<PAGE>
Van Kampen American Capital
CONVERTIBLE
SECURITIES FUND
Semi-Annual Report
June 30, 1997
[ARTWORK]
______ A Wealth of Knowledge . A Knowledge of Wealth(TM)______
Van Kampen American Capital
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders.................. 1
Performance Results..................... 4
Portfolio of Investments................ 5
Statement of Assets and Liabilities.....11
Statement of Operations.................12
Statement of Changes in Net Assets......13
Financial Highlights....................14
Notes to Financial Statements...........16
Dividend Reinvestment Plan..............19
</TABLE>
ACS SAR 08/97
<PAGE>
Letter to Shareholders
[PHOTO]
Dennis J. McDonnell and Don G. Powell
July 10, 1997
Dear Shareholder,
As you know, VK/AC Holding Inc., the parent company of Van Kampen American
Capital, Inc., was acquired by Morgan Stanley Group Inc., a world leader in
asset management. More recently, on February 5, 1997, Morgan Stanley Group Inc.
and Dean Witter, Discover & Co. agreed to merge. The merger was completed on May
31, 1997, creating the combined company of Morgan Stanley, Dean Witter, Discover
& Co. Additionally, we are very pleased to announce that Philip N. Duff,
formerly the chief financial officer of Morgan Stanley, has joined Van Kampen
American Capital as president and chief executive officer. I will continue as
chairman of the firm. We are confident that these changes will continue to work
to the benefit of our fund shareholders.
Economic Review
Convertible securities were supported by declining interest rates and
continued strength in the equity market, rising 9.53 percent during the
reporting period, while the underlying common stock appreciated 11.22 percent,
according to the Merrill Lynch Convertible Index. In other words, convertibles
participated in 84 percent of the returns of the underlying common stock, while
enjoying the lower levels of risk inherent in convertible securities.
The rare combination of moderate economic growth and historically low
inflation provided a nearly ideal environment for equity investments and drove
the stock market to new heights. The economy grew at a remarkably strong pace in
the first quarter of the year, which caused investors to worry that inflation
might become a problem. This concern increased volatility in stock prices and
precipitated a month-long market correction in mid-March that wiped out all
year-to-date gains. Stocks rebounded quickly after economic data was released in
April showing negligible inflation and hints of a slowdown in growth. In May,
the Dow Jones Industrial Average had rallied to record-breaking heights and
recouped its losses. Generally, large, well-established companies weathered the
past six months better than their smaller competitors. The reporting period
ended on a positive note, as stocks surged ahead through the end of June.
Conditions in the bond market were not quite as favorable, as bond prices
began to fall when the economy picked up speed. In addition, Federal Reserve
Board Chairman Alan Greenspan warned that a tighter monetary policy might be
appropriate, which ignited fears of a rate hike. On March 25, the Fed raised
short-term rates by a modest 0.25 percent, which sent the 30-year Treasury bond
yield above 7.00 percent for the first time in six months. By the end of April,
it had slipped back below 7.00 percent as the market turned its attention to
positive news about inflation, and bonds recovered some of their earlier losses.
The bond market rallied through June, with the 30-year Treasury bond yield
closing out the reporting period at 6.79 percent.
Continued on page two
1
<PAGE>
Portfolio Strategy
As always, we manage the Convertible Securities Fund for current income,
capital appreciation, and preservation of capital by investing primarily in
convertible securities. In general, we have a prudent investment approach,
focusing on high-quality issues and diversifying across many market sectors. We
see the Convertible Securities Fund as a defensive way to participate in the
stock market-returns of convertible securities have tended to move in unison
with their underlying common stock while typically offering higher current
yield. As such, investments in convertible securities can lessen the impact of a
broad market correction.
