<PAGE>
Van Kampen American Capital
CONVERTIBLE
SECURITIES FUND
Semi-Annual Report
June 30, 1998
[ARTWORK APPEARS HERE]
Van Kampen
FUNDS
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders............................................ 1
Glossary of Terms................................................. 4
Performance Results............................................... 5
Portfolio of Investments.......................................... 6
Statement of Assets and Liabilities............................... 13
Statement of Operations........................................... 14
Statement of Changes in Net Assets................................ 15
Financial Highlights.............................................. 16
Notes to Financial Statements..................................... 18
</TABLE>
ACS SAR 8/98
<PAGE>
Letter to Shareholders
July 17, 1998
[PHOTO]
Dennis J. McDonnell and Don G. Powell
Dear Shareholder,
Recently, we decided to consolidate all Van Kampen American Capital mutual
funds under the single name of Van Kampen Funds. This move accompanies the
change in the legal name of our firm to Van Kampen Funds Inc. Consequently, your
fund's name will be changing to Van Kampen Convertible Securities Fund on August
28. You can be assured that the change in your fund's name will not affect its
management or daily operations, and your fund will continue to trade under its
current ticker symbol. If you have any questions regarding your fund or our new
name, please contact your financial adviser.
Economic Review
Convertible securities rose 7.72 percent during the reporting period, while
their underlying common stock appreciated 6.72 percent, according to the Merrill
Lynch Convertible Index. In other words, convertibles achieved a higher rate of
return than their underlying common stock and still enjoyed the lower levels of
risk that convertible securities have typically provided. Most of the companies
that issue convertible securities are small caps, so convertibles shared in the
struggles of small-cap stocks during the reporting period. The new-issue market
for convertibles was very strong, however, due to low interest rates and high
demand. As such, we had plenty of attractive securities to choose from in
managing the portfolio.
The stock market was influenced by two opposing factors. On the home front,
steady economic growth and low inflation provided a favorable climate for
stocks. However, the aftermath of the currency collapse in Southeast Asia
threatened to slow the economies of countries around the world. Fortunately for
equity investors, positive economic conditions in the United States had a
greater influence on the stock market than overseas turmoil did. The Dow Jones
Industrial Average set record highs throughout the reporting period and has
fluctuated around the 9000 mark since April, amid concerns that the consequences
of the Asian situation were beginning to affect U.S. companies' earnings.
Investors continued to favor large, well-established companies during the
reporting period because of their uncertainty about how the Asian situation
would influence the U.S. markets. Generally, large-capitalization companies made
greater gains than small-cap firms did.
Portfolio Strategy
We consistently manage the Fund for capital appreciation and current income
by investing primarily in convertible securities. In seeking to meet this
objective, we focus on growth companies and diversify across market sectors.
During the reporting period, we narrowed our focus to identify convertibles with
moderate premiums (convertibles usually sell at a premium over the value of
their
1 Continued on page two
<PAGE>
underlying stock). By investing in convertibles with moderate premiums, we
sought to lower the Fund's volatility in the event of a market decline.
The convertible market has closely tracked the small-cap market, so the
Fund was susceptible to the same factors that hindered small-cap performance
during the six months. Small companies tend to have lower credit ratings than
large companies do, and this gap widened during the reporting period, as
investors grew concerned about the situation in Asia. Generally, securities with
lower credit ratings are more vulnerable to market declines than higher-rated
companies. As such, we concentrated on the securities we felt most confident
about and aimed to stick with them through the market's ups and downs.
Many of the Fund's best-performing securities came from the retail sector,
where the combination of low unemployment, rising disposable income, and a
flourishing housing market contributed to healthy sales. Some of our strongest
holdings included Pier 1 Imports, Home Depot, Staples, and Men's Wearhouse. Pier
1 Imports and Home Depot sell home-related products and have often flourished
when interest rates are low, because many people seize the opportunity to buy
new homes or refurbish and redecorate their existing homes. We were quick to
take our profits in this sector--retail securities tend to be very sensitive to
economic changes, and we don't want to have too much exposure in case we see
sudden price declines.
