AMERICAN CAPITAL LIFE INVESTMENT TRUST, 497, 1995-09-21

AMERICAN CAPITAL LIFE INVESTMENT TRUST
497, 1995-09-21

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<PAGE> 1

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

(formerly, American Capital Life Investment Trust)

2800 Post Oak Boulevard
Houston, Texas 77056
(800) 421-5666

September 18, 1995

Van Kampen American Capital Life Investment Trust (the "Trust") is an
open-end diversified management investment company which offers shares in eight
separate Funds, one of which is described in this Prospectus. Shares are sold
only to separate accounts (the "Accounts") of various insurance companies to
fund the benefits of variable annuity or variable life insurance policies (the
"Contracts"). The Accounts invest in shares of the Funds in accordance with
allocation instructions received from Contractowners. Such allocation rights are
further described in the accompanying Prospectus for the Contracts. The
investment objectives of one of the Funds is as follows:

Real Estate Securities Fund (the "Fund") seeks as its primary objective
long-term growth of capital by investing principally in securities of
companies operating in the real estate industry ("Real Estate Securities").
Current income is a secondary consideration. A "real estate industry
company" is a company that derives at least 50% of its assets (marked to
market), gross income or net profits from the ownership, construction,
management or sale of residential, commercial or industrial real estate.
Under normal market conditions, at least 65% of the Fund's total assets
will be invested in Real Estate Securities, primarily equity securities of
real estate investment trusts. There can be no assurance that the Fund will
achieve its investment objectives.

THE SHARES OF THIS FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.

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

This Prospectus tells Contractowners briefly the information they should
know before allocating premiums or cash value to the Fund. Investors should read
and retain this Prospectus for future reference.

A Statement of Additional Information dated the same date as this
Prospectus has been filed with the Securities and Exchange Commission ("SEC")
and contains further information about the Fund. A copy of the Statement of
Additional Information may be obtained without charge by calling or writing the
Fund at the telephone number and address printed above. The Statement of
Additional Information is hereby incorporated by reference into this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

<TABLE>
<S> <C>
CUSTODIAN: State Street Bank and Trust
Company
225 Franklin Street
Boston, Massachusetts 02110

SHAREHOLDER ACCESS Investor Services, Inc.
SERVICE AGENT: P.O. Box 418256
Kansas City, Missouri
64141-9256

DISTRIBUTOR: Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois
60181

INVESTMENT Van Kampen American Capital
ADVISER: Asset Management, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056

INVESTMENT Hines Interests Realty
SUBADVISER: Advisors Limited Partnership
[FOR "REAL ESTATE 2800 Post Oak Boulevard
PORTFOLIO"] Houston, Texas 77056
</TABLE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary...................... 3
Financial Highlights.................... 5
Investment Objectives and Policies...... 6
Risk Factors............................ 8
Investment Practices.................... 9
The Trust and Its Management............ 12
Purchase of Shares...................... 13

<CAPTION>
Page
<S> <C>
Determination of Net Asset Value........ 14
Redemption of Shares.................... 14
Dividends, Distributions and Taxes...... 14
Fund Performance........................ 16
Description of Shares of the Trust...... 16
Additional Information.................. 17
Appendix................................ 18
</TABLE>

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No dealer, salesperson, or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust, the Adviser or the Distributor. This
Prospectus does not constitute an offer by the Trust or by the Distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful for the Trust to make
such an offer in such jurisdiction.
-------------------------------------------------------------------------------

2
<PAGE> 3

PROSPECTUS SUMMARY

Shares Offered..........Shares of beneficial interest.

Type of Company.........Diversified, open-end management investment company.

Investment Objectives...The Fund's primary investment objective is to seek
long-term growth of capital. Current income is a
secondary consideration. There is, however, no assurance
that the Fund will be successful in achieving its
objectives.

Investment Policy and
Risks.................The Fund will seek to achieve its investment objectives
by investing in a portfolio of securities of companies
operating in the real estate industry ("Real Estate
Securities"). Real Estate Securities include equity
securities, including common stocks and convertible
securities, as well as non-convertible preferred stocks
and debt securities of real estate industry companies. A
"real estate industry company" is a company that derives
at least 50% of its assets (marked to market), gross
income or net profits from the ownership, construction,
management or sale of residential, commercial or
industrial real estate. Under normal market conditions,
at least 65% of the Fund's total assets will be invested
in Real Estate Securities, primarily equity securities
of real estate investment trusts. The Fund's investment
in debt securities will be rated, at the time of
investment, at least Baa by Moody's Investors Service
("Moody's") or BBB by Standard & Poor's Corporation
("S&P"), a comparable rating by any other nationally
recognized statistical rating organization or if
unrated, determined by Van Kampen American Capital Asset
Management, Inc. (the "Adviser") to be of comparable
quality. Under normal market conditions, the Fund may
invest up to 35% of its total assets in equity and debt
securities of companies outside the real estate
industry, U.S. Government securities, cash and money
market instruments. There can be no assurance that the
Fund will achieve its investment objectives.

Because of the Fund's policy of concentrating its
investments in Real Estate Securities, the Fund may be
more susceptible than an investment company without such
a policy to any single economic, political or regulatory
occurrence affecting the real estate industry. In
addition, the Fund will be affected by general changes
in interest rates which will result in increases or
decreases in the market value of the debt securities
(and, to a lesser degree, equity securities) held by the
Fund; the market value of such securities tends to have
an inverse relationship to the movement of interest
rates. For additional information regarding the risk
connected with investment in Real Estate Securities, see
"Risk Factors."

The Fund may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of
which may also be Real Estate Securities. Investments in
foreign securities involve certain risks not ordinarily
associated with investments in securities of domestic
issuers, including fluctuations in foreign exchange
rates, future political and economic developments, and
the possible imposition of exchange controls or other
foreign governmental laws or restrictions. See
"Investment Objectives and Policies -- Foreign
Securities."

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<PAGE> 4

The Fund may purchase or sell debt securities on a
forward commitment basis. See "Investment Practices and
Restrictions -- Forward Commitments." The Fund may use
portfolio management techniques and strategies involving
options, futures contracts and options on futures. The
utilization of options, futures contracts and options on
futures contracts may involve greater than ordinary
risks and the likelihood of more volatile price
fluctuation. See "Investment Practices -- Using Options,
Futures Contracts and Options on Futures Contracts."

Investment Advisers.....The Adviser has served as investment adviser to the Fund
since its inception. Hines Interests Realty Advisors
Limited Partnership (hereinafter referred to either as
the "Subadviser" or "Hines Realty Advisors") provides
advisory services to the Adviser of the Portfolio with
respect to the real estate industry. See "The Trust and
Its Management."

Dividends and
Distributions.........Dividends and any capital gains are distributed at least
annually. All dividends and distributions are
automatically reinvested by the Account in shares of the
Fund at net asset value per share. See "Dividends,
Distributions and Taxes."

Redemption..............At the next determined net asset value.

Distributor.............Van Kampen American Capital Distributors, Inc. (the
"Distributor").

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<PAGE> 5

FINANCIAL HIGHLIGHTS

The information presented below for the period ended July 31, 1995 is
unaudited. This information should be read in conjunction with the related
financial statements and notes thereto included in the Statement of Additional
Information.

REAL ESTATE SECURITIES FUND

<TABLE>
<CAPTION>
(UNAUDITED)
JULY 3,
1995(1)
THROUGH
JULY 31,
PER SHARE OPERATING PERFORMANCE 1995(2)
-----------
<S> <C>
Net asset value, beginning of period................................................................................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................................................................................... .04
Expenses............................................................................................................ (.03)
Expense reimbursement............................................................................................... .01
-------
Net investment income............................................................................................... .02
Net realized and unrealized gains on securities..................................................................... .18
-------
Total from investment operations.................................................................................... .20
-------
Net asset value, end of period...................................................................................... $ 10.20
=======
TOTAL RETURN(3)..................................................................................................... 2.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................................................................................ $ 1.3
Ratios to average net assets (annualized)
Expenses.......................................................................................................... 2.50%
Expenses, without expense reimbursement........................................................................... 4.15%
Net investment income............................................................................................. 2.80%
Net investment income, without expense reimbursement.............................................................. 1.15%
Portfolio turnover rate............................................................................................. 7%
</TABLE>

---------------------
(1) Commencement of operations.
(2) Based on average shares outstanding.
(3) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales loads.

5
<PAGE> 6

INVESTMENT OBJECTIVES AND POLICIES

General. The Fund's primary investment objective is to provide
shareholders with long-term growth of capital. Current income is a secondary
consideration. The Fund will seek to achieve its investment objectives by
investing principally in a diversified portfolio of Real Estate Securities which
include equity securities, including common stocks and convertible securities,
as well as non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that derives
at least 50% of its assets (marked to market), gross income or net profits from
the ownership, construction, management or sale of residential, commercial or
industrial real estate. Real estate industry companies may include among others:
equity real estate investment trusts, which pool investors' funds for investment
primarily in commercial real estate properties, mortgage real estate investment
trusts, which invest pooled funds in real estate related loans; brokers or real
estate developers; and companies with substantial real estate holdings, such as
paper and lumber products and hotel and entertainment companies. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate investment
trusts. The Fund's investment in debt securities will be rated, at the time of
investment, at least Baa by Moody's or BBB by S&P, a comparable rating by any
other nationally recognized statistical rating organization or if unrated,
determined by the Adviser to be of comparable quality. Ratings at the time of
purchase determine which securities may be acquired, and a subsequent reduction
in ratings does not require the Fund to dispose of a security. Securities rated
Baa by Moody's or BBB by S&P are considered to be medium grade obligations which
possess speculative characteristics so that changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher rated securities. The
rating of the ratings agencies represent their opinions of the quality of the
debt securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. The Fund may invest more than 25% of its
total assets in the real estate industry.

Under normal market conditions, the Fund may invest up to 35% of its total
assets in equity and debt securities of companies outside the real estate
industry, U.S. Government securities, cash and money market instruments.

The Fund may invest up to 25% of its assets in securities issued by foreign
issuers. See "Investment Objectives and Policies -- Foreign Securities." The
Fund may engage in portfolio management strategies and techniques involving
options, futures contracts and options on futures. Options, futures contracts
and related options are described in "Investment Practices -- Using Options,
Futures Contracts and Options on Futures Contracts" and the Statement of
Additional Information.

For temporary defensive purposes, the Fund may invest up to 100% of its
total assets in short-term investments as described below. The Fund will assume
a temporary defensive posture only when economic and other factors affect the
real estate industry market to such an extent that the Adviser believes there to
be extraordinary risks in being primarily in Real Estate Securities.

There can be no assurance that the Fund will achieve its investment
objectives.

The investment objectives and policies, the percentage limitations, and the
kinds of securities in which the Fund may invest are generally not fundamental
policies and may be changed by the Trustees, unless expressly governed by
certain limitations as described under "Investment Practices and
Restrictions -- Investment Restrictions" which can be changed only by action of
the shareholders. If there is a change in the objectives of the Fund,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs.

6
<PAGE> 7

Short-Term Investments. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, commercial
paper, bankers' acceptances, certificates of deposit, repurchase agreements
collateralized by these securities, and other short-term evidences of
indebtedness. The Fund will only purchase commercial paper if it is rated
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P. Such temporary investments
may be made either for liquidity purposes, to meet shareholder redemption
requirements or as a temporary defensive measure.

Foreign Securities. The Fund may invest up to 25% of its assets in
securities issued by foreign issuers of developed countries of similar quality
as the securities described above as determined by the Adviser. Some of such
securities may also be Real Estate Securities. Investments in securities of
foreign entities and securities denominated in foreign currencies involve risks
not typically involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments. Since the Fund
may invest in securities denominated or quoted in currencies other than the
United States dollar, changes in foreign currency exchange rates may affect the
value of investments in the portfolio and the accrued income and unrealized
appreciation or depreciation of investments. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
the Fund's assets denominated in that currency and the Fund's yield on such
assets.

The Fund may also purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.

With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Dividends,
Distributions and Taxes." Foreign financial markets, while growing in volume,
have, for the most part, substantially less volume than United States markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The foreign markets
also have different clearance and settlement procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund are not invested and no return is earned thereon. The inability of
the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Costs associated with transactions in
foreign securities, including

7
<PAGE> 8

custodial costs and foreign brokerage commissions, are generally higher than
with transactions in United States securities. In addition, the Fund will incur
costs in connection with conversions between various currencies. There is
generally less government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there is in the United
States.

Foreign Currency Transactions. The value of the Fund's portfolio
securities that are traded in foreign markets may be affected by changes in
currency exchange rates and exchange control regulations. In addition, the Fund
will incur costs in connection with conversions between various currencies. The
Fund's foreign currency exchange transactions generally will be conducted on a
spot basis (that is, cash basis) at the spot rate for purchasing or selling
currency prevailing in the foreign currency exchange market. The Fund purchases
and sells foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund does not
purchase and sell foreign currencies as an investment.

