<PAGE>
Van Kampen American Capital
GLOBAL MANAGED
ASSETS FUND
ANNUAL REPORT
DECEMBER 31, 1997
---- A Wealth of Knowledge . A Knowledge of Wealth/sm/ ----
VAN KAMPEN AMERICAN CAPITAL
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders..................................................... 1
Performance Results........................................................ 4
Performance in Perspective................................................. 5
Portfolio Management Review................................................ 6
Portfolio Highlights....................................................... 9
Portfolio of Investments................................................... 10
Statement of Assets and Liabilities........................................ 25
Statement of Operations.................................................... 26
Statement of Changes in Net Assets......................................... 27
Financial Highlights....................................................... 28
Notes to Financial Statements.............................................. 31
Report of Independent Accountants.......................................... 44
</TABLE>
<PAGE>
Letter to Shareholders
Dennis J. McDonnell and Don G. Powell
February 3, 1998
Dear Shareholder,
The new year ushers in what promises to be an exciting and challenging time
for investors. The Taxpayer Relief Act of 1997 passed by President Clinton in
August creates many new opportunities for you and your family to take a more
active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over
five years. The so-called Kiddie Credit gives parents $400 in immediate tax
relief for every child under age 17, and families will find it easier to save
for their children's college expenses through the new Education IRA. The bill
also cuts capital gains tax rates for the first time in over a decade, and
loosens restrictions on tax-deductible IRA contributions. Perhaps the most
exciting feature of all is the new Roth IRA, which allows investment earnings to
grow tax free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
Economic Overview
After years of breakneck growth and rapid expansion of credit, Asia
experienced a severe economic setback during the reporting period. The region's
problems first became evident in July, when Thailand responded to a growing
trade deficit by allowing its currency to float freely in international markets.
The Thai government's move set in motion a chain reaction of devaluations which
ultimately severed much of the region's traditional currency link to the U.S.
dollar. At the height of the crisis in October, the Hong Kong dollar, pegged to
the American dollar since 1983, also came under attack from speculators.
While Chinese officials defended the currency and retained the U.S. dollar
peg, Asia's turmoil was far from finished. The crisis next spread to South
Korea, where that country's ailing financial sector required a massive infusion
of liquidity from the International Monetary Fund to stave off widespread
bankruptcies.
Compared to Asia, economic conditions in Europe and the United States were
healthy and tranquil. Europe continues to enjoy solid economic growth with low
inflation. The relatively tight fiscal policies required to accomplish a move to
a single currency, however, have left Europe's unemployment rate in double
digits.
In the United States, economic growth remains strong, unemployment is low,
consumers are optimistic, the budget is headed for surplus this year, and our
nation's currency is rising around the world. Despite the strength in the U.S.
economy, there was no indication of troublesome inflation.
Continued on page two
1
<PAGE>
In fact, the producer price index fell by 1.2 percent during the year, the
largest annual decline in wholesale prices since 1986. Inflation at the consumer
level was also virtually nonexistent, with the consumer price index rising by
only 1.7 percent during 1997. A strong dollar and significant productivity gains
helped offset the inflationary pressures caused by rising wages.
Market Review
After gliding through a strong and mostly uneventful first half of 1997,
global equity markets experienced a sharp increase in volatility during the
later stages of the year. In particular, the currency crisis that roiled most
Southeast Asian economies spilled over into the region's equity markets,
creating an avalanche of selling that unnerved markets in Europe, Latin America,
and the United States as well.
Despite the shifting global economic conditions, U.S. stocks continued to
post solid returns. For the year, the Wilshire 5000 Index, which measures the
performance of all publicly traded U.S. companies, gained 29.17 percent. But
while the general upward trend in U.S. stocks continued, volatility also picked
up. Between early August and late October, the Dow Jones Industrial Average fell
by 16 percent before rebounding sharply to close the reporting period near
record-high territory.
In Europe, falling interest rates, low inflation, and improving corporate
profitability provided a strong underpinning to the region's equity markets. In
local currency terms, every European market gained at least 13 percent, led by
the 79 percent gain in Portugal and the nearly 51 percent rise in Switzerland.
However, the strong U.S. dollar offset a significant portion of those gains for
American investors.
In Asia, falling currencies exacerbated the impact of tumbling stock
prices. For the year, the Dow Jones Asia/Pacific Index fell 29.13 percent in
dollar terms. Equity markets in Indonesia, Malaysia, South Korea, Thailand, and
the Philippines each finished 1997 with losses of more than 60 percent. The
negative impact of the Asian crisis on prospects for world economic growth
created a positive environment for global bonds. For the 12 months ended
December 31, the Salomon Brothers World Government Bond Index gained 8.97
percent in local currency terms. However, the strong dollar undermined the
results for U.S. investors, and the Index gained 0.23 percent in U.S. dollar
terms during the same period.
Bond markets were especially strong in European nations that are not
participating in the planned European Monetary Union, as interest rates in non-
EMU countries such as Sweden and the United Kingdom fell toward those in Germany
and France. In the U.S., the yield on the Treasury's benchmark 30-year bond
began the year at 6.64 percent and climbed to 7.17 percent in April amid fears
of increasing inflation. When subsequent data showed the economy to be slowing,
bond yields drifted gradually lower. By the end of the reporting period, the
long-term Treasury bond yield had fallen to 5.92 percent, its lowest level in
more than four years, and bond prices, which move in the opposite direction of
bond yields, rose significantly.
Outlook
We expect that the recent upheavals in Southeast Asia will have a mixed
impact on the U.S. economy and financial markets. Sales of American goods
overseas are likely to decline in coming months, and competition from relatively
inexpensive imports could pinch profit margins. Overall, we believe that lower
currency values in Asia will likely result in less inflation in the U.S. and a
greater likelihood of stable or falling interest rates. Such a scenario usually
benefits equity markets, and we believe that a portfolio of high-quality
domestic stocks should continue to perform well. We
Continued on page three
2
<PAGE>
also anticipate that stock selection will play a larger role in generating
investment performance due to the uneven impact of the Asian crisis on
individual companies and the broad-based nature of the advance in equity prices
in recent years.
Within Asia itself, we believe that the turbulence has yet to run its
course. It is likely that Pacific Rim markets will continue to search for a
bottom until investors arrive at meaningful projections for economic growth
rates and corporate profits. As the reporting period ended, a clear vision of
the new economic order in Asia remained elusive.
We believe that European markets generally have the least amount to lose by
the Asian shock. European exports to Asia are relatively modest, and the region
continues to enjoy solid growth, declining budget deficits, and benign
inflation.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive
new vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
3
<PAGE>
Performance Results for the Period Ended December 31, 1997
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return based on NAV1.......... 8.94% 8.10% 8.09%
One-year total return/2/..................... 3.72% 4.28% 7.13%
Life-of-Fund average annual total return/2/.. 7.52% 7.51% 8.12%
Commencement Date 05/16/94 05/16/94 05/16/94
</TABLE>
/1/ Assumes reinvestment of all distributions for the period 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).
/2/ Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
See the Prior Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. This performance was
achieved during generally rising stock prices. Fund shares, when redeemed,
may be worth more or less than their original cost.
Investment in foreign securities involves certain risks including
fluctuations in foreign exchange rates and possible political and economic
developments.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE>
Putting Your Fund's Performance in Perspective
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
. Illustrate the general market environment in which your investments
are being managed
. Reflect the impact of favorable market trends or difficult market
conditions
. Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over
the period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Morgan Stanley Capital
International World Index and the J.P. Morgan Global Traded Government Index
over time. These indices are unmanaged statistical composites and do not reflect
any commissions or fees which would be incurred by an investor purchasing the
securities they represent. Similarly, their performance does not reflect any
sales charges or other costs which would be applicable to an actively managed
portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Global Managed Assets Fund vs. Morgan Stanley
Capital International World Index and J.P. Morgan Global Traded Government
Index (May 16, 1994 through December 31, 1997)
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
VKAC Global Morgan Stanley Capital J.P. Morgan Global
Managed Assets Fund International World Index Traded Government Index
<S> <C> <C> <C>
May 16, 1994 9,526 10,000 10,000
Jun 1994 9,422 9,966 10,035
Dec 1994 9,376 10,021 10,199
Jun 1995 10,036 10,843 11,787
Dec 1995 10,623 11,895 12,169
Jun 1996 11,406 12,639 12,028
Dec 1996 11,945 13,290 12,704
Jun 1997 12,989 15,224 12,566
Dec 1997 13,013 15,172 12,883
Fund's Total Return
1 Year Avg. Annual = 3.72%
3 Year Avg. Annual = 9.74%
Inception Avg. Annual = 7.52%
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
5
<PAGE>
Portfolio Management Review
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
We recently spoke with the management team of the Van Kampen American Capital
Global Managed Assets Fund about the key events and economic forces that shaped
the markets during the Fund's fiscal year. The Fund is comanaged by portfolio
managers Barton M. Biggs, Francine J. Bovich, Madhav Dhar, and Ann D. Thivierge,
Morgan Stanley Asset Management Inc. The following excerpts reflect their views
on the Fund's performance during the 12-month period ended December 31, 1997.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED
DURING THE 12-MONTH PERIOD ENDED DECEMBER 31, 1997?
A Change and uncertainty have been major themes for the world's investors
this past year. Some of the more significant developments include the
currency crisis in Asia, Europe's progress toward economic cooperation and
a common currency, continued economic weakness in Japan, and the relative
strength of the U.S. dollar and the American economy.
In Asia, investors reacted swiftly and harshly to plunging currency
valuations in Hong Kong, Thailand, Malaysia, Indonesia, and South Korea. Waves
of selling rocked these and other Asian markets, some of which toppled by as
much as 70 percent during the fourth quarter. Concerns about the region's
economic outlook were reflected in trading around the world.
Japan continued to struggle economically. The combined effects of the Asian
currency crisis and the continued instability of Japan's financial system
seriously eroded investor confidence in these markets. The subsequent "flight to
quality" helped to push yields on long-term Japanese government bonds below the
2 percent mark. As a result, economic growth continued to be very sluggish.
