AMERICAN CAPITAL EQUITY INCOME FUND INC, N-30D, 1995-09-07

AMERICAN CAPITAL EQUITY INCOME FUND INC
N-30D, 1995-09-07

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<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Management Review................. 4
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............... 19
</TABLE>

EQI SAR 8/95

<PAGE>

LETTER TO SHAREHOLDERS

[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]

August 3, 1995

Dear Shareholder:
The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term per-
spective, and reaffirms the principle that it is time--not timing--that leads
to investment success.

ECONOMIC OVERVIEW
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 per-
cent. While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent weeks, the general trend for the
first half of the year suggested a "soft landing" scenario. Subsequently, con-
cern over inflation has subsided, as its annualized rate has run at a modest
pace of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market--and in big "capital-
ization" stocks. As the U.S. dollar plunged against several international cur-
rencies, companies--typically large ones--which had diversified overseas were
able to capture additional earnings, while technology stocks benefited from
booming growth in computers and telecommunications throughout the world.

(Continued on page two)

1
<PAGE>

ECONOMIC OUTLOOK
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that
the economy has settled into a slow growth pattern. We anticipate that the
economy will grow at an annual rate between 2 and 3 percent in the second half
of the year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed-income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to main-
tain their strong earnings momentum.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At
this point, no one knows for sure what will happen or when it might actually
take place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevita-
bly experience highs and lows, but by maintaining a long-term investment per-
spective, it may allow you to ride the ups and downs of the markets more easily
as you pursue your investment goals.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the question-
and-answer section helpful.

CORPORATE NEWS
Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund invest-
ment, as well as offer helpful insights regarding long-term investment strate-
gies and trends in the marketplace. The publication will be mailed twice a year
with your June and December shareholder reports. This premier issue focuses on
our various shareholder services and privileges designed to make mutual fund
investing easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,

/s/ Don G. Powell /s/ Dennis J. McDonnell
- --------------------------- ---------------------------
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management Inc. Asset Management Inc.

2
<PAGE>

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1995

AMERICAN CAPITAL EQUITY INCOME FUND, INC.

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES

TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV/1/............... 17.27% 16.86% 16.86%
Six-month total return/2/............................ 10.62% 11.86% 15.86%
One-year total return/2/............................. 12.63% 13.68% 17.68%
Five-year average annual total return/2/............. 10.30% N/A N/A
Ten-year average annual total return/2/.............. 11.35% N/A N/A
Life-of-Fund average annual total return/2/.......... 10.63% 11.24% 11.01%
Commencement Date.................................... 08/03/60 05/01/92 07/06/93
</TABLE>

N/A = Not Applicable

/1/Assumes reinvestment of all distributions for the period and does not in-
clude payment of the maximum sales charge (5.75% for A shares) or contingent
deferred sales charge for early withdrawal (5% for B shares and 1% for C
shares).

/2/Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (5.75% for A
shares) or contingent deferred sales charge for early withdrawal (5% for B
shares and 1% for C shares).

See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.

3
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

AMERICAN CAPITAL EQUITY INCOME FUND, INC.
The following is an interview with the management team of American Capital
Equity Income Fund. The team is led by James A. Gilligan, portfolio manager,
and Alan T. Sachtleben, executive vice president, equity investments.

Q. WHAT FACTORS HAD THE MOST IMPACT ON THE FUND'S PERFORMANCE DURING THE
FIRST HALF OF 1995?

A. During the first six months of this year interest rates fell after rising
during the previous six-month period. As rates declined, the trend gener-
ated renewed enthusiasm among investors. Stock prices rallied in a broad-based
recovery that was led by the technology sector. In addition to our technology
holdings, the Fund also benefited from its "bottom-up" stock-picking philoso-
phy. Last fall we purchased stocks in several companies that we believed were
undervalued and they performed very well during the past six months.

Q. WHAT INDUSTRIES PERFORMED WELL DURING THE PAST YEAR?

A. The technology sector continued to lead the market. Whether we look at
the performance for a three-month, six-month or one-year period, technol-
ogy stocks continue to generate strong returns. As a broadly diversified Fund,
we limit the percentage of our assets invested in any one sector, but we still
had a sizeable portion of the Fund's assets invested in technology. IBM, for
example, had the biggest impact on the value of the portfolio during the re-
porting period, and we added Nokia and Motorola to the portfolio because we
expect them to benefit from the continued strong demand for cellular products.

[PIE CHART OF PORTFOLIO HOLDINGS BY INDUSTRY AS OF
JUNE 30, 1995 APPEARS HERE.]

Consumer Non-Durables 6%
Consumer Durables 2%
Raw Materials/Processing Industries 8%
Producer Manufacturing 7%
Health Care 8%
Finance 13%
Consumer Distribution 5%
Consumer Services 7%
Energy 12%
Technology 9%
Utilities 9%
Other 14%

Finance and consumer durables companies also did well in recent months.
Chemical Bank had the second largest impact on the portfolio during the past
six months, and we also owned shares of Baybanks, which was the focus of take-
over speculation. Another stock in the portfolio that did well during the re-
porting period was Eastman Kodak. Of course, not all stocks in the portfolio
performed this well, and past performance is no guarantee of future results.
We reduced our holdings of utility stocks, since that sector continues to
suffer from concerns about deregulation and increased competition. The chart
above shows the diversification of the portfolio as of June 30, 1995.

