<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Dividend Reinvestment Plan.................. 3
Portfolio of Investments.................... 4
Statement of Assets and Liabilities......... 9
Statement of Operations..................... 10
Statement of Changes in Net Assets.......... 11
Financial Highlights........................ 12
Notes to Financial Statements............... 13
Report of Independent Auditors.............. 16
</TABLE>
ACD ANR 2/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
February 8, 1996
Dear Shareholder,
For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets enjoyed substantial gains, driven by a
combination of continuing economic growth and low inflation. The strength of
equity and fixed-income securities in 1995 was particularly impressive because
it followed a year in which both markets declined. People who remained invested
during 1995 generally shared in the growth of the markets, while investors who
retreated after 1994's downturn may have missed out on the double-digit
returns.
The rebound in the markets last year reinforces the importance of maintaining
a long-term perspective for your investments. While the environment for stocks
and bonds remains positive, it is unlikely that 1996 will see a repeat of the
markets' strong 1995 performance. However, over the long-term, stocks have
outperformed virtually all other types of investments, and convertible securi-
ties seek to provide regular income with the potential for capital apprecia-
tion.
ECONOMIC OVERVIEW
The U.S. economy grew throughout 1995, but the rate of growth slowed toward
year-end. The gross domestic product (the value of all goods and services pro-
duced in the United States) grew at an annual rate of more than 4 percent in
the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter of the year, with retail and auto sales particularly sluggish.
The slower growth rate eased concerns about a rise in inflation and allowed the
Federal Reserve Board in late December to lower short-term interest rates by a
quarter-percentage point. Just as the Fed's raising of short-term rates in 1994
helped slow economic growth in 1995, the reduction in rates during the latter
half of 1995 was expected to help generate moderate economic growth in 1996.
The cut in short-term rates, combined with modest growth forecasts, was
viewed by the financial markets as a positive event, pushing up both stock and
bond prices. For example, the Standard & Poor's 500-Stock Index achieved a to-
tal return of 37.45 percent for the year. The yield on 10-year Treasury notes
was 5.57 percent on December 31, 1995, compared to 7.82 percent a year earlier.
Many observers expect the Fed to cut rates further if Congress and the Presi-
dent are able to reach an agreement on the federal budget, provided economic
conditions justify further easing.
PERFORMANCE SUMMARY
Convertible securities typically offer relatively high yields and the poten-
tial for appreciation. Like other fixed-income securities, declining interest
rates boosted the value of convertible bonds and convertible preferred stocks
during the past year. Convertible securities also benefited from rising stock
prices. As a result, during the year ended December 31, 1995, Van Kampen Ameri-
can Capital Convertible Securities, Inc., formerly American Capital Convertible
Securities, Inc., achieved a total return at market price of 28.88 percent.
This return reflects an increase in market price per share on the New York
Stock Exchange from $18.13 on December 31, 1994, to $21.38 on December 31,
1995.
Continued on page two
1
<PAGE>
For the same period, the Lipper Convertible Securities Fund Index, an unman-
aged index that reflects the performance of the largest convertible securities
funds, produced a total return of 20.78 percent and does not reflect any sales
charges that would be paid by an investor purchasing the securities it repre-
sents. The Standard & Poor's 500-Stock Index, a broad-based, unmanaged index,
which reflects general stock market performance, achieved a total return of
37.45 percent. The S&P 500-Stock Index is an unmanaged, statistical composite
and does not reflect any commissions or fees that would be paid by an investor
purchasing the securities it represents.
In contrast to other convertible bond funds, the Van Kampen American Capital
Convertible Securities Fund invests primarily in investment grade bonds. The
Fund also is diversified across a wide range of industries.
CORPORATE NEWS
As you may have noticed in the performance summary, your Fund has a new name.
At the beginning of January all former Van Kampen Merritt and American Capital
closed-end funds assumed the Van Kampen American Capital name. Please look un-
der the new heading "VnKmAC" to find your Fund's price in your daily newspaper.
