AMERICAN CAPITAL LIFE INVESTMENT TRUST, 485BPOS, 1996-03-06

AMERICAN CAPITAL LIFE INVESTMENT TRUST
485BPOS, 1996-03-06

Previous: STRONG CORPORATE BOND FUND INC, 497J, 1996-03-06

Next: NORTHSTAR ADVANTAGE GROWTH FUND, 497, 1996-03-06

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1996.

REGISTRATION NO. 33-628
811-4425
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 (X)
POST-EFFECTIVE AMENDMENT NO. 21 (X)
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 (X)
AMENDMENT NO. 23 (X)
</TABLE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

ONE PARKVIEW PLAZA, OAKBROOK TERRACE, IL 60181

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (708) 684-6000

RONALD A. NYBERG, ESQ.

EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY

VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

Copy to:

WAYNE W. WHALEN, ESQ.

THOMAS A. HALE, ESQ.

SKADDEN, ARPS, SLATE, MEAGHER & FLOM

333 WEST WACKER DRIVE

CHICAGO, ILLINOIS 60606

(312) 407-0700

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

Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.

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

It is proposed that this filing will become effective:

/X/ immediately upon filing pursuant to paragraph (b)

/ / on (date) pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)

/ / 75 days after filing pursuant to paragraph (a)(ii)

/ / on (date), pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Exhibit Index required by Rule 483(a) under the Securities Act of 1933
is located at page of the manually signed copy of this Registration Statement.

DECLARATION PURSUANT TO RULE 24F-2

REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES AND FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION A FORM 24F-2 FOR ITS FISCAL YEAR ENDING
DECEMBER 31, 1995 ON OR ABOUT FEBRUARY 29, 1996.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
-------------------------------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Trust and Its Management Investment
Objective and Policies; Investment
Practices
5. Management of the Fund..................... The Trust and Its Management
6. Capital Stock and Other Securities......... The Trust and Its Management; Redemption of
Shares; Dividends, Distributions and
Taxes
7. Purchase of Securities Being Offered....... Purchase of Shares
8. Redemption or Repurchase................... Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable

PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------------------------------------
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Restrictions
14. Management of the Registrant............... General Information; Investment Advisory
Agreement, Trustees and Executive
Officers
15. Control Persons and Principal Holders of
Securities............................... Trustees and Executive Officers
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Other Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Inapplicable
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares;
Determination of Net Asset Value
20. Tax Status................................. Distributions and Taxes
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Financial Statements
PART C
</TABLE>

Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

(FORMERLY AMERICAN CAPITAL LIFE INVESTMENT TRUST)

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

March 6, 1996

Van Kampen American Capital Life Investment Trust (the "Trust") is an
open-end diversified management investment company which offers shares in nine
separate Funds, each of which is in effect a separate fund. 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 Contract Owners. Such allocation rights
are further described in the accompanying Prospectus for the Contracts. The
investment objectives of the Funds are as follows:

Asset Allocation Fund (formerly known as Multiple Strategy Fund) seeks high
total investment return consistent with prudent risk through a fully managed
investment policy utilizing equity securities as well as investment grade
intermediate and long-term debt securities and money market securities.

Domestic Income Fund (formerly known as Domestic Strategic Income Fund)
seeks current income as its primary investment objective. Capital
appreciation is a secondary objective, which will be sought only when
consistent with its primary investment objective. The Fund attempts to
achieve these objectives through investment primarily in a diversified
portfolio of fixed-income securities. The Fund may invest in investment
grade securities and lower rated and nonrated securities. LOWER RATED
SECURITIES (COMMONLY KNOWN AS "JUNK BONDS") ARE REGARDED BY THE RATING
AGENCIES AS PREDOMINANTLY SPECULATIVE WITH RESPECT TO THE ISSUER'S
CONTINUING ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS.

Emerging Growth Fund seeks capital appreciation by investing in a portfolio
of securities consisting principally of common stocks of small and medium
sized companies considered by Van Kampen American Capital Asset Management,
Inc. (the "Adviser"), to be emerging growth companies.

Enterprise Fund (formerly known as Common Stock Fund) seeks capital
appreciation through investments believed by the Adviser to have above
average potential for capital appreciation.

Global Equity Fund seeks long-term growth of capital through investments in
an internationally diversified portfolio of equity securities of companies
of any nation including the United States.

Government Fund seeks to provide investors with a high current return
consistent with preservation of capital. The Fund invests primarily in debt
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. In order to hedge against changes in interest rates, the
Fund may also purchase or sell options and engage in transactions involving
interest rate futures contracts and options on such contracts.

Growth and Income Fund seeks long-term growth of capital and income. The
Fund invests principally in income-producing equity securities, including
common stocks and convertible securities. Investments are also made in
non-convertible preferred stocks and debt securities.

Money Market Fund seeks protection of capital and high current income
through investments in money market instruments. INVESTMENTS IN THE MONEY
MARKET FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
ALTHOUGH THE MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE, THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.

Real Estate Securities Fund seeks as its primary investment objective
long-term growth of capital. Current income is a secondary consideration.
The Fund seeks to achieve its objectives 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 is no assurance that any Fund will achieve its investment objectives.
- --------------------------------------------------------------------------------

This Prospectus tells Contract Owners 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 Trust. 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> 4

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 Park View Plaza
Oak Brook Terrace, Illinois
60181
INVESTMENT Van Kampen American Capital
ADVISER: Asset Management, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056
INVESTMENT John Govett & Co. Limited
SUBADVISER: 4 Battle Bridge Lane
[FOR "GLOBAL London SE1 2HR
EQUITY FUND"] England
INVESTMENT Hines Interests Realty
SUBADVISER: Advisors Limited Partnership
[FOR "REAL ESTATE 2800 Post Oak Boulevard
SECURITIES FUND"] Houston, Texas 77056
</TABLE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Page
Prospectus Summary...................... 3
Financial Highlights.................... 7
Introduction............................ 15
Investment Objectives and Policies...... 15
Asset Allocation Fund................. 15
Domestic Income Fund.................. 16
Emerging Growth Fund.................. 19
Enterprise Fund....................... 20
Global Equity Fund.................... 20
Government Fund....................... 23
Growth and Income Fund................ 26
Money Market Fund..................... 27
Real Estate Securities Fund........... 28
Investment Practices.................... 30
The Trust and Its Management............ 35
Purchase of Shares...................... 39
Determination of Net Asset Value........ 39
Redemption of Shares.................... 40
Dividends, Distributions and Taxes...... 40
Fund Performance........................ 42
Description of Shares of the Trust...... 44
Additional Information.................. 44
Appendix................................ 45
</TABLE>

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> 5

PROSPECTUS SUMMARY

Shares Offered..........Shares of Beneficial Interest in nine Funds: the Asset
Allocation Fund, the Domestic Income Fund, the Emerging
Growth Fund, the Enterprise Fund, the Global Equity
Fund, the Government Fund, the Growth and Income Fund,
the Money Market Fund, and the Real Estate Securities
Fund.

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

Investment Objectives...The Asset Allocation Fund seeks high total investment
return consistent with prudent risk through a fully
managed investment policy utilizing equity securities as
well as investment grade intermediate and long-term debt
securities and money market securities; the Domestic
Income Fund seeks current income as its primary
investment objective; capital appreciation is a
secondary objective, which will be sought only when
consistent with its primary investment objective; the
Emerging Growth Fund seeks capital appreciation by
investing in a portfolio of securities consisting
principally of common stock of small and medium sized
companies considered by the Adviser to be emerging
growth companies; the Enterprise Fund seeks capital
appreciation through investments in securities believed
by the Adviser to have above average potential for
capital appreciation; the Global Equity Fund seeks long-
term growth of capital through investments in an
internationally diversified portfolio of equity
securities of companies of any nation including the
United States; the Government Fund seeks high current
return consistent with preservation of capital; the
Growth and Income Fund seeks long-term growth of capital
and income; the Money Market Fund seeks protection of
capital and high current income through investments in
money market investments; and the Real Estate Securities
Fund seeks long-term growth of capital as its primary
investment objective; current income is a secondary
consideration.

Investment Policies and
Risk Factors..........The Asset Allocation Fund may, at various times, be
substantially invested in equity securities, bonds and
notes or money market securities, based upon the
Adviser's evaluation of economic and market trends and
anticipated relative return available from a particular
kind of security. Because prices of securities
fluctuate, the value of an investment in the Fund will
vary based upon the Fund's investment performance. Use
of options, futures contracts and options on futures
contracts may include additional risk. See "Investment
Practices -- Using Options, Futures Contracts and
Options on Futures Contracts."

The Domestic Income Fund invests in a diversified
portfolio of fixed-income securities. The Fund expects
that at all times at least 80% of its assets will be
invested in fixed-income securities rated at the time of
purchase B or higher by Moody's Investors Service
("Moody's") or Standard & Poor's Corporation ("S&P"),
nonrated debt securities believed by the Adviser to be
of comparable quality and U.S. Government securities.
Securities rated BB or lower are regarded by the rating
agencies as predominantly speculative with respect to
the issuer's continuing ability to meet principal and
interest payments. Such securities are commonly referred
to as "junk bonds." Because investment in lower rated
securities involves greater investment risk, achievement
of

3
<PAGE> 6

the Fund's investment objectives may be more dependent
on the Adviser's credit analysis than would be the case
if the Fund were investing in higher rated securities.
Lower rated securities may be more susceptible to real
or perceived adverse economic and competitive industry
conditions than investment grade securities and thus be
subject to higher risk. A projection of an economic
downturn, for example, could cause a decline in lower
rated securities prices because the advent of a
recession could lessen the ability of a highly leveraged
company to make principal and interest payments on its
debt securities. In addition, the secondary trading
market for lower rated securities may be less liquid
than the market for higher grade securities. The market
prices of debt securities also generally fluctuate with
changes in interest rates so that the Fund's net asset
value can be expected to decrease as long-term interest
rates rise and to increase as long-term interest rates
fall. The above risks may be increased by investments in
debt securities not producing immediate cash income,
such as zero-coupon and pay-in-kind securities. See
"Investment Objectives and Policies."

The Emerging Growth Fund invests at least 65% of its
total assets in common stocks of small and medium sized
companies (less than $2 billion of market capitalization
or annual sales), both domestic and foreign, considered
by the Adviser to be emerging growth companies. The
companies in which the Fund invests may offer greater
opportunities for growth of capital than larger, more
established companies, but investments in such companies
may involve special risks. See "Investment Objectives
and Policies" and "Investment Practices -- Foreign
Securities." The use of options, futures contracts and
related options may include additional risks. See
"Investment Practices -- Using Options, Futures
Contracts and Related Options."

The Enterprise Fund invests principally in common stocks
of companies which, in the judgment of the Adviser, have
above average potential for capital appreciation.
Because prices of common stocks and other securities
fluctuate, the value of an investment in the Fund will
vary based upon the Fund's investment performance. Use
of options, futures contracts and options on futures
contracts may include additional risk. See "Investment
Practices -- Using Options, Futures Contracts and
Options on Futures Contracts."

The Global Equity Fund invests in an internationally
diversified portfolio of equity securities of companies
of any nation including the United States. See
"Investment Objectives and Policies." Use of options,
futures contracts and related options may include
additional risks. See "Investment Practices -- Using
Options, Futures Contracts and Related Options."

The Government Fund invests primarily in debt securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may sell (write)
and purchase call and put options. The Fund also may
purchase and sell interest rate futures contracts and
options on such contracts since such transactions are
entered into for bona fide hedging purposes. The Fund
may purchase or sell U.S. Government securities on a
forward commitment basis. The market prices of debt
securities, including U.S. Government securities,
generally fluctuate

4
<PAGE> 7

with changes in interest rates so that the Fund's net
asset value can be expected to decrease as long-term
interest rates rise and to increase as long-term
interest rates fall. See "Investment Objectives and
Policies -- Government Fund -- General."

The Growth and Income Fund invests principally in
income-producing equity securities including common
stock and convertible securities, although investments
are also made in non-convertible preferred stocks and
debt securities. Use of options, futures contracts and
related options may include additional risks. See
"Investment Practices -- Using Options, Futures
Contracts and Related Options."

The Money Market Fund invests in money market
instruments.

The Real Estate Securities Fund invests 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 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. 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.

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 Practices -- Foreign Securities."

5
<PAGE> 8

The Fund may purchase or sell debt securities on a
forward commitment basis. See "Investment
Practices -- 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 Adviser......The Adviser has served as investment adviser to the
Trust since its inception. John Govett & Co. Limited
("John Govett") provides advisory services to the
Adviser with respect to the Global Equity Fund's
investments in foreign securities. Hines Interests
Realty Advisors Limited Partnership ("Hines Realty
Advisors") provides advisory services to the Adviser of
the Real Estate Fund with respect to the real estate
industry. See "The Trust and Its Management."

Dividends and
Distributions.........Dividends from net investment income are declared each
business day for the Money Market Fund and the
Government Fund. Such dividends are distributed monthly.
The Government Fund may distribute any net short-term
capital gains and any net long-term capital gains at
least annually. The Asset Allocation Fund, Domestic
Income Fund, Emerging Growth Fund, the Enterprise Fund,
the Global Equity Fund, the Growth and Income Fund and
the Real Estate Securities Fund declare dividends and
any capital gains distributions annually.

Redemption..............At the net asset value next determined after the Fund
receives a redemption request.

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

6
<PAGE> 9

FINANCIAL HIGHLIGHTS

The following information for each of the five most recent years has been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. This information should be read in conjunction with the related
financial statements and notes thereto included in the Statement of Additional
Information.

ASSET ALLOCATION FUND

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992 1991 1990
--------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 9.99 $ 11.80 $ 11.92 $ 12.08 $ 10.43 $ 10.77
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income.......................................... .55 .52 .37 .44 .54 .58
Expenses................................................... (.09) (.09) (.09) (.09) (.09) (.09)
Expense reimbursement...................................... .02 .02 .01 .02 .02 .03
-------- -------- -------- -------- -------- --------
Net investment income........................................ .48 .45 .29 .37 .47 .52
Net realized and unrealized gain (loss) on securities........ 2.6425 (.89) .6025 .493 2.27 (.325)
-------- -------- -------- -------- -------- --------
Total from investment operations............................. 3.1225 (.44) .8925 .863 2.74 .195
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income...................................... (.4775) (.45) (.2925) (.3689) (.4825) (.535)
Net realized gain on securities............................ (.995) (.90) (.63) (.6541) (.6075) --
Excess of net realized gain on securities.................. -- (.02) (.09) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions.......................................... (1.4725) (1.37) 1.0125) (1.023) (1.09) (.535)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............................... $ 11.64 $ 9.99 $ 11.80 $11.92 $ 12.08 $ 10.43
======== ========= ========= ========= ========= ========
TOTAL RETURN(2).............................................. 31.36% (3.66%) 7.71% 7.28% 27.05% 1.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)......................... $ 63.0 $ 56.6 $ 64.9 $ 59.6 $ 52.2 $ 40.3
Ratios to average net assets (annualized)
Expenses................................................... .60% .60% .60% .60% .60% .60%
Expenses, without expense reimbursement.................... .74% .72% .74% .77% .80% .80%
Net investment income...................................... 3.85% 3.70% 2.34% 3.05% 4.12% 4.70%
Net investment income, without expense reimbursement....... 3.71% 3.58% 2.20% 2.88% 3.92% 4.50%
Portfolio turnover rate...................................... 124% 163% 150% 126% 88% 46%

PER SHARE OPERATING PERFORMANCE 1989 1988 1987
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 9.67 $9.56 $10.00(1)
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income.......................................... .65 .67 .20
Expenses................................................... (.09) (.09) (.04)
Expense reimbursement...................................... .03 .03 .02
------- ------- -------
Net investment income........................................ .59 .61 .18
Net realized and unrealized gain (loss) on securities........ 1.13 .1125 (.445)
------- ------- -------
Total from investment operations............................. 1.72 .7225 (.265)
------- ------- -------
LESS DISTRIBUTIONS FROM
Net investment income...................................... (.595) (.6125) (.175)
Net realized gain on securities............................ (.025) -- --
Excess of net realized gain on securities.................. -- -- --
------- ------- -------
Total distributions.......................................... (.62) (.6125) (.175)
------- ------- -------
Net asset value, end of period............................... $ 10.77 $ 9.67 $ 9.56
======= ======== ========
TOTAL RETURN(2).............................................. 17.82% 7.56% (5.23%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)......................... $ 40.5 $ 31.4 $22.7
Ratios to average net assets (annualized)
Expenses................................................... .60% .60% .60%
Expenses, without expense reimbursement.................... .86% .90% .95%
Net investment income...................................... 5.93% 6.36% 6.48%
Net investment income, without expense reimbursement....... 5.67% 6.06% 6.13%
Portfolio turnover rate...................................... 50% 48% 27%
</TABLE>

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

(1) As of June 30, 1987, commencement of operations.
(2) Total return for periods of less than one year are not annualized. Total
return does not consider the effect of sales loads.

7
<PAGE> 10

FINANCIAL HIGHLIGHTS (CONTINUED)

DOMESTIC INCOME FUND

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992 1991 1990
-------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 7.35 $ 8.58 $ 8.00 $ 7.74 $ 6.98 $ 8.64
-------- -------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income.................................... .76 .91 .77 .74 .725 1.085
Expenses............................................. (.08) (.10) (.09) (.07) (.07) (.08)
Expense reimbursement................................ .03 .04 .04 .02 .03 .03
-------- -------- --------- --------- --------- --------
Net investment income.................................. .71 .85 .72 .69 .685 1.035
Net realized and unrealized gain (loss) on
securities........................................... .8525 (1.2275) .5825 .2725 .7525 (1.64)
-------- -------- --------- --------- --------- --------
Total from investment operations....................... 1.5625 (.3775) 1.3025 .9625 1.4375 (.605)
-------- -------- --------- --------- --------- --------
LESS DISTRIBUTIONS FROM
Net investment income................................ (.7025) (.8525) (.7225) (.7025) (.6775) (1.055)
Net realized gain on securities...................... -- -- -- -- -- --
-------- -------- --------- --------- --------- --------
Total distributions.................................... (.7025) (.8525) (.7225) (.7025) (.6775) (1.055)
-------- -------- --------- --------- --------- --------
Net asset value, end of period......................... $ 8.21 $ 7.35 $ 8.58 $ 8.00 $ 7.74 $ 6.98
======== ======== ========= ========= ========= ========
TOTAL RETURN(2)........................................ 21.37% (4.33%) 16.32% 12.50% 21.23% (7.23%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $ 26.6 $ 21.3 $ 27.4 $ 21.1 $ 17.4 $ 6.3
Ratios to average net assets (annualized)
Expenses............................................. .60% .60% .60% .60% .60% .60%
Expenses, without expense reimbursement.............. .93% .95% .95% .95% .95% .95%
Net investment income................................ 8.11% 8.35% 7.80% 8.89% 9.72% 11.99%
Net investment income, without expense
reimbursement...................................... 7.78% 8.00% 7.40% 8.54% 9.37% 11.64%
Portfolio turnover rate................................ 54% 94% 130% 117% 90% 123%

PER SHARE OPERATING PERFORMANCE 1989 1988 1987
--------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period................... $ 10.96 $ 10.15 $ 10.00(1)
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income.................................... 1.805 .65 .09
Expenses............................................. (.12) (.18) (.08)
Expense reimbursement................................ .04 .15 .07
--------- --------- ---------
Net investment income.................................. 1.725 .62 .08
Net realized and unrealized gain (loss) on
securities........................................... (2.31) .8975 .1525
--------- --------- ---------
Total from investment operations....................... (.585) 1.5175 .2325
--------- --------- ---------
LESS DISTRIBUTIONS FROM
Net investment income................................ (1.725) (.61) (.0825)
Net realized gain on securities...................... (.01) (.0975) --
--------- --------- ----------
Total distributions.................................... (1.735) (.7075) (.0825)
--------- --------- ----------
Net asset value, end of period......................... $ 8.64 $ 10.96 $ 10.15
========= ========== ==========
TOTAL RETURN(2)........................................ (5.44%) 14.95% 1.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $ 8.1 $ 8.1 $ 1.2
Ratios to average net assets (annualized)
Expenses............................................. .60% .60% .60%
Expenses, without expense reimbursement.............. .95% .95% .95%
Net investment income................................ 12.92% 10.88% 5.58%
Net investment income, without expense
reimbursement...................................... 12.57% 10.53% 5.23%
Portfolio turnover rate................................ 56% 44% 42%
</TABLE>

- ---------------------
(1) As of November 4, 1987, commencement of operations.
(2) Total return for periods of less than one year are not annualized. Total
return does not consider the effect of sales loads.

8
<PAGE> 11

FINANCIAL HIGHLIGHTS (CONTINUED)

ENTERPRISE FUND

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................................... $ 12.39 $ 14.57 $ 14.21 $ 13.44 $ 10.09 $ 11.30 $ 8.70
-------- -------- -------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................................... .41 .33 .30 .31 .335 .46 .46
Expenses............................................... (.10) (.09) (.11) (.10) (.10) (.101) (.10)
Expense reimbursement.................................. .01 .01 .02 .02 .03 .036 .04
-------- -------- -------- -------- -------- -------- ------
Net investment income.................................... .32 .25 .21 .23 .265 .395 .40
Net realized and unrealized gain (losses) on
securities............................................. 4.22 (.7625) 1.0325 .77 3.37 (1.17) 2.57
-------- -------- -------- -------- -------- -------- ------
Total from investment operations......................... 4.54 (.5125) 1.2425 1.00 3.635 (.775) 2.97
-------- -------- -------- -------- -------- -------- ------
LESS DISTRIBUTIONS FROM
Net investment income.................................. (.3175) (.25) (.215) (.23) (.285) (.435) (.37)
Net realized gain on securities........................ (1.9225) (1.4175) (.6675) -- -- -- --
-------- -------- -------- -------- -------- -------- ------
Total distributions...................................... (2.24) (1.6675) (.8825) (.23) (.285) (.435) (.37)
-------- -------- -------- -------- -------- -------- ------
Net asset value, end of period........................... $ 14.69 $ 12.39 $ 14.57 $ 14.21 $ 13.44 $ 10.09 $11.30
======== ======== ========= ======== ======== ======== ======
OTAL RETURN(3).......................................... 36.98% (3.39%) 8.98% 7.48% 36.41% (6.84%) 34.23%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................... $ 76.0 $ 67.5 $ 72.3 $ 65.6 $ 57.8 $ 27.2 $ 31.8
Ratios to average net assets (annualized)
Expenses............................................... .60% .60% .60% .60% .60% .60% .60%
Expenses, without expense reimbursement................ .68% .68% .72% .74% .90% .93% .93%
Net investment income.................................. 2.06% 1.72% 1.41% 1.78% 2.33% 3.64% 3.74%
Net investment income, without expense reimbursement... 1.98% 1.64% 1.29% 1.64% 2.03% 3.31% 3.41%
Portfolio turnover rate.................................. 145% 153% 139% 116% 95% 122% 86%

PER SHARE OPERATING PERFORMANCE 1988 1987(1) 1986
-------- -------- --------
<S> <C> <C> <C>
Net asset value,
beginning of period.................................... $7.97 $ 9.33 $ 10.00(2)
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................................... .38 .25 .32
Expenses............................................... (.095) (.10) (.06)
Expense reimbursement.................................. .035 .03 .04
-------- -------- --------
Net investment income.................................... .32 .18 .30
Net realized and unrealized gain (losses) on
securities............................................. .765 (1.1975) (.97)
-------- -------- --------
Total from investment operations......................... 1.085 (1.0175) (.67)
-------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income.................................. (.30) (.2575) --
Net realized gain on securities........................ (.055) (.085) --
------- -------- -------
Total distributions...................................... (.355) (.3425) --
------- -------- -------
Net asset value, end of period........................... $8.70 $ 7.97 $ 9.33
========= ======== =======
TOTAL RETURN(3).......................................... 13.61% (11.12%) (6.70%)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................... $ 24.0 $ 31.0 $ 12.0
Ratios to average net assets (annualized)
Expenses............................................... .60% .60% .60%
Expenses, without expense reimbursement................ .95% .89% .95%
Net investment income.................................. 3.13% 1.65% 10.34%
Net investment income, without expense reimbursement... 2.78% 1.36% 9.99%
Portfolio turnover rate.................................. 63% 75% 268%
</TABLE>

- ---------------------
(1) Based on average month-end shares outstanding.
(2) As of April 4, 1986, commencement of operations.
(3) Total return for periods of less than one year are not annualized. Total
return does not consider the effect of sales loads.

9
<PAGE> 12

FINANCIAL HIGHLIGHTS (CONTINUED)

GOVERNMENT FUND

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $8.28 $9.26 $9.13 $9.29 $8.70 $8.80 $8.48
------- ------- ------- ------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .65 .61 .62 .72 .79 .835 .89
Expenses................................................ (.06) (.06) (.06) (.064) (.06) (.06) (.06)
Expense reimbursement................................... .01 .01 .01 .009 .01 .01 .01
------- ------- ------- ------- ------- ------ -------
Net investment income..................................... .60 .56 .57 .665 .74 .785 .84
Net realized and unrealized gain (loss) on securities..... .78 (.985) .135 (.1575) .60 (.105) .325
------- ------- ------- ------- ------- ------ -------
Total from investment operations.......................... 1.38 (.425) .705 .5075 1.34 .68 1.165
------- ------- ------- ------- ------- ------ -------
LESS DISTRIBUTIONS FROM
Net investment income................................... (.60) (.555) (.575) (.6675) (.75) (.78) (.845)
Net realized gain on securities......................... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------ -------
Total distributions....................................... (.60) (.555) (.575) (.6675) (.75) (.78) (.845)
------- ------- ------- ------- ------- ------ -------
Net asset value, end of period............................ $9.06 $8.28 $9.26 $9.13 $9.29 $8.70 $8.80
======== ======== ======== ======== ======== ====== ========
TOTAL RETURN(2)........................................... 17.17% (4.63%) 7.86% 5.73% 16.23% 8.31% 14.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................... $67.0 $65.5 $80.6 $74.8 $77.0 $73.2 $81.2
Ratios to average net assets (annualized)
Expenses................................................ .60% .60% .60% .60% .60% .60% .60%
Expenses, without expense reimbursement................. .72% .70% .70% .70% .70% .69% .66%
Net investment income................................... 6.89% 6.71% 6.45% 7.29% 8.37% 9.19% 9.56%
Net investment income, without expense reimbursement.... 6.77% 6.61% 6.35% 7.19% 8.27% 9.10% 9.50%
Portfolio turnover rate................................... 164% 192% 91% 36% 57% 164% 42%

PER SHARE OPERATING PERFORMANCE 1988 1987 1986(1)
------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period...................... $ 8.68 $ 9.91 $ 10.00(1)
------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .94 .81 .55
Expenses................................................ (.06) (.05) (.07)
Expense reimbursement................................... -- -- .03
------- -------- --------
Net investment income..................................... .88 .76 .51
Net realized and unrealized gain (loss) on securities..... (.215) (.97) .0516
------- -------- --------
Total from investment operations.......................... .665 (.21) .5616
------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income................................... (.865) (.7525) (.5041)
Net realized gain on securities......................... -- (.2675) (.1475)
------- -------- --------
Total distributions....................................... (.865) (1.02) (.6516)
------- -------- --------
Net asset value, end of period............................ $ 8.48 $ 8.68 $ 9.91
======== ======== ========
TOTAL RETURN(2)........................................... 6.74% (2.12%) 4.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................... $ 90.6 $ 108.8 $ 67.7
Ratios to average net assets (annualized)
Expenses................................................ .60% .60% .60%
Expenses, without expense reimbursement................. .64% .64% .95%
Net investment income................................... 9.29% 8.37% 6.80%
Net investment income, without expense reimbursement.... 9.25% 8.33% 6.45%
Portfolio turnover rate................................... 88% 65% 115%
</TABLE>

- ---------------------
(1) As of April 4, 1986, commencement of operations.
(2) Total return for periods of less than one year are not annualized. Total
return does not consider the effect of sales loads.

10
<PAGE> 13

FINANCIAL HIGHLIGHTS (CONTINUED)

MONEY MARKET FUND

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .0593 .0425 .0322 .0391 .0607 .082 .0937
Expenses................................................ (.0093) (.0087) (.0095) (.009) (.0087) (.009) (.01)
Expense reimbursement................................... .0033 .0027 .0035 .003 .0026 .003 .004
------- ------- ------- ------- ------- ------ -------
Net investment income..................................... .0533 .0365 .0262 .0331 .0546 .076 .0877
Net realized and unrealized loss on securities............ -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------ -------
Total from investment operations.......................... .0533 .0365 .0262 .0331 .0546 .076 .0877
------- ------- ------- ------- ------- ------ -------
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME............. (.0533) (.0365) (.0262) (.0331) (.0546) (.076) (.0877)
------- ------- ------- ------- ------- ------ -------
Net asset value, end of period............................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======== ====== ========
TOTAL RETURN(2)........................................... 5.46% 3.71% 2.66% 3.36% 5.46% 7.83% 9.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................... $21.6 $28.5 $30.0 $32.9 $38.0 $34.3 $29.0
Ratios to average net assets (annualized)
Expenses................................................ .60% .60% .60% .60% .60% .60% .60%
Expenses, without expense reimbursement................. .93% .87% .95% .89% .87% .89% .95%
Net investment income................................... 5.33% 3.63% 2.63% 3.32% 5.44% 7.59% 8.76%
Net investment income, without expense reimbursement.... 5.00% 3.37% 2.28% 3.03% 5.17% 7.30% 8.41%

PER SHARE OPERATING PERFORMANCE 1988 1987 1986(1)
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period...................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .0773 .0684 .0429
Expenses................................................ (.0104) (.0141) (.0093)
Expense reimbursement................................... .0045 .0081 .0052
------- ------- -------
Net investment income..................................... .0714 .0624 .0388
Net realized and unrealized loss on securities............ -- (.00002) --
------- ------- -------
Total from investment operations.......................... .0714 .06238 .0388
------- ------- -------
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME............. (.0714) (.06238) (.0388)
------- ------- -------
Net asset value, end of period............................ $ 1.00 $ 1.00 $ 1.00
======= ======== =======
TOTAL RETURN(2)........................................... 7.38% 6.41% 4.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)...................... $ 24.5 $ 18.6 $ 23.4
Ratios to average net assets (annualized)
Expenses................................................ .60% .60% .60%
Expenses, without expense reimbursement................. .95% .95% .95%
Net investment income................................... 7.22% 6.24% 5.70%
Net investment income, without expense reimbursement.... 6.87% 5.89% 5.35%
</TABLE>

11
<PAGE> 14

FINANCIAL HIGHLIGHTS (CONTINUED)

The following information for the period July 3, 1995 through December 31,
1995 has been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. This information should be read in conjunction
with the related financial statements and notes thereto included in the
Statement of Additional Information.

EMERGING GROWTH FUND

<TABLE>
<CAPTION>
JULY 3,
1995(1)
THROUGH
DECEMBER 31,
PER SHARE OPERATING PERFORMANCE 1995(2)
------------
<S> <C>
Net asset value, beginning of period............................................................................... $10.00
------------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................................................................................ .06
Expenses......................................................................................................... (.30)
Expense reimbursement............................................................................................ .16
------------
Net investment loss................................................................................................ (.08)
Net realized and unrealized gain on securities..................................................................... 1.80
------------
Total from investment operations................................................................................... 1.72
------------
Net asset value, end of period..................................................................................... $11.72
===========
TOTAL RETURN(3).................................................................................................... 17.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................................................................... $ 2.3
Ratios to average net assets (annualized)
Expenses......................................................................................................... 2.50%
Expenses, without expense reimbursement.......................................................................... 5.40%
Net investment loss.............................................................................................. (1.45)%
Net investment loss, without expense reimbursement............................................................... (4.35)%
Portfolio turnover rate............................................................................................ 41%
</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.

12
<PAGE> 15

FINANCIAL HIGHLIGHTS (CONTINUED)

GLOBAL EQUITY FUND

<TABLE>
<CAPTION>
JULY 3
1995(1)
THROUGH
DECEMBER 31,
PER SHARE OPERATING PERFORMANCE 1995(2)
------------
<S> <C>
Net asset value, beginning of period............................................................................... $10.00
------------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................................................................................ .09
Expenses......................................................................................................... (.48)
Expense reimbursement............................................................................................ .23
------------
Net investment loss................................................................................................ (.16)
Net realized and unrealized gain on securities..................................................................... .46
------------
Total from investment operations................................................................................... .30
------------
Net asset value, end of period..................................................................................... $10.30
===========
TOTAL RETURN(3).................................................................................................... 3.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................................................................... $ 2.4
Ratios to average net assets (annualized)
Expenses......................................................................................................... 4.35%
Expenses, without expense reimbursement.......................................................................... 8.27%
Net investment loss.............................................................................................. (2.76)%
Net investment loss, without expense reimbursement............................................................... (6.68)%
Portfolio turnover rate............................................................................................ 42%
</TABLE>

13
<PAGE> 16

FINANCIAL HIGHLIGHTS (CONTINUED)

REAL ESTATE SECURITIES FUND

<TABLE>
<CAPTION>
JULY 3,
1995(1)
THROUGH
DECEMBER 31,
PER SHARE OPERATING PERFORMANCE 1995(2)
------------
<S> <C>
Net asset value, beginning of period............................................................................... $ 10.00
------------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................................................................................ .33
Expenses......................................................................................................... (.15)
Expense reimbursement............................................................................................ .02
------------
Net investment income.............................................................................................. .20
Net realized and unrealized gain on securities..................................................................... .6325
------------
Total from investment operations................................................................................... .8325
------------
Less distributions from net investment income...................................................................... (.0925)
Net asset value, end of period..................................................................................... $ 10.74
===========
TOTAL RETURN(3).................................................................................................... 8.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................................................................... $ 8.6
Ratios to average net assets (annualized)
Expenses......................................................................................................... 2.50%
Expenses, without expense reimbursement.......................................................................... 2.90%
Net investment income............................................................................................ 3.75%
Net investment income, without expense reimbursement............................................................. 3.36%
Portfolio turnover rate............................................................................................ 85%
</TABLE>

14
<PAGE> 17

INTRODUCTION

The Trust is a duly organized Delaware business trust with nine separate
Funds. Each Fund has separate assets and liabilities and a separate net asset
value per share. Shares of a Fund represent an interest only in that Fund. Since
market risks are inherent in all securities to varying degrees, assurance cannot
be given that the investment objectives of any of the Fund will be met.

INVESTMENT OBJECTIVES AND POLICIES

Each Fund of the Trust has a different investment objective which it
pursues through separate investment policies as described below. See "Investment
Practices" for further discussion of investment techniques and strategies. The
investment objective of each Fund, except the Real Estate Securities Fund, is a
fundamental policy and may not be changed without shareholder approval. With
respect to the Real Estate Securities Fund, the investment objective may be
changed by the Trustees. If there is a change in the objective of such Fund,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. The differences in
objectives and policies among the Funds can be expected to affect the return of
each Fund and the degree of market and financial risk to which each Fund is
subject.

ASSET ALLOCATION FUND

The investment objective of the Asset Allocation Fund is to seek a high
total investment return consistent with prudent risk through a fully managed
investment policy utilizing equity as well as investment grade intermediate and
long-term debt securities and money market securities. Total investment return
consists of current income, including dividends, interest, and discount
accruals, and capital appreciation. The Adviser may vary the composition of the
Fund from time to time based upon an evaluation of economic and market trends
and the anticipated relative total return available from a particular type of
security. Accordingly, the Asset Allocation Fund may, at any given time, be
substantially invested in equity securities, bonds and notes or money market
securities. Achieving this objective depends on management's abilities to assess
the effect of economic and market trends on different sectors of the market.
There can be no assurances that the investment objective of the Fund will be
achieved.

The Fund may invest in those money market securities which are eligible
investments for the Fund's Money Market Fund. It may also invest in intermediate
and long-term debt securities, including convertible securities, and in
preferred and convertible preferred stock which are rated at the time of
purchase BBB or better by S&P or Baa or better by Moody's, or in nonrated
securities determined by the Adviser to be of comparable quality. To the extent
investments are made in fixed-income securities, the Fund will invest primarily
in such securities which are rated A or better by either rating agency. These
ratings are described in the Appendix hereto. The Fund is not limited as to the
maturities of the debt securities it may purchase. Debt securities with longer
maturities generally tend to produce higher yields and are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities.

The common stocks in which the Fund may invest will be primarily stocks of
large-capitalization quality companies. Generally, the characteristics of such
companies include a strong balance sheet, good financial resources, a
satisfactory rate of return on capital, a good industry position and superior
management skills. The Adviser believes that companies that conform most closely
to these characteristics often tend to exhibit generally consistent earnings
growth.

The Fund may engage in portfolio management strategies and techniques
involving options, futures, contracts and options on futures contracts. Options,
futures contracts, and options on futures contracts are described in "Investment
Practices -- Using Options, Futures Contracts, and Options on Futures
Contracts."

15
<PAGE> 18

The Fund may also invest in equity and debt securities of foreign issuers,
including non-U.S. dollar denominated debt securities, Eurodollar securities and
securities issued, assumed or guaranteed by foreign governments or political
subdivisions or instrumentalities thereof. The Fund will limit its investment in
foreign securities to 25% of its total assets, taken at market value at the time
of each investment. See "Investment Practices -- Foreign Securities." For a
discussion of the Fund's practices regarding investment companies see
"Investment Practices -- Investment in Investment Companies."

Because of the fully managed approach of the Fund, portfolio turnover may
be greater resulting in increased brokerage charges to the Fund.

DOMESTIC INCOME FUND

The Domestic Income Fund's primary investment objective is to seek current
income. Capital appreciation is a secondary objective, which will be sought only
when consistent with its primary objective. The Fund attempts to achieve these
investment objectives by investing primarily in fixed-income securities,
including both convertible and non-convertible debt securities and preferred
stocks. The Fund may invest in investment grade securities and lower rated and
nonrated securities. There is no assurance that these objectives will be
achieved and yields may fluctuate over time. The Fund may also invest in debt
securities of foreign issuers, including non-U.S. dollar denominated debt
securities, Eurodollar securities and securities issued, assumed or guaranteed
by foreign governments or political subdivisions or instrumentalities thereof.
The Fund will limit its investment in foreign securities to 25% of its total
assets, taken at market value at the time of each investment. See "Investment
Practices -- Foreign Securities."

The Fund expects that at all times at least 80% of its assets will be
invested in fixed-income securities rated at the time of purchase B or higher by
Moody's or S&P, nonrated debt securities considered by the Adviser to be of
comparable quality, and U.S. Government securities. See the Appendix for a
description of corporate bond ratings. The Fund may also purchase or sell U.S.
Government securities on a forward commitment basis. See "Investment
Practices -- Forward Commitments."

The Fund may invest in debt securities rated below B by both Moody's and
S&P or nonrated debt securities considered by the Adviser to be of comparable
quality (commonly known as "junk bonds"), common stocks or other equity
securities and income bonds on which interest is not accrued by the Fund when
such investments are consistent with the Fund's investment objectives or are
acquired as part of a unit consisting of a combination of fixed-income or equity
securities. The Fund may also invest in prime commercial paper, certificates of
deposit, bankers' acceptances and other obligations of domestic banks having
total assets of at least $500 million, and repurchase agreements. See
"Investment Practices -- Repurchase Agreements." Equity securities as referred
to herein do not include preferred stocks. The Fund will not purchase any such
securities which will cause more than 20% of its total assets to be so invested
or which would cause more than ten percent of its total assets to be invested in
common stocks or other equity securities.

In general, the prices of debt securities vary inversely with interest
rates. If interest rates rise, debt security prices generally fall; if interest
rates fall, debt security prices generally rise. In addition, for a given change
in interest rates, longer-maturity debt securities fluctuate more in price
(gaining or losing more in value) than shorter-maturity debt securities, and
generally offer higher yields than shorter-maturity debt securities, all other
factors, including credit quality, being equal. This potential for a decline in
prices of debt securities due to rising interest rates is referred to herein as
"market risk." While the Fund has no policy limiting the maturities of the debt
securities in which it may invest, the Adviser seeks to moderate market risk by
generally maintaining a portfolio duration within a range of four to six years.

