<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Portfolio of Investments.................... 3
Statement of Assets and Liabilities......... 8
Statement of Operations..................... 9
Statement of Changes in Net Assets.......... 10
Financial Highlights........................ 11
Notes to Financial Statements............... 12
</TABLE>
ACS SAR 8/96
<PAGE>
LETTER TO SHAREHOLDERS
[PICTURE OF DENNIS J. MCDONNELL AND DON G. POWELL]
DENNIS J. MCDONNELL AND DON G. POWELL
August 14, 1996
Dear Shareholder,
The economy demonstrated an acceleration in growth during the six-month
reporting period. After an anemic 0.3 percent growth rate in the last quarter
of 1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, 4.2 percent in the second quarter.
The strengthening economic growth was spurred by consumer spending, as retail
sales rose more than 5 percent in the first five months of this
year versus the comparable 1995 period. This brisk activity generated new
fears of inflation, which had been running at about 3 percent for several
years. Investors began to suspect that the Federal Reserve might tighten
monetary policy in order to ward off inflation.
During most of the first half of the year, interest rates on intermediate and
long-term bonds rose steadily. Rising interest rates reduce the value of
bonds, including convertible securities. However, the stock market was
relatively strong for most of the period, particularly for small
capitalization stocks, and many convertible bonds in the first half of the
year were issued by small cap companies. So, through the period, we had the
counteracting forces of rising interest rates and a strong stock market.
PORTFOLIO STRATEGY
Because interest rates continued to rise, we liquidated interest-rate
sensitive issues early on and purchased cyclical issues that we felt would be
more responsive to the economy in general. Cyclical issues include airline
companies where seat availability has become tight and demand has increased,
pushing fares higher and increasing corporate profits. During the period, we
added Continental and Delta Airlines to the portfolio.
We also increased the Fund's exposure in the telecommunications sector,
including radio broadcasters such as Jacor Communications and SFX
Broadcasting. Telecommunications laws have changed recently and companies are
now allowed to own up to seven stations in one market, rather than one or two.
This should lead to economies of scale and pricing control in this sector.
In addition, we have overweighted our position in the energy industry, and
believe international oil stocks, such as Exxon and Texaco, are particularly
attractive.
PERFORMANCE SUMMARY
For the six-month period ended June 30, 1996, the Fund produced a total return
at market price of 0.61 percent. The Fund's return reflects the change in
market price per share on the New York Stock Exchange from $21.38 on December
31, 1995 to $20.75 on June 30, 1996, and dividends and capital gains totaling
$0.775 per share.
Continued on page two
1
<PAGE>
The Fund recently realized a slight reduction in its quarterly dividend from
$0.27 to $0.22 per common share, effective June 14, 1996 and first payable June
28, 1996. This reduction was primarily due to the older, high-coupon convertible
bonds being "called" (redeemed prior to the stated maturity) from the portfolio
and replaced by the market's current lower-yielding convertible bonds.
OUTLOOK
We anticipate that reasonably strong economic growth will continue during the
balance of 1996, albeit at more moderate rates than the second quarter's swift
pace. While we expect rates of inflation to remain near current levels, the Fed
may begin to lean toward greater restraint in its monetary policy in the coming
months. That suggests an upward bias for short-term interest rates and for
yields on long-term bonds to remain steady at current levels.
The Fund's portfolio is comprised of investments designed to maintain a high
relative yield without incurring undue risk. This defensive nature should help
the Fund perform competitively in up markets and minimize the negative impact
of down markets. Therefore, although we may experience additional volatility in
the stock and bond markets, we anticipate that the Fund's defensive structure
will allow it to weather this market environment favorably.
CORPORATE NEWS
As you may be aware, an agreement was reached in late June for VK/AC Holding,
Inc., the parent company of Van Kampen American Capital, Inc., to be acquired
by Morgan Stanley Group Inc. While this announcement may appear commonplace in
an ever-changing financial industry, we believe it represents an exciting
opportunity for shareholders of our investment products.
With Morgan Stanley's global leadership in investment banking and asset
management and Van Kampen American Capital's reputation for competitive long-
term performance and superior investor services, together we will offer a
broader range of investment opportunities.