Meanwhile, the U.S. economy kept rolling along--due in large part to low
inflation, low unemployment, and steady-but-moderate growth--and the U.S. dollar
remained strong versus most other major foreign currencies. The stock market
averages, though particularly volatile in the fourth quarter, provided double-
digit gains for the year; at the same time, the yield on 30-year U.S. Treasuries
dipped well below the 6 percent mark at the end of the reporting period.
Europe, moving toward the proposed European Monetary Union (EMU), saw a
convergence of yields in bond markets throughout the region, many falling to
historically low levels. Unemployment was persistently high, but inflation
remained in check and economic growth was consistent.
Q HOW DID YOU REACT TO THESE CONDITIONS IN MANAGING THE FUND?
A The Fund's portfolio mix, which includes both stocks and bonds, was
adjusted throughout the year in response to market conditions. By year end, we
had an allocation within the fixed income portion of the portfolio, which
represents 15.3 percent of long-term investments.
We took advantage of interest-rate premiums that developed in the bond
markets of certain European countries which will not be participating in the
planned EMU, such as Sweden and the United Kingdom. Assets were shifted into
these markets at the expense of less attractive markets, such as France,
Belgium, and the Netherlands. We also increased our position in selected higher-
6
<PAGE>
yielding markets, such as Italy, which appear favorable in light of the trend
toward convergence of interest rates in the EMU markets.
We reduced our exposure to the Japanese market as interest rates hit
historic lows, and we remain cautious. As the scenario in Japan and Asia
unfolded, and the potential for widespread recession became more apparent, we
shifted toward higher-quality government issues. Also, we added to our holdings
in Australian bonds based on the likelihood that reduced Asian imports will
restrain growth among Pacific Rim neighbors.
Our equity holdings were selectively pared back during the fiscal year. Our
exposure to Asian markets, for example, was reduced as conditions became more
tenuous. In fact, we sidestepped much of the volatility in certain markets,
having reduced our positions in Hong Kong and eliminated our position in
Malaysia by September. We also had reduced our weighting significantly in the
Japanese market.
We still feel that the circumstances of the Asian currency crisis could
trigger persistent "ripple effects" in other world stock markets, including the
U.S. market, where profit growth projections may be a bit too optimistic--even
without the potential effects of Asia's sell-off. As a result, we have reduced
our allocation in the United States equities to 37 percent of long-term
investments. While this kept us from participating more fully in the solid
performance of the U.S. market throughout the year, we believe that it was a
prudent course to follow in the current investment environment.
We have increased our positions in selected European markets, including
Italy, Spain, and the United Kingdom, where we see attractive stock valuations
and good prospects for corporate profitability. For additional Fund portfolio
highlights, please refer to page nine.
Q HOW DID THE FUND PERFORM OVER THE REPORTING PERIOD?
A The Fund achieved a total return of 8.94 percent1 (Class A shares at net
asset value) for the 12-month period ended December 31, 1997. By comparison, the
Morgan Stanley Capital International (MSCI) World Index produced a total return
of 14.17 percent. The J.P. Morgan Global Traded Government Index achieved a
total return of 1.40 percent. The MSCI World Index is an unmanaged index used as
a benchmark for general equity funds. The J.P. Morgan Global Traded Government
Index is an unmanaged index of major foreign and U.S. government bonds that are
weighted by the total market value of each country's securities and reflect
variations in currency value. Keep in mind that these indices are statistical
composites and do not reflect any commissions that would be paid by an investor
purchasing the securities they represent. Please refer to the chart on page four
for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE GLOBAL MARKETS?
A We anticipate a heightened state of caution as market participants brace
for volatility in early 1998. Market volatility has been increasing over the
past 12 months in virtually all world markets, not just from region to region,
but on a daily level within markets. In the near term, the divergence between
the performance of Asian markets and dollar-bloc markets (primarily the United
States and Europe) should remain substantial.
7
<PAGE>
The U.S. dollar appears quite strong as we move into 1998. We expect that
the dollar will hold onto much of its recent gains and maintain its strength as
compared to most major foreign currencies.
We expect to see continued convergence of short-term interest rates in core
European markets, as monetary and fiscal policies undertaken to comply with the
EMU pact exert pressure on yields. We continue to favor the higher-yielding
markets in countries which are not participating in the monetary union,
especially considering the fact that these countries would see a significant
increase in bond prices in the likely event that they eventually join the EMU
coalition.
Both Europe and the United States appear poised to continue on the path of
low inflation and slow-to-moderate economic growth, conditions which are
favorable for both the fixed income and equity markets in these regions. We will
continue to monitor the situation in Asia and Japan, implementing a cautious,
defensive approach for the portfolio as a whole in the months ahead.
/s/ Barton M. Biggs /s/ Francine J. Bovich
Barton M. Biggs Francine J. Bovich
Portfolio Manager Portfolio Manager
Morgan Stanley Asset Management Inc. Morgan Stanley Asset Management Inc.
/s/ Madhav Dhar /s/ Ann D. Thivierge
Madhav Dhar Ann D. Thivierge
Portfolio Manager Portfolio Manager
Morgan Stanley Asset Management Inc. Morgan Stanley Asset Management Inc.
Please see footnotes on page four
8
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
Top Ten Holdings as a Percentage of Long-Term Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of As of
December 31, 1997 June 30, 1997
<S> <C> <C>
U.S. Treasury Bond, 8.125%, 08/15/19............................ 4.7%............... 4.5%
U.S. Treasury Note, 7.250%, 05/15/04............................ 4.6%............... 4.1%
U.S. Treasury Note, 6.250%, 10/31/01............................ 3.2%............... 1.8%
U.S. Treasury Note, 6.375%, 05/15/99............................ 2.2%............... 2.8%
Latin American Discovery Fund, Inc.............................. 1.4%............... 1.0%
Coca Cola Co.................................................... 1.4%............... 1.3%
Microsoft Corp.................................................. 1.3%............... 1.2%
Merck &Co., Inc................................................. 1.3%............... 1.1%
Wal-Mart Store, Inc............................................. 1.2%............... 1.0%
AT&T Corp....................................................... 1.1%............... 0.6%
</TABLE>
- -------------------------------------------------------------------------------
Asset Allocation as a Percentage of Total Investments
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1997
<S> <C>
[_] Common and preferred Stocks...................... 59.7%
[_] U.S. Government Obligations...................... 10.8% [PIE CHART APPEARS HERE]
[_] Repurchase Agreements............................ 9.7%
[_] U.S. Government Agency Obligations............... 19.8%
As of June 30, 1997
[_] Common and preferred Stocks...................... 61.3%
[_] U.S. Government Obligations...................... 9.3% [PIE CHART APPEARS HERE]
[_] Repurchase Agreements............................ 7.9%
[_] U.S. Government Agency Obligations............... 21.5%
</TABLE>
- -------------------------------------------------------------------------------
Top Ten Countries as a Percentage of Long-Term Investments
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1997 As of June 30, 1997
<S> <C> <C> <C>
United States.............. 51.3% United States......... 48.7%
United Kingdom............. 9.6% Japan................. 13.2%
Japan...................... 9.4% United Kingdom........ 7.2%
France..................... 5.5% Germany............... 5.2%
Germany.................... 5.1% France................ 5.0%
Italy...................... 3.7% Canada................ 4.2%
Switzerland................ 3.3% Switzerland........... 3.5%
Canada..................... 2.9% Italy................. 3.0%
Spain...................... 2.4% Spain................. 2.3%
Sweden..................... 2.3% Sweden................ 2.2%
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Description Shares Market Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND EQUIVALENTS 59.0%
AUSTRALIA 0.0%
Broken Hill Proprietary Co., Ltd.................................. 53 $ 489
Coles Myer, Ltd................................................... 278 1,333
GIO Australia Holding............................................. 42 107
M.I.M. Holdings, Ltd.............................................. 16 10
-------
1,939
-------
AUSTRIA 0.7%
Austrian Airlines (a)............................................. 100 2,130
Bank Austria, AG.................................................. 200 10,133
Bank Austria, AG.................................................. 132 6,531
Bank Austria, AG, Preferred Shares................................ 132 5,873
Bank Austria, AG, Preferred Shares................................ 100 4,750
Bau Holding, AG................................................... 100 6,254
Boehler-Uddeholm, AG.............................................. 100 5,862
EA-Generali, AG................................................... 100 26,276
Flughafen Wien, AG................................................ 100 3,974
Lenzing, AG (a)................................................... 100 5,930
Mayr-Melnhof Karton, AG (a)....................................... 100 5,384
Oest Brau-Beteiligungs, AG........................................ 100 4,996
Oest Elektrizitats, Class A....................................... 200 21,217
OMV, AG........................................................... 100 13,854
Radex-Heraklith, AG............................................... 100 3,444
Steyr-Daimler-Puch, AG............................................ 100 2,684
VA Technologie, AG................................................ 100 15,184
Wienerberger Baustoffindustrie, AG................................ 100 19,198
-------
163,674
-------
CANADA 2.0%
Abitibi Consolidated Inc. (a)..................................... 200 2,792
Alcan Aluminum, Ltd............................................... 400 11,028
Avenor, Inc....................................................... 200 2,855
Bank of Montreal.................................................. 400 17,732
Bank of Nova Scotia............................................... 400 18,852
Barrick Gold Corp................................................. 700 13,054
BCE, Inc.......................................................... 800 26,675
</TABLE>
See Notes to Financial Statements
10
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Description Shares Market Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CANADA (CONTINUED)
Bombardier, Inc., Class B..................................................... 600 $ 12,344
Cameco Corp................................................................... 100 3,247
Canadian Imperial Bank........................................................ 700 21,847
Canadian Natural Resources (a)................................................ 200 4,283
Canadian Occidental Petroleum................................................. 300 6,791
Canadian Pacific.............................................................. 600 16,165
Cominco....................................................................... 200 3,058
Corel Corp. (a)............................................................... 200 322
Dofasco, Inc.................................................................. 200 3,219
Echo Bay Mines................................................................ 300 756
Gulf Canada Resource (a)...................................................... 600 4,199
Imasco........................................................................ 400 14,135
Imperial Oil.................................................................. 300 19,313
Inco, Ltd..................................................................... 300 5,101
IPL Energy, Inc............................................................... 200 9,153
Loewen Group, Inc............................................................. 100 2,575
MacMillan Bloedel............................................................. 300 3,117
Magna International, Inc., Class A............................................ 100 6,270
Moore Corp.................................................................... 200 3,009
Newbridge Networks Corp. (a).................................................. 300 10,507
Noranda, Inc.................................................................. 500 8,607
Norcen Energy Resources....................................................... 700 8,033
Northern Telecom.............................................................. 400 35,590
Nova Corp..................................................................... 1,000 9,517
Petro......................................................................... 700 9,980
Placer Dome, Inc.............................................................. 500 6,298
Potash Corporation of Saskatchewan, Inc....................................... 100 8,331