4
<PAGE>

Q. WERE THERE OTHER FACTORS THAT HELPED THE FUND'S PERFORMANCE?

A. Yes. We owned several special situation stocks that performed very well.
These are stocks of companies that may have hired new senior management
or that may be undergoing a reorganization. W.R. Grace, for example, put in a
new management team, which then sold the company's medical subsidiary.

Q. HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1995?

A. Class A shares of the Fund achieved a total return at net asset value of
17.27 percent/1/, including reinvestment of dividends totalling $0.0840
per share and a capital gains distribution of $0.0025 per share. By compari-
son, the Standard & Poor's 500-Stock Index, a broad-based, unmanaged index
that reflects general stock market performance, achieved a total return of
20.15 percent. The S&P 500 does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents. In addition,
the S&P 500 is comprised solely of equity securities, while your Fund invests
in stocks, convertible and Treasury securities. (Please refer to the chart on
page three for additional Fund performance.)

Q. WHAT'S THE OUTLOOK FOR THE FUND IN THE NEXT SIX MONTHS?

A. The performance of the stock market during the remainder of the year will
depend, in large part, on what action the Fed takes with regard to short-
term interest rates. The stock market also will be dependent on the degree to
which the slowdown in economic activity that seems to be under way impacts
corporate earnings. The recent cut in rates should increase economic growth
and cause the stock market to continue to perform well. However, if economic
growth accelerates rapidly to the point of causing inflation, then stocks
would not perform as well.

Since our investment style is to normally remain fully invested and broadly
diversified, we will continue to focus on stock selection and pick stocks that
should do well regardless of changes in interest and economic growth rates. We
focus on undervalued stocks and as valuations in certain industries increase,
it is important to remain flexible and look for values wherever we can find
them.

/s/ Alan T. Sachtleben /s/ James A. Gilligan
- ------------------------ ------------------------
Alan T. Sachtleben James A. Gilligan
Executive Vice President Portfolio Manager
Equity Investments

Please see footnotes on page three

5
<PAGE>

PORTFOLIO OF INVESTMENTS

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK 55.8%
CONSUMER DISTRIBUTION 2.9%
*11 Amerisource Health Corp.............................. $ 239,531
*145 Federated Department Stores, Inc..................... 3,733,750
39 Fleming Companies, Inc............................... 1,028,200
48 Gap, Inc............................................. 1,674,000
145 May Department Stores Co............................. 6,035,625
40 McKesson Corp........................................ 1,870,000
*20 Michael's Stores, Inc................................ 425,000
*39 Nine West Group, Inc................................. 1,423,500
40 Nordstrom, Inc....................................... 1,655,000
--------------
TOTAL CONSUMER DISTRIBUTION.......................... 18,084,606
--------------
CONSUMER DURABLES 0.9%
68 Eastman Kodak Co..................................... 4,122,500
50 Echlin, Inc.......................................... 1,737,500
--------------
TOTAL CONSUMER DURABLES.............................. 5,860,000
--------------
CONSUMER NON-DURABLES 4.8%
52 Coca Cola Co......................................... 3,315,000
45 CPC International, Inc............................... 2,778,750
60 Gillette Co.......................................... 2,677,500
55 Heinz (H.J.) Co...................................... 2,440,625
40 Kellogg Co........................................... 2,855,000
30 Nike, Inc., Class B.................................. 2,520,000
38 Philip Morris Companies, Inc......................... 2,826,250
59 Procter & Gamble Co.................................. 4,240,625
69 Ralston-Ralston Purina Group......................... 3,519,000
92 Sara Lee Corp........................................ 2,622,000
--------------
TOTAL CONSUMER NON-DURABLES.......................... 29,794,750
--------------
CONSUMER SERVICES 2.5%
25 Capital Cities ABC, Inc.............................. 2,700,000
41 Disney (Walt) Co..................................... 2,280,625
63 McDonald's Corp...................................... 2,464,875
26 Omnicom Group, Inc................................... 1,576,250
39 Tribune Co........................................... 2,393,625
*53 Viacom, Inc., Class B................................ 2,457,875
118 Wendy's International, Inc........................... 2,109,250
--------------
TOTAL CONSUMER SERVICES.............................. 15,982,500
--------------
ENERGY 5.8%
60 British Petroleum Co., PLC, ADR...................... 5,137,500
127 Exxon Corp........................................... 8,969,375
</TABLE>