The new ownership will not affect our commitment to pursuing excellence in all
aspects of our business. And, we expect very little change in the way your
closed-end fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking for
your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
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.
2
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE
OBLIGATIONS 42.7%
CONSUMER DISTRIBUTION 3.1%
$ 300 Danka Business Systems................ 6.750% 04/01/02 $ 351,375
770 Federated Dept. Stores Inc............ 5.000 10/01/03 885,500
500 InaCom Corp........................... 6.000 06/15/06 503,125
525 US Office Products.................... 5.500 02/01/01 760,594
-----------
2,500,594
-----------
CONSUMER DURABLES 2.1%
850 Gencorp Inc........................... 8.000 08/01/02 915,875
825 Pacific Dunlop........................ 6.750 07/02/97 828,094
-----------
1,743,969
-----------
CONSUMER SERVICES 10.0%
1,400 ADT Operations Inc, LYON.............. ** 07/06/10 759,500
300 HFS Inc............................... 4.750 03/01/03 368,625
375 Hilton Hotels......................... 5.000 05/15/06 397,500
600 International Cabletel................ 7.000 06/15/08 590,250
750 Jacor Communications.................. 5.500 06/12/11 346,875
1,480 Marriott International, LYON.......... ** 03/25/11 804,750
1,062 Prime Hospitality Corp................ 7.000 04/15/02 1,598,310
575 Tele Communications Inc............... 4.500 02/15/06 496,656
1,550 Time Warner Inc., LYON................ ** 12/17/12 548,313
2,500 Time Warner Inc., LYON................ ** 06/22/13 1,028,125
2,450 Turner Broadcasting System Inc, LYON.. ** 02/13/07 1,151,500
-----------
8,090,404
-----------
ENERGY 4.8%
1,025 Consolidated Natural Gas Co........... 7.250 12/15/15 1,096,750
500 Nabors Industries Inc................. 5.000 05/15/06 562,500
300 Pride Petroleum Services.............. 6.250 02/15/06 388,500
1,550 SFP Pipeline Holdings Inc............. 11.163 08/15/10 1,883,932
-----------
3,931,682
-----------
FINANCE 2.7%
225 Aames Financial Corp.................. 5.500 03/15/06 304,875
280 American Travellers Corp.............. 6.500 10/01/05 440,475
9 Merrill Lynch, STRYPES................ 6.000 06/01/99 206,888
12 Merrill Lynch, STRYPES................ 7.250 06/15/99 676,826
240 Trenwick Group Inc.................... 6.000 12/15/99 261,900
400 Zurich Insurance...................... 1.000 04/15/03 313,500
-----------
2,204,464
-----------
HEALTH CARE 5.8%
300 Alza Corp............................. 5.000 05/01/06 291,750
2,250 Alza Corp, LYON....................... ** 07/14/14 953,437
430 Chiron Corp........................... 1.900 11/17/00 406,888
</TABLE>
See Notes to Financial Statements
3
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 232 Omnicare Inc.......................... 5.750% 10/01/03 $ 871,160
750 Renal Treatment Centers............... 5.625 07/15/06 758,438
600 Tenet Healthcare Corp................. 6.000 12/01/05 601,500
565 United Technologies Corp., PEN........ ** 09/08/97 813,600
-----------
4,696,773
-----------
PRODUCER MANUFACTURING 5.1%
48 Cooper Industries Inc. DECKS.......... 6.000 01/01/99 803,894
900 Hanson America Inc.................... 2.390 03/01/01 771,750
450 Sanifill Inc.......................... 5.000 03/01/06 526,500
500 Thermo Electron Corp.................. 5.000 04/15/01 1,002,500
1,100 Valhi Inc, LYON....................... ** 10/20/07 481,250
574 WMX Technologies Inc.................. 2.000 01/24/05 516,600
-----------
4,102,494
-----------
RAW MATERIALS/PROCESSING
INDUSTRIES 2.2%
1,000 Essar Steel........................... 5.500 08/05/98 985,000
825 Repap Enterprises Inc................. 8.500 08/01/97 812,625
-----------
1,797,625
-----------
TECHNOLOGY 3.0%
580 First Financial Management............ 5.000 12/15/99 1,088,950
9 Salomon Inc, ELKS..................... 5.000 11/01/96 969,319
345 Unisys Corp........................... 8.250 08/01/00 337,238
-----------
2,395,507
-----------
TRANSPORTATION 0.7%
450 Continental Airlines Inc.............. 6.750 04/15/06 536,625
-----------
UTILITIES 3.2%
565 LDDS Communications................... 5.000 08/15/03 810,775
782 Potomac Electric Power Co............. 5.000 09/01/02 697,935
209 Potomac Electric Power Co............. 7.000 01/15/18 212,658
7 Sprint Corp., DECKS................... 8.250 03/31/00 301,768
1,625 U S Cellular Corp., LYON.............. ** 06/15/15 552,500
-----------
2,575,636
-----------
TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS (Cost 34,575,773
$30,992,860).......................................