Duration is a measure of the expected life of a debt security on a present
online basis expressed in years that incorporates a security's yield, coupon
interest payments, final maturity and

16
<PAGE> 19

call features into one measure. Traditionally a debt security's "term to
maturity" has been used as a proxy for the sensitivity of the security's price
to changes in interest rates (which is the "interest rate risk" or "price
volatility" of the security). However, "term to maturity" measures only the time
until a debt security provides its final payment taking no account of the
pattern of the security's payments of interest or principal prior to maturity.
Duration measures the length of the time interval between the present and the
time when the interest and principal payments are scheduled to be received (or
in the case of a callable bond, expected to be received), weighing them by the
present value of the cash to be received at each future point in time. In
general, the lower the coupon rate of interest or the longer the maturity, or
the lower the yield-to-maturity of a debt security, the longer its duration;
conversely, the higher the coupon rate of interest, the shorter the maturity or
the higher the yield-to-maturity of a debt security, the shorter its duration.
With respect to some securities, there are some situations where even a duration
calculation does not properly reflect the interest rate exposure of a security.
In these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure. At December 31, 1995, the duration
of the debt securities owned by the Fund, was approximately 5.83 years. The
duration is likely to vary from time to time as the Adviser pursues its strategy
of striving to maintain a balance between seeking to maximize income and
endeavoring to maintain the value of the Fund's capital.

The higher yields sought by the Fund are generally obtainable from
securities rated in the lower categories by recognized rating services. These
securities generally are subordinated to the prior claims of banks and other
senior lenders. The lower rated debt securities in which the Fund may invest are
regarded as predominately speculative with respect to the issuers continuing
ability to meet principal and interest payments. The ratings of Moody's and S&P
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.
Consequently, debt securities with the same maturity, coupon and rating may have
different yields while debt securities of the same maturity and coupon with
different ratings may have the same yield.

During the fiscal year ended December 31, 1995, the average percentage of
the Fund's assets invested in debt securities within the various rating
categories (based on the higher of the S&P or Moody's ratings), and the nonrated
debt securities, determined on a dollar weighted average, were as follows:

<TABLE>
<S> <C>
AAA/Aaa................................................................... -0-
AA/Aa..................................................................... 1.8
A/A....................................................................... 14.6
BBB/Baa................................................................... 34.6
BB/Ba..................................................................... 12.5
B/B....................................................................... 21.8
*Nonrated................................................................. 15.8
Preferred Stocks/Common Stocks/Warrants................................... .9
Cash and Equivalents...................................................... (2.0)
-------
Total Net Assets..................................................... 100.00%
</TABLE>

* The nonrated debt securities as a percentage of total net assets were
considered by the Adviser to be comparable to securities rated by Moody's as
follows: AAA- 15.8%.

The securities in which the Fund may invest include the following:

-- Straight fixed-income debt securities. These include bonds and other
debt obligations which bear a fixed or variable rate of interest payable at
regular intervals and have a fixed or resettable

17
<PAGE> 20

maturity date. The particular terms of such securities vary and may include
features such as call provisions and sinking funds.

-- Pay-in-kind debt securities. These pay interest in additional debt
securities rather than in cash.

-- Zero-coupon debt securities. These bear no interest obligation but are
issued at a discount from their value at maturity. When held to maturity,
their entire return equals the difference between their issue price and their
maturity value. Interest is however accrued by the Fund each day for
accounting and Federal income tax purposes.

-- Zero-fixed-coupon debt securities. These are zero-coupon debt securities
which convert on a specified date to interest-bearing debt securities.

Fixed-income securities rated below B by both Moody's and S&P include debt
obligations or other securities of companies that are financially troubled, in
default or are in bankruptcy or reorganization ("Deep Discount Securities").
Debt obligations of such companies are usually available at a deep discount from
the face value of the instrument. The Fund will invest in Deep Discount
Securities when the Adviser believes that existing factors are likely to restore
the company to a healthy financial condition. Such factors include a
restructuring of debt, management changes, existence of adequate assets, or
other unusual circumstances.

A debt instrument purchased at a deep discount may currently pay a very
high effective yield. In addition, if the financial condition of the issuer
improves, the underlying value of the security may increase, resulting in a
capital gain. If the company defaults on its obligations or remains in default,
or if the plan of reorganization is insufficient for debtholders, the Deep
Discount Securities may stop generating income and lose value or become
worthless. The Adviser will balance the benefits of Deep Discount Securities
with their risks. While a diversified portfolio may reduce the overall impact of
a Deep Discount Security that is in default or loses its value, the risk cannot
be eliminated.

Risk Factors of Investing in Lower Rated Debt Securities. Past experience
may not provide an accurate indication of future performance of the market for
lower rated debt securities, particularly during periods of economic recession.
An economic downturn or increase in interest rates is likely to have a greater
negative effect on this market, the value of lower rated debt securities in the
Fund, the Fund's net asset value and the ability of the bonds' issuers to repay
principal and interest, meet projected business goals and obtain additional
financing than on higher rated securities. These circumstances also may result
in a higher incidence of defaults than with respect to higher rated securities.
An investment in this Fund may be considered more speculative than investment in
shares of a fund which invests primarily in higher rated debt securities.

Prices of lower rated debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments. Debt
securities with longer maturities, which may have higher yields, may increase or
decrease in value more than debt securities with shorter maturities. Market
prices of lower rated debt securities structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and may be
more volatile than securities which pay interest periodically and in cash. When
it deems it appropriate and in the best interests of Fund shareholders, the Fund
may incur additional expenses to seek recovery on a debt security on which the
issuer has defaulted and to pursue litigation to protect its interests of
security holders of its companies.

Because the market for lower rated securities may be thinner and less
active than for higher rated securities, there may be market price volatility
for these securities and limited liquidity in the resale market. Nonrated
securities are usually not as attractive to as many buyers as rated securities
are, a factor which may make nonrated securities less marketable. These factors
may have the effect of limiting the availability of the securities for purchase
by the Fund and may also limit the ability of the Fund to sell such securities
at their fair value either to meet redemption requests or in response to changes
in the economy or the financial markets. Adverse publicity and investor

18
<PAGE> 21

perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of lower rated debt securities, especially in a thinly
traded market. To the extent the Fund owns or may acquire illiquid or
restricted lower rated securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. Changes in values of debt securities which the Fund
owns will affect its net asset value per share. If market quotations are not
readily available for the Fund's lower rated or nonrated securities, these
securities will be valued by a method that the Fund's Trustees believes
accurately reflects fair value. Judgment plays a greater role in valuing lower
rated debt securities than with respect to securities for which more external
sources of quotations and last sale information are available.

Special tax considerations are associated with investing in lower rated
debt securities structured as zero coupon or pay-in-kind securities. The Fund
accrues income on these securities prior to the receipt of cash payments. The
Fund must distribute substantially all of its income to its shareholders to
qualify for pass-through treatment under the tax laws and may, therefore, have
to dispose a portion of its portfolio securities to satisfy distribution
requirements.

While credit ratings are only one factor the Adviser relies on in
evaluating lower rated debt securities, certain risks are associated with using
credit ratings. Credit rating agencies may fail to timely change the credit
ratings to reflect subsequent events; however, the Adviser continuously monitors
the issuers of lower rated debt securities in its portfolio in an attempt to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments. Achievement of the Fund's investment
objective may be more dependent upon the Adviser's credit analysis than is the
case for higher quality debt securities. Credit ratings for individual
securities may change from time to time and the Fund may retain a portfolio
security whose rating has been changed.

Investors should consider carefully the additional risks associated with
investment in securities which carry lower ratings, which are not generally
meant for short-term investment.

EMERGING GROWTH FUND

The investment objective of the Emerging Growth Fund is to seek capital
appreciation by investing in a portfolio of securities consisting principally of
common stocks of small and medium sized companies considered by the Adviser to
be emerging growth companies. Any ordinary income received from portfolio
securities is entirely incidental.

As a fundamental investment policy, the Fund under normal conditions
invests at least 65% of its total assets in common stocks of small and medium
sized companies (less than $2 billion of market capitalization), both domestic
and foreign, in the early stages of their life cycle, that the Adviser believes
have the potential to become major enterprises. Investments in such companies
may offer greater opportunities for growth of capital than larger, more
established companies, but also may involve certain special risks. Emerging
growth companies often have limited product lines, markets, or financial
resources, and they may be dependent upon one or a few key people for
management. The securities of such companies may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. While the Fund will invest primarily in
common stocks, to a limited extent it may invest in other securities such as
preferred stocks, convertible securities and warrants.

The Fund does not limit its investment to any single group or type of
security. The Fund may also invest in special situations involving new
management, special products and techniques, unusual developments, mergers or
liquidations. Investments in unseasoned companies and special situations often
involve much greater risks than are inherent in ordinary investments, because
securities of such companies may be more likely to experience unexpected
fluctuations in price.

The Fund's primary approach is to seek what the Adviser believes to be
unusually attractive growth investments on an individual company basis. The Fund
may invest in securities that have

19
<PAGE> 22

above average volatility of price movement. Because prices of common stocks and
other securities fluctuate, the value of an investment in the Fund will vary
based upon the Fund's investment performance. The Fund attempts to reduce
overall exposure to risk from declines in securities prices by spreading its
investments over many different companies in a variety of industries. There is,
however, no assurance that the Fund will be successful in achieving its
objective.

The Fund may invest up to 20% of its total assets in securities of foreign
issuers. See "Investment Practices -- Foreign Securities." Additionally, the
Fund may invest up to fifteen percent of the value of its assets in restricted
securities (i.e., securities which may not be sold without registration under
the Securities Act of 1933) and in other securities not having readily available
market quotations. The Fund may enter into repurchase agreements with domestic
banks and broker-dealers which involve certain risks. The Fund may invest in
either warrants or restricted securities so long as such investments aggregate
less than five percent of the Fund's total assets. The risks involved in
investing in restricted securities, warrants and repurchase agreements are
described in the Statement of Additional Information.

ENTERPRISE FUND

The investment objective of the Enterprise Fund is to seek capital
appreciation through investments in securities believed by the Adviser to have
above average potential for capital appreciation. Any income received on such
securities is incidental to the objective of capital appreciation.

The Fund invests principally in growth common stocks. Such securities
generally include those of companies with established records of growth in sales
or earnings, and companies with new products, new services, or new processes.
The Fund may also invest in companies in cyclical industries during periods when
their securities appear attractive to the Adviser for capital appreciation. In
addition to common stock, the Fund may invest in warrants and preferred stocks,
and in investment companies. See "Investment Practices -- Investment in
Investment Companies."

The Fund generally holds a portion of its assets in investment grade
short-term debt securities and investment grade corporate or government bonds in
order to provide liquidity. Such investments may be increased to up to 100% of
the Fund's assets when deemed appropriate by the Adviser for temporary defensive
purposes. Short-term investments may include repurchase agreements with banks or
broker-dealers. See "Investment Practices -- Repurchase Agreements."

The Fund's primary approach is to seek what the Adviser believes to be
attractive growth investments on an individual company basis. The Fund may
invest in securities that have above average volatility of price movement.
Because prices of common stocks and other securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securities
prices by spreading its investments over many different companies in a variety
of industries. There is, however, no assurance that the Fund will be successful
in achieving its objective. The Fund may also invest in debt securities of
foreign issuers, including non-U.S. dollar denominated debt securities,
Eurodollar securities and securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities thereof. The Fund
will limit its investment in foreign securities to 10% of its total assets,
taken at market value at the time of each investment. See "Investment
Practices -- Foreign Securities." The Fund may engage in portfolio management
strategies and techniques involving options, futures contracts and options on
futures. Options, futures contracts and options on futures contracts are
described in "Investment Practices -- Using Options, Futures Contracts and
Options on Futures Contracts."

GLOBAL EQUITY FUND

The investment objective of the Global Equity Fund is to seek long-term
growth of capital through investments in an internationally diversified
portfolio of equity securities of companies of

20
<PAGE> 23

any nation including the United States. The Fund intends to be invested in
equity securities of companies of at least three countries including the United
States. Under normal market conditions, at least 65% of the Fund's total assets
are so invested. Equity securities include common stocks, preferred stocks and
warrants or options to acquire such securities. In selecting portfolio
securities, the Fund attempts to take advantage of the differences between
economic trends and the anticipated performance of securities markets in various
countries.

Normally, the Fund invests in securities of issuers traded on markets of at
least three of the world's six largest countries by market capitalization
(United States, Japan, United Kingdom, Germany, France and Canada), but
securities of issuers traded on quoted markets of other countries are also
considered for investment. The next six largest countries, in terms of market
capitalization, are Switzerland, Italy, Netherlands, Australia, Sweden and
Spain.

The Adviser, subject to the direction of the Trust's Trustees, provides the
Fund with an overall investment program consistent with the Fund's objective and
policies. The Adviser is solely responsible for advising the Fund with respect
to investments in the United States. John Govett, subject to overall review by
the Adviser and the Trust's Trustees and other authorized officers, is
responsible for recommending an optimal geographic equity allocation and is
responsible for providing advice with respect to the Fund's investment in
countries other than the United States. Investments may be shifted among the
world's various capital markets and among different types of securities in
accordance with ongoing analysis provided by the Adviser and John Govett of
trends and developments affecting such markets and securities. The Adviser and
John Govett are sometimes referred to as the "Advisers."

While the investment policy of the Fund is to be broadly diversified as to
both countries and individual issuers, the Advisers select individual countries
and securities on the basis of several factors. Investments are allocated among
issuers in countries selected based on a comparison of values between the equity
markets in those countries. This comparison is based upon criteria such as
return on equity, book value, earnings, dividends, and interest rates in each
market. After evaluating these factors and others for each country and comparing
opportunities among countries, the Advisers select those countries which, in
their opinion, have the most attractive equity markets. This evaluation is
influential in deciding the amount of investment in each equity market.
Individual equity securities are selected within each market. The Advisers seek
the most attractive individual equity securities based on factors such as book
value, earnings per share and other financial data. The Advisers' approach to
both country and individual security selection is characterized as a
quantitative method utilizing specific financial criteria to identify both value
and opportunity in the equity markets. The Advisers also endeavor to identify
industry, political, and geographical trends which may affect equity values
within individual countries or among a group of countries. The Advisers use
these financial criteria and analysis of industry, political, and geographical
trends to evaluate and compare equity investment opportunities among various
countries and among securities within each country with the objective of
identifying and investing in those securities which can best meet the Fund's
investment objective. Of course, there is no assurance that the Advisers will be
successful in this endeavor or that the investment objective will be realized.

The Fund may 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 obligations to pay some or all of the depositary's
transaction fees, whereas under an unsponsored arrangement, the foreign issuer
assumes no obligations 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. 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.

21
<PAGE> 24

The Fund may invest cash temporarily in short-term debt instruments. Such
temporary investments will only be made with cash held to maintain liquidity or
pending investment. See "Temporary Short-Term Investments" herein.

Risk Factors. An investment in the Fund involves risks similar to those of
investing in foreign common stocks generally. Investment in common stocks of
foreign issuers may subject the Fund to risk of foreign political, economic and
legal conditions and developments. Such conditions or developments might include
favorable or unfavorable changes in currency exchange rates, exchange control
regulations (including currency blockage), expropriation of assets of companies,
imposition of withholding taxes on dividend or interest payments, and possible
difficulty in obtaining and enforcing judgments against a foreign issuer. Also,
foreign common stocks may not be as liquid and may be more volatile than
comparable domestic common stocks.

Furthermore, issuers of foreign common stocks are subject to different,
often less comprehensive, accounting, reporting and disclosure requirements than
domestic issuers. The Fund, in connection with its purchases and sales of
foreign securities, other than securities purchased or sold in United States
dollars, will incur transaction costs in converting currencies. Also, brokerage
costs incurred in purchasing and selling securities in foreign securities
markets generally are higher than such costs in comparable transactions in
domestic securities markets, and foreign custodial costs relating to the Fund
securities are higher than domestic custodial costs. See also "Investment
Practices" for a discussion of certain additional risks related to investment
practices that may be utilized by the Fund, including use of options, futures
contracts and related options.

Foreign Currency Transactions. The value of the Fund's 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 or 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 therefor 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 prices 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.

Temporary Short-Term Investments. It is the Fund's policy to be
substantially invested in common stocks and securities convertible into common
stocks. However, the Fund may hold a portion of its assets in cash to meet
redemptions and other day-to-day operating expenses. The Fund may invest cash
held for such purposes in obligations of the United States and of foreign

22
<PAGE> 25

governments, including their political subdivisions, 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. The Fund also may invest cash held for such purposes in
short-term, high grade foreign debt securities. High grade foreign debt
securities are those debt securities of foreign issuers which the Advisers
determine to have creditworthiness substantially equivalent to that of domestic
issuers of debt securities rated investment grade.

GOVERNMENT FUND

GENERAL

The investment objective of the Government Fund is to seek to provide
investors with a high current return consistent with preservation of capital.
The Fund invests primarily in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Under normal circumstances, at
least 80% of the total assets of the Fund are invested in such securities. The
Fund may invest its remaining assets (up to 20%) in other government related
securities and in repurchase agreements fully collateralized by U.S. Government
securities. The other government related securities include mortgage-related and
mortgage-backed securities and certificates issued by financial institutions or
broker-dealers representing "stripped" mortgage-related securities. See "Other
Government Related Securities" below. In order to hedge against changes in
interest rates, the Fund may purchase or sell options and engage in transactions
involving interest rate futures contracts and options on such contracts. See
"Investment Practices -- Using Options, Futures Contracts and Options on Futures
Contracts" and the Statement of Additional Information for discussion of
options, futures contracts and options on futures contracts. The Fund may also
purchase or sell U.S. Government securities on a forward commitment basis. See
"Investment Practices -- Forward Commitments." The Fund is not designed for
investors seeking capital appreciation. Shares of the Fund are not insured or
guaranteed by the U.S. Government, its agencies or instrumentalities or by any
other person or entity. There is no assurance that the Fund's objective will be
achieved.

Since the value of U.S. Government securities owned by the Fund will
fluctuate depending upon market factors and inversely with prevailing interest
rates, the net asset value of shares of the Fund will fluctuate. If interest
rates rise, debt security prices generally fall; if interest rates fall, debt
security prices generally rise. In addition, for a given change in interest
rates, longer-maturity debt securities fluctuate more in price (gaining or
losing more in value) than shorter-maturity debt securities, and generally offer
higher yields than shorter-maturity debt securities, all other factors,
including credit quality, being equal. This potential for a decline in prices of
debt securities due to rising interest rates is referred to herein as "market
risk." While the Fund has no policy limiting the maturities of the debt
securities in which it may invest, the Adviser seeks to moderate market risk by
generally maintaining a portfolio duration within a range of four to six years.
Duration is a measure of the expected life of a debt security that incorporates
a security's yield, coupon interest payments, final maturity and call features
into one measure.

Traditionally a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "price volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration measures the length of the
time interval between the present and the time when the interest and principal
payments are scheduled to be received (or in the case of a callable bond,
expected to be received), weighing them by the present value of the cash to be
received at each future point in time. In general, the lower the coupon rate of
interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration. With respect to some securities, there
are some situations where

23
<PAGE> 26

even a duration calculation does not properly reflect the interest rate exposure
of a security. In these and other similar situations, the Adviser will use more
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure. At December 31,
1995, the duration of the debt securities owned by the Fund, as adjusted for
investments in options, futures contracts and related options, was approximately
5.1 years.

The Fund often purchases debt securities at a premium over the principal or
face value in order to obtain higher current income. The amount of any premium
declines during the term of the security to zero at maturity. Such decline
generally is reflected in the market price of the security and thus in the
Fund's net asset value. Any such decline is realized for accounting purposes as
a capital loss at maturity or upon resale. Prior to maturity or resale, such
decline in value could be offset, in whole or part, or increased by changes in
the value of the security due to changes in interest rate levels.

The principal reason for selling call or put options is to obtain, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. By selling options, the Fund reduces its potential
for capital appreciation on debt securities if interest rates decline. Thus if
market prices of debt securities increase, the Fund receives less total return
from its optioned positions than it would have received if the options had not
been sold. The purpose of selling options is intended to improve the Fund's
total return and not to support or "enhance" monthly distributions. During
periods when the Fund has capital loss carry forwards any capital gains
generated from such transactions will be retained in the Fund. See "Investment
Practices -- Using Options, Futures Contracts and Options on Futures Contracts"
and "Dividends, Distributions and Taxes" and the Statement of Additional
Information for discussion of options, futures contracts and options on futures
contracts.

The purchase and sale of options may result in a high portfolio turnover
rate. The Fund's turnover rate is shown in the table of "Financial Highlights."
See "Investment Practices -- Fund Turnover."

The Fund is subject to the diversification requirements of Section 817(h)
of the Internal Revenue Code (the "Code") which must be met at the end of each
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Fund to invest no
more than 55% of its total assets in securities of any one issuer, no more than
70% in the securities of any two issuers, no more than 80% in the securities of
any three issuers, and no more than 90% in the securities of any four issuers.
For this purpose, the United States Treasury and each U.S. Government agency and
instrumentality is considered to be a separate issuer. Thus, the Fund intends to
invest in U.S. Treasury securities and in securities issued by at least four
U.S. Government agencies or instrumentalities in the amounts necessary to meet
these diversification requirements at the end of each quarter of the year (or
within thirty days thereafter).

In the event the Fund does not meet the diversification requirements of
Section 817(h) of the Code, the policies funded by shares of the Fund will not
be treated as life insurance for Federal income tax purposes and the owners of
the policies will be subject to taxation on their share of the dividends and
distributions paid by the Fund.

U.S. GOVERNMENT SECURITIES

Securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities include: (1) U.S. Treasury
obligations, which differ in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturity of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are backed by the full faith
and credit of the United States; and (2) obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, including government guaranteed
mortgage-related securities, some of which are backed by the full faith and
credit of the U.S. Treasury, some of which are supported by the right of the
issuer to borrow from the U.S. Government and some of which are backed only by
the credit of the issuer itself.

24
<PAGE> 27

Mortgage loans made by banks, savings and loan institutions, and other
lenders are often assembled into pools, which are issued or guaranteed by an
agency or instrumentality of the U.S. Government, though not necessarily by the
U.S. Government itself. Interests in such pools are what this Prospectus calls
"mortgage-related securities."

Mortgage-related securities include, but are not limited to, obligations
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA is a wholly owned corporate instrumentality
of the United States whose securities and guarantees are backed by the full
faith and credit of the United States. FNMA, a federally chartered and privately
owned corporation, and FHLMC, a federal corporation, are instrumentalities of
the United States. The securities and guarantees of FNMA and FHLMC are not
backed, directly or indirectly, by the full faith and credit of the United
States. Although the Secretary of the Treasury of the United States has
discretionary authority to lend FNMA up to $2.25 billion outstanding at any
time, neither the United States nor any agency thereof is obligated to finance
FNMA's or FHLMC's operations or to assist FNMA or FHLMC in any other manner.
Securities of FNMA and FHLMC include those issued in principal only or interest
only components.

Mortgage-related securities are characterized by monthly payments to the
holder, reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans. The payments to the securityholders (such as the
Fund), like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as 20 or 30 years, the borrowers can, and typically do, pay them off
sooner. Thus, the securityholders frequently receive prepayments of principal,
in addition to the principal which is part of the regular monthly payment. A
borrower is more likely to prepay a mortgage which bears a relatively high rate
of interest. This means that in times of declining interest rates, some of the
Fund's higher yielding securities might be converted to cash, and the Fund will
be forced to accept lower interest rates when that cash is used to purchase
additional securities. The increased likelihood of prepayment when interest
rates decline also limits market price appreciation of mortgage-related
securities. If the Fund buys mortgage-related securities at a premium, mortgage
foreclosures or mortgage prepayments may result in a loss to the Fund of up to
the amount of the premium paid since only timely payment of principal and
interest is guaranteed.

OTHER GOVERNMENT RELATED SECURITIES

The Fund may invest up to 20% of its assets in other government related
securities and in repurchase agreements fully collateralized by U.S. Government
securities. A principal type of government related security in which the Fund
may invest are mortgage-backed securities including collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").

CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).

REMICs, which were authorized under the Tax Reform Act of 1986 (the "Tax
Reform Act"), are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities.

CMOs and REMICs issued by private entities are not government securities
and are not directly guaranteed by any government agency. They are secured by
the underlying collateral of the private

25
<PAGE> 28

issuer. The Fund will invest in such privately issued securities only if they
are 100% collateralized at the time of issuance by securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund
intends to invest in privately issued CMOs and REMICs only if they are rated at
the time of purchase in the two highest grades by a nationally-recognized rating
agency.

STRIPPED SECURITIES

Stripped mortgage-related securities (hereinafter referred to as "Stripped
Mortgage Securities") are derivative multiclass mortgage securities. Stripped
Mortgage Securities may be issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.

Stripped Mortgage Securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of Stripped Mortgage Securities will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The
yield-to-maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
securities' yield-to-maturity since interest payments cease as soon as the
related principal amount is repaid. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities even if the security is rated
AAA or Aaa. Holders of PO securities are not entitled to any periodic payments
of interest prior to maturity. Accordingly, such securities usually trade at a
deep discount from their face or par value and are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Current federal tax law requires that a holder (such as the Fund) of
such securities accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the certificate during the year. Such securities may involve
greater risk than securities issued directly by the U.S. Government, its
agencies or instrumentalities.

Although the market for government-issued IO and PO securities backed by
fixed-rate mortgages is increasingly liquid, certain of such securities may not
be readily marketable and will be considered illiquid for purposes of the Fund's
limitation on investments in illiquid securities. The Trustees will establish
guidelines and standards for determining whether a particular government-issued
IO or PO backed by fixed-rate mortgages is liquid. Generally, such a security
may be deemed liquid if it can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of the net
asset value per share. Stripped Mortgage Securities, other than
government-issued IO and PO securities backed by fixed-rate mortgages, are
presently considered by the staff of the SEC to be illiquid securities and thus
subject to the Fund's limitation on investment in illiquid securities.

GROWTH AND INCOME FUND

The Growth and Income Fund's investment objective is to seek long-term
growth of capital and income. Since investment in securities involves potential
gain or loss, there is no assurance that the Fund's objective will be achieved.

In view of the investment objective, the Fund generally invests principally
in income-producing equity securities including common stocks and convertible
securities; although investments are also made in non-convertible preferred
stocks and debt securities rated "investment grade," i.e., within the four
highest grades assigned by S&P or by Moody's. Ratings at the time of purchase
determine

26
<PAGE> 29

which securities may be acquired, and a subsequent reduction in rating does not
require the Fund to dispose of a security. Securities rated BBB by S&P or Baa by
Moody's are in the lowest of the four investment grades and are considered by
the rating agencies 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 market prices of
preferred stocks and debt securities generally fluctuate with changes in
interest rates so that the value of investments in such securities can be
expected to decrease as interest rates rise and increase as interest rates fall.
The Fund may also invest in warrants and in securities of newly-formed companies
and in investment companies. See "Investment Practices -- Investment in
Investment Companies." The Fund may invest up to 15% of its assets in securities
of foreign issuers. See "Investment Practices -- Foreign Securities." The Fund
may enter into repurchase agreements with domestic banks and broker-dealers
which involves certain risks or may lend portfolio securities on a fully
collateralized basis. See "Investment Practices -- Repurchase Agreements and
Lending of Securities." When deemed appropriate for temporary defensive
purposes, the Fund may invest up to 100% of its total assets in U.S. Government
securities and investment grade corporate debt securities.

The Fund may dispose of a security whenever, in the opinion of the Adviser,
factors indicate it is desirable to do so. Such factors include a change in
economic or market factors in general or with respect to a particular industry,
a change in the market trend of or other factors affecting an individual
security, changes in the relative market performance of or appreciation
possibilities offered by individual securities and other circumstances bearing
on the desirability of a given investment.

MONEY MARKET FUND

The investment objective of the Money Market Fund is to seek protection of
capital and high current income through investments in money market instruments.
The investment policies, the percentage limitations, and the kinds of securities
in which the Fund can invest may be changed by the Trustees, unless expressly
governed by those limitations stated under "Investment Restrictions" in the
Statement of Additional Information which can be changed only by action of the
shareholders of the Fund. It is not the intention of the Trustees, however, to
change these policies without prior notice to shareholders.

The Fund seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money-market instruments maturing within
one year with a dollar-weighted average maturity of 90 days or less. It seeks
high current income from these short-term investments to the extent consistent
with protection of capital. Of course, there can be no guarantee that the Fund
will achieve its objective or be able at all times to maintain its net asset
value per share at $1.00. In addition, the daily dividend rate paid by the Fund
may be expected to fluctuate. The Fund uses the amortized cost method for
valuing portfolio securities purchased at a discount. See "Determination of Net
Asset Value." It may invest in instruments of the following types, all of which
will be U.S. dollar obligations:

OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS AGENCIES

The Fund may invest in obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the U.S.
Government, (b) the right of the issuer to borrow an amount limited to a
specific line of credit from the U.S. Government, (c) discretionary authority of
the U.S. Government agency or instrumentality or (d) the credit of the
instrumentality. Such agencies or instrumentalities include, but are not limited
to, the Federal National Mortgage Association, the Government National Mortgage
Association, Federal Land Banks, and the Farmer's Home Administration.

27
<PAGE> 30

BANK OBLIGATIONS

The Fund may invest in negotiable time deposits, certificates of deposit
and bankers' acceptances which are obligations of domestic banks having total
assets in excess of $1 billion as of the date of their most recently published
financial statements. The Fund is also authorized to invest up to five percent
of its total assets in certificates of deposit issued by domestic banks having
total assets of less than $1 billion, provided that the principal amount of the
certificate of deposit acquired by the Fund is insured in full by the Federal
Deposit Insurance Corporation.

COMMERCIAL PAPER

The Fund may invest in short-term obligations of companies which at the
time of investment are (a) rated in one of the two highest categories by at
least two nationally recognized statistical organizations (or one rating
organization if the obligation was rated by only one such organization), or (b)
if not rated, are of comparable quality as determined in accordance with
procedures established by the Trustees. See the Statement of Additional
Information. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. (See the Appendix in the Statement of Additional
Information for an explanation of these ratings). The Fund's current policy is
to limit investments in commercial paper to obligations rated in the highest
rating category.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with banks and broker-dealers
which involve certain risks in the event of a default by the other party. See
"Investment Practices -- Repurchase Agreements."

REAL ESTATE SECURITIES FUND

General. The Real Estate Securities 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.

28
<PAGE> 31

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 Practices -- 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.

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.

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-through of income under 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.

29
<PAGE> 32

INVESTMENT PRACTICES

Repurchase Agreements. Each Fund may enter into repurchase agreements with
broker-dealers or domestic banks (or a foreign branch or subsidiary thereof)
which are deemed 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, thereby
determining the yield during the purchaser's holding period. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience delays and expenses in liquidating the underlying securities
and 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. No Fund will invest in repurchase
agreements maturing in more than seven days if any such investment, together
with any other illiquid securities held by such Fund, exceeds in the case of the
Emerging Growth Fund, the Global Equity Fund, the Growth and Income Fund and the
Real Estate Securities Fund, 15% of the value of the Fund's net assets and, in
the case of the Asset Allocation Fund, the Domestic Income Fund, the Enterprise
Fund, the Government Fund and the Money Market Fund, ten percent of the value of
its net assets.

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 Funds than would be
available to the Funds investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
authorizing this practice, which conditions are designed to ensure the fair
administration of the joint account and to protect the amounts in that account.

Loans of Portfolio Securities. Each Fund, except the Real Estate
Securities Fund, may lend portfolio securities to unaffiliated brokers, dealers
and financial institutions provided that (a) immediately after any such loan,
the value of the securities loaned does not exceed ten percent of the total
value of that Fund's assets, and (b) any securities loan is collateralized in
accordance with applicable regulatory requirements. See Statement of Additional
Information.

Foreign Securities. The Asset Allocation Fund, the Domestic Income Fund,
the Emerging Growth Fund, the Enterprise Fund, the Growth and Income Fund and
the Real Estate Securities Fund may invest up to 25%, 25%, 20%, 10%, 15% and
25%, respectively, of the value of such Funds' total assets in securities issued
by foreign issuers. With respect to the Real Estate Securities Fund, 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 a 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
a Fund's assets denominated in that currency and the Fund's yield on such
assets.

A Fund may also purchase foreign securities in the form of ADRs and 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

30
<PAGE> 33

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. A 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 a 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 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 a 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. A 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. A Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. A Fund does not
purchase and sell foreign currencies as an investment.

A 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.

A 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

31
<PAGE> 34

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. A Fund will not speculate in foreign currency forward or
futures contracts or through the purchase and sale of foreign currencies. With
respect to the Global Equity Fund, see "Investment Objectives and
Policies -- Global Equity Fund."

Restricted Securities. The Emerging Growth Fund, the Global Equity Fund,
the Growth and Income Fund and the Real Estate Securities Fund may invest up to
15% of their net assets in restricted securities and other illiquid assets. The
other Funds may each invest up to five percent of their net assets in restricted
securities and other illiquid assets. As used herein, restricted securities are
those that have been sold in the United States without registration under the
Securities Act of 1933 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 Securities Act of 1933 and which have
been determined to be liquid by the Trustees or by the Adviser pursuant to
Board-approved guidelines. 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 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
believe accurately reflects fair value.

Short Sales Against the Box. The Global Equity Fund may from time to time
make short sales of securities it owns or has the right to acquire through
conversion or exchange of other securities it owns. A short sale is "against the
box" to the extent that the Fund contemporaneously owns or has the right to
obtain at no added cost securities identical to those sold short. In a short
sale, the Fund does not immediately deliver the securities sold and does not
receive the proceeds from the sale. The Fund is said to have a short position in
the securities sold until it delivers the securities sold, at which time it
receives the proceeds of the sale. The Fund may not make short sales or maintain
a short position if to do so would cause more than 25% of its total assets,
taken at market value, to be held as collateral for such sales.

To secure its obligation to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short. However, the Fund
will not purchase and deliver new securities to satisfy its short order if such
purchase and sale would cause such Fund to derive more than 30% of its gross
income from the sale of securities held for less than three months.

Forward Commitments. The Domestic Income Fund and the Government Fund may
purchase or sell U.S. Government securities (or debt securities with respect to
the Real Estate Securities Fund) 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. The price is fixed on the
date of the commitment, and the seller continues to accrue interest on the
securities covered by the

32
<PAGE> 35

Forward Commitment until delivery and payment takes place. At the time of
settlement, the market value of the securities may be more or less than the
purchase or sale price.

Each Fund may either settle a Forward Commitment by taking delivery of the
securities or may resell or repurchase a Forward Commitment on or before the
settlement date in which event a Fund may reinvest the proceeds in another
Forward Commitment. A 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, a Fund relies on the other party to complete the
transaction; should the other party fail to do so, a Fund might lose a purchase
or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.

Each 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.

Portfolio Turnover. Each Fund may purchase or sell securities without
regard to the length of time the security has been held and thus may experience
a high rate of portfolio turnover. A 100% turnover rate would occur, for
example, if all the securities in a portfolio were replaced in a period of one
year. Securities with maturities of less than one year are excluded in the
computation of the portfolio turnover rate. The portfolio turnover rate is not a
limiting factor when the Adviser deems it desirable to purchase or sell
securities or to engage in transactions in options, futures contracts and
options on futures contracts on behalf of the Asset Allocation Fund, the
Emerging Growth Fund, the Enterprise Fund, the Global Equity Fund, the
Government Fund, the Growth and Income Fund, and the Real Estate Securities
Fund. The annual turnover rates of each Fund other than the Growth and Income
Fund is shown under "Financial Highlights." The turnover rate for the Growth and
Income Fund may exceed 100%, which is higher than that of many other investment
companies. Higher portfolio turnover involves correspondingly greater
transaction costs, including any brokerage commissions, which are borne directly
by the Fund. In addition, higher portfolio turnover may increase the recognition
of short-term, rather than long-term, capital gains. See "Dividends,
Distributions and Taxes."

Using Options, Futures Contracts and Options on Futures Contracts. The
Asset Allocation Fund, the Emerging Growth Fund, the Enterprise Fund, the Global
Equity Fund, the Government Fund, the Growth and Income Fund, and the Real
Estate Securities Fund may purchase or sell options, futures contracts or
options on futures contracts. The Funds expect to utilize options, futures
contracts and options thereon in several different ways, depending upon the
status of the Portfolio'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 a Fund, if the Adviser and in the case of the Global Equity
Fund, John Govett, 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. A 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 a Fund is considered an illiquid
security. Any OTC Option written by a 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 the formula price
exceeds the intrinsic value of the option. A 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

33
<PAGE> 36

prevent leverage in connection with the purchase of futures contracts by a 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. Each Fund may not invest more than ten percent of its net assets (or
15% for the Emerging Growth Fund, the Global Equity Fund, the Growth and Income
Fund and the Real Estate Securities Fund) 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 in options, futures
contracts and options on futures contracts is contained in the Statement of
Additional Information.

Investment in Investment Companies. The Asset Allocation Fund, the
Enterprise Fund and the Growth and Income Fund may invest in a separate
investment company, Van Kampen American Capital Small Capitalization Fund
("Small Cap Fund"), that invests in a broad selection of small capitalization
securities. The shares of the Small Cap Fund are available only to investment
companies advised by the Adviser. The Adviser believes that the use of the Small
Cap Fund provides the Funds with the most effective exposure to the performance
of the small capitalization sector of the stock market while at the same time
minimizing costs. The Adviser charges no advisory fee for managing the Small Cap
Fund, nor is there any sales load or other charges associated with distribution
of its shares. Other expenses incurred by the Small Cap Fund will be borne by
it, and thus indirectly by the Van Kampen American Capital funds that invest in
it. With respect to such other expenses, the Adviser anticipates that the
efficiencies resulting from use of the Small Cap Fund will result in cost
savings for the Funds and other Van Kampen American Capital funds. In large part
these savings will be attributable to the fact that administrative actions that
would have to be performed multiple times if each Van Kampen American Capital
fund held its own portfolio of small capitalization stocks will need to be
performed only once. The Adviser expects that the Small Cap Fund will experience
trading costs that will be substantially less than the trading costs that would
be incurred if small capitalization stocks were purchased separately for the
Funds and other Van Kampen American Capital funds.

The securities of small and medium sized companies that the Small Cap Fund
may invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies.

The Asset Allocation Fund, the Enterprise Fund and the Growth and Income
Fund will each be deemed to own a pro rata portion of each investment of the
Small Cap Fund. For example, if a Fund's investment in the Small Cap Fund were
$10 million, and the Small Cap Fund had five percent of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.

Brokerage Practices. The Adviser and, in the case of the Global Equity
Fund, John Govett, are 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 Adviser and,
in the case of the Global Equity Fund, John Govett, are authorized to place
portfolio transactions with brokerage firms participating in the 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
and, in the case of the Global Equity Fund, John Govett, are 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 and, in the case of the Global Equity Fund, John Govett, determine that
such commissions are

34
<PAGE> 37

reasonable in relation to the overall services provided. The information
received may be used by the Adviser and, in the case of the Global Equity Fund,
John Govett, in managing the assets of other advisory accounts as well as in the
management of the assets of the Fund.

THE TRUST AND ITS MANAGEMENT

The Trust, an open-end, diversified management investment company,
generally known as a mutual fund, was 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 by statute 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 diversified portfolio of
securities by combining their resources in an effort to achieve such goals.

The Trustees have the responsibility for overseeing the affairs of the
Funds. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines
the investment of the Trust's assets, provides administrative services and
manages the Trust's business and affairs. The Adviser, together with its
predecessors, has been in the investment advisory business since 1926.

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 more than $50 billion under management or supervision. Van
Kampen American Capital more than 40 open-end and 38 closed-end funds and more
than 2,800 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 13% 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.

