VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND/
N-30D, 1997-08-22
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<PAGE>

                         Van Kampen American Capital
 


                              EQUITY INCOME FUND





                              Semi-Annual Report
                                 June 30, 1997


                             [PHOTO APPEARS HERE]











          -----A Wealth of Knowledge . A Knowledge of Wealth(TM)-----
                          VAN KAMPEN AMERICAN CAPITAL






<PAGE>
 
            Table of Contents

<TABLE>
<S>                                    <C>
Letter to Shareholders...............   1
Performance Results..................   3
Portfolio Highlights.................   4
Portfolio Management Review..........   5
Portfolio of Investments.............   8
Statement of Assets and Liabilities..  17
Statement of Operations..............  18
Statement of Changes in Net Assets...  19
Financial Highlights.................  20
Notes to Financial Statements........  23
</TABLE>

EQI SAR 8/97









<PAGE>
 
                             Letter to Shareholders


                                [PHOTO OF Dennis J. McDonnell and Don G. Powell]
                                      Dennis J. McDonnell and Don G. Powell

July 24, 1997

Dear Shareholder,

     As you know, Van Kampen American Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter, Discover & Co. agreed to merge. The merger
was completed on May 31, creating the combined company of Morgan Stanley, Dean
Witter, Discover & Co. Additionally, we are very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.

     One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.

     We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

Economic Overview

     Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the lowest level since 1973.

     Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S. dollar helped dampen inflationary
pressures resulting from the vigorous domestic economy by making imported goods
less expensive. At the same time, continued moderation in the cost of employee
benefit packages offset mild upward pressure on wages.

     In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in 

                                       1                   Continued on page two
<PAGE>
 
short-term interest rates in two years. Signs that economic growth slowed
markedly in the second quarter, however, led Fed policymakers to leave rates
unchanged at subsequent meetings.

Market Overview

     With a solid underpinning of record profits, strong economic growth, and
low inflation, the U.S. equity market continued its torrid performance during
the first half of 1997. For a brief time this spring, however, investors worried
that growth was too robust and that higher interest rates were on the way. Those
fears pushed stock prices lower by about 10 percent over a one-month period
beginning in mid-March.

     By mid-April, signs that the economy was cooling began to emerge, and
stocks skyrocketed to a series of record highs. The Wilshire 5000 Index of all
publicly traded domestic companies gained 16.65 percent during the first six
months of the year and increased by 25.95 percent over the 12 months through
June 30. Low inflation allowed the market's price/earnings multiple to remain
high, while strong growth in corporate profits provided solid support for stock
prices.

     Within the equity market, most of the gains were generated by large-
capitalization stocks. The Russell 1000 Index of large companies gained 17.57
percent over the six months through June 30, almost double the return of the
Russell 2000 Index of small-capitalization companies. Consumer non-cyclicals
such as beverages and pharmaceuticals were among the top-performing industry
groups, although the rally broadened by the end of June to include sectors that
had previously been laggards, including cyclicals and small-company stocks.

Outlook
     We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the relatively sluggish rate that prevailed during the
second quarter. While we do not believe that economic growth will be rapid
enough to reignite inflation, some warning signs are present, including a tight
labor market and high consumer confidence. In this environment, at least one
additional Federal Reserve interest rate hike remains a possibility.

     We believe that equities should continue to do well given the likely
continuation of the moderate-growth, low-inflation environment. We are
concerned, however, that the lengthy series of record highs in the U.S. stock
market is creating unreasonable expectations among some investors. Valuations
are extended and investment sentiment is exceptionally optimistic. Under such
circumstances, a mild correction would not be unusual.

     We are fortunate to be experiencing a rare combination of sustained
economic growth, low inflation, and highly favorable performance in the
financial market. Along with our fund shareholders, we celebrate the seemingly
best of economic times. Once again, we encourage you to review your portfolio
with an eye toward correcting allocation imbalances.

     Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.

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, 1997

                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 NAV/1/................              14.65%         14.31%        14.31%
Six-month total return/2/.............................               8.08%          9.31%        13.31%
One-year total return/2/..............................              18.49%         19.88%        23.88%
Five-year average annual total return/2/..............              15.45%         15.71%          N/A
Ten-year average annual total return/2/...............              11.31%           N/A           N/A
Life-of-Fund average annual total return/2/...........              11.24%         15.46%        16.10%
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
    include 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 (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.

The medium-grade debt securities in which the Fund may invest are subject to
greater market risks and less assurance as to the ability of the issuer to meet
principal and interest obligations than higher-rated securities. Debt securities
rated in lower categories are considered high-risk securities; the rating
agencies consider them speculative, and payment of interest and principal is not
considered well-assured.

Market forecasts provided in this report may not necessarily come to pass.

                                       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                   As of
                                                             June 30, 1997          December 31, 1996
<S>                                                          <C>                    <C>
BankAmerica Corp...............................................   2.4%  .................  2.3%
United States Treasury Notes...................................   2.1%  .................  2.4%                                    
Exxon Corp.....................................................   2.0%  .................  0.7%                                    
Texaco, Inc....................................................   2.0%  .................  1.9%                                    
Royal Dutch Petroleum Co.--ADR (Netherlands)...................   1.8%  .................  1.4%                                    
Philip Morris Cos., Inc........................................   1.7%  .................  1.5%
Roche Holdings, Inc............................................   1.7%  .................  1.9%   
Allstate Corp..................................................   1.5%  .................  1.4%                                    
First Union Corp...............................................   1.3%  .................  0.5%                                    
PNC Bank Corp..................................................   1.2%  .................  N/A                                      
N/A = Not Applicable
</TABLE>

Top Five Portfolio Holdings by Sector as a Percentage of Long-Term Investments

<TABLE> 
<CAPTION> 
As of June 30, 1997                                          As of December 31, 1996 
<S>                                              <C>        <C>                                      <C> 
Finance...................................        18%        Finance.........................         17%
Health Care...............................        15%        Energy..........................         11%
Energy....................................        12%        Health Care.....................         10%
Technology................................        11%        Technology......................         10%
Utilities.................................        11%        Utilities.......................         10%
</TABLE>

Asset Allocation as a Percentage of Total Investments

<TABLE>

<S>
As of June 30, 1997             <C>
  Stocks.....................   75%
  Bonds......................    7%
  Convertibles...............    8%                        [PIE CHART APPEARS HERE]
  United States Obligations..    2% 
  Cash Equivalents...........    8% 
                                      
As of December 31, 1996            
  Stocks.....................   72%
  Bonds......................    8% 
  Convertibles...............    9%                        [PIE CHART APPEARS HERE]
  United States Obligations..    2% 
  Cash Equivalents...........    9%  
</TABLE>

                                       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 past six months. The team is led by James A. Gilligan,
portfolio manager, Scott Carroll and Bret Stanley, associate portfolio managers,
and Alan T. Sachtleben, chief investment officer for equity investments. The
following excerpts reflect their views on the Fund's performance during the six-
month period ended June 30, 1997.

Q    What were the key market conditions in which the Fund operated over the 
     past six months?

A    The combination of moderate economic growth and historically low inflation
     provided a near-ideal environment for equity investments during the period.
A weak bond market was unable to siphon investment money away from the stock
market. Stocks continued to soar to record highs, but not without occasional
flashes of volatility. We saw a correction of around 10 percent (as measured by
the Dow Jones Industrial Average) that lingered from mid-March through mid-
April. Since then, however, market averages have roared back and recovered from
earlier losses.