Power Corporation of Canada................................................... 200 7,166
Renaissance Energy (a)....................................................... 200 4,129
Rogers Communications, Inc., Class B (a)..................................... 300 1,448
Royal Bank of Canada.......................................................... 600 31,741
Seagram Co., Ltd.............................................................. 600 19,418
Talisman Energy, Inc. (a).................................................... 300 9,184
Teck Corp., Class B........................................................... 200 3,016
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Portfolio of Investments (Continued)
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Description Shares Market Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CANADA (CONTINUED)
TELUS Corp...................................................................... 300 $ 6,655
Thomson Corp.................................................................... 1,000 27,466
TransCanada PipeLines........................................................... 600 13,393
Westcoast Energy, Inc........................................................... 300 6,928
Weston George................................................................... 100 8,537
--------
467,836
--------
FRANCE 3.8%
Accor, SA....................................................................... 100 18,593
Air Liquide..................................................................... 150 23,478
Alcatel Alsthom, SA............................................................. 300 38,132
AXA-UAP......................................................................... 650 50,296
Banque Nationale de Paris....................................................... 461 24,503
BIC............................................................................. 100 7,299
Carrefour, SA................................................................... 100 52,172
Casino-Guichard-Perrachon, SA................................................... 150 8,349
Compagnie de Saint Gobain....................................................... 204 28,981
Compagnie Financiere Paribas, SA................................................ 225 19,552
Compagnie Generale des Eaux..................................................... 203 28,333
Compagnie Generale des Eaux (Warrants, expiring 05/01/02) (a)................... 200 136
Elf Aquitaine, SA............................................................... 600 69,785
France Telecom, SA (a).......................................................... 1,500 54,407
Groupe Danone................................................................... 200 35,723
Havas, SA....................................................................... 153 11,007
L'Oreal......................................................................... 150 58,694
Lafarge, SA..................................................................... 250 16,404
Legrand, SA..................................................................... 50 9,961
LVMH (Moet Hennessy Louis Vuitton) (a).......................................... 200 33,198
Michelin (CGDE), Class B........................................................ 404 20,339
Peugeot Citroen................................................................. 150 18,917
Pinault-Printemps-Redoute, SA................................................... 50 26,676
Promodes........................................................................ 50 20,744
Rhone-Poulenc, SA............................................................... 714 31,984
Sanofi, SA...................................................................... 200 22,265
Schneider, SA................................................................... 300 16,290
</TABLE>
See Notes to Financial Statements
12
<PAGE>
Portfolio of Investments (Continued)
December 31,1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Description Shares Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE (CONTINUED)
SEFIMEG (Societe Francaise d'Investissements Immobiliers et de Gestion)......... 100 $ 4,985
Societe Generale................................................................ 206 28,067
Suez Lyonnaise des Eaux......................................................... 296 32,755
Thomson CSF..................................................................... 300 9,456
Total, SA, Class B.............................................................. 500 54,415
-----------
875,896
-----------
GERMANY 3.5%
AGIV, AG (a).................................................................... 100 1,890
Allianz, AG..................................................................... 400 103,616
BASF, AG........................................................................ 1,000 35,437
Bayer Hypotheken Bank, AG....................................................... 450 21,963
Bayer Vereinsbank, AG........................................................... 300 19,628
Bayer, AG....................................................................... 1,200 44,826
Daimler-Benz, AG................................................................ 800 56,122
Deutsche Bank, AG............................................................... 850 60,007
Deutsche Telekom, AG............................................................ 3,400 63,976
Dresdner Bank, AG............................................................... 750 34,604
Hochtief, AG.................................................................... 200 7,893
Linde, AG....................................................................... 50 30,518
Mannesmann, AG.................................................................. 50 25,265
Merck KGaA...................................................................... 250 8,130
Metro........................................................................... 150 5,378
Preussag, AG.................................................................... 50 15,259
RWE, AG......................................................................... 550 29,503
RWE, AG, Preferred Shares....................................................... 400 16,899
SAP, AG......................................................................... 100 30,379
SAP, AG, Preferred Shares....................................................... 50 16,357
Schering, AG.................................................................... 150 14,467
Siemens, AG..................................................................... 950 56,241
Thyssen, AG..................................................................... 50 10,701
Veba, AG........................................................................ 750 51,071
Viag, AG........................................................................ 50 26,932
Volkswagen, AG.................................................................. 50 28,128
-----------
815,190
-----------
</TABLE>
13 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
December 31,1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Description Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG 0.0%
Hong Kong Land Holding.................................. 1,264 $ 2,427
----------
ITALY 2.6%
Assicurazioni Generali.................................. 2,500 61,405
Banca Commerciale Italiana.............................. 4,000 13,906
Banco Ambrosiano Veneto, SpA............................ 1,000 3,827
Credito Italiano........................................ 5,000 15,418
Edison, SpA............................................. 2,000 12,097
Ente Nazionale Idrocarburi, SpA......................... 21,000 119,067
Fiat, SpA............................................... 9,200 26,758
Fiat, Di Risp, SpA...................................... 2,300 3,803
Fiat, Priv, SpA......................................... 2,400 3,663
Instituto Bancario San Paolo............................ 2,500 23,884
Instituto Mobiliare Italiano............................ 1,500 17,807
Instituto Nazionale delle Assicurazioni (INA)........... 10,000 20,266
Italcementi, SpA........................................ 1,000 6,970
Italgas, SpA............................................ 2,000 8,253
Mediaset, SpA........................................... 3,000 14,737
Mediobanca, SpA......................................... 1,000 7,852
Montedison, SpA (a)..................................... 10,000 8,982
Olivetti & C., SpA (a).................................. 8,000 4,834
Parmalat Finanziara, SpA (a)........................... 5,000 7,151
Pirelli, SpA............................................ 5,000 13,369
Rinascente, SpA......................................... 1,000 7,462
Riunione Adriatica di Sicurta, SpA...................... 750 7,356
Sirti, SpA.............................................. 1,000 6,049
Telecom Italia Mob, SpA................................. 17,500 80,773
Telecom Italia Mob, Di Risp, SpA........................ 2,500 7,109
Telecom Italia, SpA..................................... 12,500 79,847
Telecom Italia, Di Risp, SpA............................ 2,906 12,813
----------
595,458
----------
JAPAN 6.5%
Ajinomoto Co., Inc...................................... 2,000 19,453
Aoyama Trading Co....................................... 100 1,784
Asahi Bank, Ltd. (a).................................... 900 3,653
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
December 31,1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Asahi Chemical Industry Co.............................. 5,800 $ 19,634
Asahi Glass Co.......................................... 2,800 13,296
Bank of Tokyo........................................... 2,200 30,329
Bridgestone Corp........................................ 2,000 43,348
Dai Nippon Printing..................................... 2,800 52,539
Daiei, Inc. (a)......................................... 1,000 4,136
Daiwa House Industries.................................. 1,000 5,285
Daiwa Securities........................................ 400 1,379
Denso Corp.............................................. 1,000 17,998
Ebara Corp.............................................. 1,000 10,569
Fanuc................................................... 600 22,700
Fuji Bank............................................... 600 2,426
Fuji Photo Film Co...................................... 1,000 38,294
Fujitsu (a)............................................. 3,000 32,167
Hitachi................................................. 2,800 19,943
Honda Motor Co.......................................... 1,000 36,685
Japan Air Lines Co. (a)................................. 3,000 8,157
Japan Energy Corp....................................... 2,000 1,884
Jusco Co................................................ 1,000 14,092
Kajima Corp............................................. 2,000 5,039
Kansai Electric Power................................... 1,700 28,774
Kao Corp................................................ 2,000 28,797
Kawasaki Steel Corp..................................... 1,000 1,363
Kirin Brewery Co........................................ 2,800 20,372
Kubota Corp............................................. 5,800 15,281
Kumagai Gumi Co......................................... 1,000 544
Kyocera Corp............................................ 400 18,136
Marubeni Corp........................................... 6,800 11,926
Marui Co................................................ 1,000 15,547
Matsushita Electric Industries.......................... 3,000 43,884
Mitsubishi Chemical..................................... 4,800 6,874
Mitsubishi Corp......................................... 2,000 15,777
Mitsubishi Electric Corp................................ 3,800 9,720
Mitsubishi Estate....................................... 800 8,700
</TABLE>
15 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
December 31,1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Mitsubishi Heavy Industries............................. 8,000 $ 33,331
Mitsubishi Trust & Banking Corp......................... 1,000 10,033
Mitsui Trust & Banking Co............................... 800 1,550
Mitsukoshi.............................................. 1,000 2,658
NEC Corp................................................ 2,000 21,291
Nippon Express Co....................................... 2,800 13,939
Nippon Oil Co........................................... 4,000 10,324
Nippon Steel Corp....................................... 5,800 8,573
Nippon Telegraph & Telephone Corp....................... 15 128,667
Nissan Fire & Marine Insurance.......................... 700 2,128
Nissan Motor Co......................................... 3,800 15,716
NKK Corp................................................ 6,000 4,779
Nomura Securities....................................... 1,400 18,657
Odakyu Electric Railway................................. 5,000 21,598
Osaka Gas Co............................................ 5,000 11,411
Sakura Bank............................................. 1,800 5,142
Sankyo Co............................................... 1,000 22,593
Sanyo Electric Co....................................... 4,000 10,416
Sega Enterprises........................................ 200 3,615
Sekisui Chemical Co..................................... 1,000 5,078
Sekisui House........................................... 1,800 11,566
Sharp Corp.............................................. 1,000 6,878
Shimizu Corp............................................ 1,800 4,163
Shiseido Co............................................. 1,000 13,633
Softbank Corp........................................... 210 5,468
Sony Corp............................................... 600 53,305
Sumitomo Chemical....................................... 4,000 9,190