OUTLOOK
Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts take effect. Lower
rates will have the greatest impact on interest-sensitive industries, such as
housing. Although inflation appears to be under control, there probably will be
some upward pressure in 1996 as lower interest rates generate increased eco-
nomic activity.
The current economic conditions are ideal for stocks, especially the stocks
of smaller companies, since they tend to be affected less by economic cycles.
The outlook for the fixed-income market--including convertible bonds--is posi-
tive, too. In the near-term, we believe domestic markets will benefit from a
stable U.S. dollar and increased business activity driven in part by a number
of recently announced strategic reorganizations of some of the nation's blue
chip industry leaders.
During recent months, debate over tax reform and the federal deficit has dom-
inated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact of these issues
on the economy and on various types of investments. We are following the tax
reform debate very closely, and we will keep you updated on this issue through-
out the year.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.
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>
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
The Fund pays distributions in cash, but if you own more than 100 shares in
your own name, you may elect to participate in the Fund's dividend reinvestment
plan (the "Plan"). Under the Plan, shares will be issued by the Fund at net as-
set value on a date determined by the Board of Directors between the record and
payable dates on each distribution; however, if the market price, including
brokerage commissions, is less than the net asset value, the amount of the dis-
tribution will be paid to the Fund's custodian, State Street Bank and Trust
Company ("State Street"), which will buy such shares as are available at prices
below the net asset value. (If the market price is not significantly less than
the net asset value, it is possible that open market purchases of shares may
increase the market price so that such price plus brokerage commissions would
equal or exceed the net asset value of such shares.) If State Street cannot buy
the necessary shares at less than net asset value before the distribution date,
the balance of the distribution will be made in authorized but unissued shares
of the Fund at net asset value. The cost per share will be the average cost,
including brokerage commissions, of all shares purchased. Since all shares pur-
chased form the Fund are at net asset value, there will be no dilution, and no
brokerage commissions are charged on such shares.
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gain distributions does not relieve you of any income tax
which may be payable (or required to be withheld) on dividends or distribu-
tions.
You may begin or discontinue participation in the Plan at any time by written
notice to the address below. If you withdraw from the Plan, you may rejoin at
any time if you own of record the required 100 shares. Elections and termina-
tions will be effective for distributions declared after receipt. If you with-
draw from the Plan, a certificate for the whole shares and a check for the
fractional shares, if any, credited to your Plan account will be sent as soon
as practicable after receipt of your election to withdraw. Except for brokerage
commissions, if any, which are borne by Plan participants, all costs of the
Plan are borne by the Fund. The Fund reserves the right to amend or terminate
the Plan on 30 days' written notice prior to the record date of the distribu-
tion for which such amendment or termination is effective.
Record stockholders should address all notices, correspondence, questions or
other communications about the Plan to:
STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8200
BOSTON, MA 02266-8200
1-800-821-1238
If your shares are not held directly in your name, you should contact your
brokerage firm, bank or other nominee for more information and to see if your
nominee will participate in the Plan on your behalf. If you participate through
your broker and choose to move your account to another broker, you will need to
re-enroll in the Plan through your new broker.