     Throughout the period, concerns over rising interest rates set the tone, as
investors worried that the Federal Reserve Board's commitment to controlling
inflation by raising short-term interest rates might slow the economy and cut
into corporate earnings. With nervous investors searching for direction, we have
not seen any one market sector or group of stocks emerge to provide clear
leadership. If we had to characterize the market's recent rallies, we would
point out a bias towards large-capitalization companies, although investors have
been quick to punish the stocks of companies that reported disappointing
earnings, regardless of their size. In a market in which the direction of
corporate profits seems unclear, large-cap stocks offer the potential for
predictable earnings streams. As a result, this capitalization group was an
attractive sector during the period.

Q    How did you manage the Fund in response to these market conditions?

A    We maintained our disciplined stock-selection process. When searching for
     securities to add to the Fund's portfolio, we attempt to identify blue chip
securities, or stocks issued by well-known companies, that are reasonably
valued. Through our research, we look for signals that a company's market
valuation will improve, such as new management and secular or cyclical growth.

     With valuations inflated on an absolute and relative basis during the
period, we have been highly selective, paying particular attention to the
downside risk of any new position. In a narrow universe of attractively priced
stocks, it has been increasingly important for us to clearly identify the
catalyst for a stock's improving valuation. We search for stocks with valuations
we can justify, as opposed to trendy stocks with exaggerated prices.

     We maintained a 10 percent asset allocation in bonds in a very difficult
bond market. Because of increased volatility in the stock market towards the end
of the reporting period and lingering questions about the direction of interest
rates, we're keeping a prudently defensive posture. In an effort to further
diversify the portfolio and search for new securities, we broadened our exposure
overseas a bit to approximately 14 percent at the end of the period. Companies
that have underperformed, but have signaled a possible turnaround with new
management or another significant

                                       5

<PAGE>
 
change, seem to be increasingly available outside the U.S. market. With U.S.
companies somewhat picked over in an especially narrow market, Europe is
emerging as an attractive landscape of corporate change. Some of the Fund's
largest international holdings include Royal Dutch, Adidas, Philips Electronics,
and telecommunications companies such as Alcatel, Nokia, and Ericsson.

Q    What were some of the sectors represented in the Fund's portfolio during
     the reporting period?
A    Health care, one of the best-performing sectors in the first quarter, and
     financial services were two of the Fund's largest sector holdings during
the six months. Technology, utilities, and energy rounded out the top five
sector holdings.
     In the financial services sector, companies are consolidating and buying
back stock, which has enhanced the prospects of strong future earnings growth in
this sector. Compared to 1996, the Fund's portfolio is more evenly distributed
among the different areas of the financial industry. We have increased our
weighting in the insurance industry, as we look for companies that are operating
efficiently or are offering specialized services. For example, Allstate has
begun appealing to homeowners located in historically less attractive urban
areas, CIGNA is in the process of selling off its property casualty business and
moving toward managed care, and Transamerica sold its consumer finance
operations in May to focus on life insurance.
     In the health-care sector, we focused our holdings on large pharmaceutical
companies, which have benefited from the high-volume growth spurred by trends in
managed care. Some of our holdings include Bristol Myers and Warner Lambert,
which have been excellent performers. Another holding, Aetna, a former multi-
line insurance company, recently completed a successful transition to managed
care. We will remain slightly overweighted in this sector, as it continues to
show the potential for appreciation.
     The Fund's performance was hindered somewhat by its weighting in the
utility sector due to lingering questions about the ability of companies to
perform in a deregulated environment. The deregulation process, while
progressing, is moving slowly and sporadically. The electric utility area, which
had been the bias of the portfolio's utility investments, was the hardest hit.
We continue to maintain exposure to utility stocks due to their excellent
valuations, and rely on our stock-picking fundamentals to search out investment
opportunities.

Q    Can you cite a few additional examples of specific holdings
     that contributed to the Fund's competitive performance during the period?
A    In the technology sector, we maintained a large stake in Lucent. When this
     stock was downgraded by Smith Barney during the reporting period, we took
advantage of a buying opportunity and increased our position. In the
telecommunications industry, Newbridge Network has experienced success in
employing a new switching technology called asynchronous transfer mode, or ATM.
Newbridge is hitting its growth curve, and has established itself as a market
leader in the sector. That stock closed at approximately $28 at the end of 1996;
by the end of June 1997, it was approximately $43. AT&T had been a substantial
holding in the Fund's portfolio, but a corporate management change was not what
we had hoped, so we trimmed that position back quite a bit. Two standouts in the
financial sector were Conseco, a life insurance company, and Travelers, a
financial services company. For additional Fund portfolio highlights, please
refer to page four.

                                       6
<PAGE>
 
Q    How did the Fund perform during the reporting period?
A    The Fund achieved a total return of 14.65 percent/1/ (Class A shares at net
     asset value) for the six-month period ended June 30, 1997. By comparison,
the Standard & Poor's 500-Stock Index returned 20.59 percent, and the Lipper
Equity Income Fund Average produced a total return of 15.39 percent for the same
period. The S&P 500-Stock Index is a broad-based, unmanaged index that reflects
the general performance of the stock market, and the Lipper Equity Income Fund
Average reflects the average performance of the largest equity income funds.
Keep in mind that these indices are unmanaged statistical composites that do not
reflect any commissions, fees, or sales charges that would be incurred by an
investor purchasing the securities they represent. Please refer to the chart on
page three for additional Fund performance results.

Q    How will you position the Fund in preparation for the months ahead?
A    A market that continues to reach record highs on a consistent basis is
     always vulnerable to a correction. However, there are no proven methods of
determining when and by how much the market might retrace its path. Our intent 
is to maintain a disciplined security-selection process, remain true to our
strategy, avoid weighting the portfolio too heavily in any one sector, and keep
the portfolio as close to fully invested as possible. At some point, the stock
market will broaden to include a wider universe of value-oriented growth stocks,
which should benefit the Fund. We believe that, on a relative basis, our
portfolio management philosophy will potentially temper the effects of market
volatility on the Fund. Of course, we are not immune to market declines, but our
portfolio characteristics might provide a buffer that aggressive equity funds
may lack.
     In keeping with the expectations of the Fund's shareholders, we continue to
refrain from taking extreme positions that we believe will expose the portfolio
to unwarranted risk. As always, we will search for the best companies at the
best price, diversify broadly, and maintain a long-term investment horizon.


/s/ Alan T. Sachtleben          /s/ James A. Gilligan
Alan T. Sachtleben              James A. Gilligan
Chief Investment Officer        Portfolio Manager
Equity Investments

                                              Please see footnotes on page three

                                       7
<PAGE>
         
                           Portfolio of Investments

                           June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
Security
Description                                             Shares   Market Value
- --------------------------------------------------------------------------------
<S>                                                     <C>      <C>
Common and Preferred Stocks 74.0%
Consumer Distribution 3.0%
CVS Corp...............................................  84,971   $ 4,354,764
Federated Department Stores, Inc. (b).................. 336,200    11,682,950
Gap, Inc............................................... 346,500    13,470,187
Gymboree Corp. (b)..................................... 389,300     9,343,200
Kmart Financing I Trust--Convertible Preferred.........  73,700     4,044,288
                                                                  -----------
                                                                   42,895,389
                                                                  -----------
Consumer Durables 1.3%
Black & Decker Corp....................................  42,000     1,561,875
Eastman Kodak Co.......................................  66,000     5,065,500
Masco Corp............................................. 156,100     6,517,175
Newell Co.............................................. 141,100     5,591,088
                                                                  -----------
                                                                   18,735,638
                                                                  -----------
Consumer Non-Durables 4.6%
Adidas ADS (Germany)................................... 119,000     6,515,250
Campbell Soup Co.......................................  92,200     4,610,000
Colgate Palmolive Co................................... 108,200     7,060,050
Nabisco Holdings Corp., Class A........................ 264,300    10,538,963
Philip Morris Cos., Inc................................ 507,000    22,498,125
Procter & Gamble Co....................................  41,100     5,805,375
Quaker Oats Co.........................................  34,000     1,525,750
Ralston Purina Group...................................  87,100     7,158,531
                                                                  -----------
                                                                   65,712,044
                                                                  -----------
Consumer Services 3.1%
Bell & Howell Co. (b)..................................  85,100     2,622,144
Cognizant Corp......................................... 285,300    11,554,650
H & R Block, Inc....................................... 324,200    10,455,450
Lone Star Steakhouse (b)............................... 302,300     7,859,800
News Corp. Exchange Trust 144A--Convertible Preferred..  83,000     7,127,625
Walt Disney Co.........................................  66,100     5,304,525
                                                                  -----------
                                                                   44,924,194
                                                                  -----------
</TABLE>