-----------
FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS 6.7%
550 Amer Group (Finland).................. 6.250 06/15/03 486,750
500 HD Finance (Hong Kong)................ 6.750 06/01/00 566,875
900 Hollinger Inc, LYON (Canada).......... ** 10/05/13 290,250
400 IMAX Corp (Canada).................... 5.750 04/01/03 414,000
700 Magna International Inc (Canada)...... 5.000 10/15/02 737,625
200 MBL International (Sweden)............ 3.000 11/30/02 233,250
1,305 Roche Holdings Inc, LYON
(Switzerland)......................... ** 04/20/10 556,250
3,275 Rogers Communications, LYON (Canada).. ** 05/20/13 1,187,188
(1) Sumitomo Bank (Japan)................. 0.750 05/31/01 990,000
-----------
TOTAL FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS (Cost
$5,192,852)......................................... 5,462,188
-----------
<CAPTION>
UNITED STATES GOVERNMENT OBLIGATIONS 2.4%
<C> <S> <C> <C> <C>
2,000 Treasury Notes (Cost $2,059,062)...... 6.125 07/31/00 1,978,120
-----------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- -----------------------------------------------
<C> <S>
COMMON STOCK 19.2%
CONSUMER
DISTRIBUTION 0.2%
3 Tiffany & Co. ......... $ 188,997
-----------
CONSUMER DURABLES 1.1%
15 Chrysler Corp. ........ 923,800
-----------
CONSUMER NON-
DURABLES 1.6%
8 Philip Morris
Companies Inc. ........ 832,000
13 Quaker Oats Co. ....... 443,625
-----------
1,275,625
-----------
CONSUMER SERVICES 0.3%
*10 Penske Motorsports
Inc. .................. 257,050
-----------
ENERGY 2.1%
5 Amoco Corp. ........... 361,875
5 Exxon Corp. ........... 434,375
10 Phillips Petroleum Co.
....................... 418,750
5 Texaco Inc. ........... 461,313
-----------
1,676,313
-----------
FINANCE 3.2%
6 Aetna Life & Casualty
Co. ................... 429,000
8 Cigna Corp. ........... 943,000
10 Citicorp. ............. 826,250
*12 Travelers/Aetna
Property Casualty,
Class A................ 344,756
-----------
2,543,006
-----------
HEALTH CARE 1.0%
34 ICN Pharmaceuticals
Inc. .................. 790,500
-----------
PRODUCER
MANUFACTURING 0.5%
10 Cooper Industries Inc.
....................... 415,000
-----------
RAW
MATERIALS/PROCESSING
INDUSTRIES 1.6%
17 Champion International
Corp. ................. 688,875
19 Freeport-McMoRan Inc.,
Copper and Gold, Class
B...................... 598,549
-----------
1,287,424
-----------
TECHNOLOGY 2.1%
*21 General Instrument
Corp. ................. 606,375
*7 HCIA Inc. ............. 409,500
5 International Business
Machines Corp.......... 475,200
6 Lucent Technologies
Inc. .................. 231,038
-----------
1,722,113
-----------
TRANSPORTATION 0.5%
5 Delta Air Lines Inc. .. 420,976
-----------
UTILITIES 5.0%
7 AT&T Corp. ............ 458,800
6 Cincinnati Bell Inc. .. 312,750
20 GTE Corp. ............. 872,625
18 NYNEX Corp. ........... 845,500
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- -----------------------------------------------
<C> <S> <C>
10 Texas Utilities Co..... $ 427,500
*20 WorldCom Inc........... 1,107,500
-----------
4,024,675
-----------
TOTAL COMMON STOCK
(Cost $13,350,158)..... 15,525,479
-----------
DOMESTIC CONVERTIBLE
PREFERRED STOCK 12.8%
CONSUMER
DISTRIBUTION 0.5%
*7 Kmart Financing,
7.75%.................. 368,900
-----------
CONSUMER DURABLES 0.4%
13 Beazer Homes, $2.00.... 341,063
-----------
CONSUMER SERVICES 2.9%
15 SCI Finance, NV, LLC,
6.25%.................. 1,410,725
*5 SFX Broadcasting,
Series D............... 235,688
15 TCI Communication,
$2.125................. 661,875
-----------
2,308,288
-----------
ENERGY 1.6%
8 Enron Corp., ACES,
6.25%.................. 213,469
15 MCN Finance, PRIDES,
8.75%, 04/30/99........ 387,050
8 Williams Companies
Inc., $3.50............ 660,450
-----------
1,260,969
-----------
FINANCE 3.9%
7 American General
Corp., MIPS, 6.00%..... 378,000
7 Conseco Inc., Series
D, $3.25 .............. 471,563
14 Conseco Inc, PRIDES,
7.00%.................. 1,046,250
15 Sovereign Bancorp,
$3.125................. 851,250
10 Union Planters Corp,
$2.00.................. 380,000
-----------
3,127,063
-----------
PRODUCER
MANUFACTURING 0.6%
9 Corning Glass Works,
MIPS, 6.00%............ 514,125
-----------
RAW
MATERIALS/PROCESSING
INDUSTRIES 2.4%
23 Boise Cascade Corp,
$1.58.................. 701,500
47 Freeport McMoRan Inc,
Copper and Gold,
$1.25.................. 1,272,575
-----------