Sumitomo Corp........................................... 2,000 11,182
Sumitomo Metal Industries............................... 1,000 1,279
Sumitomo Metal Mining Co................................ 1,000 3,293
Taisei Corp............................................. 4,800 7,867
Taisho Pharmacy Co...................................... 1,000 25,504
Takeda Chemical Industries.............................. 2,000 56,981
The Long-Term Credit Bank of Japan, Ltd................. 3,000 4,802
</TABLE>
16 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31,1997
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
The Sanwa Bank, Ltd.......................................................... 3,000 $ 30,329
Tobu Railway Co.............................................................. 1,800 5,625
Tokio Marine & Fire Insurance Co............................................. 2,800 31,738
Tokyo Electric Power......................................................... 2,000 36,456
Tokyo Gas Co................................................................. 5,800 13,148
Tokyu Corp................................................................... 2,000 7,720
Toray Industries, Inc........................................................ 3,000 13,441
Tostem Corp.................................................................. 500 5,361
Toto......................................................................... 1,000 6,387
Toyota Motor Corp............................................................ 4,800 137,489
Yamanouchi Pharmaceutical Co................................................. 1,000 21,444
Yasuda Trust & Banking (a)................................................... 700 697
---------
1,506,930
---------
NETHERLANDS 1.1%
ABN Amro Holdings, NV........................................................ 1,235 24,059
Ahold Koninklijke, NV........................................................ 309 8,061
Akzo Nobel, NV............................................................... 100 17,242
Elsevier, NV................................................................. 600 9,706
ING Groep, NV................................................................ 645 27,166
KLM Royal Dutch Air Lines, NV................................................ 101 3,736
Koninklijke KNP BT, NV....................................................... 100 2,303
Koninklijke PTT Nederland, NV (ADR).......................................... 416 17,357
Philips Electronics, NV...................................................... 300 17,991
Royal Dutch Petroleum Co..................................................... 1,600 87,826
Unilever, NV................................................................. 400 24,659
Wolters Kluwer, NV........................................................... 101 13,045
---------
253,151
---------
NORWAY 0.4%
Aker RGI ASA, Series A....................................................... 200 3,601
Bergesen d.y. ASA, Series A.................................................. 100 2,356
Bergesen d.y. ASA, Series B Non Voting....................................... 100 2,329
Christiania Bank............................................................. 1,600 6,456
Dyno Industrier ASA.......................................................... 100 1,923
Elkem ASA.................................................................... 100 1,327
</TABLE>
17 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31,1997
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
NORWAY (CONTINUED)
Hafslund ASA, Series A....................................................... 200 $ 1,218
Kvaerner ASA, Series A....................................................... 100 5,091
Leif Hoegh & Co.............................................................. 100 2,031
NCL Holdings ASA (a)........................................................ 555 1,984
Norsk Hydro ASA.............................................................. 600 29,205
Norske Skogindustrier ASA.................................................... 100 2,897
Orkla ASA.................................................................... 100 8,597
Petroleum Geo-Services (a)................................................... 100 6,296
Storebrand ASA (a)........................................................... 800 5,632
--------
80,943
--------
PORTUGAL 0.9%
Banco Comercial Portugues.................................................... 1,000 20,451
Banco Espirito Santo e Comercial............................................. 600 17,855
Banco Totta & Acores......................................................... 300 5,891
BPI-SGPS, SA................................................................. 500 12,157
Cimpor-Cimentos de Portugal.................................................. 500 13,105
Corticeira Amorim, SA........................................................ 100 1,195
Elec De Portugal (a)......................................................... 2,300 43,551
Jeronimo Martins............................................................. 200 6,346
Jeronimo Martins............................................................. 174 945
Jeronimo Martins, SPGS, SA................................................... 500 15,865
Portucel Industrial-Empresa Produtora de Celulose............................ 600 3,661
Portugal Telecom, SA......................................................... 1,200 55,681
Soares Da Costa, SA (a)...................................................... 100 695
Sonae Investimentos.......................................................... 300 12,134
UNICER-Uniao Cervejeira, SA.................................................. 300 4,238
--------
213,770
--------
SPAIN 1.7%
Argentaria, SA............................................................... 300 18,254
Autopistas Cesa.............................................................. 630 8,457
BCO Bilbao Vizcaya........................................................... 1,800 58,247
BCO Central Hispan........................................................... 800 19,481
BCO Santander................................................................ 900 30,069
Corporacion Financiera Alba, SA.............................................. 100 10,535
</TABLE>
18 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31,1997
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
SPAIN (CONTINUED)
Corporacion Mapfre........................................................... 200 $ 5,304
Empresa Nacional de Celulosas, SA............................................ 100 1,362
Endesa, SA................................................................... 2,800 49,714
Fomento Construcciones y Contratas, SA....................................... 400 15,228
Gas Natural SDG, SA.......................................................... 400 20,742
Iberdrola, SA................................................................ 2,300 30,269
Inmobiliaria Metropolitana Vasco Central, SA................................. 105 4,735
Repsol, SA................................................................... 800 34,132
Tabacalera, SA, Class A...................................................... 100 8,106
Telefonica De Espana......................................................... 2,300 65,671
Union Electrica Fenosa, SA................................................... 800 7,667
Viscofan Industria Navarra De Envolturas Celulosicas, SA..................... 100 2,511
--------
390,484
--------
SWEDEN 1.6%
ABB, AB, Class A............................................................. 2,000 23,678
AGA, AB, Class B............................................................. 600 7,935
Astra, AB, Class A........................................................... 3,733 64,646
Atlas Copco, AB, Class A..................................................... 500 14,925
Electrolux, AB, Class B...................................................... 200 13,879
Ericsson Telefonaktiebolaget LM, Class B (a)................................. 2,300 86,468
Granges, AB (a).............................................................. 100 1,568
Hennes & Mauritz, AB, Class B................................................ 500 22,040
Securitas, AB, Class B....................................................... 200 6,045
Skandia Forsaekrings, AB..................................................... 300 14,150
Skandinaviska Enskilda Banken, Class A....................................... 1,400 17,721
Skanska, AB, Class B......................................................... 300 12,299
SKF, AB, Class B............................................................. 400 8,514
Stora Kopparbergs Bergslags Aktiebolag, Class A.............................. 800 10,076
Svenska Cellulosa, AB, Class B............................................... 500 11,241
Svenska Handelsbkn, Class A (a).............................................. 500 17,286
Volvo, AB, Class B........................................................... 1,100 29,509
--------
361,980
--------
</TABLE>
19 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31,1997
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND 2.3%
Abb AG....................................................................... 10 $ 12,558
Alusuisse - Lonza Holding.................................................... 10 9,602
Credit Suisse Group.......................................................... 200 30,934
Holderbank Financiere Glarus AG.............................................. 10 8,158
Nestle, AG................................................................... 50 74,904
Novartis (a)................................................................. 80 129,756
Roche Holdings Bearer, AG.................................................... 2 30,797
Roche Holdings Genusscheine, AG.............................................. 8 79,414
SGS Holdings................................................................. 5 9,581
SMH, AG...................................................................... 10 5,516
Sulzer, AG................................................................... 10 6,337
Swiss Bank Corp. (a)......................................................... 90 27,963
Swiss Reinsurance............................................................ 20 37,394
Union Bank of Switzerland.................................................... 30 43,362
Zurich Versicherungs-Gesellschaft............................................ 60 28,579
--------
534,855
--------
UNITED KINGDOM 6.7%
Abbey National............................................................... 1,700 30,603
Arjo Wiggins Apple........................................................... 1,525 4,058
B.A.T Industries............................................................. 4,450 40,580
Barclays..................................................................... 2,175 57,902
Bass......................................................................... 1,975 30,721
BG........................................................................... 5,536 24,915
BG, Class B (a).............................................................. 6,275 2,989
Blue Circle Industries....................................................... 4,175 23,418
BOC Group.................................................................... 1,400 23,018
Boots Co..................................................................... 1,700 24,474
British Aerospace............................................................ 575 16,386
British Airways.............................................................. 1,525 14,027
British Petroleum............................................................ 8,513 112,614
British Sky Broadcast........................................................ 2,475 18,537
British Telecommunications................................................... 8,150 64,218
BTR.......................................................................... 5,675 17,151
Cable & Wireless............................................................. 3,525 30,976
</TABLE>
20 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31,1997
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Centrica (a)................................................................. 6,275 $ 9,225
Commercial Union............................................................. 1,225 17,082
EMI Group.................................................................... 1,260 10,513
General Electric............................................................. 3,975 25,757
Glaxo Wellcome............................................................... 4,450 106,091
Granada Group................................................................ 825 12,602
Great Universal Stores....................................................... 1,350 17,007
Guinness..................................................................... 5,800 53,063
Hanson....................................................................... 1,050 4,685
HSBC Holdings (ADR).......................................................... 2,325 57,359
Imperial Chemical Industries................................................. 1,425 22,259
Kingfisher................................................................... 1,125 15,706
Ladbroke Group............................................................... 1,525 6,613
Land Securities.............................................................. 1,225 19,517
Lloyds TSB Group............................................................. 6,725 87,489
Marks & Spencer.............................................................. 3,700 36,591
MEPC......................................................................... 1,400 11,681
National Power............................................................... 2,000 19,710
P & O Finance (a)............................................................ 1,250 14,218
