<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Highlights........................ 4
Portfolio Management Review................. 5
Portfolio of Investments.................... 8
Statement of Assets and Liabilities......... 15
Statement of Operations..................... 16
Statement of Changes in Net Assets.......... 17
Financial Highlights........................ 18
Notes to Financial Statements............... 21
</TABLE>
EQI SAR 8/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement was reached in late June for VK/AC
Holding, Inc., the parent Company of Van Kampen American Capital, Inc., to be
acquired by the Morgan Stanley Group Inc. While this announcement may appear
commonplace in an ever-changing financial industry, we believe it represents
an exciting opportunity for shareholders of our investment products.
With Morgan Stanley's global leadership in investment banking and asset
management and Van Kampen American Capital's reputation for competitive long-
term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response
for inclusion in the shareholder vote. We value our relationship with you and
look forward to communicating more details of this transaction, which is an-
ticipated to be completed in November.
ECONOMIC REVIEW
The economy demonstrated an acceleration in growth during the six-month re-
porting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew 4.2 percent in the
second quarter, partly reflecting a recovery from the effects of labor strikes
earlier in the year and extreme weather conditions across the country. Upward
momentum has been assisted by consumer spending, as indicated by a 5.6 percent
rise in retail sales in the first five months of this year versus the compara-
ble 1995 period.
In the manufacturing sector, economic reports, such as the National Associa-
tion of Purchasing Managers Index, suggested a continued rebound in production
from last winter's lower levels. In June, this index reached its highest level
since early 1995. Strong levels of exports and a replenishing of inventories
have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent an-
nual rate over the past year. Meanwhile, the
closely watched "core" Consumer Price Index, which excludes volatile food and
energy components, has risen year over year at rates between 2.7 and 3.0 per-
cent per year, with mid-1996 readings at a moderate 2.7 percent. In general,
recent reports have suggested an upward creep in labor-related costs, while
indicating that prices of many commodities have begun to decline.
Continued on page two
1
<PAGE>
EQUITY MARKET REVIEW
The stock market averages posted attractive gains for the six-month period
ended June 30, 1996, with most major averages posting all-time highs. The Dow
Jones Industrial Average rose 10.9 percent from 5095 to 5654, and the NASDAQ
Composite Index rose 12.6 percent from 1052 to 1185.
Corporate earnings, which were an important contributor to last year's
strong stock market, continued to move ahead during the reporting period. Un-
expectedly strong economic activity helped lift reported profits above expec-
tations for the period. Through the rest of 1996, we expect earnings will be
supportive, but perhaps not the primary factor in the movement of the major
stock market averages.
OUTLOOK
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in
the coming months. That suggests an upward bias for short-term interest rates
and for yields on long-term bonds to remain steady at current levels.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
SIGNATURE LOGO SIGNATURE LOGO
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, 1996
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV1................ 5.34% 4.86% 4.86%
Six-month total return/2/........................... (.64%) (.13%) 3.86%
One-year total return/2/............................ 12.30% 13.01% 13.01%
Five-year average annual total return/2/............ 13.71% N/A N/A
Ten-year average annual total return/2/............. 11.13% N/A N/A
Life-of-Fund average annual total return/2/......... 10.86% 13.07% 13.30%
Commencement Date................................... 08/03/60 05/01/92 07/06/93
N/A= Not Applicable
</TABLE>
/1/Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (5.75% for A shares) or contingent
deferred sales charge for early withdrawal (5% for B 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 (A shares) or
contingent deferred sales charge for early withdrawal (B and 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 HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF % OF FUND
JUNE 30, 1996 SIX MONTHS AGO
<S> <C> <C>
Texaco.......................... 1.7%................... 1.3%
U.S. Treasury Notes, 6.375%..... 1.7%................... N/A
Philip Morris Companies......... 1.6%................... 1.4%
Nabisco Holdings, Class A....... 1.3%................... 1.1%
Exxon........................... 1.2%................... 1.5%
AT & T.......................... 1.2%................... 1.1%
Federated Dept Stores........... 1.2%................... 0.5%
MBL International, 3.00%........ 1.2%................... N/A
Chrysler Corp. ................. 1.1%................... 0.5%
Allstate........................ 1.0%................... N/A
</TABLE>
N/A = Not Applicable
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Finance.............. 11%
Utilities............ 10%
Energy............... 10%
Technology........... 9%
Raw
Materials/Processing
Industries......... 7%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
Finance............... 14%
Energy................ 12%
Technology............ 9%
Utilities............. 9%
Health Care........... 8%
</TABLE>
ASSET ALLOCATION
[PIE CHARTS APPEAR HERE]
As of June 30, 1996
Common Stock............... 70%
Bonds...................... 10%
Convertibles............... 12%
Cash Equivalents........... 8%
As of December 31, 1995
Common Stock............... 61%
Bonds...................... 16%
Convertibles............... 15%
Cash Equivalents........... 8%
4
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Equity Income Fund about the key events and economic forces that shaped the
markets during the first half of the Fund's fiscal year. The team is led by
James A. Gilligan, portfolio manager, and Alan T. Sachtleben, executive vice
president for equity investments. The following excerpts
reflect their views on the Fund's performance during the six-month period
ended June 30, 1996.
Q WHAT MARKET FACTORS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE
DURING THE SIX MONTHS ENDED JUNE 30, 1996?
A Many equity markets set new highs in the first part of 1996, driven by a
surprisingly strong economy. This strength led to better-than-expected
corporate profits, which fueled the appreciation of stock prices. The strong
economy had the most pronounced impact on profits in the industrial and con-
sumer cyclical sectors. Examples include, Sears and Federated Department
Stores (retail) and Continental (airlines).
Q WHAT ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO IN RESPONSE TO THESE MAR-
KET CONDITIONS?
