equipment Technologies 465,500
*22,000 Network General Corp. 907,500
*12,500 Novellus Systems, Inc. 857,812
* 8,000 Peoplesoft, Inc. 688,000
4,500 Pioneer Standard Electronics, Inc. 62,438
* 9,000 Policy Management Systems Corp. 426,375
* 5,000 Quantum Corp. 86,250
*23,000 Read-Rite Corp. 819,375
* 4,000 Recoton Corp. 89,000
*38,000 S3, Inc. 650,750
*14,000 Seagate Technology 638,750
*30,000 Sequent Computer Systems, Inc. 525,000
*25,000 Solectron Corp. 1,018,750
* 9,000 Sterling Software, Inc. 416,250
*19,000 Symbol Technologies, Inc. 665,000
*20,000 Teradyne, Inc. 670,000
*12,000 3Com Corp. 582,000
*19,000 Unitrode Corp. 513,000
*11,474 U.S. Robotics Corp. 1,067,080
8,500 Varian Associates, Inc. 437,750
*27,000 Vishay Intertechnology, Inc. 972,000
19,000 Wyle Electronics, Inc. 814,625
*21,000 Xilinx, Inc. 1,000,125
------------
39,157,591
------------
Transportation 2.6%
49,000 Arkansas Best Corp. 453,250
32,000 Comair Holdings, Inc. 896,000
10,800 Consolidated Freightways, Inc. 252,450
* 1,000 Continental Airlines, Inc., Class B 35,625
*24,000 Fritz Companies, Inc. 846,000
10
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
----------------------------------------------------------------------
26,000 Illinois Central Corp. $1,001,000
*22,000 MS Carriers, Inc. 341,000
*12,000 Northwest Airlines, Inc., Class A 486,000
19,000 Pittston Company Services Group 520,125
6,000 Stolt Nielsen, S.A. 182,250
11,000 TNT Freightways Corp. 203,500
------------
5,217,200
------------
Utilities 6.4%
*29,000 AES Corp. 572,750
26,000 AT&T Corp. 1,040,000
34,100 Boston Edison Co. 937,750
*12,000 California Energy, Inc. 216,000
27,000 Centerior Energy Corp. 273,375
4,300 Central Hudson Gas & Electric Corp. 131,688
1,000 Colorado Public Service Co. 34,000
*10,000 Commnet Cellular, Inc. 252,500
* 4,500 C-TEC Corp. 94,500
38,000 Delmarva Power & Light Co. 845,500
17,000 DQE, Inc. 469,625
8,000 Eastern Utilities Association 187,000
* 4,251 Firstmiss Gold, Inc. 77,049
42,000 Frontier Corp. 1,139,250
36,000 Illinova Corp. 1,026,000
41,000 Long Island Lighting Co. 707,250
*33,000 New Mexico Public Service Co. 556,875
24,000 NIPSCO Industries, Inc. 879,000
9,500 Oklahoma Gas & Electric Co. 380,000
3,000 Orange & Rockland Utilities 105,375
27,000 Pinnacle West Capital Corp. 742,500
32,000 Portland General Corp. 872,000
14,200 Southern New England Telecommunications 514,750
*23,000 U.S. Cellular Corp. 790,625
* 1,000 U.S. Long Distance Corp. 13,000
------------
12,858,362
------------
Total Common Stock (Cost $174,637,894) 194,325,513
------------
11
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
Investment Portfolio
October 31, 1995
Number Market
of Shares Value
------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK 0.0%
1,600 FHP International Corp., $1.25, Series A (Cost $34,616) $38,000
------------
Principal
Amount
(000) REPURCHASE AGREEMENT 2.9%
-------
$5,805 SBC Capital Markets, Inc., dated 10/31/95, 5.87%,
due 11/01/95 (collateralized by U.S. Government
obligations in a pooled cash account) repurchase proceeds
$5,805,947 (Cost $5,805,000) 5,805,000
------------
Total Investments (Cost $180,477,510) 99.9% 200,168,513
Other assets and liabilities, net 0.1% 176,308
------------
NET ASSETS 100% $200,344,821
============
*Non-income producing security.