Prudential Corp.............................................................. 3,425 41,707
Redland...................................................................... 2,000 11,235
Reed International........................................................... 2,925 27,865
Reuters Holdings............................................................. 2,475 27,034
Rio Tinto.................................................................... 2,000 24,654
RMC Group.................................................................... 1,050 14,866
Royal Bank Scot Group........................................................ 1,150 14,661
Royal Sun Alliance........................................................... 2,000 20,137
Safeway...................................................................... 1,225 6,901
Sainsbury J Finance.......................................................... 2,275 19,169
Scottish Power............................................................... 2,000 17,673
Smithkline Beecham........................................................... 6,725 69,312
Tesco........................................................................ 3,025 24,944
Thames Water................................................................. 1,400 20,845
Thorn........................................................................ 857 2,224
Unilever..................................................................... 3,900 33,547
</TABLE>
21 See Notes to Financial Statements
<PAGE>
- ---------------------------------------------------------------
Portfolio of Investments (Continued)
- ---------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
===============================================================
Description Shares Market Value
- ---------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Vodafone Group........................... 4,650 $ 33,606
Zeneca Group............................. 1,400 49,590
----------
1,543,725
UNITED STATES 25.0%...................... ----------
Abbott Laboratories, Inc. (b)............ 1,500 98,344
Aluminum Company of America.............. 500 35,188
American Express Co...................... 900 80,325
American Home Products Corp.............. 1,000 76,500
American International Group, Inc. (b)... 1,350 146,812
Amoco Corp............................... 900 76,612
AT&T Corp. (b)........................... 2,900 177,625
Banc One Corp............................ 1,400 76,038
BankAmerica Corp......................... 1,040 75,920
BellSouth Corp........................... 2,000 112,625
Boeing Co................................ 540 26,426
Bristol-Myers Squibb Co.................. 880 83,270
Campbell Soup Co......................... 1,000 58,125
Caterpillar, Inc......................... 300 14,569
Chevron Corp. (b)........................ 1,300 100,100
Chrysler Corp............................ 1,100 38,706
Citicorp (b)............................. 1,220 154,254
Coca-Cola Co. (b)........................ 3,400 226,525
Columbia/HCA Healthcare Corp............. 1,300 38,513
Computer Associates International, Inc... 1,050 55,519
Consolidated Edison Co................... 1,800 73,800
CSX Corp................................. 500 27,000
Dow Chemical Co.......................... 800 81,200
Du Pont (E. I.) de Nemours & Co.......... 1,100 66,069
Duke Energy Corp......................... 600 33,225
Dun & Bradstreet Corp.................... 500 15,469
Eastman Kodak Co......................... 1,400 85,137
Electronic Data Systems Corp............. 900 39,544
Enron Corp............................... 800 33,250
Exxon Corp............................... 1,800 110,137
</TABLE>
See Notes to Financial Statements
22
<PAGE>
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
- ------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
==================================================================
Description Shares Market Value
- ------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Federal National Mortgage Association........ 1,700 $ 97,006
First Union Corp............................. 1,800 92,250
General Electric Co. (b)..................... 2,300 168,762
General Motors Corp.......................... 1,600 97,000
General Reinsurance Corp. (a)................ 500 106,000
Heinz (H. J.) & Co........................... 1,000 50,813
Hewlett-Packard Co........................... 1,500 93,750
Home Depot, Inc.............................. 1,000 58,875
Intel Corp. (b).............................. 2,020 141,905
International Business Machines Corp......... 1,000 104,562
International Paper Co....................... 500 21,563
ITT Corp. (a)................................ 200 16,575
JP Morgan & Co., Inc......................... 700 79,012
Kmart Corp. (a).............................. 200 2,313
Latin American Discovery Fund, Inc. (c)...... 12,800 229,600
Lilly (Eli) & Co. (a)........................ 2,000 139,250
McDonald's Corp.............................. 900 42,975
Merck & Co., Inc. (b)........................ 1,930 205,062
Microsoft Corp. (a) (b)...................... 1,630 210,677
Minnesota Mining & Manufacturing Co.......... 700 57,444
Mobil Corp................................... 700 50,531
Morgan Stanley Asia Pacific Fund, Inc. (c)... 6,200 46,113
Motorola, Inc................................ 1,200 68,475
Norfolk Southern Corp........................ 1,500 46,219
Oracle Systems Corp. (a)..................... 1,950 43,509
Pfizer, Inc.................................. 1,240 92,457
PG&E Corp. (b)............................... 1,100 33,481
Philip Morris Cos., Inc...................... 1,120 50,750
PPG Industries, Inc.......................... 500 28,563
Procter & Gamble Co.......................... 1,600 127,700
Raytheon Co., Class A........................ 102 5,030
Sara Lee Corp................................ 1,200 67,575
SBC Communications, Inc...................... 900 65,925
Sears, Roebuck & Co.......................... 1,400 63,350
</TABLE>
23 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
=========================================================================================================
Description Shares Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Southern Co......................................................................... 2,300 $ 59,513
Texas Utilities Co.................................................................. 600 24,938
Time Warner, Inc.................................................................... 1,100 68,200
Travelers Group, Inc................................................................ 1,800 96,975
Wal-Mart Stores, Inc. (b)........................................................... 5,000 197,187
Walt Disney Co. (b)................................................................. 1,400 138,687
Waste Management, Inc............................................................... 1,000 27,500
Weyerhaeuser Co..................................................................... 400 19,625
------------
5,754,524
------------
TOTAL COMMON AND PREFERRED STOCKS AND EQUIVALENTS 59.0%........................... 13,562,782
------------
U. S. GOVERNMENT OBLIGATIONS 10.7%
U. S. Treasury Bond ($600,000 par, 8.125% coupon, 08/15/19 maturity)................ 750,750
U. S. Treasury Note ($500,000 par, 6.250% coupon, 10/31/01 maturity)................ 508,515
U. S. Treasury Note ($350,000 par, 6.375% coupon, 05/15/99 maturity)................ 353,227
U. S. Treasury Note ($690,000 par, 7.250% coupon, 05/15/04 maturity)................ 744,662
U. S. Treasury Note ($100,000 par, 3.625% coupon, 07/15/02 maturity)................ 99,500
------------
TOTAL U. S. GOVERNMENT OBLIGATIONS 10.7%.......................................... 2,456,654
------------
TOTAL LONG-TERM INVESTMENTS 69.7% (Cost $14,054,267)................................ 16,019,436
------------
SHORT-TERM INVESTMENTS 29.1%
REPURCHASE AGREEMENT 9.6%
State Street Bank & Trust Co. ($2,203,000 par collateralized by U.S.
Government Obligations in a pooled cash account, dated 12/31/97,
to be sold on 01/02/98 at $2,203,611) (b)........................................... 2,203,000
U.S. GOVERNMENT AGENCY OBLIGATIONS 19.5%
Federal Farm Credit Bank Consolidated Discount Note ($4,500,000 par,
5.621% coupon, 01/21/98 maturity) (b)............................................... 4,486,050
------------
TOTAL SHORT-TERM INVESTMENTS 29.1% (Cost $6,689,050)................................ 6,689,050
------------
TOTAL INVESTMENTS 98.8% (Cost $20,743,317).......................................... 22,708,486
FOREIGN CURRENCY 0.5% (Various Denominations, Cost $130,608)........................ 127,067
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%.......................................... 158,341
------------
NET ASSETS 100.0%................................................................... $ 22,993,894
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated as collateral for open futures transactions and forward
commitments.
(c) Related party transactions. See Footnote 2.
ADR - American Depository Receipt
See Notes to Financial Statements
24
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1997
================================================================================================
Assets:
<S> <C>
Total Investments (Cost $20,743,317)............................................. $22,708,486
Foreign Currency at Market Value (Cost $130,608)................................. 127,067
Cash............................................................................. 952
Deposit on Variation Margin...................................................... 125,000
Receivables:
Variation Margin on Futures.................................................... 134,344
Interest....................................................................... 32,190
Dividends...................................................................... 24,516
Fund Shares Sold............................................................... 24,396
Investments Sold............................................................... 5,892
Forward Commitments and Foreign Currency Contracts............................... 115,534
Unamortized Organizational Costs................................................. 4,328
Other............................................................................ 956
-----------
Total Assets................................................................ 23,303,661
-----------
Liabilities:
Payables:
Fund Shares Repurchased........................................................ 161,037
Distributor and Affiliates..................................................... 19,976
Investment Advisory Fee........................................................ 19,180
Investments Purchased.......................................................... 4,166
Accrued Expenses................................................................. 85,751
Trustees' Deferred Compensation and Retirement Plans............................. 19,657
-----------
Total Liabilities........................................................... 309,767
-----------
Net Assets....................................................................... $22,993,894
-----------
Net Assets Consist of:
Capital.......................................................................... $21,107,082
Net Unrealized Appreciation...................................................... 2,108,124
Accumulated Net Realized Gain.................................................... 7,907
Accumulated Net Investment Loss.................................................. (229,219)
-----------
Net Assets....................................................................... $22,993,894
===========
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $11,232,338 and 1,105,334 shares of beneficial interest issued
and outstanding)............................................................ 10.16
Maximum sales charge (4.75%* of offering price)............................. .51
-----------
Maximum offering price to public............................................ $ 10.67
===========
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $10,041,715 and 1,013,227 shares of beneficial interest issued
and outstanding)............................................................ $ 9.91
===========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$1,719,841 and 173,243 shares of beneficial interest issued and outstanding) $ 9.93
===========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
25 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1997
====================================================================================================
<S> <C>
Investment Income:
Interest............................................................................. $ 448,841
Dividends (Net of foreign withholding taxes of $24,871).............................. 224,376
----------
Total Income.................................................................... 673,217
==========
Expenses:
Investment Advisory Fee.............................................................. 225,799
Custody.............................................................................. 188,853
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C
of $26,058, $104,880 and $16,688, respectively).................................... 147,626
Shareholder Services................................................................. 133,536
Shareholder Reports.................................................................. 61,420
Registration and Filing Fees......................................................... 57,286
Audit................................................................................ 53,017
Trustees' Fees and Expenses.......................................................... 8,814