As of February 16, 1996, the Adviser owned beneficially and of record
approximately 25.63% and 82.79% of the outstanding shares of the Emerging Growth
Fund and Global Equity Fund, respectively, and therefore, may be deemed to
control those Funds.

THE SUBADVISERS. John Govett is a United Kingdom-based investment
management company whose investment management activities originated in the
1920s. John Govett was incorporated in London, England, in 1955, and is an
indirect wholly-owned subsidiary of Allied Irish Banks p.l.c. John Govett is
located at 4 Battle Bridge Lane, London SE1 2HR, England. The Govett Group,
which manages or administers investment funds valued at approximately $8.6
billion, maintains offices in London, Singapore, Jersey (Channel Islands),
Sacramento, Raleigh, and San Francisco. John Govett provides advisory services
to the Adviser with respect to the Global Equity Fund.

Hines Realty Advisors provides real estate advisory services to the Adviser
with respect to the Real Estate Securities Fund. Hines Realty Advisors is a
limited partnership among Hines Holdings,

35
<PAGE> 38

Inc. (as general partner), and Hines 1980 A, Ltd. and Gerald D. Hines (as
limited partners). Mr. Glenn L. Lowenstein is Vice President of Hines Realty
Advisors. Hines Realty Advisors has had limited previous experience as an
investment adviser to mutual funds (since mid May 1994). Affiliates of Hines
Realty Advisors 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 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.

Hines 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 AGREEMENTS. The Trust and the Adviser are parties to an investment
advisory agreement (the "Advisory Agreement I"), pursuant to which the Trust
retains the Adviser to manage the investment of assets and to place orders for
the purchase and sale of portfolio securities for the Asset Allocation Fund, the
Domestic Income Fund, the Enterprise Fund, the Government Fund and the Money
Market Fund. The Trust and the Adviser are also parties to four additional
investment advisory agreements ("Advisory Agreements -- II, III, IV and V"),
pursuant to which the Adviser manages the investment of assets and places orders
for the purchase and sale of portfolio securities for the Emerging Growth Fund,
the Global Equity Fund, the Growth and Income Fund, and the Real Estate
Securities Fund, respectively (Advisory Agreements -- I, II, III, IV and V are
referred to herein collectively as the "Advisory Agreements").

Under the Advisory Agreements, 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 each 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. The
services are provided at cost which is allocated among the investment companies
advised by the Adviser. The Trust also pays shareholder service agency fees,
custodian fees, legal and auditing fees, trustees' fees, the costs of
registration of its shares and reports and proxies to shareholders and all other
ordinary expenses not specifically assumed by the Adviser or the Distributor.

Under Advisory Agreement-I, 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 subject Funds at an
annual rate of 0.50% of the first $500 million of such Funds' aggregate average
net assets; 0.45% of the next $500 million of such Fund' aggregate average net
assets, and 0.40% of such Fund' aggregate average net assets in excess of $1
billion. Each Fund pays its pro rata share of the fee based upon its average
daily net assets. For the fiscal year ended December 31, 1995, advisory fees
plus the cost of accounting services payable by the Trust, before expense
reimbursements, equaled .60%, .69%, .58%, .59% and .70% for the Asset Allocation
Fund, the Domestic Income Fund, the Enterprise Fund, the Government Fund and the
Money Market Fund, respectively, of each Fund's average daily net assets. For
the same period, each Fund's net total operating expenses were 0.60%. Such
figure results from the Adviser's agreement that so long as it serves as Adviser
to such Fund it will limit the ordinary business expenses of such Fund to 0.60%
per year of the average net assets of such Fund by reducing the advisory fee
and/or bearing other expenses of a Fund in excess of such limitation. Expenses

36
<PAGE> 39

subject to such limitation do not include (1) interest and taxes, (2) brokerage
commissions, (3) certain litigation and indemnification expenses as described in
the Advisory Agreement, and (4) any distribution expenses which may be incurred
by a Fund in the event a Distribution Plan is adopted. Any required reduction or
expense payment is computed and paid monthly, subject to readjustment during the
fiscal year.

Under Advisory Agreement-II, 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 Emerging Growth Fund
at an annual rate of 0.70%. For the period July 3, 1995 through December 31,
1995, advisory fees plus the cost of accounting services payable by the Trust on
behalf of the Fund was .58%.

The Trust retains the Adviser to manage the investment of the Global Equity
Fund's assets and to place orders for the purchase and sale of its portfolio
securities. The Adviser has entered into a subadvisory agreement, (the "Global
Equity Subadvisory Agreement") with John Govett to assist it in performing its
investment advisory functions. John Govett will be primarily responsible for
recommending the allocation of investments among various international markets
and currencies; recommendation and selection of particular securities in the
international markets and placement of portfolio transactions in the foreign
equity markets. Under Advisory Agreement-III, 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 Global
Equity Fund at the annual rate of 1.00%. For the period July 3, 1995 through
December 31, 1995, advisory fees plus the cost of accounting services payable by
the Trust on behalf of the Fund was .83%. This fee is higher than that charged
by most other mutual funds but the Trustees believe it is justified by the
special international nature of the Fund and is not necessarily higher than the
fees charged by certain mutual funds with investment objective and policies
similar to those of the Fund. Pursuant to the Global Equity Subadvisory
Agreement, John Govett receives on an annual basis 50% of the compensation
received by the Adviser.

Under Advisory Agreement-IV, the Trust pays 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 Growth and Income
Fund at an annual rate of 0.60% of the first $500 million of the Fund's average
net assets; and 0.55% of the Fund's average net assets in excess of $500
million. No investment advisory fees were paid by the Fund during the 1995
fiscal year.

Under Advisory Agreement-V, the Trust pays the Adviser a monthly fee
computed on average daily net assets of the Real Estate Securities 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. The Adviser has entered into an investment
sub-advisory agreement (the "Hines Subadvisory Agreement") with Hines Realty
Advisors to assist it in performing its investment advisory functions. Hines
Realty Advisors 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.
For the period July 3, 1995 through December 31, 1995, advisory fees plus the
cost of accounting services payable by the Trust on behalf of the Fund was .59%.
Pursuant to the Hines Subadvisory Agreement, Hines Realty Advisors receives on
an annual basis 50% of the compensation received by the Adviser.

The Adviser, John Govett, Hines Realty Advisor and/or the Distributor may,
from time to time, agree to waive their respective investment advisory fees or
any portion thereof or elect to reimburse any Fund for ordinary business
expenses in excess of an agreed upon amount.

37
<PAGE> 40

With regard to the Money Market Fund, the Domestic Income Fund and
Government Fund, the Adviser may utilize at its own expense credit analysis,
research and trading support services provided by its affiliate, Van Kampen
American Capital Investment Advisory Corp.

PORTFOLIO MANAGEMENT. The Funds have different portfolio managers. Jeff New
and Chris Perras are co-managers of the Enterprise Fund and are primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Messrs. New and Perras have been primarily responsible for managing the Fund's
investment portfolio since the date of this Prospectus. Mr. New has been a
portfolio manager with the Adviser since 1994. Since 1991, Mr. New was an
associate portfolio manager with the Adviser. Prior to that time, he was a
securities analyst with Texas Commerce Investment Management Company. Mr. Perras
has been an associate portfolio manager with the Adviser since February 1995.
Prior to that time, he was an assistant portfolio manager and investment analyst
with Hellman Jordan Management Co. Each portfolio manager is an employee of the
Adviser.

Walter W. Stabell, III is primarily responsible for the day-to-day
management of the Domestic Income Fund's investment portfolio. Mr. Stabell is an
Associate Portfolio Manager of the Adviser. From December, 1986 to August, 1989
Mr. Stabell was Senior Securities Analyst of the Adviser. Mr. Stabell has been
primarily responsible for managing the Portfolio's investment portfolio since
March, 1990.

James Gilligan and Bret Stanley are co-managers of the Growth and Income
Fund and are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Messrs. Gilligan and Stanley have been primarily
responsible for managing the Fund's investment portfolio since its inception.
Mr. Gilligan has been Vice President -- Portfolio Manager of the Adviser since
March 1990. Prior to that time, he was a securities analyst with the Adviser.
Mr. Stanley has been an associate portfolio manager of the Adviser since January
1995. Prior to that time, he was a securities analyst and portfolio manager with
Gulf Investment Management. Prior to that, he was an analyst at Lovett Underwood
Neuhaus & Webb, and Rotan Mosle. Each portfolio manager is an employee of the
Adviser.

Gary M. Lewis is primarily responsible for the day-to-day management of the
Emerging Growth Fund's investment portfolio. Mr. Lewis is Vice President of the
Adviser. Mr. Lewis has been responsible for managing the Fund's investment
portfolio since its inception.

Jeff New is primarily responsible for the day-to-day management of the
Global Equity Fund's investment portfolio with respect to investments in the
United States. Mr. New has been primarily responsible for managing the Fund's
investment portfolio with respect to investments in the United States since its
inception. John Govett has employed Peter Kysel since September 1994 as Director
and Fund Manager. He is primarily responsible for allocating the Fund's
investments between United States and non-United States equity securities and
day-to-day management of the Fund's investments in counties other than the
United States. Mr. Kysel has provided such services since the Fund's inception.
Mr. Kysel was previously a managing director of the investment banking division
of Komercni Bank.

John R. Reynoldson is primarily responsible for the day-to-day management
of the Government Fund's investment portfolio. Mr. Reynoldson has been Senior
Vice President of the Adviser since July, 1991. Mr. Reynoldson has been
primarily responsible for managing the Fund's investment portfolio since
December, 1989. David R. Troth is primarily responsible for the day-to-day
management of the Money Market Fund's investment portfolio. Mr. Troth has been
Senior Vice President of the Adviser since March, 1978. Mr. Troth has been
primarily responsible for managing the Fund's investment portfolio since its
inception.

John Cuniff is responsible for allocating the Asset Allocation Fund's
assets between the equity and fixed-income categories in which the Fund invests.
B. Robert Baker manages the Asset Allocation Fund's equity investments and Tom
Copper manages the Fund's fixed income invest-

38
<PAGE> 41

ments. Mr. Cuniff has managed the Fund's investment portfolio since the date of
this Prospectus and Mr. Copper has managed the Fund's investment portfolio since
August 7, 1995, and Mr. Baker has managed the Fund's investment portfolio since
May 2, 1994. Mr. Cuniff has been Vice President, Director of Equity Research
with the Adviser since October 1995. Prior to that he was a portfolio manager
with Templeton Quantitative Advisors, a subsidiary of the Franklin Group. Mr.
Copper is Associate Portfolio Manager of the Adviser since January, 1992. Prior
to that time, he was a credit analyst with the Adviser.

Mary Jayne Maly is primarily responsible for the day-to-day management of
the Real Estate Securities Fund's investment portfolio. She has served in that
capacity since the inception of the Fund. Ms. Maly 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.

PERSONAL INVESTING POLICIES. The Trust and the Adviser have adopted Codes
of Ethics designed to recognize the fiduciary relationship between the Trust and
the Adviser and its employees. The Codes permit directors/trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.

PURCHASE OF SHARES

The Trust is offering its shares only to 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 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 each of its Funds to the Accounts at prices equal
to the respective per share net asset value of the Fund. The Distributor,
located at One Park View 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 each 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 of each Fund is determined by adding the total market value of all
portfolio securities held by the Fund, cash and other assets, including accrued
interest. All liabilities, including accrued expenses, of the Fund are
subtracted. The resulting amount is divided by the total number of outstanding
shares of the Fund to arrive at the net asset value of each share. See
"Determination of Net Asset Value" in the Statement of Additional Information
for further information.

Securities listed or traded on a national securities exchange are valued at
the last sale price. Unlisted securities and listed securities for which the
last sales price is not available are valued at the most recent bid price. U.S.
Government and agency obligations are valued at the last reported bid price.
Listed options are valued at the last reported sale price in the exchange on
which such option is traded or, if no sales are reported, at the mean between
the last reported bid and asked prices. Options for which market quotations are
not readily available are valued at a fair value calculated under a method
approved by the Trustees. Short-term investments for all Funds other

39
<PAGE> 42

than the Money Market Fund are valued as described in the Notes to Financial
Statements in the Statement of Additional Information.

The Money Market Fund's assets are valued on the basis of amortized cost,
which involves valuing a portfolio security at its cost, assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods in which value
as determined by amortized cost is higher or lower than the price the Fund would
receive if it sold the security. During such periods, the yield to investors in
the Fund may differ somewhat from that obtained in a similar fund which uses
available market quotations to value all of its portfolio securities.

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 each Fund is subject to daily fluctuations
and the net asset value of each 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 each Fund are
automatically reinvested by the Account in additional shares of such Fund.

Shares of the Money Market Fund and Government Fund become entitled to
income distributions declared on the day the shareholder service agent receives
payment of the purchase price in the form of federal funds. Such shares do not
receive income distributions declared on the date of redemption.

Dividends of the Money Market Fund. The Money Market Fund declares income
dividends each business day. The Fund's net income for dividend purposes is
calculated daily and consists of interest accrued or discount earned, plus or
minus any net realized gains or losses on portfolio securities, less any
amortization of premium and the expenses of the Fund.

Dividends and Distributions of the Asset Allocation Fund, the Domestic
Income Fund, the Emerging Growth Fund, Enterprise Fund, the Global Equity Fund,
the Growth and Income Fund and the Real Estate Securities Fund. Dividends from
stocks and interest earned from other investments are the main source of income
for these Funds. Substantially all of this income, less expenses, is distributed
on an annual basis. When a 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. Each of these Funds distributes any net realized capital gains to the
Account no less frequently than annually.

Dividends and Distributions of the Government Fund. The Government Fund
declares income dividends each business day. Such dividends are distributed
monthly. The daily dividend is a fixed amount determined at least monthly which
is expected not to exceed the net income of the Fund for the month divided by
the number of business days in the month. The Government Fund intends to
distribute monthly, or on such other basis as may be determined from time to
time by the Trustees, its net realized short-term capital gains, including such
gains realized from net premiums received from expired options, net gains from
closing purchase transactions and net short-term gains from securities sold upon
the exercise of options or otherwise, less any net realized long-term capital
loss. Net realized long-term capital gains, if any, are generally distributed at
least annually.

40
<PAGE> 43

Tax Status of the Funds. Each Fund will or has elected to be taxed as a
"regulated investment company" under the Code. By maintaining its qualification
as a "regulated investment company," a 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, a 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 a 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). Each Fund is subject to the diversification
requirements of Section 817(h) of the Code. See also "Government
Fund -- General" for information regarding Section 817(h) of the Code.

Dividends and interest received by certain funds 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 a 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 generally are typically
treated as ordinary income or loss. Such Code Section 988 gains or losses may
increase or decrease (or possibly eliminate) the amount of the Fund's investment
company taxable income available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund's net
capital gain. 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 each
Fund from its ordinary income and distributions of each 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 a 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. 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 a 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.

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.

41
<PAGE> 44

Tax Treatment of Options and Futures Transactions. Gains or losses on
certain Fund's 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 a Portfolio 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 a
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 a 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 all the Funds, except the Money Market Fund, may
advertise their 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. Total return
calculations do not take into account expenses at the "wrap" or Contract Owner
level. Investors should also review total return calculations that include those
expenses.

The total return of a 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.

In addition to total return information, certain Funds may also advertise
their current "yield." Yield figures are based on historical earnings and are
not intended to indicate future performance. Yield is determined by analyzing
the Fund's net income per share for a thirty-day (or one-month) period (which
period will be stated in the advertisement), and dividing by the maximum
offering price per share on the last day of the period. A "bond equivalent"
annualization method is used to reflect a semiannual compounding. Yield
calculations do not take into account expenses at the "wrap" or contractholder
level. Investors should also review yield calculations that include those
expenses.

From time to time, certain Funds may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for shares of
the Fund. Distribution rate is a measure of the level of income and short-term
capital gain dividends, if any, distributed for a specified period. It differs
from yield, which is a measure of the income actually earned by the Fund's
investments, and from total return, which is a measure of the income actually
earned by, plus the effect of any realized and unrealized appreciation or
depreciation of, such investments during a stated period. Distribution rate is,
therefore, not intended to be a complete measure of the Fund's performance.
Distribution rate may sometimes be greater than yield since, for instance, it
may not include the effect of amortization of bond premiums, and may include
non-recurring short-term capital gains and premiums from futures transactions
engaged in by the Fund.

42
<PAGE> 45

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by a Fund in accordance with generally accepted
accounting principles and from net income computed for federal income tax
reporting purposes. Thus the yield computed for a period may be greater or
lesser than a Fund's then current dividend rate.

A Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by a Fund, portfolio maturity and a Fund's
expenses.

Yield quotations should be considered relative to changes in the net asset
value of a Fund's shares, a Fund's investment policies, and the risks of
investing in shares of a Fund. The investment return and principal value of an
investment in a Fund will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

The Adviser, for an indefinite period has agreed to absorb a certain amount
of the ordinary business expenses of the Asset Allocation Fund, Domestic Income
Fund, the Enterprise Fund, the Government Fund, and the Money Market Fund.

The Adviser may, from time to time, absorb a certain amount of the future
ordinary business expenses. Absorption of a portion of the expenses will
increase the yield or total return of a Fund. The Adviser may stop absorbing
these expenses at any time without prior notice.

From time to time the Money Market Fund advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Fund refers to
the income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The current and
effective yields for the seven-day period ending December 31, 1995, and a
description of the method by which the yield was calculated is contained in the
Statement of Additional Information.

Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instrument held in a
portfolio, portfolio maturity, operating expenses and market conditions.

In reports or other communications to shareholders or in advertising
material, a Fund may compare its performance with that of other mutual funds as
listed in the ratings or rankings prepared by Lipper Analytical Services, Inc.,
CDA, Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average Index, NAREIT Equity REIT Index, Lehman Brothers REIT Index,
Salomon Brothers High Grade Bond Index, Standard & Poor's, NASDAQ, other
appropriate indices of investment securities, or with investment or savings
vehicles. The performance information may also include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Investor's Business Daily, Kiplinger's Personal
Finance Magazine, Money, Mutual Fund Forecaster, Stanger's Investment Advisor,
USA Today, U.S. New & World Report and The Wall Street Journal. Such comparative
performance information will be stated in the same terms in which the
comparative data or indices are stated. Such advertisements and sales material
may also include a yield quotation as of a current period. In each case, such
total return and yield information,

43
<PAGE> 46

if any, will be calculated pursuant to rules established by the SEC and will be
computed separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect various charges, the inclusion of which would reduce
Fund performance.

The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.

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 at 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.

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.

44
<PAGE> 47

APPENDIX

DESCRIPTION OF BOND RATINGS

MOODY'S INVESTORS SERVICE'S BOND RATINGS:

AAA -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. 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 period 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 both 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 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.

45
<PAGE> 48

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 BOND RATINGS:

AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.

A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

BB -- B -- CCC -- CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds 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.

D -- Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.

Plus (+) or Minus (-): The ratings from AA to B 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 S&P 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 and relative quality distinctions are comparable to those
described above for corporate bonds.

46
<PAGE> 49

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 421-5666

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 772-8889
VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST

- ------------------
2800 Post Oak Blvd.
Houston, TX 77056

- ------------------
Investment Adviser

VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Blvd.
Houston, TX 77056
Investment Subadvisers
For Global Equity Fund:

JOHN GOVETT & CO. LIMITED
4 Battle Bridge Lane
London SE1 2HR
England
For Real Estate Securities Fund:

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
Kansas City, MO 64141-9256
Custodian

STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital Funds
Legal Counsel

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM

333 West Wacker Drive

Chicago, IL 60606

Independent Accountants

PRICE WATERHOUSE LLP
1201 Louisiana, Suite 2900
Houston, TX 77002
<PAGE> 50

LIFE INVESTMENT TRUST

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

P R O S P E C T U S

MARCH 6, 1996

--- A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ---
VAN KAMPEN AMERICAN CAPITAL
- --------------------------------------------------------------------------------
<PAGE> 51

STATEMENT OF ADDITIONAL INFORMATION

MARCH 6, 1996

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
(800) 421-5666

Van Kampen American Capital Life Investment Trust, formerly known as
American Capital Life Investment Trust (the "Trust"), is a diversified, open-end
management investment company with nine Funds: Asset Allocation Fund (formerly,
Multiple Strategy Fund), Domestic Income Fund (formerly, Domestic Strategic
Income Fund), Emerging Growth Fund, Enterprise Fund (formerly Common Stock
Fund), Global Equity Fund, Government Fund, Growth and Income Fund, Money Market
Fund and Real Estate Securities Fund. Each Fund is in effect a separate
portfolio issuing its own shares.

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

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 March 6,
1996. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. (the "Distributor") at 2800 Post Oak
Blvd., Houston, Texas 77056 at (800) 421-5666.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GENERAL INFORMATION.................................................................. B-2
INVESTMENT OBJECTIVES AND POLICIES................................................... B-4
REPURCHASE AGREEMENTS................................................................ B-10
FORWARD COMMITMENTS.................................................................. B-10
DEPOSITARY RECEIPTS.................................................................. B-11
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.......................... B-11
LOANS OF PORTFOLIO SECURITIES........................................................ B-17
INVESTMENT RESTRICTIONS.............................................................. B-18
TRUSTEES AND EXECUTIVE OFFICERS...................................................... B-29
INVESTMENT ADVISORY AGREEMENTS....................................................... B-38
DISTRIBUTOR.......................................................................... B-38
TRANSFER AGENT....................................................................... B-40
PORTFOLIO TRANSACTIONS AND BROKERAGE................................................. B-40
DETERMINATION OF NET ASSET VALUE..................................................... B-42
PURCHASE AND REDEMPTION OF SHARES.................................................... B-44
DISTRIBUTIONS AND TAXES.............................................................. B-44
FUND PERFORMANCE..................................................................... B-46
MONEY MARKET FUND YIELD INFORMATION.................................................. B-47
OTHER INFORMATION.................................................................... B-47
FINANCIAL STATEMENTS................................................................. B-48
APPENDIX............................................................................. B-49
</TABLE>

<PAGE> 52

GENERAL INFORMATION

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

Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor 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 13% of the common stock of VK/AC Holding, Inc.

As of February 16, 1996 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 Trust offers its shares 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
Contract Owners, 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.

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO
RECORD HOLDER AT FEBRUARY 16, 1996 PERCENT
- ---------------------------------------------------------- -------------------------- -------
<S> <C> <C>
MONEY MARKET FUND
American General Life Insurance Company 4,905,311.670 25.22%
Separate Account D
P.O. Box 1591
Houston, Texas 77251-1591
Nationwide VLI -- Separate Account of Nationwide 9,365,296.970 48.14%
Life Insurance Company
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Variable Account -- 3 5,136,370.760 26.40%
c/o IPO Investments Co 69
P.O. Box 182029
Columbus, Ohio 43218-2029
ENTERPRISE FUND
American General Life Insurance Company 1,079,682.53 20.98%
Separate Account -- D
P.O. Box 1591
Houston, Texas 77251-1591
Nationwide Variable Account -- 3 2,285,855.520 44.43%
c/o IPO Investments Co
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>

B-2
<PAGE> 53

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO
RECORD HOLDER AT FEBRUARY 16, 1996 PERCENT
- ---------------------------------------------------------- -------------------------- -------
<S> <C> <C>
Nationwide VLI -- separate account of Nationwide 1,779,645.090 34.59%
Life Insurance Company
P.O. Box 182029
Columbus, Ohio 43218-2029
GOVERNMENT FUND
Nationwide VLI -- separate account of Nationwide 6,158,134.200 84.55%
Life Insurance Company
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Variable Account -- 3 1,001,433.430 13.75%
c/o IPO Investments Co 69
P.O. Box 182029
Columbus, Ohio 43218-2029
ASSET ALLOCATION FUND
Nationwide VLI -- separate account of Nationwide 2,057,800.480 38.26%
Life Insurance Company
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Variable Account -- 3 3,076,933.000 57.21%
c/o IPO Investments Co 69
P.O. Box 182029
Columbus, Ohio 43218-2029
DOMESTIC INCOME FUND
American General Life Insurance Company 693,870.710 22.31%
P.O. Box 1591
Houston, Texas 77251-1591
Nationwide VLI -- separate account of Nationwide 406,689.280 13.07%
Life Insurance Company
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Variable Account -- 3 1,882,370.260 60.52%
c/o IPO Investments Co 69
P.O. Box 182029
Columbus, Ohio 43218-2029
EMERGING GROWTH FUND
Van Kampen American 50,010.000 25.63%
Capital Distributors Inc.
Kansas City, MO 64153
Nationwide Life Insurance 145,135.46 74.37%
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>

B-3
<PAGE> 54

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO
RECORD HOLDER AT FEBRUARY 16, 1996 PERCENT
- ---------------------------------------------------------- -------------------------- -------
<S> <C> <C>
GLOBAL EQUITY FUND
Van Kampen American Capital 200,010.000 82.79%
Distributors Inc.
Kansas City, MO 64153
Nationwide Life Insurance 41,568.930 17.21%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
REAL ESTATE SECURITIES FUND
Nationwide Life Insurance 1,016,429.850 89.54%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>

INVESTMENT OBJECTIVES AND POLICIES

The following disclosures supplement disclosures set forth under an
identical caption in the Prospectus and do not, standing alone, present a
complete or accurate explanation of the matters disclosed. Readers must refer
also to this caption in the Prospectus for a complete presentation of the
matters disclosed below.

ASSET ALLOCATION FUND

The Fund seeks a high total investment return consistent with prudent risk
through a fully managed investment policy utilizing equity securities as well as
investment grade intermediate and long term debt securities and money market
securities.

DOMESTIC INCOME FUND

The primary objective of the Fund is to maximize current income. Capital
appreciation is a secondary objective, which is sought only when consistent with
the primary objective. There is, of course, no assurance that the Fund will be
successful in achieving its investment objective.

Capital appreciation may result, for example, from an improvement in the
credit standing of an issuer whose securities are held in the Fund's portfolio
or from a general lowering of interest rates, or a combination of both.
Conversely, a reduction in the credit rating of an issuer whose securities are
held in the Fund's portfolio or a general increase in interest rates would be
expected to reduce the value of the Fund's investments.

The Fund expects that at all times at least 80% of its assets will be
invested in fixed-income securities rated at the time of purchase B or higher by
Moody's Investor Services, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"), nonrated securities considered by the Adviser to be of comparable
quality, and U.S. Government securities (as defined herein).

Lower rated and comparable nonrated securities tend to offer higher yields
than higher rated securities with the same maturities because the historical
conditions of the issuers of lower rated securities may not have been as strong
as that of other issuers. The Adviser, however, believes that such ratings are
not necessarily an accurate reflection of the current financial condition of the
issuers because they may be based upon considerations taken into account at the
time such ratings were assigned, rather than upon subsequent developments
affecting such issuers. Moreover, ratings categories tend to be broad, so that
there may be significant variations among the financial condition of issuers
within the same category. For these reasons, the Adviser may rely more on its
own analysis in determining which securities offer the best opportunities for

B-4
<PAGE> 55

higher yields without unreasonable risks; therefore, the achievement of the
Fund's objectives will depend more on the Adviser's analytical and portfolio
management skills than would be the case if greater reliance were placed on
ratings assigned by the rating services. The Adviser's analysis will focus on a
number of factors affecting the financial condition of a company; including the
strength of its management; the financial soundness of the company and the
outlook of its industry; the security's responsiveness to changes in interest
rates and business conditions; the cash flow of the company; dividend or
interest coverage; and the fair market value of the company's assets. In making
portfolio decisions for the Fund, the Adviser will attempt to identify higher
yielding securities of companies whose financial condition has improved since
the issuance of such securities, or is anticipated to improve in the future.

The Fund may invest up to 20% of its total assets in debt securities rated
below B by Moody's and S&P or nonrated securities considered by the Adviser to
be of comparable quality, common stocks or other equity securities and in
non-income producing securities, prime commercial paper, certificates of
deposit, bankers' acceptances and other obligations of domestic banks having
total assets of at least $500 million, and repurchase agreements. The Fund will
not cause more than ten percent of its total assets to be invested in common
stocks or other equity securities. See "Investment Objectives and
Policies -- Domestic Income Fund," in the Prospectus.

Certain of the lower rated debt securities in which the Fund may invest may
be purchased at a discount. Such securities, when held to maturity or retired,
may include an element of capital gain. Capital losses may be realized when
securities purchased at a premium are held to maturity or are called or redeemed
at a price lower than the purchase price. Capital gains or losses are also
realized upon the sale of securities at prices that differ from their cost. The
market prices of fixed-income securities generally fall when interest rates
rise. Conversely, the market prices of fixed-income securities generally rise
when interest rates fall.

The Fund may invest in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities which are supported by any of the
following: (a) the full faith and credit of the U.S. Government, (b) the right
of the issuer to borrow an amount limited to a specific line of credit from the
U.S. Government, (c) discretionary authority of the U.S. Government agency or
instrumentality, or (d) the credit of the instrumentality. Such agencies or
instrumentalities include, but are not limited to, the Federal National Mortgage
Association, the Government National Mortgage Association, Federal Land Banks,
and the Farmer's Home Administration. Such securities are referred to as "U.S.
Government securities".

Additional Risks of Investing in Lower Rated Debt Securities. Additional
risks of lower rated securities include limited liquidity and secondary market
support. As a result, the prices of debt securities may decline rapidly in the
event a significant number of holders decide to sell. Changes in expectations
regarding an individual issuer, an industry or lower rated debt securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions.
Reduced liquidity could also create difficulties in accurately valuing such
securities at certain times. The lower rated debt market has grown primarily
during a period of long economic expansion and it is uncertain how it would
perform during an economic downturn. An economic downturn or an increase in
interest rates could severely disrupt the market for lower rated debt and
adversely affect the value of outstanding securities and the ability of the
issuers to repay principal and interest. See "Investment Objectives and
Policies" in the Prospectus for a further discussion of risk factors associated
with investments in lower rated debt securities, which are not generally meant
for short-term investment.

EMERGING GROWTH FUND

The investment objective of the Fund is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common stocks
of small and medium sized companies considered by the Adviser to be emerging
growth companies.

The following investment techniques, subject to the Investment Restrictions
below, may be employed by the Fund. These techniques inherently involve the
assumption of a higher degree of risk than normal and the possibility of more
volatile price fluctuations.

B-5
<PAGE> 56

Restricted Securities. The Fund may invest up to fifteen percent of the
value of its net assets in restricted securities (i.e., securities which may not
be sold without registration under the Securities Act of 1933) and in other
securities that are not readily marketable, including repurchase agreements
maturing in more than seven days. Restricted securities are generally purchased
at a discount from the market price of unrestricted securities of the same
issuer. Investments in restricted securities are not readily marketable without
some time delay. Investments in securities which have no readily available
market value are valued at fair value as determined in good faith by the Fund's
Trustees. Ordinarily, the Fund would invest in restricted securities only when
it receives the issuer's commitment to register the securities without expense
to the Fund. However, registration and underwriting expenses (which may range
from seven percent to 15% of the gross proceeds of the securities sold) may be
paid by the Fund. A Fund position in restricted securities might adversely
affect the liquidity and marketability of such securities, and the Fund might
not be able to dispose of its holdings in such securities at reasonable price
levels.

Warrants. Warrants are in effect longer-term call options. They give the
holder the right to purchase a given number of shares of a particular company at
specified prices within certain periods of time. The purchaser of a warrant
expects that the market price of the security will exceed the purchase price of
the warrant plus the exercise price of the warrant, thus giving him a profit. Of
course, since the market price may never exceed the exercise price before the
expiration date of the warrant, the purchaser of the warrant risks the loss of
the entire purchase price of the warrant. Warrants generally trade in the open
market and may be sold rather than exercised. Warrants are sometimes sold in
unit form with other securities of an issuer. Units of warrants and common stock
may be employed in financing young, unseasoned companies. The purchase price of
a warrant varies with the exercise price of the warrant, the current market
value of the underlying security, the life of the warrant and various other
investment factors.

ENTERPRISE FUND

The investment objective of the Fund is to seek capital appreciation
through investments in securities believed by the Adviser to have about average
potential for capital appreciation. Any income received on such securities is
incidental to the objective of capital appreciation. The Fund may enter into
repurchase agreements with banks and broker-dealers. See "Repurchase
Agreements."

In seeking to obtain capital appreciation, the Fund may trade to a
substantial degree in securities for the short term. To this extent, the Fund
would be engaged essentially in trading operations based on expectation of
short-term market movements. However, the Fund also seeks investments which are
expected to appreciate over a longer period of time. See "Portfolio Transactions
and Brokerage."

GLOBAL EQUITY FUND

The investment objective of the Fund is to seek long-term growth of capital
through investments in an internationally diversified portfolio of equity
securities of companies of any nation including the United States.

GOVERNMENT FUND

The investment objective of the Fund is to seek to provide investors with a
high current return consistent with preservation of capital. The Fund invests
primarily in U.S. Government securities, related options, futures contracts and
options on futures contracts. The Fund may invest in other government related
securities and in repurchase agreements fully collateralized by U.S. Government
securities. The other government related securities include mortgage-related and
mortgage-backed securities and certificates issued by financial institutions or
broker-dealers representing "stripped" mortgage-related securities. Repurchase
agreements will be entered into with domestic banks or broker-dealers deemed
creditworthy by the Fund's Adviser solely for purposes of investing the Fund's
cash reserves or when the Fund is in a temporary defensive posture.

One type of mortgage-related securities in which the Fund invests are those
which are issued or guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. One such type
of mortgage-related security is a Government National Mortgage Association
("GNMA") Certificate. GNMA Certificates are backed as to principal and interest
by the full

B-6
<PAGE> 57

faith and credit of the U.S. Government. Another type is a Federal National
Mortgage Association ("FNMA") Certificate. Principal and interest payments of
FNMA Certificates are guaranteed only by FNMA itself, not by the full faith and
credit of the U.S. Government. A third type of mortgage-related security in
which the Fund may invest is a Federal Home Loan Mortgage Association ("FHLMC")
Participation Certificate. This type of security is backed by FHMLC as to
payment of principal and interest but, like a FNMA security, it is not backed by
the full faith and credit of the U.S. Government.

The Fund seeks to obtain a high return from the following sources:

- interest paid on the Fund's portfolio securities;

- premiums earned upon the expiration of options written;

- net profits from closing transactions; and

- net gains from the sale of portfolio securities on the exercise of
options or otherwise.

The Fund is not designed for investors seeking long-term capital
appreciation. Moreover, varying economic and market conditions may affect the
value of and yields on debt securities and opportunities for gains from an
option writing program. Accordingly, there is no assurance that the Fund's
investment objective will be achieved.

GNMA Certificates

Government National Mortgage Association. The Government National Mortgage
Association is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.

Nature of GNMA Certificates. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the Fund purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.

GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Fund will be
reinvested in additional GNMA Certificates or in other permissible investments.

GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal of and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers
Home Administration or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is backed by the full faith and credit of the United States. GNMA
is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

Life of GNMA Certificates. The average life of a GNMA Certificate is likely
to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.

As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA are normally used as
an indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities (the type of mortgages backing the vast majority of GNMA
Certificates) is approximately twelve years. For this reason, it is customary
for pricing purposes to consider GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.

B-7
<PAGE> 58

Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06 of one percent of the outstanding principal for providing its
guarantee, and the GNMA Certificate issuer is paid an annual servicing fee of
0.44 of one percent for assembling the mortgage pool and for passing through
monthly payments of interest and principal to Certificate holders.

The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:

1. Certificates are usually issued at a premium or discount, rather than at
par.

2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.

3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.

4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate.
If mortgagors prepay their mortgages, the principal returned to
Certificate holders may be reinvested at higher or lower rates.

In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a twelve-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of one percent
more than high grade corporate bonds and 1/2 of one percent more than U.S.
Government and U.S. Government agency bonds. As the life of individual pools may
vary widely, however, the actual yield earned on any issue of GNMA Certificates
may differ significantly from the yield estimated on the assumption of a
twelve-year life.

Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.

FNMA Securities

The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all principal and interest payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the United States.

FHLMC Securities

The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970 to
promote development of a nationwide secondary market in conventional residential
mortgages. The FHLMC issues two types of mortgage pass-through securities
("FHLMC Certificates"): mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal. GMCs also
represent a pro rata interest in a pool of mortgages. However, these instruments
pay interest semiannually and return principal once a year in guaranteed minimum
payments. The expected average life of these securities is approximately ten
years. The FHLMC guarantee is not backed by the full faith and credit of the
United States.

B-8
<PAGE> 59

Collateralized Mortgage Obligations

Collateralized mortgage obligations are debt obligations issued generally
by finance subsidiaries or trusts which are secured by mortgage-backed
certificates, including GNMA Certificates, FHLMC Certificates and FNMA
Certificates, together with certain portfolios and other collateral. Scheduled
distributions on the mortgage-backed certificates pledged to secure the
collateralized mortgage obligations, together with certain portfolios and other
collateral and reinvestment income thereon at an assumed reinvestment rate, will
be sufficient to make timely payments of interest on the obligations and to
retire the obligations not later than their stated maturity. Since the rate of
payment of principal of any collateralized mortgage obligation will depend on
the rate of payment (including prepayments) of the principal of the mortgage
loans underlying the mortgage-backed certificates; the actual maturity of the
obligation could occur significantly earlier than its stated maturity.
Collateralized mortgage obligations may be subject to redemption under certain
circumstances. The rate of interest borne by collateralized mortgage obligations
may be either fixed or floating. In addition, certain collateralized mortgage
obligations do not bear interest and are sold at a substantial discount (i.e., a
price less than the principal amount). Purchases of collateralized mortgage
obligations at a substantial discount involves a risk that the anticipated yield
on the purchase may not be realized if the underlying mortgage loans prepay at a
slower than anticipated rate, since the yield depends significantly on the rate
of prepayment of the underlying mortgages. Conversely, purchases of
collateralized mortgage obligations at a premium involve additional risk of loss
of principal in the event of unanticipated prepayments of the mortgage loans
underlying the mortgage-backed certificates since the premium may not have been
fully amortized at the time the obligation is repaid. The market value of
collateralized mortgage obligations purchased at a substantial premium of
discount is extremely volatile and the effects of prepayments on the underlying
mortgage loans may increase such volatility.

Although payment of the principal of and interest on the mortgage-backed
certificates pledged to secure collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of their issuers and are not insured or guaranteed
by GNMA, FHLMC, FNMA or any other governmental agency or instrumentality, or by
any other person or entity. The issuers of collateralized mortgage obligations
typically have no significant assets other than those pledged as collateral for
the obligations.

GROWTH AND INCOME FUND

The investment objective of the Fund is to seek long-term growth of capital
and income by investing principally. The Fund seeks to achieve its investment
objective by investing in income-producing equity securities, including common
stocks and convertible securities.

MONEY MARKET FUND

The investment objective of the Fund is to seek protection of capital and
high current income through investments in money market instruments.

The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Portfolio uses the amortized cost
method of valuing the Fund's securities pursuant to Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"), certain requirements of which
are summarized below.

In accordance with Rule 2a-7, the Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Trustees to present minimal credit risks and which are rated
in one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Trustees. The nationally recognized statistical rating
organizations currently rating instruments of the type the Fund may purchase are
Moody's Investors Service, Inc., Standard & Poor's Corporation, Fitch Investors
Services, Inc., Duff and Phelps, Inc. and IBCA Limited and IBCA Inc. See
Appendix hereto. See the Prospectus for the Fund's maturity requirements.

B-9
<PAGE> 60

In addition, the Fund will not invest more than five percent of its total
assets in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that (i)
the Fund may invest more than five percent of its total assets in a single
issuer for a period of up to three business days in certain limited
circumstances, (ii) the Fund may invest in obligations issued or guaranteed by
the U.S. Government without any such limitation, and (iii) the limitation with
respect to puts does not apply to unconditional puts if no more than 10% of the
Fund's total assets is invested in securities issued or guaranteed by the issuer
of the unconditional put. Investments in rated securities not rated in the
highest category by at least two rating organizations (or one rating
organization if the instrument was rated by only one such organization), and
unrated securities not determined by the Trustees to be comparable to those
rated in the highest category, will be limited to five percent of the Fund's
total assets, with the investment in any one such issuer being limited to no
more than the greater of one percent of the Fund's total assets or $1,000,000.
As to each security, these percentages are measured at the time the Fund
purchases the security. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with broker-dealers or
domestic banks (or a foreign branch or subsidiary thereof). 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 collateralized by the underlying debt
securities and may be considered to be loans under the 1940 Act. The Fund will
make payment 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 is 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 security
unless the seller defaults under its repurchase obligation. See the Prospectus
for further information.