The Fund also may enter into contracts with banks or other foreign currency
brokers and dealers to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts
to hedge against changes in foreign currency exchange rates. A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.

The Fund may attempt to hedge against changes in the value of the United
States dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency futures contract for
such amount. Such hedging strategies may be employed before the Fund purchases a
foreign security traded in the hedged currency which the Fund anticipates
acquiring or between the date the foreign security is purchased or sold and the
date on which payment therefore is made or received. Hedging against a change in
the value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
move in the direction opposite to the hedged position. The Fund will not
speculate in foreign currency forward or futures contracts or through the
purchase and sale of foreign currencies.

RISK FACTORS

Although the Fund does not invest directly in real estate, an investment in
the Fund will generally be subject to the risks associated with real estate
because of its policy of concentration in the securities of companies in the
real estate industry. These risks include, among others: declines in the value
of real estate; risks related to general and local economic conditions;
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties of tenants and changes in interest rates. The value of securities of
companies which service the real estate industry will also be affected by such
risks. If the Fund has rental income or income from the disposition of real
property acquired as a result of a default on securities the Fund owns, the
receipt of such income may adversely affect its ability to retain its tax status
as a regulated investment company.

In addition, equity real estate investment trusts may be affected by
changes in the value of the underlying property owned by the trusts, while
mortgage real estate investment trusts may be affected by the quality of credit
extended. Equity and mortgage real estate investment trusts are dependent upon
management skill, may not be diversified and are subject to the risks of
financing projects. Such real estate investment trusts are also subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation and the
possibility of failing to qualify for tax-free pass-

8
<PAGE> 9

through of income under the Internal Revenue Code (the "Code") and to maintain
exemption from the Investment Company Act of 1940. Changes in interest rates may
also affect the value of the debt securities in the Fund's portfolio. Like
investment companies such as the Fund, real estate investment trusts are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Code. The Fund will indirectly bear its proportionate share
of any expenses paid by the real estate investment trusts in which it invests in
addition to the expenses paid by the Fund.

Additional information about the Fund's investment practices and the risks
associated with such practices are contained in "Investment Objectives and
Policies" and "Investment Practices" herein and in the Statement of Additional
Information.

INVESTMENT PRACTICES

Repurchase Agreements. The Fund may enter into repurchase agreements with
domestic or foreign banks or broker-dealers in order to earn a return on
temporarily available cash. A repurchase agreement is a short-term investment in
which the purchaser, (i.e., the Fund) acquires ownership of a debt security and
the seller agrees to repurchase the obligation at a future time and set price,
thereby determining the yield during the holding period. The Fund will not
invest more than 15% of its net assets in repurchase agreements that do not
mature within seven days and in any other illiquid securities. In the event of
the bankruptcy of the seller of a repurchase agreement, the Fund could
experience delays in liquidating the underlying securities, and the Fund could
incur a loss including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights thereto,
(b) possible lack of access to income on the underlying security during this
period, and (c) expenses of enforcing its rights. See the Statement of
Additional Information.

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund than would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order
authorizing this practice, which conditions are designed to ensure the fair
administration of the joint account and to protect the amounts in that account.

Portfolio Transactions and Brokerage Practices. The Adviser is responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The debt securities in the Fund's portfolio generally are
traded in the over-the-counter market through dealers. A dealer is a securities
firm or bank which makes a market for securities by opening a position at one
price and closing the position at a slightly more favorable price. The
difference between the prices is known as a spread. Foreign currency and forward
currency exchange contracts are traded in a similar fashion in a dealer market
maintained primarily by large commercial banks. The Fund will pay brokerage
commissions in connection with transactions in exchange-traded options, futures
contracts and related options. Spreads or commissions for transactions executed
in foreign markets often are higher than in the United States. The Adviser is
authorized to place portfolio transactions with brokerage firms participating in
the

9
<PAGE> 10

distribution of shares of the Fund and other Van Kampen American Capital mutual
funds if it reasonably believes that the quality of the execution and the
commission are comparable to that available from other qualified brokerage
firms. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. The Information
received may be used by the Adviser in managing the assets of other advisory
accounts as well as in the management of the assets of the Fund.

Portfolio Turnover. The Fund may purchase and sell securities without
regard to the length of time the security is to be, or has been held. The annual
portfolio turnover rate may exceed 100%, which is higher than that of many other
investment companies. A 100% turnover rate would occur, for example, if all the
securities held by the Fund were replaced in a period of one year. High
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs, which are borne directly by the Fund, and may result in
realization of short-term capital gains if securities are held for one year or
less which may be subject to applicable income taxes. See "Dividends,
Distributions and Taxes."

Restricted Securities. The Fund may invest up to 15% of its net assets in
restricted securities and other illiquid assets (see herein for information
regarding state restrictions). As used herein, restricted securities are those
that have been sold in the United States without registration under the
Securities Act of 1933 ("1933 Act") and are thus subject to restrictions on
resale. Excluded from the limitation, however, are any restricted securities
which are eligible for resale pursuant to Rule 144A under the 1933 Act and which
have been determined to be liquid by the Trustees or by the Adviser pursuant to
guidelines approved by the Trustees. The determination of liquidity is based on
the volume of reported trading in the institutional secondary market for each
security. Since it is not possible to predict with assurance how the markets for
restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor the Fund's investment in these securities
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
These difficulties and delays could result in the Fund's inability to realize a
favorable price upon disposition of restricted securities, and in some cases
might make disposition of such securities at the time desired by the Fund
impossible. Since market quotations are not readily available for restricted
securities, such securities will be valued by a method that the Fund's Trustees
believes accurately reflects fair value.

Using Options, Futures Contracts and Options on Futures Contracts. The
Fund expects to utilize opinions, futures contracts and options on futures
contracts in several different ways, depending upon the status of the Fund's
portfolio and the Adviser's expectations concerning the securities markets. See
the Statement of Additional information for a discussion of options, futures
contracts and options on futures contracts.

Potential Risks of Options, Futures Contracts and Options on Futures
Contracts. The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities. While
utilization of options, futures contracts and similar instruments may be
advantageous to the Fund, if the Adviser is not successful in employing such
instruments in managing the Fund's investments, the Fund's performance will be
worse than if the Fund did not make such investments. In addition, the Fund
would pay commissions and other costs in connection with such investments, which
may increase the Fund's expenses and reduce its return. The Fund may write or
purchase options in privately negotiated transactions ("OTC Options") as well as
listed options. OTC Options can be closed out only by agreement with the other
party to the transaction. Any OTC Option purchased by the Fund is considered an
illiquid security. Any OTC Option written by the Fund is with a qualified dealer
pursuant to an agreement under which the Fund may repurchase the option at a
formula price. Such options are considered illiquid to the extent that

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<PAGE> 11

the formula price exceeds the intrinsic value of the option. The Fund may not
purchase or sell futures contracts or related options for which the aggregate
initial margin and premiums exceed five percent of the fair market value of the
Fund's assets. In order to prevent leverage in connection with the purchase of
futures contracts or call options thereon by the Fund, an amount of cash, cash
equivalents or liquid high-grade debt securities equal to the market value of
the obligation under the futures contract or option (less any related margin
deposits) will be maintained in a segregated account with the Custodian. The
Fund may not invest more than 15% of its net assets in illiquid securities and
repurchase agreements which have a maturity of longer than seven days. A more
complete discussion of the potential risks involved in transactions involving
options or futures contracts and options on futures contracts is contained in
the Statement of Additional Information.

Forward Commitments. The Fund may purchase or sell debt securities on a
"when-issued" or "delayed delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, frequently a month or more
after such transaction. This price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment take place. At the time of settlement, the
market value of the securities may be more or less than the purchase or sale
price.

The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in another
Forward Commitment. The Fund's use of Forward Commitments may increase its
overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the other party to complete
the transaction. Should the other party fail to do so, the Fund might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.

The Fund maintains a segregated account (which is marked to market daily)
of cash, U.S. Government securities or the security covered by the Forward
Commitment with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to purchase or sell continues.

Investment Restrictions. The Fund has adopted a number of investment
restrictions that may not be changed without the approval of the holders of a
majority of the Fund's shares. See the Statement of Additional Information. The
percentage limitations need only be met at the time the investment is made or
other relevant action taken. These restrictions provide, among other things,
that the Fund may not:

1. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of its
net assets, or pledge more than ten percent of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds five percent of its net assets. Margin deposits or
payments in connection with the writing of options, or in connection with
the purchase or sale of forward contracts, futures, foreign currency
futures and related options, are not deemed to be a pledge or other
encumbrance.

2. With respect to 75% of its total assets, invest more than five
percent of its assets in the securities of any one issuer (except the U.S.
Government, its agencies and instrumentalities and repurchase agreements
secured thereby) or purchase more than ten percent of the outstanding
voting securities of any one issuer. Neither limitation shall apply to the
acquisition of shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting the Fund from the
limitations imposed by Section 12(d)(1) of the 1940 Act.

3. Lend money or securities except by the purchase of a portion of an
issue of bonds, debentures or other obligations of types commonly
distributed to institutional investors publicly or privately (in the latter
case the investment will be subject to the stated limits on investments

11
<PAGE> 12

in "restricted securities"), and except by the purchase of securities
subject to repurchase agreements.

4. Concentrate its investment in any one industry, except that the
Fund will invest more than 25% of its total assets in the real estate
industry. This limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of the
securities and other assets owned by such company.

The Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and restrictions as the Fund.

THE TRUST AND ITS MANAGEMENT

The Trust, an open-end, diversified management investment company, was
originally organized as a Massachusetts business trust on June 3, 1985 and
reorganized on September 16, 1995 under the laws of the state of Delaware as a
business entity commonly known as a "Delaware business trust." A mutual fund
provides, for those who have similar investment goals, a practical and
convenient way to invest in a more diversified portfolio of securities by
combining their resources in an effort to achieve such goals.

The Trust's fourteen Trustees have the responsibility for overseeing the
affairs of the Fund. The Adviser and the Subadviser are responsible for the
provision of advisory services in relation to the Fund's assets. The Adviser
also provides administrative services and manages the Fund's business and
affairs. The Adviser, together with its predecessors, has been in the investment
advisory business since 1926 and has served as investment adviser to the Fund
since its inception.

THE ADVISER. The Adviser is a wholly owned subsidiary of Van Kampen
American Capital, Inc. ("Van Kampen American Capital"). Van Kampen American
Capital is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and nearly $50 billion under management or supervision. Van Kampen
American Capital's more than 40 open-end and 38 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading financial
advisers nationwide.

Van Kampen American Capital Distributors, Inc. (the "Distributor"), the
distributor of the Trust and the sponsor of the funds mentioned above, is also a
wholly-owned subsidiary of Van Kampen American Capital. Van Kampen American
Capital is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc.
is controlled, through the ownership of a substantial majority of its common
stock, by The Clayton & Dubilier Private Equity Fund IV Limited Partnership
("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed by Clayton,
Dubilier & Rice, Inc., a New York based private investment firm. The General
Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership
("C&D Associates L.P."). The general partners of C&D Associates L.P. are Joseph
L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore, Donald J.
Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of
whom is a principal of Clayton, Dubilier & Rice, Inc. In addition, certain
officers, directors and employees of Van Kampen American Capital own, in the
aggregate, not more than seven percent of the common stock of VK/AC Holding,
Inc. and have the right to acquire, upon the exercise of options, approximately
an additional 11% of the common stock of VK/AC Holding, Inc. Presently, and
after giving effect to the exercise of such options, no officer or trustee of
the Fund owns or would own five percent or more of the common stock of VK/AC
Holding, Inc.

THE SUBADVISER. Hines Realty Advisors provides real estate advisory
services to the Adviser of the Fund. Hines Realty Advisors is a limited
partnership among Hines Holdings, Inc. (as general partner), and Hines 1980 A,
Ltd. and Gerald D. Hines (as limited partners). Mr. William S. Wardrop, Jr. is
President and Mr. Glenn L. Lowenstein is Vice President of the Subadviser. Hines
Realty Advisors has had limited previous experience as an investment adviser to
mutual funds (since mid

12
<PAGE> 13

May 1994). Affiliates of the Subadviser have extensive domestic and
international experience in owning and managing real estate. Hines Realty
Advisors, an affiliate of the Hines real estate organization ("Hines"), provides
a comprehensive evaluation of the real estate market. Founded in 1957, Hines has
proven experience in a full range of real estate services: strategic asset
management, property management development, marketing and leasing,
acquisition/disposition and financing. Headquartered in Houston, Texas, Hines
has regional offices in New York, San Francisco, Atlanta and Chicago as well as
29 additional submarkets. The firm also has offices in Mexico City, Berlin and
Moscow. Hines Interests owns and/or manages more than 61 million square feet of
prime office, retail and industrial space representing more than 451 projects.
Major projects include: Pennzoil Place in Houston, the Gallerias in Houston and
Dallas, 53rd At Third in New York, 101 California in San Francisco, One Ninety
One Peachtree in Atlanta, Three First National Plaza in Chicago and Huntington
Center in Columbus.