Radio advertising also produced some attractive securities. Deregulation of
the broadcasting industry has allowed individual companies to own an
unrestricted number of radio and television stations. Consequently, a small
number of broadcasting companies are dominating the advertising dollars in a
given region and commanding higher advertising prices as they control larger
pieces of each media market. Many radio companies are thriving in this era of
deregulation, and we were pleased with our holdings in Chancellor Media and
Jacor Communications.
Other favorable securities represented a range of sectors and reflect the
Fund's diversity. These included Alza (pharmaceuticals), Equitable Companies
(finance), Corestaff (staffing), Comverse (telecommunications), and EMC
(technology). Although individual securities were the primary drivers of Fund
performance, the portfolio also benefited from small weightings relative to the
convertible market in energy, real estate, and electric utility securities,
which lagged the market in the early part of the year.
Our substantial weighting in telecommunications was a detriment to Fund
performance. These securities performed well during the early part of the
reporting period but lagged at the end. The telecom industry, which includes
wireless equipment manufacturers and service providers, had a big rally earlier
in the year but suffered from the Asian setback. We continue to believe the
telecom industry will be strong in the coming years, as cellular usage increases
worldwide.
Another disappointment was our large position in Cendant, a marketer and
provider of consumer and business services. In April, the company disclosed some
accounting irregularities, causing the stock price to plummet. On the positive
side, the situation with Cendant underscores the downside protection offered by
convertible securities: while the underlying stock price declined approximately
46 percent on the day of the announcement, the convertible price dropped a
lesser 27.2 percent.
Performance Summary
For the six months ended June 30, 1998, the Fund generated a total return
of 6.41 percent/2/ at net asset value and 8.84 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, 1997, to $22.0625
2 Continued on page three
<PAGE>
on June 30, 1998, and dividends and capital gains totaling $1.002 per share.
Please refer to the chart on page five for additional Fund performance results.
Outlook
At the time of your last report, the stock market had just suffered a
downturn in anticipation of the consequences of the Asian crisis. The market
rebounded but dropped again this spring when some of these consequences came to
fruition. Only time will tell if this recent volatility represents the full
impact of the Asian situation.
In today's uncertain environment, investors have become very protective of
their market gains, and they're quick to sell securities that falter. Small
stocks are volatile by nature and tend to struggle more than large stocks during
periods of market uncertainty. Despite these conditions, we are optimistic about
the Convertible Securities Fund for two reasons. First, volatile markets favor
convertible securities, which have typically provided investors with some
protection against declining stock prices. And second, small-cap stocks are
historically inexpensive--we think these companies have the potential to realize
growth, which will be reflected in their stock and convertible prices. Between
these two factors, we believe the Fund is well positioned to face the challenges
of this market.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
3 Please see footnotes on page five
<PAGE>
Glossary of Terms
Bond:
A debt security issued by a government or corporation that generally pays a
bondholder a stated rate of interest and repays the principal at maturity
date.
Common stock:
Shares of securities that represent ownership in a corporation. Common
stock's dividend rights are subordinate to preferred stock's, and its
dividends are not fixed.
Convertible security:
A security that can be exchanged for common stock at the option of the
security holder for a specified price or rate. Examples include convertible
bonds and convertible preferred stock.
Dow Jones Industrial Average:
The oldest and most widely recognized stock market average, which reflects
the performance of 30 actively traded stocks of well-established, blue-chip
companies.
Market capitalization:
The size of a company, as measured by the value of its stock. Morningstar,
an independent mutual fund rating service, defines "small-cap" as less than
$1 billion, "mid-cap" as between $1 billion and $5 billion, and "large-cap"
as more than $5 billion.
Net asset value (NAV):
The value of a mutual fund share, calculated by deducting a fund's
liabilities from its total assets and dividing this amount by the number of
shares outstanding.
Market price:
The price of a share of a closed-end fund trading on a stock exchange. When
the price is less than a fund's net asset value, the fund is trading at a
discount. When the price is more than the NAV, the fund is trading at a
premium.