FORWARD COMMITMENTS

The Government Fund, the Domestic Income Fund and the Real Estate
Securities Fund may engage in Forward Commitment purchases and sales. 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 subject to
the Forward Commitment and the securities 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 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 which the
Fund owns or has the right to acquire. Only the Government Fund and the Real
Estate Securities Fund may engage in forward commitment transactions for
cross-hedging purposes. In either circumstance, the Fund maintains in a
segregated account (which is marked to market daily) either the security 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 no
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 foregoes or reduces the potential for both gain and loss in the security
which is being hedged by the Forward Commitment sale.

B-10
<PAGE> 61

DEPOSITARY RECEIPTS

Certain Funds 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 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

All of the Funds except the Domestic Income Fund and the Money Market 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.

WRITING CALL AND PUT OPTIONS

Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund's current return can be expected to
fluctuate because premiums earned from an option writing program and dividend or
interest income yields on portfolio securities vary as economic and market
conditions change. Writing options on portfolio securities also is likely to
result in a higher portfolio turnover.

Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. Each Fund writes call
options only on a covered basis and only the Government Fund writes 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 owns or has the right
to acquire securities of the type that it would be obligated to deliver if any
outstanding option were exercised. Thus, the Government Fund may write options
on mortgage-related or other U.S. Government securities or forward commitments
of such securities. 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 maintains in a
segregated account with the Fund's Custodian, cash or U.S. Government 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 writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. A Fund would write 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 U.S. Government 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 writer of a call or put option, a 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. A Fund would also realize a gain if an option it has written lapses
unexercised.

A Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as writer 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, a Fund could purchase an offsetting option, which would not close
out its

B-11
<PAGE> 62

position as a writer, but would provide an asset of equal value to its
obligation under the option written. If a 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 Writing Options. By writing a call option, a Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.

PURCHASING CALL AND PUT OPTIONS

A 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 Asset Allocation Fund, Emerging Growth Fund, the Enterprise Fund,
the Global Equity Fund, the Growth and Income Fund and the Real Estate
Securities 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, a 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, a 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 a Fund's assets generally. In addition, the Asset Allocation Fund,
Emerging Growth Fund, the Enterprise Fund, Global Equity Fund, the Growth and
Income Fund and the Real Estate Securities 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 a Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.

The Government Fund will not purchase call or put options on securities if
as a result, more than ten percent of its net assets would be invested in
premiums on such options.

A Fund may purchase either listed or over-the-counter options.

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.

Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers 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

B-12
<PAGE> 63

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 writer 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 Fund 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.

OPTIONS ON STOCK INDEXES (ASSET ALLOCATION FUND, EMERGING GROWTH FUND,
ENTERPRISE FUND, GLOBAL EQUITY FUND, GROWTH AND INCOME FUND AND REAL ESTATE
SECURITIES FUND ONLY)

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 writer 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. Indices 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.

Gain or loss to a 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.

FOREIGN CURRENCY OPTIONS

Certain Funds 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 trade 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 Related Options" in the Prospectus.

B-13
<PAGE> 64

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.

FUTURES CONTRACTS

Certain Funds 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 Trust and its Funds are
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 also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
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, a 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

B-14
<PAGE> 65

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 a 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 a 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 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. A 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. Relative to the Government Fund, ordinarily
commissions on futures transactions are lower than transaction costs incurred in
the purchase and sale of mortgage-related and U.S. Government securities.

In the event of the bankruptcy of a broker through which a 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 a 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, 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 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, a 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 underlying the futures contract.
Conversely, a 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 underlying the futures contract. It is also possible that the
value of futures contracts held by a 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 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

B-15
<PAGE> 66

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 a 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, a 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 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 Advisers' 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 other
conditions specified in CFTC regulations) and (ii) that a 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 a Fund's assets. In order to
prevent leverage in connection with the purchase of futures contracts by a 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.

OPTIONS ON FUTURES CONTRACTS

A Fund could also purchase and write options on futures contracts. 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, a Fund is subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by a 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. A 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 write 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.

B-16
<PAGE> 67

transaction costs). However there may be circumstances, such as when there is no
movement in the level of the index, 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 a 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 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.

LOANS OF PORTFOLIO SECURITIES

Each of the Funds, except the Real Estate Securities Fund, may lend an
amount up to ten percent of the value of its portfolio securities to
unaffiliated brokers, dealers and financial institutions provided that cash
equal to 100% of the market value of the securities loaned is deposited by the
borrower with the particular Fund and is maintained each business day. While
such securities are on loan, the borrower is required to pay

B-17
<PAGE> 68

the Fund any income accruing thereon. Furthermore, the Fund may invest the cash
collateral in portfolio securities thereby increasing the return to the Fund as
well as increasing the market risk to the Fund.

Loans would be made for short-term purposes and subject to termination by
the Fund in the normal settlement time, currently five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Fund and its shareholders, but any gain can be realized only if the borrower
does not default. Each Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan.

INVESTMENT RESTRICTIONS

Each 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
such 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. The Funds are subject to the restrictions set
forth below (Those restrictions that are only applicable to certain Funds are
noted as such).

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE ASSET ALLOCATION FUND, THE
DOMESTIC INCOME FUND, THE EMERGING GROWTH FUND, THE ENTERPRISE FUND, THE GLOBAL
EQUITY FUND, THE GOVERNMENT FUND, THE GROWTH AND INCOME FUND AND THE MONEY
MARKET FUND:

A Fund shall not:

1. Invest in securities of any company if any officer or trustee of the
Fund or of the Adviser owns more than one-half of one percent of the
outstanding securities of such company, and such officers and trustees
own more than five percent of the outstanding securities of such
issuer;

2. Invest in companies for the purpose of acquiring control or management
thereof;

3. Underwrite securities of other companies, except insofar as a Fund
might be deemed to be an underwriter for purposes of the Securities Act
of 1933 in the resale of any securities owned by the Portfolio; or

4. Lend its portfolio securities in excess of ten percent of its total
assets, both taken at market value provided that any loans shall be in
accordance with the guidelines established for such loans by the Board
of Trustees of the Trust as described under "Loans of Portfolio
Securities," including the maintenance of collateral from the borrower
equal at all times to the current market value of the securities
loaned.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE ASSET ALLOCATION
FUND AND THE ENTERPRISE FUND:

A Fund shall not:

1. With respect to 75% of its assets, invest more than five percent of its
assets in the securities of any one issuer (except obligations of the
United States Government, its agencies or 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
Securities and Exchange Commission exempting the Fund from the
limitation imposed by Section 12(d)(1) of the Investment Company Act of
1940;

2. Invest in securities of other investment companies except as part of a
merger, consolidation or other acquisition and except to acquire shares
of other open-end investment companies to the extent permitted by rule
or order of the Securities and Exchange Commission exempting the Fund
from the limitation imposed by Section 12(d)(1) of the Investment
Company Act of 1940;

B-18
<PAGE> 69

3. Make any investment in real estate, commodities or commodities
contracts, except that the Fund may enter into transactions in options,
futures contracts or options on futures contracts and may purchase
securities secured by real estate or interests therein; or issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than five
percent of the Fund's assets would be invested in such securities.
Notwithstanding the foregoing, 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
investment company;

6. Lend money, except that a Fund may invest in repurchase agreements in
accordance with applicable requirements set forth in the Prospectus and
may acquire debt securities which the Fund's investment policies permit.
A Fund will not invest in repurchase agreements maturing in more than
seven days (unless subject to a demand feature) if any such investment,
together with any illiquid securities (including securities which are
subject to legal or contractual restrictions on resale) held by the
Fund, exceeds ten percent of the market or other fair value of its total
net assets; provided, however, that 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 investment company. See "Repurchase Agreements";

7. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby); provided, however, that 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 investment company;

8. Make short sales of securities, unless at the time of the sale the Fund
owns or has the right to acquire an equal amount of such securities.
Notwithstanding the foregoing, the Portfolio may engage in transactions
in options, futures contracts and options on futures contracts;

9. Purchase securities on margin, except that a 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 transactions in options,
futures contracts or options on futures contracts is not considered the
purchase of a security on margin;

10. Invest more than five percent of its assets in companies having a
record, together with predecessors, of less than three years continuous
operation; provided, however, that 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 investment company; or

11. Borrow in excess of ten percent of the market or other fair value of
its total assets, or pledge its assets to an extent greater than five
percent of the market or other fair value of its total assets. Any such
borrowings shall be from banks and shall be undertaken only as a
temporary measure for extraordinary or emergency purposes. Deposits in
escrow in connection with the writing of covered call or secured put
options, or in connection with the purchase or sale of futures contracts
and related options are not deemed or to be a pledge or other
encumbrance.

In addition, the following restrictions apply to, and may not be changed
without the approval of the holders of a majority of the shares of, the Fund
indicated:

The Enterprise 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. Furthermore, the
Enterprise Fund may not invest in the securities of a foreign issuer if, at
the time of

B-19
<PAGE> 70

acquisition, more than ten percent of the value of the Enterprise Fund's
total assets would be invested in such securities. Foreign investments may
be subject to special risks, including future political and economic
developments, the possible imposition of additional withholding taxes on
dividend or interest income payable on the securities, or the seizure or
nationalization of companies, or establishment of exchange controls or
adoption of other restrictions which might adversely affect the
investment.

The Asset Allocation Fund may not invest in the securities of a
foreign issuer if, at the time of acquisition, more than 25% of the value
of the Asset Allocation Fund's total assets would be invested in such
securities.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE DOMESTIC INCOME
FUND:

The Fund shall not:

2. Invest in securities of other investment companies except as part of a
merger, consolidation or other acquisition;

3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may purchase securities secured
by real estate or interests therein; or issued by companies, including
real estate investment trusts, which invest in real estate or
interests therein;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

6. Lend money, except that the Fund may invest in repurchase agreements
in accordance with applicable requirements set forth in the Prospectus
and may acquire debt securities which the Fund's investment policies
permit. The Fund will not invest in repurchase agreements maturing in
more than seven days (unless subject to a demand feature) if any such
investment, together with any illiquid securities (including
securities which are subject to legal or contractual restrictions on
resale) held by the Fund, exceeds ten percent of the market or other
fair value of its total net assets. See "Repurchase Agreements";

8. Make short sales of securities, unless at the time of the sale the
Fund owns or has the right to acquire an equal amount of such
securities;

9. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities;

10. Invest more than five percent of its assets in companies having a
record, together with predecessors, of less than three years
continuous operation;

11. Write put or call options;

12. Borrow in excess of ten percent of the market or other fair value of
its total assets, or pledge its assets to an extent greater than five
percent of the market or other fair value of its total assets. Any
such borrowings shall be from banks and shall be undertaken only as a
temporary measure for extraordinary or emergency purposes. Deposits in
escrow in connection with the writing of covered

B-20
<PAGE> 71

call or secured put options, or in connection with the purchase or sale
of futures contracts and related options are not deemed or to be a
pledge or other encumbrance; or

13. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 25% of the value of the Fund's total assets would
be invested in such securities.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE EMERGING GROWTH FUND:

The Fund shall not:

1. Invest directly in real estate interests of any nature, although the
Fund may invest indirectly through media such as real estate investment
trusts;

2. Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in futures contracts or related options;

3. Issue any of its securities for (a) services or (b) property other than
cash or securities (including securities of which the Fund is the
issuer), except as a dividend or distribution to its shareholders in
connection with a reorganization;

4. Issue senior securities and shall not borrow money except from banks as
a temporary measure for extraordinary or emergency purposes and in an
amount not exceeding five percent of the Portfolio's total assets.
Notwithstanding the foregoing, the Fund may enter into transactions in
options, futures contracts and related options and may make margin
deposits and payments in connection therewith;

5. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured hereby); provided, however, that 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 investment company;

6. Invest in the securities of investment companies, except (a) that the
Fund may invest up to ten percent of its assets in the securities of
registered closed-end investment companies, provided that the Fund
acquires no more than five percent of the voting stock of any such
company which has a policy of concentrating investments in a particular
industry or group of industries or more than three percent of the voting
stock of such a company which does not have this policy; and (b) to
acquire shares of other open-end investment companies to the extent
permitted by rule or order of the Securities and Exchange Commission
exempting the Fund from the limitation imposed by Section 12(d)(1) of
the Investment Company Act of 1940;

7. Sell short or borrow for short sales. Short sales "against the box" are
not subject to this limitation;

8. With respect to 75% of its assets, invest more than five percent of its
assets in the securities of any one issuer (except obligations of the
United States Government, it agencies or 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
Securities and Exchange Commission exempting the Fund from the
limitation imposed by Section 12(d)(1) of the Investment Company Act of
1940;

9. Invest in warrants in excess of five percent of its net assets
(including, but not to exceed two percent in warrants which are not
listed on the New York or American Stock Exchanges);

10. Purchase securities of issuers which have a record of less than three
years continuous operation if such purchase would cause more than five
percent of the Fund's total assets to be invested in securities of such
issuers; provided, however, that 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 investment company;

B-21
<PAGE> 72

11. Invest more than fifteen percent of its net assets in illiquid
securities, including securities that are not readily marketable,
restricted securities and repurchase agreements that have a maturity of
more than seven days. Notwithstanding the foregoing, 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 investment company;

12. Invest in interests in oil, gas, or other mineral exploration or
developmental programs, except through the purchase of liquid securities
of companies which engage in such businesses; or

13. Pledge, mortgage or hypothecate its portfolio securities or other
assets to the extent that the percentage of pledged assets plus the
sales load exceeds ten percent of the offering price of the Fund's
shares.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE GLOBAL EQUITY FUND:

The Fund shall not:

1. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby); provided, however, that 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 investment company;

2. With respect to 75% of its assets, invest more than five percent of its
assets in the securities of any one issuer (except obligations of the
United States Government, its agencies or 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
Securities and Exchange Commission exempting the Fund from the
limitation imposed by Section 12(d)(1) of the Investment Company Act of
1940;

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 except through the purchase of (i) United States and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit similar evidences of indebtedness, both foreign
and domestic, and (ii) repurchase agreements; or lend securities in an
amount exceeding 15% of the total assets of the Fund. The purchase of a
portion of an issue of securities described under (i) above distributed
publicly, whether or not the purchase is made on the original issuance,
is not considered the making of a loan;

5. 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;

6. 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;

7. Buy or sell real estate or interests in real estate including real
estate limited partnerships, provided that the foregoing prohibition
does not apply to a purchase and sale of publicly traded (i) securities
which are secured by real estate, (ii) securities representing interests
in real estate, and (iii) securities of companies principally engaged in
investing or dealing in real estate;

B-22
<PAGE> 73
8. 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;

9. 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;"

10. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except (a)
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; or (b) to acquire shares of other open-end investment
companies to the extent permitted by rule or order of the Securities and
Exchange Commission exempting the Fund from the limitation imposed by
Section 12(d)(1) of the Investment Company Act of 1940;

11. 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;

12. 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;

13. 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 Fund's pro rata portion of the securities
and other assets owned by any such investment company; or

14. 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 includes repurchase agreements
maturing in more than seven days and over-the-counter options held by
the Fund and that portion of assets used to cover such options. 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 Board 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. Notwithstanding the foregoing, 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 investment company.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE GOVERNMENT FUND:

The Fund shall not:

2. Invest in securities of other investment companies except as part of a
merger, consolidation or other acquisition;

B-23
<PAGE> 74

3. Make any investment in real estate, commodities or commodities
contracts, except that the Fund may invest in interest rate futures and
related options and may purchase securities secured by real estate or
interests therein; or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

6. Lend money, except that the Fund may invest in repurchase agreements in
accordance with applicable requirements set forth in the Prospectus and
may acquire debt securities which the Fund's investment policies permit.
The Fund will not invest in repurchase agreements maturing in more than
seven days (unless subject to a demand feature) if any such investment,
together with any illiquid securities (including securities which are
subject to legal or contractual restrictions on resale) held by the
Fund, exceeds ten percent of the market or other fair value of its total
net assets. See "Repurchase Agreements";

8. Make short sales of securities, unless at the time of the sale the Fund
owns or has the right to acquire an equal amount of such securities.
Notwithstanding the foregoing, the Fund may make short sales by entering
into forward commitments for hedging or cross-hedging purposes and the
Fund may engage in transactions in options, future contracts and related
options;

9. Purchase securities on margin, except that 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 interest rate futures contracts
or related options transactions is not considered the purchase of a
security on margin;

10. Invest more than five percent of its assets in companies having a
record, together with predecessors, of less than three years continuous
operation;

11. Borrow in excess of ten percent of the market or other fair value of
its total assets, or pledge its assets to an extent greater than five
percent of the market or other fair value of its total assets. Any such
borrowings shall be from banks and shall be undertaken only as a
temporary measure for extraordinary or emergency purposes. Deposits in
escrow in connection with the writing of options, or in connection with
the purchase or sale of futures contracts and related options are not
deemed to be a pledge or other encumbrance; or

12. 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 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 enter into
closing or offsetting transactions with respect to such options, and (c)
engage in transactions in interest rate futures contracts and related
options provided that such transactions are entered into for bona fide
hedging purposes (or that the underlying commodity value of the Fund's
long positions do not exceed the sum of certain identified liquid
investments as specified in CFTC regulations), 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, and provided further that
the Fund may not purchase futures contracts or related options if more
than 30% of the Fund's total assets would be so invested.

B-24
<PAGE> 75

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE GROWTH AND INCOME
FUND:

1. Borrow money, except from a bank and then only as a temporary measure
for extraordinary or emergency purposes but not for making additional
investments and not in excess of five percent of the total net assets of
the Fund taken at cost. In connection with any borrowing the Fund may
pledge up to 15% of its total assets taken at cost. Notwithstanding the
foregoing, the Fund may engage in transactions in options, futures
contracts and related options, segregate or deposit assets to cover or
secure options written, and make margin deposits or payments for futures
contracts and related options.

2. Purchase or sell interests in real estate, except readily marketable
securities, including securities of real estate investment trusts.

3. Purchase or sell commodities or commodities contracts, except that the
Fund may enter into transactions in futures contracts and related
options.

4. 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 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."

5. Invest more than 25% of its total net asset value in any one industry
provided, however, that 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.

6. Invest more than five percent of the market value of its total assets at
the time of purchase in the securities (except U.S. Government
securities) of any one issuer or purchase more than ten percent of the
outstanding voting securities of such issuer 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.

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 Trustees.

1. Purchase securities on margin, or sell securities short, but the Fund
may enter into transactions in options, futures contracts and related
options and may make margin deposits and payments in connection
therewith.

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

3. Purchase securities of a corporation in which a trustee of the Fund owns
a controlling interest.

4. Permit officers or trustees of the Fund to profit by selling securities
to or buying them from the Fund. However, companies with which the
officers and trustees of the Fund are connected may enter into
underwriting agreements with the Fund to sell its shares, sell
securities to, and purchase securities from the Fund when acting as
broker or dealer at the customary and usual rates and discounts, to the
extent permitted by the 1940 Act.

5. Investments in repurchase agreements and purchases by the Fund of a
portion of an issue of publicly distributed debt securities shall not be
considered the making of a loan.

6. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than
fifteen percent of the value of the Fund's net assets would be invested
in such securities provided, however, that this limitation excludes
shares of other open-end

B-25
<PAGE> 76

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.

7. Invest more than five percent of the market value of its total assets in
companies having a record together with predecessors of less than three
years continuous operation and in securities not having readily
available market quotations; provided, however, that 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.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE MONEY MARKET FUND:

The Fund shall not:

2. Invest in securities of other investment companies except as part of a
merger, consolidation or other acquisition;

3. Make any investment in real estate, commodities or commodities
contracts, except that the Fund may purchase securities secured by real
estate or interests therein; or issued by companies, including real
estate investment trusts, which invest in real estate or interests
therein;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

6. Lend money, except that the Fund may invest in repurchase agreements in
accordance with applicable requirements set forth in the Prospectus and
may acquire debt securities which the Portfolio's investment policies
permit. The Fund will not invest in repurchase agreements maturing in
more than seven days (unless subject to a demand feature) if any such
investment, together with any illiquid securities (including securities
which are subject to legal or contractual restrictions on resale) held
by the Fund, exceeds ten percent of the market or other fair value of
its total net assets. See "Repurchase Agreements";

8. Make short sales of securities, unless at the time of the sale the Fund
owns or has the right to acquire an equal amount of such securities;

9. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities;

10. Invest more than five percent of its assets in companies having a
record, together with predecessors, of less than three years continuous
operation;

11. Write put or call options;

12. Borrow in excess of ten percent of the market or other fair value of
its total assets, or pledge its assets to an extent greater than five
percent of the market or other fair value of its total assets. Any such
borrowings shall be from banks and shall be undertaken only as a
temporary measure for extraordinary or emergency purposes. Deposits in
escrow in connection with the writing of covered

B-26
<PAGE> 77

call or secured put options, or in connection with the purchase or sale
of futures contracts and related options are not deemed or to be a
pledge or other encumbrance; or

13. Purchase any security which matures more than one year from the date of
purchase.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE REAL ESTATE SECURITIES FUND.

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.

B-27
<PAGE> 78

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.

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 Fund'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 Fund 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 Fund'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.

B-28
<PAGE> 79

TRUSTEES AND EXECUTIVE OFFICERS

The Fund's Trustees and Executive Officers and their principal occupations
for the past five years are listed below. For purposes hereof, the "Van Kampen
American Capital Funds" refer to each of the open-end investment companies
advised by the Adviser, excluding the Common Sense Trust and the American
Capital Exchange Fund and Van Kampen American Capital Investment Advisory Corp.
(the "VK Adviser"), excluding the Explorer Institutional Trust.

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 scientific
1009 Slater Road equipment. A Trustee of each of the Van Kampen American
Harrisville, NC 27560 Capital Funds.
Age: 63
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 La Salle 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: 76
R. Craig Kennedy................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Age: 44 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.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza Adviser, the VK Adviser and Van Kampen American Capital
Oakbrook Terrace, IL 60181 Management, Inc. Executive Vice President and a Director
Age: 53 of VK/AC Holding, Inc. and Van Kampen American Capital,
Inc. ("VKAC"). Chief Executive Officer of McCarthy,
Crisanti & Maffei, Inc. Chairman and a Director of MCM
Asia Pacific Company, Ltd. Executive Vice President and a
Trustee of each of the Van Kampen American Capital Funds.
President of the closed-end investment companies advised
by the VK Adviser. Prior to December, 1991, Senior Vice
President of Van Kampen Merritt Inc.
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 such Funds advised by the
VK Adviser.
</TABLE>

B-29
<PAGE> 80

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 60 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.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and VKAC. Chairman, Chief Executive
Houston, TX 77056 Officer and a Director of Van Kampen American Capital
Age: 56 Distributors, Inc. (the "Distributor"), the Adviser, the
VK Adviser, Van Kampen American Capital Management, Inc.
and Van Kampen American Capital Advisors, Inc. Chairman,
President and a Director of Van Kampen American Capital
Exchange Corporation, American Capital Contractual
Services, Inc. and American Capital Shareholders Corpora-
tion. Chairman and a Director of ACCESS Investor
Services, Inc. ("ACCESS"), Van Kampen Merritt Equity
Advisors Corp., Van Kampen Merritt Equity Holdings Corp.,
and VCJ Inc., McCarthy, Crisanti & Maffei, Inc.,
McCarthy, Crisanti & Maffei Acquisition, and Van Kampen
American Capital Trust Company. Chairman, President and a
Director of Van Kampen American Capital Services, Inc.
President, Chief Executive Officer and a Trustee of each
of the Van Kampen American Capital funds advised by the
Adviser and the VK Adviser. Director, Trustee or Managing
General Partner of other open-end investment companies
and closed-end investment companies advised by the
Adviser. Chairman of the Board of the closed-end
investment companies advised by the VK Adviser.
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: 73 software programming company specializing in white collar
productivity. Director of Panasia Bank. A Trustee of each
of the Van Kampen American Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 71 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 the Van Kampen American Capital
Chicago, IL 60606 Funds. A Trustee of each of the Van Kampen American
Age: 56 Capital Funds. He also is a Trustee of the closed-end
investment companies advised by the VK Adviser.
</TABLE>

B-30
<PAGE> 81

<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 known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 74 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). Messrs. Powell and McDonnell are interested persons of the
Adviser and the Fund by reason of their position with the Adviser. Mr. Whalen
is an interested person of the Adviser and the Fund by reason of his firm
having acted as legal counsel to the Adviser and the Fund.

Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of VKAC and have
entered into employment contracts (for a term of five years) with VKAC.

The Fund's Officers other than Messrs. Hegel, Nyberg, Wood, Sullivan,
Dalmaso, Martin, Wetherell and Hill are located at 2800 Post Oak Blvd., Houston,
TX 77056. Messrs. Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell and
Hill are located at One Parkview Plaza, Oakbrook Terrace, IL 60181.

OFFICERS

B-31
<PAGE> 82

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Ronald A. Nyberg......... Vice President and Executive Vice President, General Counsel
Age: 42 Secretary and Secretary of Van Kampen American
Capital and VK/AC Holding, Inc. Executive
Vice President, General Counsel and a
Director of the Distributor. Executive Vice
President and General Counsel of the
Adviser and the VK Adviser, Van Kampen
American Capital Management, Inc., VSU Inc.
VCJ, Inc., Van Kampen Merritt Equity
Advisors Corp., and Van Kampen Merritt
Equity Holdings Corp. Executive Vice
President, General Counsel and Assistant
Secretary of Van Kampen American Capital
Advisors, Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation,
ACCESS Investor Services, Inc., American
Capital Shareholders Corporation, and Van
Kampen American Capital Trust Company.
General Counsel of McCarthy, Crisanti &
Maffei, Inc. and McCarthy, Crisanti &
Maffei Acquisition Corp. Vice President and
Secretary of each of the Van Kampen
American Capital Funds. Secretary of the
closed-end funds advised by the VK Adviser.
Director of ICI Mutual Insurance Co., a
provider of insurance to members of the
Investment Company Institute.
Robert C. Peck, Jr....... Vice President Executive Vice President and Director of
Age: 49 the Adviser. Executive Vice President of
the VK Adviser. Vice President of each of
the Van Kampen American Capital Funds.
Alan T. Sachtleben....... Vice President Executive Vice President and a Director of
Age: 53 the Adviser. Executive Vice President of
the VK Adviser. Vice President of each of
the Van Kampen American Capital Funds.
Paul R. Wolkenberg....... Vice President Executive Vice President of the Adviser.
Age: 51 President, Chief Executive Officer and a
Director of Van Kampen American Capital
Trust Company and ACCESS. Vice President of
each of the Van Kampen American Capital
Funds.
Edward C. Wood III....... Vice President and Chief Senior Vice President of VK Adviser. Vice
Age: 40 Financial Officer President and Chief Financial Officer of
each of the Van Kampen American Capital
Funds. Vice President, Treasurer and Chief
Financial Officer of the closed-end funds
advised by VK Adviser.
John L. Sullivan......... Treasurer First Vice President of the Adviser and VK
Age: 40 Adviser. Treasurer of each of the Van
Kampen American Capital Funds. Controller
of the closed-end funds advised by the VK
Adviser. Formerly Controller of open-end
funds advised by VK Adviser.
</TABLE>

B-32
<PAGE> 83

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Tanya M. Loden........... Controller Controller of most of the investment
Age: 36 companies advised by the Adviser, formerly
Tax Manager/Assistant Controller.
Nicholas Dalmaso......... Assistant Secretary Assistant Vice President and Senior
Age: 30 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Distributor,
the Adviser, the VK Adviser, and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds, Assistant Secretary of the
closed-end funds advised by the VK Adviser.
Prior to May 1992, attorney for Cantwell &
Cantwell, a Chicago law firm.
Huey P. Falgout, Jr...... Assistant Secretary Assistant Vice President and Senior
Age: 32 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Distributor,
the Adviser, the VK Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, ACCESS, and American Capital
Shareholders Corporation. Assistant
Secretary of each of the Van Kampen
American Capital Funds.
Scott E. Martin.......... Assistant Secretary Senior Vice President, Deputy General
Age: 39 Counsel and Assistant Secretary of VKAC.
Senior Vice President, Deputy General
Counsel and Secretary of the Adviser, the
VK Adviser and the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisers, Inc., VSM
Inc., VCJ Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation,
ACCESS Investor Services, Inc., Van Kampen
Merritt Equity Advisors Corp., Van Kampen
Merritt Equity Holdings Corp., American
Capital Shareholders Corporation. Secretary
and Deputy General Counsel of McCarthy,
Crisanti, & Maffei, Inc. and McCarthy,
Crisanti & Maffei Acquisition. Chief Legal
Officer of McCarthy, Crisanti & Maffei,
S.A. Assistant Secretary of each of the Van
Kampen American Capital Funds. Assistant
Secretary of the closed-end funds advised
by the VK Adviser.
</TABLE>

B-33
<PAGE> 84

Each of the foregoing trustees and officers holds the same position with
each of 46 Other Van Kampen American Capital mutual funds (the "Fund Complex").
Each trustee who is not an affiliated person of the Adviser, the Distributor or
VKAC (each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees to defer receipt of his or her compensation and
earn a return on such deferred amounts based upon the return of the common stock
of the funds in the Fund Complex as more fully described below.

The compensation of each Non-Affiliated Trustee includes a retainer from
the mutual funds in the Fund Complex advised by the Adviser (the "AC Funds") in
an amount equal to $35,000 per calendar year, due in four quarterly installments
on the first business day of each calendar quarter. The AC Funds pay each Non-
Affiliated Trustee a per meeting fee in the amount of $2,000 per regular
quarterly meeting attended by the Non-Affiliated Trustee, due on the date of
such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in
connection with his or her services as a trustee. The annual retainer and the
regular meeting fees are allocated among the AC Funds (i) 50% on the basis of
the relative net assets of each AC Fund to the aggregate net assets of all of
the AC Funds and (ii) 50% equally to each AC Fund, in each case as of the last
business day of the preceding calendar quarter. Each AC Fund participating in
any special meeting of the trustees generally pays each Non-Affiliated Trustee a
per meeting fee in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings. The trustees have approved an
aggregate compensation cap with respect to the Fund Complex of $84,000 per
Non-Affiliated Trustee per year (excluding any retirement benefits) for the
period July 22, 1995 through December 31, 1996, subject to the net assets and
the number of mutual funds in the Fund Complex as of July 21, 1995 and certain
other exceptions. In addition, the Adviser has agreed to reimburse each fund in
the Fund Complex through December 31, 1996 for any increase in the aggregate
trustee's compensation over the aggregate compensation paid by such fund in its
1994 fiscal year, provided that if a fund did not exist for the entire 1994
fiscal year appropriate adjustments will be made.

Each Non-Affiliated Trustee can elect to defer receipt of all or a portion
of the compensation earned by such Non-Affiliated Trustee until retirement.
Amounts deferred are retained by the Fund. Through the 1995 fiscal year of the
Trust, the deferred compensation earned a rate of return determined by reference
to the return earned on short-term investments owned by the respective Fund
paying the Trustee the compensation.

B-34
<PAGE> 85

After March 19, 1996, it is anticipated that the return on the deferred
compensation may be determined by reference to either the return on the common
stock of the respective Fund or other mutual funds in the Fund Complex as
selected by the respective Non-Affiliated Trustee. To the extent permitted by
the 1940 Act, it is anticipated that the Fund will invest in common stock of
those mutual funds selected by the Non-Affiliated Trustees in order to match the
deferred compensation obligation. The deferred compensation plan is not funded
and obligations thereunder represent general unsecured claims against the
general assets of each Fund.

The Trust adopted a retirement plan on January 26, 1996. Under the
retirement plan, a Non-Affiliated Trustee who is receiving trustee's fees from
the Fund prior to such Non-Affiliated Trustee's retirement, has at least ten
years of service and retires at or after attaining the age of 60, is eligible to
receive a retirement benefit equal to $2,500 per year for each of the ten years
following such trustee's retirement. Under certain conditions, reduced benefits
are available for early retirement provided the trustee has served at least five
years. As of the date hereof, the retirement plan contains a Fund Complex
retirement benefit cap of $60,000 per year. The Adviser will reimburse each AC
Fund for expenses related to the retirement plan through December 31, 1996.

B-35
<PAGE> 86

Additional information regarding compensation before deferral by the Funds
and the other funds in the Fund Complex is set forth in the table below.

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS
AGGREGATE COMPENSATION BEFORE DEFERRAL FROM REGISTRANT(3) ACCRUED AS
------------------------------------------------------------------------------- PART OF
MONEY ASSET DOMESTIC EMERGING REAL GLOBAL REGISTRANT
NAME(2) ENTERPRISE GOVERNMENT MARKET ALLOCATION INCOME GROWTH ESTATE EQUITY EXPENSES(4)
- ------------------------------------ ---------- ---------- ------ ---------- -------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. Miles Branagan.................... $1,020 $ 950 $ 990 $ 970 $ 990 $ 180 $ 180 $ 180 $ -0-
Dr. Richard E. Caruso................ $ 780 $ 720 $ 770 $ 740 $ 770 $ -0- $ -0- $ -0- $ -0-
Philip P. Gaughan.................... $ 360 $ 330 $ 330 $ 330 $ 330 $ 150 $ 150 $ 150 $ -0-
Linda Hutton Heagy................... $ 360 $ 340 $ 340 $ 340 $ 340 $ 210 $ 210 $ 210 $ -0-
Dr. Roger Hilsman.................... $1,060 $ 990 $1,030 $1,010 $1,030 $ 180 $ 180 $ 180 $ -0-
R. Craig Kennedy..................... $ 440 $ 410 $ 410 $ 410 $ 410 $ 180 $ 180 $ 180 $ -0-
Donald C. Miller..................... $ 400 $ 370 $ 370 $ 370 $ 370 $ 150 $ 150 $ 150 $ -0-
Jack E. Nelson....................... $ 440 $ 410 $ 410 $ 410 $ 410 $ 180 $ 180 $ 180 $ -0-
David Rees........................... $1,020 $ 950 $ 990 $ 970 $ 990 $ 180 $ 180 $ 180 $ -0-
Jerome L. Robinson................... $ 440 $ 410 $ 410 $ 410 $ 410 $ 180 $ 180 $ 180 $ -0-
Lawrence J. Sheehan.................. $1,060 $ 990 $1,030 $1,010 $1,030 $ 180 $ 180 $ 180 $ -0-
Dr. Fernando Sisto................... $1,190 $1,170 $1,120 $1,170 $1,100 $ 180 $ 180 $ 180 $ -0-
Wayne W. Whalen...................... $ 440 $ 410 $ 410 $ 410 $ 410 $ 180 $ 180 $ 180 $ -0-
William S. Woodside.................. $1,020 $ 950 $ 990 $ 970 $ 990 $ 180 $ 180 $ 180 $ -0-

<CAPTION>
TOTAL
COMPENSATION
ESTIMATED BEFORE DEFERRAL
ANNUAL FROM REGISTRANT
BENEFITS AND FUND
UPON COMPLEX PAID
NAME(2) RETIREMENT(4) TO TRUSTEE(5)
- ------------------------------------- ------------ ----------------
<S> <C> <C>
J. Miles Branagan.................... $ -0- $ 84,250
Dr. Richard E. Caruso................ $ -0- $ 57,250
Philip P. Gaughan.................... $ -0- $ 76,500
Linda Hutton Heagy................... $ -0- $ 38,417
Dr. Roger Hilsman.................... $ -0- $ 91,250
R. Craig Kennedy..................... $ -0- $ 92,625
Donald C. Miller..................... $ -0- $ 94,625
Jack E. Nelson....................... $ -0- $ 93,625
David Rees........................... $ -0- $ 83,250
Jerome L. Robinson................... $ -0- $ 89,375
Lawrence J. Sheehan.................. $ -0- $ 91,250
Dr. Fernando Sisto................... $ -0- $ 98,750
Wayne W. Whalen...................... $ -0- $ 93,375
William S. Woodside.................. $ -0- $ 79,125
</TABLE>

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

(1) The "Registrant" is the Trust, which currently consists of nine operating
series. As indicated in the other explanatory notes, the amounts in the
table relate to the applicable trustees during the Registrant's last fiscal
year ended December 31, 1995 or the Fund Complex' last calendar year ended
December 31, 1995. No Compensation was paid to any trustee with regard to
the Growth and Income Fund.

(2) Messrs. Powell and McDonnell, trustees of the Fund, are affiliated persons
of the Adviser and are not eligible for compensation or retirement benefits
from the Registrant. Messrs. Gaughan, Kennedy, Miller, Nelson, Robinson and
Whalen were elected by shareholders to the Board of Trustees on July 21,
1995. Ms. Heagy was appointed to the Board of Trustees on September 7, 1995.
Mr. McDonnell was appointed to the Board of Trustees on January 29, 1996.
Mr. Gaughan retired from the Board of Trustees on January 26, 1996. Messrs.
Caruso, Rees and Sheehan were removed from the Board of Trustees effective
September 7, 1995, January 29, 1996 and January 29, 1996, respectively.

(3) The amounts shown in this column are accumulated from the Aggregate
Compensation before Deferral of each series in operation during the
Registrant's fiscal year ended December 31, 1995. Amounts deferred, if any,
by each trustee are set forth in a table below. Through the 1995 fiscal year
of the Trust, the deferred compensation earned a rate of return determined
by reference to the return earned on short-term investments owned by the
respective Fund paying the Trustee the compensation. After March 19, 1996,
it is anticipated that the return on the deferred compensation may be
determined by reference to either the return on the common stock of the
respective Fund or other mutual funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act,
it is anticipated that the Fund will invest in common stock of those mutual
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation.

(4) The amounts shown in these columns are zero because the Trust did not adopt
its retirement plan until after the end of its 1995 fiscal year. The
retirement plan is described above the Compensation Table.

(5) The amounts shown in this column are accumulated from the Aggregate
Compensation before Deferral of each of the 46 mutual funds in the Fund
Complex as of December 31, 1995. The following trustees deferred
compensation from the Registrant and the Fund Complex during the calendar
year ended December 31, 1995: Dr. Caruso, $41,750; Mr. Gaughan, $57,750; Ms.
Heagy, $8,750; Mr. Kennedy, $65,875; Mr. Miller, $65,875; Mr. Nelson,
$65,875; Mr. Rees, $8,375; Mr. Robinson, $62,375; Dr. Sisto, $30,260; and
Mr. Whalen, $65,625. Through the 1995 fiscal year of the Trust, the deferred
compensation earned a rate of return determined by reference to the return
earned on short-term investments owned by the respective Fund paying the
Trustee the compensation. After March 19, 1996, it is anticipated that the
return on the deferred compensation may be determined by reference to either
the return of the common stock of the respective Fund or other mutual funds
in the Fund Complex as selected by the respective Non-Affiliated Trustee. To
the extent permitted by the 1940 Act, it is anticipated that the Fund will
invest in common stock of those mutual funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
trustees' Fund Complex compensation cap commenced on July 22, 1995 and
covered the period between July 22, 1995 and December 31, 1995. Compensation
received prior to July 22, 1995 was not subject to the cap. For the calendar
year ended December 31, 1995, while certain trustees received compensation
over $84,000 in the aggregate, no trustee received compensation in excess of
the pro rata amount of the Fund Complex cap for the period July 22, 1995
through December 31, 1995. In addition to the amounts set forth above,
certain trustees received lump sum retirement benefit distributions not
subject to the cap in 1995 related to three mutual funds that ceased
investment operations during 1995 as follows: Mr. Gaughan, $22,136; Mr.
Miller, $33,205; Mr. Nelson, $30,851; Mr. Robinson, $11,068; and Mr. Whalen,
$27,332. The Adviser and its affiliates also serve as investment adviser for
other investment companies; however, with the exception of Messrs. Powell,
McDonnell and Whalen, the trustees were not trustees of such investment
companies. Combining the Fund Complex with other investment companies
advised by the Adviser and its affiliates, Mr. Whalen received Total
Compensation of $268,857 during the calendar year ended December 31, 1995.