A Early in the first quarter, it was evident that the slow-down in the
economy seen in late 1995 would not continue, and by the end of February,
companies were reporting strengthening business. In response to this trend, we
reduced the Fund's exposure to interest-rate sensitive issues and increased
holdings of economically sensitive (or cyclical) stocks. For example, we in-
creased the Fund's exposure to stocks of raw materials producers, where stock
prices have rallied to become some of the best performers this year. Converse-
ly, we reduced the Fund's position in utility stocks, which did well in the
fourth quarter of 1995, but because of a rising interest rate environment,
have become the worst performing sector for the first half of 1996. Addition-
ally, the portfolio's bond exposure was reduced slightly during this period
due to rising interest rates.
Some familiar cyclical stocks were added to the portfolio during this peri-
od, including Union Carbide (chemical) and ConRail (railroad). Both companies
historically have benefited from a robust economy. Please refer to page four
for Fund performance highlights.
Q CAN YOU GIVE A FEW EXAMPLES OF STOCKS THAT SHOWED SIGNIFICANT IMPACT ON
THE PORTFOLIO DURING THE PAST SIX MONTHS?
A The stock price of Monsanto (chemical), one of the Fund's long-time
holdings, appreciated over 30 percent for the six-month period. This
reflected strong demand for agricultural chemicals and the increased
profitability of their pharmaceuticals division. Chrysler (autos) also
appreciated over 27 percent for the six-month period because of high demand
for its products, particularly the newly redesigned minivan series. Cincinnati
Bell's (utility) 50-plus percent appreciation over the last six months can be
attributed to its telecom services division. This particular company is
involved in "outsourcing" --the offering of a specialized service to
5
<PAGE>
companies that may not have that same capability. Cincinnati Bell's services
include wireless communications billing and telemarketing.
Q HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
A Class A shares of the Fund achieved a total return at net asset value of
5.34 percent/1/. By comparison, the Standard & Poor's 500-Stock Index
generated a total return of 10.08 percent and the Lipper Equity Income Fund
Index returned 7.14 percent for the same period. Keep in mind that the S&P 500
Index is a broad-based, unmanaged index that reflects general stock market
performance and does not reflect any commissions or fees that would be paid by
an investor purchasing the securities it represents. The Lipper Equity Income
Fund Index reflects the average performance of the largest equity income funds
and does not reflect any sales charges that would be paid by an investor pur-
chasing the funds it represents.
The divergence between the Fund's performance and these indices stems from
our expectations for a slower economy and weakening market very early in the
year. However, with an interest rate reduction in February and stronger-than-
expected company earnings in March and April, both the economy and stock mar-
ket remained strong. In order to capture the appreciation potential of
cyclical stocks, which typically perform well in a strong economy, we shifted
some of the portfolio's bond holdings to stocks. Earlier in the year, the Fund
held approximately 12 percent in bonds. Please refer to the chart on page
three for additional Fund performance results.
Q HOW DOES THE CURRENT INTEREST RATE ENVIRONMENT SHAPE THE PORTFOLIO
STRUCTURE LOOKING FORWARD?
A During periods when interest rates are rising or expected to rise, the
Fund has typically reduced exposure to interest-rate sensitive issues,
such as utilities. This has been offset by an increased exposure to consumer
and industrial cyclical stocks. Accordingly, this has been the portfolio's po-
sition for the first six months of 1996.
Interest rates now appear to be stabilizing and inflation continues to be
low. Looking ahead, we will continue to monitor any changes in these economic
indicators. If there is little change in the economy, the portfolio is ex-
pected to remain largely unchanged. On the other hand, should the economy be-
gin to show signs of weakening, we expect to reduce the Fund's current
exposure to cyclical stocks, while adding consumer companies with records of
steady growth.
Q WHAT IS THE OUTLOOK FOR THE STOCK MARKET AND, MORE SPECIFICALLY, FOR THE
FUND THROUGH THE NEXT SIX MONTHS?
A The two key forces that determine the value of the stock market are in-
terest rates and corporate profits. Interest rates are affected by a num-
ber of variables, but the most important is anticipated inflation. At the very
outset of the first quarter, expectations were for a weaker economy and possi-
bly higher inflation. However, by February companies were report-
6
<PAGE>
ing strengthening business. This caused a steep increase in interest rates. The
second key force in determining the value of the market, corporate profits,
more than overcame the dampening effect of higher rates.
While we are only halfway through the year, the current outlook is for corpo-
rate profits to show considerably better growth than was expected at the begin-
ning of the year. Looking ahead, with inflation seemingly in check, despite
good economic growth and steady corporate profits, we are not overly concerned
about the valuation of the market. We expect that investments in large, quality
companies that benefit from moderate economic growth and low inflation continue
to do well.
SIGNATURE LOGO SIGNATURE LOGO
Alan T. Sachtleben James A. Gilligan
Executive Vice President Portfolio Manager
Equity Investments
Please see footnotes on page three.