See Notes to Financial Statements.
12
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
- ------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS
Investments, at market value (Cost $ 180,477,510) $200,168,513
Cash 2,900
Dividends receivable 161,587
Other assets 39,252
------------
Total assets 200,372,252
------------
LIABILITIES
Due to shareholder service agent 1,149
Deferred trustees' compensation 2,622
Accrued expenses and other liabilities 23,660
------------
Total liabilities 27,431
------------
Net Assets, equivalent to $12.17 per share $200,344,821
============
NET ASSETS WERE COMPRISED OF:
Shares of benefical interest, at par; 16,467,558 shares outstanding $ 164,676
Capital surplus 172,320,757
Undistributed net realized gain on securities 6,404,488
Net unrealized appreciation of securities 19,691,003
Undistributed net investment income 1,763,897
------------
NET ASSETS $200,344,821
============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
- ------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1995
<S> <C>
Investment Income
Dividends $ 1,679,031
Interest 349,870
-----------
Investment income 2,028,901
-----------
Expenses
Shareholder service agent's fees 16,490
Accounting services 23,710
Trustees' fees and expenses 10,946
Audit fees 22,000
Legal fees 5,013
Reports to shareholders 6,143
Organization expenses 12,395
Miscellaneous 233
-----------
Total expenses 96,930
-----------
Net investment income 1,931,971
-----------
Realized and Unrealized Gain on Securities
Net realized gain on securities 7,254,104
Net unrealized appreciation of securities 19,737,220
-----------
Net realized and unrealized gain on securities 26,991,324
-----------
Increase in net assets resulting from operations $28,923,295
===========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
- ------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Year November 23, 1993*
Ended through
October 31, 1995 October 31, 1994
---------------- ------------------
<S> <C> <C>
NET ASSETS, beginning of period $ 20,659,532 $ 1,000,000
---------------- ------------------
Operations
Net investment income 1,931,971 375,365
Net realized gain (loss) on securities 7,254,104 (849,616)
Net unrealized appreciation (depreciation) of securities 19,737,220 (46,217)
---------------- ------------------
Increase (decrease) in net assets resulting from operations 28,923,295 (520,468)
---------------- ------------------
Distributions to shareholders from net investment income (501,439) (42,000)
---------------- ------------------
Capital transactions
Proceeds from shares sold 200,761,987 20,180,000
Proceeds from shares issued for distributions reinvested 501,439 42,000
Cost of shares redeemed (49,999,993) ---
---------------- ------------------
Increase in net assets resulting from capital transactions 151,263,433 20,222,000
---------------- ------------------
Increase in Net Assets 179,685,289 19,659,532
---------------- ------------------
NET ASSETS, end of period $200,344,821 $20,659,532
================ ==================
</TABLE>
* Commencement of operations
See Notes to Financial Statements.
15
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
- ------------------------------------------------------
Financial Highlights
Selected data for a share of benefical interest outstanding throughout the
periods indicated.
<TABLE>
<CAPTION>
Year November 23, 1993 /(1)/
Ended through
October 31, 1995 /(2)/ October 31, 1994 /(2)/
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of the period $ 9.82 $10.00
------ ------
Income from investment operations
Investment income .18 .24
Expenses (.01) (.03)
------ ------
Net investment income .17 .21
Net realized and unrealized gains (losses) on securities 2.26 (.37)
------ ------
Total from investment operations 2.43 (.16)
------ ------
Distributions from net investment income (.08) (.02)
------ ------
Net asset value, end of the period $12.17 $ 9.82
====== ======
TOTAL RETURN 25.00% /(3)/ (1.80%) /(3)/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of the period (millions) $200.3 $20.7
Average net assets (millions) $121.5 $20.1
Ratios to average net assets (annualized)
Expenses .08% .30%
Net investment income 1.59% 1.99%
Portfolio turnover rate 85% 34%
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return has not been annualized
See Notes to Financial Statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Small Capitalization Fund (the "Fund", formerly
American Capital Small Capitalization Fund, Inc.) is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. 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
using prices as of 2:00 p.m. Eastern Time. Unlisted and listed securities
for which the last sale price at 2:00 p.m. Eastern Time is not available
are valued at the last reported bid price.