B-36
<PAGE> 87

DEFERRED FEES (INCLUDED IN ABOVE TABLE)(1)

<TABLE>
<CAPTION>
MONEY ASSET DOMESTIC EMERGING REAL GLOBAL
NAME OF TRUSTEE ENTERPRISE GOVERNMENT MARKET ALLOCATION INCOME GROWTH ESTATE EQUITY
- ----------------------------------------- ---------- ---------- ------ ---------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Richard E. Caruso.................... $ 780 $ 720 $ 770 $ 740 $ 770 $ -0- $ -0- $ -0-
Philip P. Gaughan........................ $ 180 $ 170 $ 160 $ 170 $ 160 $ 150 $ 150 $ 150
Linda H. Heagy........................... $ 220 $ 210 $ 200 $ 210 $ 200 $ 180 $ 180 $ 180
R. Craig Kennedy......................... $ 220 $ 210 $ 200 $ 210 $ 200 $ 180 $ 180 $ 180
Donald C. Miller......................... $ 180 $ 170 $ 160 $ 170 $ 160 $ 150 $ 150 $ 150
Jack E. Nelson........................... $ 220 $ 210 $ 200 $ 210 $ 200 $ 180 $ 180 $ 180
Jerome L. Robinson....................... $ 220 $ 210 $ 200 $ 210 $ 200 $ 180 $ 180 $ 180
Dr. Fernando Sisto....................... $ 730 $ 720 $ 680 $ 720 $ 660 $ -0- $ -0- $ -0-
Wayne W. Whalen.......................... $ 220 $ 210 $ 200 $ 210 $ 200 $ 180 $ 180 $ 180
</TABLE>

CUMULATIVE DEFERRED COMPENSATION ACCRUED BY FUND(1)

<TABLE>
<CAPTION>
MONEY ASSET DOMESTIC EMERGING REAL GLOBAL
NAME OF TRUSTEE ENTERPRISE GOVERNMENT MARKET ALLOCATION INCOME GROWTH ESTATE EQUITY
- ------------------------------------- ---------- ---------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Richard E. Caruso................ $1,032.21 $1,082.47 $ 941.79 $1,185.66 $1,048.25
Philip P. Gaughan.................... $ 186.37 $ 174.54 $ 161.38 $ 175.59 $ 163.15 $ 155.72 $ 158.88 $ 154.65
Linda H. Heagy....................... $ 227.80 $ 215.61 $ 201.73 $ 216.90 $ 203.93 $ 186.86 $ 190.64 $ 185.58
R. Craig Kennedy..................... $ 227.80 $ 215.61 $ 201.73 $ 216.90 $ 203.93 $ 186.86 $ 190.64 $ 185.58
Donald C. Miller..................... $ 186.37 $ 174.54 $ 161.38 $ 175.59 $ 163.15 $ 155.72 $ 158.88 $ 154.65
Jack E. Nelson....................... $ 227.80 $ 215.61 $ 201.73 $ 216.90 $ 203.93 $ 186.86 $ 190.64 $ 185.58
David Rees........................... $5,507.08 $6,103.24 $5,560.64 $4,346.37 $3,570.25 $ -0- $ -0- $ -0-
Jerome L. Robinson................... $ 227.80 $ 215.61 $ 201.73 $ 216.90 $ 203.93 $ 186.86 $ 190.64 $ 185.58
Dr. Fernando Sisto................... $6,329.08 $5,707.18 $4,787.12 $5,713.65 $5,135.86 $ -0- $ -0- $ -0-
Wayne W. Whalen...................... $ 227.80 $ 215.61 $ 201.73 $ 216.90 $ 203.93 $ 186.86 $ 190.64 $ 185.58
</TABLE>

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

(1) Through the 1995 fiscal year of the Trust, deferred compensation earned a
rate of return determined by reference to the return earned on short-term
investments owned by the respective Fund paying the Trustee the
compensation. After March 19, 1996, it is anticipated that the return on
deferred compensation may be determined by reference to either the return of
the common stock of the respective Fund or other mutual funds in the Fund
Complex as selected by the respective Non-Affiliated Trustee. To the extent
permitted by the 1940 Act, it is anticipated that the Fund will invest in
common stock of those mutual funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation.

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"). As of
February 16, 1996, no trustee or officer of the Fund owns or would be able to
acquire 5% or more of the common stock of VK/AC Holding, Inc.

B-37
<PAGE> 88

INVESTMENT ADVISORY AGREEMENT

The Trust and the Adviser are parties to an investment advisory agreement
("Advisory Agreement - I") pursuant to which the Fund retains the Adviser to
manage the investment of assets and to place orders for the purchase and sale of
portfolio securities for the Asset Allocation Fund, the Domestic Income Fund,
the Enterprise Fund, the Government Fund and the Money Market Fund. The Fund and
the Adviser are also parties to other investment advisory agreements ("Advisory
Agreement - II, III, IV and V") pursuant to which the Adviser manages the
investment of assets and places orders for the purchase and sale of portfolio
securities for the Emerging Growth Fund, the Global Equity Fund, the Growth and
Income Fund and the Real Estate Securities Fund, respectively, (Advisory
Agreement - I, Advisory Agreement - II, Advisory Agreement - III, Advisory
Agreement - IV and Advisory Agreement - V are referred to herein collectively as
the "Advisory Agreements"). Under the Advisory Agreements, the Adviser is
responsible for obtaining and evaluating economic, statistical, and financial
data and for formulating and implementing investment programs in furtherance of
each Fund's investment objectives. The Adviser also furnishes at no cost to the
Fund (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 Fund the services of a
President of the Trust, one or more Vice Presidents as needed, and a Secretary.

Under the Advisory Agreements, 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 each 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. The
services are provided at cost which is allocated among the investment companies
advised by the Adviser. The Trust also pays shareholder service agency fees,
custodian fees, legal fees, the costs of reports to shareholders and all other
ordinary expenses not specifically assumed by the Adviser.

Under Advisory Agreements - II, III, IV and V, 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 0.70% for the Emerging Growth Fund, 1.00% for the Global Equity Fund, 0.60%
of the first $500 million and 0.55% in excess of $500 million for the Growth and
Income Fund and 1.00% for the Real Estate Securities Fund, respectively.

The average daily net assets of a Fund is determined by taking the average
of all of the determinations of net assets of that Fund for each business day
during a given calendar month. The 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 other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the Fund, less any direct expenses
incurred by such subsidiary of VK/AC Holding, Inc. 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
other direct or indirect majority owned subsidiary of VK/AC Holding, Inc., to
receive in connection with the Fund's portfolio transactions or other
arrangements which may benefit the Fund.

Advisory Agreement - I also provides that, in the event the ordinary
business expenses of the Asset Allocation Fund, the Domestic Income Fund, the
Enterprise Fund, the Government Fund and the Money Market Fund for any fiscal
year exceed 0.95% of the average daily net assets, the compensation due the
Adviser will be reduced by the amount of such excess and that, if a reduction in
and refund of the advisory fee

B-38
<PAGE> 89

is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses do not include (1) interest and taxes, (2) brokerage
commissions, (3) any distribution expenses which may be incurred in the event
the Fund's Distribution Plan is implemented, and (4) certain litigation and
indemnification expenses as described in the Advisory Agreement. No such limit
applies with respect to Advisory Agreement - II, Advisory Agreement - III,
Advisory Agreement - IV and Advisory Agreement - V.

In addition to the contractual expense limitation, the Adviser elected to
reimburse the Asset Allocation Fund, the Domestic Income Fund, the Enterprise
Fund, the Government Fund, the Money Market Fund for all ordinary business
expenses in excess of .60% of the average daily net assets.

The following table shows expenses paid under the Advisory Agreements
during the periods ended December 31, 1993, December 31, 1994 and December 31,
1995. The Growth and Income Fund did not commence operations as of the date of
this Prospectus.

<TABLE>
<CAPTION>
DOMESTIC MONEY ASSET
PERIOD ENDING ENTERPRISE INCOME GOVERNMENT MARKET ALLOCATION
DECEMBER 31, 1993: FUND FUND FUND FUND FUND
- ---------------------------------------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Advisory fees $ 345,093 $132,513 $393,050 $ 144,373 $ 319,607
Accounting Services $ 66,688 $ 63,008 $ 68,628 $ 59,477 $ 68,254
Contractual expense reimbursement $ -- $ 14,128 $ -- $ 445 $ --
Voluntary expense reimbursement $ 84,676 $ 93,319 $ 80,855 $ 101,061 $ 90,379
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1994:
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory fees $ 346,359 $130,474 $351,674 $ 152,665 $ 307,894
Accounting Services $ 52,665 $ 51,604 $ 58,043 $ 51,778 $ 55,826
Contractual expense reimbursement $ -- $ 302 $ -- $ -- $ --
Voluntary expense reimbursement $ 57,464 $ 91,332 $ 68,843 $ 80,915 $ 75,169
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1995:
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory fees $ 355,715 $130,064 $333,447 $ 121,552 $ 302,141
Accounting Services $ 55,772 $ 49,819 $ 57,526 $ 48,109 $ 57,576
Contractual expense reimbursement $ -- $ -- $ -- $ -- $ --
Voluntary expense reimbursement $ 56,680 $ 86,887 $ 77,421 $ 80,637 $ 85,602
</TABLE>

<TABLE>
<CAPTION>
EMERGING GLOBAL REAL ESTATE
PERIOD FROM JULY 3, 1995 THROUGH GROWTH EQUITY SECURITIES
DECEMBER 31, 1995: FUND FUND FUND
- ---------------------------------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Advisory fees $ 4,798 $ 10,983 $ 18,136
Accounting Services $ 3,222 $ 7,200 $ 3,153
Contractual expense reimbursement $ 19,858 $ 43,031 $ 7,173
Voluntary expense reimbursement $ -- $ -- $ --
</TABLE>

The Advisory Agreements with respect to each subject 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

The Distributor acts as the principal underwriter of the shares of the
Trust pursuant to written agreements (the "Underwriting Agreement"). The
Distributor is owned by the Adviser's parent company. 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

B-39
<PAGE> 90

the Trust's Trustees or by a vote of a majority of the Trust'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 its 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.

TRANSFER AGENT

For the fiscal years ended December 31, 1993, 1994, and 1995, ACCESS,
shareholder service agent and dividend disbursing agent for the Trust, received
fees aggregating $18,000, $18,000 and $15,514, respectively, from each Fund,
excluding Emerging Growth, Global Equity and Real Estate, for these services.
These services are provided at cost plus a profit.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisers are 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
Advisers 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 Advisers consider 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 Agreements, the Trust's Trustees
have authorized the Advisers 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 Advisers. The Advisers are 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 Trust. The
Advisers undertake that such higher commissions will not be paid by the Fund
unless (a) the Advisers determine in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
the Advisers' 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 Advisers, the total commissions paid by the Fund are
reasonable in relation to the expected benefits to the

B-40
<PAGE> 91

Trust over the long term. The investment advisory fee paid by the Trust under
the Advisory Agreements is not reduced as a result of the Advisers' 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 Advisers 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
Trust.

Prior to December 20, 1994, the Fund placed brokerage transactions with
brokers who were considered affiliated persons of the Adviser's former parent,
The Travelers Inc. Such affiliated persons included Smith Barney Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Effective December
20, 1994, Smith Barney and Robinson Humphrey ceased to be affiliates of the
Adviser. The negotiated commission paid to an affiliated broker on any
transaction would be comparable to that payable to a non-affiliated broker in a
similar transaction.

The Trust paid the following commissions to affiliated brokers during the
periods shown:

Commissions Paid:

<TABLE>
<CAPTION>
SMITH BARNEY ROBINSON
SHEARSON HUMPHREY
------------ --------
<S> <C> <C>
Fiscal 1993
Money Market Fund -- --
Enterprise Fund $ 32,295 --
Government Fund $ 2,739
Asset Allocation Fund $ 18,185 $ 455
Domestic Income Fund -- --
Fiscal 1994
Money Market Fund -- --
Enterprise Fund $ 36,136 $1,330
Government Fund $ 2,578 --
Asset Allocation Fund $ 27,550 $ 42
Domestic Income Fund -- --
</TABLE>

The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Trust 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 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.

B-41
<PAGE> 92

The following table summarizes for each portfolio the total brokerage
commissions paid, the amount of commissions paid to brokers selected primarily
on the basis of research services provided to the Adviser and the value of these
specific transactions. The Growth and Income Fund commenced operations after the
end of fiscal year 1995.

<TABLE>
<CAPTION>
ASSET DOMESTIC MONEY
ENTERPRISE GOVERNMENT ALLOCATION INCOME MARKET
FUND FUND FUND FUND FUND
----------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
1993
Total brokerage commissions $ 283,795 $ 12,198 $ 259,924 -- --
Commissions for research services $ 146,345 0 $ 155,243 -- --
Value of research transactions $84,070,654 0 $83,666,168 -- --
1994
Total brokerage commissions $ 340,219 $ 15,213 $ 212,116 $ 395 --
Commissions for research services $ 144,248 -- $ 90,649 -- --
Value of research transactions $84,974,336 -- $72,221,352 -- --
1995
Total brokerage commissions $ 305,770 $ 30,598 $ 157,404 -- --
Commissions for research services $ 114,552 -- $ 64,689 -- --
Value of research transactions $66,483,840 -- $48,252,618 -- --
</TABLE>

<TABLE>
<CAPTION>
REAL
EMERGING GLOBAL ESTATE
GROWTH EQUITY SECURITIES
FUND FUND FUND
---------- ------ -----------
<S> <C> <C> <C>
Total brokerage commissions.............................. $ 2,474 $9,763 $ 14,076
Commissions for research services........................ 2,134 -- 12,934
Value of research transactions........................... 2,340,642 -- 12,044,246
</TABLE>

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of each Fund's investment portfolio securities during such fiscal
year. Securities which mature in one year or less at the time of acquisition are
not included in this computation. The turnover rate may vary greatly from year
to year as well as within a year. The Fund's investment portfolio turnover rate
for prior years is shown under "Financial Highlights" in the Prospectus.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of each 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 each Fund as of
the close of business each day the Exchange (the "Exchange") is open (currently
4:00 p.m., New York time). The 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.

MONEY MARKET FUND NET ASSET VALUATION

The valuation of the Fund's portfolio securities is based upon their
amortized cost, which does not take into account unrealized capital gains or
losses. Amortized cost valuation involves initially valuing an instrument at its
cost and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price that the Fund would receive if
it sold the instrument.

B-42
<PAGE> 93

The Fund's use of the amortized cost method of valuing its portfolio
securities is permitted by a rule adopted by the SEC. Under this rule, the Fund
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 13 months or less and
invest only in securities determined by the Adviser to be of eligible quality
with minimal credit risks.

The Fund has established procedures reasonably designed, taking into
account current market conditions and the Fund's investment objective, to
stabilize the net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Trustees, at such intervals as the
Fund or the Trustees deem appropriate, to determine the extent, if any, to which
the new asset value per share calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. In the event such
deviation should exceed four tenths of one percent, the Trustees are required to
promptly consider what action, if any, should be initiated. If the Trustees
believe that the extent of any deviation from a $1.00 amortized cost price per
share may result in material dilution or other unfair results to new or existing
shareholders, it will take such steps as it considers appropriate to eliminate
or reduce these consequences to the extent reasonably practicable. Such steps
may include selling portfolio securities prior to maturity; shortening the
average maturity of the portfolio; withholding or reducing dividends; or
utilizing a net asset value per share determined by using available market
quotations.

DOMESTIC INCOME FUND NET ASSET VALUATION

The net asset value of this Fund is computed by (i) valuing securities
listed or traded on a national securities exchange at the last reported sale
price, or if there has been no sale that day at the last reported bid price,
using prices as of the close of trading on the New York Stock Exchange, (ii)
valuing unlisted securities for which over-the-counter market quotations are
readily available at the most recent bid price as supplied by the National
Association of Securities Dealers Automated Quotations ("NASDAQ") or by
broker-dealers, and (iii) 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 Fund's Trustees.

ASSET ALLOCATION, DOMESTIC INCOME, EMERGING GROWTH, ENTERPRISE, GLOBAL EQUITY,
GROWTH AND INCOME AND REAL ESTATE SECURITIES FUNDS NET ASSET VALUATION

The net asset value of these Funds is computed by (i) valuing securities
listed or traded on a national securities exchange at the last reported sale
price, or if there has been no sale that day at the last reported bid price,
using prices as of the close of trading on the New York Stock Exchange, (ii)
valuing unlisted securities for which over-the-counter market quotations are
readily available at the most recent bid price as supplied by NASDAQ or by
broker-dealers, and (iii) valuing any securities for which market quotations are
readily available, and any other assets at fair value as determined in good
faith by the Trust's Trustees. Options, futures contracts and options thereon,
which are traded on exchanges, are valued at their last sale or settlement price
as of the close of such exchanges or if no sales are reported, at the mean
between the last reported bid and asked prices. Securities with a remaining
maturity of 60 days or less are valued on an amortized cost basis, which
approximates market value. Securities for which market quotations are not
readily available, and any other assets are valued at fair value as determined
in good faith by the Trust's Trustees.

With respect to certain Funds, 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.

B-43
<PAGE> 94

GOVERNMENT FUND NET ASSET VALUATION

U.S. Government securities are traded in the over-the-counter market and
are valued at the last available bid price. Such valuations are based on
quotations of one or more dealers that make markets in the securities as
obtained from such dealers or from a pricing service. Options, interest rate
futures contracts and options thereon, which are traded on exchanges, are valued
at their last sale or settlement price as of the close of such exchanges or if
no sales are reported, at the mean between the last reported bid and asked
prices. Securities with a remaining maturity of 60 days or less are valued on an
amortized cost basis, which approximates market value. Securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Trust's Trustees. Such
valuations and procedures will be reviewed periodically by the Trustees.

PURCHASE AND REDEMPTION OF SHARES

The purchase of shares of the Funds 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

Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code"). By so qualifying, a Fund
will not be subject to Federal income taxes on amounts paid by it as dividends
and distributions to the Account. Each 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 each 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 that Fund's total assets. Similar but slightly different investment
requirements apply to each Fund because it provides benefits under variable life
insurance policies. Additional requirements applicable to the Government Fund
are described in the Prospectus under "Government Fund-General." The Trust will
endeavor to ensure that each 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.

Each 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.
Each Fund intends to distribute sufficient amounts to avoid liability for the
excise tax.

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.

B-44
<PAGE> 95

With respect to certain Funds, the Fund may qualify for and may make the
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 of 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.

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 Trust with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Trust that he has provided a correct
taxpayer identification number and that 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 certain Funds 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 a 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 a 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.

Certain of the Funds' transactions in options, futures contracts, and
options on futures contracts, particularly hedging transactions, may constitute
"straddles" which are defined in the Internal Revenue 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

B-45
<PAGE> 96

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.

FUND PERFORMANCE

The Adviser has agreed so long as it serves as adviser to the Fund to limit
the ordinary business expenses of the Asset Allocation Fund, the Domestic Income
Fund, the Enterprise Fund, the Government Fund, the Money Market Fund to 0.60%
per year of the average net assets of each such Fund by reducing the advisory
fee and/or bearing other expenses of a Fund in excess of such limitation.

The Government Fund's average annual total returns (computed in the manner
described in the Prospectus) for the one-year, five-year and the
nine-year-and-nine-month period ended December 31, 1995 were 17.17%, 8.17% and
7.37%, respectively.

The Domestic Income Fund's average annual total returns (computed in the
manner described in the Prospectus) for the one-year, five-year and the
eight-year-and-one-half-month period ended December 31, 1995, were 21.37%,
12.99% and 8.08%, respectively. These results are based on historical earnings
and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of the Fund's
investment objectives and policies as well as the risks incurred in the Fund's
investment practices.

The Enterprise Fund's average annual total returns (computed in the manner
described in the Prospectus) for the one-year, five-year and
nine-year-and-nine-month period ended December 31, 1995 were 36.98%, 16.16% and
9.83%, respectively.

The Asset Allocation Fund's average annual total returns (computed in the
manner described in the Prospectus) for the one-year, five-year and the
eight-and-six-month period ended December 31, 1995 were 31.36%, 13.19% and
10.49%, respectively. Future results will be affected by changes in the general
level of prices of securities available for purchase. These periods have been
ones of fluctuating common stock prices.

The Government Fund's and the Domestic Income Fund's annualized current
yields for the 30-day period ended December 31, 1995 were 5.99% and 7.97%,
respectively. The Funds' yields are not fixed and will fluctuate in response to
prevailing interest rates and the market value of portfolio securities, and as a
function of the type of securities owned by the Fund, portfolio maturity and the
Fund's expenses.

The Emerging Growth Fund's, the Global Equity Fund's and the Real Estate
Securities Fund's average annual total return (computed in the manner described
in the Prospectus) for the period July 3, 1995 through December 31, 1995 was
17.10%, 3.10% and 8.35%, respectively.

From time to time VKAC will announce the results of monthly polls of U.S.
investor intentions -- the Van Kampen American Capital Index of Investor
Intentions and the Van Kampen American Capital Mutual Fund Index -- which polls
measure how Americans plan to use their money.

From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors, and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality,
received by American Capital in 1994.

From time to time, in reports or other communications, or in advertising or
sales materials the Adviser may graphically illustrate the relative average
annual returns of the following categories for the prior ten-year period:
Inflation, Short-Term Government Securities, Long-Term Government Securities,
Equity REITs and Common Stocks.

The Growth and Income Fund commence operations after the end of fiscal year
1995.

B-46
<PAGE> 97

MONEY MARKET FUND YIELD INFORMATION

The Money Market Fund's annualized current yield for the seven-day period
ending December 31, 1995 was 5.02%. Its compound effective yield for the same
period was 5.14%.

The yield of the Fund is its net income expressed in annualized terms. The
Securities and Exchange Commission requires by rule that a yield quotation set
forth in an advertisement for a "money market" fund be computed by a
standardized method based on a historical seven calendar day period. The
standardized yield is computed by determining the net change (exclusive of
realized gains and losses and unrealized appreciation and depreciation) in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by 365/7. The
determination of net change in account value reflects the value of additional
shares purchased with dividends from the original share, dividends declared on
both the original share and such additional shares, and all fees that are
charged to all shareholder accounts, in proportion to the length of the base
period and the Fund's average account size. The Fund may also calculate its
effective yield by compounding the unannualized base period return (calculated
as described above) by adding 1 to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one.

The yield quoted at any time represents the amount being earned on a
current basis for the indicated period and is a function of the types of
instruments in the Fund, their quality and length of maturity, and the Fund's
operating expenses. The length of maturity for the Fund is the average dollar
weighted maturity of the Fund. This means that the Fund has an average maturity
of a stated number of days for all of its issues. The calculation is weighted by
the relative value of the investment.

The yield fluctuates daily as the income earned on the investments of the
Fund fluctuates. Accordingly, there is no assurance that the yield quoted on any
given occasion will remain in effect for any period of time. It should also be
emphasized that the Fund is an open-end investment company and that there is no
guarantee that the net asset value will remain constant. A shareholder's
investment in the Fund is not insured. Investors comparing results of the Fund
with investment results and yields from other sources such as banks or savings
and loan associations should understand this distinction. The yield quotation
may be of limited use for comparative purposes because it does not reflect
charges imposed at the Account level which, if included, would decrease the
yield.

Other portfolios of the money market type as well as banks and savings and
loan associations may calculate their yield on a different basis, and the yield
quoted by the Fund could vary upwards or downwards if another method of
calculation or base period were used.

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 -- Semi-annual 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 Fund, performs an annual audit of the
Fund's financial statements.

B-47
<PAGE> 98

FINANCIAL STATEMENTS

The attached financial statements are in the form in which they appear in
the Annual Report to Shareholders including the related report of Independent
Accountants.

B-48
<PAGE> 99

APPENDIX

Description of the highest commercial paper, bond and other short- and
long-term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Services, Inc ("Moody's"), Fitch Investors Service, Inc.
("Fitch"), Duff and Phelps, Inc. ("Duff") and IBCA Limited and IBCA Inc.
("IBCA");

COMMERCIAL PAPER AND SHORT-TERM RATINGS

The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.

The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations and ordinarily will established industries,
high rates of return of portfolios employed, conservative well established
industries, high rates of return of portfolios employed, conservative
capitalization structures with moderate reliance on debt and ample asset
protection, broad margins in earnings coverage of fixed financial charges and
high internal cash generation, and well established access to a range of
financial markets and assured sources of alternate liquidity. Issues rated
Prime-2 (P-2) have a strong capacity for repayment of short-term promissory
obligations. This ordinarily will be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.

The rating Duff-1 is the highest commercial paper rating assigned by Duff,
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors small.

The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. The designation A2 by
IBCA indicates that the obligation is supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.

BOND AND LONG-TERM RATINGS

Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay principal and interest. Bonds
rated AA by S&P are judged by S&P to have a very strong capacity to pay
principal and interest and, in the majority of instances, differ only in small
degrees from issues rated AAA.

Bonds which are rated Aaa by Moody's are judged to be of the best quality.
Bonds are rated Aa by Moody's are judged by Moody's 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 Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in

B-49
<PAGE> 100

the higher end of this rating category, the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates a ranking in the lower end of the rating
category.

Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.

Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.

Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated AA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.

IBCA also assigns a rating to certain international and U.S. banks. An IBCA
bank rating represents IBCA's current assessment of the strength of the bank and
whether such bank would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system comprised of Legal
Rating and Individual Ratings. In addition, IBCA assigns banks Long- and
Short-Term Ratings as used in the corporate ratings discussed above. Legal
Ratings, which range in gradation from 1 through 5, address the question of
whether the bank would receive support by central banks or shareholders if it
experienced difficulties, and such ratings are considered by IBCA to be a prime
factor in its assessment of credit risk. Individual Ratings, which range in
gradations from A through E, represent IBCA's assessment of a bank's economic
merits and address the question of how the bank would be viewed if it were
entirely independent and could not rely on support from state authorities or its
owners.

B-50
<PAGE> 101

COMMON STOCK FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK AND EQUIVALENTS 94.6%
CONSUMER DISTRIBUTION 5.1%
*7 Best Buy, Inc......................................... $ 112,125
8 Dayton Hudson Corp.................................... 607,500
9 Gap, Inc.............................................. 373,800
*21 Kroger Co............................................. 795,000
10 May Department Stores Co.............................. 401,375
12 Sears, Roebuck & Co................................... 479,700
*11 Sports & Recreation, Inc.............................. 81,225
46 Wal-Mart Stores, Inc.................................. 1,024,775
-----------
3,875,500
-----------
CONSUMER DURABLES 3.8%
11 Chrysler Corp......................................... 592,512
20 Ford Motor Co......................................... 582,900
24 General Motors Corp................................... 1,290,150
15 Newell Co............................................. 385,538
-----------
2,851,100
-----------
CONSUMER NON-DURABLES 7.7%
4 Clorox Co............................................. 286,500
9 Colgate-Palmolive Co.................................. 646,300
28 Dial Corp............................................. 820,612
5 General Mills, Inc.................................... 306,075
15 Nabisco Holdings Corp., Class A....................... 473,063
22 Philip Morris Companies, Inc.......................... 1,954,800
22 Quaker Oats Co........................................ 759,000
4 Ralston-Purina Group.................................. 224,550
8 Tambrands, Inc........................................ 358,125
-----------
5,829,025
-----------
CONSUMER SERVICES 4.9%
*29 Cox Communications, Inc............................... 557,700
5 Disney (Walt) Co...................................... 283,200
9 Harcourt General, Inc................................. 381,063
*3 ITT Corp.............................................. 180,200
9 Marriott International, Inc........................... 344,250
2 McGraw Hill, Inc...................................... 174,250
11 New York Times Co., Class A........................... 319,950
40 Time Warner, Inc...................................... 1,511,213
-----------
3,751,826
-----------
ENERGY 14.9%
7 Amoco Corp............................................ 488,750
3 Atlantic Richfield Co................................. 299,025
11 Baker Hughes, Inc..................................... 258,375
17 Coastal Corp.......................................... 644,425
15 Exxon Corp............................................ 1,177,837
7 Halliburton Co........................................ 369,562
6 Mobil Corp............................................ 627,200
20 Noble Affiliates, Inc................................. 597,500
15 Norsk Hydro, SA, ADR.................................. 615,563
20 Occidental Petroleum Corp............................. 427,500
9 Pacific Enterprises................................... 240,125
</TABLE>

See Notes to Financial Statements

F-1

<PAGE> 102

COMMON STOCK FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
27 Panhandle Eastern Corp................................ $ 741,475
17 Pogo Producing Co..................................... 483,075
11 Repsol SA, ADR........................................ 361,625
10 Royal Dutch Petroleum Co., ADR........................ 1,411,250
7 Schlumberger, Ltd..................................... 463,975
17 Sonat, Inc............................................ 619,875
12 Texaco, Inc........................................... 949,850
4 Tosco Corp............................................ 156,313
11 Total, SA, ADR........................................ 384,200
-----------
11,317,500
-----------
FINANCE 11.5%
7 Aetna Life & Casualty Co.............................. 463,975
6 Allmerica Financial Corp.............................. 148,500
20 Allstate Corp......................................... 825,749
6 AMBAC, Inc............................................ 281,250
4 American Bankers Insurance Group...................... 163,800
5 American International Group, Inc..................... 457,875
5 BankAmerica Corp...................................... 310,800
7 Bankers Trust New York Corp........................... 445,550
24 Bear Stearns Companies, Inc........................... 482,962
*189 Chase Manhattan Corp., warrants (expiring 6/30/96).... 4,938
12 Chemical Banking Corp................................. 722,625
7 Federal National Mortgage Association................. 819,225
7 Fleet Financial Group, Inc............................ 277,100
11 Franklin Resources, Inc............................... 539,012
15 Great Western Financial Corp.......................... 369,750
9 Morgan (J.P.) & Co., Inc.............................. 738,300
19 Providian Corp........................................ 757,950
14 St. Paul Companies, Inc............................... 750,938
5 SunAmerica, Inc....................................... 213,750
-----------
8,774,049
-----------
HEALTH CARE 8.5%
5 American Home Products Corp........................... 455,900
*5 Amgen, Inc............................................ 267,187
6 Bristol-Myers Squibb Co............................... 532,425
63 Caremark International, Inc........................... 1,134,625
25 Community Psychiatric Centers......................... 305,025
27 Mallinckrodt Group, Inc............................... 978,488
9 Merck & Co., Inc...................................... 618,050
4 Pfizer, Inc........................................... 264,600
10 Pharmacia & Upjohn, Inc............................... 393,313
8 Schering-Plough Corp.................................. 448,950
*14 Tenet Healthcare Corp................................. 286,350
8 Warner-Lambert Co..................................... 786,713
-----------
6,471,626
-----------
PRODUCER MANUFACTURING 9.1%
4 Emerson Electric Co................................... 318,825
5 Fluor Corp............................................ 330,000
10 Foster Wheeler Corp................................... 425,000
19 General Electric Co................................... 1,389,600
7 Honeywell, Inc........................................ 325,788
</TABLE>

See Notes to Financial Statements

F-2

<PAGE> 103

COMMON STOCK FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
*3 ITT Industries........................................ $ 81,600
10 Rockwell International Corp........................... 528,750
11 TRW, Inc.............................................. 829,250
*10 Varity Corp........................................... 378,675
76 WMX Technologies, Inc................................. 2,282,450
-----------
6,889,938
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 11.9%
4 Air Products & Chemicals., Inc........................ 216,275
24 Barrick Gold Corp..................................... 635,637
14 Boise Cascade Corp.................................... 495,137
7 Consolidated Papers................................... 381,650
*2 Crown Vantage, Inc.................................... 33,487
16 Du Pont (E.I) de Nemours & Co, Inc.................... 1,124,987
9 Freeport McMoRan, Inc., Copper and Gold, Class B...... 244,687
8 Georgia-Pacific Corp.................................. 562,725
9 Homestake Mining and Gold............................. 146,875
20 International Paper Co................................ 757,500
51 James River Corp...................................... 1,218,313
7 Mead Corp............................................. 339,625
7 Monsanto Co........................................... 796,250
7 Nalco Chemical Co..................................... 201,838
4 Newmont Gold Co....................................... 192,500
9 Nucor Corp............................................ 491,275
13 Union Camp Corp....................................... 600,075
6 Union Carbide Corp.................................... 217,500
7 Willamette Industries, Inc............................ 388,125
-----------
9,044,461
-----------
TECHNOLOGY 4.6%
3 Avnet, Inc............................................ 152,150
*10 Gateway 2000, Inc..................................... 254,800
13 General Dynamics Corp................................. 762,712
7 General Motors Corp., Class H......................... 343,875
4 Hewlett-Packard Co.................................... 293,125
4 Intel Corp............................................ 215,650
8 International Business Machines Corp.................. 743,175
*11 LSI Logic Corp........................................ 363,525
4 Motorola, Inc......................................... 228,000
*8 National Semiconductor Corp........................... 171,325
-----------
3,528,337
-----------
TRANSPORTATION 1.0%
*4 AMR Corp.............................................. 311,850
3 Canadian National Railway............................. 48,000
10 Illinois Central Corp................................. 364,563
-----------
724,413
-----------
UTILITIES 11.6%
4 American Electric Power, Inc.......................... 170,100
7 Ameritech Corp........................................ 383,500
13 AT&T Corp............................................. 867,650
6 Bell Atlantic Corp.................................... 374,500
9 Bellsouth Corp........................................ 391,500
</TABLE>

See Notes to Financial Statements

F-3

<PAGE> 104

COMMON STOCK FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares
(000) Description Market Value
- -------------------------------------------------------------------------------
<C> <S> <C>
1 Boston Edison Co..................................... $ 38,350
4 Carolina Power & Light Co............................ 131,100
4 Central & South West Corp............................ 103,137
3 CMS Energy Group..................................... 80,662
4 Detroit Edison Co.................................... 151,800
9 FPL Group, Inc....................................... 426,650
11 Frontier Corp........................................ 315,000
2 General Public Utilities Corp........................ 78,200
8 Illinova Corp........................................ 249,000
22 MCI Communications Corp.............................. 569,525
3 New York State Electric & Gas Corp................... 77,625
2 NIPSCO Industries, Inc............................... 76,500
2 Northern State Power................................. 78,600
7 NYNEX Corp........................................... 356,400
3 Ohio Edison Co....................................... 77,550
2 Oklahoma Gas & Electric Co........................... 77,400
6 Pacific Telesis Group................................ 188,300
4 Pacificorp........................................... 80,750
20 Peco Energy Co....................................... 608,525
3 Pinnacle West Capital Corp........................... 80,500
3 Public Service Co. of Colorado....................... 106,125
11 Public Service Co. of New Mexico..................... 193,875
3 Rochester Gas & Electric Co.......................... 72,400
7 SBC Communications, Inc.............................. 379,500
3 Southwestern Public Service Co....................... 81,875
24 Sprint Corp.......................................... 964,975
9 Telefonica de Espana, SA, ADR........................ 381,063
3 Texas Utilities Co................................... 115,150
7 US West Communications Group......................... 250,250
2 Unicom Corp.......................................... 75,325
*5 WorldCom, Inc........................................ 172,725
-----------
8,826,087
-----------
TOTAL COMMON STOCK AND EQUIVALENTS (Cost
$62,609,418)......................................... 71,883,862
-----------
Par
Amount
(000)
------
REPURCHASE AGREEMENTS 5.4%
$4,145 Lehman Government Securities, Inc., dated 12/29/95,
5.85%, due 01/02/96, (collateralized by U.S.
Government obligations in a pooled cash account)
repurchase proceeds $4,147,694
(Cost $4,145,000).................................... 4,145,000
-----------
TOTAL INVESTMENTS (Cost $66,754,418) 100.0%..................... 76,028,862
OTHER ASSETS AND LIABILITIES, NET 0.0%.......................... (19,002)
-----------
NET ASSETS 100%................................................. $76,009,860
-----------
</TABLE>

* Non-income producing security

F-4

See Notes to Financial Statements

<PAGE> 105

COMMON STOCK FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $66,754,418).................... $76,028,862
Cash............................................................... 745
Receivable for investments sold.................................... 165,995
Dividends and interest receivable.................................. 154,343
Other assets....................................................... 20,403
-----------
Total Assets...................................................... 76,370,348
-----------
LIABILITIES
Payable for investments purchased.................................. 200,775
Payable for Fund shares redeemed................................... 66,703
Due to Adviser..................................................... 26,292
Deferred Trustees' compensation.................................... 20,167
Due to shareholder service agent................................... 1,200
Accrued expenses................................................... 45,351
-----------
Total Liabilities................................................. 360,488
-----------
NET ASSETS, equivalent to $14.69 per share......................... $76,009,860
-----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 5,173,759 shares outstanding................... $ 51,738
Capital surplus.................................................... 64,118,310
Undistributed net realized gain on securities...................... 2,532,183
Net unrealized appreciation of securities.......................... 9,274,444
Undistributed net investment income................................ 33,185
-----------
NET ASSETS......................................................... $76,009,860
-----------
</TABLE>

F-5
See Notes to Financial Statements

<PAGE> 106

COMMON STOCK FUND FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends..................................................... $ 1,632,554
Interest...................................................... 259,259
-----------
Investment income............................................ 1,891,813
-----------
EXPENSES
Management fees............................................... 355,715
Shareholder service agent's fees and expenses................. 15,940
Accounting services........................................... 55,772
Trustees' fees and expenses................................... 13,161
Audit fees.................................................... 14,703
Custodian fees................................................ 16,307
Legal fees.................................................... 3,795
Reports to shareholders....................................... 7,487
Miscellaneous................................................. 657
Expense reimbursement......................................... (56,680)
-----------
Total expenses............................................... 426,857
-----------
NET INVESTMENT INCOME......................................... 1,464,956
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities............................... 10,869,574
Net unrealized appreciation of securities during the period... 9,837,636
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES................ 20,707,210
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $22,172,166
-----------
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period...................... $67,471,922 $72,259,545
----------- -----------
OPERATIONS
Net investment income............................... 1,464,956 1,190,278
Net realized gain on securities..................... 10,869,574 6,950,717
Net unrealized appreciation (depreciation) of
securities during the period........................ 9,837,636 (10,647,731)
----------- -----------
Increase (decrease) in net assets resulting from
operation.......................................... 22,172,166 (2,506,736)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income............................... (1,446,938) (1,197,291)
Net realized gain on securities..................... (8,808,250) (6,788,651)
----------- -----------
(10,255,188) (7,985,942)
----------- -----------
CAPITAL TRANSACTIONS
Proceeds from shares sold........................... 6,340,082 11,714,030
Proceeds from shares issued for distributions
reinvested.......................................... 10,255,188 7,985,942
Cost of shares redeemed............................. (19,974,310) (13,994,917)
----------- -----------
Increase (decrease) in net assets from capital
transactions....................................... (3,379,040) 5,705,055
----------- -----------
INCREASE (DECREASE) IN NET ASSETS.................... 8,537,938 (4,787,623)
----------- -----------
NET ASSETS, end of period (including undistributed
net investment income of $33,185
and $15,167, respectively).......................... $76,009,860 $67,471,922
----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares sold.......................................... 438,275 827,085
Shares issued for distributions reinvested........... 703,905 648,452
Shares redeemed...................................... (1,413,351) (989,273)
----------- -----------
Increase (decrease) in capital shares outstanding.. (271,171) 486,264
----------- -----------
</TABLE>

F-6
See Notes to Financial Statements

<PAGE> 107

COMMON STOCK FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $12.39 $14.57 $14.21 $13.44 $10.09
------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... .41 .33 .30 .31 .335
Expenses............................ (.10) (.09) (.11) (.10) (.10)
Expense reimbursement(/1/).......... .01 .01 .02 .02 .03
------- ------- ------ ------ ------
Net investment income................ .32 .25 .21 .23 .265
Net realized and unrealized gain
(loss) on securities................ 4.22 (.7625) 1.0325 .77 3.37
------- ------- ------ ------ ------
Total from investment operations..... 4.54 (.5125) 1.2425 1.00 3.635
------- ------- ------ ------ ------
LESS DISTRIBUTIONS FROM
Net investment income............... (.3175) (.25) (.215) (.23) (.285)
Net realized gain on securities..... (1.9225) (1.4175) (.6675) -- --
------- ------- ------ ------ ------
Total distributions.................. (2.24) (1.6675) (.8825) (.23) (.285)
------- ------- ------ ------ ------
Net asset value, end of period....... $14.69 $12.39 $14.57 $14.21 $13.44
------- ------- ------ ------ ------
TOTAL RETURN......................... 36.98% (3.39%) 8.98% 7.48% 36.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions). $76.0 $67.5 $72.3 $65.6 $57.8
Average net assets (millions)........ $71.1 $69.3 $69.0 $58.0 $36.4
Ratios to average net assets(/1/)
Expenses............................ .60% .60% .60% .60% .60%
Expenses, without expense
reimbursement...................... .68% .68% .72% .74% .90%
Net investment income............... 2.06% 1.72% 1.41% 1.78% 2.33%
Net investment income, without
expense reimbursement.............. 1.98% 1.64% 1.29% 1.64% 2.03%
Portfolio turnover rate.............. 145% 153% 139% 116% 95%
</TABLE>

(1) See Note 2.