7
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
DOMESTIC COMMON STOCK 63.4%
CONSUMER DISTRIBUTION 5.5%
115 Dillard Dept Stores Inc................................ $ 4,197,500
*313 Federated Dept Stores Inc.............................. 10,681,125
59 Gap Inc................................................ 1,895,375
*112 Gymboree Corp.......................................... 3,416,000
91 Home Depot Inc......................................... 4,914,000
133 May Department Stores Co............................... 5,818,750
87 Nordstrom Inc.......................................... 3,871,500
99 Sears Roebuck & Co..................................... 4,813,875
104 Talbots Inc............................................ 3,367,000
61 Tandy Corp............................................. 2,889,875
*144 Toys R Us Inc.......................................... 4,104,000
*88 Vons Companies Inc..................................... 3,289,000
------------
53,258,000
------------
CONSUMER DURABLES 2.1%
166 Chrysler Corp.......................................... 10,292,000
22 Eastman Kodak Co....................................... 1,710,500
36 General Motors Corp.................................... 1,885,500
105 Masco Corp............................................. 3,176,250
240 Sunbeam Oster Inc...................................... 3,535,575
------------
20,599,825
------------
CONSUMER NON-DURABLES 5.6%
45 Campbell Soup Co....................................... 3,172,500
90 Coca Cola Co........................................... 4,398,750
40 Colgate Palmolive Co................................... 3,390,000
*95 Donnkenny Inc.......................................... 1,852,500
23 Kellogg Co............................................. 1,684,750
339 Nabisco Holdings Corp, Class A......................... 11,992,125
137 Philip Morris Companies Inc............................ 14,248,000
127 Quaker Oats Co......................................... 4,333,875
68 Ralston Purina Group................................... 4,360,500
178 Rubbermaid Inc......................................... 4,850,500
------------
54,283,500
------------
CONSUMER SERVICES 2.9%
96 Block (H & R) Inc...................................... 3,132,000
134 Deluxe Corp............................................ 4,757,000
51 Disney (Walt) Co....................................... 3,206,625
57 Dun & Bradstreet Corp.................................. 3,562,500
68 McDonald's Corp........................................ 3,179,000
91 Omnicom Group.......................................... 4,231,500
</TABLE>
See Notes to Financial Statements
8
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
47 Tribune Co............................................. $ 3,413,375
165 Wendy's International Inc.............................. 3,073,125
------------
28,555,125
------------
ENERGY 6.8%
91 Amerada Hess Corp...................................... 4,879,875
193 Apache Corp............................................ 6,344,875
120 Burlington Resources Inc............................... 5,160,000
108 Chevron Corp........................................... 6,372,000
128 Exxon Corp............................................. 11,120,000
65 Mobil Corp............................................. 7,276,913
179 Pacific Enterprises.................................... 5,302,875
140 PanEnergy Corp......................................... 4,609,075
183 Texaco Inc............................................. 15,332,350
------------
66,397,963
------------
FINANCE 10.3%
203 Allstate Corp.......................................... 9,261,875
87 American International Group Inc....................... 8,580,375
120 Bank America Corp...................................... 9,090,000
62 Beacon Properties Corp................................. 1,588,750
54 Beneficial Corp........................................ 3,030,750
65 Chase Manhattan Corp................................... 4,590,625
50 Citicorp............................................... 4,131,250
150 Comerica Inc........................................... 6,693,750
125 Debartolo Realty Corp.................................. 2,015,625
58 Duke Realty Investments Inc............................ 1,754,500
172 Everest Re Holdings.................................... 4,450,500
215 Federal National Mortgage Association.................. 7,202,500
100 First Bank System Inc.................................. 5,800,000
113 Fleet Financial Group Inc.............................. 4,915,500
30 Health Care Properties Investors Inc................... 1,012,500
111 Horace Mann Educators Corp............................. 3,524,250
56 MBIA Inc............................................... 4,361,000
57 NationsBank Corp....................................... 4,709,625
90 Student Loan Marketing Association..................... 6,660,000
106 Travelers Group Inc.................................... 4,859,062
51 Weingarten Realty Investors............................ 1,976,250
------------
100,208,687
------------
HEALTH CARE 4.0%
119 Abbott Laboratories.................................... 5,176,500
*91 Amgen Inc.............................................. 4,914,000
</TABLE>
See Notes to Financial Statements
9
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
54 Baxter International Inc............................... $ 2,551,500
75 Bristol Myers Squibb Co................................ 6,750,000
58 Merck & Co., Inc....................................... 3,748,250
86 Pfizer Inc............................................. 6,138,250
152 Pharmacia & Upjohn Inc................................. 6,745,000
41 Schering Plough Corp................................... 2,572,750
------------
38,596,250
------------
PRODUCER MANUFACTURING 5.1%
115 Allied Signal Inc...................................... 6,569,375
75 Cooper Industries Inc.................................. 3,112,500
52 Fluor Corp............................................. 3,399,500
89 Foster Wheeler Corp.................................... 3,993,875
97 General Electric Co.................................... 8,390,500
100 Honeywell Inc.......................................... 5,450,000
64 Illinois Tool Works Inc................................ 4,328,000
122 Stewart & Stevenson Services Inc....................... 2,775,500
35 TRW Inc................................................ 3,145,625
150 WMX Technologies Inc................................... 4,912,500
74 York International Corp................................ 3,829,500
------------
49,906,875
------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.5%
143 Crown Cork & Seal Inc.................................. 6,435,000
66 Grace (WR) & Co........................................ 4,677,750
60 Hercules Inc........................................... 3,315,000