1,974,075
-----------
UTILITIES 0.5%
*9 Nortel Invesora, MEDS.. 437,000
-----------
TOTAL DOMESTIC
CONVERTIBLE PREFERRED
STOCK (Cost
$8,828,472)............ 10,331,483
-----------
FOREIGN CONVERTIBLE
PREFERRED STOCK 2.6%
*15 Banco Comercial
Portugues, 8.00%
(Portugal)............. 746,250
22 Morgan Stanley, PERQS,
6.00%, 02/16/99
(Brazil)............... 1,343,000
-----------
TOTAL FOREIGN
CONVERTIBLE PREFERRED
STOCK (Cost
$2,022,819)............ 2,089,250
-----------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 10.6%
COMMERCIAL PAPER 4.9%
<C> <S> <C> <C> <C>
$4,000 General Electric Capital Corp........... 5.563% 07/01/96 $ 3,998,147
-----------
REPURCHASE AGREEMENT 5.7%
4,575 BA Securities, dated 06/28/96
(collateralized by U.S. Government
obligations in a pooled cash account)
repurchase proceeds $4,577,078.......... 5.450 07/01/96 4,575,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $8,573,147).......... 8,573,147
-----------
TOTAL INVESTMENTS (Cost $71,019,370) 97.0%...................... 78,535,440
OTHER ASSETS AND LIABILITIES, NET 3.0%.......................... 2,423,318
-----------
NET ASSETS 100%................................................. $80,958,758
-----------
</TABLE>
*Non-income producing security
**Zero coupon bond
(1) Mandatorily exchangeable note, 100 par
ACES--automatically convertible equity securities
DECKS--Debt exchangeable for common stock, traded in shares
ELKS--equity linked securities, traded in shares
LYON--liquid yield option note
MEDS--mandatorially exchangeable debt security
MIPS--monthly income preferred shares
PEN--pharmaceutical exchange note
PERQS--preferred equity linked redeemable quarterly security
PRIDES--preferred redeemable increased dividend equity security, traded in
shares
STRYPES--structured yield product exchangeable for stock, traded in shares
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $71,019,370).................. $78,535,440
Cash............................................................. 6,297
Receivable for investments sold.................................. 2,012,420
Interest and dividends receivable................................ 577,097
Other assets and receivables..................................... 89,787
-----------
TOTAL ASSETS.................................................... 81,221,041
-----------
LIABILITIES
Dividends payable................................................ 126,552
Due to Adviser................................................... 33,843
Accrued expenses................................................. 101,888
-----------
TOTAL LIABILITIES............................................... 262,283
-----------
NET ASSETS, equivalent to $24.97 per share on 3,241,824 shares of
common stock outstanding......................................... $80,958,758
-----------
NET ASSETS WERE COMPRISED OF:
Common stock, par value $1 per share; 12,500,000 shares
authorized; 3,251,324 shares issued, of which 9,500 shares are
held in treasury................................................ $ 3,251,324
Capital surplus.................................................. 68,188,728
Undistributed net realized gain on securities.................... 2,180,438
Net unrealized appreciation of investments....................... 7,516,070
Accumulated net investment loss.................................. (21,175)
-----------
81,115,385
Less cost of treasury shares..................................... (156,627)
-----------
NET ASSETS....................................................... $80,958,758
-----------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $ 1,366,854
Dividends.......................................................... 453,376
-----------
Investment income................................................. 1,820,230
-----------
EXPENSES
Management fees.................................................... 201,259
Shareholder service agent's fees and expenses...................... 26,702
Accounting services................................................ 44,924
Directors' fees and expenses....................................... 15,269
Audit fees......................................................... 9,150
Custodian fees..................................................... 12,373
Legal fees......................................................... 18,303