Amortization of Organizational Costs................................................. 3,289
Legal................................................................................ 580
Other................................................................................ 40,075
----------
Total Expenses.................................................................. 920,295
----------
Net Investment Loss.................................................................. $ (247,078)
==========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments........................................................................ $2,251,618
Futures............................................................................ 332,649
Forward Commitments................................................................ 185,985
Foreign Currency Transactions...................................................... (230,478)
----------
Net Realized Gain.................................................................... 2,539,774
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................................................ 2,579,885
End of the Period:
Investments..................................................................... 1,965,169
Futures......................................................................... 34,343
Forward Commitments............................................................. 56,021
Forward Currency Contracts...................................................... 56,747
Foreign Currency Translation....................................................... (4,156)
----------
2,108,124
----------
Net Unrealized Depreciation During the Period........................................ (471,761)
----------
Net Realized and Unrealized Gain..................................................... $2,068,013
==========
Net Increase in Net Assets from Operations........................................... $1,820,935
==========
</TABLE>
26 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Years Ended December 31, 1997 and 1996
=========================================================================================================
Year Ended Year Ended
December 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Loss............................................ $ (247,078) $ (112,792)
Net Realized Gain.............................................. 2,539,774 1,701,201
Net Unrealized Appreciation/Depreciation During the Period..... (471,761) 1,005,068
----------- ------------
Change in Net Assets from Operations........................... 1,820,935 2,593,477
Distribution from Net Realized Gain*........................... (2,665,787) (1,608,530)
----------- ------------
Net Change in Net Assets from Investment
Activities.................................................. (844,852) 984,947
----------- ------------
From Capital Transactions:
Proceeds from Shares Sold...................................... 6,116,272 7,742,285
Net Asset Value of Shares Issued Through
Dividend Reinvestment.......................................... 2,487,060 1,377,670
Cost of Shares Repurchased..................................... (4,866,248) (15,458,267)
----------- ------------
Net Change in Net Assets from Capital Transactions............. 3,737,084 (6,338,312)
----------- ------------
Total Increase/Decrease in Net Assets.......................... 2,892,232 (5,353,365)
Net Assets:
Beginning of the Period........................................ 20,101,662 25,455,027
----------- ------------
End of the Period (Including accumulated net investment
loss of $229,219 and $7,148, respectively)................... $22,993,894 $20,101,662
=========== ===========
Year Ended Year Ended
*Distributions by Class December 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------
Distributions from Net Realized Gain:
<S> <C> <C>
Class A Shares................................................. $ (1,273,008) $ (713,178)
Class B Shares................................................. (1,192,389) (762,464)
Class C Shares................................................. (200,390) (132,888)
------------ ------------
$ (2,665,787) $ (1,608,530)
============ ============
</TABLE>
27 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The following schedule presents financial highlights for one share of the fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
May 16, 1994
(Commencement
Year Ended of Investment
December 31, Operations) to
--------------------------------------
Class A Shares 1997 1996 (c) 1995 December 31, 1994
====================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period.............................................. $ 10.530 $ 10.15 $ 9.19 $ 9.44
-------- ------- ------- -----------
Net Investment Income/Loss........................................... (0.088) -0- .08 .10
Net Realized and Unrealized
Gain/Loss........................................................... 1.014 1.242 1.1375 (.2475)
-------- ------- ------- -----------
Total from Investment Operations........................................ .926 1.242 1.2175 (.1475)
-------- ------- ------- -----------
Less:
Distributions from and in Excess of Net
Investment Income................................................... -0- -0- .0775 .075
Distributions from and in Excess of Net
Realized Gain....................................................... 1.294 .862 .18 .0275
-------- ------- ------- -----------
Total Distributions..................................................... 1.294 .862 .2575 .1025
-------- ------- ------- -----------
Net Asset Value, End of the Period...................................... 10.162 $10.530 $ 10.15 $ 9.19
======== ======= ======= ==========
Total Return* (a)....................................................... 8.94% 12.44% 13.30% (1.57%)**
Aet Assets at End of the
Period (In millions)................................................. 11.2 $ 8.5 $ 15.5 $ 11.5
Ratio of Expenses to Average Net Assets*................................ $ 3.66% 2.87% 2.79% 2.75%
Ratio of Net Investment Income/Loss to
Average Net Assets*.................................................. (.67%) .00% .81% 1.54%
Portfolio Turnover...................................................... 231% 91% 135% 50%**
Average Commission Paid
Per Equity Share Traded (b)........................................... $.0606 $ .0214 -- --
*If certain expenses had not been assumed by VKAC, total
return would have been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net Assets................................. N/A 3.17% 3.68% 2.76%
Ratio of Net Investment Income/Loss to
Average Net Assets..................................................... N/A (.30%) (.07%) 1.53%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(c) Based on average month-end shares outstanding.
N/A - Not Applicable.
See Notes to Financial Statements
28
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated.
================================================================================
<TABLE>
<CAPTION>
May 16, 1994
(Commencement
Year Ended of Investment
December 31, Operations) to
--------------------------------
Class B Shares 1997 1996 (c) 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................................ $ 10.379 $ 10.10 $ 9.17 $ 9.44
--------- --------- --------- ---------
Net Investment Income/Loss........................................... (.146) (.106) (.01) .01
Net Realized and Unrealized Gain/Loss................................ .972 1.247 1.1375 (.2065)
--------- --------- --------- ---------
Total from Investment Operations........................................ .826 1.141 1.1275 (.1965)
--------- --------- --------- ---------
Less:
Distributions from and in Excess
of Net Investment Income........................................... -0- -0- .0175 .046
Distributions from and in Excess of Net Realized Gain................ 1.294 .862 .18 .0275
--------- --------- --------- ---------
Total Distributions..................................................... 1.294 .862 .1975 .0735
--------- --------- --------- ---------
Net Asset Value, End of the Period...................................... $ 9.911 $10.379 $ 10.10 $ 9.17
========= ========= ========= =========
Total Return* (a)....................................................... 8.10% 11.51% 12.31% (2.09%)**
Net Assets at End of the Period (In millions)........................... $ 10.0 $ 9.9 $ 8.1 $ 7.4
Ratio of Expenses to Average Net Assets*................................ 4.42% 3.76% 3.73% 3.92%
Ratio of Net Investment Income/Loss to Average Net Assets*.............. (1.45%) (1.01%) (.09%) .13%
Portfolio Turnover...................................................... 231% 91% 135% 50%**
Average Commission Paid Per Equity Share Traded (b)..................... $ .0606 $ .0214 -- --
*If certain expenses had not been assumed by VKAC, total return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets................................. -- 4.06% 4.61% 3.93%
Ratio of Net Investment Income/Loss to Average Net Assets............... -- (1.30%) (.97%) .12%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(c) Based on average month-end shares outstanding.
N/A - Not Applicable.
29 See Notes to Financial Satements
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
May 16, 1994
(Commencement
Year Ended of Investment
December 31, Operations) to
-------------------------------
Class C Shares 1997 1996(c) 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period.................... $10.395 $ 10.12 $ 9.20 $ 9.44
------- ------- ------- ----------
Net Investment Income/Loss................... (0.139) (.104) (.02) .05
Net Realized and Unrealized
Gain/Loss.................................. .965 1.241 1.1375 (.2165)
------- ------- ------- ----------
Total from Investment Operations.............. .826 1.137 1.1175 (.1665)
------- ------- ------- ----------
Less:
Distributions from and in Excess of Net
Investment Income.......................... -0- -0- .0175 .046
Distributions from and in Excess of Net
Realized Gain.............................. 1.294 .862 .18 .0275
------- ------- ------- ----------
Total Distributions........................... 1.294 .862 .1975 .0735
------- ------- ------- ----------
Net Asset Value, End of the Period............ $ 9.927 $10.395 $ 10.12 $ 9.20
======= ======= ======= ==========
Total Return* (a)............................. 8.09% 11.49% 12.16% (1.77%)**
Net Assets at End of the Period
(In millions)................................ $ 1.7 $ 1.7 $ 1.9 $ 1.3
Ratio of Expenses to Average
Net Assets*.................................. 4.46% 3.78% 3.79% 3.36%
Ratio of Net Investment Income/Loss to
Average Net Assets*......................... (1.50%) (.99%) (.18%) .80%
Portfolio Turnover............................ 231% 91% 135% 50%**
Average Commission Paid Per
Equity Share Traded (b)..................... $ .0606 $ .0214 -- --
*If certain expenses had not been assumed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Operating Expenses to Average
Net Assets.................................... N/A 4.07% 4.67% 3.38%
Ratio of Net Investment Income/Loss to
Average Net Assets............................ N/A (1.28%) (1.06%) .78%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(c) Based on average month-end shares outstanding.
N/A - Not Applicable.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Global Managed Assets Fund (the "Fund") is organized
as a Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek total return through a
managed balance of foreign and domestic equity and debt securities. The Fund
commenced investment operations on May 16, 1994, with three classes of
beneficial interest, Class A, Class B and Class C shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION-Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sales price is not
available are valued at their last quoted bid price. Fixed income securities are
stated at value using market quotations. For those securities where quotations
or prices are not available, valuations are determined in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31 1997
C. INCOME AND EXPENSES-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Accordingly, original issue
discounts on debt securities purchased are amortized over the life of the
security. Premiums on debt 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. Expenses of the Fund are allocated on a pro rata basis
to each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FOREIGN CURRENCY TRANSLATION-Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars based on quoted exchange rates as of noon Eastern Time. Purchases
and sales of portfolio securities are translated at the rate of exchange
prevailing when such securities were acquired or sold. Income and expenses are
translated at rates prevailing when accrued. Realized and unrealized gains and
losses on 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 realized amount from the sale of currency and the amount
realized between trade date and settlement date on security transactions.
E. ORGANIZATIONAL COSTS-The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $15,000. These costs
are being amortized on a straight line basis over the 60-month period ending May
15, 1999. The Adviser has agreed that in the event any of the initial shares of
the Fund originally purchased by VKAC are redeemed during the amortization
period, the Fund will be reimbursed for any unamortized organizational costs in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
F. FEDERAL INCOME TAXES-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
At December 31, 1997, for federal income tax purposes cost of long- and
short-term investments, including foreign currencies, is $20,931,773, the
aggregate gross unrealized appreciation is $2,498,182 and the aggregate gross
unrealized depreciation is $594,402, resulting in net unrealized appreciation of
$1,903,780.