Yield:
The annual rate of return on an investment, usually expressed as a
percentage. For bonds and notes, the yield is the annual interest divided
by the market price.
4
<PAGE>
Performance Results for the Period Ended June 30, 1998
Van Kampen American Capital Convertible Securities Fund
NYSE Ticker Symbol -- ACS
<TABLE>
<CAPTION>
Total Returns
<S> <C>
Six-month total return based on market price/1/................... 8.84%
Six-month total return based on NAV/2/............................ 6.41%
Distribution Rate
Distribution rate as a % of closing common stock price/3/......... 4.35%
Share Valuations
Net asset value................................................... $ 24.78
Closing common stock price........................................ $22.0625
Six-month high common stock price (04/06/98)...................... $24.7500
Six-month low common stock price (01/27/98)....................... $21.0000
</TABLE>
/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. This
performance was achieved during generally rising stock prices. Fund shares, when
sold, may be worth more or less than their original cost.
5
<PAGE>
Portfolio of Investments
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Convertible Debt 58.2%
Consumer Distribution 6.9%
$1,250 Brightpoint, Inc., LYON,
144A - Private Placement (a)............ * 03/11/18 $ 487,500
850 Central Garden & Pet Co................. 6.000% 11/15/03 1,083,750
700 Costco Companies, Inc................... * 08/19/17 533,750
250 CUC International, Inc.................. 3.000 02/15/02 244,375
325 Genesco, Inc., 144A - Private
Placement (a)........................... 5.500 04/15/05 319,312
530 Home Depot, Inc......................... 3.250 10/01/01 973,875
650 Rite Aid Corp........................... 5.250 09/15/02 798,687
2,781 Whole Foods Market, Inc.,
144A - Private Placement (a)............ * 03/02/18 1,134,996
----------
5,576,245
----------
Consumer Services 12.3%
500 Conxus Communications, Inc.,
144A - Private Placement (a)............ 9.000 05/15/01 497,500
389 Data Processing Resources Corp,
144A - Private Placement (a)............ 5.250 04/01/05 427,900
1,500 Getty Images, Inc.,
144A - Private Placememt (a)............ 4.750 06/01/03 1,458,750
375 IMAX Corp............................... 5.750 04/01/03 457,500
370 Interim Services, Inc................... 4.500 06/01/05 398,675
1,100 Jacor Communications, Inc., LYON........ * 02/09/18 479,875
600 Mail Well, Inc.......................... 5.000 11/01/02 781,500
880 Metamor Worldwide....................... 2.940 08/15/04 840,400
1,375 National Data Corp...................... 5.000 11/01/03 1,440,312
1,800 News America Holdings, Inc., LYON....... * 03/11/13 1,185,750
660 Omnicom Group, Inc...................... 4.250 01/03/07 1,079,100
700 Personnel Group of America, Inc.,
144A - Private Placement (a)............ 5.750 07/01/04 871,500
----------
9,918,762
----------
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Energy 2.8%
$ 650 Diamond Offshore Drilling, Inc................... 3.750% 02/15/07 $ 745,875
575 Pennzoil Co...................................... 4.750 10/01/03 805,719
1,877 Pride International, Inc......................... * 04/24/18 656,950
------------
2,208,544
------------
Finance 3.8%
425 Berkshire Hathaway, Inc.......................... 1.000 12/03/01 769,250
586 Financial Federal Corp.,
144A - Private Placement (a)..................... 4.500 05/01/05 621,160
STRYPES Merrill Lynch & Co., Inc., 10,500 shares
(Convertible into 16,154 CIBER, Inc.