86 Mead Corp.............................................. 4,461,250
239 Monsanto Co............................................ 7,767,500
56 Olin Corp.............................................. 4,998,000
49 Phelps Dodge Corp...................................... 3,056,375
129 Praxair Inc............................................ 5,450,250
69 Sigma Aldrich Corp..................................... 3,691,500
------------
43,852,625
------------
TECHNOLOGY 7.9%
*38 BMC Software Inc....................................... 2,270,500
86 Boeing Co.............................................. 7,492,750
*55 Cisco Systems Inc...................................... 3,114,375
76 Computer Associates International Inc.................. 5,415,000
*84 Dynatech Corp.......................................... 2,730,000
*201 General Instrument Corp................................ 5,803,875
118 General Signal Corp.................................... 4,469,250
29 Harris Corp............................................ 1,769,000
</TABLE>
See Notes to Financial Statements
10
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
30 Hewlett Packard Co.................................... $ 2,988,750
65 Intel Corp............................................ 4,773,437
39 Linear Technology Corp................................ 1,170,000
*91 Loral Corp............................................ 1,239,875
129 Lucent Technologies Inc............................... 4,885,875
*41 Microsoft Corp........................................ 4,925,125
*105 Newbridge Networks Corp............................... 6,877,500
41 Oak Industries Inc.................................... 1,220,550
87 Perkin-Elmer Corp..................................... 4,197,750
*148 Softkey International Inc............................. 2,802,750
+*43 Tellabs Inc........................................... 2,875,625
117 Xerox Corp............................................ 6,259,500
------------
77,281,487
------------
TRANSPORTATION 1.0%
88 Conrail Inc........................................... 5,841,000
52 Union Pacific Corp.................................... 3,633,500
------------
9,474,500
------------
UTILITIES 7.7%
100 Allegheny Power Systems Inc........................... 3,087,500
79 Ameritech Corp........................................ 4,690,625
178 AT & T Corp........................................... 11,036,000
90 Cincinnati Bell Inc................................... 4,691,250
158 CMS Energy Group...................................... 4,878,250
116 Duke Power Co......................................... 5,945,000
107 Edison International.................................. 1,887,637
164 Frontier Corp......................................... 5,022,500
110 GTE Corp.............................................. 4,922,500
220 Houston Industries Inc................................ 5,417,500
113 MCI Communications Corp............................... 2,895,625
148 NIPSCO Industries Inc................................. 5,957,000
253 Pacificorp............................................ 5,629,250
151 Peco Energy Co........................................ 3,926,000
51 Southern New England Telecommunications Corp.......... 2,142,000
121 Teleport Communications Group, Class A................ 2,314,125
------------
74,442,762
------------
TOTAL DOMESTIC COMMON STOCK (Cost $529,307,850)....... 616,857,599
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
FOREIGN COMMON STOCK 6.6%
136 Adidas ADS (Germany)............................. $ 5,712,000
195 Argenteria Bancaria Espana ADR (Spain)........... 4,290,000
102 Astra AB, Series A, ADR (Sweden)................. 4,462,500
170 Cable & Wireless, ADR (United Kingdom)........... 3,357,500
186 Canadian National Railway (Canada)............... 3,417,750
262 Canadian Pacific Ltd. (Canada)................... 5,764,000
*120 Coca Cola Femsa, SA, ADS (Mexico)................ 3,435,000
160 Ericsson (LM), Class B, ADR (Sweden)............. 3,440,000
81 Magna International Inc, Class A (Canada)........ 3,726,000
156 National Power, ADR (United Kingdom)............. 3,802,500
91 Nokia Corp, ADS (Finland)........................ 3,367,000
129 PowerGen, PLC, ADR (United Kingdom).............. 2,676,750
58 Royal Dutch Petroleum Corp., ADR (Netherlands)... 8,917,500
157 Telefonos de Mexico, SA, ADR (Mexico)............ 5,259,500
61 Teva Pharmaceutical Ltd, ADR (Israel)............ 2,310,375
------------
TOTAL FOREIGN COMMON STOCK (Cost $64,498,522).... 63,938,375
------------ ---
CONVERTIBLE PREFERRED STOCK 2.8%
85 Delta Air Lines Inc, $3.50....................... 5,355,000
*74 Kmart Financing, 7.75%........................... 3,998,225
*70 MFS Communications, 8.00%........................ 4,445,000
50 SCI Finance NV, LLC, 6.25%....................... 4,831,250
104 Williams Companies Inc, $3.50.................... 8,177,000
------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost
$21,356,331).................................... 26,806,475
------------
<CAPTION>
Par
Amount
(000)
---------
<C> <S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS 8.5%
CONSUMER DISTRIBUTION 0.4%
$ 4,000 May Department Stores........... 8.375% 08/01/24 4,075,200
------------
CONSUMER DURABLES 0.7%
3,000 Ford Motor Co................... 9.000 09/15/01 3,256,860
3,000 General Motors Corp............. 7.000 06/15/03 2,989,020
------------
6,245,880
------------
CONSUMER SERVICES 1.2%
5,000 Cox Communications Inc.......... 7.250 11/15/15 4,785,500
3,000 Hertz Corp...................... 7.000 04/15/01 3,018,600
2,000 Tele Communications Inc......... 9.800 02/01/12 2,168,600
1,500 Time Warner Entertainment Co.... 9.625 05/01/02 1,657,260
------------
11,629,960
------------
ENERGY 2.6%
5,000 Enron Corp...................... 9.125 04/01/03 5,485,000
4,000 Occidental Petroleum Corp....... 10.125 11/15/01 4,553,400
</TABLE>
See Notes to Financial Statements
12
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$6,000 Sonat Inc.............................. 6.875% 06/01/05 $ 5,879,520
1,500 Texaco Capital Inc..................... 8.250 10/01/06 1,626,765
5,500 Texas Eastern Transmission Corp........ 8.250 10/15/04 5,858,380
2,000 Western Atlas Inc...................... 7.875 06/15/04 2,080,000
-----------
25,483,065
-----------
FINANCE 0.2%
2,000 General Electric Capital Corp.......... 8.900 09/15/04 2,234,220
-----------
PRODUCER MANUFACTURING 0.2%
1,500 Reliance Electric Co................... 6.800 04/15/03 1,466,700
-----------
RAW MATERIALS/PROCESSING
INDUSTRIES 2.2%
5,000 Carter Holt Harvey Ltd................. 8.875 12/01/04 5,482,000
5,000 Crown Cork & Seal Co................... 8.375 01/15/05 5,363,450
5,000 Georgia Pacific Corp................... 9.500 05/15/22 5,306,750
5,000 James River Corp....................... 8.375 11/15/01 5,277,200
-----------
21,429,400
-----------
TECHNOLOGY 0.4%
4,000 Philips Electronics, NV (Netherlands).. 7.750 04/15/04 4,105,640