See Notes to Financial Statements
6
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
44 Mobil Corp........................................ $ 4,224,000
203 Pacific Enterprises............................... 4,973,500
135 Panhandle Eastern Corp............................ 3,290,625
54 Repsol, SA, ADR................................... 1,707,750
53 Royal Dutch Petroleum Co., ADR.................... 6,459,375
90 USX-Marathon Group................................ 1,777,500
-----------
TOTAL ENERGY..................................... 36,539,625
-----------
FINANCE 10.3%
54 Ahmanson (H.F.) & Co.............................. 1,188,000
53 American General Corp............................. 1,788,750
21 American International Group, Inc................. 2,394,000
190 Banc One Corp..................................... 6,127,500
95 Bank of Boston Corp............................... 3,562,500
71 Bankers Trust of New York Corp.................... 4,402,000
27 Baybanks, Inc..................................... 2,108,050
59 Beacon Properties Corp............................ 1,172,625
101 Chemical Banking Corp............................. 4,772,250
17 Citicorp.......................................... 990,241
89 CoreStates Financial Corp......................... 3,103,875
119 DeBartolo Realty Corp............................. 1,740,375
31 Duke Realty Investments, Inc...................... 875,750
37 Equity Residential Properties Trust............... 1,039,738
82 Federal National Mortgage Association............. 7,738,750
15 General Re Corp................................... 2,008,125
28 Health Care Property Investments.................. 896,000
110 Morgan (J.P.) & Co., Inc.......................... 7,713,750
24 Post Properties, Inc.............................. 726,000
47 St. Paul Companies, Inc........................... 2,314,750
105 TIG Holdings, Inc................................. 2,415,000
37 Transamerica Corp................................. 2,155,250
39 Vornado Realty Trust.............................. 1,360,125
48 Weingarten Realty Investors....................... 1,812,000
-----------
TOTAL FINANCE.................................... 64,405,404
-----------
HEALTH CARE 5.8%
64 Abbott Laboratories, Inc.......................... 2,592,000
37 American Home Products Corp....................... 2,862,875
*52 Amgen, Inc........................................ 4,182,750
72 Baxter International, Inc......................... 2,619,000
*50 Charter Medical Corp.............................. 812,500
28 Lilly (Eli) & Co.................................. 2,198,000
</TABLE>

See Notes to Financial Statements
7
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
*47 Lincare Holdings, Inc................................. $ 1,248,438
117 Merck & Co., Inc...................................... 5,733,000
65 Mylan Laboratories, Inc............................... 1,998,750
*48 Nellcor, Inc.......................................... 2,160,000
37 Pfizer, Inc........................................... 3,417,875
64 Schering Plough Corp.................................. 2,824,000
23 Teva Pharmaceutical, Ltd., ADR........................ 862,500
68 Upjohn Co............................................. 2,575,500
------------
TOTAL HEALTH CARE..................................... 36,087,188
------------
PRODUCER MANUFACTURING 4.4%
39 Allied Signal, Inc.................................... 1,735,500
66 Browning-Ferris Industries, Inc....................... 2,384,250
46 Fluor Corp............................................ 2,392,000
78 General Electric Co................................... 4,397,250
78 Honeywell, Inc........................................ 3,363,750
48 Illinois Tool Works, Inc.............................. 2,640,000
97 Philips NV, ADR....................................... 4,146,750
42 Stewart & Stevenson Services, Inc..................... 1,527,750
95 Wheelabrator Technologies, Inc........................ 1,460,625
125 WMX Technologies, Inc................................. 3,546,875
------------
TOTAL PRODUCER MANUFACTURING......................... 27,594,750
------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.0%
26 Air Products & Chemicals, Inc......................... 1,449,500
*31 Alumax, Inc........................................... 980,438
77 Bemis, Inc............................................ 2,002,000
35 Champion International Corp........................... 1,824,375
*137 Fort Howard Corp...................................... 1,935,125
92 Grace (W.R.) & Co..................................... 5,646,500
21 International Paper Co................................ 1,800,750
65 James River Corp...................................... 1,795,625
20 Monsanto Co........................................... 1,802,500
47 Nalco Chemical Co..................................... 1,709,625
42 Sigma Aldrich Corp.................................... 2,063,250
60 Witco Corp............................................ 1,935,000
------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES............ 24,944,688
------------
TECHNOLOGY 6.7%
47 Adobe Systems, Inc.................................... 2,726,000
*75 Compaq Computer Corp.................................. 3,403,125
*45 DSC Communications Corp............................... 2,092,500
27 Intel Corp............................................ 1,709,438
102 International Business Machines Corp.................. 9,792,000
</TABLE>

See Notes to Financial Statements
8
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
37 Loral Corp............................................ $ 1,914,750
36 McDonnell Douglas Corp................................ 2,763,000
*30 Microsoft Corp........................................ 2,711,250
41 Motorola, Inc......................................... 2,752,125
*36 Nokia Corp., ADR...................................... 2,146,500
73 Northern Telecom, Ltd................................. 2,664,500
35 Northrop Grumman Corp................................. 1,824,375
*45 Sterling Software, Inc................................ 1,747,900
32 Xerox Corp............................................ 3,752,000
------------
TOTAL TECHNOLOGY...................................... 41,999,463
------------
UTILITIES 7.7%
75 Ameritech Corp........................................ 3,300,000
45 AT&T Corp............................................. 2,390,625
42 Cincinnati Bell, Inc.................................. 1,060,500
110 Duke Power Co......................................... 4,565,000
156 Frontier Corp......................................... 3,744,000
100 General Public Utilities Corp......................... 2,975,000
113 GTE Corp.............................................. 3,856,125
173 MCI Communications Corp............................... 3,806,000
156 National Power, ADR................................... 1,930,500
70 NIPSCO Industries, Inc................................ 2,380,000
240 Pacificorp............................................ 4,500,000
143 PECO Energy Co........................................ 3,950,375
90 Portugal Telecom, SA, ADR............................. 1,710,000
129 Powergen, PLC, ADR.................................... 1,580,250
105 Public Services Enterprise Group...................... 2,913,750
39 SBC Communications, Inc............................... 1,857,375
51 Southern N.E. Telecommunications...................... 1,797,750
------------
TOTAL UTILITIES....................................... 48,317,250
------------
TOTAL COMMON STOCK (Cost $301,537,786)................ 349,610,224
------------
CONVERTIBLE PREFERRED STOCK 4.2%
CONSUMER SERVICES 0.5%
50 SCI Finance NV, LLC, 6.25%............................ 3,037,500
------------
ENERGY 1.3%
40 NorAm Energy Corp., $3.00............................. 1,395,000
50 Occidental Petroleum Corp., $7.75..................... 2,859,375
61 Williams Companies, Inc., $3.50....................... 3,762,938
------------
TOTAL ENERGY.......................................... 8,017,313
------------
</TABLE>