common shares)................................... 7.875 02/01/01 727,581
STRYPES Merrill Lynch & Co., Inc., 23,500 shares
(Convertible into 102,860 Cox Communication
common shares)................................... 6.000 06/01/99 940,309
------------
3,058,300
------------
Healthcare 9.8%
700 Alternate Living Services, Inc................... 5.250 12/15/02 784,000
1,240 Alza Corp., LYON................................. * 07/14/14 728,500
583 Assisted Living Concepts, Inc.,
144A - Private Placement (a)..................... 5.625 05/01/03 543,648
850 Atrix Labs, Inc.................................. 7.000 12/01/04 830,875
775 ESC Medical Systems, Ltd.,
144A - Private Placement (a)..................... 6.000 09/01/02 775,969
640 Fuisz Technologies, Ltd.,
144A - Private Placement (a)..................... 7.000 10/15/04 656,000
590 Genzyme Corp., 144A - Private Placement (a)...... 5.250 06/01/05 561,975
850 Healthsouth Corp., 144A - Private Placement (a).. 3.250 04/01/03 846,812
730 Omnicare, Inc., 144A - Private Placement (a)..... 5.000 12/01/07 854,100
450 Renal Treatment Centers, Inc..................... 5.625 07/15/06 658,688
575 Sunrise Assisted Living, Inc.,
144A - Private Placement (a)..................... 5.500 06/15/02 636,094
------------
7,876,661
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Producer Manufacturing 3.4%
$ 590 Antec Corp....................................... 4.500% 05/15/03 $ 688,087
450 Thermo Instrument Systems, Inc................... 4.000 01/15/05 450,563
730 United States Filter Corp........................ 4.500 12/15/01 748,250
900 WMX Technologies, Inc............................ 2.000 01/24/05 865,125
----------
2,752,025
----------
Raw Materials/Processing Industries 0.9%
SPURS Texas Industries Capital Trust I, 15,000 shares
(Convertible into 10,833 common shares).......... 5.500 06/30/28 718,898
----------
Technology 16.0%
1,470 Advanced Micro Devices, Inc...................... 6.000 05/15/05 1,198,050
750 Affiliated Computer Services, Inc.
144A - Private Placement (a)..................... 4.000 03/15/05 824,062
600 Arbor Software Corp.,
144A - Private Placement (a)..................... 4.500 03/15/05 505,500
500 Candescent Technologies Corp.,
144A - Private Placement (a)..................... 7.000 05/01/03 487,500
1,750 Comverse Technology, Inc.,
144A - Private Placement (a)..................... 5.750 10/01/06 2,209,375
800 Converse Technology, Inc.,
144A - Private Placement (a)..................... 4.500 07/01/05 815,000
500 Kellstrom Industries, Inc........................ 5.500 06/15/03 543,750
965 Level One communications, Inc.................... 4.000 09/01/04 1,082,006
700 May & Speh, Inc.................................. 5.250 04/01/03 975,625
975 Network Associates, Inc.,
144A - Private Placement (a)..................... * 02/13/18 454,594
900 Photronics, Inc.................................. 6.000 06/01/04 988,875
1,100 Platinum Technology, Inc......................... 6.250 12/15/02 1,193,500
750 Premiere Technologies, Inc....................... 5.750 07/01/04 476,250
512 Quadramed Corp.,
144A - Private Placement (a)..................... 5.250 05/01/05 527,360
500 Spacehab, Inc., 144A - Private Placement (a)..... 8.000 10/15/07 545,000
----------
12,826,447
----------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation 1.6%
$ 250 Continental Airls, Inc........................... 6.750% 04/15/06 $ 518,750
750 Tower Automotive, Inc............................ 5.000 08/01/04 776,250
------------
1,295,000
------------
Utilities 0.7%
DECS Sprint Corp., 9,500 shares
(Convertible into 8,240 Southern New England
Telecommunications Corp. common shares).......... 8.250 03/31/00 549,151
------------
Total Convertible Debt 58.2%.................................................. 46,780,033
------------
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
Preferred Stock 25.4%
Consumer Distribution 0.4%
Owens & Minor Trust I, 5.375%, 144A - Private Placement (a)........... 8,500 $ 318,750
------------
Consumer Durables 0.7%
Fleetwood Capital Trust, 6.00%, 144A - Private Placement (a).......... 10,750 575,125
------------
Consumer Non-Durables 1.9%
Ralston Purina Co., 7.00%............................................. 9,000 565,032
Suiza Capital Trust II, 5.50%, 144A - Private Placement (a)........... 20,100 989,925
------------
1,554,957
------------
Consumer Services 3.1%
Chancellor Media Corp., 7.00%......................................... 4,300 608,450
CSC Holdings, Inc., 8.50%............................................. 16,500 1,054,969
Host Marriott Financial Trust, QUIPS, 6.75%, 144A -
Private Placement (a).............................................. 15,000 795,000
------------