At the end of the reporting period, the portfolio consisted of 76 percent
convertible securities, 11 percent common stock, and 13 percent U.S. government
obligations and other short-term investments. Our weighting in common stock is a
bit low for the Fund, because we believe the recent instability in the stock
market warrants some caution. However, common stocks do give us exposure to
segments of the market that are inaccessible to convertibles, so we like to
maintain a portion of our assets here. In selecting stocks, we focus on large,
established growth companies because they historically have provided the
potential for capital appreciation with less volatility than small-company
stock.
This year, the best-performing sectors in the convertible securities market
were transportation, technology, and financial services. Transportation
securities make up only 1.9 percent of the convertible market and, consequently,
just a small portion of the Fund's portfolio. As a result, the impact of its
strong performance was modest. Our holdings in the technology and finance
sectors were much larger and had a greater influence on the Fund. In January,
the portfolio benefited from an overweighting in semiconductors, as the
technology sector performed well. April and May saw another surge, and we
increased our exposure, although we were underweighted overall in technology.
February was a strong month for the finance sector, and our overweighting
allowed us to capture some significant gains. However, the Fed raised interest
rates in March and triggered a drop in financial securities, which we believed
was an overreaction to the Fed's decision. This decrease canceled out the
positive returns of the previous month and accounted for the majority of the
Fund's losses during the period. We have reduced our weighting as a result.
Similar to the broad market, convertible securities of large, blue chip
companies outperformed convertibles of smaller companies. Holdings such as
Chevron, Pennzoil, Host Marriott, and Hilton Hotels allowed us to take advantage
of large-company dominance during the period. Other holdings that appreciated
during the period included Conseco (a financial services holding company), Home
Depot (a home and garden hardware retailer), and Danka Business Systems (an
automated office equipment supplier).
Performance Summary
For the six-month period ended June 30, 1997, the Fund generated a total
return of 7.93 percent/1/ at market price. The Fund's return reflects the change
in market price per share on the New York Stock Exchange from $21.125 on
December 31, 1996 to $22.250 on June 30, 1997, and dividends and capital gains
totaling $0.5325 per share. Please refer to the chart on page four for
additional Fund performance results.
Continued on page three
2
<PAGE>
Outlook
Currently, the stock market is basking in the best of all possible
environments: low inflation, moderate economic growth, and solid corporate
earnings. We anticipate a continuation of strong but not exorbitant market
returns, which should be very favorable for convertible securities, because they
have traditionally performed well when interest rates are declining and the
stock market is moderately strong. As the stock market continues to climb, it
becomes increasingly sensitive-even minor events can trigger declines. In this
environment, convertibles are considered defensive investments, having performed
competitively in up markets while reducing the negative effects of down markets.
As such, we expect this to be a good year for the Convertible Securities 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.
Please see footnotes on page four
3
<PAGE>
Performance Results for the Period Ended June 30, 1997
Van Kampen American Capital Convertible Securities Fund
NYSE Ticker Symbol - ACS
Total Returns
Six-month total return based on market price/1/......................... 7.93%
Six-month total return based on NAV/2/.................................. 8.94%
Distribution Rate
Distribution rate as a % of closing common stock price/3/............... 3.96%
Share Valuations
Net asset value......................................................... $ 25.99
Closing common stock price.............................................. $22.250
Six-month high common stock price (06/17/97)............................ $22.375
Six-month low common stock price (04/14/97)............................. $20.000
/1/ Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions
for the period in accordance with the Fund's dividend reinvestment plan, and
sale of all shares at the closing stock price at the end of the period
indicated.
/2/ Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
/3/ Distribution rate represents the quarterly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Fund shares,
when sold, may be worth more or less than their original cost.