Associates in field offices nationwide generate regional economic analysis
based on demographic factors such as job growth and population movement. Hines
also provides a regional property-type analysis determining whether the
property -- outlet mall, strip shopping center or apartment complex, among
others -- makes sense in the area.

ADVISORY AGREEMENT. The Trust retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement (the "Advisory Agreement"),
the Trust pays the Adviser a monthly fee computed on average daily net assets of
the Fund at the annual rate of 1.00% of the Fund's average daily net assets.
This fee is higher than that charged by most other mutual funds but the Trustees
believe it is justified by the special nature of the Fund and is not necessarily
higher than the fees charged by certain mutual funds with investment objectives
and policies similar to those of the Fund. Under the Advisory Agreement, the
Trust also reimburses the Adviser for the cost of the Fund's accounting
services, which include maintaining its financial books and records and
calculating its daily net asset value. Operating expenses paid by the Fund
include shareholder service agency fees, custodial fees, legal and accounting
fees, the costs of reports and proxies to shareholders, trustees' fees, and all
other business expenses not specifically assumed by the Adviser. The Adviser has
entered into an investment subadvisory agreement (the "Subadvisory Agreement")
with the Subadviser to assist it in performing its investment advisory
functions. The Subadviser is primarily responsible for the following areas: (i)
providing regional economic analysis of the areas in which properties owned by
real estate investment trusts are located; (ii) analyzing attractiveness of the
property-type within the geographic region; (iii) evaluating and assessing real
estate valuation and the condition of property; (iv) evaluating property
managers and sponsors of real estate investment trusts; and (v) continuously
reviewing and monitoring the real estate investments in the Fund's portfolio.
Pursuant to the Subadvisory Agreement, the Subadviser receives on an annual
basis 50% of the compensation received by the Adviser. The Adviser and the
Subadviser may, from time to time, agree to waive their respective investment
advisory fees or any portion thereof or elect to reimburse the Fund for ordinary
business expenses in excess of an agreed upon amount.

PORTFOLIO MANAGEMENT. Mary Jayne Maly is primarily responsible for the
day-to-day management of the Fund's investment portfolio. She has served in that
capacity since the inception of the Fund. Ms. Maly is Vice President of the
Trust and has been a portfolio manager with the Adviser since 1994. Prior to
that time, Ms. Maly was an associate portfolio manager with the Adviser and was
formerly a senior equity analyst at Texas Commerce Management Company.

PURCHASE OF SHARES

The Trust is offering its shares only to Separate Accounts of various
insurance companies to fund the benefits of variable annuity or variable life
insurance contracts. The Trust does not foresee any disadvantage to holders of
Contracts arising out of the fact that the interests of the holders may differ
from the interests of holders of life insurance policies and that holders of one
insurance policy may differ from holders of other insurance policies.
Nevertheless, the Trust's Trustees intend to

13
<PAGE> 14

monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken. The
Contracts are described in the separate prospectuses issued by the Participating
Insurance Companies. The Trust continuously offers shares in the Fund to the
Accounts at prices equal to the respective per share net asset value of the
Fund. Van Kampen American Capital Distributors, Inc., One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, acts as the distributor of the shares. Net
asset value is determined in the manner set forth below under "Determination of
Net Asset Value."

DETERMINATION OF NET ASSET VALUE

Net asset value per share is computed for the Fund as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying Prospectus for the policies for
information regarding holidays observed by the insurance company.

Net asset value per share is determined by dividing the value of the Fund's
securities, cash and other assets (including accrued interest) attributable to
such class less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the last reported sale price, (ii) valuing over-the-counter securities for which
the last sale price is available from the National Association of Securities
Dealers Automated Quotations ("NASDAQ") at that price, (iii) unlisted securities
and listed securities for which the last sale price is not available are valued
at the last reported bid price, (iv) options and futures contracts are valued at
the last sale price or if no sales are reported, at the mean between the bid and
asked prices, and (v) valuing any securities for which market quotations are not
readily available, and any other assets at fair value as determined in good
faith by the Trustees of the Trust. Short-term investments with a maturity of 60
days or less when purchased are valued at amortized cost, which approximates
market value. Short-term investments with a maturity of more than 60 days when
purchased are valued based on market quotations until the remaining days to
maturity becomes less than 61 days. From such time, until maturity, the
investments are valued at amortized cost using the value of the investment on
the 61st day.

REDEMPTION OF SHARES

Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value next determined after the receipt of a request in proper form.
The market value of the securities in the Fund is subject to daily fluctuations
and the net asset value of the Fund's shares will fluctuate accordingly.
Therefore, the redemption value may be more or less than the investor's cost.

DIVIDENDS, DISTRIBUTIONS AND TAXES

All dividends and capital gains distributions of the Fund are automatically
reinvested by the Account in additional shares of the Fund.

Dividends and Distributions. Dividends from stocks and interest earned
from other investments are the main source of income for the Fund. Substantially
all of this income, less expenses, is distributed on an annual basis. When the
Fund sells portfolio securities, it may realize capital gains or losses,
depending on whether the prices of the securities sold are higher or lower than
the prices the Fund paid to purchase them. Net realized capital gains represent
the total profit from sales of securities minus total losses from sales of
securities including any losses carried forward from prior years. The Fund
distributes any net realized capital gains to the Account no less frequently
than annually.

14
<PAGE> 15

The Fund intends to qualify as a "regulated investment company" under the
Code. By maintaining its qualification as a "regulated investment company," the
Fund will not incur any liability for federal income taxes to the extent its
taxable ordinary income and any capital gain net income is distributed in
accordance with Subchapter M of the Code. By qualifying as a regulated
investment company, the Fund is not subject to Federal income taxes to the
extent it distributes its taxable net investment income and taxable net realized
capital gains. If for any taxable year the Fund does not qualify for the special
tax treatment afforded regulated investment companies, all of its taxable
income, including any net realized capital gains, would be subject to tax at
regular corporate rates (without any deduction for distributions to
shareholders). The Fund is subject to the diversification requirements of
Section 817(h) of the Code.

Dividends and distributions paid by the Fund have the effect of reducing
net asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution paid shortly after the purchase of shares
by an investor would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so purchased) even though
subject to income taxes as discussed above.

Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Investors
may be entitled to claim United States foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code. If
more than 50% in value of the Fund's total assets at the close of its fiscal
year consists of securities of foreign issuers, the Fund will be eligible, and
may file elections with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro rata
portions of such taxes in their United States income tax returns as gross
income, treat such respective pro rata portions as taxes paid by them, and
deduct such respective pro rata portions in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their United States
income taxes. The Fund will report annually to its shareholders the amount per
share of such withholding.

Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market are typically treated as
ordinary income or loss. Such income or loss may increase or decrease (or
possibly eliminate) the Fund's income available for distribution. If, under the
rules governing the tax treatment of foreign currency gains and losses, the
Fund's income available for distribution is decreased or eliminated, all or a
portion of the dividends declared by the Fund may be treated for federal income
tax purposes as a return of capital or, in some circumstances, as capital gain.
Generally, your tax basis in your Fund shares will be reduced to the extent that
an amount distributed to you is treated as a return of capital.

Tax Treatment to Insurance Company as Shareholder. Dividends paid by the
Fund from its ordinary income and distributions of the Fund's net realized
short-term capital gains are includable in the insurance company's gross income.
The tax treatment of such dividends and distributions depends on the insurance
company's tax status. To the extent that income of the Fund represents dividends
on equity securities rather than interest income, its distributions are eligible
for the 70% dividends received deduction applicable in the case of a life
insurance company as provided in the Code. However, a dividend received from a
real estate investment trust does not qualify for the dividend received
deduction. The Trust will send to the Account a written notice required by the
Code designating the amount and character of any distributions made during such
year.

Under the Code, any distribution designated as being made from the Fund's
net realized long-term capital gains are taxable to the insurance company as
long-term capital gains. Such distributions of long-term capital gains will be
designated as a capital gains distribution in a written notice to the Account
which accompanies the distribution payment. Long-term capital gains
distributions are not eligible for the dividends received deduction. Dividends
and capital gain distributions to the insurance company may also be subject to
state and local taxes.

15
<PAGE> 16

As described in the accompanying Prospectus for the Contracts, the
insurance company reserves the right to assess the Account a charge for any
taxes paid by it.

Tax Treatment of Options and Futures Transactions. Gains or losses on
transactions in listed options on securities, futures and options on futures
generally are treated as 60% long-term and 40% short-term, ("60/40"), and
positions held by the Fund at the end of its fiscal year generally are required
to be marked to market, with the result that unrealized gains and losses are
treated as though they were realized. Gains and losses realized by the Fund on
transactions in over-the-counter options generally are short-term capital gains
or losses unless the option is exercised, in which case the gain or loss is
determined by the holding period of the underlying security. The Code contains
certain "straddle" rules which require deferral of losses incurred in certain
transactions involving hedged positions to the extent the Fund has unrealized
gains in offsetting positions and generally terminate the holding period of the
subject position. Additional information is set forth in the Statement of
Additional Information.

FUND PERFORMANCE

From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one, five and ten-year periods or for the life of the
Fund. Other total return quotations, aggregate or average, over other time
periods may also be included.

The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the maximum public
offering price and that all income dividends or capital gains distributions
during the period are reinvested in Fund shares at net asset value. Total return
is based on historical earnings and asset value fluctuations and is not intended
to indicate future performance. No adjustments are made to reflect any income
taxes payable by shareholders on dividends and distributions paid by the Fund.

Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.

To increase the Fund's yield the Adviser may, from time to time, absorb a
certain amount of the future ordinary business expenses. The Adviser may stop
absorbing these expenses at any time without prior notice.

The Trust's Annual Report contains additional performance information. A
copy of the Annual Report may be obtained without charge by calling or writing
the Trust of the telephone number and address printed on the cover page of this
Prospectus.

DESCRIPTION OF SHARES OF THE TRUST

The Trust was originally organized as a Massachusetts business trust on
June 3, 1985 and reorganized on September 16, 1995, under the laws of the state
of Delaware as a business entity commonly known as "Delaware business trust." It
is authorized to issue an unlimited number of shares of beneficial interest of
$0.01 par value. Shares issued by the Trust are fully paid, non-assessable and
have no preemptive or conversion rights.

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Trust if
set forth in the Statement of Additional Information.

16
<PAGE> 17

The Trust's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Trust but the assets of the Trust only shall be liable.

ADDITIONAL INFORMATION

This Prospectus and the Statement of Additional Information do not contain
all the information set forth in the Registration Statement filed by the Trust
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.

An investment in the Trust may not be appropriate for all investors.

The Trust is not intended to be a complete investment program, and
investors should consider their long-term investment goals and financial needs
when making an investment decision with respect to the Trust.

An investment in the Trust is intended to be a long-term investment, and
should not be used as a trading vehicle.

17
<PAGE> 18

APPENDIX

DESCRIPTION OF BOND RATINGS

MOODY'S INVESTORS SERVICE

AAA -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

BAA -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact, have speculative characteristics as well.

BA -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

CAA -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

CA -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

NONRATED -- Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

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<PAGE> 19

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

Note: Those bonds in the Aa, A, Baa and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.

STANDARD & POOR'S CORPORATION

AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.

A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB -- B -- CCC -- CC -- C -- Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

CI -- The rating CI is reserved for income bonds on which no interest is
being paid.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR -- Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.

PREFERRED STOCK RATINGS:

Both Moody's and Standard & Poor's use the same designations for corporate
bonds as they do for preferred stock, except in the case of Moody's preferred
stock ratings, the initial letter rating is not capitalized. While the
descriptions are tailored for preferred stocks, the relative quality
distinctions are comparable to those described above for corporate bonds.