F-7
See Notes to Financial Statements

<PAGE> 108

DOMESTIC STRATEGIC INCOME FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 84.4%
CONSUMER DISTRIBUTION 12.8%
$ 500 Americold Corp......................... 15.000% 05/01/07 $ 500,000
500 Borden, Inc. .......................... 7.875 02/15/23 475,100
300 ConAgra, Inc. ......................... 9.750 03/01/21 392,127
500 Nabisco, Inc........................... 7.550 06/15/15 522,950
500 Ralphs Grocery Co...................... 13.750 06/15/05 535,000
500 Specialty Retailers, Inc............... 11.000 08/15/03 465,000
500 Sysco Corp............................. 6.500 06/15/05 516,620
-----------
3,406,797
-----------
CONSUMER NON-DURABLES 5.4%
500 Dr Pepper/Seven-Up Companies, Inc...... ** 11/01/02 470,625
500 Fieldcrest Cannon, Inc................. 11.250 06/15/04 465,000
500 Westpoint Stevens...................... 9.375 12/15/05 491,875
-----------
1,427,500
-----------
CONSUMER SERVICES 18.2%
500 Continental Cablevision (private
placement, purchased on 12/08/95)...... 8.300 05/15/06 502,500
500 Cox Communications, Inc................ 7.250 11/15/15 518,150
500 New York Times Co...................... 8.250 03/15/25 575,300
500 News America Holdings, Inc............. 10.125 10/15/12 612,870
500 Petro PSC Properties................... 12.500 06/01/02 475,000
500 TCI Communications, Inc................ 8.750 08/01/15 554,200
500 Time Warner, Inc....................... 9.125 01/15/13 563,350
500 Valassis Communications, Inc........... 9.550 12/01/03 516,950
500 Viacom, Inc............................ 7.625 01/15/16 505,900
-----------
4,824,220
-----------
ENERGY 14.1%
300 Coastal Corp. ......................... 10.250 10/15/04 373,170
500 HS Resources, Inc...................... 9.875 12/01/03 492,500
500 Occidental Petroleum Corp.............. 10.125 11/15/01 597,350
500 PDV America, Inc....................... 7.875 08/01/03 503,800
500 Plains Resources, Inc.................. 12.000 10/01/99 526,250
500 Texaco Capital, Inc.................... 8.625 06/30/10 615,900
250 Union Oil Co. of California............ 9.250 02/01/03 292,500
350 Vintage Petroleum...................... 9.000 12/15/05 354,375
-----------
3,755,845
-----------
FINANCE 2.8%
247 Blue Bell Funding, Inc................. 11.850 05/01/99 217,360
500 Phoenix Re Corp........................ 9.750 08/15/03 532,500
-----------
749,860
-----------
HEALTH CARE 3.0%
500 Quorum Health Group.................... 11.875 12/15/02 561,250
200 Tenet Healthcare Corp.................. 10.125 03/01/05 221,250
-----------
782,500
-----------
</TABLE>

F-8
See Notes to Financial Statements

<PAGE> 109

DOMESTIC STRATEGIC INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING
INDUSTRIES 11.4%
$ 500 Boise Cascade Corp................. 9.450% 11/01/09 $ 622,100
500 Georgia-Pacific Corp. ............. 9.950 06/15/02 598,080
400 IMC Fertilizer Group, Inc.......... 9.450 12/15/11 429,000
500 Noranda, Inc....................... 8.125 06/15/04 554,200
500 Smurfit Capital Funding............ 6.750 11/20/05 513,000
265 UCAR Global Enterprise, Inc........ 12.000 01/15/05 304,088
-----------
3,020,468
-----------
TECHNOLOGY 1.8%
500 Unisys Corp........................ 13.500 07/01/97 476,250
-----------
TRANSPORTATION 11.9%
500 Delta Air Lines, Inc............... 9.750 05/15/21 619,350
500 International Shipholding Corp..... 9.000 07/01/03 500,000
350 Kansas City Southern Industries,
Inc................................ 8.800 07/01/22 394,975
250 Southern Pacific Rail Corp......... 9.375 08/15/05 271,875
500 Southwest Airlines Co.............. 9.400 07/01/01 577,050
500 Union Pacific Co................... 8.350 05/01/25 560,400
200 United Air Lines, Inc., Series
1991-A............................. 10.020 03/22/14 240,760
-----------
3,164,410
-----------
UTILITIES 3.0%
350 Monongahela Power Co. ............. 8.375 07/01/22 396,515
350 Public Service Co. of Colorado..... 8.750 03/01/22 409,255
-----------
805,770
-----------
TOTAL CORPORATE OBLIGATIONS (Cost $21,173,889)..... 22,413,620
-----------
GOVERNMENT OBLIGATIONS 15.0%
*1,000 Federal National Mortgage
Association, Forward............... 7.500 12/31/23 1,024,380
1,010 Federal National Mortgage
Association, Pool.................. 10.000 04/01/21 1,109,506
350 Province of Newfoundland (Canada).. 8.650 10/22/22 417,445
350 Province of Saskatchewan (Canada).. 8.000 02/01/13 398,160
(/1/)1,000 United States Treasury Notes....... 6.750 06/30/99 1,045,470
-----------
TOTAL GOVERNMENT OBLIGATIONS (Cost $3,789,708)..... 3,994,961
-----------
</TABLE>

F-9
See Notes to Financial Statements

<PAGE> 110

DOMESTIC STRATEGIC INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON AND PREFERRED STOCK 0.9%
2,226 Arcadian Corp....................... $ 43,129
*2,500 F F Holdings Co. (private placement,
purchased on 10/6/92)............... 5,000
*6,889 Supermarkets General Holdings Corp.,
$3.52 preferred stock, Payment in
Kind (cost $166,940)................ 199,781
-----------
TOTAL COMMON AND PREFERRED STOCK (Cost $184,374)..... 247,910
-----------
<CAPTION>
Par
Amount
(000)
- ------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT 1.7%
$ 445 Lehman Government Securities, Inc.,
dated 12/29/95 (collateralized by
U.S. Government obligations in a
pooled cash account) repurchase
proceeds $445,289 (Cost $445,000)... 5.850% 01/02/96 445,000
-----------
TOTAL INVESTMENTS (Cost $25,592,971) 102.0%.................... 27,101,491
OTHER ASSETS AND LIABILITIES, NET (2.0%)....................... (539,196)
-----------
NET ASSETS 100%................................................ $26,562,295
-----------
</TABLE>

*Non-income producing security.
**Zero Coupon

(/1/)Security with a market value of $1.0 million was placed as collateral for
forward commitments (see Note 1B).

F-10
See Notes to Financial Statements

<PAGE> 111

DOMESTIC STRATEGIC INCOME FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investment, at market value (Cost $25,592,971).................... $27,101,491
Cash.............................................................. 554
Receivable for investments sold................................... 2,037,500
Interest receivable............................................... 492,763
Receivable for Fund shares sold................................... 10,183
Other assets...................................................... 18,339
-----------
Total Assets..................................................... 29,660,830
-----------
LIABILITIES
Payable for investments purchased................................. 3,026,250
Deferred Trustees' compensation................................... 15,505
Due to Adviser.................................................... 9,728
Payable for Fund shares redeemed.................................. 1,635
Due to shareholder service agent.................................. 1,155
Accrued expenses and other liabilities............................ 44,262
-----------
Total Liabilities................................................ 3,098,535
-----------
NET ASSETS, equivalent to $8.21 per share......................... $26,562,295
-----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 3,235,694 shares outstanding.................. $ 32,357
Capital surplus................................................... 27,033,560
Accumulated net realized loss on securities....................... (2,028,673)
Net unrealized appreciation of securities......................... 1,508,520
Undistributed net investment income............................... 16,531
-----------
NET ASSETS........................................................ $26,562,295
-----------
</TABLE>

F-11
See Notes to Financial Statements

<PAGE> 112

DOMESTIC STRATEGIC INCOME FUND FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
- ----------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest.................. $2,263,167
Dividends................. 3,821
----------
Investment income....... 2,266,988
----------
EXPENSES
Management fees........... 130,064
Shareholder service
agent's fees and expenses. 15,840
Accounting services....... 49,819
Trustees' fees and
expenses.................. 11,467
Audit fees................ 20,124
Custodian fees............ 3,969
Legal fees................ 3,948
Reports to shareholders... 6,212
Miscellaneous............. 1,520
Expense reimbursement..... (86,887)
----------
Total expenses.......... 156,076
----------
NET INVESTMENT INCOME..... 2,110,912
----------
REALIZED AND UNREALIZED
GAIN ON SECURITIES
Net realized gain on
securities................ 222,049
Net unrealized
appreciation of securities
during the period......... 2,671,771
----------
NET REALIZED AND
UNREALIZED GAIN ON
SECURITIES............... 2,893,820
----------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $5,004,732
----------
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period...................... $21,273,969 $27,443,291
----------- -----------
OPERATIONS
Net investment income............................... 2,110,912 2,178,975
Net realized gain (loss) on securities.............. 222,049 (857,071)
Net unrealized appreciation (depreciation) of secu-
rities during the period........................... 2,671,771 (2,543,211)
----------- -----------
Increase (decrease) in net assets resulting from
operations...................................... 5,004,732 (1,221,307)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME.............................................. (2,098,216) (2,170,097)
----------- -----------
CAPITAL TRANSACTIONS
Proceeds from shares sold........................... 7,719,168 9,066,088
Proceeds from shares issued for distributions rein-
vested............................................. 2,098,217 2,170,097
Cost of shares redeemed............................. (7,435,575) (14,014,103)
----------- -----------
Increase (decrease) in net assets from capital
transactions.................................... 2,381,810 (2,777,918)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS.................... 5,288,326 (6,169,322)
----------- -----------
NET ASSETS, end of period (including undistributed
net investment income of $16,531
and $11,622, respectively).......................... $26,562,295 $21,273,969
----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares sold.......................................... 997,934 1,100,823
Shares issued for distributions reinvested........... 258,208 296,939
Shares redeemed...................................... (915,148) (1,700,172)
----------- -----------
Increase (decrease) in capital shares outstanding... 340,994 (302,410)
----------- -----------
</TABLE>

F-12
See Notes to Financial Statements

<PAGE> 113

DOMESTIC STRATEGIC INCOME FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.......................... $7.35 $8.58 $8.00 $7.74 $6.98
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income............... .76 .91 .77 .74 .725
Expenses........................ (.08) (.10) (.09) (.07) (.07)
Expense reimbursement(/1/)...... .03 .04 .04 .02 .03
------- ------- ------- ------- -------
Net investment income............ .71 .85 .72 .69 .685
Net realized and unrealized gain
(loss) on securities............ .8525 (1.2275) .5825 .2725 .7525
------- ------- ------- ------- -------
Total from investment operations. 1.5625 (.3775) 1.3025 .9625 1.4375
------- ------- ------- ------- -------
LESS DISTRIBUTIONS FROM NET
INVESTMENT INCOME............... (.7025) (.8525) (.7225) (.7025) (.6775)
------- ------- ------- ------- -------
Net asset value, end of period... $8.21 $7.35 $8.58 $8.00 $7.74
------- ------- ------- ------- -------
TOTAL RETURN..................... 21.37% (4.33%) 16.32% 12.50% 21.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)...................... $26.6 $21.3 $27.4 $21.1 $17.4
Average net assets (millions).... $26.0 $26.1 $26.7 $18.8 $10.6
Ratios to average net assets(/1/)
Expenses........................ .60% .60% .60% .60% .60%
Expenses, without expense
reimbursement.................. .93% .95% .95% .95% .95%
Net investment income........... 8.11% 8.35% 7.80% 8.89% 9.72%
Net investment income, without
expense reimbursement.......... 7.78% 8.00% 7.40% 8.54% 9.37%
Portfolio turnover rate.......... 54% 94% 130% 117% 90%
</TABLE>

(1) See Note 2.

F-13
See Notes to Financial Statements

<PAGE> 114

GOVERNMENT FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market
(000) Description Coupon Maturity Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES AGENCY
OBLIGATIONS 64.4%
Federal Home Loan Mortgage
$2,807 Corp., Pools.............. 7.000% 12/31/23 to 07/01/24 $ 2,831,914
Federal Home Loan Mortgage
1,672 Corp., Pools.............. 7.500 06/01/24 to 10/01/24 1,714,248
Federal Home Loan Mortgage
1,900 Corp., Pools.............. 8.000 09/01/24 to 10/01/24 1,968,094
Federal National Mortgage
2,484 Association, CMO.......... 6.294 03/25/09 2,490,878
Federal National Mortgage
2,385 Association, Pool......... 6.274 03/25/09 2,387,947
Federal National Mortgage
**1,928 Association, Pools........ 7.000 12/01/23 to 06/01/24 1,942,177
Federal National Mortgage
1,761 Association, Pools........ 7.500 05/01/24 to 10/01/24 1,804,249
Federal National Mortgage
**3,768 Association, Pools........ 8.000 04/01/24 to 10/01/24 3,902,465
Federal National Mortgage
1,488 Association, Pool......... 11.000 11/01/20 1,663,149
Government National
Mortgage Association,
**6,859 Pools..................... 7.000 04/15/23 to 10/15/24 6,936,058
Government National
Mortgage Association,
**5,493 Pools..................... 7.500 04/15/22 to 06/15/24 5,647,105
Government National
Mortgage Association,
3,278 Pools..................... 8.000 05/15/17 to 11/15/24 3,411,836
Government National
Mortgage Association,
755 Pools..................... 8.500 04/15/17 to 07/15/17 792,886
Government National
Mortgage Association,
307 Pools..................... 11.000 09/15/10 to 08/15/20 343,398
Student Loan Marketing
**5,000 Association............... 7.500 03/08/00 5,357,800
-----------
TOTAL UNITED STATES AGENCY OBLIGATIONS (Cost
$41,578,470)........................................... 43,194,204
-----------
UNITED STATES TREASURY
OBLIGATIONS 26.4%
1,500 Treasury Notes............ 6.250 05/31/00 1,550,385
**6,000 Treasury Notes............ 7.750 12/31/99 6,510,000
**6,000 Treasury Notes............ 7.875 01/15/98 6,304,680
**2,000 Treasury Notes............ 8.000 05/15/01 2,237,180
1,000 Treasury Notes............ 9.000 05/15/98 1,082,660
-----------
TOTAL UNITED STATES TREASURY OBLIGATIONS (Cost
$17,369,531)........................................... 17,684,905
-----------
FORWARD PURCHASE
COMMITMENTS 13.6%
*2,000 Government National
Mortgage Association...... 7.000 settling 01/96 2,022,500
*7,000 United States Treasury
Notes..................... 5.750 settling 01/96 7,064,540
-----------
TOTAL FORWARD PURCHASE COMMITMENTS (Cost $9,026,953)... 9,087,040
-----------
REPURCHASE AGREEMENT 7.8%
5,210 Lehman Government
Securities, Inc., dated
12/29/95 (collateralized
by U.S. Government
obligations in a pooled
cash account) repurchase
proceeds $5,213,387 (Cost
$5,210,000)............... 5.850 01/02/96 5,210,000
-----------
TOTAL INVESTMENTS (Cost $73,184,954) 112.2%.................... 75,176,149
OTHER ASSETS AND LIABILITIES, NET (12.2%)...................... (8,156,941)
-----------
NET ASSETS 100%................................................ $67,019,208
-----------
</TABLE>
*Non-income producing security.
**Securities with a market value of approximately $38.8 million were placed as
collateral for futures contracts and forward purchase commitments (see Note
1B).
ARM--adjustable rate mortgage backed security
CMO--collateralized mortgage obligation

F-14
See Notes to Financial Statements

<PAGE> 115

GOVERNMENT FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments, at market value (Cost $73,184,954).................. $ 75,176,149
Cash............................................................. 4,138
Receivable for investments sold.................................. 5,510,781
Interest receivable.............................................. 916,013
Unrealized appreciation on forward commitments................... 85,020
Receivable from broker for variation margin...................... 51,406
Other assets..................................................... 63,582
------------
Total Assets.................................................... 81,807,089
------------
LIABILITIES
Payable for investments purchased................................ 14,641,583
Unrealized depreciation on forward commitments................... 23,914
Due to Adviser................................................... 21,689
Deferred Trustees' compensation.................................. 20,025
Payable for Fund shares redeemed................................. 19,303
Due to shareholder service agent................................. 1,200
Accrued expenses................................................. 60,167
------------
Total Liabilities............................................... 14,787,881
------------
NET ASSETS, equivalent to $9.06 per share........................ $ 67,019,208
------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share;
unlimited shares authorized; 7,399,648 shares outstanding....... $ 73,996
Capital surplus.................................................. 78,076,858
Accumulated net realized loss on securities...................... (13,544,629)
Net unrealized appreciation of securities
Investments..................................................... 1,991,195
Forward commitments............................................. 61,106
Futures contracts............................................... 345,267
Undistributed net investment income.............................. 15,415
------------
NET ASSETS....................................................... $ 67,019,208
------------
</TABLE>
See Notes to Financial Statements

F-15

<PAGE> 116

GOVERNMENT FUND FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest.................................................... $ 4,992,539
-----------
EXPENSES
Management fees............................................. 333,447
Shareholder service agent's fees and expenses............... 16,066
Accounting services......................................... 57,526
Trustees' fees and expenses................................. 12,049
Audit fees.................................................. 23,204
Custodian fees.............................................. 25,654
Legal fees.................................................. 3,727
Reports to shareholders..................................... 5,233
Miscellaneous............................................... 651
Expense reimbursement....................................... (77,421)
-----------
Total expenses............................................ 400,136
-----------
NET INVESTMENT INCOME....................................... 4,592,403
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments................................................ 387,319
Forward commitments........................................ 1,092,109
Futures contracts.......................................... (221,413)
Net unrealized appreciation of securities during the period
Investments................................................ 4,323,795
Forward commitments........................................ 34,537
Futures contracts.......................................... 347,644
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.............. 5,963,991
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $10,556,394
-----------
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period..................... $65,513,261 $80,630,053
----------- -----------
OPERATIONS
Net investment income.............................. 4,592,403 4,717,706
Net realized gain (loss) on securities............. 1,258,015 (6,083,772)
Net unrealized appreciation (depreciation) of secu-
rities during the period.......................... 4,705,976 (2,217,746)
----------- -----------
Increase (decrease) in net assets resulting from
operations..................................... 10,556,394 (3,583,812)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME............................................. (4,588,452) (4,508,286)
----------- -----------
CAPITAL TRANSACTIONS
Proceeds from shares sold.......................... 2,668,721 3,484,195
Proceeds from shares issued for distributions rein-
vested............................................ 4,588,452 4,508,286
Cost of shares redeemed............................ (11,719,168) (15,017,175)
----------- -----------
Decrease in net assets from capital transactions.. (4,461,995) (7,024,694)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS................... 1,505,947 (15,116,792)
----------- -----------
NET ASSETS, end of period (including undistributed
net investment income of $15,415 and accumulated
net investment loss of $4,137, respectively)....... $67,019,208 $65,513,261
----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares sold......................................... 307,711 405,270
Shares issued for distributions reinvested.......... 524,601 524,430
Shares redeemed..................................... (1,347,594) (1,719,219)
----------- -----------
Decrease in capital shares outstanding............ (515,282) (789,519)
----------- -----------
</TABLE>

F-16
See Notes to Financial Statements

<PAGE> 117

GOVERNMENT FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period... $8.28 $9.26 $9.13 $9.29 $8.70
----- ------ ------ ------- -----
INCOME FROM INVESTMENT OPERATIONS
Investment income..................... .65 .61 .62 .72 .79
Expenses.............................. (.06) (.06) (.06) (.064) (.06)
Expense reimbursement(/1/)............ .01 .01 .01 .009 .01
----- ------ ------ ------- -----
Net investment income.................. .60 .56 .57 .665 .74
Net realized and unrealized gain (loss)
on securities......................... .78 (.985) .135 (.1575) .60
----- ------ ------ ------- -----
Total from investment operations....... 1.38 (.425) .705 .5075 1.34
----- ------ ------ ------- -----
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME................................ (.60) (.555) (.575) (.6675) (.75)
----- ------ ------ ------- -----
Net asset value, end of period......... $9.06 $8.28 $9.26 $9.13 $9.29
----- ------ ------ ------- -----
TOTAL RETURN........................... 17.17% (4.63%) 7.86% 5.73% 16.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)... $67.0 $65.5 $80.6 $74.8 $77.0
Average net assets (millions).......... $66.7 $70.3 $78.6 $74.6 $72.9
Ratios to average net assets(/1/)
Expenses.............................. .60% .60% .60% .60% .60%
Expenses, without expense
reimbursement........................ .72% .70% .70% .70% .70%
Net investment income................. 6.89% 6.71% 6.45% 7.29% 8.37%
Net investment income, without expense
reimbursement........................ 6.77% 6.61% 6.35% 7.19% 8.27%
Portfolio turnover rate................ 164% 192% 91% 36% 57%
</TABLE>

(1) See Note 2.

F-17
See Notes to Financial Statements

<PAGE> 118

MONEY MARKET FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

F-18
See Notes to Financial Statements

<PAGE> 119

MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at amortized cost.................................... $21,612,759
Cash.............................................................. 5,647
Other assets...................................................... 21,548
-----------
Total Assets..................................................... 21,639,954
-----------
LIABILITIES
Deferred Trustees' compensation................................... 18,162
Payable for Fund shares redeemed.................................. 6,873
Due to Adviser.................................................... 2,876
Due to shareholder service agent.................................. 1,215
Accrued expenses.................................................. 35,911
-----------
Total Liabilities................................................ 65,037
-----------
NET ASSETS, equivalent to $1.00 per share......................... $21,574,917
-----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 21,575,617 shares outstanding................. $ 215,756
Capital surplus................................................... 21,359,861
Accumulated net investment loss................................... (700)
-----------
NET ASSETS........................................................ $21,574,917
-----------
</TABLE>

F-19
See Notes to Financial Statements

<PAGE> 120

MONEY MARKET FUND FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period...................... $28,547,675 $29,966,001
----------- -----------
OPERATIONS
Net investment income............................... 1,294,856 1,109,674
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME.............................................. (1,295,753) (1,109,772)
----------- -----------
CAPITAL TRANSACTIONS
Proceeds from shares sold........................... 10,862,643 22,474,029
Proceeds from shares issued for distributions
reinvested......................................... 1,295,753 1,107,713
Cost of shares redeemed............................. (19,130,257) (24,999,970)
----------- -----------
Decrease in net assets from capital transactions... (6,971,861) (1,418,228)
----------- -----------
DECREASE IN NET ASSETS............................... (6,972,758) (1,418,326)
----------- -----------
NET ASSETS, end of period (including accumulated net
investment loss of $700 and undistributed net
investment income of $197, respectively)............ $21,574,917 $28,547,675
----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares sold.......................................... 10,862,643 22,474,029
Shares issued for distributions reinvested........... 1,295,753 1,107,713
Shares redeemed...................................... (19,130,257) (24,999,970)
----------- -----------
Decrease in capital shares outstanding............. (6,971,861) (1,418,228)
----------- -----------
</TABLE>

F-20
See Notes to Financial Statements

<PAGE> 121

MONEY MARKET FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial outstanding throughout each of the
periods indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income..................... .0593 .0425 .0322 .0391 .0607
Expenses.............................. (.0093) (.0087) (.0095) (.009) (.0087)
Expense reimbursement(/1/)............ .0033 .0027 .0035 .003 .0026
------ ------ ------ ------ ------
Net investment income.................. .0533 .0365 .0262 .0331 .0546
------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME................................ (.0533) (.0365) (.0262) (.0331) (.0546)
------ ------ ------ ------ ------
Net asset value, end of period......... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
TOTAL RETURN........................... 5.46% 3.71% 2.66% 3.36% 5.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)... $21.6 $28.5 $30.0 $32.9 $38.0
Average net assets (millions).......... $24.3 $30.5 $28.9 $36.2 $36.3
Ratios to average net assets(/1/)
Expenses.............................. .60% .60% .60% .60% .60%
Expenses, without expense
reimbursement........................ .93% .87% .95% .89% .87%
Net investment income................. 5.33% 3.63% 2.63% 3.32% 5.44%
Net investment income, without expense
reimbursement........................ 5.00% 3.37% 2.28% 3.03% 5.17%
</TABLE>

(1) See Note 2.

F-21
See Notes to Financial Statements

<PAGE> 122

MULTIPLE STRATEGY FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Description Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK 60.2%
CONSUMER DISTRIBUTION 3.3%
*3,900 Best Buy, Inc.......................................... $ 63,375
4,000 Dayton Hudson Corp..................................... 300,000
5,100 Gap, Inc............................................... 214,200
*11,400 Kroger Co.............................................. 427,500
5,100 May Department Stores Co............................... 215,475
6,600 Sears, Roebuck & Co.................................... 257,400
*5,700 Sports & Recreation, Inc............................... 40,613
24,600 Wal-Mart Stores, Inc................................... 550,425
-----------
2,068,988
-----------
CONSUMER DURABLES 2.4%
5,900 Chrysler Corp.......................................... 326,713
10,000 Ford Motor Co.......................................... 290,000
12,200 General Motors Corp.................................... 645,075
8,400 Newell Co.............................................. 217,350
-----------
1,479,138
-----------
CONSUMER NON-DURABLES 4.7%
2,000 Clorox Co.............................................. 143,250
5,000 Colgate-Palmolive Co................................... 351,250
13,400 Dial Corp.............................................. 396,975
2,600 General Mills, Inc..................................... 150,150
7,300 Nabisco Holdings Corp., Class A........................ 238,162
10,800 Philip Morris Companies, Inc........................... 977,400
11,500 Quaker Oats Co......................................... 396,750
1,800 Ralston-Purina Group................................... 112,275
3,700 Tambrands, Inc......................................... 176,675
-----------
2,942,887
-----------
CONSUMER SERVICES 3.1%
*14,400 Cox Communications, Inc................................ 280,800
2,400 Disney (Walt) Co....................................... 141,600
4,600 Harcourt General, Inc.................................. 192,625
*1,500 ITT Corp............................................... 79,500
5,600 Marriott International, Inc............................ 214,200
1,400 McGraw Hill, Inc....................................... 121,975
5,700 New York Times Co., Class A............................ 168,863
19,900 Time Warner, Inc....................................... 753,712
-----------
1,953,275
-----------
</TABLE>

F-22
See Notes to Financial Statements

<PAGE> 123

MULTIPLE STRATEGY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ENERGY 9.3%
3,700 Amoco Corp............................................ $ 265,937
1,400 Atlantic Richfield Co................................. 155,050
5,500 Baker Hughes, Inc..................................... 134,062
9,000 Coastal Corp.......................................... 335,250
7,200 Exxon Corp............................................ 576,900
3,700 Halliburton Co........................................ 187,312
3,100 Mobil Corp............................................ 347,200
10,000 Noble Affiliates, Inc................................. 298,750
7,800 Norsk Hydro, SA, ADR.................................. 326,625
10,200 Occidental Petroleum Corp............................. 218,025
4,400 Pacific Enterprises................................... 124,300
14,300 Panhandle Eastern Corp................................ 398,612
8,500 Pogo Producing Co..................................... 240,125
7,000 Repsol, SA, ADR....................................... 230,125
5,000 Royal Dutch Petroleum Co., ADR........................ 705,625
3,300 Schlumberger, Ltd..................................... 228,525
8,500 Sonat, Inc............................................ 302,812
6,500 Texaco, Inc........................................... 510,250
2,100 Tosco Corp............................................ 80,063
5,900 Total, SA, ADR........................................ 200,600
-----------
5,866,148
-----------
FINANCE 7.4%
3,300 Aetna Life & Casualty Co.............................. 228,525
2,900 Allmerica Financial Corp.............................. 78,300
10,800 Allstate Corp......................................... 444,150
3,000 AMBAC, Inc............................................ 140,625
2,100 American Bankers Insurance Group...................... 81,900
2,700 American International Group, Inc..................... 249,750
2,500 BankAmerica Corp...................................... 161,875
3,500 Bankers Trust New York Corp........................... 232,750
12,200 Bear Stearns Companies, Inc........................... 242,475
6,300 Chemical Banking Corp................................. 370,125
3,300 Federal National Mortgage Association................. 409,612
3,600 Fleet Financial Group, Inc............................ 146,700
7,700 Franklin Resources, Inc............................... 387,888
7,800 Great Western Financial Corp.......................... 198,900
4,900 Morgan (J.P.) & Co., Inc.............................. 393,225
9,400 Providian Corp........................................ 383,050
7,200 St. Paul Companies, Inc............................... 400,500
2,300 SunAmerica, Inc....................................... 109,250
-----------
4,659,600
-----------
HEALTH CARE 5.4%
2,500 American Home Products Corp........................... 242,500
*2,400 Amgen, Inc............................................ 142,500
3,300 Bristol-Myers Squibb Co............................... 283,387
32,400 Caremark International, Inc........................... 587,250
12,500 Community Psychiatric Centers......................... 153,125
13,500 Mallinckrodt Group, Inc............................... 491,063
4,700 Merck & Co., Inc...................................... 309,025
2,200 Pfizer, Inc........................................... 138,600
5,365 Pharmacia & Upjohn, Inc............................... 207,894
5,000 Schering-Plough Corp.................................. 273,750
*7,100 Tenet Healthcare Corp................................. 147,325
4,300 Warner-Lambert Co..................................... 417,638
-----------
3,394,057
-----------
</TABLE>

F-23
See Notes to Financial Statements

<PAGE> 124

MULTIPLE STRATEGY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
PRODUCER MANUFACTURING 6.0%
1,900 Emerson Electric Co................................... $ 155,325
2,600 Fluor Corp............................................ 171,600
5,000 Foster Wheeler Corp................................... 212,500
11,800 General Electric Co................................... 849,600
3,300 Honeywell, Inc........................................ 160,462
1,500 ITT Industries........................................ 36,000
5,900 Rockwell International Corp........................... 311,963
5,800 TRW, Inc.............................................. 449,500
*5,400 Varity Corp........................................... 200,475
41,300 WMX Technologies, Inc................................. 1,233,837
-----------
3,781,262
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 7.4%
2,200 Air Products & Chemicals, Inc......................... 116,050
14,300 Barrick Gold Corp..................................... 377,163
9,100 Battle Mountain Gold Co............................... 76,213
7,100 Boise Cascade Corp.................................... 245,837
3,700 Consolidated Papers................................... 207,662
*1,210 Crown Vantage, Inc.................................... 17,243
8,000 DuPont (E.I.) de Nemours & Co., Inc................... 559,000
4,400 Freeport McMoRan Inc., Copper and Gold, Class B....... 123,750
4,000 Georgia Pacific Corp.................................. 274,500
4,700 Homestake Mining and Gold............................. 73,438
10,000 International Paper Co................................ 378,750
25,200 James River Corp...................................... 607,950
3,500 Mead Corp............................................. 182,875
3,300 Monsanto Co........................................... 404,250
3,400 Nalco Chemical Co..................................... 102,425
1,800 Newmont Gold Corp..................................... 78,750
4,600 Nucor Corp............................................ 262,775
6,100 Union Camp Corp....................................... 290,513
3,000 Union Carbide Corp.................................... 112,500
3,500 Willamette Industries, Inc............................ 196,875
-----------
4,688,519
-----------
TECHNOLOGY 2.7%
1,700 Avnet, Inc............................................ 76,075
*5,300 Gateway 2000, Inc..................................... 129,850
6,900 General Dynamics Corp................................. 407,962
3,700 General Motors Corp., Class H......................... 181,763
1,800 Hewlett-Packard Co.................................... 150,750
2,000 Intel Corp............................................ 113,500
4,000 International Business Machines Corp.................. 367,000
3,400 LSI Logic Corp........................................ 111,350
2,000 Motorola, Inc......................................... 114,000
*3,300 National Semiconductor Corp........................... 73,425
-----------
1,725,675
-----------
TRANSPORTATION 0.6%
*2,300 AMR Corp.............................................. 170,775
2,500 Canadian National Railway............................. 37,500
4,800 Illinois Central Corp................................. 184,200
-----------
392,475
-----------
</TABLE>

F-24
See Notes to Financial Statements

<PAGE> 125

MULTIPLE STRATEGY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES 7.9%
2,800 American Electric Power, Inc.......................... $ 113,400
3,400 Ameritech Corp........................................ 200,600
6,700 AT&T Corp............................................. 433,825
2,800 Bell Atlantic Corp.................................... 187,250
4,500 Bellsouth Corp........................................ 195,750
2,000 Boston Edison Co...................................... 59,000
4,500 Carolina Power & Light Co............................. 155,250
800 Central & South West Corp............................. 22,300
1,300 CMS Energy Group...................................... 38,837
3,400 Detroit Edison Co..................................... 117,300
5,000 FPL Group, Inc........................................ 231,875
6,300 Frontier Corp......................................... 189,000
2,300 General Public Utilities Corp......................... 78,200
4,500 Illinova Corp......................................... 135,000
10,900 MCI Communications Corp............................... 284,762
3,100 New York State Electric & Gas Corp.................... 80,213
1,000 NIPSCO Industries, Inc................................ 38,250
1,000 Northern State Power.................................. 49,125
3,600 NYNEX Corp............................................ 194,400
1,600 Ohio Edison Co........................................ 37,600
900 Oklahoma Gas & Electric Co............................ 38,700
2,800 Pacific Telesis Group................................. 94,150
1,900 Pacificorp............................................ 40,375
12,100 Peco Energy Co........................................ 364,512
2,100 Pinnacle West Capital Corp............................ 60,375
1,300 Public Service Co. of Colorado........................ 45,988
*7,600 Public Service Co. of New Mexico...................... 133,950
1,700 Rochester Gas & Electric Co........................... 38,462
3,300 SBC Communications, Inc............................... 189,750
2,600 Southwestern Public Service Co........................ 85,150
12,000 Sprint Corp........................................... 478,500
4,900 Telefonica de Espana, SA, ADR......................... 205,188
1,400 Texas Utilities Co.................................... 57,575
4,000 US West Communications Group.......................... 143,000
2,400 Unicom Corp........................................... 78,600
*2,500 WorldCom, Inc......................................... 88,125
-----------
4,984,337
-----------
TOTAL COMMON STOCK (Cost $33,439,690)................. 37,936,361
-----------
</TABLE>

See Notes to Financial Statements

F-25

<PAGE> 126

MULTIPLE STRATEGY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

F-26

See Notes to Financial Statements

<PAGE> 127

MULTIPLE STRATEGY FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $56,994,792).................... $63,027,764
Interest and dividends receivable.................................. 457,697
Receivable for investments sold.................................... 172,296
Other assets....................................................... 18,812
-----------
Total Assets..................................................... 63,676,569
-----------
LIABILITIES
Payable for investments purchased.................................. 559,732
Payable for Fund shares redeemed................................... 35,535
Due to Adviser..................................................... 22,939
Deferred Trustees' compensation.................................... 17,522
Bank overdraft..................................................... 1,524
Due to shareholder service agent................................... 1,210
Accrued expenses and other liabilities............................. 56,990
-----------
Total Liabilities................................................ 695,452
-----------
NET ASSETS, equivalent to $11.64 per share......................... $62,981,117
-----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 5,409,616 shares outstanding................... $ 54,096
Capital surplus.................................................... 55,782,358
Undistributed net realized gain on securities...................... 1,092,149
Net unrealized appreciation of securities.......................... 6,032,972
Undistributed net investment income................................ 19,542
-----------
NET ASSETS......................................................... $62,981,117
-----------
</TABLE>

F-27

See Notes to Financial Statements

<PAGE> 128

MULTIPLE STRATEGY FUND FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
- ---------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest.................. $ 1,861,454
Dividends................. 826,046
-----------
Investment income....... 2,687,500
-----------
EXPENSES
Management fees........... 302,141
Shareholder service
agent's fees and
expenses................. 15,970
Accounting services....... 57,576
Trustees' fees and
expenses................. 12,543
Audit fees................ 24,203
Custodian fees............ 24,703
Legal fees................ 4,176
Reports to shareholders... 6,196
Miscellaneous............. 663
Expense reimbursement..... (85,602)
-----------
Total expenses.......... 362,569
-----------
NET INVESTMENT INCOME..... 2,324,931
-----------
REALIZED AND UNREALIZED
GAIN ON SECURITIES
Net realized gain on
securities............... 6,122,759
Net unrealized
appreciation of
securities during the
period................... 7,920,361
-----------
NET REALIZED AND
UNREALIZED GAIN ON
SECURITIES............... 14,043,120
-----------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $16,368,051
-----------
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period...................... $56,635,933 $64,857,688
----------- -----------
OPERATIONS...........................................
Net investment income............................... 2,324,931 2,280,114
Net realized gain on securities..................... 6,122,759 4,566,704
Net unrealized appreciation (depreciation) of
securities during the period....................... 7,920,361 (9,205,867)
----------- -----------
Increase (decrease) in net assets resulting from
operations........................................ 16,368,051 (2,359,049)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (see Note 1H)
Net investment income............................... (2,326,257) (2,288,536)
Net realized gain on securities..................... (4,841,441) (4,566,704)
Excess of book-basis net realized gain.............. -- (106,886)
----------- -----------
(7,167,698) (6,962,126)
----------- -----------
CAPITAL TRANSACTIONS
Proceeds from shares sold........................... 1,931,514 3,800,820
Proceeds from shares issued for distributions
reinvested......................................... 7,167,697 6,962,125
Cost of shares redeemed............................. (11,954,380) (9,663,525)
----------- -----------
Increase (decrease) in net assets from capital
transactions...................................... (2,855,169) 1,099,420
----------- -----------
INCREASE (DECREASE) IN NET ASSETS.................... 6,345,184 (8,221,755)
----------- -----------
NET ASSETS, end of period (including undistributed
net investment income of $19,542
and $14,467, respectively).......................... $62,981,117 $56,635,933
----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares sold.......................................... 166,906 327,001
Shares issued for distributions reinvested........... 619,366 700,508
Shares redeemed...................................... (1,045,554) (857,318)
----------- -----------
Increase (decrease) in capital shares outstanding.. (259,282) 170,191
----------- -----------
</TABLE>
See Notes to Financial Statements