Reports to shareholders............................................ 10,980
Registration and filing fees....................................... 9,559
State franchise fees............................................... 5,535
Miscellaneous...................................................... 1,461
-----------
Total expenses.................................................... 355,515
-----------
NET INVESTMENT INCOME.............................................. 1,464,715
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities.................................... 2,187,266
Net unrealized appreciation of securities during the period........ 685,255
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 2,872,521
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $ 4,337,236
-----------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period..................... $79,133,782 $70,076,751
----------- -----------
OPERATIONS
Net investment income.............................. 1,464,715 3,684,098
Net realized gain on securities.................... 2,187,266 3,573,846
Net unrealized appreciation of securities during
the period........................................ 685,255 7,901,701
----------- -----------
Increase in net assets resulting from operations... 4,337,236 15,159,645
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (see Note 1E)
Net investment income.............................. (1,464,715) (3,728,234)
Net realized gain on securities.................... (923,575) (2,374,380)
Excess of book-basis net investment income......... (123,970) --
----------- -----------
Total distributions................................ (2,512,260) (6,102,614)
----------- -----------
INCREASE IN NET ASSETS.............................. 1,824,976 9,057,031
----------- -----------
NET ASSETS, end of period (including accumulated net
investment loss of $21,175 and undistributed net
investment income of $102,795, respectively)....... $80,958,758 $79,133,782
----------- -----------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each of the
periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31
Ended June ----------------------------------------
30, 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period................. $24.41 $21.62 $24.88 $23.64 $22.23 $19.41
------ ------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Investment income........ .56 1.33 1.28 1.36 1.37 1.50
Expenses................. (.11) (.19) (.19) (.21) (.195) (.18)
------ ------- ------- ------ ------ ------
Net investment income..... .45 1.14 1.09 1.15 1.175 1.32
Net realized and
unrealized gain (loss) on
securities............... .885 3.5325 (2.56) 2.01 1.415 2.90
------ ------- ------- ------ ------ ------
Total from investment
operations................ 1.335 4.6725 (1.47) 3.16 2.59 4.22
------ ------- ------- ------ ------ ------
LESS DISTRIBUTIONS FROM
(see Note 1E)
Net investment income.... (.45) (1.15) (1.10) (1.12) (1.18) (1.40)
Net realized gains on
securities.............. (.285) (.7325) (.28) (.80) -- --
Excess of book-basis net
investment income....... (.04) -- -- -- -- --
Excess of book-basis net
realized gain on
securities.............. -- -- (.41) -- -- --
------ ------- ------- ------ ------ ------
Total distributions....... (.775) (1.8825) (1.79) (1.92) (1.18) (1.40)
------ ------- ------- ------ ------ ------
Net asset value, end of
period.................... $24.97 $24.41 $21.62 $24.88 $23.64 $22.23
------ ------- ------- ------ ------ ------
Market price, end of
period.................... $20.75 $21.38 $18.13 $22.38 $20.38 $19.25
------ ------- ------- ------ ------ ------
TOTAL RETURN, at net asset
value .................... 6.05% 23.42% (5.29%) 14.50% 12.84% 23.32%
TOTAL RETURN, at market
price..................... .61% 28.88% (11.71%) 19.43% 12.31% 24.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)................ $81.0 $79.1 $70.1 $80.7 $76.6 $72.1
Average net assets
(millions)................ $80.5 $76.5 $75.1 $80.4 $72.1 $66.7
Ratios to average net
assets (annualized)
Expenses................. .88% .80% .82% .87% .88% .89%
Net investment income.... 3.64% 4.82% 4.70% 4.60% 5.28% 6.41%
Portfolio turnover rate... 67% 127% 111% 128% 87% 168%
Average commission rate
per equity stock traded.. $.028 -- -- -- -- --
</TABLE>
See Notes to Financial Statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Convertible Securities, Inc. (the "Fund") is reg-