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<PAGE> 20

VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
REAL ESTATE SECURITIES FUND
------------------
2800 Post Oak Blvd.
Houston, TX 77056
------------------

Investment Adviser

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

Investment Subadviser

HINES INTERESTS REALTY
ADVISORS LIMITED PARTNERSHIP
2800 Post Oak Blvd.
Houston, TX 77056

Distributor

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

Transfer Agent

ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
EXISTING SHAREHOLDERS-- Kansas City, MO 64141-9256
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL Custodian
THE FUND'S TOLL-FREE
NUMBER--(800) 421-5666 STATE STREET BANK AND
TRUST COMPANY
PROSPECTIVE INVESTORS--CALL 225 Franklin Street, P.O. Box 1713
YOUR BROKER OR (800) 421-5666 Boston, MA 02105-1713
Attn: Van Kampen American Capital Funds
DEALERS--FOR DEALER
INFORMATION, SELLING Legal Counsel
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE O'MELVENY & MYERS
DISTRIBUTOR'S TOLL-FREE 400 South Hope Street
NUMBER--(800) 421-5666 Los Angeles, CA 90071

FOR SHAREHOLDER AND Independent Accountants
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS PRICE WATERHOUSE LLP
DEVICE FOR THE DEAF (TDD) 1201 Louisiana, Suite 2900
DIAL (800) 772-8889 Houston, TX 77002

<PAGE> 21

LIFE INVESTMENT TRUST

REAL ESTATE SECURITIES FUND

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

P R O S P E C T U S

SEPTEMBER 18, 1995

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
--------------------------------------------------------------------------------
<PAGE> 22

STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 18, 1995

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
(800) 421-5666

Van Kampen American Capital Life Investment Trust (the "Trust") is a
diversified, open-end management investment company with eight separate Funds,
one of which is discussed herein: Real Estate Securities Fund (the "Fund").

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

This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated September
18, 1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. (the "Distributor") at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181 at (800) 225-2222.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION................................................................... 2
INVESTMENT OBJECTIVES AND POLICIES.................................................... 2
INVESTMENT RESTRICTIONS............................................................... 10
TRUSTEES AND EXECUTIVE OFFICERS....................................................... 13
INVESTMENT ADVISORY AGREEMENTS........................................................ 17
DISTRIBUTOR........................................................................... 18
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 19
DETERMINATION OF NET ASSET VALUE...................................................... 20
PURCHASE AND REDEMPTION OF SHARES..................................................... 20
DISTRIBUTIONS AND TAXES............................................................... 20
OTHER INFORMATION..................................................................... 22
</TABLE>

<PAGE> 23

GENERAL INFORMATION

The Trust was originally organized under the laws of the Commonwealth of
Massachusetts on June 3, 1985 and reorganized under the laws of Delaware on
September 16, 1995.

Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor") and Van Kampen
American Capital Shareholder Services, Inc. ("ACCESS") are wholly owned
subsidiaries of Van Kampen American Capital, Inc. ("VKAC"), which is a wholly
owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled,
through the ownership of a substantial majority of its common stock, by The
Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a
Connecticut limited partnership. C&D L.P. is managed by Clayton, Dubilier &
Rice, Inc. a New York based private investment firm. The General Partner of C&D
L.P. is Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates
L.P."). The general partners of C&D Associates L.P. are, Joseph L. Rice, III, B.
Charles Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J.
Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of VKAC own, in the aggregate, not more than seven
percent of the common stock of VK/AC Holding, Inc. and have the right to
acquire, upon the exercise of options, approximately an additional 11% of the
common stock of VK/AC Holding, Inc. Advantage Capital Corporation, a retail
broker-dealer affiliate of the Distributor, is a wholly owned subsidiary of
VK/AC Holding, Inc.

As of September 8, 1995 no person was known by management to own
beneficially or of record as much as five percent of the outstanding shares of
any portfolio except as set forth below. The Fund offers to share only to
separate accounts of various insurance companies. Those separate accounts have
authority to vote shares from which they have not received instructions from the
contractholders, but only in the same proportion with respect to "yes" votes,
"no" votes or abstentions as is the case with respect to shares for which
instructions were received.

REAL ESTATE SECURITIES FUND

AMOUNT OF RECORD
OWNERSHIP
OF THE
FUND AT
NAME AND ADDRESS OF RECORD HOLDER SEPTEMBER 8, 1995 PERCENT
--------------------------------- ----------------- ------
<S> <C> <C>
Van Kampen American Capital Asset Management, Inc...................... 50,010.00 15.81%
2800 Post Oak Blvd.
Houston, Texas 77056

National Variable Account--II.......................................... 252,755.60 79.91%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
</TABLE>

INVESTMENT OBJECTIVES AND POLICIES

As its primary objective, the Fund seeks long-term growth of capital by
investing principally in securities of companies operating in the real estate
industry. Current income is a secondary consideration. The following disclosures
supplement disclosures set forth in the Prospectus. Readers must refer also to
the Prospectus for a complete presentation.

DEPOSITARY RECEIPTS

The Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) or
other securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a

2
<PAGE> 24

similar ownership arrangement. Generally, ADRs in registered form, are designed
for use in United States securities markets and EDRs, in bearer form, are
designed for use in European securities markets.

OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Fund may engage in transactions in options, futures contracts and
options on futures contracts. Set forth below is certain additional information
regarding options, futures contracts and options on futures contracts. See
Prospectus for further information.

SELLING CALL AND PUT OPTIONS

Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return or total return than would be
realized on the underlying securities alone.

Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund sells call options
either on a covered basis or for cross hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered but is designed to provide a hedge against a
security which the Fund owns or has the right to acquire. In such circumstances,
the Fund collateralizes the option by maintaining in a segregated account with
the Fund's Custodian, cash, cash equivalents or high quality, liquid debt
securities in an amount not less than the market value of the underlying
security, marked to market daily, while the option is outstanding.

The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund sells put options only on a
secured basis, which means that, at all times during the option period, the Fund
would maintain in a segregated account with its Custodian cash, cash equivalents
or high quality, liquid debt securities in an amount of not less than the
exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.

Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a seller of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.

The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as seller of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a seller, but would provide an asset of
equal value to its obligation under the option written. If the Fund is not able
to enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has written, it will be required to maintain the
securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.

The exercise price of call options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market value of the
underlying securities or futures contracts at the time the options are written.
The converse applies to put options.

Risks of Selling Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.

3
<PAGE> 25

PURCHASING CALL AND PUT OPTIONS

The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire. In
addition, the Fund may purchase call options for capital appreciation. Since the
premium paid for a call option is typically a small fraction of the price of the
underlying security, a given amount of funds will purchase call options covering
a much larger quantity of such security than could be purchased directly. By
purchasing call options, the Fund could benefit from any significant increase in
the price of the underlying security to a greater extent than had it invested
the same amount in the security directly. However, because of the very high
volatility of option premiums, the Fund would bear a significant risk of losing
the entire premium if the price of the underlying security did not rise
sufficiently, or if it did not do so before the option expired.

Conversely, put options could be purchased to protect (i.e., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of the Fund's assets generally. In addition, the Fund may purchase put
options for capital appreciation in anticipation of a price decline in the
underlying security and a corresponding increase in the value of the put option.
The purchase of put options for capital appreciation involves the same
significant risk of loss as described above for call options.

In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.

OPTIONS ON STOCK INDEXES

Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the exercise
price of the option, multiplied by a specified dollar multiple. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount.

Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges. The Fund may sell or purchase options which are listed on an exchange
as well as options which are traded over-the-counter.

Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.

RISK FACTORS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT SECURITIES

Treasury Bonds and Notes. Because trading interest in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the Exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of bonds or notes will thus be phased out as new options are
listed on more recent issues, and options representing a full range of
expirations will not ordinarily be available for every issue on which options
are traded.

4
<PAGE> 26

Treasury Bills. Because the deliverable Treasury bill changes from week to
week, sellers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian so that it will be
treated as being covered.

Mortgage-Related Securities. The following special considerations will be
applicable to options on mortgage-related securities. Currently such options are
only traded over-the-counter. Since the remaining principal balance of a
mortgage-related security declines each month as a result of mortgage payments,
the Fund as a seller of a mortgage-related call holding mortgage-related
securities as "cover" to satisfy its delivery obligation in the event of
exercise may find that the mortgage-related securities it holds no longer have a
sufficient remaining principal balance for this purpose. Should this occur, the
Fund will purchase additional mortgage-related securities from the same pool (if
obtainable) or replacement mortgage-related securities in the cash market in
order to maintain its cover. A mortgage-related security held by the Portfolio
to cover an option position in any but the nearest expiration month may cease to
represent cover for the option in the event of a decline in the coupon rate at
which new pools are originated under the FHA/VA loan ceiling in effect at any
given time. If this should occur, the Fund will no longer be covered, and the
Fund will either enter into a closing purchase transaction or replace such
mortgage-related security with a mortgage-related security which represents
cover. When the Fund closes its position or replaces such mortgage-related
security, it may realize an unanticipated loss and incur transaction costs.

FOREIGN CURRENCY OPTIONS

The Fund may purchase put and call options on foreign currencies to reduce
the risk of currency exchange fluctuation. Premiums paid for such put and call
options will be limited to no more than five percent of the Fund's net assets at
any given time. Options on foreign currencies operate similarly to options on
securities, and are traded primarily in the over-the-counter market, although
options on foreign currencies are traded on United States and foreign exchanges.
Exchange-traded options are expected to be purchased by the Fund from time to
time and over-the-counter options may also be purchased, but only when the
Adviser believes that a liquid secondary market exists for such options,
although there can be no assurance that a liquid secondary market will exist for
a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investment generally. See "Investment Practices -- Using Options, Futures
Contracts and Options on Futures Contracts" in the Prospectus.

The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.

5
<PAGE> 27

FUTURES CONTRACTS

The Fund may engage in transactions involving futures contracts and related
options in accordance with rules and interpretations of the Commodity Futures
Trading Commission ("CFTC") under which the Fund is exempt from registration as
a "commodity pool."

Types of Contracts. An interest rate futures contract is an agreement
pursuant to which a party agrees to take or make delivery of a specified debt
security (such as U.S. Treasury bonds, U.S. Treasury notes, U.S. Treasury bills
and GNMA Certificates) at a specified future time and at a specified price.
Interest rate futures contracts also include cash settlement contracts based
upon a specified interest rate such as the London interbank offering rate for
dollar deposits, LIBOR.

A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made.

The Fund may also invest in foreign stock index futures traded outside the
United States. Such foreign stock index futures include the Nikkei Index of 225
Japanese stocks traded on the Singapore International Monetary Exchange ("Nikkei
Index"), Osaka Index of 50 Japanese stocks traded on the Osaka Exchange,
Financial Times Stock Exchange Index of the 100 largest stocks on the London
Stock Exchange, the All Ordinaries Share Price Index of 307 stocks on the
Sydney, Melbourne Exchanges, Hang Seng Index of 33 stocks on the Hong Kong Stock
Exchange, Barclays Share Price Index of 40 stocks on the New Zealand Stock
Exchange and Toronto Index of 35 stocks on the Toronto Stock Exchange. Futures
and futures options on the Nikkei Index are traded on the Chicago Mercantile
Exchange and United States commodity exchanges may develop futures and futures
options on other indices of foreign securities. Futures and options on United
States devised index of foreign stocks are also being developed. Investments in
securities of foreign entities and securities denominated in foreign currencies
involve risks not typically involved in domestic investment, including
fluctuations in foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange controls or other foreign
or United States governmental laws or restrictions applicable to such
investments.

Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalents or liquid high
grade debt securities equal to a percentage (which will normally range between
two and ten percent) of the contract amount. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract margin does
not involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation margin, are made on a daily
basis as the price of the underlying securities or index fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as marking to market.

For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.

At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.

Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary

6
<PAGE> 28

substitute for the purchase of individual securities, which may be purchased in
an orderly fashion once the market has stabilized. As individual securities are
purchased, an equivalent amount of futures contracts could be terminated by
offsetting sales. The Fund may sell futures contracts in anticipation of or in a
general market or market sector decline that may adversely affect the market
value of the Fund's securities ("defensive hedge"). To the extent that the
Fund's portfolio of securities changes in value in correlation with the
underlying security or index, the sale of futures contracts substantially
reduces the risk to the Fund of a market decline and, by so doing, provides an
alternative to the liquidation of securities positions in the Fund with
attendant transaction costs. Ordinarily commissions on futures transactions are
lower than transaction costs incurred in the purchase and sale of securities.

In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased and/or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.

Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, currency or index the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.

There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities, currency or index upon which the
futures contract is based. If the price of the futures contract moves less than
the price of the securities being hedged, the hedge will not be fully effective.
To compensate for this imperfect correlation, the Fund could buy or sell futures
contracts in a greater dollar amount than the dollar amount of securities being
hedged if the historical volatility of the securities being hedged is greater
than the historical volatility of the securities, currency or index underlying
the futures contract. Conversely, the Fund could buy or sell futures contracts
in a lesser dollar amount than the dollar amount of the securities being hedged
if the historical volatility of the securities being hedged is less than the
historical volatility of the securities, currency or index underlying the
futures contract. It is also possible that the value of futures contracts held
by the Fund could decline at the same time as portfolio securities being hedged;
if this occurred, the Fund would lose money on the futures contract in addition
to suffering a decline in value in the portfolio securities being hedged.