                                       8       See Notes to Financial Statements
<PAGE>

                     Portfolio of Investments (Continued)
                           June 30, 1997 (Unaudited)

<TABLE>
<CAPTION>
Security
Description                                    Shares   Market Value
- --------------------------------------------------------------------
<S>                                            <C>      <C>
Energy 8.5%
Coastal Corp.................................  156,100  $  8,302,569
El Paso Natural Gas Co.......................  112,000     6,160,000
Exxon Corp...................................  428,400    26,346,600
McDermott International, Inc.................  470,000    13,718,125
Royal Dutch Petroleum Co.--ADR (Netherlands).  444,400    24,164,250
Texaco, Inc..................................  221,700    24,109,875
USX Marathon Group...........................  314,500     9,081,187
Williams Cos., Inc.--Convertible Preferred...  104,000    10,712,000
                                                        ------------
                                                         122,594,606
                                                        ------------
Finance 14.2%
Allstate Corp................................  277,200    20,235,600
American General Corp........................  210,000    10,027,500
BankAmerica Corp.............................  486,200    31,390,287
BankBoston Corp..............................  147,000    10,593,187
Beacon Properties Corp.......................   62,000     2,069,250
Chase Manhattan Corp.........................   87,000     8,444,437
CIGNA Corp...................................   70,900    12,584,750
Citicorp.....................................   35,000     4,219,688
Conseco, Inc.................................  197,400     7,303,800
Everest Reinsurance Holdings, Inc............  205,100     8,127,088
First Union Corp.............................  182,000    16,835,000
Great Western Financial Corp.................   62,600     3,364,750
Hartford Life, Inc., Class A.................   44,100     1,653,750
Hertz Corp., Class A (b).....................   29,200     1,051,200
NationsBank Corp.............................  180,000    11,610,000
PMI Group, Inc...............................  106,000     6,611,750
PNC Bank Corp................................  393,100    16,362,787
Provident Cos., Inc..........................  134,000     7,169,000
Simon DeBartolo Group, Inc...................   86,000     2,752,000
TransAmerica Corp............................   73,000     6,830,063
Travelers Group, Inc.........................  113,000     7,126,063
Washington Mutual, Inc.......................   97,100     5,801,725
</TABLE>

                                       9       See Notes to Financial Statements
<PAGE>

                     Portfolio of Investments (Continued)
                          June 30, 1997 (Unaudited) 

<TABLE>
<CAPTION>
Security
Description                                               Shares   Market Value
- -------------------------------------------------------------------------------
<S>                                                       <C>      <C>
Finance (Continued)
Weingarten Realty Investors...........................     51,000  $  2,154,750
                                                                   ------------
                                                                    204,318,425
                                                                   ------------
Healthcare 10.7%
Abbott Laboratories..................................     152,300    10,166,025
Aetna, Inc...........................................     157,300    16,103,587
Alza Corp. (b).......................................     100,000     2,893,750
Amgen, Inc. (b)......................................      76,000     4,417,500
Bristol Myers Squibb Co..............................     143,000    11,583,000
Glaxo Wellcome, PLC--ADR (United Kingdom)............     290,500    12,146,531
Merck & Co., Inc.....................................     117,200    12,130,200
Mylan Laboratories, Inc..............................     141,000     2,079,750
Nellcor Puritan Bennett, Inc. (b)....................     503,000     9,116,875
Novartis AG--ADR (Switzerland).......................     177,000    14,126,813
PacifiCare Health Systems, Class B (b)...............     205,200    13,107,150
Pharmacia & Upjohn, Inc..............................     140,000     4,865,000
SmithKline Beecham PLC--ADR (United Kingdom).........     170,800    15,649,550
Teva Pharmaceutical Industries Ltd.--ADR (Israel)....      88,200     5,710,950
Warner Lambert Co....................................      88,200    10,958,850
Watson Pharmaceuticals, Inc. (b).....................     192,200     8,120,450
                                                                   ------------
                                                                    153,175,981
                                                                   ------------
Producer Manufacturing 6.8%
Allied Signal, Inc...................................     154,200    12,952,800
Canadian Pacific Ltd.................................     471,800    13,416,812
Fluor Corp...........................................      83,000     4,580,563
Honeywell, Inc.......................................     121,200     9,196,050
Ingersoll Rand Co....................................     179,600    11,090,300
Johnson Controls, Inc................................     219,600     9,017,325
Keystone International, Inc..........................     219,100     7,600,031
Philips Electronics N.V. (Netherlands)...............     135,100     9,710,313
Stewart & Stevenson Services, Inc....................     320,300     8,327,800
WMX Technologies, Inc................................     362,700    11,651,737
                                                                   ------------
                                                                     97,543,731
                                                                   ------------
</TABLE>

                                       10     See Notes to Financial Statements 
<PAGE>
                     Portfolio of Investments (Continued)
                          June 30, 1997 (Unaudited)
 
<TABLE>
<CAPTION>
Security
Description                                         Shares    Market Value
<S>                                                 <C>      <C>
Raw Materials/Processing Industries 3.6%
Betz Laboratories, Inc............................  107,000  $    7,062,000
Crown Cork & Seal Co., Inc........................  254,200      13,583,812
Du Pont (E. I.) de Nemours & Co...................  109,000       6,853,375
Fresenius National Med Care, Inc.--Preferred (b)..   12,000             690
James River Corp..................................  175,400       6,489,800
Morton International, Inc.........................   44,000       1,328,250
Praxair, Inc......................................  182,300      10,208,800
W R Grace & Co....................................  116,000       6,394,500
                                                             --------------
                                                                 51,921,227
                                                             --------------
Technology 9.4%
3Com Corp. (b)....................................   27,100       1,219,500
Alcatel Alsthom CGE--ADR (France).................  283,300       7,153,325
America Online, Inc. (b)..........................   61,000       3,393,125
Ascend Communications, Inc. (b)...................   41,000       1,614,375
BMC Software, Inc. (b)............................  149,300       8,267,488
Boeing Co.........................................   64,000       3,396,000
Cabletron Systems, Inc. (b).......................  146,000       4,133,625
Computer Associates International, Inc............   91,000       5,067,563
Ericsson L M Telephone Co., Class B--ADR (Sweden).  219,300       8,634,937
General Instrument Corp. (b)......................  304,400       7,610,000
General Signal Corp...............................  120,000       5,235,000
International Business Machines Corp..............   90,000       8,116,875
Intuit, Inc. (b)..................................   40,000         917,500
LSI Logic Corp. (b)...............................  179,000       5,728,000
Lucent Technologies, Inc..........................  135,200       9,742,850
Microsoft Corp. (b)...............................   83,100      10,501,762
Microsoft Corp.--Convertible Preferred............   85,000       7,395,000
Motorola, Inc.....................................   69,000       5,244,000
Newbridge Networks Corp. (b)......................  214,400       9,326,400
Nokia Corp.--ADR (Finland)........................  122,900       9,063,875
Tellabs, Inc. (b).................................   76,000       4,246,500
Xerox Corp........................................  112,200       8,849,775
                                                             --------------
                                                                134,857,475
                                                             --------------
</TABLE> 