2,458,419
------------
Energy 2.2%
Chesapeake Energy Corp., 7.00%, 144A - Private Placement (a).......... 12,300 530,437
El Paso Energy Capital Trust I, 4.75%................................. 22,500 1,192,500
------------
1,722,937
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Finance 7.2%
Ahmanson H.F. Co., Ser D, 6.00%....................................... 7,100 $1,036,600
Conseco, Inc., PRIDES, 7.00%.......................................... 23,200 1,229,600
Finova Finance Trust, 5.50%........................................... 10,000 785,000
General Growth Properties, Inc., 7.25%................................ 17,600 444,400
Jefferson Pilot Corp., ACES, 7.25%.................................... 6,000 795,750
Life Re Corp. Capital Trust II, QUIPS, 6.00%.......................... 5,700 434,625
Philadelphia Consolidated Holdings, PRIDES, 7.00%..................... 51,300 525,825
PLC Capital Trust II, 6.50%........................................... 9,000 562,500
------------
5,814,300
------------
Healthcare 0.9%
Alkermes, Inc., 6.50%................................................. 9,000 378,000
Sun Financing I, 7.00%, 144A - Private Placement (a).................. 15,900 353,775
------------
731,775
------------
Producer Manufacturing 1.3%
Coltec Capital Trust, 5.25%, 144A - Private Placement (a)............. 8,100 376,650
Ingersoll-Rand Co., PRIDES, 6.75%..................................... 28,500 684,000
------------
1,060,650
------------
Technology 1.8%
Nextlink Communications, Inc., 6.50%, 144A - Private Placement (a).... 14,300 743,600
Unisys Corp., $3.750 dividend per share............................... 13,300 694,925
------------
1,438,525
------------
Utilities 5.9%
Airtouch Communications, Inc., Class C, 4.25%......................... 12,000 990,000
Houston Industries, Inc., ACES, 7.00%................................. 8,650 644,425
Nextel Trust, STRYPES, 7.25%.......................................... 45,000 1,001,250
Omnipoint Corp., 7.00%, 144A - Private Placement (a).................. 43,900 2,118,175
------------
4,753,850
------------
Total Preferred Stock 25.4%.................................................... 20,429,288
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 7.5%
Energy 1.1%
British Petroleum Co. PLC - ADR (United Kingdom).......... 9,600 $ 847,200
-----------
Finance 3.0%
Conseco, Inc.............................................. 8,800 411,400
Equitable Cos., Inc....................................... 15,500 1,161,531
U.S. Bancorp.............................................. 19,200 825,600
-----------
2,398,531
-----------
Technology 0.4%
Atmel Corp. (b)........................................... 23,000 313,375
-----------
Utilities 3.0%
AT & T Corp............................................... 13,000 742,625
Smartalk Teleservices, Inc. (b)........................... 39,000 567,938
Worldcom, Inc. (b)........................................ 23,410 1,133,922
-----------
2,444,485
-----------
Total Common Stocks............................................... 6,003,591
-----------
Total Long-Term Investments 91.1%
(Cost $67,702,376)............................................... 73,212,912
-----------
Short-Term Investments 8.5%
Commercial Paper 3.8%
General Electric Capital Corp. ($3,000,000 par,
yielding 6.254%, 07/01/98 maturity)............................... 2,999,479
</TABLE>
11 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------
<S> <C>
Repurchase Agreement 4.7%
BA Securities ($3,790,000 par collateralized by U.S. Government
obligations in a pooled cash account, 6.05% coupon,
dated 06/30/98, to be sold on 07/01/98 at $3,790,637)............. $ 3,790,000
-----------
Total Short-Term Investments 8.5%
(Cost $6,789,479)................................................. 6,789,479
-----------
Total Investments 99.6%
(Cost $74,491,855)................................................ 80,002,391
Other Assets in Excess of Liabilities 0.4%......................... 324,521
-----------
Net Assets 100.0%.................................................. $80,326,912
===========
</TABLE>
*Zero coupon bond
(a) 144 securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1993. These secutities 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
ADR-American Depository Receipts
DECS-Debt exchangeable for common stock, traded in shares
LYON-Liquid yield option note
PRIDES-Preferred Redeemable Interest Dividend Equity Security, traded in shares
QUIPS-Quarterly Income Preferred Securities
STRYPES-Structured yield product exchangeable for stock, traded in shares
SPURS-Shared Preference Redeemable Securities
12 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $74,491,855)............................... $80,002,391