-----------
TRANSPORTATION 0.3%
3,000 Union Pacific Corp..................... 7.600 05/01/05 3,054,900
-----------
UTILITIES 0.3%
2,500 MCI Communications Corp................ 7.125 01/20/00 2,533,400
-----------
TOTAL CORPORATE OBLIGATIONS
(Cost $81,708,465).................... 82,258,365
-----------
DOMESTIC CONVERTIBLE CORPORATE
OBLIGATIONS 6.3%
CONSUMER NON-DURABLES 0.9%
8,000 Grand Metropolitan..................... 6.500 01/31/00 8,710,000
-----------
CONSUMER SERVICES 1.6%
17,000 ADT Operations Inc..................... (1) 07/06/10 9,222,500
95 Merrill Lynch, STRYPES................. 6.000 06/01/99 2,080,240
8,000 News American Holdings................. (1) 03/11/13 3,860,000
-----------
15,162,740
-----------
ENERGY 0.3%
2,710 Ensearch Corp.......................... 6.375 04/01/02 2,625,313
-----------
FINANCE 0.6%
1,100 American Travellers Corp............... 6.500 10/01/05 1,730,437
3,600 Equitable Companies Inc................ 6.125 12/15/24 4,050,000
-----------
5,780,437
-----------
HEALTH CARE 0.6%
4,000 United Technologies Corp., PEN......... (2) 09/08/97 5,760,000
-----------
RAW MATERIALS/PROCESSING
INDUSTRIES 0.3%
7,500 Rpm Inc................................ (1) 09/30/12 3,225,000
-----------
TECHNOLOGY 0.6%
40 American Express Co, DECKS............. 6.250 10/15/96 2,628,534
50 Salomon Inc, ELKS...................... 6.500 02/01/97 3,311,103
-----------
5,939,637
-----------
TRANSPORTATION 0.6%
5,000 Continental Airlines Inc............... 6.750 04/15/06 5,962,500
-----------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES 0.8%
$ 105 Sprint Corp, DECKS........ 8.250% 03/31/00 $ 4,225,500
11,000 U. S. Cellular Corp....... (1) 06/15/15 3,740,000
------------
7,965,500
------------
TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS
(Cost $52,621,844)............................... 61,131,127
------------
FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS 2.9%
5,000 Aegon, NV (Netherlands)... 4.750 11/01/04 8,125,000
9,000 MBL International 3.000 11/30/02 10,496,250
(Bermuda).................
18,500 Roche Holdings Inc. (1) 04/20/10 7,885,625
(Switzerland).............
2,090 Sandoz Ltd. 2.000 10/06/02 2,233,687
(Switzerland).............
------------
TOTAL FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS
(Cost $23,843,157)............................... 28,740,562
------------
UNITED STATES AGENCIES AND
OBLIGATIONS 1.6%
1,000 Federal Farm Credit Banks. 9.000 03/07/97 1,025,370
15,000 United States Treasury
Notes..................... 6.375 07/15/99 15,030,450
------------
TOTAL UNITED STATES AGENCIES AND OBLIGATIONS
(Cost $15,941,406)................................ 16,055,820
------------
SHORT-TERM
INVESTMENTS 7.8%
COMMERCIAL PAPER 2.1%
20,000 General Electric Capital 5.560 07/01/96 19,990,733
Corp......................
------------
REPURCHASE AGREEMENT 0.4%
4,050 BA Securities, dated
06/28/96 (collateralized
by U.S. Government
obligations in a pooled
cash account) repurchase
proceeds $4,051,839....... 5.450 07/01/96 4,050,000
------------
UNITED STATES AGENCIES AND
OBLIGATIONS 5.3%
**12,370 Federal Home Loan Banks... 5.106 07/11/96 12,351,139
**16,715 Federal Home Loan Mtg
Corp...................... 5.313 to 5.338 Various 16,645,625
**5,000 Federal National Mtg
Association............... 5.332 07/25/96 4,963,333
**18,000 Treasury Bills............ 4.942 to 5.137 Various 17,821,863
------------
51,781,960
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $75,829,031).... 75,822,693
------------
TOTAL INVESTMENTS (Cost $865,106,606) 99.9%................. 971,611,016
OTHER ASSETS AND LIABILITIES, NET 0.1%...................... 1,318,189
------------
NET ASSETS 100%............................................. $972,929,205
------------
</TABLE>
*Non-income producing security
**Securities with a market value of $48.2 million were placed as collateral for
futures contracts (see Note 1B)
+All or a portion of this security is subject to call options written (see Note
3)
(1) Liquid yield option note, zero coupon
(2) Zero coupon
DECKS--debt exchangeable for common stock, traded in shares
ELKS--equity linked security, traded in shares
PEN--pharmaceutical exchange note
STRYPES--structured yield product exchangeable for stock, traded in shares
See Notes to Financial Statements
14
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $865,106,606).................. $971,611,016
Cash.............................................................. 11,838
Receivable for investments sold................................... 14,707,833
Receivable for Fund shares sold................................... 3,869,767
Dividends and interest receivable................................. 3,818,228
Receivable for broker-variation margin............................ 228,750
Other assets and receivables...................................... 48,763
------------
Total Assets..................................................... 994,296,195
------------
LIABILITIES
Payable for investments purchased................................. 16,994,105
Payable for Fund shares purchased................................. 2,835,627
Due to Distributor................................................ 694,138
Due to Adviser.................................................... 312,281
Dividends payable................................................. 192,290
Due to shareholder service agent.................................. 184,510
Deferred Trustees' compensation................................... 62,664
Options contracts written......................................... 9,021
Accrued expenses.................................................. 82,354
------------
Total Liabilities................................................ 21,366,990
------------
NET ASSETS, equivalent to $6.51 per share for Class A and $6.49
per share for Class B and C shares............................... $972,929,205
------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 62,177,518 Class A,
80,294,134 Class B, and 7,258,412
Class C shares outstanding....................................... $ 1,497,301
Capital surplus................................................... 829,917,091
Undistributed net realized gain on securities..................... 33,963,504
Net unrealized appreciation of securities
Investments...................................................... 106,504,410
Futures contracts................................................ 375,829
Options contracts written........................................ 118
Undistributed net investment income............................... 670,952
------------
NET ASSETS........................................................ $972,929,205
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest............................................................ $7,961,629
Dividends........................................................... 7,280,821