                                       11      See Notes to Financial Statements
<PAGE>

                     Portfolio of Investments (Continued)

                           June 30, 1997 (Unaudited)

<TABLE> 
<CAPTION> 

- --------------------------------------------------------------------------- 
Security
Description                                          Shares    Market Value
- ---------------------------------------------------------------------------
<S>                                                 <C>        <C> 
Transportation 0.6%
Canadian National Railway Co......................  189,400  $    8,286,250
                                                             --------------

Utilities 8.2%
AirTouch Communications, Inc. (b).................  159,000       4,352,625
AT&T Corp.........................................  228,600       8,015,287
BellSouth Corp....................................  263,300      12,210,537
Boston Edison Co..................................  296,900       7,830,737
Cable & Wireless PLC--ADR (United Kingdom)........  432,500      12,082,969
Cincinnati Bell, Inc..............................  182,400       5,745,600
CMS Energy Corp...................................  343,500      12,108,375
DTE Energy Co.....................................  189,100       5,223,888
Edison International..............................  357,400       8,890,325
Florida Progress Corp.............................  175,000       5,479,688
FPL Group, Inc....................................  170,000       7,830,625
Houston Industries, Inc...........................  424,300       9,095,931
Ohio Edison Co....................................  249,000       5,431,313
SBC Communications, Inc...........................   85,000       5,259,375
Scana Corp........................................  342,400       8,495,800
                                                             --------------
                                                                118,053,075
                                                             --------------
  Total Common and Preferred Stocks...............            1,063,018,035
                                                             --------------
</TABLE>

                                          See Notes to Financial Statements

                                       12
<PAGE>
 
                     Portfolio of Investments (Continued)

                           June 30, 1997 (Unaudited)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Par
Amount
(000)      Description                              Coupon  Maturity    Market Value
- ------------------------------------------------------------------------------------
<S>        <C>                                      <C>     <C>         <C>

           Corporate Obligations 7.2%
           Consumer Distribution 0.3%
$   4,000  May Department Stores Co................  8.375%    08/01/24  $  4,151,200
                                                                         ------------
           Consumer Durables 0.6%
    3,000  Ford Motor Co...........................  7.250     10/01/08     3,034,950
    3,000  Ford Motor Co. Delaware Note............  9.000     09/15/01     3,249,900
    3,000  General Motors Corp.....................  7.000     06/15/03     3,029,400
                                                                         ------------
                                                                            9,314,250
                                                                         ------------
           Consumer Services 0.5%
    5,000  Cox Communications, Inc.................  7.250     11/15/15     4,888,450
    1,500  Time Warner Entertainment Co. L.P.......  9.625     05/01/02     1,661,700
                                                                         ------------
                                                                            6,550,150
                                                                         ------------
           Energy 2.1%
    5,000  Enron Corp..............................  9.125     04/01/03     5,538,000
    5,000  NGC Corp................................  6.750     12/15/05     4,893,500
    4,000  Occidental Petroleum Corp............... 10.125     11/15/01     4,493,600
    6,000  Sonat, Inc..............................  6.875     06/01/05     5,973,600
    1,500  Texaco Capital, Inc.....................  8.250     10/01/06     1,635,510
    5,500  Texas Eastern Transmission Corp.........  8.250     10/15/04     5,942,750
    2,000  Western Atlas, Inc......................  7.875     06/15/04     2,105,800
                                                                         ------------
                                                                           30,582,760
                                                                         ------------
           Finance 0.2%
    2,000  General Electric Capital Corp...........  8.900     09/15/04     2,233,240
                                                                         ------------

           Producer Manufacturing 0.1%
    1,500  Reliance Electric Co....................  6.800     04/15/03     1,490,100
                                                                         ------------
           Raw Materials/Processing Industries 1.1%
    5,000  Crown Cork & Seal, Inc..................  8.375     01/15/05     5,385,950
    5,000  Georgia Pacific Corp....................  9.500     05/15/22     5,415,500
    5,000  James River Corp........................  8.375     11/15/01     5,270,750
                                                                         ------------
                                                                           16,072,200
                                                                         ------------
           Technology 0.3%
    4,000  Philips Electronics NV (Netherlands)....  7.750     04/15/04     4,144,400
                                                                         ------------
                                                              
</TABLE> 

                                           See Notes to Financial Statements
                                                              
                                       13                     
                                                             
                                                              
<PAGE>
                     Portfolio of Investments (Continued)
                         June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>  
=================================================================================================================
Par
Amount
(000)           Description                                                     Coupon     Maturity  Market Value
- -----------------------------------------------------------------------------------------------------------------
<S>              <C>                                                            <C>        <C>       <C> 
                Transportation 0.6%                             
$   5,500       Norfolk Southern Corp.........................................   7.700%    05/15/17  $  5,677,650
    3,000       Union Pacific Corp............................................   7.600     05/01/05     3,091,710
                                                                                                     ------------
                                                                                                        8,769,360
                                                                                                     ------------
                Utilities 1.4%
    5,000       360 Communications Co.........................................   7.125     03/01/03     5,005,000
    4,000       Compania De Telocomunicaciones (Chile).........................  7.625     07/15/06     4,109,800
    1,000       Tennessee Valley Authority, Series G..........................   8.625     11/15/29     1,074,850
   10,000       Worldcom Inc..................................................   7.750     04/01/07    10,242,500
                                                                                                     ------------
                                                                                                       20,432,150
                                                                                                     ------------
                     Total Corporate Obligations................................................      103,739,810
                                                                                                     ------------
                Convertible Corporate Obligations 8.1%
                Consumer Durables 0.8%
   26,000       Deutsche Finance Netherlands 144A (Convertible
                into 128,778 Daimler Benz common shares) (c)..................       *     02/12/17    11,960,000
                                                                                                     ------------

                Consumer Non-Durables 0.8%
    8,000       Grand Metropolitan PLC 144A (Convertible
                into 1,166,184 common shares) (c).............................   6.500     01/31/00    11,288,000
                                                                                                     ------------

                Consumer Services 1.1%
   17,000       ADT Operations, Inc. (Convertible into 231,030
                Tyco International Ltd. common shares)........................       *     07/06/10    15,990,625
                                                                                                     ------------

                Finance 2.2%
    5,000       Aegon N V (Convertible into
                180,000 common shares)........................................   4.750     11/01/04    12,537,500
    1,100       American Travellers Corp. (Convertible into
                84,656 Conseco Inc. common shares)............................   6.500     10/01/05     3,170,750
    8,160       Berkshire Hathaway, Inc. (Convertible into
                144,024 Salomon Inc. common shares)...........................       *     12/02/01     8,547,600
    3,600       Equitable Companies, Inc. (Convertible
                into 145,454 common shares)...................................   6.125     12/15/24     4,855,500
  STRYPES       Merrill Lynch & Co., Inc., 94,500
                shares (Convertible into 77,452 Cox
                Communication common shares)..................................   6.000     06/01/99     2,245,262
                                                                                                     ------------
                                                                                                       31,356,612
                                                                                                     ------------
</TABLE>
                                       14      See Notes to Financial Statements
<PAGE>
 
                      Portfolio of Investment (Continued)

                           June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Par
Amount
(000)      Description                                Coupon        Maturity         Market Value
- -------------------------------------------------------------------------------------------------
<S>        <C>                                        <C>           <C>              <C>
           Healthcare 2.7%
 $12,000   Alza Corp. (Convertible into
           155,844 common shares)..................        *        07/14/14          $ 5,295,000

  43,500   Roche Holdings, Inc. (Convertible
           into 206,347 common shares).............        *        04/20/10           22,021,875

   2,090   Sandoz Ltd. (Convertible into
           1,850 common shares)....................    2.000%       10/06/02            3,135,000