4
<PAGE>
Portfolio of Investments
June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Convertible Debt 50.9%
Consumer Distribution 8.5%
$ 520 Danka Business Systems PLC............................ 6.750% 04/01/02 $ 769,600
500 Eagle Hardware, Inc................................... 6.250 03/15/01 678,125
400 Federated Dept. Stores, Inc........................... 5.000 10/01/03 476,500
830 Home Depot, Inc....................................... 3.250 10/01/01 947,237
425 Inacom Corp........................................... 6.000 06/15/06 624,219
650 Mens Wearhouse, Inc................................... 5.250 03/01/03 721,500
550 Pier 1 Imports, Inc................................... 5.750 10/01/03 855,250
740 Rite Aid Corp., LYON.................................. * 07/24/06 594,775
400 Staples, Inc., 144A - Private Placement (a)........... 4.500 10/01/00 481,000
850 U.S. Office Products Co............................... 5.500 02/01/01 1,040,188
----------
7,188,394
----------
Consumer Non-Durables 0.5%
500 Einstein/Noah Bagel Corp., 144A - Private
Placement (a)......................................... 7.250 06/01/04 431,875
----------
Consumer Services 11.3%
1,200 HFS, Inc.............................................. 4.750 03/01/03 1,380,000
375 Hilton Hotels Corp.................................... 5.000 05/15/06 398,437
400 Imax Corp. (Canada)................................... 5.750 04/01/03 514,000
550 National Data Corp.................................... 5.000 11/01/03 584,375
915 Omnicom Group, Inc.................................... 4.250 01/03/07 1,100,287
1,250 Prime Hospitality Corp................................ 7.000 04/15/02 2,162,500
3,275 Rogers Communications, Inc., (Canada), LYON........... * 05/20/13 1,355,031
3,350 Time Warner, Inc., LYON............................... * 06/22/13 1,541,000
1,200 Times Mirror, Inc., LYON, 144A - Private
Placement (a)......................................... * 04/15/17 486,000
----------
9,521,630
----------
Energy 6.7%
825 Consolidated Natural Gas Co........................... 7.250 12/15/15 891,000
500 Diamond Offshore Drilling, Inc........................ 3.750 02/15/07 581,875
350 Lomak Petroleum, Inc., 144A - Private
Placement (a)......................................... 6.000 02/01/07 393,750
500 Nabors Industries, Inc................................ 5.000 05/15/06 752,500
</TABLE>
5 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Energy (Continued)
$ 400 Offshore Logistics, Inc., 144A - Private
Placement (a)......................................... 6.000 12/15/03 $ 432,000
830 Pennzoil Co........................................... 4.750 10/01/03 1,059,287
1,000 SFP Pipeline Holdings, Inc............................ 11.163 08/15/10 1,230,743
350 Swift Energy Co....................................... 6.250 11/15/06 351,750
----------
5,692,905
----------
Finance 5.8%
235 Aames Financial Corp.................................. 5.500 03/15/06 259,087
150 American Travellers Corp.............................. 6.500 10/01/05 432,375
600 Berkshire Hathaway Salomon, Inc....................... 1.000 12/03/01 628,500
1,600 Deutsche Bank Financial, Inc., 144A - Private
Placement (a)......................................... * 02/12/17 736,000
350 Equitable Cos......................................... 6.125 12/15/24 472,062
600 Lai Fung Overseas..................................... 5.750 02/05/98 559,500
STRYPES Merrill Lynch, 10,000 shares (convertible into 8,333
MGIC Investment Corp. common shares).................. 6.500 08/15/98 820,173
STRYPES Merrill Lynch, 23,500 shares (convertible into
19,261 Cox Communication common shares)............... 6.000 06/01/99 558,434
STRYPES Merrill Lynch,11,000 shares (convertible into 9,092
IMC Global common shares)............................. 6.250 07/01/01 412,500
----------
4,878,631
----------
Healthcare 5.5%
1,100 Alza Corp............................................. 5.000 05/01/06 1,105,500
860 Chiron Corp........................................... 1.900 11/17/00 788,512
250 PhyCor, Inc........................................... 4.500 02/15/03 270,000