Net realized gains or losses may differ for financial purposes primarily as
a result of post-October losses which may not be recognized for tax purposes
until the first day of the following fiscal year, wash sales, straddle loss
deferrals and the mark to market of open futures contracts at December 31, 1997.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
G. DISTRIBUTION OF INCOME AND GAINS-The Fund declares and pays dividends
annually from net investment income and from net realized gains on securities,
if any. Net investment income for federal income tax purposes includes gains and
losses realized on certain transactions in foreign currencies. These realized
gains and losses are included as net realized gains or losses for financial
reporting purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and for
federal income tax purposes, permanent differences between book and tax basis
reporting have been identified and appropriately reclassified. As a result,
permanent differences of $23,459 due to the characterization of income for tax
purposes have been reclassified from accumulated net realized gain to
accumulated net investment loss. In addition, permanent differences of $1,548
relating to certain expenses which are not deductible for tax purposes have been
reclassified from accumulated net investment loss to capital.
For Federal income tax purposes, the following information is furnished
with respect to the distributions paid by the Fund during its taxable year ended
December 31, 1997. The Fund designated $1,326,884 as a 28% rate capital gain
distribution and $0 as a 20% rate capital gain distribution. Shareholders were
sent a 1997 Form 1099-DIV in January 1998 representing their proportionate share
of the capital gain distribution to be reported on their income tax returns. For
corporate shareholders 7.01% of the distributions qualify for the dividend
received deductions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly. On March 31, 1997, the Adviser terminated its subadvisory agreement
with John Govett & Co., Ltd. and with shareholder approval has changed the
subadviser to Morgan Stanley Asset Management Inc. (the "Subadviser") effective
April 1, 1997. The Subadviser provides advisory services to the Fund and the
Adviser with respect to the Fund's investments in foreign securities. Investment
advisory 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 investment
advisory fee to the Subadviser.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $600 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $21,500 representing VKAC's cost of providing accounting services
to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
December 31, 1997, the Fund recognized
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
expenses of approximately $99,400, representing ACCESS' cost of providing
transfer agency and shareholder services plus a profit.
Additionally, for the year ended December 31, 1997, the Fund reimbursed VKAC
approximately $1,500 related to the direct cost of consolidating the VKAC open-
end fund complex. Payment was contingent upon the realization by the Fund of
cost efficiencies in certain expense categories resulting from the
consolidation.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.
During the period, the Fund owned shares of the following Morgan Stanley
Funds which were managed by the Subadviser:
<TABLE>
<CAPTION>
TRANSACTIONS
DURING THE PERIOD
% OF NET ASSETS COST OF PROCEEDS
AT DECEMBER 31, 1997 PURCHASES OF SALES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Latin America Discovery Fund, Inc..................... 1.00% $203,571 $ 0
Morgan Stanley Asia Pacific Fund, Inc................. . 20% $148,575 $67,970
</TABLE>
At December 31, 1997, VKAC owned 10,604, 53 and 53 shares of Classes A, B
and C of the Fund, respectively.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
At December 31, 1997, capital aggregated $9,892,195, $9,614,733 and
$1,600,154 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................ 326,563 $ 3,557,326
Class B................................ 182,617 1,967,735
Class C................................ 54,786 591,211
------- -----------
Total Sales.............................. 563,966 $ 6,116,272
======= ===========
Dividend Reinvestment:
Class A................................ 122,002 $ 1,233,093
Class B................................ 110,121 1,086,423
Class C................................ 16,955 167,544
------- -----------
Total Dividend Reinvestment.............. 249,078 $ 2,487,060
======= ===========
Repurchases:
Class A................................ (151,742) $(1,673,088)
Class B................................ (233,838) (2,537,474)
Class C................................ (60,449) (655,686)
------- ===========
Total Repurchases........................ (446,029) $(4,866,248)
======= ===========
</TABLE>
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
At December 31, 1996, capital aggregated $6,775,618, $9,098,727 and
$1,497,201 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................... 343,389 $ 3,674,083
Class B............................... 319,565 3,371,501
Class C............................... 66,272 696,701
--------- ------------
Total Sales............................. 729,226 $ 7,742,285
========= ============
Dividend Reinvestment:
Class A............................... 58,774 $ 608,282
Class B............................... 65,677 670,411
Class C............................... 9,677 98,977
--------- ------------
Total Dividend Reinvestment............. 134,128 $ 1,377,670
========= ============
Repurchases:
Class A............................... (1,122,082) $(11,975,953)
Class B............................... (233,170) (2,467,031)
Class C............................... (95,831) (1,015,283)
--------- ------------
Total Repurchases....................... (1,451,083) $(15,458,267)
--------- ------------
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth and Thereafter......................... None None
</TABLE>
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
For the year ended December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$3,600 and CDSC on the redeemed shares of approximately $18,700. Sales charges
do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and forward commitments, were $37,616,711 and
$38,518,494, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, foreign currency exposure, or
generate potential gain. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a futures or forward
contract. In these instances, the recognition of gain or loss is postponed until
the disposal of the security underlying the contract. Purchasing securities on a
forward commitment involves a risk that the market value at the time of delivery
may be lower than the agreed upon purchase price resulting in an unrealized
loss. Selling securities on a forward commitment involves different risks and
can result in losses more significant than those arising from the purchase of
such securities.
Summarized on the following pages are the specific types of derivative
financial instruments used by the Fund.
FORWARD PURCHASE COMMITMENTS
The Fund trades certain securities under the terms of forward commitments,
whereby the settlement occurs at a specific future date. Forward commitments are
privately negotiated transactions between the Fund and dealers. While forward
commitments are outstanding, the Fund maintains sufficient collateral of cash or
securities in a segregated account with its custodian. The commitments are
marked to market on a daily basis with changes in value reflected as a component
of unrealized appreciation or depreciation on forwards. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
The following forward purchase commitments were outstanding as of December
31, 1997:
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL
CURRENCY UNREALIZED
(000) DESCRIPTION COUPON MATURITY APPRECIATION
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA (Government of)
200-AUD Settlement 01/21/98...................... 9.000% 09/15/04 $ 1,702
AUSTRALIA (Commonwealth)
200-AUD Settlement 01/29/98...................... 9.000 09/15/04 3,042
CANADA (Government of)
120-CAD Settlement 01/29/98...................... 9.750 06/01/21 4,311
DENMARK (Kingdom of)
1,400-DKK Settlement 03/19/98...................... 8.000 03/15/06 3,060
GERMANY UNITY (Fed Republic of)
300-DEM Settlement 01/23/98...................... 8.000 01/21/02 2,376
GERMANY (Treuhandanstalt)
800-DEM Settlement 01/23/98...................... 7.500 09/09/04 7,261
500-DEM Settlement 02/03/98...................... 7.000 11/25/99 2,901
IRELAND (Republic of)
90-IEP Settlement 03/06/98...................... 8.000 08/18/06 5,451
ITALY (Republic of)
600,000-ITL Settlement 01/30/98...................... 9.500 02/01/06 14,963
JAPAN
40,000-JPY Settlement 01/29/98...................... 5.500 03/20/02 1,537
30,000-JPY Settlement 01/29/98...................... 3.400 06/20/05 3,749
SWEDEN (Kingdom of)
3,100-SEK Settlement 01/29/98...................... 6.000 02/09/05 5,616
UNITED KINGDOM
60-GBP Settlement 01/23/98...................... 8.000 06/07/21 2,738
225-GBP Settlement 01/23/98...................... 7.750 09/08/06 80
---------
Total Forward Purchase Commitments
(Cost $3,691,957).................... $ 58,787
=========
</TABLE>
CLOSED BUT UNSETTLED FORWARD COMMITMENTS
In certain situations, the Fund has entered into closing transactions for
outstanding forward commitments prior to settlement of the obligation. In doing
so, the Fund determines a gain or loss on the
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
transaction at the time the forward commitment is closed. However, settlement of
both the purchase and sale is still scheduled to occur in the denominated
foreign currency at a future date. The net foreign currency difference on the
trade is marked to market daily and included as a component of unrealized
appreciation/depreciation on forwards.