   4,000   United Technologies Corp. (Convertible
           into 32,992 common shares)..............        *        09/08/97            8,750,000
                                                                                    -------------
                                                                                       39,201,875
                                                                                    -------------
           Producer Manufacturing 0.2%
   2,760   USA Waste Services, Inc. (Convertible
           into 63,368 common shares)..............    4.000        02/01/02            2,984,250
                                                                                    -------------

           Raw Materials/Processing Industries 0.3%
   7,500   RPM Convertibles, Inc. (Convertible
           into 183,120 common shares).............        *        09/30/12            3,618,750
                                                                                    -------------
              Total Convertible Corporate Obligations......................           116,400,112
                                                                                    -------------

           United States Obligations 2.1%
   2,100   United States Treasury Bond.............    7.250        05/15/16            2,190,888
  22,000   United States Treasury Notes (a)........    6.375        07/15/99           22,127,160
   2,000   United States Treasury Notes (a)........    7.500        02/15/05            2,118,430
   3,000   United States Treasury Notes (a)........    6.875        05/15/06            3,064,230
                                                                                    -------------
              Total United States Obligations..............................            29,500,708
                                                                                    -------------
Total Long-Term Investments 91.4% (Cost $1,048,919,126)....................         1,312,658,665
                                                                                    -------------

Short-Term Investments 8.1%
Commercial Paper 3.4%
General Electric Capital Corp. ($49,130,000 par,
yielding 6.051%, 07/01/97 maturity) (a)....................................            49,121,743
                                                                                    -------------

Repurchase Agreements 1.8%
SBC Capital Markets ($26,025,000 par collateralized by
U.S. Government obligations in a pooled cash account,
dated 06/30/97, to be sold on 07/01/97 at $26,029,048).....................            26,025,000
                                                                                    -------------
</TABLE>
                                      15       See Notes to Financial Statements
<PAGE>
                     Portfolio of Investments (Continued)

                          June 30, 1997 (Unaudited) 
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Description                                                                          Market Value
- -------------------------------------------------------------------------------------------------
<S>                                                                                <C>
United States Agencies 2.9%
Federal Home Loan Bank ($9,600,000 par, yielding 5.324%, 07/10/97 maturity) (a)..  $    9,586,107
Federal Home Loan Mortgage Corporation ($25,000,000 par, yielding 5.512%,
09/12/97 maturity)...............................................................      24,726,000
Federal National Mortgage Association ($7,375,000 par, yielding 5.479%,
09/24/97 maturity)...............................................................       7,279,346
                                                                                   --------------
          Total United States Agencies...........................................      41,591,453
                                                                                   --------------
Total Short-Term Investments (Cost $116,735,447).................................     116,738,196
                                                                                   --------------
Total Investments 99.5% (Cost $1,165,654,573)....................................   1,429,396,861
                                                                                   --------------
Other Assets in Excess of Liabilities 0.5%.......................................       6,387,819
                                                                                   --------------
Net Assets 100.0%................................................................  $1,435,784,680
                                                                                   ===============
</TABLE>
* Zero coupon bond
STRYPES--Structured yield product exchangeable for stock, traded in shares
(a) Assets segregated as collateral for open futures transactions.
(b) Non-income producing security as this stock currently does not declare
    dividends.
(c) 144A securities are those which are exempt from registration under Rule 144A
    of the Securities Act of 1933. These securities may be resold only in
    transactions exempt from registration which are normally those transactions
    with qualified institutional buyers.

                                      16       See Notes to Financial Statements
<PAGE>
                      Statement of Assets and Liabilities

                           June 30, 1997 (Unaudited)
<TABLE> 
<CAPTION> 
- ----------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>
Assets:
Total Investments (Cost $1,165,654,573)..................................................   $1,429,396,861
Cash.....................................................................................            5,257
Receivables:
  Investments Sold.......................................................................        5,709,260
  Interest...............................................................................        2,949,751
  Fund Shares Sold.......................................................................        2,762,751
  Dividends..............................................................................        1,417,533
Other....................................................................................          272,135
                                                                                            --------------
     Total Assets........................................................................    1,442,513,548
                                                                                            --------------
Liabilities:
Payables:
  Fund Shares Repurchased................................................................        2,245,801
  Investments Purchased..................................................................        1,577,162
  Distributor and Affiliates.............................................................        1,249,741
  Variation Margin on Futures............................................................          538,650
  Investment Advisory Fee................................................................          537,613
  Income Distributions...................................................................          240,391
Accrued Expenses.........................................................................          240,124
Deferred Compensation and Retirement Plans...............................................           99,386
                                                                                            --------------
     Total Liabilities...................................................................        6,728,868
                                                                                            --------------
Net Assets...............................................................................   $1,435,784,680
                                                                                            ==============
Net Assets Consist of:
Capital..................................................................................   $1,111,773,920
Net Unrealized Appreciation..............................................................      264,761,205
Accumulated Net Realized Gain............................................................       57,256,587
Accumulated Undistributed Net Investment Income..........................................        1,992,968
                                                                                            --------------
Net Assets...............................................................................   $1,435,784,680
                                                                                            ==============
Maximum Offering Price Per Share:
  Class A Shares:
     Net asset value and redemption price per share (Based on net assets of $572,753,721
     and 76,077,696 shares of beneficial interest issued and outstanding)................   $         7.53
     Maximum sales charge (5.75%* of offering price).....................................              .46
                                                                                            --------------
     Maximum offering price to public....................................................   $         7.99
                                                                                            ==============
  Class B Shares:
     Net asset value and offering price per share (Based on net assets of $795,827,632
     and 106,164,085 shares of beneficial interest issued and outstanding)...............   $         7.50
                                                                                            ==============
  Class C Shares:
     Net asset value and offering price per share (Based on net assets of $67,203,327
     and 8,964,541 shares of beneficial interest issued and outstanding).................   $         7.50
                                                                                            ==============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.

                                       17      See Notes to Financial Statements
<PAGE>

                            Statement of Operations

              For the Six Months Ended June 30, 1997 (Unaudited)
 
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S>                                                               <C>
Investment Income:
Dividends........................................................ $  9,991,492
Interest.........................................................    9,425,896
Other............................................................        5,000
                                                                  ------------
    Total Income.................................................   19,422,388
                                                                  ------------
Expenses:
Distribution (12b-1) and Service Fees (Attributed to Classes
  A, B and C of $580,050, $3,489,747 and $299,948, respectively).    4,369,745
Investment Advisory Fee..........................................    2,404,876
Shareholder Services.............................................    1,124,748
Custody..........................................................       29,635
Legal............................................................       28,837
Trustees Fees and Expenses.......................................       10,992
Other............................................................      414,984
                                                                  ------------
    Total Expenses...............................................    8,383,817
                                                                  ------------
Net Investment Income............................................ $ 11,038,571
                                                                  ============
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
    Investments.................................................. $ 48,814,107
    Options......................................................      593,389
    Futures......................................................   10,200,753
                                                                  ------------
Net Realized Gain................................................   59,608,249
                                                                  ------------
Unrealized Appreciation/Depreciation:
    Beginning of the Period......................................  159,606,826
                                                                  ------------
    End of the Period:
         Investments.............................................  263,742,288
         Futures.................................................    1,018,917
                                                                  ------------
                                                                   264,761,205
                                                                  ------------
Net Unrealized Appreciation During the Period....................  105,154,379
                                                                  ------------
Net Realized and Unrealized Gain................................. $164,762,628
                                                                  ============
Net Increase in Net Assets From Operations....................... $175,801,199
                                                                  ============
</TABLE>
                                       18      See Notes to Financial Statements
<PAGE>

                      Statement of Changes in Net Assets
                    For the Six Months Ended June 30, 1997
               and the Year Ended December 31, 1996 (Unaudited)
================================================================================