There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities, currency or index
underlying the futures contract due to certain market distortions. First, all
participants in the futures market are subject to margin depository and
maintenance requirements. Rather than meet additional margin depositary
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the futures
market and the securities or index underlying the futures contract. Second, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures markets may cause
temporary price distortions. Due to the possibility of price distortion in the
futures markets and because of the imperfect correlation between movements in
futures contracts and movements in the securities underlying them, a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction judged over a very short time frame.

There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the

7
<PAGE> 29

related futures contract. In such event, the Fund would lose the benefit of the
appreciation in value of the securities.

Successful use of futures is also subject to the Adviser's ability
correctly to predict the direction of movements in the market. For example, if
the Fund hedges against a decline in the market, and market prices instead
advance, the Fund will lose part or all of the benefit of the increase in value
of its securities holdings because it will have offsetting losses in futures
contracts. In such cases, if the Fund has insufficient cash, it may have to sell
portfolio securities at a time when it is disadvantageous to do so in order to
meet the daily variation margin.

CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that the Fund not enter
into futures and related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of the Fund's assets. In
order to prevent leverage in connection with the purchase of futures contracts
by the Fund, an amount of cash, cash equivalents or liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian.

Additional Risks to Options and Futures Transactions. Each of the United
States exchanges has established limitations governing the maximum number of
call or put options on the same underlying security or futures contract (whether
or not covered) which may be sold by a single investor, whether acting alone or
in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). Option positions of all investment companies
advised by the Adviser are combined for purposes of these limits. An exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.

Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price of the securities being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide an offset to losses on the
futures contract. Option on futures contracts to be sold or purchased by the
Fund will be traded on United States or foreign exchange or over-the-counter.

OPTIONS ON FUTURES CONTRACTS

The Fund could also purchase and sell options on futures contracts. Options
on futures contracts to be sold or purchased by the Fund will be traded on
United States or foreign exchanges or over-the-counter. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put), at a specified exercise price at
any time during the option period. As a writer of an option on a futures
contract, the Fund is subject to initial margin and maintenance requirements
similar to those applicable to futures contracts. In addition, net option
premiums received by the Fund are required to be included as initial margin
deposits. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as, the sale of a futures contract; at the same time, it
could sell put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contract.

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<PAGE> 30

Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless, in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However there may be circumstances, such as when there
is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES

Unlike transactions entered into by the Fund in futures contracts, options
on foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) by the Securities and Exchange Commission ("SEC"). To the contrary,
such instruments are traded through financial institutions acting as
market-makers, although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could, therefore, continue to an unlimited extent over
a period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, the option seller and a trader of forward contracts could
lose amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the Fund
to liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.

9
<PAGE> 31

FORWARD COMMITMENTS

Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked to market daily) of cash, cash equivalents, liquid high
grade debt securities or U.S. Government securities (which may have maturities
which are longer than the term of the Forward Commitment) with the Fund's
custodian in an aggregate amount equal to the amount of its commitment as long
as the obligation to purchase continues. Since the market value of both the
securities or currency subject to the Forward Commitment and the securities or
currency held in the segregated account may fluctuate, the use of Forward
Commitments may magnify the impact of interest rate changes on the Fund's net
asset value.

A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities or currency subject to the Forward Commitment.
A Forward Commitment sale is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in value of a security or
currency which the Fund owns or has the right to acquire. In either
circumstance, the Fund maintains in a segregated account (which is marked to
market daily) either the security or currency covered by the Forward Commitment
or cash, cash equivalents, liquid high grade debt securities or U.S. Government
securities (which may have maturities which are longer than the term of the
Forward Commitment) with the Fund's custodian in an aggregate amount equal to
the amount of its commitment as long as the obligation to sell continues. By
entering into a Forward Commitment sale transaction, the Fund forgoes or reduces
the potential for both gain and loss in the security which is being hedged by
the Forward Commitment sale. See the Prospectus for further information.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with domestic or foreign
banks or broker-dealers deemed to be creditworthy by the Adviser under
guidelines approved by the Trustees. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. Repurchase
agreements are fully collateralized by the underlying debt securities and are
considered to be loans under the Investment Company Act of 1940, as amended
("1940 Act"). The Fund pays for such securities only upon physical delivery or
evidence of book entry transfer to the account of a custodian or bank acting as
agent. The seller under a repurchase agreement will be required to maintain the
value of the underlying securities marked to market daily at not less than the
repurchase price. The underlying securities (normally securities of the U.S.
Government, or its agencies and instrumentalities), may have maturity dates
exceeding one year. The Fund does not bear the risk of a decline in value of the
underlying securities unless the seller defaults under its repurchase
obligation. See "Investment Practices -- Repurchase Agreements" in the
Prospectus for further information.

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions which may not be changed
without the approval of the holders of a majority of the outstanding shares of
the Fund. Such majority is defined by the 1940 Act as the lesser of (i) 67% or
more of the voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy; or (ii) more than 50% of the Fund's outstanding voting securities. The
percentage limitations need only be met at the time the investment is made or
after relevant action is taken. In addition to the fundamental investment
restrictions set forth in the Prospectus, the Fund is subject to the
restrictions set forth below.

10
<PAGE> 32

The Fund shall not:

1. Engage in the underwriting of securities of other issuers, except that
the Fund may sell an investment position even though it may be deemed to
be an underwriter under the federal securities laws.

2. With respect to 75% of its total assets, invest more than five percent
of its assets in the securities of any one issuer (except the U.S.
Government, its agencies and instrumentalities and repurchase agreements
secured thereby) or purchase more than ten percent of the outstanding
voting securities of any one issuer. Neither limitation shall apply to
the acquisition of shares of other open-end investment companies to the
extent permitted by rule or order of the SEC exempting the Fund from the
limitations imposed by Section 12(d)(1) of the 1940 Act.

3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than ten percent of its net assets in
connection with permissible borrowings or purchase additional securities
when money borrowed exceeds five percent of its net assets. Margin
deposits or payments in connection with the writing of options, or in
connection with the purchase or sale of forward contracts, futures,
foreign currency futures and related options, are not deemed to be a
pledge or other encumbrance.

4. Lend money or securities except by the purchase of a portion of an issue
of bonds, debentures or other obligations of types commonly distributed
to institutional investors publicly or privately (in the latter case the
investment will be subject to the stated limits on investments in
"restricted securities"), and except by the purchase of securities
subject to repurchase agreements.

5. Buy or sell real estate including real estate limited partnerships,
provided that the foregoing prohibition does not apply to a purchase and
sale of (i) securities which are secured by real estate, (ii) securities
representing interests in real estate, and (iii) securities of companies
operating in the real estate industry, including real estate investment
trusts. The Fund may hold and sell real estate acquired as a result of
the ownership of its securities.

6. Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in options, futures contracts or related options
including foreign currency futures contracts and related options and
forward contracts.

7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts, forward contracts, forward commitments and other investment
strategies and instruments that would be considered "senior securities"
but for the maintenance by the Fund of a segregated account with its
custodian or some other form of "cover."

8. Concentrate its investment in any one industry, except that the Fund
will invest more than 25% of its total assets in the real estate
industry. This limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of
the securities and other assets owned by any such company.

9. Write, purchase or sell puts, calls or combinations thereof, except that
the Fund may (a) write covered or fully collateralized call options,
write secured put options, and enter into closing or offsetting purchase
transactions with respect to such options, (b) purchase and sell options
to the extent that the premiums paid for all such options owned at any
time do not exceed ten percent of its total assets and (c) engage in
transactions in futures contracts and related options transactions
provided that such transactions are entered into for bona fide hedging
purposes (or meet certain conditions as specified in CFTC regulations),
and provided further that the aggregate initial margin and premiums do
not exceed five percent of the fair market value of the Fund's total
assets.

10. The Fund may not make short sales of securities, unless at the time of
the sale it owns or has the right to acquire an equal amount of such
securities; provided that this prohibition does not apply to the
writing of options or the sale of forward contracts, futures, foreign
currency futures or related options.

11
<PAGE> 33

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Fund is subject to the following policies
which may be amended by the Trust's Trustees and which apply at the time of
purchase of portfolio securities.

1. The Fund may not make investments for the purpose of exercising control
or management although the Fund retains the right to vote securities
held by it.

2. The Fund may not purchase securities on margin but the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities. The deposit or payment by the Fund of
initial or maintenance margin in connection with forward contracts,
futures, foreign currency futures or related options is not considered
the purchase of a security on margin.

3. The Fund may not invest in the securities of other open-end investment
companies, or invest in the securities of closed-end investment
companies except through purchase in the open market in a transaction
involving no commission or profit to a sponsor or dealer (other than the
customary broker's commission) or as part of a merger, consolidation or
other acquisition except to acquire shares of other open-end investment
companies to the extent permitted by rule or order of the SEC exempting
the Fund from the limitations imposed by Section 12(d)(1) of the 1940
Act.

4. The Fund may not invest more than five percent of its net assets in
warrants or rights valued at the lower of cost or market, nor more than
two percent of its net assets in warrants or rights (valued on such
basis) which are not listed on the New York or American Stock Exchanges.
Warrants or rights acquired in units or attached to other securities are
not subject to the foregoing limitation.

5. The Fund may not invest in securities of any company if any officer or
Trustee of the Trust or of the Adviser owns more than one-half of one
percent of the outstanding securities of such company, and such officers
and Trustees who own more than one-half of one percent own in the
aggregate more than five percent of the outstanding securities of such
issuer.

6. The Fund may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Fund may acquire securities of public companies
which themselves are engaged in such activities.

7. The Fund may not invest more than five percent of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years, provided, however,
that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Trust's pro rata portion of
the securities and other assets owned by any such company.

8. The Fund may not purchase or otherwise acquire any security if, as a
result, more than fifteen percent of its net assets (taken at current
value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market. This policy does not apply to
restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 which the Trustees or the Adviser under
approved guidelines, may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual restrictions
on resale, a liquid market exists.

12
<PAGE> 34

TRUSTEES AND EXECUTIVE OFFICERS

The Trust's Trustees and Executive Officers and their principal occupations
during the past five years are listed below.

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall President of MDT Corporation, a company which develops,
Suite 200 manufactures, markets and services medical and
1009 Slater Road scientific equipment. A Trustee of each of the Van
Harrisville, NC 27560 Kampen American Capital Funds.
Age: 63

Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager
9615 Torresdale Avenue of Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 A Trustee of each of the Van Kampen American Capital
Age: 67 Funds.

Linda Hutton Heagy................. Managing Partner, Paul Ray Berndston, an executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Age: 46 of LaSalle National Bank. A Trustee of each of the Van
Kampen American Capital Funds.

Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A Trustee of each of the
Lyme, CT 06371 Van Kampen American Capital Funds.
Age: 75

R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. A Trustee
of each of the Van Kampen American Capital Funds.

Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. A Trustee of each of the Van Kampen
American Capital Funds and Chairman of each Van Kampen
American Capital Fund advised by Van Kampen American
Capital Investment Advisory Corp.

Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc.,
423 Country Club Drive a financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>

13
<PAGE> 35

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser. Director and Executive
Vice President of ACCESS, Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director, Trustee or Managing General Partner
of each of the Van Kampen American Capital Funds and
other open-end investment companies and closed-end
investment companies advised by the Adviser and its
affiliates.

David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A Director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital; a Director and the Second
Vice President of International Institute of Los
Angeles. A Trustee of each of the Van Kampen American
Capital Funds.

Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white
collar productivity. Director of Panasia Bank. A Trustee
of each of the Van Kampen American Capital Funds.

Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994)
1999 Avenue of the Stars of the law firm of O'Melveny & Myers, legal counsel to
Suite 700 the Fund. Director, FPA Capital Fund, Inc.; FPA New
Los Angeles, CA 90067 Income Fund, Inc.; FPA Perennial Fund, Inc.; Source
Age: 63 Capital, Inc.; and TCW Convertible Security Fund, Inc.,
investment companies unaffiliated with Van Kampen
American Capital. A Trustee of each of the Van Kampen
American Capital Funds.

Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995,
Stevens Institute Dean of Graduate School and Chairman, Department of
of Technology Mechanical Engineering, Stevens Institute of Technology.
Castle Point Station Director of Dynalysis of Princeton, a firm engaged in
Hoboken, NJ 07030 engineering research. A Trustee of each of the Van
Age: 71 Kampen American Capital Funds and Chairman of the Van
Kampen American Capital Funds advised by the Adviser.

Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A Trustee of each of the Van
Age: 55 Kampen American Capital Funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.
</TABLE>

14
<PAGE> 36

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently know as The Traver's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a
Age: 73 producer of paper products. Trustee, and former
President of Whitney Museum of American Art. Formerly,
Chairman of Institute for Educational Leadership, Inc.,
Board of Visitors, Graduate School of The City
University of New York, Academy of Political Science.
Trustee of Committee for Economic Development. Director
of Public Education Fund Network, Fund for New York City
Public Education. Trustee of Barnard College. Member of
Dean's Council, Harvard School of Public Health. Member
of Mental Health Task Force, Carter Center. A Trustee of
each of the Van Kampen American Capital Funds.
</TABLE>

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

* Such Trustees are "interested persons" (within the meaning of Section 2(a)19
of the 1940 Act). Mr. Powell is an interested person of the Adviser and the
Trust by reason of his position with the Adviser. Mr. Sheehan and Mr. Whalen
are interested persons of the Adviser and the Fund by reason of their firms
having acted as legal counsel to the Adviser or an affiliate thereof.

The Trust's officers other than Messrs. McDonnell and Nyberg are located
2800 Post Oak Blvd., Houston, TX 77056. Messrs. McDonnell and Nyberg are located
at One Parkview Plaza, Oakbrook Terrace, IL 60181.

OFFICERS

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
B. Robert Baker.......... Vice President Associate Portfolio Manager of the Adviser.
Age: 41 Formerly, Vice President -- Portfolio
Manager, Variable Annuity Life Insurance
Company.

Nori L. Gabert........... Vice President and Vice President, Associate General Counsel
Age: 42 Secretary and Corporate Secretary of the Adviser.

Gary M. Lewis............ Vice President Vice President of the Adviser.
Age: 42

Tanya M. Loden........... Vice President and Vice President and Controller of most of the
Age: 35 Controller investment companies advised by the Adviser,
formerly Tax Manager/Assistant Controller.

Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
Age: 53 Director of the Adviser, Director of VK/AC
Holding, Inc. and Van Kampen American
Capital.

Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 49 Treasurer investment companies advised by the Adviser.

Jeff New................. Vice President Portfolio Manager of the Adviser.
Age: 38
</TABLE>

15
<PAGE> 37

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg......... Vice President Executive Vice President, General Counsel
Age: 42 and Secretary of Van Kampen American
Capital, Executive Vice President and a
Director of the Distributor, Executive Vice
President of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment Com-
pany Institute.
Robert Peck.............. Vice President Senior Vice President of the Adviser.
Age: 48
John R. Reynoldson....... Vice President Senior Vice President of the Adviser.
Age: 42
Alan T. Sachtleben....... Vice President Executive Vice President and Director of the
Age: 53 Adviser. Executive Vice President of VK/AC
Holding, Inc. and VKAC.
Walter W. Stabell III.... Vice President Associate Portfolio Manager of the Adviser.
Age: 36
David Troth.............. Vice President Senior Vice President of the Adviser.
Age: 61
J. David Wise............ Vice President and Vice President, Associate General Counsel
Age: 51 Assistant Secretary and Assistant Corporate Secretary of the
Adviser.
Paul R. Wolkenberg....... Vice President Senior Vice President of the Adviser.
Age: 50 President, Chief Operating Officer and
Director of Van Kampen American Capital
Services, Inc. Executive Vice President,
Chief Operating Officer and Director of Van
Kampen American Capital Trust Company.
Executive Vice President and Director of
ACCESS.
</TABLE>

The Trustees and officers of the Trust as a group do not own any
outstanding shares of the Trust because such shares are sold only to separate
accounts (the "Accounts") of various insurance companies to fund the benefits of
variable annuity or variable life insurance policies (the "Contracts"). Only
Messrs. Branagan, Caruso, Hilsman, Powell, Rees, Sheehan, Sisto and Woodside
served as Trustees of the Trust during its last fiscal year. Effective September
7, 1995, Ms. Heagy commenced service as a Trustee of the Fund and Dr. Caruso
ceased serving as a Trustee of the Trust.

The Fund has not paid any compensation to the Trustees as of the date
hereof. Additional information regarding compensation paid by the Trust and the
related mutual funds for which the Trustees serve as director or trustee is set
forth below. The compensation shown is for the year ended December 31, 1994. Mr.
Powell is not compensated for his service as a Trustee, because of his
affiliation with the Adviser.

16
<PAGE> 38

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM REGISTRANT
AND FUND
COMPLEX PAID TO
NAME OF PERSON TRUSTEES(1)(3)
-------------- ---------------
<S> <C>
J. Miles Branagan................................................... $64,000
Dr. Richard E. Caruso............................................... $64,000
Dr. Roger Hilsman................................................... $66,000
David Rees.......................................................... $64,000
Lawrence J. Sheehan................................................. $67,000
Dr. Fernando Sisto.................................................. $82,000
William S. Woodside(2).............................................. $18,000
</TABLE>

---------------
(1) Represents 29 investment company portfolios in the fund complex.

(2) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. As a result, of the amount reflected in the second column, $34,000
was paid by the Registrant and the fund complex in the aggregate.

(3) Includes the following amounts for which the various funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000 (Mr. Woodside was
paid $36,000 directly by the Adviser as discussed in Footnote 2 above).

Beginning July 21, 1995, the Trust pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $3,360 and a
meeting fee of $100 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be caused by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Trust through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.

INVESTMENT ADVISORY AGREEMENTS

The Trust the Adviser are parties to an investment advisory agreement (the
"Advisory Agreement") with respect to the Fund. Under the Advisory Agreement,
the Trust retains the Adviser to manage the investment of the Fund's assets and
to place orders for the purchase and sale of the Fund's securities. The Adviser
is responsible for obtaining and evaluating economic, statistical, and financial
data and for formulating and implementing investment programs in furtherance of
the Fund's investment objectives. The Adviser also furnishes at no cost to the
Trust (except as noted herein) the services of sufficient executive and clerical
personnel for the Trust as are necessary to prepare registration statements,
prospectuses, shareholder reports, and notices and proxy solicitation materials.
In addition, the Adviser furnishes at no cost to the Trust the services of a
President of the Trust, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Trust pays to the Adviser as compensation for
the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at an annual
rate of 1.00% of the average daily net assets of the Portfolio.

The Adviser has entered into an investment sub-advisory agreement dated
December 20, 1994 (the "Subadvisory Agreement"), with the Subadviser to assist
it in performing its investment advisory functions. The Subadviser will be
primarily responsible for the following areas: (i) providing regional economic
analysis

17
<PAGE> 39

of the areas in which properties owned by real estate investment trusts are
located; (ii) analyzing attractiveness of the property-type within the
geographic region; (iii) evaluating and assessing real estate valuation and
condition of property; (iv) evaluating property managers and sponsors of real
estate investment trusts; and (v) continuously reviewing and monitoring the
investments in the Fund's portfolio. For its services, the Subadviser receives
from the Adviser a fee at the annual rate of 50% of the compensation received by
the Adviser. The Adviser and Subadviser are hereinafter sometimes referred to as
the "Advisers".

Under the Advisory Agreement, the Trust bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of the Fund. The costs of such accounting
services include the salaries and overhead expenses of a Treasurer or other
principal financial officer and the personnel operating under his direction.
Charges are allocated among the investment companies advised or subadvised by
the Adviser. A portion of these amounts were paid to the Adviser or its parent
in reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Trust. The services
provided by the Adviser are at cost. The Trust also pays shareholder service
agency fees, custodian fees, legal and auditing fees, the costs of reports to
shareholders and all other ordinary expenses not specifically assumed by the
Adviser. The Advisory Agreement also provides that the Adviser shall not be
liable to the company for any actions or omissions if it acted without willful
misfeasance, bad faith, negligence or reckless disregard of its obligations.

The average net asset value of the Fund for purposes of computing the
advisory fee is determined by taking the average of all of the determinations of
net asset value for each business day during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any direct or indirect majority owned subsidiary of VKAC, in
connection with the purchase and sale of portfolio investments of the Fund, less
any direct expenses incurred by such subsidiary of VKAC in connection with
obtaining such payments. The Adviser agrees to use its best efforts to recapture
tender solicitation fees and exchange offer fees for the Fund's benefit, and to
advise the Trustees of the Fund of any other commissions, fees, brokerage or
similar payments which may be possible under applicable laws for the Adviser or
any direct or indirect majority owned subsidiary of VKAC to receive in
connection with the Trust's portfolio transactions or other arrangements which
may benefit the Fund.

The Advisory Agreement with respect to the Fund may be continued from year
to year if specifically approved at least annually (a)(i) by the Trust's
Trustees or (ii) by vote of a majority of the Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of the Trustees who are
not parties to the agreement or interested persons of any such party by votes
cast in person at a meeting called for such purpose. The Advisory Agreement
provides that it shall terminate automatically if assigned and that it may be
terminated without penalty by either party on 60 days' written notice.

DISTRIBUTOR

Van Kampen American Capital Distributors, Inc., acts as the principal
underwriter of the shares of the Portfolio pursuant to a written agreement (the
"Underwriting Agreement"). The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is not obligated to sell any
stated number of shares. The Underwriting Agreement is renewable from year to
year if approved (a) by the Trust's Trustees or by a vote of a majority of the
Fund's outstanding voting securities and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Underwriting Agreement or
interested persons of any party, by votes cast in person at a meeting called for
that purpose. The Underwriting Agreement provides that it will terminate if
assigned, and that it may be terminated without penalty by either party on 60
days' written notice.

The Distributor bears the cost of printing (but not typesetting)
prospectuses used in connection with this offering and the cost and expense of
supplemental sales literature, promotion and advertising and any costs of
qualification of shares for sales under state blue sky laws. The Trust pays all
expenses attributable to the registrations of the Fund's shares under federal
law, including registration and filing fees, the cost of preparation of the
prospectuses, related legal and auditing expenses, and the cost of printing
prospectuses for current shareholders.

18
<PAGE> 40

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Adviser is responsible for decisions to buy and sell securities for the
Trust and for the placement of its portfolio business and the negotiation of the
commissions, if any, paid on such transactions. It is the policy of the Adviser
to seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Trust may pay higher
brokerage commissions for brokerage and research services (as described below)
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting dealers and in negotiating commissions, the Adviser considers the
firm's reliability, the quality of its execution services on a continuing basis
and its financial condition. When more than one firm is believed to meet these
criteria, preference may be given to firms which also provide research services
to the Trust or the Adviser.

Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).

Pursuant to provisions of the Advisory Agreement, the Trust's Trustees have
authorized the Adviser to cause the Fund to incur brokerage commissions in an
amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser is of the opinion that the continued
receipt of supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to the Fund. The
Adviser undertakes that such higher commissions will not be paid by the Trust
unless (a) the Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
the Adviser's overall responsibilities with respect to the accounts as to which
it exercises investment discretion, (b) such payment is made in compliance with
the provisions of Section 28(e) and other applicable state and federal laws, and
(c) in the opinion of the Adviser, the total commissions paid by the Fund are
reasonable in relation to the expected benefits to the Trust over the long term.
The investment advisory fee paid by the Trust under the Advisory Agreement is
not reduced as a result of the Adviser's receipt of research services.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Trustees may determine, the Adviser may consider sales of shares
of the Trust and of the other Van Kampen American Capital mutual funds as a
factor in the selection of dealers to execute portfolio transactions for the
Fund.

The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Adviser in servicing all of its accounts; not all of such services may be used
by the Adviser in connection with the Trust. In the opinion of the Adviser, the
benefits from research services to each of the accounts (including the Trust)
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Trust will not be disproportionate to the benefits
received by the Trust on a continuing basis.

The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Trust and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Trust. In
making such allocations among the Trust and other advisory accounts, the main
factors considered by the Adviser are the respective

19
<PAGE> 41

investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and opinions of the persons responsible
for recommending the investment.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of the Fund is computed by dividing the
value of all securities held by the Fund plus other assets, less liabilities, by
the number of shares outstanding. This computation is made for the Fund as of
the close of business each day the New York Stock Exchange is open (currently
4:00 p.m., New York time). The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the Exchange is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place on all business days in Japanese markets
on certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Fund's net asset value is not
calculated and on which the Fund does not effect sales, redemptions and
repurchases of its shares. There may be significant variations in the net asset
value of Fund shares on days when net asset value is not calculated and on which
shareholders cannot redeem on account of changes in prices of stocks traded in
foreign stock markets.

PURCHASE AND REDEMPTION OF SHARES

The purchase of shares of the Fund is currently limited to the Accounts as
explained on the cover page and in the Prospectus. Such shares are sold and
redeemed at their respective net asset values as described in the Prospectus.

Redemptions are not made on days during which the New York Stock Exchange
is closed, including those holidays listed under "Determination of Net Asset
Value." The right of redemption may be suspended and the payment therefor may be
postponed for more than seven days during any period when (a) the New York Stock
Exchange is closed for other than customary weekends or holidays; (b) trading on
the New York Stock Exchange is restricted; (c) an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund to fairly determine
the value of its net assets; or (d) the Securities and Exchange Commission, by
order, so permits.