425 Renal Treatment Centers, Inc., 144A - Private
Placement (a)......................................... 5.625 07/15/06 420,750
250 Rotech Medical Corp................................... 5.250 06/01/03 246,250
160 Sepracor, Inc., 144A - Private Placement (a).......... 7.000 12/01/02 231,000
275 Tenet Healthcare Corp................................. 6.000 12/01/05 348,906
565 United Technologies Corp.............................. * 09/08/97 1,235,938
----------
4,646,856
----------
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Producer Manufacturing 3.6%
$ 750 Cemex SA de CV - ADR (Mexico)................. 4.250 11/01/97 $ 741,562
475 Robbins & Myers, Inc. ........................ 6.500 09/01/03 650,750
275 Thermo Electron Corp. ........................ 5.000 04/15/01 455,125
400 USA Waste Services, Inc. ..................... 4.000 02/01/02 432,500
774 WMX Technologies, Inc......................... 2.000 01/24/05 717,885
------------
2,997,822
------------
Raw Materials/Processing Industries 1.2%
300 Altos Hornos de Mexico, SA (Mexico)........... 5.500 12/15/01 286,500
600 P T Indorayon................................. 5.500 10/01/02 716,250
------------
1,002,750
------------
Technology 6.3%
450 Adaptec, Inc., 144A - Private Placement (a)... 4.750 02/01/04 447,187
175 Applied Magnetics Corp. ...................... 7.000 03/15/06 242,812
350 Comverse Technology, Inc., 144A - Private
Placement (a)................................. 5.750 10/01/06 456,750
330 Dovatron International, Inc. ................. 6.000 10/15/02 437,250
300 First Financial Management Corp. ............. 5.000 12/15/99 611,625
925 Motorola, Inc., LYONS......................... * 09/27/13 816,313
750 Photronics, Inc. ............................. 6.000 06/01/04 835,312
225 SCI Systems, Inc. ............................ 5.000 05/01/06 325,688
200 Titan Corp. .................................. 8.250 11/01/03 271,000
450 Xerox Credit Corp. ........................... 2.875 07/01/02 452,250
350 Xilinx, Inc., 144A - Private Placement (a).... 5.250 11/01/02 404,250
------------
5,300,437
------------
Utilities 1.5%
1,239 Potomac Electric Power Co..................... 7.000 01/15/18 1,254,487
------------
Total Convertible Debt...................................... 42,915,787
------------
</TABLE>
7 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred 22.6%
Consumer Distribution 1.4%
Kmart Financing, Inc., 7.750%........................................ 22,000 $1,207,250
----------
Consumer Services 4.1%
SFX Broadcasting, Inc., 6.500%....................................... 9,500 527,250
Apple South, Inc., 7.00%, 144A - Private Placement (a)............... 7,500 469,688
Golden Books, 8.75%, 144A - Private Placement (a).................... 15,200 940,500
Host Marriot Quips, 6.75%, 144A - Private Placement (a).............. 15,000 873,750
TCI Communication, Inc., $2.125 dividend per share................... 15,000 648,750
----------
3,459,938
----------
Energy 1.8%
MCN Energy Group, PRIDES, 8.75%...................................... 15,400 424,053
Unocal Corp., 6.25%.................................................. 19,000 1,075,875
----------
1,499,928
----------
Entertainment/Leisure 0.8%
Royal Caribbean Cruises Ltd., 7.25%.................................. 10,000 617,500
----------
Finance 7.9%
American Bankers Insurance Group, Inc., 6.50%........................ 10,700 770,400
Conseco, Inc., PRIDES, 7.00%......................................... 3,500 454,125
Finova Finance Trust, 5.50%.......................................... 20,000 1,150,000
Jefferson Pilot Corp., ACES, 7.25%................................... 10,000 1,147,500
National Australia Bank, 7.875%...................................... 32,000 894,000
Sovereign Bancorp, $3.125 dividend per share......................... 15,000 1,425,000
SunAmerica, Inc., PERCS, 8.50%....................................... 19,500 850,688
----------
6,691,713
----------
Raw Materials/Processing Industries 3.5%
Boise Cascade Corp., $1.58 dividend per share........................ 35,000 997,500