F-28

<PAGE> 129

MULTIPLE STRATEGY FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period. $ 9.99 $11.80 $11.92 $12.08 $10.43
------- ------ ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... .55 .52 .37 .44 .54
Expenses............................ (.09) (.09) (.09) (.09) (.09)
Expense reimbursement(/1/).......... .02 .02 .01 .02 .02
------- ------ ------- ------ ------
Net investment income................ .48 .45 .29 .37 .47
Net realized and unrealized gain
(loss) on securities................ 2.6425 (.89) .6025 .493 2.27
------- ------ ------- ------ ------
Total from investment operations..... 3.1225 (.44) .8925 .863 2.74
------- ------ ------- ------ ------
LESS DISTRIBUTIONS FROM (see Note 1H)
Net investment income............... (.4775) (.45) (.2925) (.3689) (.4825)
Net realized gain on securities..... (.995) (.90) (.63) (.6541) (.6075)
Excess of book-basis net realized
gain on securities................. -- (.02) (.09) -- --
------- ------ ------- ------ ------
Total distributions.................. (1.4725) (1.37) (1.0125) (1.023) (1.09)
------- ------ ------- ------ ------
Net asset value, end of period....... $11.64 $ 9.99 $11.80 $11.92 $12.08
------- ------ ------- ------ ------
TOTAL RETURN......................... 31.36% (3.66%) 7.71% 7.28% 27.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions). $63.0 $56.6 $64.9 $59.6 $52.2
Average net assets (millions)........ $60.4 $61.6 $63.9 $54.8 $44.4
Ratios to average net assets(/1/)
Expenses............................ .60% .60% .60% .60% .60%
Expenses, without expense
reimbursement...................... .74% .72% .74% .77% .80%
Net investment income............... 3.85% 3.70% 2.34% 3.05% 4.12%
Net investment income, without
expense reimbursement.............. 3.71% 3.58% 2.20% 2.88% 3.92%
Portfolio turnover rate.............. 124% 163% 150% 126% 88%
</TABLE>

(1) See Note 2.
See Notes to Financial Statements

F-29

<PAGE> 130

REAL ESTATE FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

See Notes to Financial Statements

F-30

<PAGE> 131

REAL ESTATE FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of
Shares Market
(000) Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
SHOPPING CENTERS 8.4%
12 Bradley Real Estate, Inc................................. $ 168,750
7 Federal Realty Investment Trust.......................... 166,075
7 Kimco Realty Corp........................................ 192,113
5 Vornado Realty Trust..................................... 191,250
----------
718,188
----------
SHOPPING MALLS 12.3%
15 DeBartolo Realty Corp.................................... 189,800
9 JP Realty, Inc........................................... 196,875
11 Macerich Co.............................................. 226,000
11 Rouse Co................................................. 215,975
9 Simon Property Group, Inc................................ 224,250
----------
1,052,900
----------
TOTAL COMMON STOCK (Cost $7,234,383)..................... 7,566,488
----------
<CAPTION>
Par
Amount
(000)
------
<C> <S> <C>
REPURCHASE AGREEMENT 18.9%
$1,620 Lehman Government Securities, Inc., dated 12/29/95,
5.875%, due 1/02/96
(Collateralized by U.S. Government obligations in a
pooled cash account) repurchase proceeds $1,621,058 (Cost
$1,620,000).............................................. $1,620,000
----------
TOTAL INVESTMENTS (Cost $8,854,383) 107.0%....................... 9,186,488
OTHER ASSETS AND LIABILITIES (7.0%).............................. (601,167)
----------
NET ASSETS 100%.................................................. $8,585,321
----------
</TABLE>

See Notes to Financial Statements

F-31

<PAGE> 132

REAL ESTATE FUND_________________________STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $8,854,383).................... $9,186,488
Cash.............................................................. 7,367
Receivable for Fund shares sold................................... 245,466
Receivable for investments sold................................... 155,515
Interest and dividends receivable................................. 51,396
Other assets...................................................... 8,447
----------
Total Assets.................................................... 9,654,679
----------
LIABILITIES
Payable for investments purchased................................. 914,414
Payable for options closed........................................ 125,640
Deferred Trustees' compensation................................... 1,050
Due to shareholder service agent.................................. 100
Accrued expenses.................................................. 28,154
----------
Total Liabilities............................................... 1,069,358
----------
NET ASSETS, equivalent to $10.74 per share........................ $8,585,321
----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 799,347 shares outstanding.................... $ 7,993
Capital surplus................................................... 8,269,041
Accumulated net realized loss on securities....................... (32,530)
Net unrealized appreciation of securities......................... 332,105
Undistributed net investment income............................... 8,712
----------
NET ASSETS........................................................ $8,585,321
----------
</TABLE>

F-32
See Notes to Financial Statements

<PAGE> 133

REAL ESTATE FUND________________________________________FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
July 3, 1995*
through
December 31, 1995
- ----------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends................. $ 99,314
Interest.................. 14,118
--------
Investment income....... 113,432
--------
EXPENSES
Management fees........... 18,136
Shareholder service
agent's expenses.......... 307
Accounting services....... 3,153
Trustees' fees and
expenses.................. 2,280
Audit fees................ 20,403
Custodian fees............ 3,000
Legal fees................ 500
Reports to shareholders... 752
Registration and filing
fees...................... 2,855
Miscellaneous............. 1,128
Expense reimbursement..... (7,173)
--------
Total expenses.......... 45,341
--------
NET INVESTMENT INCOME..... 68,091
--------
REALIZED AND UNREALIZED
GAIN (LOSS) ON SECURITIES
Net realized loss on
securities
Investment............... (32,460)
Options.................. (70)
Net unrealized
appreciation of securities
during the period......... 332,105
--------
NET REALIZED AND
UNREALIZED GAIN ON
SECURITIES............... 299,575
--------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $367,666
--------
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
July 3, 1995*
through
December 31, 1995
- -------------------------------------------------------------------------------
<S> <C>
NET ASSETS, beginning of period............................. $ 100
----------
OPERATIONS
Net investment income...................................... 68,091
Net realized loss on securities............................ (32,530)
Net unrealized appreciation of securities during the
period..................................................... 332,105
----------
Increase in net assets resulting from operations.......... 367,666
----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME.... (60,786)
----------
CAPITAL TRANSACTIONS
Proceeds from shares sold.................................. 11,796,374
Proceeds from shares issued for distributions reinvested... 60,786
Cost of shares redeemed.................................... (3,578,819)
----------
Increase in net assets from capital transactions.......... 8,278,341
----------
INCREASE IN NET ASSETS...................................... 8,585,221
----------
NET ASSETS, end of period (including undistributed net
investment income of $8,712)................................ $8,585,321
----------
CAPITAL SHARE TRANSACTIONS
Shares sold................................................. 1,140,133
Shares issued for distributions reinvested.................. 5,789
Shares redeemed............................................. (346,585)
----------
Increase in capital shares outstanding.................... 799,337
----------
</TABLE>
*Commencement of operations

F-33
See Notes to Financial Statements

<PAGE> 134

REAL ESTATE FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
period indicated

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995(/1/)
through
December 31, 1995(/2/)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C>
Net asset value, beginning of period.................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................................... .33
Expenses............................................... (.15)
Expense reimbursement (/3/)............................ .02
------
Net investment income................................... .20
Net realized and unrealized gain on securities.......... .6325
------
Total from investment operations........................ .8325
------
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME........... (.0925)
------
Net asset value, end of period.......................... $10.74
------
TOTAL RETURN(/4/)....................................... 8.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................... $8.6
Average net assets (millions)........................... $3.6
Ratios to average net assets (annualized) (/3/)
Expenses............................................... 2.50%
Expenses, without expense reimbursement................ 2.90%
Net investment income.................................. 3.75%
Net investment income, without expense reimbursement... 3.36%
Portfolio turnover rate................................. 85%
</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-34
See Notes to Financial Statements

<PAGE> 135

EMERGING GROWTH FUND________________________________PORTFOLIO OF INVESTMENTS

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK 98.8%
CONSUMER DISTRIBUTION 7.8%
200 Alco Standard Corp.................................... $ 9,125
*200 Baby Superstore, Inc.................................. 11,400
100 Bed Bath & Beyond, Inc................................ 3,881
*200 Boise Cascade Office Products Corp.................... 8,550
100 Cardinal Health, Inc.................................. 5,475
200 Casey's General Stores, Inc........................... 4,375
*200 CompUSA, Inc.......................................... 6,225
*400 Consolidated Stores Corp.............................. 8,700
*400 Corporate Express, Inc................................ 12,050
100 Eckerd Corp........................................... 4,460
200 Fastenal Co........................................... 8,450
*200 Garden Ridge Corp..................................... 7,750
*500 General Nutrition Companies, Inc...................... 11,500
200 Just For Feet, Inc.................................... 7,150
*400 Kroger Co............................................. 15,000
*200 Micro Warehouse, Inc.................................. 8,650
*200 Petco Animal Supplies................................. 5,850
200 Richfood Holdings, Inc................................ 5,350
*200 Safeway, Inc.......................................... 10,300
*300 Staples, Inc.......................................... 7,310
*300 Sunglass Hut International, Inc....................... 7,125
100 Vons Companies, Inc................................... 2,825
400 Zale Corp............................................. 6,450
----------
177,951
----------
CONSUMER DURABLES 1.7%
200 Beazer Homes USA, Inc................................. 4,125
200 Centex Corp........................................... 6,950
250 Clayton Homes, Inc.................................... 5,344
200 Harman International Industries, Inc.................. 8,025
100 Snap On, Inc.......................................... 4,525
*400 Toll Brothers, Inc.................................... 9,200
----------
38,169
----------
CONSUMER NON-DURABLES 5.1%
300 Coca Cola Enterprises, Inc............................ 8,025
200 Fila Holdings, ADR.................................... 9,100
200 First Brands Corp..................................... 9,525
400 Liz Claiborne, Inc.................................... 11,100
300 Nautica Enterprises, Inc.............................. 13,125
*200 Nu Kote Holdings Inc., Class A........................ 3,400
*100 Quiksilver, Inc....................................... 3,419
200 St. John Knits, Inc................................... 10,625
400 Starbucks Corp........................................ 8,400
*500 Tommy Hilfiger Corp................................... 21,185
*100 USA Detergents, Inc................................... 2,350
500 Wolverine World Wide, Inc............................. 15,750
----------
116,004
----------
</TABLE>

See Notes to Financial Statements

F-35

<PAGE> 136

EMERGING GROWTH FUND____________________PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SERVICES 9.5%
200 Accustaff, Inc........................................ $ 8,800
*100 Alternative Resources Corp............................ 3,025
300 Applebees International, Inc.......................... 6,825
*400 Boston Chicken, Inc................................... 12,850
*300 Clear Channel Communications, Inc .................... 13,235
*600 Corrections Corp. of America.......................... 22,275
400 Equifax, Inc.......................................... 8,550
*300 Evergreen Media Corp., Class A........................ 9,600
*400 Gartner Group, Inc.................................... 19,150
*100 HA-LO Industries, Inc................................. 3,075
200 Hospitality Franchise Systems, Inc.................... 16,350
*300 Infinity Broadcasting Corp............................ 11,175
200 Interpublic Group Companies, Inc...................... 8,675
200 La Quinta Inns, Inc................................... 5,475
*200 Lone Star Steakhouse Saloon, Inc ..................... 7,675
200 Meredith Corp......................................... 8,375
*300 Mirage Resorts, Inc................................... 10,350
200 National Data Corp.................................... 4,950
100 National Media Corp................................... 2,100
*200 Outback Steakhouse, Inc............................... 7,175
*450 Regal Cinemas, Inc.................................... 13,385
300 Reynolds & Reynolds Co................................ 11,663
*100 SITEL Corp............................................ 3,063
----------
217,796
----------
ENERGY 4.3%
*200 BJ Services Corp...................................... 5,800
*450 Chesapeake Energy Corp................................ 14,963
*1,000 Global Marine, Inc.................................... 8,750
200 Kerr McGee Corp....................................... 12,700
200 Newfield Exploration Co............................... 5,400
200 Phoenix Resource Co................................... 3,450
300 Pogo Producing Co..................................... 8,475
*300 Pride Petroleum Services, Inc......................... 3,188
*400 Smith International, Inc.............................. 9,400
400 Sonat Offshore Drilling, Inc.......................... 17,900
300 Tidewater, Inc........................................ 9,450
----------
99,476
----------
FINANCE 13.5%
100 AAMES Financial Corp.................................. 2,788
200 American Bankers Insurance Group...................... 7,800
400 American Travellers Corp.............................. 11,250
200 Bank New York, Inc.................................... 9,750
400 Bank of Boston Corp................................... 18,500
200 BayBanks, Inc......................................... 19,650
200 City National Corp.................................... 2,800
200 CMAC Investment Corp.................................. 8,800
400 Coast Savings Financial, Inc.......................... 13,850
200 Cullen Frost Bankers, Inc............................. 10,000
200 EXEL Ltd.............................................. 12,200
300 FINOVA Group, Inc..................................... 14,475
200 First American Corp................................... 9,475
</TABLE>

See Notes to Financial Statements

F-36

<PAGE> 137

EMERGING GROWTH FUND____________________PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
100 First Bank System, Inc................................ $ 4,963
300 Fremont General Corp.................................. 11,025
400 Green Tree Financial Corp............................. 10,550
100 MBNA Corp............................................. 3,688
100 Mercantile Bancorporation, Inc........................ 4,600
300 Mercury Financial Co.................................. 3,975
250 Mercury General Corp.................................. 11,938
125 Money Store, Inc...................................... 1,953
200 North Fork Bancorporation............................. 5,050
200 Old Republic International Corp....................... 7,100
*500 Oxford Resources Corp., Class A....................... 11,250
300 Penncorp Financial Group, Inc......................... 8,813
200 Peoples Heritage Financial Group, Inc................. 4,550
100 Raychem Corp.......................................... 5,688
100 Reliastar Financial Corp.............................. 4,438
200 Star Banc Corp........................................ 11,900
175 Student Loan Marketing Association.................... 11,528
400 TCF Financial Corp.................................... 13,250
200 TIG Holdings, Inc..................................... 5,700
400 United Companies Financial Corp....................... 10,550
300 Vesta Insurance Group, Inc............................ 16,350
----------
310,197
----------
HEALTH CARE 15.8%
*300 Boston Scientific Corp................................ 14,700
300 Circon Corp........................................... 6,075
*100 Coherent, Inc......................................... 4,050
*400 CompDent Corp......................................... 16,600
*200 Cycare Systems, Inc................................... 5,125
*300 Dura Pharmaceuticals, Inc............................. 10,425
300 Guidant Corp.......................................... 12,675
*200 Gulf South Medical Supply, Inc........................ 6,050
500 HBO & Co.............................................. 38,313
*300 Health Management Associates, Inc., Class A........... 7,838
*400 Health Management Systems, Inc........................ 15,600
*500 Healthsouth Rehabilitation............................ 14,563
*100 HPR, Inc.............................................. 3,013
300 Invacare Corp......................................... 7,575
400 Maxicare Health Plans................................. 10,750
100 Medisense, Inc........................................ 3,163
*100 MedPartners/Mullikin, Inc............................. 3,300
300 Medtronic, Inc........................................ 16,763
200 Mentor Corp........................................... 4,600
100 Minimed, Inc.......................................... 1,250
100 Nellcor, Inc.......................................... 5,800
*200 OccuSystems, Inc...................................... 4,000
400 OmniCare, Inc......................................... 17,900
*500 PhyCor, Inc........................................... 25,281
*300 Physician Reliance Network............................ 11,925
*300 Physician Sales & Service, Inc........................ 8,550
*200 Quintiles Transnational Corp.......................... 8,200
*200 Renal Treatment Centers, Inc.......................... 8,800
*400 Research Industries Corp.............................. 10,800
100 Respironics, Inc...................................... 2,100
</TABLE>

F-37

See Notes to Financial Statements

<PAGE> 138

EMERGING GROWTH FUND____________________PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
100 Spine Tech, Inc....................................... $ 2,325
*400 Sybron Corp........................................... 9,500
*100 Thermedics, Inc....................................... 2,775
*200 United Dental Care, Inc............................... 8,250
100 United Healthcare Corp................................ 6,550
300 Universal Health Services, Inc., Class B.............. 13,313
*300 Watson's Pharmaceuticals, Inc......................... 14,700
----------
363,197
----------
PRODUCER MANUFACTURING 5.4%
200 Camco International, Inc.............................. 5,600
*400 Cognex Corp........................................... 13,900
200 Danaher Corp.......................................... 6,350
300 Dover Corp............................................ 11,063
200 Duriron, Inc.......................................... 4,675
*100 FMC Corp.............................................. 6,763
*100 Glenayre Technologies, Inc............................ 6,225
300 Granite Construction, Inc............................. 9,450
100 Illinois Tool Works, Inc.............................. 5,900
*200 Kent Electronics Corp................................. 11,675
200 Measurex Corp......................................... 5,650
*200 Mueller Industries, Inc............................... 5,850
100 Precision Castparts Co................................ 3,975
*300 Sanifill, Inc......................................... 10,013
200 U S Filter Corp....................................... 5,325
*200 United Waste Systems, Inc............................. 7,450
*200 USA Waste Services, Inc............................... 3,775
----------
123,639
----------
RAW MATERIALS/PROCESSING INDUSTRIES 3.6%
100 Agrium, Inc........................................... 4,500
200 Albemarle Corp........................................ 3,875
200 Goodrich (BF) Co...................................... 13,625
100 Hercules, Inc......................................... 5,638
400 IMC Global, Inc....................................... 16,350
200 Millipore Corp........................................ 8,225
100 Mineral Technologies, Inc............................. 3,650
200 Potash Corp Sask, Inc................................. 14,175
*200 Sealed Air Corp....................................... 5,625
100 Sonoco Products Co.................................... 2,625
*100 UCAR International, Inc............................... 3,375
----------
81,663
----------
TECHNOLOGY 27.2%
100 Allen Group, Inc...................................... 2,238
*200 Altera Corp........................................... 9,950
*400 America Online, Inc................................... 15,000
*150 Analog Devices, Inc................................... 5,306
*600 Ascend Communications, Inc............................ 48,675
*300 Aspect Telecommunications Corp........................ 10,050
*300 Aspen Technology, Inc................................. 10,125
*150 Atmel Corp............................................ 3,356
*400 Bay Networks, Inc..................................... 16,450
200 BMC Industries, Inc................................... 4,650
*200 Cabletron Systems, Inc................................ 16,200
</TABLE>

F-38

See Notes to Financial Statements

<PAGE> 139

EMERGING GROWTH FUND____________________PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
*600 Cadence Design Systems, Inc........................... $ 25,200
*200 Cambridge Technology Partners, Inc.................... 11,500
*100 Cascade Communications................................ 8,525
*400 C-Cube Microsystems, Inc.............................. 25,000
*100 Ceridian Corp......................................... 4,125
*200 CIBER, Inc............................................ 4,675
*400 Cyberoptics Corp...................................... 15,900
*300 Dell Computer Corp.................................... 10,388
*200 DSP Communications, Inc............................... 8,725
200 ECI Telecommunications, Ltd........................... 4,563
*100 Global Village Communications......................... 1,938
*300 Informix Corp......................................... 9,000
*300 Input/Output, Inc..................................... 17,325
*100 INSO Corp............................................. 4,250
*600 International Rectifier Corp.......................... 15,000
*200 Jabil Circuit, Inc.................................... 2,250
*300 KEMET Corp............................................ 7,163
*100 KLA Instruments Corp.................................. 2,606
*100 Kronos, Inc........................................... 4,750
300 Linear Technology Corp................................ 11,775
*300 Macromedia, Inc....................................... 15,675
*400 McAfee Associates, Inc................................ 17,550
*300 Medic Computer Systems, Inc........................... 18,150
*200 MICROS Systems, Inc................................... 9,850
*400 Mylex Corp............................................ 7,650
*50 Netscape Communications Corp.......................... 6,950
*100 Network General Corp.................................. 3,338
*100 Oak Technology, Inc................................... 4,225
*100 Oracle System Corp.................................... 4,238
*200 PairGain Technologies, Inc............................ 10,950
*300 Parametric Technology Corp............................ 19,950
*300 PeopleSoft, Inc....................................... 12,900
*200 PictureTel Corp....................................... 8,625
*200 PRI Automation........................................ 7,025
*100 Project Software & Development, Inc................... 3,488
*300 Quarterdeck Office Systems............................ 8,250
*200 Robotic Vision Systems, Inc........................... 4,825
*300 SCI Systems, Inc...................................... 9,300
*100 Security Dynamics Technology, Inc..................... 5,450
*300 Structural Dynamics Research Corp..................... 8,813
*600 Sun Microsystems, Inc................................. 27,375
100 Sundstrand Corp....................................... 7,038
*200 SunGuard Data Systems, Inc............................ 5,700
100 Tektronix, Inc........................................ 4,913
*200 3Com Corp............................................. 9,325
300 US Robotics Corp...................................... 26,325
*200 Ultratech Stepper, Inc................................ 5,150
*75 UUNET Technologies, Inc............................... 4,725
200 V-Tel Corp............................................ 3,700
100 Watkins Johnson Co.................................... 4,375
----------
622,486
----------
</TABLE>

F-39

See Notes to Financial Statements

<PAGE> 140

EMERGING GROWTH FUND____________________PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

*Non-income producing security

F-40

See Notes to Financial Statements

<PAGE> 141

EMERGING GROWTH FUND_____________________STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $2,017,998).................... $2,262,663
Cash.............................................................. 48,245
Receivable for investments sold................................... 8,298
Receivable for Fund shares sold................................... 6,018
Dividends receivable.............................................. 841
Other assets...................................................... 17,233
----------
Total Assets.................................................... 2,343,298
----------
LIABILITIES
Payable for investments purchased................................. 26,467
Due to auditors................................................... 20,000
Deferred Trustees' compensation................................... 1,050
Due to shareholder service agent.................................. 80
Accrued expenses.................................................. 6,044
----------
Total Liabilities............................................... 53,641
----------
NET ASSETS, equivalent to $11.72 per share........................ $2,289,657
----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 195,420 shares outstanding.................... $ 1,954
Capital surplus................................................... 2,101,591
Accumulated net realized loss on securities....................... (57,503)
Net unrealized appreciation of securities......................... 244,665
Accumulated net investment loss................................... (1,050)
----------
NET ASSETS........................................................ $2,289,657
----------
</TABLE>

F-41
See Notes to Financial Statements

<PAGE> 142

EMERGING GROWTH FUND____________________________________FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
July 3, 1995*
through
December 31, 1995
- ----------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends................. $ 3,298
Interest.................. 3,897
--------
Investment income....... 7,195
--------
EXPENSES
Management fees........... 4,798
Shareholder service
agent's expenses.......... 192
Accounting services....... 3,222
Trustees' fees and
expenses.................. 2,280
Audit fees................ 20,403
Custodian fees............ 3,000
Legal fees................ 250
Reports to shareholders... 978
Miscellaneous............. 1,872
Expense reimbursement..... (19,858)
--------
Total expenses.......... 17,137
--------
NET INVESTMENT LOSS....... (9,942)
--------
REALIZED AND UNREALIZED
GAIN (LOSS) ON SECURITIES
Net realized loss on
securities................ (57,503)
Net unrealized
appreciation of securities
during the period......... 244,665
--------
NET REALIZED AND
UNREALIZED GAIN ON
SECURITIES................ 187,162
--------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS. $177,220
--------
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
July 3, 1995*
through
December 31, 1995
- -------------------------------------------------------------------------------
<S> <C>
NET ASSETS, beginning of period............................. $ 100
----------
OPERATIONS
Net investment loss........................................ (9,942)
Net realized loss on securities............................ (57,503)
Net unrealized appreciation of securities during the
period..................................................... 244,665
----------
Increase in net assets resulting from operation........... 177,220
----------
CAPITAL TRANSACTIONS
Proceeds from shares sold.................................. 2,362,883
Cost of shares redeemed.................................... (250,546)
----------
Increase in net assets from capital transactions.......... 2,112,337
----------
INCREASE IN NET ASSETS...................................... 2,289,557
----------
NET ASSETS, end of period (including accumulated net
investment loss of $1,050).................................. $2,289,657
----------
CAPITAL SHARE TRANSACTIONS
Shares sold................................................. 217,875
Shares redeemed............................................. (22,465)
----------
Increase in capital shares outstanding.................... 195,410
----------
</TABLE>

*Commencement of operations.

F-42
See Notes to Financial Statements

<PAGE> 143

EMERGING GROWTH FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
period indicated

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995(/1/)
through
December 31, 1995(/2/)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C>
Net asset value, beginning of period................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Investment income..................................... .06
Expenses.............................................. (.30)
Expense reimbursement (/3/)........................... .16
------
Net investment loss.................................... (.08)
Net realized and unrealized gain on securities......... 1.80
------
Total from investment operations....................... 1.72
------
Net asset value, end of period......................... $11.72
------
TOTAL RETURN(/4/)...................................... 17.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $2.3
Average net assets (millions).......................... $1.4
Ratios to average net assets (annualized) (/3/)
Expenses.............................................. 2.50%
Expenses, without expense reimbursement............... 5.40%
Net investment loss................................... (1.45)%
Net investment loss, without expense reimbursement.... (4.35)%
Portfolio turnover rate................................ 41%
</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-43
See Notes to Financial Statements

<PAGE> 144

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK 96.8%
AUSTRALIA 0.2%
*200 News Corp............................................. $ 4,275
----------
FINLAND 1.6%
750 Kymmene Corp.......................................... 19,830
390 Nokia (AB) OY, Series A............................... 15,333
*100 Nokia Corp............................................ 3,887
----------
39,050
----------
FRANCE 2.1%
280 Christian Dior........................................ 30,190
*500 SGS Thomson Micro..................................... 19,144
----------
49,334
----------
GERMANY 5.7%
*500 Adidas................................................ 26,455
600 Berliner Elektro Holdings............................. 19,575
35 CKAG Colonia Konzern.................................. 22,691
500 Deutsche Bank......................................... 23,691
70 Mannesmann............................................ 22,286
500 Veba.................................................. 21,227
----------
135,925
----------
HONG KONG 4.4%
20,000 First Pacific Co...................................... 22,244
6,000 Hutchison Whampoa..................................... 36,547
*70,000 Jilin Chemical Industries, Class H.................... 14,484
4,000 Swire Pacific......................................... 31,038
----------
104,313
----------
ITALY 0.8%
500 Gucci Group........................................... 19,438
----------
INDONESIA 0.5%
500 Perusahaan Persero Telekom............................ 12,625
----------
JAPAN 23.0%
2,000 Amada Co.............................................. 19,758
2,000 Bank of Tokyo......................................... 35,061
2,000 Daimei Telecom Engineering............................ 17,240
3,000 Daiwa Securities...................................... 45,908
1,000 Fuji Photo Film Co.................................... 28,862
2,000 Fujitsu............................................... 22,276
2,000 Hitachi............................................... 20,145
2,000 Honda Motor Co........................................ 41,259
2,000 Mitsubishi Estate..................................... 24,988
3,000 Mitsubishi Heavy Industries........................... 23,913
1,000 Mitsubishi Trust & Banking............................ 16,659
2,000 Mitsukoshi............................................ 18,789
2,000 Nomura Securities..................................... 43,584
3,000 Ricoh Co.............................................. 32,833
2,000 SXL Corporation....................................... 20,726
2,000 Tokio Marine & Fire Insurance Co. .................... 26,150
1,000 Tokyo Electron........................................ 38,741
3,000 Toshiba Corp.......................................... 23,506
2,000 Wishimatsu Construction............................... 23,438
1,000 Yamanouchi Pharmacy................................... 21,501
----------
545,337
----------
</TABLE>

See Notes to Financial Statements

F-44

<PAGE> 145

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MALAYSIA 1.1%
5,000 Resorts World......................................... $ 26,775
----------
MEXICO 1.3%
1,100 Cemex................................................. 7,631
1,000 Empresas Ica Sociedad................................. 10,250
400 Telefonos de Mexico................................... 12,750
----------
30,631
----------
NETHERLANDS 3.8%
*1,500 BE Semiconductor Industries........................... 19,630
440 ING Group............................................. 29,394
50 Philips Electronics................................... 1,807
300 Philips Electronics, Inc.............................. 10,762
200 Ver Ned Uitgevers..................................... 27,457
----------
89,050
----------
NORWAY 1.7%
*2,000 Fokus Bank............................................ 10,799
*5,500 Uni Storebrand........................................ 30,391
----------
41,190
----------
SINGAPORE 2.4%
2,000 Fraser & Neave........................................ 25,451
5,000 Singapore Land........................................ 32,343
----------
57,794
----------
SWEDEN 3.5%
800 Astra, Series B....................................... 31,688
1,100 Ericsson (LM) Telephone, Series B..................... 21,537
11,000 Rottneros............................................. 11,597
1,600 Stora Kopparbergs..................................... 19,157
----------
83,979
----------
SWITZERLAND 4.6%
38 Alusuisse Lonza Holdings.............................. 30,110
33 Ciba Geigy............................................ 29,038
*200 Logitech International................................ 20,633
70 Schweizerischer Bankverein............................ 28,582
----------
108,363
----------
UNITED KINGDOM 11.9%
10,000 Astec................................................. 17,705
1,500 BOC Group............................................. 20,989
1,200 Carlton Communications................................ 17,994
4,000 Dixons Group.......................................... 27,582
5,000 Farnell Electronic.................................... 55,793
2,000 General Accident...................................... 20,205
2,800 Marks & Spencer....................................... 19,568
2,000 National Westminster.................................. 20,143
2,000 Reuters Holdings...................................... 18,310
2,000 Severn Trent.......................................... 21,354
2,200 SmithKline Beecham.................................... 24,258
4,000 Tesco................................................. 18,450
----------
282,351
----------
</TABLE>

See Notes to Financial Statements

F-45

<PAGE> 146

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
UNITED STATES 28.2%
*100 Adaptec, Inc........................................... $ 4,100
100 Aetna Life & Casualty Co............................... 6,925
200 Allstate Corp.......................................... 8,225
*100 American Radio System Corp., Class A................... 2,800
*100 Amgen, Inc............................................. 5,937
100 Analog Devices, Inc.................................... 3,538
100 Applied Materials, Inc................................. 3,937
100 AT&T Corp.............................................. 6,475
100 BankAmerica Corp....................................... 6,475
100 Bank of Boston Corp.................................... 4,625
100 Bank of New York, Inc.................................. 4,875
100 BayBanks, Inc.......................................... 9,825
*150 Bay Networks, Inc...................................... 6,169
100 Bristol-Myers Squibb Co................................ 8,587
*100 Buffets, Inc........................................... 1,375
*100 Cabletron Systems, Inc................................. 8,100
100 Cadence Design Systems, Inc............................ 4,200
100 Cellular Communications, Inc........................... 4,975
100 Chemical Banking Corp.................................. 5,875
100 Circon Corp............................................ 2,025
*100 Cisco Systems, Inc..................................... 7,462
150 Citicasters, Inc....................................... 3,544
100 Citicorp............................................... 6,725
*100 Community Health System, Inc........................... 3,562
*100 Compaq Computer Corp................................... 4,800
200 Computer Associates International, Inc................. 11,375
100 ConAgra, Inc........................................... 4,125
100 Conseco, Inc........................................... 6,263
100 Consolidated Stores Corp............................... 2,175
100 Continental Homes Holding Corp......................... 2,463
*300 Cox Communications, Inc., Class A...................... 5,850
100 CPC International, Inc................................. 6,863
*100 Cytec Industries, Inc.................................. 6,237
*100 Dell Computer Corp..................................... 3,463
100 Disney (Walt) Co....................................... 5,900
100 Dover Corp............................................. 3,687
*100 DST Systems, Inc....................................... 2,850
*100 Eckerds Corp........................................... 4,463
*100 Emmis Broadcasting Corp., Class A...................... 3,100
*100 Evergreen Media Corp., Class A......................... 3,200
100 EXEL, Ltd.............................................. 6,100
100 Exxon Corp............................................. 8,013
200 Federal National Mortgage Association.................. 24,825
100 Federated Department Stores, Inc....................... 2,750
100 First Data Corp........................................ 6,687
*100 Foundation Health Corp................................. 4,300
100 Franklin Resources, Inc................................ 5,038
300 Frontier Corp.......................................... 9,000
100 General Nutrition Companies, Inc....................... 2,300
100 Genzyme Corp........................................... 6,237
*150 Grand Casinos, Inc..................................... 3,488
100 Greenfield Industries, Inc............................. 3,125
</TABLE>

See Notes to Financial Statements

F-46

<PAGE> 147

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
200 Green Tree Financial Corp.............................. $ 5,275
100 Guidant Corp........................................... 4,225
100 Harnischfeger Industries, Inc.......................... 3,325
*100 Health Management Association, Inc., Class A........... 2,612
100 Illinois Central Corp.................................. 3,838
100 Ilinois Tool Works, Inc................................ 5,900
100 Intel Corp............................................. 5,675
*200 International Rectifier Corp........................... 5,000
100 James River Corp....................................... 2,412
100 Johnson & Johnson...................................... 8,562
78 Kimberly Clark Corp.................................... 6,454
100 Komag, Inc............................................. 4,613
*100 Kroger Co.............................................. 3,750
300 LG Chemical, Ltd....................................... 6,285
100 Lincare Holdings, Inc.................................. 2,500
*100 Linear Technology Corp................................. 3,925
*100 Litton Industries, Inc................................. 4,450
*100 LSI Logic Corp......................................... 3,275
100 Marriott International, Inc............................ 3,825
*100 Maxicare Health Plans, Inc............................. 2,687
400 MCI Communications Corp................................ 10,450
100 Medtronic, Inc......................................... 5,588
200 Merck & Co., Inc....................................... 13,150
150 Mercury Financial Co................................... 1,988
3,000 Metaclad Corp.......................................... 12,000
*100 Microsoft Corp......................................... 8,775
100 Mobil Corp............................................. 11,200
*100 MSC Industrial Direct, Inc., Class A................... 2,750
*100 Nautica Enterprises, Inc............................... 4,375
*100 Nellcor Puritan Bennett, Inc........................... 5,800
*100 Oak Technology, Inc.................................... 4,225
*200 Office Max, Inc........................................ 4,475
200 Omnicom Group, Inc..................................... 7,450
*100 Oracle System Corp..................................... 4,238
200 Panhandle Eastern Corp................................. 5,575
100 Parker Hannifin Corp................................... 3,425
100 Penncorp Financial Group, Inc.......................... 2,938
200 PepsiCo., Inc.......................................... 11,175
145 Pharmacia & Upjohn, Inc................................ 5,619
300 Phillip Morris Companies, Inc.......................... 27,150
200 Praxair, Inc........................................... 6,725
200 Reliastar Financial Corp............................... 8,875
*100 Renal Treatment Centers, Inc........................... 4,400
*200 Safeway, Inc........................................... 10,300
200 Schering-Plough Corp................................... 10,950
*100 SCI Systems, Inc....................................... 3,100
*100 Seagate Technology, Inc................................ 4,750
100 Sears, Roebuck & Co.................................... 3,900
300 Service Corp. International............................ 13,200
100 Sigma-Aldrich.......................................... 4,950
*200 Smith International, Inc............................... 4,700
200 Sprint Corp............................................ 7,975
</TABLE>

See Notes to Financial Statements

F-47

<PAGE> 148

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

<TABLE>
<CAPTION>
Principal
Amount
---------
<C> <S> <C>
CONVERTIBLE CORPORATE OBLIGATION 0.9%
$16,000 United Micro, 1.25%, 06/08/04 (Cost $29,520)............ 20,160
----------
TOTAL INVESTMENTS (Cost $2,227,858) 97.7%.......................... 2,319,837
OTHER ASSETS AND LIABILITIES 2.3%.................................. 55,332
----------
NET ASSETS 100%.................................................... $2,375,169
----------
</TABLE>

*Non-income producing security.

See Notes to Financial Statements

F-48

<PAGE> 149

GLOBAL EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $2,227,858).................... $2,319,837
Foreign currency, at market value (Cost $80,097).................. 80,240
Receivable from Adviser........................................... 29,605
Unrealized appreciation of forward currency exchange contracts.... 11,123
Receivable for investments sold................................... 6,664
Interest and dividends receivable................................. 2,321
Other assets and receivables...................................... 27,078
----------
Total Assets.................................................... 2,476,868
----------
LIABILITIES
Due to auditors................................................... 30,000
Payable for investments purchased................................. 29,940
Bank overdraft.................................................... 23,875
Due to custodian.................................................. 11,500
Deferred Trustees' fees........................................... 1,050
Unrealized depreciation of forward currency exchange contracts.... 561
Due to shareholder service agent.................................. 102
Payable for Fund shares redeemed.................................. 71
Accrued expenses and other payables............................... 4,600
----------
Total Liabilities............................................... 101,699
----------
NET ASSETS, equivalent to $10.30 per share........................ $2,375,169
----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited
shares authorized; 230,530 shares outstanding.................... $ 2,305
Capital surplus................................................... 2,290,202
Accumulated net realized loss on securities....................... (7,843)
Net unrealized appreciation (depreciation) of securities
Investments...................................................... 91,979
Foreign currency................................................. 143
Forward currency exchange contracts.............................. 10,562
Other foreign denominated assets and liabilities................. (6)
Accumulated net investment loss................................... (12,173)
----------
NET ASSETS........................................................ $2,375,169
----------
</TABLE>

F-49
See Notes to Financial Statements

<PAGE> 150

GLOBAL EQUITY FUND FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
July 3, 1995*
through
December 31, 1995
- ------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends (net of $893 of foreign taxes withheld at
source).................................................... $ 9,942
Interest................................................... 7,481
-------
Total income............................................. 17,423
-------
EXPENSES
Management fees............................................ 10,983
Shareholder service agent's expenses....................... 161
Accounting services........................................ 7,200
Trustees' fees and expenses................................ 2,280
Audit fees................................................. 30,403
Custodian fees............................................. 36,580
Legal fees................................................. 500
Reports to shareholders.................................... 750
Registration and filing fees............................... 800
Organization expenses...................................... 688
Miscellaneous.............................................. 444
Expense reimbursement...................................... (43,031)
-------
Total expenses........................................... 47,758
-------
NET INVESTMENT LOSS........................................ (30,335)
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments.............................................. (7,843)
Foreign currency and forward currency exchange contracts. 1,787
Net unrealized appreciation (depreciation) of securities
during the period
Investments.............................................. 91,979
Foreign currency......................................... 143
Forward currency exchange contracts...................... 10,562
Other foreign denominated assets and liabilities......... (6)
-------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES............. 96,622
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $66,287
-------
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
July 3, 1995*
through
December 31, 1995
- -------------------------------------------------------------------------------
<S> <C>
NET ASSETS, beginning of period............................. $ 100
----------
OPERATIONS
Net investment loss........................................ (30,335)
Net realized loss on securities............................ (6,056)
Net unrealized appreciation of securities during the
period..................................................... 102,678
----------
Increase in net assets resulting from operations.......... 66,287
----------
CAPITAL TRANSACTIONS
Proceeds from shares sold.................................. 2,319,291
Cost of shares redeemed.................................... (10,509)
----------
Increase in net assets from capital transactions.......... 2,308,782
----------
INCREASE IN NET ASSETS...................................... 2,375,069
----------
NET ASSETS, end of period (including accumulated net
investment loss of $12,173)................................. $2,375,169
----------
CAPITAL SHARE TRANSACTIONS
Shares sold................................................. 231,560
Shares redeemed............................................. (1,040)
----------
Increase in capital shares outstanding.................... 230,520
----------
</TABLE>
*Commencement of operations

F-50
See Notes to Financial Statements

<PAGE> 151

GLOBAL EQUITY FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
period indicated

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995(/1/)
through
December 31, 1995(/2/)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C>
Net asset value, beginning of period................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Investment income..................................... .09
Expenses.............................................. (.48)
Expense reimbursement (/3/)........................... .23
------
Net investment loss.................................... (.16)
Net realized and unrealized gain on securities......... .46
------
Total from investment operations....................... .30
------
Net asset value, end of period......................... $10.30
------
TOTAL RETURN(/4/)...................................... 3.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $2.4
Average net assets (millions).......................... $2.2
Ratios to average net assets (annualized) (/3/)
Expenses.............................................. 4.35%
Expenses, without expense reimbursement............... 8.27%
Net investment loss................................... (2.76)%
Net investment loss, without expense reimbursement.... (6.68)%
Portfolio turnover rate................................ 42%
</TABLE>

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

F-51
See Notes to Financial Statements

<PAGE> 152

NOTES TO FINANCIAL STATEMENTS

- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Life Investment Trust (the "Trust", formerly Amer-
ican Capital Life Investment Trust) is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment com-
pany comprised of eight Funds: Common Stock Fund ("Common Stock"), Domestic
Strategic Income Fund ("Domestic Strategic"), Government Fund ("Government"),
Money Market Fund ("Money Market"), Multiple Strategy Fund ("Multiple Strate-
gy"), Emerging Growth Fund ("Emerging Growth"), Real Estate Fund ("Real Es-
tate") and Global Equity Fund ("Global Equity"). Each Fund is accounted for as
a separate entity.
The goals of the Funds are as follows: Common Stock seeks capital apprecia-
tion by investing principally in common stocks; Domestic Strategic seeks in-
come as its primary objective and capital appreciation as a secondary
objective; Government seeks high current return consistent with preservation
of capital; Money Market seeks protection of capital and high current income
by investing in short-term money market instruments; Multiple Strategy seeks a
high total investment return consistent with prudent risk; Emerging Growth
seeks capital appreciation by investing principally in common stocks of small
and medium sized companies; Real Estate seeks long-term growth of capital by
investing principally in securities of companies operating in the real estate
industry; and Global Equity seeks long-term growth of capital through an in-
ternationally diversified portfolio of equity securities of any nation, in-
cluding the United States.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported. Actual amounts may differ from the
estimates.