3
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE
OBLIGATIONS 48.9%
CONSUMER DISTRIBUTION 5.2%
$ 500 Baby Superstores, Inc................. 4.875% 10/01/00 $ 582,500
300 Danka Business Systems................ 6.750 04/01/02 425,250
770 Federated Dept Stores, Inc............ 5.000 10/01/03 779,625
750 Office Depot, Inc., LYON.............. ** 11/01/08 431,250
370 Pier 1 Imports, Inc................... 6.875 04/01/02 399,600
750 Price Co.............................. 6.750 03/01/01 759,375
715 Staples, Inc.......................... 4.500 10/01/00 718,575
-----------
4,096,175
-----------
CONSUMER DURABLES 4.3%
675 Continental Homes Holding Corp........ 6.875 11/01/02 801,562
900 Exide Corp............................ 2.900 12/15/05 648,000
850 Gencorp, Inc.......................... 8.000 08/01/02 864,875
825 Pacific Dunlop........................ 6.750 07/02/97 829,125
400 Zenith Electronics Corp............... 6.250 04/01/11 284,000
-----------
3,427,562
-----------
CONSUMER NON-DURABLES 1.8%
765 American Brands, Inc.................. 7.625 03/05/01 803,250
550 Far East Textiles..................... 4.000 10/07/06 629,750
-----------
1,433,000
-----------
CONSUMER SERVICES 9.1%
1,400 ADT Operations, Inc., LYON............ ** 07/06/10 665,000
785 American Media........................ ** 05/15/97 651,550
3,000 Discovery Zone, Inc., LYON............ ** 10/14/13 772,500
712 Prime Hospitality Corp................ 7.000 04/15/02 740,480
3,800 Time Warner, Inc. LYON................ ** 12/17/12 1,311,000
1,089 Time Warner, Inc...................... 8.750 01/10/15 1,127,958
Turner Broadcasting System, Inc.,
2,450 LYON.................................. ** 02/13/07 1,114,750
465 Wendy's International, Inc............ 7.000 04/01/06 798,638
-----------
7,181,876
-----------
ENERGY 4.9%
775 Ashland, Inc.......................... 6.750 07/01/14 771,125
1,025 Consolidated Natural Gas Co........... 7.250 12/15/15 1,062,156
1,550 SFP Pipeline Holdings, Inc............ 11.163 08/15/10 2,008,872
-----------
3,842,153
-----------
FINANCE 6.6%
140 American Travellers Corp.............. 6.500 10/01/05 193,550
300 Central International................. 10.000 08/07/96 151,500
750 Fifth Third Bancorp................... 4.250 01/15/98 875,625
1,280 Henderson Capital International....... 4.500 10/27/96 1,315,200
4 Merrill Lynch Mortgage, STRYPES....... 6.500 08/15/98 226,172
</TABLE>
4
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 480 Statesman Group, Inc.................. 6.250% 05/01/03 $ 487,200
240 Trenwick Group, Inc................... 6.000 12/15/99 283,200
United Company's Financial Corp,
14 PRIDES................................ 6.750 07/01/00 719,740
1,650 USF&G Corp............................ ** 03/03/09 961,125
-----------
5,213,312
-----------
HEALTH CARE 3.1%
2,250 Alza Corp, LYON....................... ** 07/14/14 918,281
430 Chiron Corp........................... 1.900 11/17/00 439,675
140 Genzyme Corp.......................... 6.750 10/01/01 170,800
725 United Technologies Corp., PEN........ ** 09/08/97 945,219
-----------
2,473,975
-----------
PRODUCER MANUFACTURING 3.4%
670 Cooper Industries, Inc................ 7.050 01/01/15 690,100
500 Thermo Electron Corp.................. 5.000 04/15/01 843,750
1,100 Valhi, Inc., LYON..................... ** 10/20/07 429,000
874 WMX Technologies, Inc................. 2.000 01/24/05 751,640
-----------
2,714,490
-----------
RAW MATERIALS/PROCESSING
INDUSTRIES 0.5%
400 Sappi Limited......................... 7.500 08/01/02 378,000
-----------
TECHNOLOGY 5.6%
675 Analog Devices, Inc................... 3.500 12/01/00 723,937
400 C-Cube Microsystems................... 5.875 11/01/05 834,000
580 First Financial Management............ 5.000 12/15/99 940,325
9 Salomon, Inc., ELKS................... 5.000 11/01/96 930,140
300 Telxon Corp........................... 5.750 01/01/03 321,000
795 Unisys Corp........................... 8.250 08/01/00 707,550
-----------
4,456,952
-----------
TRANSPORTATION 0.5%
400 Delta Airlines, Inc................... 3.230 06/15/03 385,500
-----------
UTILITIES 3.9%
565 LDDS Communications................... 5.000 08/15/03 596,075
1,205 Potomac Electric Power Co............. 5.000 09/01/02 1,123,662
8 Sprint Corp, DECKS.................... 8.250 03/31/00 284,946
3,000 U S Cellular Corp, LYON............... ** 06/15/15 1,050,000
-----------
3,054,683
-----------
TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS (Cost 38,657,678
$36,035,556).......................................