Short-term investments with a maturity of 60 days or less when purchased
are valued at amortized cost, which approximates market value. Short-term
investments 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 invest
independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser"), 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 required to maintain the value of the
underlying security at not less than the repurchase proceeds due the Fund.
C. FEDERAL INCOME TAXES
No provision for federal income taxes is required because the Fund has
elected to elect to be taxed as a "regulated investment company" under 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.
During the period, the Fund utilized $849,616 in capital loss carryforwards
to offset capital gains.
17
<PAGE>
D. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the basis of identified
cost. Dividend income is recorded on the ex-dividend date. Interest income
is accrued daily.
E. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue code, which may
differ from generally accepted accounting principles. Such dividends and
distributions may exceed financial statement earnings.
F. ORGANIZATION COSTS
Organization expenses of approximately $62,000 were deferred and are being
amortized over a five year period ending October 1998.
NOTE 2 - MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. The Adviser receives no
compensation for its investment management services.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allocated
among investment companies advised by the Adviser. For the period, these charges
included $7,897 as the Fund's share of the employee costs attributable to the
Fund's accounting officers. A portion of the accounting services expense was
paid to the Adviser in reimbursement of personnel, facilities and equipment cost
attributable to the provision of accounting services to the Fund. The accounting
services provided by the Adviser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit.
At the end of the period, the Fund was owned by three investment companies
advised by the Adviser. Van Kampen American Capital Pace Fund, Common Sense
Trust Growth Fund, and Common Sense Trust II Growth Fund owned 48.11%, 51.00%,
and 0.89%, respectively, of the Fund.
Legal fees were incurred for services rendered by O'Melveny & Myers, counsel
for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a trustee of the
Fund.
Certain officers and trustees of the Fund are officers and trustees of the
Adviser and the shareholder service agent.
18
<PAGE>
NOTE 3 - INVESTMENT ACTIVITY
During the period, the cost of purchases of investments and proceeds from sales
of investments, excluding short-term investments, were $246,630,782 and
$99,202,546, respectively.
For federal income tax purposes, the identified cost of investments owned at the
end of the period was $180,558,239. Net unrealized appreciation aggregated
$19,610,274, gross unrealized appreciation aggregated $28,997,505 and gross
unrealized depreciation aggregated $9,387,231.
NOTE 4 - TRUSTEE COMPENSATION
Fund trustees who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $729 plus a fee of $21 per day for the Board and
Committee meetings attended. During the period, such fees aggregated $9,635.
The trustees 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 trustee covered under 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.
NOTE 5 - CAPITAL
The Fund has an unlimited number of shares of $.01 par value of beneficial
interest authorized. Fund shares are only available for purchase by publicly
offered Funds for which the Adviser serves as investment adviser. The American
Capital Pace Fund contributed the initial capital of $1,000,000 for 100,000
shares of the Fund on November 23, 1993. Transactions in shares for the period
were as follows:
<TABLE>
<CAPTION>
November 23, 1993
Year Ended through
October 31, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
Shares sold 18,994,170 2,100,000
Shares issued for distributions reinvested 54,151 4,130
Shares redeemed (4,684,893) --
---------- ---------
Increase in shares outstanding 14,363,428 2,104,130
========== =========
</TABLE>
NOTE 6 - FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to a
Delaware Business Trust and the election of fourteen trustees. On August 25,
1995, the reorganization became effective.
19
<PAGE>
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital Small
Capitalization Fund (the "Fund") at October 31, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
December 8, 1995
20
<PAGE>
MANAGEMENT DISCUSSION
The objective of the Van Kampen American Capital Small Capitalization Fund is to
achieve long term capital appreciation by investing in a portfolio of equity
securities with a market capitalization of between $125 million and $1 billion.