Crown Cork & Seal, Inc., 4.50%....................................... 5,000 252,500
Freeport McMoran Copper & Gold, Inc., $1.25 dividend per share....... 11,700 320,288
International Paper Corp., 5.25%..................................... 17,000 901,000
Timet Capital Trust, 6.625%, 144A - Private Placement (a)............ 8,700 458,925
----------
2,930,213
----------
Technology 0.6%
Microsoft Corp., $2.196 dividend per share........................... 6,000 522,000
----------
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities 2.5%
Calenergy Co., Inc., 6.25%, 144A - Private Placement (a)............. 7,500 $ 424,688
Cincinnati Gas & Electric Co., DECS, 6.25%........................... 7,500 474,731
Citizens Utility Co., 5.00%.......................................... 8,000 351,000
Nextel Communications, Inc., STRYPES, 7.25%.......................... 22,500 413,438
Nortel Invesora SA, (Argentina), MEDS, 10.00%........................ 9,500 466,688
-----------
2,130,545
-----------
Total Convertible Preferred............................................... 19,059,087
-----------
Common Stock 11.1%
Consumer Non-Durables 1.3%
Philip Morris Cos., Inc.............................................. 13,000 576,875
RJR Nabisco Holdings Corp............................................ 16,800 554,400
-----------
1,131,275
-----------
Energy 2.3%
Amoco Corp........................................................... 5,000 434,688
British Petroleum PLC - ADR (United Kingdom)......................... 4,000 299,500
Exxon Corp........................................................... 4,000 246,000
Texaco, Inc.......................................................... 4,800 522,000
USX Marathon Group................................................... 15,000 433,125
-----------
1,935,313
-----------
Finance 2.6%
Chase Manhattan Corp................................................. 9,200 892,975
Citicorp............................................................. 3,500 421,969
First Bank System, Inc............................................... 10,000 853,750
-----------
2,168,694
-----------
Health Care 0.3%
FPA Medical Management, Inc. (b)..................................... 10,000 236,875
-----------
Technology 3.2%
Compaq Computer Corp. (b)............................................ 9,000 893,250
International Business Machines Corp................................. 14,900 1,343,794
Lucent Technologies, Inc............................................. 6,800 490,025
-----------
2,727,069
-----------
Utilities 1.4%
Potomac Electric Power Co............................................ 31,000 716,875
SBC Communications, Inc.............................................. 7,000 433,125
-----------
1,150,000
-----------
Total Common Stock........................................................ 9,349,226
-----------
Total Long-Term Investments 84.6% (Cost $63,650,938)............................ 71,324,100
-----------
</TABLE>
9 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Investments 12.7%
U.S. Government Obligations 7.1%
Federal Home Loan Mortgage Corp. Discount Note
($6,000,000 par, yielding 5.55%, 07/15/97 maturity)........................................... $ 5,986,400
-----------
Commercial Paper 5.6%
General Electric Capital Corp. ($2,350,000 par, yielding 6.05%, 07/01/97 maturity)............ 2,349,605
Prudential Funding Corp. ($2,345,000 par, yielding 6.03%, 07/01/97 maturity).................. 2,344,607
-----------
4,694,212
-----------
Total Short-Term Investments
(Cost $10,680,612).......................................................................... 10,680,612
-----------
Total Investments 97.3%
(Cost $74,331,550).......................................................................... 82,004,712
Other Assets in Excess of Liabilities 2.7%.................................................... 2,258,463
-----------
Net Assets 100.0%............................................................................. $84,263,175
===========
</TABLE>
* Zero Coupon Bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Non-income producing security as this stock currently does not declare
dividends.