<TABLE>
<CAPTION>
                                                              Six Months Ended          Year Ended
                                                                 June 30, 1997   December 31, 1996
- --------------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>
From Investment Activities:
Operations:
Net Investment Income.......................................    $   11,038,571      $   19,968,031
Net Realized Gain...........................................        59,608,249          68,950,601
Net Unrealized Appreciation During the Period...............       105,154,379          52,838,493
                                                                --------------      --------------
    Change in Net Assets from Operations....................       175,801,199         141,757,125
                                                                --------------      --------------
Distributions from Net Investment Income:
    Class A Shares..........................................        (5,159,274)         (9,713,457)
    Class B Shares..........................................        (4,473,137)         (9,411,080)
    Class C Shares..........................................          (382,809)           (840,514)
                                                                --------------      --------------
                                                                   (10,015,220)        (19,965,051)
                                                                --------------      --------------
Distributions from Net Realized Gain:
    Class A Shares..........................................        (8,201,487)        (23,861,990)
    Class B Shares..........................................       (11,185,223)        (31,798,200)
    Class C Shares..........................................          (968,096)         (2,794,580)
                                                                --------------      --------------
                                                                   (20,354,806)        (58,454,770)
                                                                --------------      --------------
    Total Distributions.....................................       (30,370,026)        (78,419,821)
                                                                --------------      --------------
Net Change in Net Assets
  from Investment Activities................................       145,431,173          63,337,304
                                                                --------------      --------------
From Capital Transactions:
Proceeds from Shares Sold...................................       228,068,061         398,265,655
Net Asset Value of Shares Issued Through
  Dividend Reinvestment.....................................        27,571,860          70,824,847
Cost of Shares Repurchased..................................      (125,456,229)       (169,322,567)
                                                                --------------      --------------
Net Change in Net Assets
  from Capital Transactions.................................       130,183,692         299,767,935
                                                                --------------      --------------
Total Increase in Net Assets................................       275,614,865         363,105,239
Net Assets:
Beginning of the Period.....................................     1,160,169,815         797,064,576
                                                                --------------      --------------
End of the Period (Including accumulated
  undistributed net investment income of
  $1,992,968 and $969,617 respectively).....................    $1,435,784,680      $1,160,169,815
                                                                ==============      ==============
</TABLE>

                                      19       See Notes to Financial Statements
                                      
<PAGE>

                             Financial Highlights

      The following schedule presents financial highlights for one share
     of the Fund outstanding throughout the periods indicated. (Unaudited)
 
<TABLE>
<CAPTION>                           
- ----------------------------------------------------------------------------------------------- 
                                                                   Year Ended December 31,
                                         Six Months Ended     ---------------------------------
Class A Shares                              June 30, 1997      1996     1995     1994      1993   
- ----------------------------------------------------------------------------------------------- 
<S>                                      <C>                 <C>      <C>      <C>       <C>    
Net Asset Value, Beginning of the Period.......  $  6.740    $ 6.31   $ 5.16   $ 5.55    $ 5.15
                                                 --------    ------   ------   ------    ------
  Net Investment Income........................      .074      .158      .20      .21       .19
  Net Realized and Unrealized Gain/Loss........      .899      .796    1.458    (.317)    .6055
                                                 --------    ------   ------   ------    ------
Total from Investment Operations...............      .973      .954    1.658    (.107)    .7955
                                                 --------    ------   ------   ------    ------
Less:
  Distributions from Net Investment Income.....      .070      .156     .188    .1855      .168
  Distributions from Net Realized Gain.........      .114      .368      .32    .0975     .2275
                                                 --------    ------   ------   ------    ------
Total Distributions............................      .184      .524     .508     .283     .3955
                                                 --------    ------   ------   ------    ------
Net Asset Value, End of the Period.............  $  7.529    $6.740   $ 6.31   $ 5.16    $ 5.55
                                                 ========    ======   ======   ======    ======
Total Return (a)...............................   14.65%*    15.55%   32.57%   (1.98%)   16.00%
Net Assets at End of the Period (In millions)..  $  572.8    $471.8   $349.9   $240.5    $187.6
Ratio of Expenses to Average Net Assets (b)....      .85%      .97%     .95%    1.02%     1.06%
Ratio of Net Investment Income to
  Average Net Assets (b).......................     2.20%     2.50%    3.43%    3.60%     3.33%
Portfolio Turnover.............................      38%*       99%      92%      92%      101%
Average Commission Paid Per
  Equity Share Traded (c)......................  $  .0592    $.0582       --       --        --

</TABLE>

* Non-Annualized

(a) Total Return is based upon net asset value which does not include payment 
    of the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
    Net Assets due to VKAC's reimbursement of certain expenses was less 
    than 0.01%.

(c) Represents the average brokerage commission paid per equity share traded
    during the period for trades where commissions were applicable. This 
    disclosure was not required in fiscal years prior to 1996.

                                       20   See Notes to Financial Statements
<PAGE>

                       Financial Highlights (Continued)

      The following schedule presents financial highlights for one share
     of the Fund outstanding throughout the periods indicated. (Unaudited)

 
================================================================================
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                        Six Months Ended    ------------------------------------
Class B Shares                             June 30, 1997       1996     1995     1994    1993(a)
- ------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>      <C>      <C>       <C>
Net Asset Value, Beginning of the Period......  $  6.713     $ 6.30   $ 5.16   $ 5.55    $ 5.15
                                                --------     ------   ------   ------    ------
  Net Investment Income.......................      .049       .113      .15      .13       .14
  Net Realized and Unrealized Gain/Loss.......      .892       .784    1.458    (.277)    .6155
                                                --------     ------   ------   ------    ------
Total from Investment Operations..............      .941       .897    1.608    (.147)    .7555
                                                --------     ------   ------   ------    ------
Less:
  Distributions from and in Excess of
    Net Investment Income.....................      .044       .116     .148    .1455      .128
  Distributions from Net Realized Gain........      .114       .368      .32    .0975     .2275
                                                --------     ------   ------   ------    ------
Total Distributions...........................      .158       .484     .468     .243     .3555
                                                --------     ------   ------   ------    ------
Net Asset Value, End of the Period............  $  7.496     $6.713   $ 6.30   $ 5.16    $ 5.55
                                                ========     ======   ======   ======    ======
Total Return (b)..............................    14.31%*    14.56%   31.51%   (2.70%)   14.94%
Net Assets at End of the Period (In millions).  $  795.8     $633.3   $408.9   $242.0    $115.4
Ratio of Expenses to Average Net Assets (c)...     1.63%      1.74%    1.75%    1.82%     1.89%
Ratio of Net Investment Income to
  Average Net Assets (c)......................     1.43%      1.74%    2.62%    2.82%     2.45%
Portfolio Turnover............................       38%*       99%      92%      92%      101%
Average Commission Paid Per
  Equity Share Traded (d).....................  $  .0592     $.0582       --       --        --

</TABLE>

* Non-Annualized

(a) Based on average month-end shares outstanding.

(b) Total Return is based upon net asset value which does not include payment of
    the maximum sales charge or contingent deferred sales charge.

(c) The impact on the Ratios of Expenses and Net Investment Income to Average
    Net Assets due to VKAC's reimbursement of certain expenses was less than
    0.01%.

(d) Represents the average brokerage commission paid per equity share traded
    during the period for trades where commissions were applicable. This
    disclosure was not required in fiscal years prior to 1996.