Cash............................................................... 1,701
Receivables:
Investments Sold................................................. 1,596,419
Interest......................................................... 391,746
Dividends........................................................ 75,993
Other.............................................................. 62,285
-----------
Total Assets.................................................. 82,130,535
-----------
Liabilities:
Payables:
Investments Purchased............................................ 1,553,483
Income Distributions............................................. 147,057
Investment Advisory Fee.......................................... 32,475
Variation Margins on Futures..................................... 12,202
Affiliates....................................................... 5,230
Accrued Expenses................................................... 33,487
Trustees' Deferred Compensation and Retirement Plans............... 19,689
-----------
Total Liabilities............................................. 1,803,623
-----------
Net Assets......................................................... $80,326,912
===========
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........................................ 5,498,334
Accumulated Net Realized Gain...................................... 3,418,464
Accumulated Undistributed Net Investment Income.................... 126,689
-----------
Net Assets......................................................... $80,326,912
===========
Net Asset Value Per Share ($80,326,912 divided
by 3,241,824 shares outstanding)................................... $ 24.78
===========
</TABLE>
13 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest.......................................................... $1,203,463
Dividends......................................................... 519,912
----------
Total Income................................................. 1,723,375
----------
Expenses:
Investment Advisory Fee........................................... 201,109
Shareholder Services.............................................. 24,625
Shareholder Reports............................................... 21,720
Accounting........................................................ 19,325
Legal............................................................. 7,676
Custody........................................................... 3,635
Trustees' Fees and Expenses....................................... 3,500
Other............................................................. 29,447
----------
Total Expenses.................................................. 311,037
----------
Net Investment Income............................................. $1,412,338
==========
Realized and Unrealized Gain/Loss:
Net Realized Gain................................................. $3,421,808
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period.......................................... 5,421,338
----------
End of the Period:
Investments..................................................... 5,510,536
Futures......................................................... (12,202)
----------
5,498,334
----------
Net Unrealized Appreciation During the Period..................... 76,996
----------
Net Realized and Unrealized Gain.................................. $3,498,804
==========
Net Increase in Net Assets from Operations........................ $4,911,142
==========
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and
the Year Ended December 31, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income......................................... $ 1,412,338 $ 3,260,007
Net Realized Gain............................................. 3,421,808 11,981,751
Net Unrealized Appreciation/Depreciation During the Period.... 76,996 (2,210,905)
----------- ------------
Change in Net Assets from Operations.......................... 4,911,142 13,030,853
----------- ------------
Distributions from Net Investment Income...................... (1,490,982) (3,260,007)
Distributions in Excess of Net Investment Income.............. -0- (562,429)
----------- ------------
Distributions from and in Excess of Net Investment Income..... (1,490,982) (3,822,436)
Distributions from Net Realized Gain.......................... (1,756,783) (9,810,855)
----------- ------------
Total Distributions.......................................... (3,247,765) (13,633,291)
----------- ------------
Net Change in Net Assets from Investment Activities........... 1,663,377 (602,438)
Net Assets:
Beginning of the Period....................................... 78,663,535 79,265,973
----------- ------------