-----------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- -----------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC COMMON
STOCK 18.6%
CONSUMER
DISTRIBUTION 0.6%
20 Wal-Mart Stores, Inc... $ 447,500
-----------
CONSUMER DURABLES 1.9%
27 Chrysler Corp.......... 1,467,438
-----------
CONSUMER NON-
DURABLES 1.8%
Philip Morris
8 Companies, Inc. ....... 724,000
12 Quaker Oats Co......... 396,750
6 Ralston Purina Group... 343,063
-----------
1,463,813
-----------
CONSUMER SERVICES 0.4%
5 Disney (Walt) Co....... 295,000
-----------
ENERGY 3.2%
8 Amoco Corp............. 556,169
12 Enron Corp............. 457,500
9 Exxon Corp. ........... 721,125
10 Texaco, Inc............ 785,000
-----------
2,519,794
-----------
FINANCE 1.0%
Aetna Life & Casualty
6 Co. ................... 415,500
4 Cigna Corp............. 371,700
-----------
787,200
-----------
HEALTH CARE 1.3%
16 Merck & Co, Inc........ 1,052,000
-----------
PRODUCER
MANUFACTURING 0.9%
Rockwell International
14 Corp................... 740,250
-----------
RAW
MATERIALS/PROCESSING
INDUSTRIES 0.9%
4 Freeport-McMoran, Inc.. 165,020
Freeport-McMoran,
Inc., Copper and Gold,
19 Class B................ 528,131
-----------
693,151
-----------
TECHNOLOGY 3.2%
8 Boeing Co. ............ 627,000
4 Intel Corp............. 238,350
International Business
10 Machines Corp.......... 871,625
* 3 Microsoft Corp. ....... 263,250
National Semiconductor
* 25 Corp. ................. 565,061
-----------
2,565,286
-----------
TRANSPORTATION 0.3%
4 Conrail, Inc........... 280,000
-----------
UTILITIES 3.1%
6 AT&T Corp.............. 375,550
10 Bellsouth Corp......... 435,000
18 GTE Corp............... 792,000
MCI Communications
19 Corp................... 491,150
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- -----------------------------------------------
<C> <S> <C> <C> <C>
* 10 WorldCom, Inc.......... $ 352,500
-----------
2,446,200
-----------
TOTAL DOMESTIC COMMON
STOCK (Cost
$13,147,518).............14,757,632
-----------
CONVERTIBLE PREFERRED
STOCK 17.5%
CONSUMER
DISTRIBUTION 0.8%
Alco Standard, $5.04,
8 ACES................... 641,250
-----------
CONSUMER SERVICES 2.9%
Bally Entertainment,
60 PRIDES, 8.000%......... 817,500
SCI Finance, N.V.,
20 LLC, 6.250%............ 1,450,400
-----------
2,267,900
-----------
ENERGY 2.3%
Columbia Gas System,
8 Inc., DECS, 5.220%..... 302,625
Enron Corp., ACES,
8 6.250%................. 198,000
Occidental Petroleum
13 Co., 7.750%............ 721,500
Williams Companies,
8 $3.50.................. 620,550
-----------
1,842,675
-----------
FINANCE 6.2%
American General
23 Corp., MIPS, 6.000%.... 1,178,438
6 Citicorp, $5.375....... 1,033,200
Conseco, Inc., Series
12 D, $3.25............... 636,000
SunAmerica, Series E,
7 $3.10.................. 458,500
Sovereign Bancorp,
15 $3.125................. 855,000
St. Paul Companies,
6 MIPS, 6.000%........... 337,500
Union Planters Corp.,
10 $2.00.................. 396,250
-----------
4,894,888
-----------
PRODUCER
MANUFACTURING 0.6%
Corning Glass Works,
9 MIPS, 6.000%........... 453,375
-----------
RAW
MATERIALS/PROCESSING
INDUSTRIES 2.9%
Freeport-McMoRan,
Inc., Copper and Gold,
47 $1.25.................. 1,272,575
James River Corp.,
12 DECS, $1.55............ 289,850
12 Owens Corning, $3.25... 720,000
-----------
2,282,425
-----------
TECHNOLOGY 1.8%
4 Ceridian Corp., $2.75.. 342,250
General Motors Corp.,
15 $3.25.................. 1,098,750
-----------
1,441,000
-----------
TOTAL CONVERTIBLE
PREFERRED STOCK (Cost
$11,804,122)........... 13,823,513
-----------
FOREIGN COMMON
STOCK 1.4%
18 National Power, ADR.... 166,500
20 Powergen, PLC, ADR..... 265,125
5 Royal Dutch Petroleum.. 705,625
-----------
TOTAL FOREIGN COMMON
STOCK (Cost
$1,058,624)............ 1,137,250
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS 7.2%
$ 400 Amer Group............................... 6.250% 06/15/03 $ 368,000
500 HD Finance (Hysan)....................... 6.750 06/01/00 535,000
500 MBL International........................ 3.000 11/30/02 580,000
700 Magna International, Inc................. 5.000 10/15/02 712,250
2,250 Roche Holdings, Inc., LYON............... ** 04/20/10 998,437