ACES--Automatically convertible equity securities
DECS--Debt exchangeable for common stock, traded in shares
LYON--Liquid yield option note
MEDS--Mandatorily exchangeable debt security
PERCS--Preference equity redemption cumulative stock
PRIDES--Preferred redeemable increased dividend equity security, traded in
shares
STRYPES--Structured yield product exchangeable for stock, traded in shares
10 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<S> <C>
Assets:
Total Investments (Cost $74,331,550 ) ......................... $ 82,004,712
Cash .......................................................... 1,934
Receivables:
Investments Sold .......................................... 2,475,095
Interest .................................................. 563,315
Dividends ................................................. 52,299
Other ......................................................... 16,842
-------------
Total Assets .............................................. 85,114,197
-------------
Liabilities:
Payables:
Investments Purchased ..................................... 665,820
Fund Shares Repurchased ................................... 121,456
Investment Advisory Fee ................................... 34,429
Affiliates ................................................ 1,420
Accrued Expenses .............................................. 16,729
Retirement Plan ............................................... 11,168
-------------
Total Liabilities ......................................... 851,022
-------------
Net Assets .................................................... $ 84,263,175
=============
Net Assets Consist of:
Common Shares ($1.00 par value with 12,500,000 shares
authorized, 3,251,324 shares issued, of which 9,500 are
held in treasury and 3,241,824 are outstanding) ............. $ 3,241,824
Paid in Surplus ............................................... 68,041,601
Net Unrealized Appreciation ................................... 7,673,162
Accumulated Net Realized Gain ................................. 5,015,784
Accumulated Undistributed Net Investment Income ............... 290,804
-------------
Net Assets .................................................... $ 84,263,175
=============
Net Asset Value Per Share ($84,263,175 divided by 3,241,824
shares outstanding) ......................................... $25.99
=============
</TABLE>
11 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Six Months Ended June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest....................................... $1,280,784
Dividends...................................... 682,458
----------
Total Income.............................. 1,963,242
----------
Expenses:
Investment Advisory Fee........................ 201,065
Shareholder Reports............................ 23,191
Shareholder Services........................... 19,987
Trustees Fees and Expenses..................... 10,296
Legal.......................................... 8,873
Custody........................................ 7,215
Other.......................................... 50,527
----------
Total Expenses............................ 321,154
----------
Net Investment Income.......................... $1,642,088
==========
Realized and Unrealized Gain/Loss:
Net Realized Gain.............................. $5,040,529
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period...................... 7,632,243
End of the Period............................ 7,673,162
----------
Net Unrealized Appreciation During the Period.. 40,919
----------
Net Realized and Unrealized Gain............... $5,081,448
==========
Net Increase in Net Assets From Operations..... $6,723,536
==========
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1997 and
the Year Ended December 31, 1996 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income....................................... $ 1,642,088 $ 3,136,862
Net Realized Gain........................................... 5,040,529 4,930,880
Net Unrealized Appreciation During the Period............... 40,919 801,428
----------- -----------
Change in Net Assets from Operations........................ 6,723,536 8,869,170
----------- -----------
Distributions from Net Investment Income.................... (1,427,107) (3,239,657)
Distributions in Excess of Net Investment Income............ --0-- (18,985)
----------- -----------
Distributions from and in Excess of Net Investment Income... (1,427,107) (3,258,642)
Distributions from Net Realized Gain........................ (299,227) (5,478,337)
----------- -----------
Total Distributions........................................ (1,726,334) (8,736,979)
----------- -----------