----------
Investment income.................................................. 15,242,450
----------
EXPENSES
Management fees..................................................... 1,744,759
Shareholder service agent's fees and expenses....................... 1,052,808
Accounting services................................................. 102,162
Service fees--Class A............................................... 434,254
Distribution and service fees--Class B.............................. 2,346,802
Distribution and service fees--Class C.............................. 214,447
Trustees' fees and expenses......................................... 27,612
Audit fees.......................................................... 20,065
Custodian fees...................................................... 20,550
Legal fees.......................................................... 3,771
Reports to shareholders............................................. 60,000
Registration and filing fees........................................ 109,377
State franchise taxes............................................... 13,105
Miscellaneous....................................................... 55,111
Retirement plan expense reimbursement (see Note 4).................. (7,500)
----------
Total expenses................................................... 6,197,323
----------
NET INVESTMENT INCOME............................................. 9,045,127
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain on securities
Investments...................................................... 32,753,478
Futures contracts................................................ 1,391,192
Net unrealized appreciation (depreciation) of securities during
the period
Investments...................................................... (787,931)
Futures contracts................................................ 899,837
Options contracts................................................ 118
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.................... 34,256,694
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $43,301,821
-----------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period................ $797,064,576 $509,399,385
------------ ------------
OPERATIONS
Net investment income......................... 9,045,127 19,041,032
Net realized gain on securities............... 34,144,670 47,685,541
Net unrealized appreciation of securities
during the period............................ 112,024 107,844,844
------------ ------------
Increase in net assets resulting from
operations.................................... 43,301,821 174,571,417
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A....................................... (4,542,077) (9,417,089)
Class B....................................... (4,265,600) (8,073,838)
Class C....................................... (388,853) (805,374)
------------ ------------
(9,196,530) (18,296,301)
------------ ------------
Net realized gain on securities
Class A....................................... (3,245,040) (17,024,616)
Class B....................................... (4,079,005) (19,392,670)
Class C....................................... (373,751) (1,831,288)
------------ ------------
(7,697,796) (38,248,574)
------------ ------------
Total distributions.......................... (16,894,326) (56,544,875)
------------ ------------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A....................................... 78,546,665 100,960,071
Class B....................................... 122,630,958 127,455,590
Class C....................................... 11,976,991 12,700,237
------------ ------------
213,154,614 241,115,898
------------ ------------
Proceeds from shares issued for distributions
reinvested
Class A....................................... 6,830,576 22,648,505
Class B....................................... 7,610,781 25,073,357
Class C....................................... 603,452 2,071,625
------------ ------------
15,044,809 49,793,487
------------ ------------
Cost of shares redeemed
Class A....................................... (42,059,058) (69,303,217)
Class B....................................... (31,702,756) (42,499,849)
Class C....................................... (4,980,475) (9,467,670)
------------ ------------
(78,742,289) (121,270,736)
------------ ------------
Increase in net assets resulting from capital
transactions................................. 149,457,134 169,638,649
------------ ------------
INCREASE IN NET ASSETS......................... 175,864,629 287,665,191
------------ ------------
NET ASSETS, end of period (including
undistributed net investment income of
$670,952 and $822,355, respectively)......... $972,929,205 $797,064,576
------------ ------------
</TABLE>
See Notes to Financial Statements
17
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
Six Months
Ended Year Ended December 31
June 30, --------------------------------------
1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period.................. $ 6.31 $ 5.16 $ 5.55 $ 5.15 $ 4.83 $ 4.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Investment income......... .11 .25 .27 .25 .255 .26
Expenses.................. (.03) (.05) (.06) (.06) (.05) (.045)
------ ------ ------ ------ ------ ------
Net investment income...... .08 .20 .21 .19 .205 .215
Net realized and unrealized
gain (loss) on securities. .254 1.458 (.317) .6055 .31 .83
------ ------ ------ ------ ------ ------
Total from investment
operations................. .334 1.658 (.107) .7955 .515 1.045
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM
(see Note 1F)
Net investment income..... (.077) (.188) (.1855) (.168) (.195) (.215)
Net realized gain on
securities................ (.057) (.32) (.0975) (.2275) -- --
------ ------ ------ ------ ------ ------
Total distributions........ (.134) (.508) (.283) (.3955) (.195) (.215)
------ ------ ------ ------ ------ ------
Net asset value, end of
period..................... $ 6.51 $ 6.31 $ 5.16 $ 5.55 $ 5.15 $ 4.83
------ ------ ------ ------ ------ ------
TOTAL RETURN (/1/)......... 5.34% 32.57% (1.98%) 16.00% 10.72% 26.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)................. $404.7 $349.9 $240.5 $187.6 $123.8 $103.1
Average net assets
(millions)................. $377.6 $292.4 $214.4 $152.1 $109.6 $ 93.7
Ratios to average net
assets (annualized)(/2/)
Expenses.................. .95% .95% 1.02% 1.06% 1.01% 1.02%
Expenses, without expense
reimbursement............. .95% -- -- -- -- --
Net investment income..... 2.48% 3.43% 3.60% 3.33% 3.95% 4.88%
Net investment income,
without expense
reimbursement............ 2.48% -- -- -- -- --
Portfolio turnover rate.... 52% 92% 92% 101% 74% 80%
Average commission rate per
equity stock traded....... $0.047 -- -- -- -- --
</TABLE>
(1) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(2) See Note 4.