See Notes to Financial Statements
9
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FINANCE 1.0%
61 Citicorp, $1.22.................................... $ 1,234,825
22 Citicorp, $5.375................................... 3,511,750
33 First Fidelity Bancorp, $2.15...................... 1,513,875
--------------
TOTAL FINANCE...................................... 6,260,450
--------------
PRODUCER MANUFACTURING 1.0%
72 Browning-Ferris Industries, Inc., 7.25%............ 2,635,300
70 Corning Glassworks, 6.00%, MIPS.................... 3,578,750
--------------
TOTAL PRODUCER MANUFACTURING....................... 6,214,050
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 0.4%
120 James River Corp., $1.55, DECS..................... 2,970,000
--------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost
$22,695,695)....................................... 26,499,313
--------------
Principal
Amount
(000)
- ---------
CONVERTIBLE CORPORATE
OBLIGATIONS 12.8%
CONSUMER DISTRIBUTION 0.8%
$ 1,000 Federated Department Stores, Inc.. (1) 02/15/04 1,012,500
4,200 Price Co.......................... 6.750% 03/01/01 4,158,000
--------------
TOTAL CONSUMER DISTRIBUTION..... 5,170,500
--------------
CONSUMER NON-DURABLES 1.4%
8,000 Grand Met Investments Corp........ 6.500 01/31/00 8,560,000
--------------
CONSUMER SERVICES 2.9%
10,400 ADT Operations, Inc............... (1) 07/06/10 4,082,000
8,000 News America Holdings............. (1) 03/11/13 3,820,000
9,700 Time Warner, Inc.................. (1) 06/22/13 3,892,125
11,400 Time Warner, Inc.................. (1) 12/17/12 3,804,750
1,959 Time Warner, Inc.................. 8.750 01/10/15 2,049,603
500 Wendy's International, Inc........ 7.000 04/01/06 765,000
--------------
TOTAL CONSUMER SERVICES......... 18,413,478
--------------
ENERGY 1.0%
2,800 Amoco CDA Petroleum Co............ 7.375 09/01/13 3,542,000
2,710 Ensearch Corp..................... 6.375 04/01/02 2,655,800
--------------
TOTAL ENERGY.................... 6,197,800
--------------
FINANCE 1.5%
5,000 Aegon NV.......................... 4.750 11/01/04 6,250,000
80 Allstate Corp..................... 6.760 04/15/98 3,284,902
--------------
TOTAL FINANCE................... 9,534,902
--------------
HEALTH CARE 1.8%
18,500 Roche Holdings, Inc............... (1) 04/20/10 7,353,750
4,000 United Technologies............... (1) 09/08/97 4,180,000
--------------
TOTAL HEALTH CARE............... 11,533,750
--------------
</TABLE>

See Notes to Financial Statements
10
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PRODUCER MANUFACTURING 0.9%
$ 2,500 Browning-Ferris Industries, Inc..... 6.750% 07/18/05 $ 2,512,500
8,300 Valhl, Inc.......................... (1) 10/20/07 2,905,000
------------
TOTAL PRODUCER MANUFACTURING........ 5,417,500
------------
RAW MATERIALS/PROCESSING
INDUSTRIES 1.0%
3,100 Albany International Co............. 5.250 03/15/02 2,991,500
7,500 RPM, Inc............................ (1) 09/30/12 3,150,000
------------
TOTAL RAW MATERIALS/PROCESSING
INDUSTRIES.......................... 6,141,500
------------
TECHNOLOGY 0.9%
1,500 General Instrument Corp............. 5.000 06/15/00 2,478,750
2,500 3Com Corp........................... 10.250 11/01/01 3,206,250
------------
TOTAL TECHNOLOGY.................... 5,685,000
------------
UTILITIES 0.6%
11,000 US Cellular Corp.................... (1) 06/15/15 3,465,000
------------
TOTAL CONVERTIBLE CORPORATE
OBLIGATIONS
(Cost $75,343,759)................ 80,119,430
------------
NON-CONVERTIBLE CORPORATE
OBLIGATIONS 12.9%
CONSUMER DISTRIBUTION 1.6%
4,000 May Department Stores Co............ 8.375 08/01/24 4,183,280
5,000 Sears, Roebuck & Co................. 9.375 11/01/11 5,935,950
------------
TOTAL CONSUMER DISTRIBUTION....... 10,119,230
------------
CONSUMER DURABLES 1.0%
3,000 Ford Motor Co....................... 9.000 09/15/01 3,334,500
3,000 General Motors Corp................. 7.000 06/15/03 3,023,910
------------
TOTAL CONSUMER DURABLES........... 6,358,410
------------
CONSUMER SERVICES 1.4%
2,000 Cox Communications, Inc............. 6.375 06/15/00 1,985,580
3,000 Hertz Corp.......................... 7.000 04/15/01 3,059,250
2,000 Tele-Communications, Inc............ 9.800 02/01/12 2,208,400
1,500 Time Warner Entertainment Co........ 9.625 05/01/02 1,688,535
------------
TOTAL CONSUMER SERVICES........... 8,941,765
------------
ENERGY 3.9%
5,000 Enron Corp.......................... 9.125 04/01/03 5,669,500
4,000 Occidental Petroleum Corp........... 10.125 11/15/01 4,688,800
6,000 Sonat, Inc.......................... 6.875 06/01/05 6,004,500
1,500 Texaco Capital, Inc................. 8.250 10/01/06 1,682,550
4,000 Texas Eastern Transport Corp........ 8.250 10/15/04 4,382,320
2,000 Western Atlas, Inc.................. 7.875 06/15/04 2,133,600
------------
TOTAL ENERGY...................... 24,561,270
------------
FINANCE 0.4%
2,000 General Electric Capital Corp....... 8.900 09/15/04 2,317,000
------------
PRODUCER MANUFACTURING 0.3%
1,500 Reliance Electric Co................ 6.800 04/15/03 1,515,300
------------
</TABLE>