1,800 Rogers Communications, LYON.............. ** 05/20/13 657,000
900 S.A.B. Finance Corp...................... 7.500 08/02/98 913,500
240 Sandoz Limited........................... 2.000 10/06/02 227,700
600 Swiss Re Finance Bermuda, Ltd............ 2.000 07/06/00 714,000
-----------
TOTAL FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS (Cost
$5,205,325)............................................ 5,705,887
-----------
<CAPTION>
COMMERCIAL PAPER 6.8%
<C> <S> <C> <C> <C>
3,000 Associates Corp of North America......... 6.000 01/02/96 2,998,000
2,405 General Electric Capital Corp............ 5.850 01/02/96 2,403,437
-----------
<CAPTION>
TOTAL COMMERCIAL PAPER (Cost $5,401,437)................. 5,401,437
<C> <S> <C> <C> <C>
-----------
<CAPTION>
TOTAL INVESTMENT (Cost $72,652,582) 100.4%....................... 79,483,397
OTHER ASSETS AND LIABILITIES, NET (0.4%)......................... (349,615)
<C> <S> <C> <C> <C>
-----------
<CAPTION>
NET ASSETS 100%.................................................. $79,133,782
<C> <S> <C> <C> <C>
-----------
</TABLE>
*Non-income producing security
**Zero coupon bond
ACES--automatically convertible equity securities
DECKS--Debt exchangeable for common stock
DECS--dividend enhanced convertible stock
ELKS--equity linked security, traded in shares
LYON--liquid yield option notes
MIPS--monthly income paying security
PEN--pharmaceutical exchange note
PRIDES--preferred redeemable increased dividend equity security
STRYPES--structured yield product exchangeable for stock
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $72,652,582).................. $79,483,397
Cash............................................................. 3,027
Interest and dividends receivable................................ 657,853
Receivable for investments sold.................................. 163,374
Other assets and receivables..................................... 31,272
-----------
TOTAL ASSETS.................................................... 80,338,923
-----------
LIABILITIES
Payable for investments purchased................................ 1,107,389
Due to Adviser................................................... 33,041
Accrued expenses................................................. 64,711
-----------
TOTAL LIABILITIES............................................... 1,205,141
-----------
NET ASSETS, equivalent to $24.41 per share on 3,241,824 shares
of common stock outstanding..................................... $79,133,782
-----------
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.................... 916,747
Net unrealized appreciation of investments....................... 6,830,815
Undistributed net investment income.............................. 102,795
-----------
79,290,409
Less cost of treasury shares..................................... (156,627)
-----------
NET ASSETS....................................................... $79,133,782
-----------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $ 1,188,667
Dividends.......................................................... 3,109,806
-----------
Investment income................................................. 4,298,473
-----------
EXPENSES
Management fees.................................................... 382,525
Shareholder service agent's fees and expenses...................... 51,769
Accounting services................................................ 56,504
Directors' fees and expenses....................................... 25,181
Audit fees......................................................... 16,800
Custodian fees..................................................... 21,081
Legal fees......................................................... 12,614
Reports to shareholders............................................ 21,993
Registration and filing fees....................................... 15,072
State franchise fees............................................... 5,104
Miscellaneous...................................................... 5,732
-----------
Total expenses.................................................... 614,375
-----------