During the fiscal year ended October 31, 1995, the Fund's performance was helped
by a strong stock market, in general, and the strong performance of technology
stocks, in particular. The performance of stocks in general benefited from a
period of low inflation and strong corporate earnings, while technology stocks
benefited from increasing demand for semiconductors, computers, cellular phones
and other technologically advanced products and services.
For the 12 months ended October 31, 1995, the Fund achieved a total return at
net asset value of 25 percent, including reinvestment of dividends totaling
$0.08 per share. By comparison, the Standard & Poor's 500-Stock Index achieved a
total return of 26.36 percent and the Wilshire Asset Management Next 1750 Index
achieved a total return of 19 percent.*
Change in Value of a $10,000 Investment in
Van Kampen American Capital Small Capitalization Fund vs.
the Wilshire Asset Management Next 1750 Index* and the S&P 500*
Wilshire Asset Van Kampen American
Standard & Poor's Management Capital Small
Year 500-Stock Index* Next 1750 Index* Capitalization Fund
11/30/93 10,000 10,000 10,040
12/31/93 10,168 10,363 10,170
1/31/94 10,498 10,330
2/28/94 10,183 10,360
3/31/94 9,785 10,039 9,970
4/30/94 9,898 9,910
5/31/94 10,021 9,670
6/30/94 9,827 9,669 9,160
7/31/94 10,137 9,450
8/31/94 10,518 10,010
9/30/94 10,308 10,443 9,780
10/31/94 10,523 1,000 9,820
11/30/94 10,107 955 9,480
12/31/94 10,306 10,223 9,451
1/31/95 10,556 9,522
2/28/95 10,937 9,875
3/31/95 11,306 10,822 10,258
4/30/95 11,622 10,359
5/31/95 12,044 10,681
6/30/95 12,382 11,792 11,206
7/31/95 12,775 12,073
8/31/95 12,771 12,245
9/30/95 13,363 12,952 12,547
10/31/95 13,296 12,455 12,275
Past performance is not indicative of future performance.
*The Standard & Poor's 500-Stock Index is a broad-based, unmanaged index that
reflects general stock market performance. The Wilshire Asset Management Next
1750 Index is an unmanaged index that reflects the general performance of
small-capitalization stocks. Neither reflects any commissions or fees that would
be paid by an investor purchasing the securities it represent.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
| | | Since Inception |
| Average Annual Total Return | 1 Year | (11/23/93) |
| -------------------------------------------------------------------------------------------- |
| <S> | <C> | <C> |
| At Net Asset Value (without a sales charge) | 25% | 11.14% |
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
- ------------------------------------------------------
Board of Trustees
J. Miles Branagan David Rees
Philip P. Gaughan Jerome L. Robinson
Linda H. Heagy Lawrence J. Sheehan
Roger Hilsman Fernando Sisto*
R. Craig Kennedy Wayne W. Whalen
Donald C. Miller William S. Woodside
Jack E. Nelson
Don G. Powell * Chairman of the Board
- ----------------------------------------------------
Officers
Don G. Powell Ronald A. Nyberg
President Vice President
and Secretary
Curtis W. Morell
Vice President Nicholas Dalmaso
and Treasurer Huey P. Falgout, Jr.
Scott E. Martin
Dennis J. McDonnell Weston B. Wetherell
Alan T. Sachtleben Assistant Secretaries
Paul R. Wolkenberg
Vice Presidents Perry F. Farrell
M. Robert Sullivan
Tanya M. Loden Assistant Treasurers
Vice President
and Controller
- ----------------------------------------------------
Investment Adviser
Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Blvd., Houston, Texas 77056
- ----------------------------------------------------
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, CA 90071
- ----------------------------------------------------
Independent Accountants
Price Waterhouse LLP
1201 Louisiana, Houston, TX 77002
- -------------------------------------------------