See Notes to Financial Statements
11
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 2.7%
$ 5,000 Carter Holt Harvey, Ltd.......................... 8.875% 12/01/04 $ 5,667,400
5,000 Crown Cork & Seal Co............................. 8.375 01/15/05 5,486,000
5,000 Georgia Pacific Corp............................. 9.500 05/15/22 5,562,500
------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES...... 16,715,900
------------
TECHNOLOGY 0.7%
4,000 Philips Electronics NV........................... 7.750 04/15/04 4,216,960
------------
TRANSPORTATION 0.5%
3,000 Union Pacific Corp............................... 7.600 05/01/05 3,160,140
------------
UTILITIES 0.4%
2,500 MCI Communications Corp.......................... 7.125 01/20/00 2,576,900
------------
TOTAL NON-CONVERTIBLE CORPORATE OBLIGATIONS
(Cost $77,091,210)............................... 80,482,875
------------
GOVERNMENT OBLIGATIONS 6.9%
1,000 Federal Farm Credit Banks........................ 9.000 03/07/97 1,052,600
37,800 United States Treasury Notes..................... 7.750 02/15/01 40,835,717
1,000 United States Treasury Notes..................... 9.125 05/15/99 1,107,660
------------
TOTAL GOVERNMENT OBLIGATIONS (Cost $41,056,937).. 42,995,977
------------
EQUITY-LINKED SECURITIES 0.6%+
40 American Express Co. (First Data Corp.).......... 6.250 10/15/96 1,926,106
30 Salomon, Inc. (Amgen, Inc.)...................... 6.500 02/01/97 1,818,171
------------
TOTAL EQUITY-LINKED SECURITIES (Cost $2,940,000). 3,744,277
------------
SHORT-TERM INVESTMENTS 7.5%
8,690 Associates Corp. of North America ............... 6.150 07/03/95 8,685,546
**18,000 Federal Home Loan Banks.......................... 6.047 to 08/07/95 to 17,797,055
6.155 10/10/95
** 5,000 Federal National Mortgage Association............ 6.156 10/10/95 4,918,550
**16,000 United States Treasury Bills..................... 5.532 to 08/10/95 to 15,816,414
5.730 10/19/95
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $47,210,973).. 47,217,565
------------
TOTAL INVESTMENTS (Cost $567,876,360) 100.7%.................................... 630,669,661
OTHER ASSETS AND LIABILITIES, NET (0.7%)........................................ (4,373,829)
------------
NET ASSETS 100%................................................................. $626,295,832
------------
</TABLE>

* non-income producing security
** Securities with a market value of $30.7 million were placed as collateral
for futures contracts (see Note 1B)
+ traded in shares
DECS--dividend enhanced convertible stock
MIPS--monthly income paying security
(1) liquid yield option note, zero coupon

See Notes to Financial Statements
12
<PAGE>

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $567,876,360)................. $630,669,661
Cash............................................................. 6,189
Dividends and interest receivable................................ 4,496,784
Receivable for investments sold.................................. 4,212,956
Receivable for Fund shares sold.................................. 1,536,322
Other assets..................................................... 54,132
------------
Total Assets.................................................... 640,976,044
------------
LIABILITIES
Payable for investments purchased................................ 7,987,035
Payable for Fund shares purchased................................ 5,329,133
Due to Distributor............................................... 534,896
Dividends payable................................................ 285,492
Due to Adviser................................................... 213,046
Due to shareholder service agent................................. 143,362
Due to broker-variation margin................................... 72,800
Deferred Directors' compensation................................. 43,253
Accrued expenses and other liabilities........................... 71,195
------------
Total Liabilities............................................... 14,680,212
------------
NET ASSETS, equivalent to $5.96 per share for Class A, Class B,
and Class C shares.............................................. $626,295,832
------------
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 48,218,156 Class A, 51,580,866 Class B,
and 5,268,632 Class C shares outstanding........................ $ 1,050,677
Capital surplus.................................................. 546,587,566
Undistributed net realized gain on securities.................... 13,413,453
Net unrealized appreciation of securities
Investments..................................................... 62,793,301
Futures contracts............................................... 416,450
Undistributed net investment income.............................. 2,034,385
------------
NET ASSETS....................................................... $626,295,832
------------
</TABLE>