NET INVESTMENT INCOME.............................................. 3,684,098
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities.................................... 3,573,846
Net unrealized appreciation of securities during the period........ 7,901,701
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 11,475,547
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $15,159,645
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period...................... $70,076,751 $80,669,376
----------- -----------
OPERATIONS
Net investment income............................... 3,684,098 3,529,348
Net realized gain on securities..................... 3,573,846 893,910
Net unrealized appreciation (depreciation) of
securities during the period....................... 7,901,701 (9,212,251)
----------- -----------
Increase (decrease) in net assets resulting from
operations.......................................... 15,159,645 (4,788,993)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income............................... (3,728,234) (3,566,966)
Net realized gain on securities..................... (2,374,380) (893,910)
Excess of book-basis net realized gain on securities
(See Note 1E)....................................... -- (1,342,756)
----------- -----------
Total distributions................................. (6,102,614) (5,803,632)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS.................... 9,057,031 (10,592,625)
----------- -----------
NET ASSETS, end of period (including undistributed
net investment income of $102,795 and $67,616,
respectively)....................................... $79,133,782 $70,076,751
----------- -----------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period. $21.62 $24.88 $23.64 $22.23 $19.41
------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... 1.33 1.28 1.36 1.37 1.50
Expenses............................ (.19) (.19) (.21) (.195) (.18)
------- ------- ------ ------ ------
Net investment income................ 1.14 1.09 1.15 1.175 1.32
Net realized and unrealized gain
(loss) on securities................ 3.5325 (2.56) 2.01 1.415 2.90
------- ------- ------ ------ ------
Total from investment operations..... 4.6725 (1.47) 3.16 2.59 4.22
------- ------- ------ ------ ------
LESS DISTRIBUTIONS FROM (see Note 1E)
Net investment income............... (1.15) (1.10) (1.12) (1.18) (1.40)
Net realized gains on securities.... (.7325) (.28) (.80) -- --
Excess of book-basis net realized
gain on securities................. -- (.41) -- -- --
------- ------- ------ ------ ------
Total distributions.................. (1.8825) (1.79) (1.92) (1.18) (1.40)
------- ------- ------ ------ ------
Net asset value, end of period....... $24.41 $21.62 $24.88 $23.64 $22.23
------- ------- ------ ------ ------
Market price, end of period.......... $21.38 $18.13 $22.38 $20.38 $19.25
------- ------- ------ ------ ------
TOTAL RETURN, at net asset value .... 23.42% (5.29%) 14.50% 12.84% 23.32%
TOTAL RETURN, at market price........ 28.88% (11.71%) 19.43% 12.31% 24.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions). $79.1 $70.1 $80.7 $76.6 $72.1
Average net assets (millions)........ $76.5 $75.1 $80.4 $72.1 $66.7
Ratios to average net assets
Expenses............................ .80% .82% .87% .88% .89%
Net investment income............... 4.82% 4.70% 4.60% 5.28% 6.41%
Portfolio turnover rate.............. 127% 111% 128% 87% 168%
</TABLE>
See Notes to Financial Statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Convertible Securities, Inc. (the "Fund", formerly
American Capital Convertible Securities, Inc.) is registered under the Invest-
ment 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 27% 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.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
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
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $7,409 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense was paid to the Adviser in reimbursement of personnel, 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.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $88,780,695 and $87,435,205, re-
spectively.