                                       21      See Notes to Financial Statements
                                       
<PAGE>

                       Financial Highlights (Continued)

      The following schedule presents financial highlights for one share 
     of the Fund outstanding throughout the periods indicated. (Unaudited)

================================================================================
<TABLE>
<CAPTION>
                                                                                  Year Ended                          July 6, 1993
                                                                                 December 31,                        (Commencement
                                                 Six Months Ended       ------------------------------         of Distribution) to
Class C Shares                                      June 30, 1997       1996         1995      1994(a)        December 31, 1993(a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>         <C>          <C>                        <C>
Net Asset Value, Beginning of the Period..              $   6.713      $   6.30    $    5.16    $ 5.55                     $  5.37
                                                        ---------      --------    ---------    ------                     ------- 
 
  Net Investment Income...................                   .049          .113          .15       .14                         .06
  Net Realized and Unrealized
    Gain/Loss.............................                   .893          .784        1.458     (.287)                       .379
                                                        ---------      --------    ---------    ------                     ------- 
Total from Investment Operations..........                   .942          .897        1.608     (.147)                       .439
                                                        ---------      --------    ---------    ------                     ------- 
 
Less:
  Distributions from and in Excess of
    Net Investment Income.................                   .044          .116         .148     .1455                        .064
  Distributions from Net Realized Gain....                   .114          .368          .32     .0975                        .195
                                                        ---------      --------    ---------    ------                     -------  
Total Distributions.......................                   .158          .484         .468      .243                        .259
                                                        ---------      --------    ---------    ------                     -------  
Net Asset Value, End of the Period........              $   7.497      $  6.713    $    6.30    $ 5.16                     $  5.55
                                                        =========      ========    =========    ======                     =======
Total Return (b)..........................                 14.31%*       14.56%       31.51%    (2.70%)                      8.27%*
Net Assets at End of the Period
  (In millions)...........................              $   67.2       $   55.2    $    38.3    $ 26.9                     $  10.0
Ratio of Expenses to
  Average Net Assets (c)..................                 1.64%          1.74%        1.76%     1.82%                       1.98%
Ratio of Net Investment Income to
  Average Net Assets (c)..................                 1.42%          1.73%        2.63%     2.83%                       2.27%
Portfolio Turnover........................                   38%*           99%          92%       92%                        101%
Average Commission Paid Per
  Equity Share Traded (d).................              $  .0592         $.0582           --        --                          --
</TABLE>

* Non-Annualized

(a) Based on average month-end shares outstanding.

(b) Total Return is based upon net asset value which does not include payment of
    the maximum sales charge or contingent deferred sales charge.

(c) The impact on the Ratios of Expenses and Net Investment Income to Average
    Net Assets due to VKAC's reimbursement of certain expenses was less than
    0.01%.

(d) Represents the average brokerage commission paid per equity share traded
    during the period for trades where commissions were applicable. This
    disclosure was not required in fiscal years prior to 1996.

                                       22     See Notes to Financial Statements
<PAGE>

                         Notes to Financial Statements
                          June 30, 1997 (Unaudited) 
- -------------------------------------------------------------------------------

1. Significant Accounting Policies

Van Kampen American Capital Equity Income Fund (the "Fund") is organized as a
Delaware business trust, and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek the highest possible income consistent
with safety of principal by investing primarily in income-producing equity
instruments and other debt securities issued by a wide group of companies in
many different industries. The Fund commenced investment operations on August 3,
1960. The distribution of the Fund's Class B and Class C shares commenced on May
1, 1992 and July 6, 1993, respectively.

     The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. Security Valuation--Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sale price is not
available are valued at the mean of the bid and asked prices. Fixed income
investments are stated at value using market quotations. For those securities
where quotations or prices are not available, valuations are determined in
accordance with procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.

B. Security Transactions--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1997, there were no when
issued or delayed delivery purchase commitments.

     The Fund may invest in repurchase agreements, which are short-term
investments 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 invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser") or
                                       23
<PAGE>

                   Notes to Financial Statements (Continued)
                          June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------

its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. The Fund will make payment for such security only upon physical
delivery or evidence of book entry transfer to the account of the custodian
bank. The seller is required to maintain the value of the underlying security at
not less than the repurchase proceeds due the Fund.

C. Investment Income--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discounts are
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized. Market discounts are recognized at the time of
sale as realized gains for book purposes and ordinary income for tax purposes.

D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.

     At June 30, 1997, for federal income tax purposes, cost of long- and short-
term investments is $1,166,069,512; the aggregate gross unrealized appreciation
is $280,053,673 and the aggregate gross unrealized depreciation is $15,707,407,
resulting in net unrealized appreciation on investments and open futures
transactions of $264,346,266.

     Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales.

E. Distribution of Income and Gains--The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes.

                                       24
<PAGE>

                   Notes to Financial Statements (Continued)

                           June 30, 1997 (Unaudited)
===============================================================================

2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:

<TABLE>
<CAPTION>

Average Net Assets                                                  % Per Annum
===============================================================================
<S>                                                                 <C>
First $150 million................................................    .50 of 1%
Next $100 million.................................................    .45 of 1%
Next $100 million.................................................    .40 of 1%
Over $350 million.................................................    .35 of 1%
</TABLE>

     For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $28,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
     For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $97,600 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
     ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1997, the Fund recognized expenses of approximately $852,300,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
     Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
     The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per Trustee under the plan is equal to $2,500.
     For the six months ended June 30, 1997, the Fund paid brokerage commissions
to Morgan Stanley Group, Inc. and Dean Witter, both of which are affiliates of
VKAC, totaling $1,875.
     At June 30, 1997, VKAC owned 228,403 shares of Class A and 224 shares each
of Classes B and C, respectively.

                                      25
<PAGE>

                   Notes to Financial Statements (Continued)
                           June 30, 1997 (Unaudited)

============================================================================ 
  3. Capital Transactions
     The Fund has outstanding three classes of shares of beneficial interest,
Classes A, B and C, each with a par value of $.01 per share. There are an
unlimited number of shares of each class authorized.
     At June 30, 1997, capital aggregated $421,161,246, $637,425,061 and
$53,187,613 for Classes A, B, and C, respectively. For the six months ended June
30, 1997, transactions were as follows:
<TABLE>
<CAPTION>

                                                Shares                 Value
============================================================================
<S>                                        <C>                  <C>
Sales:
  Class A..............................     14,349,873         $ 100,463,829
  Class B..............................     16,688,905           116,388,649
  Class C..............................      1,609,977            11,215,583
                                           -----------         -------------
Total Sales............................     32,648,755         $ 228,068,061
                                           ===========         =============

Dividend Reinvestment:
  Class A..............................      1,703,830         $  12,029,098
  Class B..............................      2,061,057            14,438,227
  Class C..............................        157,708             1,104,535
                                           -----------         -------------
Total Dividend Reinvestment............      3,922,595         $  27,571,860
                                           ===========         =============

Repurchases:
  Class A..............................     (9,965,013)        $ (69,911,964)
  Class B..............................     (6,918,858)          (48,410,867)
  Class C..............................     (1,020,643)           (7,133,398)
                                           -----------         -------------
Total Repurchases......................    (17,904,514)        $(125,456,229)
                                           ===========         =============
</TABLE>

                                      26
<PAGE>

                   Notes to Financial Statements (Continued)
                           June 30, 1997 (Unaudited)

================================================================================
     At December 31, 1996, capital aggregated $378,580,283, $555,009,052 and
$48,000,893 for Classes A, B, and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE> 
<CAPTION> 



                                                Shares                       Value
<S>                                      <C>                    <C>
==================================================================================
Sales:
  Class A...............................    23,837,337           $ 156,204,412
  Class B...............................    34,033,201             221,511,042
  Class C...............................     3,157,673              20,550,201
                                           -----------           -------------
Total Sales.............................    61,028,211           $ 398,265,655
                                           ===========           =============
Dividend Reinvestment:
  Class A...............................     4,571,980           $  29,903,434
  Class B...............................     5,828,833              37,983,943
  Class C...............................       450,818               2,937,470
                                           -----------           -------------
Total Dividend Reinvestment.............    10,851,631           $  70,824,847
                                           ===========           =============
Repurchases:
  Class A...............................   (13,879,242)          $ (91,378,219)
  Class B...............................   (10,471,038)            (68,387,863)
  Class C...............................    (1,465,191)             (9,556,485)
                                           -----------           -------------
Total Repurchases.......................   (25,815,471)          $(169,322,567)
                                           ===========           =============
</TABLE>

                                      27
<PAGE>
 

                   Notes to Financial Statements (Continued)

                           June 30, 1997 (Unaudited)

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

     Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

<TABLE>
<CAPTION>
                               Contingent Deferred
                                  Sales Charge
Year of Redemption             Class B     Class C
<S>                            <C>         <C>
First........................   5.00%       1.00%
Second.......................   4.00%        None
Third........................   3.00%        None
Fourth.......................   2.50%        None
Fifth........................   1.50%        None
Sixth and Thereafter.........    None        None
</TABLE>

     For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$274,400 and CDSC on redeemed shares of approximately $649,500. Sales charges do
not represent expenses of the Fund.