See Notes to Financial Statements
13
<PAGE>

STATEMENT OF OPERATIONS

Six Months Ended June 30, 1995 (Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $ 7,852,957
Dividends.......................................................... 5,740,021
-----------
Investment income................................................. 13,592,978
-----------
EXPENSES
Management fees.................................................... 1,182,587
Shareholder service agent's fees and expenses...................... 761,890
Accounting services................................................ 58,007
Service fees--Class A.............................................. 266,098
Distribution and service fees--Class B............................. 1,366,196
Distribution and service fees--Class C............................. 146,421
Directors' fees and expenses....................................... 10,737
Audit fees......................................................... 20,900
Custodian fees..................................................... 13,066
Legal fees......................................................... 6,116
Reports to shareholders............................................ 62,944
Registration and filing fees....................................... 85,519
State franchise taxes.............................................. 26,333
Miscellaneous...................................................... 11,456
-----------
Total expenses.................................................... 4,018,270
-----------
NET INVESTMENT INCOME.............................................. 9,574,708
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities
Investments....................................................... 11,627,954
Futures contracts................................................. 3,872,912
Net unrealized appreciation of securities during the period
Investments....................................................... 64,046,491
Futures contracts................................................. 239,771
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 79,787,128
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $89,361,836
-----------
</TABLE>

14
See Notes to Financial Statements
<PAGE>

STATEMENT OF CHANGES IN NET ASSETS

(Unaudited)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Six Months Ended December 31,
June 30, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period................ $509,399,385 $312,995,062
------------ ------------
Operations
Net investment income......................... 9,574,708 13,791,828
Net realized gain on securities............... 15,500,866 4,024,901
Net unrealized appreciation (depreciation) of
securities during the period................. 64,286,262 (27,909,442)
------------ ------------
Increase (decrease) in net assets resulting
from operations............................... 89,361,836 (10,092,713)
------------ ------------
Distributions to shareholders from
Net investment income
Class A....................................... (4,024,620) (7,565,034)
Class B....................................... (3,173,011) (5,449,845)
Class C....................................... (334,050) (616,081)
------------ ------------
(7,531,681) (13,630,960)
------------ ------------
Net realized gain on securities
Class A....................................... (119,595) (3,994,687)
Class B....................................... (120,690) (3,771,623)
Class C....................................... (13,057) (421,966)
------------ ------------
(253,342) (8,188,276)
------------ ------------
Excess of book-basis net investment income
(Note 1F)
Class A....................................... -- --
Class B....................................... -- (203,788)
Class C....................................... -- (26,526)
------------ ------------
-- (230,314)
------------ ------------
Total distributions........................... (7,785,023) (22,049,550)
------------ ------------
Net equalization credits (Note 1G)............. -- 818,258
------------ ------------
Capital transactions
Proceeds from shares sold
Class A....................................... 32,078,227 94,769,448
Class B....................................... 44,767,692 158,314,454
Class C....................................... 5,091,844 22,343,775
------------ ------------
81,937,763 275,427,677
------------ ------------
Proceeds from shares issued for distributions
reinvested
Class A....................................... 3,464,310 9,530,860
Class B....................................... 2,979,082 8,619,248
Class C....................................... 268,960 853,040
------------ ------------
6,712,352 19,003,148
------------ ------------
Cost of shares redeemed
Class A....................................... (26,676,330) (35,662,551)
Class B....................................... (21,532,562) (26,416,978)
Class C....................................... (5,121,589) (4,622,968)
------------ ------------
(53,330,481) (66,702,497)
------------ ------------
Increase in net assets resulting from capital
transactions.................................. 35,319,634 227,728,328
------------ ------------
INCREASE IN NET ASSETS......................... 116,896,447 196,404,323
------------ ------------
NET ASSETS, end of period...................... $626,295,832 $509,399,385
------------ ------------
</TABLE>

See Notes to Financial Statements
15
<PAGE>

FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------
Six Months
Ended Year Ended December 31
June 30, --------------------------------------
1995 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period................... $ 5.16 $5.55 $ 5.15 $ 4.83 $ 4.00 $ 4.48
------ ------ ------ ------ ------ ------
Income from investment
operations
Investment income.......... .13 .27 .25 .255 .26 .255
Expenses................... (.02) (.06) (.06) (.05) (.045) (.035)
------ ------ ------ ------ ------ ------
Net investment income....... .11 .21 .19 .205 .215 .22
Net realized and unrealized
gains or losses on
securities................. .7765 (.317) .6055 .31 .83 (.42)
------ ------ ------ ------ ------ ------
Total from investment
operations.................. .8865 (.107) .7955 .515 1.045 (.20)
------ ------ ------ ------ ------ ------
Less distributions from
Net investment income...... (.084) (.1855) (.168) (.195) (.215) (.235)
Net realized gains on
securities................. (.0025) (.0975) (.2275) -- -- (.045)
------ ------ ------ ------ ------ ------
Total distributions......... (.0865) (.283) (.3955) (.195) (.215) (.28)
------ ------ ------ ------ ------ ------
Net asset value, end of
period...................... $ 5.96 $ 5.16 $ 5.55 $ 5.15 $ 4.83 $ 4.00
------ ------ ------ ------ ------ ------
TOTAL RETURN (/1/).......... 17.27% (1.98%) 16.00% 10.72% 26.67% (4.68%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions).................. $287.6 $240.5 $187.6 $123.8 $103.1 $85.4
Average net assets
(millions).................. $266.1 $214.4 $152.1 $109.6 $ 93.7 $91.7
Ratios to average net assets
(annualized)
Expenses................... .98% 1.02% 1.06% 1.01% 1.02% .89%
Net investment income...... 3.80% 3.60% 3.33% 3.95% 4.88% 5.39%
Portfolio turnover rate..... 50% 92% 101% 74% 80% 150%
</TABLE>
(1) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.