End of the Period (Including accumulated undistributed net
investment income of $126,689 and
$205,333, respectively)....................................... $80,326,912 $ 78,663,535
=========== ============
</TABLE>
15 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, 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period...................................... $ 24.265 $24.451 $ 24.41
-------- ------- -------
Net Investment Income........................................ .436 1.006 .968
Net Realized and Unrealized Gain/Loss........................ 1.079 3.014 1.768
-------- ------- -------
Total from Investment Operations............................... 1.515 4.020 2.736
-------- ------- -------
Less:
Distributions from and in Excess of Net Investment
Income..................................................... .460 1.179 1.005
Distributions from and in Excess of Net Realized Gain........ .542 3.027 1.690
-------- ------- -------
Total Distributions............................................ 1.002 4.206 2.695
-------- ------- -------
Net Asset Value, End of the Period............................. $ 24.778 $24.265 $24.451
======== ======= =======
Market Price Per Share at End of the Period.................... $22.0625 $21.125 $21.125
Total Investment Return at Market Price (a,c).................. 8.84%* 19.48% 11.67%
Total Return at Net Asset Value (b,c).......................... 6.41%* 18.57% 11.51%
Net Assets at End of the Period (In millions).................. $ 80.3 $ 78.7 $ 79.3
Ratio of Expenses to Average Net Assets........................ .77% .76% .88%
Ratio of Net Investment Income to Average Net Assets........... 3.51% 3.86% 3.88%
Portfolio Turnover............................................. 95%* 181% 140%
</TABLE>
* Non-Annualized
(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) This disclosure was not required in fiscal years prior to 1992.
16
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 21.62 $ 24.88 $ 23.64 $ 22.23 $ 19.41 $ 22.73 $ 21.94
------- -------- ------- ------- ------- -------- -------
1.14 1.09 1.15 1.175 1.32 1.47 1.51
3.5325 (2.56) 2.01 1.415 2.90 (3.2475) 1.595
------- -------- ------- ------- ------- -------- -------
4.6725 (1.47) 3.16 2.59 4.22 (1.7775) 3.105
------- -------- ------- ------- ------- -------- -------
1.15 1.10 1.12 1.18 1.40 1.40 1.57
.7325 .69 .80 -0- -0- .1425 .745
------- -------- ------- ------- ------- -------- -------
1.8825 1.79 1.92 1.18 1.40 1.5425 2.315
------- -------- ------- ------- ------- -------- -------
$ 24.41 $ 21.62 $ 24.88 $ 23.64 $ 22.23 $ 19.41 $ 22.73
======= ======== ======= ======= ======= ======== =======
$21.375 $ 18.125 $22.375 $20.375 $19.250 $ 16.625 $20.125
28.88% (11.71%) 19.43% 12.31% 24.68% (10.39%) --
23.42% (5.29%) 14.50% 12.84% 23.32% (7.37%) --
$ 79.1 $ 70.1 $ 80.7 $ 76.6 $ 72.1 $ 62.9 $ 73.7
.80% .82% .87% .88% .89% .86% .84%
4.82% 4.70% 4.60% 5.28% 6.41% 7.01% 6.47%
127% 111% 128% 87% 168% 95% 90%
</TABLE>
See Notes to Financial Statements
17
<PAGE>
Notes to Financial Statements
June 30, 1998 (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 days or less 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 46% 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 specifed 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 Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon
18
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
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.
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, 1998, for federal income tax purposes, cost of long- and short-
term investments is $74,492,105; the aggregate gross unrealized appreciation is
$7,927,645 and the aggregate gross unrealized depreciation is $2,429,561,
resulting in net unrealized appreciation of $5,498,084. Net realized gains or
losses may differ for financial reporting and tax purposes primarily as a result
of wash sales.
E. Distribution of Income and Gains--The Fund declares and pays quarterly
dividends 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.
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, 1998, the Fund recognized expenses of
approximately $7,700, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
19
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $19,300 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $75,251,260 and $81,863,708,
respectively.
4. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in stock index futures. These contracts are generally used to
provide the return of an index without purchasing all of the securities
underlying the index or to manage the Fund's overall exposure to the equity
markets.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities.