See Notes to Financial Statements
18
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------
Six May 1,
Months 1992(/1/)
Ended Year Ended December 31 through
June 30, --------------------------- Dec 31,
1996 1995 1994 1993(/2/) 1992(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period...................... $ 6.30 $ 5.16 $ 5.55 $ 5.15 $ 4.83
------ ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Investment income........... .11 .25 .21 .24 .16
Expenses.................... (.06) (.10) (.08) (.10) (.06)
------ ------- ------- ------- ------
Net investment income........ .05 .15 .13 .14 .10
Net realized and unrealized
gain (loss) on securities... .254 1.458 (.277) .6155 .337
------ ------- ------- ------- ------
Total from investment
operations.................. .304 1.608 (.147) .7555 .437
------ ------- ------- ------- ------
LESS DISTRIBUTIONS FROM (see
Note 1F)
Net investment income....... (.057) (.148) (.13) (.128) (.117)
Excess of book-basis net in-
vestment income............ -- -- (.0155) -- --
Net realized gain on securi-
ties....................... (.057) (.32) (.0975) (.2275) --
------ ------- ------- ------- ------
Total distributions.......... (.114) (.468) (.243) (.3555) (.117)
------ ------- ------- ------- ------
Net asset value, end of
period...................... $ 6.49 $ 6.30 $ 5.16 $ 5.55 $ 5.15
------ ------- ------- ------- ------
TOTAL RETURN (/3/)........... 4.86% 31.51% (2.70%) 14.94% 9.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions).................. $521.1 $ 408.9 $ 242.0 $ 115.4 $ 13.3
Average net assets
(millions).................. $469.4 $ 312.6 $ 192.9 $ 56.2 $ 4.4
Ratios to average net assets
(annualized)(/4/)
Expenses.................... 1.72% 1.75% 1.82% 1.89% 1.87%
Expenses, without expense
reimbursement.............. 1.72% -- -- -- --
Net investment income....... 1.70% 2.62% 2.82% 2.45% 3.06%
Net investment income,
without expense
reimbursement.............. 1.70% -- -- -- --
Portfolio turnover rate...... 52% 92% 92% 101% 74%
Average commission rate per
equity stock traded.......... $0.047 -- -- -- --
</TABLE>
(1)Commencement of offering of sales.
(2)Based on average month-end shares outstanding.
(3) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(4)See Note 4.
See Notes to Financial Statements
19
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------------------
Six July 6,
Months Year Ended 1993(/1/)
Ended December 31 through
June 30, ---------------- Dec 31,
1996 1995 1994 1993(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $ 6.30 $ 5.16 $ 5.55 $ 5.37
------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................... .11 .25 .23 .11
Expenses............................... (.06) (.10) (.09) (.05)
------ ------- ------- ------
Net investment income................... .05 .15 .14 .06
Net realized and unrealized gain (loss)
on securities.......................... .254 1.458 (.287) .379
------ ------- ------- ------
Total from investment operations........ .304 1.608 (.147) .439
------ ------- ------- ------
LESS DISTRIBUTIONS FROM (see Note 1F)
Net investment income.................. (.057) (.148) (.14) (.064)
Excess of book-basis net investment in-
come.................................. -- -- (.0055) --
Net realized gain on securities........ (.057) (.32) (.0975) (.195)
------ ------- ------- ------
Total distributions..................... (.114) (.468) (.243) (.259)
------ ------- ------- ------
Net asset value, end of period.......... $ 6.49 $ 6.30 $ 5.16 $ 5.55
------ ------- ------- ------
TOTAL RETURN (/3/)...................... 4.86% 31.51% (2.70%) 8.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).... $ 47.1 $ 38.3 $ 26.9 $ 10.0
Average net assets (millions)........... $ 42.9 $ 31.9 $ 21.8 $ 3.4
Ratios to average net assets
(annualized)(/4/)
Expenses............................... 1.72% 1.76% 1.82% 1.98%
Expenses, without expense
reimbursement......................... 1.72% -- -- --
Net investment income.................. 1.70% 2.63% 2.83% 2.27%
Net investment income, without expense
reimbursement......................... 1.70% -- -- --
Portfolio turnover rate................. 52% 92% 92% 101%
Average commission rate per equity stock
traded.................................. $0.047 -- -- --
</TABLE>
(1)Commencement of offering of sales.
(2)Based on average month-end shares outstanding.
(3) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(4)See Note 4.
See Notes to Financial Statements
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Equity Income Fund (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end man-
agement investment company. The Fund seeking as its primary objective, the
highest possible income consistent with safety of principal by investing pri-
marily in income producing equity and debt securities issued by a wide range of
companies in many different industries.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prepa-
ration of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported. Actual amounts may differ from the estimates.
A. INVESTMENT VALUATIONS-Securities, listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the mean
between the last reported bid and asked price.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
B. FUTURES AND OPTIONS CONTRACTS-Transactions in futures and options contracts
are utilized in strategies to manage the market risk of the Fund's investments.
The purchase of a futures contract or call option (or the writing of a put op-
tion) 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 Activity contains addi-
tional information.