See Notes to Financial Statements
16
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------------------------------------------
Six Year May 1,
Months Ended 1992(/1/)
Ended December 31 through
June 30, ------------------- December 31,
1995 1994 1993(/2/) 1992(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of pe-
riod............................. $ 5.16 $ 5.55 $ 5.15 $ 4.83
------- ------- ------- ------
Income from investment operations
Investment income................ .13 .21 .24 .16
Expenses......................... (.05) (.08) (.10) (.06)
------- ------- ------- ------
Net investment income............. .08 .13 .14 .10
Net realized and unrealized gains
or losses on securities.......... .7865 (.277) .6155 .337
------- ------- ------- ------
Total from investment operations.. .8665 (.147) .7555 .437
------- ------- ------- ------
Less distributions from
Net investment income............ (.064) (.13) (.128) (.117)
In excess of book-basis net in-
vestment income (Note 1F)....... -- (.0155) -- --
Net realized gains on securities. (.0025) (.0975) (.2275) --
------- ------- ------- ------
Total distributions............... (.0665) (.243) (.3555) (.117)
------- ------- ------- ------
Net asset value, end of period.... $ 5.96 $ 5.16 $ 5.55 $ 5.15
------- ------- ------- ------
TOTAL RETURN (/3/)................ 16.86% (2.70%) 14.94% 9.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (mil-
lions)........................... $ 307.3 $ 242.0 $ 115.4 $ 13.3
Average net assets (millions)..... $ 273.2 $ 192.9 $ 56.2 $ 4.4
Ratios to average net assets
(annualized)
Expenses......................... 1.79% 1.82% 1.89% 1.87%
Net investment income............ 2.99% 2.82% 2.45% 3.06%
Portfolio turnover rate........... 50% 92% 101% 74%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.

See Notes to Financial Statements
17
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------------------
Six July 6,
Months Year 1993(/1/)
Ended Ended through
June 30, December 31, December 31,
1995 1994 1993(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $ 5.16 $ 5.55 $ 5.37
------- ------- ------
Income from investment operations
Investment income...................... .13 .23 .11
Expenses............................... (.05) (.09) (.05)
------- ------- ------
Net investment income................... .08 .14 .06
Net realized and unrealized gains or
losses on securities................... .7865 (.287) .379
------- ------- ------
Total from investment operations........ .8665 (.147) .439
------- ------- ------
Less distributions from
Net investment income.................. (.064) (.14) (.064)
In excess of book-basis net investment
income (Note 1F)...................... -- (.0055) --
Net realized gains on securities....... (.0025) (.0975) (.195)
------- ------- ------
Total distributions..................... (.0665) (.243) (.259)
------- ------- ------
Net asset value, end of period.......... $ 5.96 $ 5.16 $ 5.55
------- ------- ------
TOTAL RETURN (/3/)...................... 16.86% (2.70%) 8.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).... $ 31.4 $ 26.9 $ 10.0
Average net assets (millions)........... $ 29.3 $ 21.8 $ 3.4
Ratios to average net assets
(annualized)
Expenses............................... 1.79% 1.82% 1.98%
Net investment income.................. 2.99% 2.83% 2.27%
Portfolio turnover rate................. 50% 92% 101%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.

See Notes to Financial Statements
18
<PAGE>

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Equity Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end manage-
ment investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.

A. INVESTMENT VALUATIONS-Securities, listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the mean
between the last reported bid and asked price.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.

B. FUTURES CONTRACTS-Transactions in futures contracts are utilized in strate-
gies to manage the market risk of the Fund's investments. The purchase of a
futures contract increases the impact on net asset value of changes in the
market price of investments. There is a risk that the market movement of such
instruments may not be in the direction forecasted. Note 3- Investment Activ-
ity contains additional information.
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. A portion of these funds is held as collateral in
an account in the name of the broker, the funds agent in acquiring the futures
position. During the period the futures contract is open, changes in the value
of the contract ("variation margin") are recognized by marking the contract to
market on a daily basis. As unrealized gains or losses are incurred, variation
margin payments are received from or made to the broker. Upon the closing or
cash settlement of a contract, gains or losses are realized. The cost of secu-
rities acquired through delivery under a contract is adjusted by the
unrealized gain or loss on the contract.

C. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt securities. The Fund will
make payment

19
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

- -------------------------------------------------------------------------------
for such securities only upon physical delivery or evidence of book entry
transfer to the account of the custodian bank. The seller is required to main-
tain the value of the underlying security at not less than the repurchase pro-
ceeds due the Fund.

D. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized gains on investments to its shareholders. It is anticipated that no
distributions of capital gains will be made until tax basis capital loss
carryforwards, if any, expire or are offset by net realized capital gains.
Approximately $1.5 million of post October losses are deferred for federal
income tax purposes to the 1995 fiscal year.

E. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.

F. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.

G. EQUALIZATION-At December 31, 1994, the Fund discontinued the accounting
practice of equalization, which it had used since its inception. Equalization
is a practice whereby a portion of the proceeds from sales and costs of re-
demptions of Fund shares, equivalent on a per-share basis to the amount of the
undistributed net investment income, is charged or credited to undistributed
net investment income.

H. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on
the same basis as is used for federal income tax reporting. Accordingly, orig-
inal issue debt discounts are amortized over the life of the security. Premi-
ums 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.