For federal income tax purposes, the identified cost of investments owned at
the end of the period was $72,656,370. Net unrealized appreciation aggregated
$6,827,027, gross unrealized appreciation of investments aggregated $8,414,114
and gross unrealized depreciation of investments aggregated $1,587,087.
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,416 plus a fee of $94 per Board meetings attend-
ed. During the period, such fees aggregated $23,625.
NOTE 5--QUARTERLY DATA (UNAUDITED)
The following is a summary of quarterly results of operations for each of the
two years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95 Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net realized and
unrealized gain (loss):
on securities.......... $ 3,530,042 $ 2,876,335 $1,975,686 $ 3,093,484 $11,475,547
on securities per
share................. 1.08 .89 .60 .9625 3.5325
Total investment income. 1,114,590 1,100,474 1,064,287 1,019,122 4,298,473
Net investment income... 958,384 946,500 910,546 868,668 3,684,098
Net investment income
per share.............. .30 .29 .28 .27 1.14
<CAPTION>
Quarter Ended
-------------------------------------------------------------
3/31/94 6/30/94 9/30/94 12/31/94 Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net realized and
unrealized gain (loss):
on securities.......... $(3,788,187) $(3,073,156) $1,559,014 $(3,016,012) $(8,318,341)
on securities per
share................. (1.16) (.94) .47 (.93) (2.56)
Total investment income. 998,290 1,039,323 1,034,118 1,076,032 4,147,763
Net investment income... 822,503 881,617 870,592 954,636 3,529,348
Net investment income
per share.............. .25 .27 .27 .30 1.09
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio of Van Kampen American Capital Convertible Securities,
Inc., as of December 31, 1995, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of De-
cember 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Convertible Securities, Inc. at December 31, 1995, the
results of its operations for the year then ended, the changes in its net as-
sets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 9, 1996
16
<PAGE>
VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES, INC.
BOARD OF DIRECTORS
DONALD M. CARLTON
A. BENTON COCANOUGHER
STEPHEN R. GROSS
NORMAN HACKERMAN
ROBERT D.H. HARVEY
ALAN G. MERTEN
STEVE MULLER
F. ROBERT PAULSEN
R. RICHARDSON PETTIT
DON G. POWELL
ALAN B. SHEPARD, JR.
MILLER UPTON
BENJAMIN N. WOODSON
OFFICERS
DON G. POWELL
Chairman of the Board and President
CURTIS W. MORELL
Vice President and Treasurer
JAMES H. BEHRMANN
DENNIS J. MCDONNELL
RONALD A. NYBERG
ALAN T. SACHTLEBEN
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 Post Oak Blvd. Houston, Texas 77056
SHAREHOLDER SERVICE AGENT
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 366 Boston, Massachusetts 02101
CUSTODIAN
STATE STREET BANK AND TRUST CO.
225 Franklin Street Boston, Massachusetts 02110
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
1221 McKinney St.
Houston, Texas 77010
NEW YORK STOCK EXCHANGE SYMBOL: ACS
INQUIRIES ABOUT AN INVESTOR'S
ACCOUNT SHOULD BE REFERRED
TO THE FUND'S TRANSFER AGENT:
Boston Financial Data Services, Inc.
P.O. Box 366
BOSTON, MASSACHUSETTS 02101
Telephone: (800) 821-1238
(C) Van Kampen American Capital Distributors, Inc., 1996 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
17