The following closed but unsettled forward transactions were still
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Local Currency US$ Net Unrealized
-------------------
Description/Currency Receivable Payable (Payable) Gain/(Loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GERMANY (TREUHANDANSTALT) - MARK
(400,000 par, 7.500%, 01/23/98) 453,391 455,511 $ (1,178) $ 1,237
UNITED KINGDOM - POUND
(50,000 par, 7.750%, 01/23/98) 54,822 55,494 (1,104) (4,003)
-------- --------
$ (2,282) $ (2,766)
======== ========
</TABLE>
FORWARD CURRENCY CONTRACTS
A forward currency contract is a commitment to purchase or sell a foreign
currency at a future date at a negotiated forward rate. Upon the settlement of
the contract, a realized gain or loss is recognized and is included as a
component of realized gain/loss on forwards. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
The following forward currency contracts were outstanding as of December
31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- --------------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS
Australian Dollar,
130,000 expiring 02/17/98......................... $ 84,818 $ (6,813)
Canadian Dollar,
335,000 expiring 01/09/98......................... 234,498 (9,850)
110,000 expiring 03/27/98......................... 77,174 (400)
Deutsche Mark,
735,640 expiring 01/09/98......................... 409,144 (3,904)
120,000 expiring 01/09/98......................... 66,741 (1,573)
128,640 expiring 01/16/98......................... 71,576 (3,424)
92,660 expiring 01/16/98.......................... 51,556 (2,602)
383,522 expiring 01/16/98......................... 213,393 (10,065)
175,000 expiring 02/04/98......................... 97,479 (4,271)
1,070,000 expiring 03/13/98....................... 597,294 (11,353)
373,227 expiring 03/13/98......................... 208,342 (2,670)
</TABLE>
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- --------------------------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS (CONTINUED)
Danish Krone,
1,535,000 expiring 01/09/98................................... $ 224,130 $ (1,938)
Spanish Peseta,
2,641,912 expiring 02/12/98................................... 17,360 (840)
279,528 expiring 02/12/98..................................... 1,837 (94)
45,000,000 expiring 03/13/98.................................. 295,941 (6,073)
French Franc,
495,965 expiring 01/21/98..................................... 82,507 (3,993)
146,785 expiring 01/21/98..................................... 24,419 (1,219)
Pound Sterling,
310,000 expiring 03/13/98..................................... 507,372 (11,878)
Italian Lira,
65,880,600 expiring 01/21/98.................................. 37,235 (765)
83,361,370 expiring 01/21/98.................................. 47,114 (2,186)
95,651,000 expiring 01/21/98.................................. 54,060 (2,518)
226,302,350 expiring 01/21/98................................. 127,902 (5,957)
174,542,000 expiring 01/21/98................................. 98,648 (1,352)
24,500,000 expiring 02/04/98.................................. 13,846 (518)
83,420,530 expiring 02/19/98.................................. 47,141 (2,159)
690,000,000 expiring 03/13/98................................. 389,917 (7,881)
Japanese Yen,
62,000,000 expiring 01/09/98.................................. 475,460 (39,919)
18,000,000 expiring 01/09/98.................................. 138,037 (5,139)
112,740,000 expiring 01/26/98................................. 866,702 (65,805)
3,498,390 expiring 01/29/98................................... 26,906 (94)
3,890,810 expiring 02/26/98................................... 30,050 (950)
Netherlands Guilder,
47,209 expiring 02/19/98...................................... 23,355 (1,145)
22,638 expiring 02/19/98...................................... 11,199 (561)
Swedish Krona,
2,800,000 expiring 03/13/98................................... 353,346 (8,416)
--------- --------
6,006,499 (228,325)
--------- --------
SHORT CONTRACTS
Canadian Dollar,
123,000 expiring 03/23/98..................................... 86,286 (380)
176,111 expiring 03/23/98..................................... 123,544 (544)
Swiss Franc,
300,000 expiring 03/13/98..................................... 207,049 3,963
</TABLE>
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- --------------------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS (CONTINUED)
Deutsche Mark,
428,432 expiring 01/16/98.................................. $ 238,381 $ 6,619
176,390 expiring 01/16/98.................................. 98,144 1,856
138,242 expiring 03/16/98.................................. 77,183 1,817
Spanish Peseta,
2,921,440 expiring 02/12/98................................ 19,197 803
French Franc,
40,000 expiring 01/21/98................................... 6,654 119
620,750 expiring 01/21/98.................................. 100,271 3,404
503,719 expiring 03/16/98.................................. 84,058 1,942
Italian Lira,
286,185,820 expiring 01/21/98.............................. 161,747 5,721
359,551,500 expiring 01/21/98.............................. 203,212 6,788
59,720,500 expiring 02/19/98............................... 33,748 1,252
23,700,030 expiring 02/19/98............................... 13,393 616
Japanese Yen,
122,740,000 expiring 01/26/98.............................. 866,702 133,301
13,212,100 expiring 01/29/98............................... 101,614 8,386
6,643,725 expiring 01/29/98................................ 51,097 3,903
36,217,500 expiring 01/29/98............................... 278,547 21,453
12,946,450 expiring 02/05/98............................... 99,674 10,326
61,285,000 expiring 02/05/98............................... 471,831 43,169
6,635,750 expiring 02/05/98................................ 51,088 3,912
33,727,200 expiring 02/26/98............................... 260,484 15,516
5,651,550 expiring 02/26/98................................ 43,648 1,305
Netherlands Guilder,
69,847 expiring 02/19/98................................... 34,555 1,445
Swedish Krona,
1,178,364 expiring 02/19/98................................ 148,620 8,380
---------- --------
$3,860,727 285,072
---------- --------
$ 56,747
========
</TABLE>
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
FUTURES CONTRACTS
A futures contract is an agreement involving the delivery of a particular asset
on a specified future date at an agreed upon price. The Fund generally invests
in stock index futures as a substitute for purchasing and selling specific
securities. Upon entering into futures contracts, the Fund maintains, in a
segregated account with its custodian, securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are periodically received from or made to the broker based
upon changes in the value of the contract (the variation margin). The risk of
loss associated with a futures contract is in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
Transactions in futures contracts for the year ended December 31, 1997,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996...................................... 0
Futures Opened........................................................ 104
Futures Closed........................................................ (86)
Futures Split (S&P 500 Index Futures 2-for-1)......................... 1
-------
Outstanding at December 31, 1997...................................... 19
=======
</TABLE>
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
The futures contracts outstanding as of December 31, 1997, and the
description and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FSTE 100
March 1998--Long Contracts
(Current Notional Value of 129,575 GBP per contract)..... 3 $ 12,094
S&P 500 Index Futures
March 1998--Long Contracts
(Current Notional Value of $244,775 per contract)........ 2 (10,025)
TSE Topix
March 1998--Short Contracts
(Current Notional Value of 11,910,000 JPY per contract).. 8 37,531
OMX Stock Index
January 1998--Short Contracts
(Current Notional Value of 240,730 SEK per contract)..... 5 (3,615)
TSE 35
March 1998--Short Contract
(Current Notional Value of 179,775 CAD per contract)..... 1 (1,642)
----- --------
19 $ 34,343
===== ========
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A and 1.00% each for
Class B and Class C shares are accrued daily. Included in these fees for the
year ended December 31, 1997, are payments retained by VKAC of approximately
$79,300.
43
<PAGE>
Report of Independent Accountants
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital Global
Managed Assets Fund (the "Fund") at December 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1998
44
<PAGE>
Van Kampen American Capital Global Managed Assets Fund
Board of Trustees
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - CHAIRMAN
Officers
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Investment Subadviser
MORGAN STANLEY ASSET MANAGEMENT, INC.
1585 Broadway
New York, New York 10036
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 E. Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
-------------------------------------------------------
TAX NOTICE TO CORPORATE
SHAREHOLDERS
For 1997, 7.01% of the dividends taxable as
ordinary income qualified for the 70% dividends
received deduction for corporations.
-------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 1998 the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
45
<PAGE>
----------------
Van Kampen American Capital Distributors, Inc. Bulk Rate
One Parkview Plaza U.S. Postage
Oakbrook Terrace, Illinois 60181 PAID
VAN KAMPEN
AMERICAN CAPITAL
----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> RESERVE FUND CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 505,256,605<F1>
<INVESTMENTS-AT-VALUE> 505,256,605<F1>
<RECEIVABLES> 6,373,500<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 88,257<F1>
<TOTAL-ASSETS> 511,718,362<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 34,123,189<F1>
<TOTAL-LIABILITIES> 34,123,189<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 391,426,737
<SHARES-COMMON-STOCK> 391,426,736
<SHARES-COMMON-PRIOR> 451,309,332
<ACCUMULATED-NII-CURRENT> 41,777<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (84,102)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 0<F1>
<NET-ASSETS> 391,390,858
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 14,345,450<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,109,631)<F1>
<NET-INVESTMENT-INCOME> 11,235,819<F1>
<REALIZED-GAINS-CURRENT> (14,286)<F1>
<APPREC-INCREASE-CURRENT> 0<F1>
<NET-CHANGE-FROM-OPS> 11,221,533<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (9,565,649)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,346,291,088
<NUMBER-OF-SHARES-REDEEMED> (4,415,727,333)
<SHARES-REINVESTED> 9,565,649
<NET-CHANGE-IN-ASSETS> (59,869,911)
<ACCUMULATED-NII-PRIOR> 26,309<F1>
<ACCUMULATED-GAINS-PRIOR> (69,816)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,079,715<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,109,631<F1>
<AVERAGE-NET-ASSETS> 418,674,891
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.023
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.023)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> RESERVE FUND CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 505,256,605<F1>
<INVESTMENTS-AT-VALUE> 505,256,605<F1>
<RECEIVABLES> 6,373,500<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 88,257<F1>
<TOTAL-ASSETS> 511,718,362<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 34,123,189<F1>
<TOTAL-LIABILITIES> 34,123,189<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75,102,791
<SHARES-COMMON-STOCK> 75,093,027
<SHARES-COMMON-PRIOR> 103,028,995
<ACCUMULATED-NII-CURRENT> 41,777<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (84,102)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 0<F1>
<NET-ASSETS> 75,095,776
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 14,345,450<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,109,631)<F1>
<NET-INVESTMENT-INCOME> 11,235,819<F1>
<REALIZED-GAINS-CURRENT> (14,286)<F1>
<APPREC-INCREASE-CURRENT> 0<F1>
<NET-CHANGE-FROM-OPS> 11,221,533<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,457,405)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 404,160,437
<NUMBER-OF-SHARES-REDEEMED> (433,553,810)
<SHARES-REINVESTED> 1,457,405
<NET-CHANGE-IN-ASSETS> (27,935,570)
<ACCUMULATED-NII-PRIOR> 26,309<F1>
<ACCUMULATED-GAINS-PRIOR> (69,816)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,079,715<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,109,631<F1>
<AVERAGE-NET-ASSETS> 76,224,967
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.019
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.019)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 1.88
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> RESERVE FUND CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 505,256,605<F1>
<INVESTMENTS-AT-VALUE> 505,256,605<F1>
<RECEIVABLES> 6,373,500<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 88,257<F1>
<TOTAL-ASSETS> 511,718,362<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 34,123,189<F1>
<TOTAL-LIABILITIES> 34,123,189<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,107,970
<SHARES-COMMON-STOCK> 11,108,172
<SHARES-COMMON-PRIOR> 8,382,947
<ACCUMULATED-NII-CURRENT> 41,777<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (84,102)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 0<F1>
<NET-ASSETS> 11,108,539
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 14,345,450<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,109,631)<F1>
<NET-INVESTMENT-INCOME> 11,235,819<F1>
<REALIZED-GAINS-CURRENT> (14,286)<F1>
<APPREC-INCREASE-CURRENT> 0<F1>
<NET-CHANGE-FROM-OPS> 11,221,533<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (197,297)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 72,985,424
<NUMBER-OF-SHARES-REDEEMED> (70,457,496)
<SHARES-REINVESTED> 197,297
<NET-CHANGE-IN-ASSETS> 2,725,592
<ACCUMULATED-NII-PRIOR> 26,309<F1>
<ACCUMULATED-GAINS-PRIOR> (69,816)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,079,715<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,109,631<F1>
<AVERAGE-NET-ASSETS> 10,276,781
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.019
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.019)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