20
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

- -------------------------------------------------------------------------------

NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as the investment manager of the Fund. Management fees are
paid monthly, based on the average daily net assets of the Fund at an annual
rate of .50% of the first $150 million, .45% of the next $100 million, .40% of
the next $100 million, and .35% of the amount in excess of $350 million.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $9,407 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense was paid to the Adviser in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, the fees for these services aggregated $635,527.
The Fund was advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both
affiliates of the Adviser, received $81,667 and $77,659, respectively, as
their portion of the commissions charged on sales of Fund shares during the
period.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to reimburse the Distributor for expenses and serv-
ice fees incurred. The Class B and Class C shares pay an additional fee up to
.75% per annum of their average daily net assets to reimburse the Distributor
for its distribution expenses. Actual distribution expenses incurred by the
Distributor for Class B and Class C shares may exceed the amounts reimbursed
to the Distributor by the Fund. At the end of the period, the unreimbursed ex-
penses incurred by the Distributor under the Class B and Class C plans aggre-
gated approximately $9.8 million and $258,000, respectively, and may be
carried forward and reimbursed through either the collection of the contingent
deferred sales charges from share redemptions or, subject to the annual re-
newal of the plans, future Fund reimbursements of distribution fees.
Legal fees of $6,090 were for services rendered by O'Melveny & Myers, coun-
sel for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a director
of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer, and the shareholder service
agent.

21
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

- -------------------------------------------------------------------------------
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $317,772,541 and $257,192,161,
respectively.
For federal income tax purposes, the identified cost of investments owned at
the end of the period was $568,072,001. Net unrealized appreciation of invest-
ments aggregated $62,597,660, gross unrealized appreciation of investments ag-
gregated $65,889,333, and gross unrealized depreciation of investments
aggregated $3,291,673.
At the end of the period, the Fund held 112 long Standard & Poor's 500 Index
futures contracts expiring in September 1995. The market value of such con-
tracts was $30,640,400, and the unrealized appreciation was $416,450.

NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,530 plus a fee of $40 per day for Board and Com-
mittee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $570. During the period, such fees aggregated $9,497.
The directors may participate in a voluntary Deferred Compensation Plan
("the Plan"). 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. Each director covered under the Plan elects to be credited
with an earnings component on amounts deferred equal to the income earned by
the Fund on its short-term investments or equal to the total return of the
Fund.

NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B and Class C shares). All classes of shares have the same
rights, except that Class B and Class C shares bear the cost of distribution
fees and certain other class specific expenses. Realized and unrealized gains
or losses, investment income and expenses (other than class specific expenses)
are allocated to each class of shares based upon the relative proportion of
net assets of each class. Class B and Class C shares automatically convert to
Class A shares six years and ten years after purchase, respectively, subject
to certain conditions.

22
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

- -------------------------------------------------------------------------------
The Fund has 200 million of each class of $.01 par value shares of capital
stock authorized. Transactions in shares of capital stock were as follows:

<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December
1995 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A............................................ 5,737,035 17,663,518
Class B............................................ 7,998,655 29,471,357
Class C............................................ 909,590 4,133,514
---------- -----------
14,645,280 51,268,389
---------- -----------
Shares issued for distributions reinvested
Class A............................................ 609,609 1,805,958
Class B............................................ 524,427 1,635,157
Class C............................................ 47,413 161,557
---------- -----------
1,181,449 3,602,672
---------- -----------
Shares redeemed
Class A............................................ (4,733,316) (6,664,087)
Class B............................................ (3,872,439) (4,963,223)
Class C............................................ (912,408) (871,369)
---------- -----------
(9,518,163) (12,498,679)
---------- -----------
Increase in shares outstanding...................... 6,308,566 42,372,382
---------- -----------
</TABLE>

NOTE 6--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to
a Delaware Business Trust and the election of fourteen trustees.

23
<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
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income

TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.

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AMERICAN CAPITAL EQUITY INCOME FUND, INC.

BOARD OF DIRECTORS
J. MILES BRANAGAN
RICHARD E. CARUSO
ROGER HILSMAN
DON G. POWELL
DAVID REES
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WILLIAM S. WOODSIDE
*Chairman of the Board

OFFICERS
DON G. POWELL
President

CURTIS W. MORELL
Vice President and Treasurer

JAMES A. GILLIGAN
PETER G. KAPOURELOS
DENNIS J. MCDONNELL
RONALD A. NYBERG
ALAN T. SACHTLEBEN
PAUL R. WOLKENBERG
Vice Presidents

TANYA M. LODEN
Vice President and Controller

NORI L. GABERT
Vice President and Secretary

J. DAVID WISE
Vice President and Assistant Secretary

PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers

HUEY P. FALGOUT, JR.
Assistant Secretary
INVESTMENT ADVISER

VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Blvd.,
Houston, Texas 77056

DISTRIBUTOR

VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

SHAREHOLDER SERVICE AGENT

ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256,
Kansas City, Missouri 64141-9256

CUSTODIAN

STATE STREET BANK
AND TRUST CO.
225 Franklin Street,
Boston, Massachusetts 02110

COUNSEL

O'MELVENY & MYERS
400 South Hope Street,
Los Angeles, California 90071

This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors un-
less it has been preceded or is accompanied by an effective prospectus of the
Fund which contains additional information on how to purchase shares, the
sales charge, and other pertinent data.

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