4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $544,230,983 and $441,728,165,
respectively.

5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
     The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising an option contract or taking delivery of a security underlying a
futures contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the option or futures
contract.
     Summarized below are the specific types of derivative financial instruments
used by the Fund.

                                       28
<PAGE>

                   Notes to Financial Statements (Continued)

                           June 30, 1997 (Unaudited)
 
A. Option Contracts--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to provide the return of an index without purchasing all of the securities
underlying the index or as a substitute for purchasing or selling specific
securities.
     Transactions in options for the six months ended June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
 
                                                      Contracts     Premium
===========================================================================
<S>                                                  <C>         <C>
Outstanding at December 31, 1996...................       -0-     $     -0-
Options Written and Purchased (Net)................     8,750       593,389
Options Exercised (Net)............................       -0-           -0-
Options Expired (Net)..............................    (8,750)     (593,389)
                                                       ------     ---------
Outstanding at June 30, 1997.......................       -0-     $     -0-
                                                       ======     =========
</TABLE>

B. Futures Contracts--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in stock index futures. These contracts are generally
used to provide the return of an index without purchasing all of the securities
underlying the index or to manage the Fund's overall exposure to the equity
markets. Upon entering into futures contracts, the Fund maintains, in a
segregated account with its custodian, securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin).
     Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:
<TABLE>
<CAPTION>
                                                                  Contracts
===========================================================================
<S>                                                              <C>
Outstanding at December 31, 1996................................     152
Futures Opened..................................................     344
Futures Closed..................................................    (334)
                                                                    ----
Outstanding at June 30, 1997....................................     162
                                                                    ====
</TABLE>

                                      29
<PAGE>

                   Notes to Financial Statements (Continued)
                           June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
 
     The futures contracts outstanding at June 30, 1997, and the description and
unrealized appreciation are as follows:

                                                                      Unrealized
                                                         Contracts  Appreciation
- --------------------------------------------------------------------------------
Long Contracts--Sept 1997 S&P 500 Index Futures
  (Current Notional Value of $445,125 per contract).....       162    $1,018,917
                                                               ===    ==========
 
6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.

     Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 1997, are payments to VKAC of approximately
$2,879,400.

                                       30
<PAGE>

                         Results of Shareholder Votes
 
     A Special Meeting of Shareholders of the Fund was held on May 28, 1997
where shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of Price Waterhouse LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Asset Management, Inc. and the Fund,
108,093,854 shares voted for the proposal, 1,724,366 shares voted against and
4,569,256 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 112,615,465 shares voted in his favor and 1,772,010
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 112,603,064 shares voted in his favor and 1,784,411 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 112,544,288 shares voted in her favor and 1,843,188 shares
withheld. With regard to the election of R. Craig Kennedy as elected trustee of
the Fund, 112,633,619 shares voted in his favor and 1,753,856 shares withheld.
With regard to the election of Jack E. Nelson as elected trustee of the Fund,
112,617,357 shares voted in his favor and 1,770,118 shares withheld. With regard
to the election of Jerome L. Robinson as elected trustee of the Fund,
112,596,574 shares voted in his favor and 1,790,901 shares withheld. With regard
to the election of Phillip B. Rooney as elected trustee of the Fund, 112,636,170
shares voted in his favor and 1,751,305 shares withheld. With regard to the
election of Fernando Sisto as elected trustee of the Fund, 112,596,587 shares
voted in his favor and 1,789,888 shares withheld. With regard to the election of
Wayne W. Whalen as elected trustee of the Fund, 112,636,285 shares voted in his
favor and 1,751,190 shares withheld. With regard to the ratification of Price
Waterhouse LLP as independent public accountants for the Fund, 109,254,330
shares voted for the proposal, 894,935 shares voted against and 4,238,211 shares
abstained.

                                        31
<PAGE>

               Funds Distributed by Van Kampen American Capital
 
GLOBAL AND
INTERNATIONAL
  Global Equity Fund
  Global Government Securities Fund
  Global Managed Assets Fund
  Short-Term Global Income Fund
  Strategic Income Fund
EQUITY
Growth
  Aggressive Growth Fund
  Emerging Growth Fund
  Enterprise Fund
  Growth Fund
  Pace Fund
Growth & Income
  Comstock Fund
  Equity Income Fund
  Growth and Income Fund
  Harbor Fund
  Real Estate Securities Fund
  Utility Fund
FIXED INCOME
  Corporate Bond Fund
  Government Securities Fund
  High Income Corporate Bond Fund
  High Yield Fund
  Limited Maturity Government Fund
  Prime Rate Income Trust
  Reserve Fund
  U.S. Government Fund
  U.S. Government Trust for Income

TAX-FREE
  California Insured Tax Free Fund
  Florida Insured Tax Free Income Fund
  High Yield Municipal Fund
  Insured Tax Free Income Fund
  Intermediate Term Municipal Income Fund
  Municipal Income Fund
  New Jersey Tax Free Income Fund
  New York Tax Free Income Fund
  Pennsylvania Tax Free Income Fund
  Tax Free High Income Fund
  Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
  Aggressive Equity Fund
  American Value Fund
  Asian Growth Fund
  Emerging Markets Fund
  Global Equity Allocation Fund
  Global Fixed Income Fund
  High Yield Fund
  International Magnum Fund
  Latin American Fund
  U.S. Real Estate Fund
  Value Fund
  Worldwide High Income Fund

Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m.
Central time at 1-800-341-2911 for Van Kampen American Capital funds or Morgan
Stanley retail funds.

                                       32
<PAGE>

                Van Kampen American Capital Equity Income Fund
 
Board of  Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Jerome L. Robinson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen*--Chairman

Officers
Dennis J. McDonnell*
  President
Ronald A. Nyberg*
  Vice President and Secretary
Edward C. Wood, III*
  Vice President and Chief Financial Officer
Curtis W. Morell*
  Vice President and Chief Accounting Officer
John L. Sullivan*
  Treasurer
Tanya M. Loden*
  Controller
Peter W. Hegel*
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 Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606

Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, Texas 77002



*    "Interested" persons of the Fund, as defined in the Investment Company Act
     of 1940.

(C)  Van Kampen American Capital Distributors, Inc., 1997
     All rights reserved.

/SM/ denotes a service mark of Van Kampen American Capital Distributors, Inc.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless 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. After December 31, 1997, this report must be accompanied
by a quarterly performance update, if applicable.

                                       33
<PAGE>
 
Van Kampen American Capital Distributors, Inc.             ____________________ 
One Parkview Plaza                                        |                    |
Oakbrook Terrace, Illinois 60181                          |      Bulk Rate     |
                                                          |    U.S. Postage    |
                                                          |        PAID        |
                                                          |     VAN KAMPEN     |
                                                          |  AMERICAN CAPITAL  |
                                                          |____________________|
 
                        
                        
                        
                        











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