Upon entering into futures contracts, the Fund maintains, in a segregated ac-
count 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 ac-
count in the name of the broker, the Fund's agent in acquiring the futures po-
sition. 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.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
Call and Put Options--The Fund may write covered call options and collater-
alized put options. Options written on futures contracts require initial mar-
gin deposits. Options purchased are recorded as investments; options written
(sold) are accounted for as liabilities. When an option expires, the premium
(original option value) is realized as a gain if the option was written or re-
alized as a loss if the option was purchased. When the exercise of an option
results in a cash settlement, the difference between the premium and the set-
tlement proceeds is realized as a gain or loss. When securities are acquired
or delivered upon exercise of an option, the acquisition cost or sale proceeds
are adjusted by the amount of the premium. When an option is closed, the dif-
ference between the premium and the cost to close the position is realized as
a gain or loss.
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 for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
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.
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.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
G. 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.
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
Chief Accounting Officer and the personnel operating under his direction.
Charges are allocated among investment companies advised by the Adviser. For
the period, these charges included $5,589 as the Fund's share of the employee
costs attributable to the Fund's accounting officers. A portion of the ac-
counting services expense was paid to the Adviser in reimbursement of person-
nel, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The services provided by the Adviser are at
cost.
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 $880,763.
The Fund was advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor"), an affiliate of the Adviser, received $4,642,358, as its
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 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 Dis-
tributor for Class B and C shares may exceed the amounts reimbursed to the
Distributor by the Fund. At the end of the period, the unreimbursed expenses
incurred by the Distributor under the Class B and C plans aggregated approxi-
mately $15.1 million and $137,000, 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 renewal of the plans,
future Fund reimbursements of distribution fees.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
Certain officers and trustees of the Fund are officers and trustees of the
Adviser, the Distributor, and the shareholder service agent.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $549,900,788 and $418,136,738,
respectively.
For federal income tax purposes, the identified cost of investments owned at
the end of the period was $865,559,814. Net unrealized appreciation of invest-
ments aggregated $106,051,202, gross unrealized appreciation of investments
aggregated $119,024,801, and gross unrealized depreciation of investments ag-
gregated $12,973,599.
At the end of the period, the Fund held the following long Futures contracts
expiring in September 1996 and Call options written:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
MARKET UNREALIZED
CONTRACTS SECURITY VALUE APPRECIATION
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
122 S & P 500................................. $41,284,800 $303,775
30 Simex Nikkei 225 (Japan).................. 3,087,250 72,054
----------- --------
$44,372,050 $375,829
----------- --------
</TABLE>
CALL OPTIONS WRITTEN
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
- --------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance............................................ 0 $ 0
Written...................................................... 3,700 9,139
----- ------
Ending balance............................................... 3,700 $9,139
----- ------
</TABLE>
<TABLE>
<CAPTION>
MARKET UNREALIZED
CONTRACTS SECURITY VALUE APPRECIATION
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
3,700 Tellabs Inc. (expiring July 1996/exercise price
$70)........................................... $9,021 $118
------ ----
</TABLE>
NOTE 4--TRUSTEE COMPENSATION
Fund trustees who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,579 plus a fee of $90 per day for Board and Com-
mittee meetings attended. During the period, such fees aggregated $14,788.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
The Fund has a deferred compensation plan and a defined benefits retirement
plan for its trustees not affiliated with the Adviser. These plans are not
funded, and obligations under the plans 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 plans by any form of trust or escrow.
Under the deferred compensation plan, trustees may elect to defer all or a
portion of their compensation to a later date. Each trustee covered under the
plan elects to earn on the deferred balances an amount equal to the total re-
turn of the Fund or equal to the income earned by the Fund on its short-term
investments.
Under the retirement plan which became effective in January, 1996, benefits
which are based on years of service will be received by the trustee for a ten
year period. The maximum annual benefit for each trustee is $2,500. Retirement
plan expenses for the period aggregated $7,500. During the calendar year 1996,
the Adviser has agreed to reimburse the Fund for these plan expenses.
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
(Class A) or at the time of redemption on a contingent deferred basis (Class B
and C). All classes of shares have the same rights, except that Class B and C
shares bear the cost of distribution fees and certain other class specific ex-
penses. Realized and unrealized gains or losses, investment income and ex-
penses (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 C shares automatically convert to Class A shares six years and ten years
after purchase, respectively, subject to certain conditions.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
The Fund has an unlimited number of shares of $.01 par value beneficial in-
terest authorized. Transactions in shares of beneficial interest were as fol-
lows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A........................................ 12,183,094 16,719,414
Class B........................................ 19,096,253 21,177,056
Class C........................................ 1,864,644 2,124,439
----------- -----------
33,143,991 40,020,909
----------- -----------
Shares issued for distributions reinvested
Class A........................................ 1,067,713 3,676,431
Class B........................................ 1,194,367 4,062,779
Class C........................................ 94,686 336,096
----------- -----------
2,356,766 8,075,306
----------- -----------
Shares redeemed
Class A........................................ (6,532,220) (11,541,742)
Class B........................................ (4,938,471) (7,228,073)
Class C........................................ (775,117) (1,610,373)
----------- -----------
(12,245,808) (20,380,188)
----------- -----------
Increase in shares outstanding.................. 23,254,949 27,716,027
----------- -----------
</TABLE>
26
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
27
<PAGE>
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL
DONALD C. MILLER*
JACK E. NELSON
DON G. POWELL
JEROME L. ROBINSON
FERNANDO SISTO*
WAYNE W. WHALEN
WILLIAM S. WOODSIDE
*Co-Chairman of the Board
OFFICERS
DON G. POWELL
President and Chief Executive Officer
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
WILLIAM H. BROWN
PETER W. HEGEL
ROBERT C. PECK, JR.
ALAN T. SACHTLEBEN
PAUL R. WOLKENBERG
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
(C) Van Kampen American Capital
Distributors, Inc., 1996
All rights reserved.
SM denotes a service mark of Van Kampen
American Capital Distributors, Inc.
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.
28