Net Change in Net Assets from Investment Activities......... 4,997,202 132,191
Net Assets:
Beginning of the Period..................................... 79,265,973 79,133,782
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $290,804 and $75,823, respectively).... $84,263,175 $79,265,973
=========== ===========
</TABLE>
13 See Notes to Financial Statements
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one common share of the
Fund outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended
-----------------
June 30, 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period................................ $24.451 $ 24.41 $ 21.62
------- ------- -------
Net Investment Income.................................. .506 .968 1.14
Net Realized and Unrealized Gain/Loss.................. 1.569 1.768 3.5325
------- ------- -------
Total from Investment Operations......................... 2.075 2.736 4.6725
------- ------- -------
Less:
Distributions from and in Excess of Net Investment
Income................................................. .440 1.005 1.15
Distributions from and in Excess of Net Realized Gain.. .093 1.690 .7325
------- ------- -------
Total Distributions...................................... .533 2.695 1.8825
------- ------- -------
Net Asset Value, End of the Period....................... $25.993 $24.451 $ 24.41
======= ======= =======
Market Price Per Share at End of the Period.............. $22.250 $21.125 $21.375
Total Investment Return at Market Price (a,d)............ 7.93%* 11.67% 28.88%
Total Return at Net Asset Value (b,d).................... 8.94%* 11.51% 23.42%
Net Assets at End of the Period (In millions)............ $ 84.3 $ 79.3 $ 79.1
Ratio of Expenses to Average Net Assets.................. .80% .88% .80%
Ratio of Net Investment Income to Average Net Assets..... 4.08% 3.88% 4.82%
Portfolio Turnover....................................... 67%* 140% 127%
Average Commission Per Equity Share
Traded (c)............................................. $ .0587 $ .0604 $ .0277
</TABLE>
(a) Total Investment Return at Market Price reflects the change in market value
of the shares for the period indicated with reinvestment of dividends in
accordance with the Fund's dividend reinvestment plan.
(b) Total Return at Net Asset Value (NAV) reflects the change in value of the
Fund's assets with reinvestment of dividends based upon NAV.
(c) 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.
(d) This disclosure was not required in fiscal years prior to 1992.
* Non-Annualized
14
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Year Ended December 31,
- --------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 24.88 $ 23.64 $ 22.23 $ 19.41 $ 22.73 $ 21.94 $ 21.46
- -------- ------- ------- ------- -------- ------- -------
1.09 1.15 1.175 1.32 1.47 1.51 1.44
(2.56) 2.01 1.415 2.90 (3.2475) 1.595 1.8425
- -------- ------- ------- ------- -------- ------- -------
(1.47) 3.16 2.59 4.22 (1.7775) 3.105 3.2825
- -------- ------- ------- ------- -------- ------- -------
1.10 1.12 1.18 1.40 1.40 1.57 1.47
.69 .80 -0- -0- .1425 .745 1.3325
- -------- ------- ------- ------- -------- ------- -------
1.79 1.92 1.18 1.40 1.5425 2.315 2.8025
- -------- ------- ------- ------- -------- ------- -------
$ 21.62 $ 24.88 $ 23.64 $ 22.23 $ 19.41 $ 22.73 $ 21.94
======== ======= ======= ======= ======== ======= =======
$ 18.125 $22.375 $20.375 $19.250 $ 16.625 $20.125 $19.875
(11.71%) 19.43% 12.31% 24.68% (10.39%) -- --
(5.29%) 14.50% 12.84% 23.32% (7.37%) -- --
$ 70.1 $ 80.7 $ 76.6 $ 72.1 $ 62.9 $ 73.7 $ 70.3
.82% .87% .88% .89% .86% .84% .82%
4.70% 4.60% 5.28% 6.41% 7.01% 6.47% 6.30%
111% 128% 87% 168% 95% 90% 69%
-- -- -- -- -- -- --
</TABLE>
See Notes to Financial Statements
15
<PAGE>
Notes to Financial Statements
June 30, 1997 (Unaudited)
================================================================================
1. Significant Accounting Policies
Van Kampen American Capital Convertible Securities Fund (the "Fund") is
registered as a diversified closed-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide current income, capital appreciation and conservation of capital
through investment in a portfolio consisting mainly of 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
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--Fixed income investments are stated at value using market
quotations. Investments in securities listed on a securities exchange are valued
at their sales 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 the mean of the bid and asked prices. 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 or less days are valued at amortized
cost.