20
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
Contracts
================================================================================
<S> <C>
Outstanding at December 31, 1997...................................... -0-
Futures Opened........................................................ 15
Futures Closed........................................................ -0-
---------
Outstanding at June 30, 1998.......................................... 15
=========
</TABLE>
The futures contracts outstanding at June 30, 1998, and the description and
unrealized depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Depreciation
================================================================================
<S> <C> <C>
Long Contracts--Sept 1998 S&P 500 Index Futures
(Current Notional Value of $285,750 per contract)... 15 $ 12,202
========= ============
</TABLE>
21
<PAGE>
Van Kampen Funds
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation and
Senior Loan Funds
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
. visit our web site at www.van-kampen.com--to view prospectuses, select
Investors' Place, then Download a Prospectus
. call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
. e-mail us by visiting www.van-kampen.com and selecting Investors' Place
22
<PAGE>
Van Kampen American Capital Convertible Securities Fund
Board of Trustees
David C. Arch
Rod Dammeyer
Howard J Kerr
Dennis J. McDonnell*--Chairman
Steven Muller
Theodore A. Myers
Don G. Powell*
Hugo F. Sonnenschein
Wayne W. Whalen
Officers
Don G. Powell*
President
Dennis J. McDonnell*
Executive Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Custodian
State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02105
Shareholder Servicing Agent
Boston EquiServe LP
P.O. Box 8200
Boston, Massachusetts 02266-8200
Legal Counsel
Skadden, Arps, Slate,
Meagher and Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Ernst & Young LLP
1221 McKinney Suite 2400
Houston, Texas 77010
- --------------------------------------
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
- --------------------------------------
* "Interested" persons of the Fund,
as defined in the Investment
Company Act of 1940.
(C) Van Kampen Funds Inc. 1998
All rights reserved.
/SM/ denotes a service mark of
Van Kampen Funds Inc.
23
<PAGE>
Van Kampen American Capital Convertible Securities Fund
This Page Intentionally Left Blank
24
<PAGE>
------------
Van Kampen Funds Inc. Bulk Rate
One Parkview Plaza U.S. Postage
Oakbrook Terrace, Illinois 60181 PAID
VAN KAMPEN
FUNDS
------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> CONV SECS FD
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 74,491,855
<INVESTMENTS-AT-VALUE> 80,002,391
<RECEIVABLES> 2,064,158
<ASSETS-OTHER> 62,285
<OTHER-ITEMS-ASSETS> 1,701
<TOTAL-ASSETS> 82,130,535
<PAYABLE-FOR-SECURITIES> 1,553,483
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 250,140
<TOTAL-LIABILITIES> 1,803,623
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,283,425
<SHARES-COMMON-STOCK> 3,241,824
<SHARES-COMMON-PRIOR> 3,241,824
<ACCUMULATED-NII-CURRENT> 126,689
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,418,464
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,498,334
<NET-ASSETS> 80,326,912
<DIVIDEND-INCOME> 519,912
<INTEREST-INCOME> 1,203,463
<OTHER-INCOME> 0
<EXPENSES-NET> (311,037)
<NET-INVESTMENT-INCOME> 1,412,338
<REALIZED-GAINS-CURRENT> 3,421,808
<APPREC-INCREASE-CURRENT> 76,996
<NET-CHANGE-FROM-OPS> 4,911,142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,490,982)
<DISTRIBUTIONS-OF-GAINS> (1,756,783)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,663,377
<ACCUMULATED-NII-PRIOR> 205,333
<ACCUMULATED-GAINS-PRIOR> 1,753,439
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 201,109
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 311,037
<AVERAGE-NET-ASSETS> 81,122,462
<PER-SHARE-NAV-BEGIN> 24.265
<PER-SHARE-NII> 0.436
<PER-SHARE-GAIN-APPREC> 1.079
<PER-SHARE-DIVIDEND> (0.460)
<PER-SHARE-DISTRIBUTIONS> (0.542)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 24.778
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