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code"). By so qualifying, the
Fund will not be subject to Federal income taxes on amounts paid by it as
dividends and distributions to the Account. The Fund expects to be treated as a
separate entity for purposes of determining Federal tax treatment. Accordingly,
in order to qualify as a "regulated investment company" at the end of each
quarter of its taxable year, at least 50% of the aggregate value of the Fund's
net assets must consist of cash, cash items, government securities and other
securities, limited with respect to each issuer at the time of purchase to not
more than five percent of the Fund's total assets. Similar but slightly
different investment requirements apply to the Fund because it provides benefits
under variable life insurance policies. The Trust will endeavor to ensure that
the Fund's assets are so invested so that all such requirements are satisfied,
but there can be no assurance that it will be successful in doing so.

The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders during any calendar year at least (1) 98% of its
ordinary income for the twelve months ended December 31, plus (2) 98% of its
capital gains net income for the twelve months ended October 31 of such year.
The Fund intends to distribute sufficient amounts to avoid liability for the
excise tax.

20
<PAGE> 42

The Fund may qualify and may make an election permitted under Section 853
of the Code so that shareholders will be able to claim a credit or deduction on
their income tax returns for, and will be required to treat as part of the
amounts distributed to them, their pro rata portion of qualified taxes paid by
the Fund to foreign countries (which taxes relate primarily to investment
income). The shareholders of the Fund may claim a foreign tax credit by reason
of the Fund's election under Section 853 of the Code subject to the certain
limitations imposed by Section 904 of the Code. Also under Section 63 of the
Code, no deduction for foreign taxes may be claimed by shareholders who do not
itemize deductions on their Federal income tax returns, although any such
shareholder may claim a credit for foreign taxes and in any event will be
treated as having taxable income in respect to the shareholder's pro rata share
of foreign taxes paid by the Fund. It should also be noted that a tax-exempt
shareholder, like other shareholders, will be required to treat as part of the
amounts distributed to it a pro rata portion of the income taxes paid by the
Fund to foreign countries. However, that income will generally be exempt from
United States taxation by virtue of such shareholder's tax-exempt status and
such a shareholder will not be entitled to either a tax credit or a deduction
with respect to such income.

Dividends and distributions declared to shareholders of record after
September 30 of any year and paid before February 1 of the following year, are
considered taxable income to shareholders on the record date even though paid in
the next year.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and these regulations
are subject to change by legislative or administrative action.

Dividends and capital gains distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisors
regarding specific questions as to federal, state or local taxes.

BACK-UP WITHHOLDING

The Trust is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and the he is not subject to withholding. (An
individual's taxpayer identification number is his social security number.) The
31% "Back-up withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.

TAX TREATMENT OF OPTION AND FUTURES TRANSACTIONS

The Code includes special rules applicable to the listed options, futures
contracts, and options on futures contracts which the Fund, may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60 percent thereof and short-term capital gain or loss to the extent of 40
percent thereof ("60/40 gain or loss"). Such contracts, when held by a Fund at
the end of a fiscal year, generally are required to be treated as sold at market
value on the last day of such fiscal year for Federal income tax purposes
("marked-to-market"). Over-the-counter options are not classified as Section
1256 contracts and are not subject to the mark-to-market rule or to 60/40 gain
or loss treatment. Any gains or losses recognized by the Fund from transactions
in over-the-counter options generally constitute short-term capital gains or
losses. If over-the-counter call options written, or over-the-counter put
options purchased, by the Fund are exercised, the gain or loss realized on the
sale of the underlying securities may be either short-term or long-term,
depending on the holding period of the securities. In determining the amount of
gain or loss, the sales proceeds are reduced by the premium paid for
over-the-counter puts or increased by the premium received for over-the-counter
calls.

21
<PAGE> 43

Certain of the Fund's transactions in options, futures contracts, and
options on futures contracts, particularly hedging transactions, may constitute
"straddles" which are defined in the Code as offsetting positions with respect
to personal property. A straddle in which at least one (but not all) of the
positions are Section 1256 contracts is a "mixed straddle" under the Code if
certain identification requirements are met.

The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period and (iii) "short sale" rules which may terminate the holding
period of securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.

The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian. With respect to
investments in foreign securities, the custodian enters into agreements with
foreign sub-custodians which are approved by the Trustees pursuant to Rule 17f-5
under the 1940 Act. The Custodian and sub-custodians generally domestically, and
frequently abroad, do not actually hold certificates for the securities in their
custody, but instead have book records with domestic and foreign securities
depositories, which in turn have book records with the transfer agents of the
issuers of the securities.

SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants whose
selection is ratified annually by shareholders.

INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Trust, perform an annual audit of the
Trust's financial statements.

22
<PAGE> 44

REAL ESTATE PORTFOLIO PORTFOLIO OF INVESTMENTS

July 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 97.3%
APARTMENTS 23.3%
1,600 Avalon Properties, Inc.............................. $ 32,000
1,600 Bay Apartment Communities, Inc...................... 31,800
1,300 Equity Residential Properties Trust................. 38,350
1,500 Merry Land & Investment, Inc........................ 32,250
1,200 Mid America Apartment Communities, Inc.............. 30,000
1,600 Paragon Group, Inc.................................. 30,200
1,200 Post Properties, Inc................................ 36,450
1,800 Security Capital Pacific Trust...................... 32,625
2,400 United Dominion Realty Trust, Inc................... 34,200
--------------
TOTAL APARTMENTS.................................... 297,875
--------------
DIVERSIFIED 7.9%
1,400 Colonial Properties Trust........................... 33,950
2,500 CWM Mortgage Holdings, Inc.......................... 31,875
1,300 Felcor Suite Hotels, Inc............................ 34,938
--------------
TOTAL DIVERSIFIED................................... 100,763
--------------
HEALTH CARE FACILITIES 8.5%
1,100 Health Care Property Investors, Inc................. 35,613
2,400 LTC Properties, Inc................................. 33,600
1,000 Nationwide Health Properties, Inc................... 39,625
--------------
TOTAL HEALTH CARE FACILITIES........................ 108,838
--------------
MANUFACTURED HOME PARKS 4.6%
1,400 Chateau Properties, Inc............................. 29,925
1,400 ROC Communities, Inc................................ 29,400
--------------
TOTAL MANUFACTURED HOME PARKS....................... 59,325
--------------
OFFICE/INDUSTRIAL 16.0%
1,400 Beacon Properties Corp.............................. 29,575
1,800 Cali Realty Corp.................................... 34,875
1,500 Carr Realty Corp.................................... 27,750
500 Highwoods Properties, Inc........................... 12,625
1,500 Liberty Property Trust.............................. 30,000
1,400 Reckson Associates Realty Co........................ 35,875
1,500 Spieker Properties, Inc............................. 33,938
--------------
TOTAL OFFICE/INDUSTRIAL............................. 204,638
--------------
SELF-STORAGE 5.9%
2,400 Storage Equities, Inc............................... 41,100
1,200 Storage USA, Inc.................................... 34,500
--------------
TOTAL SELF-STORAGE.................................. 75,600
--------------
SHOPPING CENTERS 18.2%
2,400 Bradley Real Estate, Inc............................ 38,700
1,300 Developers Diversified Realty, Inc.................. 39,488
1,500 Federal Realty Investment Trust..................... 32,625
1,600 Glimcher Realty Trust............................... 34,200
1,100 Kimco Realty Corp................................... 43,863
1,200 Vornado Realty Trust................................ 44,250
--------------
TOTAL SHOPPING CENTERS.............................. 233,126
--------------
</TABLE>
See Notes to Financial Statements

F-1
<PAGE> 45

REAL ESTATE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

F-2
<PAGE> 46

REAL ESTATE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

July 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $1,673,652).................... $1,690,650
Cash.............................................................. 2,909
Receivable for investments sold................................... 19,429
Dividends and interest receivable................................. 2,274
Other assets...................................................... 402
----------
Total Assets.................................................... 1,715,664
----------
LIABILITIES
Payable for investments purchased................................. 407,505
Payable for Fund shares redeemed.................................. 25,314
Accrued expenses.................................................. 1,944
----------
Total Liabilities............................................... 434,763
----------
NET ASSETS, equivalent to $10.20 per share........................ $1,280,901
==========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 125,628 shares outstanding.................... $ 1,256
Capital surplus................................................... 1,262,821
Accumulated net realized loss on securities....................... (1,902)
Net unrealized appreciation of securities......................... 16,998
Undistributed net investment income............................... 1,728
----------
NET ASSETS........................................................ $1,280,901
==========
</TABLE>

See Notes to Financial Statements

F-3
<PAGE> 47

REAL ESTATE PORTFOLIO FINANCIAL STATEMENTS

(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
July 3, 1995* through
July 31, 1995
--------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends............................................... $ 1,995
Interest................................................ 1,277
-------
Investment income..................................... 3,272
-------
EXPENSES
Management fees......................................... 618
Custodian fees.......................................... 1,500
Registration and filing fees............................ 444
Expense reimbursement................................... (1,018)
-------
Total expenses........................................ 1,544
-------
NET INVESTMENT INCOME................................. 1,728
=======
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized loss on securities......................... (1,902)
Net unrealized appreciation of securities during the
period.................................................. 16,998
-------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES........ 15,096
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $16,824
=======
<CAPTION>

--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
July 3, 1995* through
July 31, 1995
--------------------------------------------------------------------------------
<S> <C>
NET ASSETS, beginning of period......................... $ 100
----------
Operations
Net investment income.................................. 1,728
Net realized loss on securities........................ (1,902)
Net unrealized appreciation of securities during the
period................................................. 16,998
----------
Increase in net assets resulting from operation....... 16,824
----------
Capital transactions
Proceeds from shares sold.............................. 1,364,871
Cost of shares redeemed................................ (100,894)
----------
Increase in net assets from capital transactions...... 1,263,977
----------
INCREASE IN NET ASSETS................................. 1,280,801
----------
NET ASSETS, end of period............................... $1,280,901
==========
CAPITAL SHARE TRANSACTIONS
Shares sold............................................. 135,598
Shares redeemed......................................... (9,970)
----------
Increase in capital shares outstanding................ 125,628
==========
</TABLE>

*Commencement of operations.

See Notes to Financial Statements

F-4
<PAGE> 48

REAL ESTATE PORTFOLIO FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
period indicated (Unaudited).
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995(1)
through
July 31,1995(2)
--------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................ $10.00
------
Income from investment operations
Investment income.......................................... .04
Expenses................................................... (.03)
Expense reimbursement (3).................................. .01
------
Net investment income....................................... .02
Net realized and unrealized gains or losses on securities... .18
------
Total from investment operations............................ .20
------
Net asset value, end of period.............................. $10.20
======
TOTAL RETURN(4)............................................. 2.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)........................ $1.3
Average net assets (millions)............................... $0.7
Ratios to average net assets (annualized) (3)
Expenses................................................... 2.50%
Expenses, without expense reimbursement.................... 4.15%
Net investment income...................................... 2.80%
Net investment income, without expense reimbursement....... 1.15%
Portfolio turnover rate..................................... 7%
</TABLE>

(1) Commencement of operations.
(2) Based on average shares outstanding.
(3) See Note 2.
(4) Total return for a period less than one year is not annualized.

F-5
<PAGE> 49

NOTES TO FINANCIAL STATEMENTS

(Unaudited)
--------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Life Investment Trust (the "Fund"), comprised of eight invest-
ment portfolios: Common Stock Portfolio ("Common Stock"), Domestic Strategic
Income Portfolio ("Domestic Strategic"), Emerging Growth Portfolio ("Emerging
Growth"), Global Equity Portfolio ("Global Equity"), Government Portfolio
("Government"), Money Market Portfolio ("Money Market"), Multiple Strategy
Portfolio ("Multiple Strategy"), and Real Estate Securities Portfolio ("Real
Estate"), is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management investment company. Emerging Growth,
Global Equity, and Real Estate began offering shares on July 3, 1995. Each
portfolio is accounted for as a separate entity. The following is a summary of
significant accounting policies consistently followed by the Fund in the prepa-
ration of its financial statements.

A. INVESTMENT VALUATIONS-Securities listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the most
recent bid price.
U.S. Agency and Government obligations and related forward commitments are
valued at the last reported bid price. Listed options are valued at the last
reported sale price on the exchange on which such option is traded, or, if no
sale is reported, at the mean between the last reported bid and asked prices.
Options and forward commitments for which market quotations are not readily
available are valued at fair value under a method approved by the Board of
Trustees.
Private placements are valued at fair value as determined in good faith by,
or under the direction of, the Board of Trustees. Private placements generally
may be resold only in a privately negotiated transaction until they are regis-
tered.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost. For Money Market, all investments are valued at amortized cost.
Domestic Strategic's investments include lower rated and unrated debt securi-
ties which may be more susceptible to adverse economic conditions than other
investment grade holdings. These securities are often subordinated to the prior
claims of other senior lenders and uncertainties exist as to an issuer's abil-
ity to meet principal and interest payments. Debt securities rated below in-
vestment grade and comparable unrated securities represented approximately 29%
of Domestic Strategic's investment portfolio at the end of the period.