Fund investments include lower rated debt securities which may be more
susceptible 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 comparable
unrated securities represented approximately 28% of the investment portfolio at
the end of the period.
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 whereby 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 securi-
16
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
ties only upon physical delivery or evidence of book entry transfer to the
account of the custodian bank. The seller is required to maintain the value of
the underlying security at not less than the repurchase proceeds due the Fund.
C. Investment Income--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable 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.
D. 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 June 30, 1997, for federal income tax purposes, cost of long- and short-
term investments is $74,331,550; the aggregate gross unrealized appreciation is
$8,547,432 and the aggregate gross unrealized depreciation is $874,270,
resulting in net unrealized appreciation of $7,673,162.
E. Distribution of Income and Gains--The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains which are included in ordinary income for
tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, the amount of distributed net investment income may differ
for a particular period. These differences are temporary in nature, but may
result in book basis distribution in excess of net investment income for certain
periods.
17
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
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 as follows:
Average Net Assets % Per Annum
- --------------------------------------------------------------------------------
First $150 million................................................... .50 of 1%
Next $100 million.................................................... .45 of 1%
Next $100 million.................................................... .40 of 1%
Over $350 million.................................................... .35 of 1%
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $9,200 representing Van Kampen American Capital, Inc.'s or its
affiliates' (collectively "VKAC") cost of providing accounting services to the
Fund. These services are provided by VKAC at cost.
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 Trustees 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 Trustees 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 calendar years
preceding retirement. Trustees with more than five but less than ten years of
service at retirement will receive a proportionally reduced benefit. Under the
Plan, for the Trustees 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 Fund during the 1995 calendar year.
3. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $47,916,423 and $57,457,654,
respectively.
18
<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 asset
value on a date determined by the Board of Trustees 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
distribution will be paid to 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 purchased from
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 distributions.
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
terminations will be effective for distributions declared after receipt. If you
withdraw 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 distribution for
which such amendment or termination is effective.
Record stockholders should address all notices, correspondence, questions
or other communications about the Plan to:
Boston EquiServe LP
P.O. Box 8200
Boston, MA 02266-8200
800-341-2929
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.
19
<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
Growth Fund
Pace Fund
Growth & Income
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
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income 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 weekdays from 7:00 a.m. to 7:00 p.m.
Central time at 1-800-341-2911 for Van Kampen American Capital funds or Morgan
Stanley retail funds.
20
<PAGE>
Van Kampen American Capital Convertible Securities Fund
Board of Trustees
Donald M. Carlton
A. Benton Cocanougher
Stephen R. Gross
Alan G. Merten
Steven Muller
R. Richardson Pettit
Don G. Powell* -- Chairman
Alan B. Shepard, Jr.
Officers
Don G. Powell*
President
Dennis J. McDonnell*
Executive Vice President
Ronald A. Nyberg*
Vice President and Corporate 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 Hegel*
Alan Sachtleben*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen American Capital
Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Custodian
State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02101
Shareholder Servicing Agent
Boston EquiServe LP
P.O. Box 8200
Boston, Massachusetts 02266-8200
Independent Accountants
Ernst & Young LLP
1221 McKinney Suite 2400
Houston, Texas 77010
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc. 1997 All rights reserved.
/SM/ denotes a service mark of Van Kampen American Capital Distributors, Inc.
-------------------------------------
INQUIRIES ABOUT AN INVESTOR'S ACCOUNT
SHOULD BE REFERRED TO THE
FUND'S TRANSFER AGENT
BOSTON EQUISERVE
P.O. BOX 8200
BOSTON, MASSACHUSETTS 02266-8200
TELEPHONE: (800) 821-1238
ALASKA, CALIFORNIA AND HAWAII
CALL COLLECT: (713) 993-0500
EXTENSION: 2223
-------------------------------------
21
<PAGE>
-------------------
Bulk Rate
U.S. Postage
PAID
VAN KAMPEN
AMERICAN CAPITAL
-------------------
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