istered under the Investment Company Act of 1940, as amended, as a diversified
closed-end management investment company. The Fund seeks to provide income,
capital appreciation, and conservation of capital by investing in convertible
bonds and preferred stocks.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prep-
aration of financial statements in conformity with generally accepted account-
ing principles requires management to make estimates and assumptions that
affect the amounts reported. Actual amounts may differ from the estimates.
A. INVESTMENT VALUATIONS-Securities listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the mean
between the last reported bid and asked price.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
Fund investments include lower rated debt securities which may be more sus-
ceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal
and interest payments. Debt securities rated below investment grade and compa-
rable unrated securities represented approximately 28% of the investment port-
folio at the end of the period.
B. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
C. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains to its shareholders.
D. INVESTMENT TRANSACTIONS AND REALIZED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued weekly. Issuers
of payment-in-kind securities may make dividend or interest payments by issu-
ing additional stocks or bonds in lieu of cash payments.
E. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.
F. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on
the same basis as is used for federal income tax reporting. Accordingly, orig-
inal issue discounts on debt securities purchased are amortized over the life
of the security. Premiums on debt securities are not amortized. Market dis-
counts are recognized at the time of sale as realized gains for book purposes
and ordinary income for tax purposes.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average weekly net assets of the Fund at an annual rate
of .50% of the first $150 million, .45% of the next $100 million, .40% of the
next $100 million, and .35% of the amount in excess of $350 million.
Accounting services include the salaries and overhead expenses of the Fund's
Chief Accounting Officer and the personnel operating under his direction.
Charges are allocated among investment companies advised by the Adviser. For
the period, these charges included $2,324 as the Fund's share of the employee
costs attributable to the Fund's accounting officers. A portion of the ac-
counting services expense was paid to the Adviser in reimbursement of person-
nel, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The services provided by the Adviser are at
cost.
Certain officers and directors of the Fund are officers and directors of the
Adviser.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $48,950,959 and $56,243,714, re-
spectively.
The identified cost of investments owned at the end of the period was the
same for federal income tax and financial reporting purposes. Net unrealized
appreciation aggregated $7,516,070, gross unrealized appreciation of invest-
ments aggregated $8,469,430 and gross unrealized depreciation of investments
aggregated $953,360.
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,406 plus a fee of $94 per Board meetings attend-
ed. During the period, such fees aggregated $10,265.
The Directors of the Fund instituted a Retirement Plan effective April 1,
1996. The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. For the current Directors not affiliated with the Adviser,
the annual retirement benefit payable per year for a ten year period is based
upon the highest total annual compensation received in any of the three calen-
dar years preceding retirement. Trustees with more than five but less than ten
years of service at retirement will receive a prorated reduced benefit. Under
the Plan, for the Directors retiring with the effectiveness of the Plan, the
annual retirement benefit payable per year for a ten year period is equal to
75% of the total compensation received from the Director during the 1995 cal-
endar year. Retirement plan expenses for the period aggregated $4,290.
14
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
15