B. FOREIGN CURRENCY TRANSLATION--The market values of foreign securities, for-
ward currency exchange contracts and other assets and liabilities stated in
foreign currency are translated into U.S. dollars based on quoted exchange
rates as of noon Eastern Time. The cost of securities is determined using his-
torical exchange rates. Income and expenses are translated at prevailing ex-
change rates when accrued or incurred. Gains and losses on the sale of
securities are not segregated for financial reporting purposes between amounts
arising from changes in exchange rates and amounts arising from changes in the
market prices of securities. Realized gain and loss on foreign currency in-
cludes the net realized amount from the sale of currency and the amount real-
ized between trade date and settlement date on security transactions.

C. FUTURES CONTRACTS AND FORWARD COMMITMENTS-General--Transactions in futures
contracts and forward commitments also are utilized in strategies to manage the
market risk of the Fund's investments. The purchase of a futures contract or
forward commitment increases the impact on net asset value of changes in the
market price of investments. Forward commitments have a risk of loss due to
nonperformance of counterparties. There is a risk that the market movement of
such instruments may not be in the direction forecasted. Note 3--Investment Ac-
tivity contains additional information.
Futures Contracts--Upon entering into futures contracts, the Fund maintains,
in a segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is held as
collateral in an account in the name of the broker, the Fund's agent in acquir-
ing the futures position. During the period the futures contract is open,
changes in the value of the contract ("variation margin") are recognized by
marking the contract to market on a daily basis. As unrealized gains or losses
are incurred, variation margin payments are received from or made to the bro-
ker. Upon the closing or cash settlement of a contract, gains or losses are re-
alized. The cost of securities acquired through delivery under a contract is
adjusted by the unrealized gain or loss on the contract.
Forward Commitments--The Fund trades certain securities under the terms of
forward commitments whereby the settlement for payment and delivery occurs at a
specified future date. Forward commitments are privately negotiated transac-
tions between the Fund and dealers. Upon executing a forward commitment and
during the period of obligation, the Fund maintains collateral of cash or secu-
rities in a

F-6
<PAGE> 50

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)
--------------------------------------------------------------------------------
segregated account with its custodian in an amount sufficient to relieve the
obligation. If the intent of the Fund is to accept delivery of a security
traded under a forward purchase commitment, the commitment is recorded as a
long-term purchase. For forward purchase and sale commitments, which security
settlement is not intended by the Fund, changes in the value of the commitment
are recognized by marking the commitment to market on a daily basis. During the
period of obligation, the Fund may either resell or repurchase the forward com-
mitment and enter into a new forward commitment, the effect of which is to ex-
tend the settlement date. In addition, the Fund may occasionally close such
forward commitments prior to delivery. Gains and losses on investments are re-
alized upon the ultimate closing or cash settlement of forward commitments.

D. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.

E. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be qualified as a "regulated investment company"
under the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains on investments to its shareholders. It is anticipated
that no distributions of net realized capital gains will be made until tax ba-
sis capital loss carryforwards expire or are offset by net realized capital
gains.
The following table presents the identified cost of investments at the end of
the period for federal income tax purposes with the associated net unrealized
appreciation and the net realized capital loss carryforward at December 31,
1994 with expiration dates.

<TABLE>
<CAPTION>
June 30, 1995 July 31, 1995
----------------------------------------------------------- ------------------------------
Common Domestic Money Multiple Emerging Global Real
Stock Strategic Government Market Strategy Growth Equity Estate
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Identified cost......... $61,318,167 $27,720,136 $73,291,354 $24,445,279 $58,023,855 $765,834 $2,057,548 $1,673,652
=========== =========== =========== =========== =========== ======== ========== ==========
Gross unrealized
appreciation............ $ 8,252,829 $ 1,121,593 $ 1,745,674 -- $ 4,995,377 52,384 59,924 19,972
Gross unrealized
depreciation............ 524,085 272,967 295,998 -- 396,508 5,299 23,574 2,974
----------- ----------- ----------- ----------- ----------- -------- ---------- ----------
Net unrealized
appreciation............ $ 7,728,744 $ 848,626 $ 1,449,676 -- $ 4,598,869 $ 47,085 $ 36,350 $ 16,998
=========== =========== =========== =========== =========== ======== ========== ==========
Net realized capital
loss carryforward...... -- $ 2,125,532 $14,491,367 $ 18 $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ======== ========== ==========
Expiration dates........ -- 1998-2002 1996-2002 2002 -- -- -- --
</TABLE>

The net capital loss carryforwards at December 31, 1994 may be utilized to
offset any future capital gains until expiration. Additionally, $130,007,
$294,459, $2,041, and $75,888 of financial statement capital losses for Domes-
tic Strategic, Government, Money Market and Multiple Strategy, respectively,
are deferred for tax purposes to the 1995 fiscal year.

F. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on invest-
ments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily. Issuers of
Payment-in-Kind securities may make dividend or interest payments by issuing
additional stocks or bonds in lieu of cash payments.
Under the applicable foreign tax laws, a withholding tax may be imposed on
interest, dividends and realized gains generated from foreign investments. Such
withholding taxes are reflected on the Statement of Operations as a reduction
of the related income or gain.

G. DIVIDENDS AND DISTRIBUTIONS-Government and Money Market declare dividends
from net investment income on each business day. Domestic Strategic, Common
Stock and Multiple Strategy declare dividends and distributions annually.
Government declares distributions from short-term capital gains, if any,
monthly. Dividends and distributions are recorded on the record date.
The Fund distributes tax basis earnings in accordance with the minimum dis-
tribution requirements of the Internal Revenue Code, which may differ from gen-
erally accepted accounting principles. Such dividends or distributions may
exceed financial statement earnings.

F-7
<PAGE> 51

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)
--------------------------------------------------------------------------------

H. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on
the same basis as used for federal income tax reporting. Accordingly, original
issue discounts on debt securities purchased are amortized over the life of the
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.

NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the portfolios at an annual
rate.
Common Stock, Domestic Strategic, Government, Money Market, and Multiple
Strategy rates are .50% of the first $500 million, .45% of the next $500 mil-
lion and .40% of the amount in excess of $1 billion. The resulting fee is pro-
rated to each portfolio based on its average daily net assets. The Adviser has
volunteered to reimburse these portfolios for all ordinary business expenses,
exclusive of taxes and interest, in excess of .60% of the average daily net as-
sets. For the period, such voluntary expense reimbursements are shown in the
following table. Under the terms of the advisory agreement, if the total ordi-
nary business expenses, exclusive of taxes, distribution fees and interest, ex-
ceed .95% of average daily net assets, the Adviser will reimburse these
portfolios for the amount of the excess. The contractual expense reimbursement
shall be made monthly. For the period, the portfolios to have such contractual
expense reimbursements due to the .95% limit were Domestic Strategic and Money
Market as shown in the following table.
Emerging Growth's management fees is .70% of its average daily net assets.
Global Equity's management fees is 1.00% of its average daily net assets. The
Adviser has entered into a subadvisory agreement with John Govett & Co., Lim-
ited ("Govett"), who provides advisory services to Global Equity and the Ad-
viser with respect to the portfolio's investments in international markets and
currencies. The Adviser pays 50% of its management fee to Govett.
Real Estate's management fee is 1.00% of its average daily net assets. The
Adviser has entered into a subadvisory agreement with Hines Interests Realty
Advisors Limited Partnership ("Hines"), who provides advisory services to Real
Estate and the Adviser with respect to the portfolio's investments in real es-
tate. The Adviser pays 50% of its management fee to Hines.
The Adviser has agreed that it will reimburse Emerging Growth and Real Estate
for any expenses (including the advisory fee, but excluding interest, brokerage
commissions, and other extraordinary expenses) in excess of the most restric-
tive limitation imposed by state securities commissions. The most restrictive
expense limitation is presently believed to be 2.50% of the Fund's average
daily net assets up to $30 million, 2.00% of the next $70 million of such net
assets and 1.50% of the Fund's net assets in excess of $100 million. For the
period, the Adviser's reimbursement to Emerging Growth and Real Estate due to
such expense limitation are shown in the following table. The Adviser, Govett,
and Hines may, from time to time, agree to waive their respective investment
advisory fees or any portion thereof or elect to reimburse Emerging Growth,
Global Equity and Real Estate for ordinary business expenses in excess of an
agreed upon amount.
Contractual and voluntary expense reimbursements and other transactions with
affiliates during the period were as follows:

<TABLE>
<CAPTION>
June 30, 1995 July 31, 1995
--------------------------------------------- ----------------------
Common Domestic Money Multiple Emerging Global Real
Stock Strategic Government Market Strategy Growth Equity Estate
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contractual expense
reimbursement........... $ -- $ 6,068 $ -- $ 3,734 $ -- $922 $ -- $1,018
Voluntary expense
reimbursement........... 32,868 44,980 44,221 43,599 47,915 -- -- --
Accounting services..... 4,637 4,234 4,611 4,218 4,542 -- -- --
Shareholder service
agent's fees............ 9,000 9,000 9,000 9,000 9,000 -- -- --
Legal fees.............. 2,514 2,981 2,627 2,708 2,880 -- -- --
</TABLE>

Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. These charges include
the employee costs attributable to the accounting officers of the Fund. A por-
tion of the accounting services expense was paid to the Adviser in reimburse-
ment of personnel, facilities and equipment costs attributable to the provision
of accounting services. The services provided by the Adviser are at cost.

F-8
<PAGE> 52

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)
--------------------------------------------------------------------------------
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a Trustee of the Fund.
Certain officers and trustees of the Fund are officers and directors of the
Adviser and the shareholder service agent.

NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were:

<TABLE>
<CAPTION>
June 30, 1995 July 31, 1995
----------------------------------------------- ------------------------------
Common Domestic Multiple Emerging Global Real
Stock Strategic Government Strategy Growth Equity Estate
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $43,501,968 $22,005,818 $64,226,904 $27,552,308 $590,834 $1,886,769 $1,275,704
Sales................... 52,520,231 15,962,661 68,619,824 35,710,842 -- 104,591 45,150
</TABLE>

Money Market held only short-term investments.
At the end of the period, Government held the following forward purchase com-
mitments for which delivery is not intended:

<TABLE>
<CAPTION>
Principal Unrealized
Amount Appreciation
(000) Security Market Value (Depreciation)
--------------------------------------------------------------------------
<S> <C> <C> <C>
Federal National Mortgage Association
$4,000 8.00%, settling 07/95........ $ 4,073,760 $113,760
Government National Mortgage Association
4,000 7.00%, settling 07/95........ 3,935,000 (27,500)
2,000 7.00%, settling 09/95........ 1,963,360 (4,140)
2,000 8.00%, settling 09/95........ 2,040,940 (9,060)
----------- --------
$12,013,060 $ 73,060
----------- --------
</TABLE>

At the end of the period, Government held the following U.S. Treasury futures
contracts expiring in September 1995.

<TABLE>
<CAPTION>
Number Unrealized
of Appreciation
Contracts Description Market Value (Depreciation)
---------------------------------------------------------------------------
<S> <C> <C> <C>
6 U.S. Treasury Bonds, long...... $ 681,188 $ (13,012)
18 U.S. Treasury Notes, short..... (1,981,688) 5,772
----------- ---------
$(1,300,500) $ (7,240)
----------- ---------
</TABLE>

NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund at
the annual rate of $3,850 plus a fee of $100 per day for the Board and Commit-
tee meetings attended. The Chairman receives additional fees from the Fund at
an annual rate of $1,440. The Trustees may participate in a voluntary Deferred
Compensation Plan (the "Plan"). The Plan is not funded, and obligations under
the Plan will be paid solely out of the Fund's general accounts. Funds for the
payment of obligations under the Plan will not be reserved or set aside by any
form of trust or escrow. Each director covered under the Plan elects to be
credited with an earnings component on amounts deferred equal to the income
earned by the Fund on its short-term investments or equal to the total return
of the Fund.
Trustees' fees at the end of the period were:

<TABLE>
<CAPTION>
June 30, 1995 July 31, 1995
------------------------------------------- ----------------------
Common Domestic Money Multiple Emerging Global Real
Stock Strategic Government Market Strategy Growth Equity Estate
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Trustee fees............ $4,732 $4,261 $4,689 $4,609 $3,920 $ -- $ -- $ --
</TABLE>

NOTE 5--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to a
Delaware Business Trust and the election of fourteen trustees.

F-9