A. INVESTMENT VALUATIONS-Securities listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the 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 secu-
rities which may be more susceptible to a decline in value due to adverse eco-
nomic conditions than other investment grade holdings. These securities are
often subordinated to the prior claims of other senior lenders and uncertain-
ties exist as to an issuer's ability to meet principal and interest payments.
Debt securities rated below investment grade and comparable unrated securities
represented approximately 33% of Domestic Strategic's investment portfolio at
the end of the period.
Investments in foreign securities involve certain risks not ordinarily asso-
ciated with investments in securities of domestic issuers, including fluctua-
tions in foreign exchange rates, future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions.

B. FUTURES CONTRACTS, FORWARD COMMITMENTS AND OPTIONS-General--Transactions in
futures contracts, forward commitments, and options are utilized in strategies
to manage the market risk of a Fund's investments. The purchase of a futures
contract, forward commitment, or call option (or the writing of a put option)
increases the impact on net asset value of changes in the market price of in-
vestments. 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 Activity contains
additional information.
Futures Contracts--Upon entering into futures contracts, a 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 ac-
quiring 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,

F-52

<PAGE> 153

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

- --------------------------------------------------------------------------------
variation margin payments are received from or made to the broker. Upon the
closing or cash settlement of a contract, gains or losses are realized. The
cost of securities acquired through delivery under a contract is adjusted by
the unrealized gain or loss on the contract.
Forward Commitments--A Fund trades certain securities under the terms of for-
ward commitments whereby the settlement for payment and delivery occurs at a
specified future date. Forward commitments are privately negotiated transac-
tions between a Fund and
dealers. Upon executing a forward commitment and during the period of obliga-
tion, a Fund maintains collateral of cash or securities in a segregated account
with its custodian in an amount sufficient to relieve the obligation. If the
intent of a 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 commitments for which security settlement is not intended by a
Fund, and for all forward sales commitments, changes in the value of the com-
mitment are recognized by marking the commitment to market on a daily basis.
During the period of obligation, a Fund may either resell or repurchase the
forward commitment and enter into a new forward commitment, the effect of which
is to extend the settlement date. In addition, a Fund may occasionally close
such forward commitments prior to delivery. Gains and losses on investments are
realized upon the ultimate closing or cash settlement of forward commitments.
Options--Options purchased are recorded as investment, options written (sold)
are accounted for as liabilities. When an option expires, the premium (original
option value) is realized as a gain if the option was written or realized as a
loss if the option was purchased. When the exercise of an option results in a
cash settlement, the difference between the premium and the settlement proceeds
is realized as a gain or loss. When an option is closed, the difference between
the premium and the cost to close the position is realized as a gain or loss.

C. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which a Fund acquires ownership of a debt security and the seller agrees to re-
purchase the security at a future time and specified price. A Fund may invest
independently in repurchase agreements, or transfer uninvested cash balances
into a pooled cash account along with other investment companies advised by Van
Kampen American Capital Asset Management, Inc. (the "Adviser"), the daily ag-
gregate of which is invested in repurchase agreements. Repurchase agreements
are collateralized by the underlying debt security. A 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 required to main-
tain the value of the underlying security at not less than the repurchase pro-
ceeds due a Fund.

D. 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.

E. FORWARD CURRENCY EXCHANGE CONTRACTS-Global Equity enters into forward cur-
rency exchange contracts in order to hedge its exposure to changes in foreign
currency exchange rates on its foreign portfolio holdings or to settle transac-
tions. A forward currency exchange contract is a commitment to buy or sell a
foreign currency at a set price on a future date. Changes in the value of the
contract are recognized by marking the contract to market on a daily basis. The
Fund realizes gains or losses at the time the forward currency exchange con-
tract is closed. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts, and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.

F. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause each of the Funds has elected to be qualified as a "regulated investment
company" under the Internal Revenue Code and intends to maintain this qualifi-
cation by annually distributing all taxable net investment income and taxable
net realized capital gains on investments to shareholders. It is anticipated
that no distributions of net realized capital gains will be made until tax ba-
sis capital loss carryforwards, if any, expire or are offset by net realized
capital gains.

F-53

<PAGE> 154

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

- --------------------------------------------------------------------------------
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,
1995 with expiration dates.

<TABLE>
<CAPTION>
Common Domestic Money Multiple Emerging Real Global
Stock Strategic Government Market Strategy Growth Estate Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Identified cost......... $66,854,310 $25,601,004 $73,227,636 $21,612,759 $57,112,937 $2,017,998 $8,875,739 $2,309,755
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Gross unrealized
appreciation........... $ 9,928,432 $ 1,746,960 $ 1,972,463 -- $ 6,303,781 $ 295,831 $ 356,534 $ 180,032
Gross unrealized
depreciation........... 753,880 246,473 23,950 -- 388,954 51,166 45,785 89,710
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Net unrealized
appreciation........... $ 9,174,552 $ 1,500,487 $ 1,948,513 -- $ 5,914,827 $ 244,665 $ 310,749 $ 90,322
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Capital loss
carryforward utilized
during the period...... -- $ 104,892 $ 1,385,949 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Net realized capital
loss carryforward...... -- $ 2,020,640 $13,105,418 $ 2,059 -- $ 36,712 $ 10,729 $ 6,043
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Expiration dates of
capital loss
carryforward............ -- 1998-2002 1996-2002 2002-2003 -- 2003 2003 2003
</TABLE>

The net capital loss carryforwards at the end of the period may be utilized
to offset any future capital gains until expiration.
Additionally, $20,791 and $445 of post October losses for Emerging Growth and
Real Estate, respectively, are deferred for federal income tax purposes to the
1996 fiscal year.

G. 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 or when information becomes available, which-
ever is later. Interest income is accrued daily. Issuers of Payment-in-Kind se-
curities 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.

H. DIVIDENDS AND DISTRIBUTIONS-Government and Money Market declare dividends
from net investment income on each business day. Domestic Strategic, Common
Stock, Multiple Strategy, Emerging Growth, Real Estate and Global Equity
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.
Each of the Funds distributes tax basis earnings in accordance with the mini-
mum distribution requirements of the Internal Revenue Code, which may differ
from generally accepted accounting principles. Such dividends or distributions
may exceed financial statement earnings.

I. DEBT DISCOUNT AND PREMIUM-The Trust 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.

J. PRIVATE PLACEMENTS-A Fund may own securities purchased in private placement
transactions, which have not been registered under the Securities Act of 1933.
Such securities generally may be resold only in a privately negotiated transac-
tion with a limited number of purchasers or in a public offering after they
have been registered under the Securities Act of 1933. The issuers of privately
placed debt securities held by a Fund generally have agreed to register the se-
curities within specified time periods or increase the interest paid on such
securities.

NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Trust. Management fees are paid
monthly, based on the average daily net assets of the Funds (Common Stock, Do-
mestic Strategic, Government, Money Market and Multiple Strategy) at an annual
rate of .50% of the first $500 million, .45% of the next $500 million and .40%
of the amount in excess of $1 billion. The resulting fee is prorated to each
Fund (Common Stock, Domestic Strategic, Government, Money Market and Multiple
Strategy) based on its average daily net assets. The Adviser

F-54

<PAGE> 155

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

- --------------------------------------------------------------------------------
has volunteered to reimburse each of these Funds for all ordinary business ex-
penses, exclusive of taxes and interest, in excess of .60% of the average daily
net assets. For the period, such voluntary expense reimbursements were:

<TABLE>
<S> <C>
Common Stock...................................................... $56,680
Domestic Strategic................................................ 86,887
Government........................................................ 77,421
Money Market...................................................... 80,637
Multiple Strategy................................................. 85,602
</TABLE>

Under the terms of the advisory agreement, if the total ordinary business ex-
penses, exclusive of taxes, distribution fees and interest, exceed .95% of av-
erage daily net assets, the Adviser will reimburse the Funds (Common Stock,
Domestic Strategic, Government, Money Market and Multiple Strategy) for the
amount of the excess. The contractual expense reimbursement shall be made
monthly. For the period, none of the above Funds had contractual expense reim-
bursements.
For Emerging Growth, management fees are paid monthly, based on the average
daily net assets at an annual rate of .70%.
For Real Estate, the Adviser has entered into a subadvisory agreement with
Hines Interest Realty Advisors Limited Partnership ("Subadviser--Real Estate"),
who provides advisory services to Real Estate and the Adviser with respect to
Real Estate's investments in real estate. Management fees are calculated month-
ly, based on the average daily net assets of Real Estate at the annual rate of
1.00%. The Adviser pays 50% of its management fee to the Subadviser--Real Es-
tate.
For Global Equity, the Adviser has entered into a subadvisory agreement with
John Govett & Co., Limited ("Subadviser--Global Equity), who provides advisory
services to Global Equity and the Adviser with respect to Global Equity's in-
vestments in foreign securities. Management fees are calculated monthly, based
on the average daily net assets of Global Equity at the annual rate of 1.00%.
The Adviser pays 50% of its management fee to the Subadviser--Global Equity.
Under the terms of the advisory agreements, if the total ordinary business
expenses of the Funds (Emerging Growth, Real Estate and Global Equity), exclu-
sive of taxes, interest and other extraordinary expenses, exceed the most re-
strictive expense limitation applicable in the states where the Funds' shares
are qualified for sale, the Adviser will reimburse the Funds for the excess.
Such reimbursement shall be made monthly. The most restrictive expense limita-
tion in effect was California's which aggregated 2 1/2% of the first $30 mil-
lion of average daily net assets, 2% of the next $70 million of average daily
net assets and 1 1/2% of the average daily net assets in excess of $100
milllion. For the period, $19,858 for Emerging Growth, $7,173 for Real Estate,
and $43,031 for Global Equity was reimbursed due to the expense limitation.
As of January 1, 1996, the Adviser has volunteered to reimburse for all ex-
penses in excess of .85% for Emerging Growth, 1.10% for Real Estate, and 1.20%
for Global Equity, each of the Fund's average daily net assets.
Other transactions with affiliates during the period were as follows:

Accounting services include the salaries and overhead expenses of the Trust'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 Trust. 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.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Trust's shareholder service agent. These services are provided at cost plus a
profit. Legal fees during the period were for services rendered by former coun-
sel of the Trust, O'Melveny & Myers. A former trustee was of counsel to that
firm. Certain officers and trustees of the Trust are officers and trustees of
the Adviser and the shareholder service agent.

F-55

<PAGE> 156

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

<TABLE>
<CAPTION>
Common Domestic Multiple Emerging Real Global
Stock Strategic Government Strategy Growth Estate Equity
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $ 98,217,059 $17,345,053 $106,514,498 $65,674,248 $2,586,768 $9,986,356 $2,994,454
Sales................... 109,821,318 14,448,328 117,494,867 77,631,643 511,267 2,719,513 758,759
</TABLE>

Money Market held only short-term investments.
At the end of the period, Government held the following forward purchase com-
mitments settling in January 1996 for which delivery is not intended and long
U.S. Treasury futures contracts expiring in March 1996.

FORWARD PURCHASE COMMITMENTS:

<TABLE>
<CAPTION>
Par Unrealized
Amount Appreciation
(000) Security Market Value (Depreciation)
--------------------------------------------------------------------------
<C> <S> <C> <C>
Federal Home Loan Mortgage
$1,500 Corp., 8.00%, short............. $(1,553,445) $(23,914)
----------- --------
Federal Home Loan Mortgage
1,000 Corp., 7.00%, long.............. 1,008,750 16,563
Government National Mortgage
4,000 Association, 7.50%, long........ 4,112,520 68,457
----------- --------
5,121,270 85,020
----------- --------
$ 3,567,825 $ 61,106
----------- --------
</TABLE>

FUTURES CONTRACTS:

<TABLE>
<CAPTION>
Number of Unrealized
Contracts Description Market Value Appreciation
---------------------------------------------------------------------------
<C> <S> <C> <C>
60 U.S. Treasury Bonds................ $ 7,288,125 $178,120
20 U.S. Treasury Notes (five year).... 2,208,125 25,686
95 U.S. Treasury Notes (ten year)..... 10,886,406 141,461
----------- --------
$20,382,656 $345,267
----------- --------
</TABLE>

During the period, Real Estate and Global Equity had the following option
activity on S&P 500 index futures:

<TABLE>
<CAPTION>
Real Estate Global Equity
------------------- ------------------
Number of Number of
Contracts Premium Contracts Premium
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options open at beginning of the
period.......................... 0 $0 0 $0
Options written................. 120 149,875 80 95,917
Options closed.................. (60) (47,938) (40) (53,958)
Options expired................. (60) (101,937) (40) (41,959)
--- -------- --- -------
Options open at the end of the
period.......................... 0 $0 0 $0
--- -------- --- -------
</TABLE>

At the end of the period Global Equity held the following forward currency
exchange contracts:

<TABLE>
<CAPTION>
U.S. Unrealized
Settlement Dollar Appreciation
Currency Date Value (Depreciation)
---------------------------------------------------------------------------
<S> <C> <C> <C>
JAPANESE YEN
9,892,000 (payable)................... 09/24/96 $ 99,256 $ 745
9,629,000 (payable)................... 11/13/96 97,207 2,793
9,574,000 (payable)................... 11/13/96 96,652 3,348
9,486,000 (payable)................... 11/13/96 95,763 4,237
-------- -------
388,878 11,123
-------- -------
SWEDISH KRONA
343,400 (payable)................... 11/13/96 50,561 (561)
-------- -------
Total forward currency exchange contracts....... $439,439 $10,562
-------- -------
</TABLE>

F-56

<PAGE> 157

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Trust
at the annual rate of $3,342 plus a fee of $96 per day for the Board and Com-
mittee meetings attended. 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 each 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 Trustee covered under the Plan elects to be cred-
ited with an earnings component on amounts deferred equal to the income earned
by each Fund on its short-term investments or equal to the total return of each
Fund.
Trustees' fees for the period were:

NOTE 5--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Trust to
a Delaware Business Trust and the election of additional trustees. On September
16, 1995, the reorganization became effective.

NOTE 6--SUBSEQUENT EVENT
Effective March 6, 1996, the Trust will make the following name changes to
three of the Funds: Common Stock to Enterprise, Domestic Strategic Income to
Domestic Income, and Multiple Strategy to Asset Allocation.

F-57

<PAGE> 158

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Common Stock
Fund, Domestic Strategic Income Fund, Government Fund, Money Market Fund,
Multiple Strategy Fund, Real Estate Fund, Emerging Growth Fund and Global
Equity Fund (constituting Van Kampen American Capital Life Investment Trust,
hereafter referred to as the "Trust") at December 31, 1995, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Houston, Texas
February 21, 1996

F-58

<PAGE> 159

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
(formerly, American Capital Life Investment Trust)
2800 Post Oak Boulevard
Houston, Texas 77056
(800) 421-5666

March 6, 1996

Van Kampen American Capital Life Investment Trust (the "Trust") is an
open-end diversified management investment company which offers shares in nine
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 Contract Owners. 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 investment
objective long-term growth of capital. Current income is a secondary
consideration. The Fund seeks to achieve its objectives 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.

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

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.

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...... 17
Additional Information.................. 18
Appendix................................ 19
</TABLE>

2
<PAGE> 161

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.

3
<PAGE> 162

Investment Advisers.....Van Kampen American Capital Asset Management Inc. (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 Fund 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").

4
<PAGE> 163

FINANCIAL HIGHLIGHTS

The following information for the period July 31, 1995 through December 31,
1995 has been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. 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>
JULY 3,
1995(1)
THROUGH
DECEMBER 31,
PER SHARE OPERATING PERFORMANCE 1995(2)
------------
<S> <C>
Net asset value, beginning of period............................................................................... $ 10.00
------------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................................................................................ .33
Expenses......................................................................................................... (.15)
Expense reimbursement............................................................................................ .02
------------
Net investment income.............................................................................................. .20
Net realized and unrealized gain on securities..................................................................... .6325
------------
Total from investment operations................................................................................... .8325
------------
Less distributions from net investment income...................................................................... (.0925)
Net asset value, end of period..................................................................................... $ 10.74
===========
TOTAL RETURN(3).................................................................................................... 8.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................................................................... $ 8.6
Ratios to average net assets (annualized)
Expenses......................................................................................................... 2.50%
Expenses, without expense reimbursement.......................................................................... 2.90%
Net investment income............................................................................................ 3.75%
Net investment income, without expense reimbursement............................................................. 3.36%
Portfolio turnover rate............................................................................................ 85%
</TABLE>

5
<PAGE> 164

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.

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.

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 -- 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.

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,

6
<PAGE> 165

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 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

7
<PAGE> 166

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.

8
<PAGE> 167

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.

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 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

9
<PAGE> 168

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 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

10
<PAGE> 169

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

11
<PAGE> 170

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 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 more than $50 billion under management or supervision. Van
Kampen American Capital's more than 40 open-end and 38 closed-end funds and more
than 2,800 unit investment trusts are professionally distributed by leading
financial advisers nationwide.

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 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

12
<PAGE> 171

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. For the period
July 3, 1995 through December 31, 1995, advisory fees plus the cost of
accounting services payable by the Trust on behalf of the Fund was $21,289. 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 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

13
<PAGE> 172

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. The Distributor,
located at 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.

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

14
<PAGE> 173

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.

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.

15
<PAGE> 174

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. Total return calculations do not take into account
expenses at the "wrap" or Contract Owner level. Investors should also review
total return calculations that include these expenses.

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.

In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a thirty-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding. Yield calculations do not
take into account expenses at the "wrap" or Contract Owner level. Investors
should also review yield calculations that include those expenses.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for shares of
the Fund. Distribution rate is a measure of the level of income and short-term
capital gain dividends, if any, distributed for a specified period. It differs
from yield, which is a measure of the income actually earned by the Fund's
investments, and from total return, which is a measure of the income actually
earned by, plus the effect of any realized and unrealized appreciation or
depreciation of, such investments during a stated period. Distribution rate is,
therefore, not intended to be a complete measure of the Fund's performance.
Distribution rate may sometimes be greater than yield since, for instance, it
may not include the effect of amortization of bond premiums, and may include
non-recurring short-term capital gains and premiums from futures transactions
engaged in by the Fund.

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies.

16
<PAGE> 175

Net income computed for this formula differs from net income reported by the
Fund in accordance with generally accepted accounting principles and from net
income computed for federal income tax reporting purposes. Thus the yield
computed for a period may be greater or lesser than the Fund's then current
dividend rate.

The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.

Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.

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.

In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the ratings or rankings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds, with the Consumer Price Index, the Dow
Jones Industrial Average Index, NAREIT Equity REIT Index, Lehman Brothers REIT
Index, Salomon Brothers High Grade Bond Index, Standard & Poor's, NASDAQ, other
appropriate indices of investment securities, or with investment or savings
vehicles. The performance information may also include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Investor's Business Daily, Kiplinger's Personal
Finance Magazine, Money, Mutual Fund Forecaster, Stanger's Investment Advisor,
USA Today, U.S. News & World Report and The Wall Street Journal. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC. For these purposes, the performance of
the Fund, as well as the performance of other mutual funds or indices, do not
reflect various charges, the inclusion of which would reduce Fund performance.

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

17
<PAGE> 176

ADDITIONAL INFORMATION

18
<PAGE> 177

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.

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.

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.

19
<PAGE> 178

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.

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.

20
<PAGE> 179

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 421-5666

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 772-8889
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
Kansas City, MO 64141-9256
Custodian

STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital Funds
Legal Counsel

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM

333 West Wacker Drive

Chicago, IL 60606

Independent Accountants

PRICE WATERHOUSE LLP
1201 Louisiana, Suite 2900
Houston, TX 77002
<PAGE> 180

LIFE INVESTMENT TRUST

REAL ESTATE SECURITIES FUND

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

P R O S P E C T U S

MARCH 6, 1996

--- A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ---
VAN KAMPEN AMERICAN CAPITAL
- --------------------------------------------------------------------------------
<PAGE> 181

STATEMENT OF ADDITIONAL INFORMATION

MARCH 6, 1996

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

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

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

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 March 6,
1996. 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

<PAGE> 182

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 ACCESS
Investor 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 13% 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 February 16, 1996 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
Contract Owner, 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.

<TABLE>
<CAPTION>
AMOUNT OF RECORD
OWNERSHIP
OF THE FUND AT
NAME AND ADDRESS OF RECORD HOLDER FEBRUARY 16, 1996 PERCENT
- ------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Nationwide Life Insurance.......................................... 1,016,429.850 89.54%
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 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.

B-2
<PAGE> 183

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.

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.

B-3
<PAGE> 184

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.

B-4
<PAGE> 185

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.

B-5
<PAGE> 186

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."

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.

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

B-6
<PAGE> 187

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

B-7
<PAGE> 188

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.

B-8
<PAGE> 189

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.

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.

B-9
<PAGE> 190

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.

B-10
<PAGE> 191

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.

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.

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.

B-11
<PAGE> 192

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.

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.

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.

B-12
<PAGE> 193

TRUSTEES AND EXECUTIVE OFFICERS

TRUSTEES

B-13
<PAGE> 194

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 60 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.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and VKAC. Chairman, Chief Executive
Houston, TX 77056 Officer and a Director of Van Kampen American Capital
Age: 56 Distributors, Inc. (the "Distributor"), the Adviser, the
VK Adviser, Van Kampen American Capital Management, Inc.
and Van Kampen American Capital Advisors, Inc. Chairman,
President and a Director of Van Kampen American Capital
Exchange Corporation, American Capital Contractual
Services, Inc. and American Capital Shareholders Corpora-
tion. Chairman and a Director of ACCESS Investor
Services, Inc. ("ACCESS"), Van Kampen Merritt Equity
Advisors Corp., Van Kampen Merritt Equity Holdings Corp.,
and VCJ Inc., McCarthy, Crisanti & Maffei, Inc.,
McCarthy, Crisanti & Maffei Acquisition, and Van Kampen
American Capital Trust Company. Chairman, President and a
Director of Van Kampen American Capital Services, Inc.
President, Chief Executive Officer and a Trustee of each
of the Van Kampen American Capital funds advised by the
Adviser and the VK Adviser. Director, Trustee or Managing
General Partner of other open-end investment companies
and closed-end investment companies advised by the
Adviser. Chairman of the Board of the closed-end
investment companies advised by the VK Adviser.
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: 73 software programming company specializing in white collar
productivity. Director of Panasia Bank. A Trustee of each
of the Van Kampen American Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 71 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 the Van Kampen American Capital
Chicago, IL 60606 Funds. A Trustee of each of the Van Kampen American
Age: 56 Capital Funds. He also is a Trustee of the closed-end
investment companies advised by the VK Adviser.
</TABLE>

B-14
<PAGE> 195

<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 known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 74 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>

OFFICERS

B-15
<PAGE> 196

B-16
<PAGE> 197

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Tanya M. Loden........... Controller Controller of most of the investment
Age: 36 companies advised by the Adviser, formerly
Tax Manager/Assistant Controller.
Nicholas Dalmaso......... Assistant Secretary Assistant Vice President and Senior
Age: 30 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Distributor,
the Adviser, the VK Adviser, and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds, Assistant Secretary of the
closed-end funds advised by the VK Adviser.
Prior to May 1992, attorney for Cantwell &
Cantwell, a Chicago law firm.
Huey P. Falgout, Jr...... Assistant Secretary Assistant Vice President and Senior
Age: 32 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Distributor,
the Adviser, the VK Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, ACCESS, and American Capital
Shareholders Corporation. Assistant
Secretary of each of the Van Kampen
American Capital Funds.
Scott E. Martin.......... Assistant Secretary Senior Vice President, Deputy General
Age: 39 Counsel and Assistant Secretary of VKAC.
Senior Vice President, Deputy General
Counsel and Secretary of the Adviser, the
VK Adviser and the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisers, Inc., VSM
Inc., VCJ Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation,
ACCESS Investor Services, Inc., Van Kampen
Merritt Equity Advisors Corp., Van Kampen
Merritt Equity Holdings Corp., American
Capital Shareholders Corporation. Secretary
and Deputy General Counsel of McCarthy,
Crisanti, & Maffei, Inc. and McCarthy,
Crisanti & Maffei Acquisition. Chief Legal
Officer of McCarthy, Crisanti & Maffei,
S.A. Assistant Secretary of each of the Van
Kampen American Capital Funds. Assistant
Secretary of the closed-end funds advised
by the VK Adviser.
</TABLE>

B-17
<PAGE> 198

<TABLE>
<S> <C> <C>
Weston B. Wetherell...... Assistant Secretary Vice President, Associate General Counsel
Age: 39 and Assistant Secretary of VKAC, the
Adviser, the VK Adviser and the
Distributor, Van Kampen American Capital
Management, Inc. Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds. Assistant Secretary of closed-end
funds advised by VK Adviser.
Perry Farrell............ Assistant Treasurer Assistant Treasurer of each of the Van
Age: 59 Kampen American Capital Funds.
Steven M. Hill........... Assistant Treasurer Assistant Vice President of the Adviser and
Age: 31 VK Adviser. Assistant Treasurer of each of
the Van Kampen American Capital Funds.
Assistant Treasurer of the closed-end funds
advised by the VK Adviser.
Robert Sullivan.......... Assistant Controller Assistant Controller of each of the Van
Age: 62 Kampen American Capital Funds.
</TABLE>

Each of the foregoing trustees and officers holds the same position with
each of 46 other Van Kampen American Capital mutual funds (the "Fund Complex").
Each trustee who is not an affiliated person of the Adviser, the Distributor or
VKAC (each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees to defer receipt of his or her compensation and
earn a return on such deferred amounts based upon the return of the common stock
of the funds in the Fund Complex as more fully described below.

The compensation of each Non-Affiliated Trustee includes a retainer by the
mutual funds in the Fund Complex advised by the Adviser (the "AC Funds") in an
amount equal to $35,000 per calendar year, due in four quarterly installments on
the first business day of each calendar quarter. The AC Funds pay each Non-
Affiliated Trustee a per meeting fee in the amount of $2,000 per regular
quarterly meeting attended by the Non-Affiliated Trustee, due on the date of
such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in
connection with his or her services as a trustee. The annual retainer and the
regular meeting fees are allocated among the AC Funds (i) 50% on the basis of
the relative net assets of each AC Fund to the aggregate net assets of all of
the AC Funds and (ii) 50% equally to each AC Fund, in each case as of the last
business day of the preceding calendar quarter. Each AC Fund participating in
any special meeting of the trustees generally pays each Non-Affiliated Trustee a
per meeting fee in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings. The trustees have approved an
aggregate compensation cap with respect to the Fund Complex of $84,000 per Non-
Affiliated Trustee per year (excluding any retirement benefits) for the period
July 22, 1995 through December 31, 1996, subject to the net assets and the
number of mutual funds in the Fund Complex as of July 21, 1995 and certain other
exceptions. In addition, the Adviser has agreed to reimburse each fund in the
Fund Complex through December 31, 1996 for any increase in the aggregate
trustee's compensation over the aggregate compensation paid by such Fund in its
1994 fiscal year, provided that if a fund did not exist for the entire 1994
fiscal year appropriate adjustments will be made.

B-18
<PAGE> 199

reference to either the return on the common stock of the respective Fund or
other mutual funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee. To the extent permitted by the 1940 Act, it is
anticipated that the Fund will invest in common stock of those mutual funds
selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of each Fund.

Additional information regarding compensation before deferral by the Funds
and the other funds in the Fund complex is set forth in the table below.

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR TOTAL
AGGREGATE RETIREMENT ESTIMATED COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL FROM REGISTRANT
BEFORE DEFERRAL CUMULATIVE AS PART OF BENEFITS AND FUND
FROM DEFERRED DEFERRED REGISTRANT UPON COMPLEX PAID TO
NAME(2) REGISTRANT(3) FEES(6) COMPENSATION(6) EXPENSES(4) RETIREMENT(4) TRUSTEE(5)
- ------------------------------------------ -------- -------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Miles Branagan.......... $ 180 $-0- $ -0- $-0- $-0- $84,250
Dr. Richard E. Caruso...... $ -0- $-0- $ -0- $-0- $-0- $57,250
Philip P. Gaughan.......... $ 150 $150 $ 158.88 $-0- $-0- $76,500
Linda H. Heagy............. $ 210 $180 $ 190.64 $-0- $-0- $38,417
Dr. Roger Hilsman.......... $ 180 $-0- $ -0- $-0- $-0- $91,250
R. Craig Kennedy........... $ 180 $180 $ 190.64 $-0- $-0- $92,625
Donald C. Miller........... $ 150 $150 $ 158.88 $-0- $-0- $94,625
Jack E. Nelson............. $ 180 $180 $ 190.64 $-0- $-0- $93,625
David Rees................. $ 180 $-0- $ -0- $-0- $-0- $83,250
Jerome L. Robinson......... $ 180 $180 $ 190.64 $-0- $-0- $89,375
Lawrence J. Sheehan........ $ 180 $-0- $ -0- $-0- $-0- $91,250
Dr. Fernando Sisto......... $ 180 $-0- $ -0- $-0- $-0- $98,750
Wayne W. Whalen............ $ 180 $180 $ 190.64 $-0- $-0- $93,375
William S. Woodside........ $ 180 $-0- $ -0- $-0- $-0- $79,125
</TABLE>

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

(2) Messrs. Powell and McDonnell, trustees of the Trust, are affiliated persons
of the Adviser and are not eligible for compensation or retirement benefits
from the Registrant. Messrs. Gaughan, Kennedy, Miller, Nelson, Robinson and
Whalen were elected by shareholders to the Board of Trustees on July 21,
1995. Ms. Heagy was appointed to the Board of Trustees on September 7, 1995.
Mr. McDonnell was appointed to the Board of Trustees on January 29, 1996.
Mr. Gaughan retired from the Board of Trustees on January 26, 1996. Messrs.
Caruso, Rees and Sheehan were removed from the Board of Trustees effective
September 7, 1995, January 29, 1996 and January 29, 1996, respectively.

B-19
<PAGE> 200

is anticipated that the return on the deferred compensation may be
determined by reference to either the return on the common stock of the
respective Fund or other mutual funds is the Fund Complex as selected by the
respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act,
it is anticipated that the Fund will invest in common stock of those mutual
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation.

(4) The amounts shown in those columns are zero because the Trust did not adopt
its retirement plan until after the end of its 1995 fiscal year. The
retirement plan is described above the Compensation Table.

(5) The amounts shown in this column are accumulated from the Aggregate
Compensation before Deferral of each of the 46 mutual funds in the Fund
Complex as of December 31, 1995. The following trustees deferred
compensation from the Registrant and the Fund Complex during the calendar
year ended December 31, 1995; Dr. Caruso, $41,750; Mr. Gaughan, $57,750; Ms.
Heagy, $8,750; Mr. Kennedy, $65,875; Mr. Miller, $65,875; Mr. Nelson,
$65,075; Mr. Rees, $8,375; Mr. Robinson, $62,375; Dr. Sisto, $30,260; and
Mr. Whalen, $65,625. Through the 1995 fiscal year of the Trust, the deferred
compensation earned a rate of return determined by reference to the return
earned on short-term investments owned by the respective Fund paying the
Trustee the compensation. After March 19, 1996, it is anticipated that the
return on the deferred compensation may be determined by reference to either
the return of the common stock of the respective Fund or other mutual funds
in the Fund Complex as selected by the respective Non-Affiliated Trustee. To
the extent permitted by the 1940 Act, it is anticipated that the Fund will
invest in common stock of those mutual funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
trustees' Fund Complex compensation cap commenced on July 22, 1995 and
covered the period between July 22, 1995 and December 31, 1995. Compensation
received prior to July 22, 1995 was not subject to the cap. For the calendar
year ended December 31, 1995, while certain trustees received compensation
over $84,000 in the aggregate, no trustee received compensation in excess of
the pro rata amount of the Fund Complex cap for the period July 22, 1995
through December 31, 1995. In addition to the amounts set forth above,
certain trustees received lump sum retirement benefit distributions not
subject to the cap in 1995 related to three mutual funds that ceased
investment operations during 1995 as follows: Mr. Gaughan, $22,136; Mr.
Miller, $33,205; Mr. Nelson, $30,851; Mr. Robinson, $11,068; and Mr. Whalen,
$27,332. The Adviser and its affiliates also serve as investment adviser for
other investment companies; however, with the exception of Messrs. Powell,
McDonnell and Whalen, the trustees were not trustees of such investment
companies. Combining the Fund Complex with other investment companies
advised by the Adviser and its affiliates, Mr. Whalen received Total
Compensation of $268,857 during the calendar year ended December 31, 1995.

(6) Through the 1995 fiscal year of the Trust, deferred compensation earned a
rate of return determined by reference to the return of the common stock of
the respective Fund paying the Trustee the compensation. After March 19,
1996, it is anticipated that the return on deferred compensation may be
determined by reference to either the return of the common stock of the
respective Fund or other mutual funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act,
it is anticipated that the Fund will invest in common stock of those mutual
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation.

B-20
<PAGE> 201

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 Fund.

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 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.

B-21
<PAGE> 202

During the period July 3, 1995 through December 31, 1995, the Adviser
received $18,136 in advisory fees from the Fund. For such period, the Fund paid
$3,153 for accounting services.

DISTRIBUTOR

The Distributor acts as the principal underwriter of the shares of the Fund
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.

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.

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

B-22
<PAGE> 203

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.

Brokerage commissions paid by the Fund on portfolio transactions for the
period July 3, 1995 through December 31, 1995 were $14,076. During that period,
the Fund paid $12,934 in brokerage commissions on transactions totaling
$12,477,745 to brokers selected primarily on the basis of research services
provided to the Adviser.

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.

B-23
<PAGE> 204

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.

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.

B-24
<PAGE> 205

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.

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.

FUND PERFORMANCE

The Fund's overall total return, computed in the manner described in the
Prospectus for the period from July 3, 1995 to December 31, 1995, was 8.35%.
These results are based on historical earnings and asset value fluctuations and
are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objectives and policies as well as
the risks incurred in the Fund's investment practices. Future results will be
affected by changes in the general level of prices of securities available for
purchase and sale by the Fund.

B-25
<PAGE> 206

From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., and independent research firm, as they
relate to the level of services for mutual fund investors, and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality,
received by American Capital in 1994.

OTHER INFORMATION

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

FINANCIAL STATEMENTS

The attached financial statements are in the form in which they appear in
the Annual Report to Shareholders including the related report of Independent
Accountants.

B-26
<PAGE> 207

REAL ESTATE FUND PORTFOLIO OF INVESTMENTS

December 31, 1995

See Notes to Financial Statements

F-1

<PAGE> 208

REAL ESTATE FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1995

See Notes to Financial Statements

F-2

<PAGE> 209

REAL ESTATE FUND_________________________STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

F-3
See Notes to Financial Statements

<PAGE> 210

REAL ESTATE FUND________________________________________FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
July 3, 1995*
through
December 31, 1995
- ----------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends................. $ 99,314
Interest.................. 14,118
--------
Investment income....... 113,432
--------
EXPENSES
Management fees........... 18,136
Shareholder service
agent's expenses.......... 307
Accounting services....... 3,153
Trustees' fees and
expenses.................. 2,280
Audit fees................ 20,403
Custodian fees............ 3,000
Legal fees................ 500
Reports to shareholders... 752
Registration and filing
fees...................... 2,855
Miscellaneous............. 1,128
Expense reimbursement..... (7,173)
--------
Total expenses.......... 45,341
--------
NET INVESTMENT INCOME..... 68,091
--------
REALIZED AND UNREALIZED
GAIN (LOSS) ON SECURITIES
Net realized loss on
securities
Investment............... (32,460)
Options.................. (70)
Net unrealized
appreciation of securities
during the period......... 332,105
--------
NET REALIZED AND
UNREALIZED GAIN ON
SECURITIES............... 299,575
--------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $367,666
--------
</TABLE>

F-4
See Notes to Financial Statements

<PAGE> 211

REAL ESTATE FUND FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
period indicated

(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
See Notes to Financial Statements

<PAGE> 212

NOTES TO FINANCIAL STATEMENTS

F-6

<PAGE> 213

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

F-7

<PAGE> 214

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

F-8

<PAGE> 215

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

F-9

<PAGE> 216

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

FORWARD PURCHASE COMMITMENTS:

FUTURES CONTRACTS:

During the period, Real Estate and Global Equity had the following option
activity on S&P 500 index futures:

At the end of the period Global Equity held the following forward currency
exchange contracts:

F-10

<PAGE> 217

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

F-11

<PAGE> 218

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

PRICE WATERHOUSE LLP

Houston, Texas
February 21, 1996

F-12

<PAGE> 219

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements

<TABLE>
<CAPTION>
INCLUDED IN PART B FOR
ASSET ALLOCATION FUND
ENTERPRISE FUND
DOMESTIC INCOME FUND
GOVERNMENT FUND
MONEY MARKET FUND
---------------------------
<S> <C>
Portfolio of Investments
December 31, 1995 X
Statement of Assets and Liabilities
December 31, 1995 X
Statement of Operations
Year ended December 31, 1995 X
Statement of Changes in Net Assets
Year ended December 31, 1995 X
Year ended December 31, 1994 X
Notes to Financial Statements X
Financial Highlights X
Report of Independent Accountants X
</TABLE>

<TABLE>
<CAPTION>
INCLUDED IN PART B FOR
EMERGING GROWTH FUND
GLOBAL EQUITY FUND
REAL ESTATE SECURITIES FUND
---------------------------
<S> <C>
Portfolio of Investments
December 31, 1995 X
Statement of Assets and Liabilities
December 31, 1995 X
Statement of Operations
Period ended December 31, 1995 X
Statement of Changes in Net Assets
Period ended December 31, 1995 X
Notes to Financial Statements X
Financial Highlights X
Report of Independent Accountants X
</TABLE>

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and, therefore, have been omitted.

(b) Exhibits

<TABLE>
<C> <S>
1 -- First Amended and Restated Agreement and Declaration of Trust -- Note
6.
1.2 -- Certificate of Amendment -- Note 6.
1.3 -- Certificate of Designation of Enterprise Fund (formerly Common Stock
Fund) -- Note 6.
1.4 -- Certificate of Designation of Domestic Income Fund (formerly Domestic
Strategic Income Fund) -- Note 6.
1.5 -- Certificate of Designation of Emerging Growth Fund -- Note 6.
1.6 -- Certificate of Designation of Global Equity Fund -- Note 6.
</TABLE>

C-1
<PAGE> 220

<TABLE>
<C> <S>
1.7 -- Certificate of Designation of Government Fund -- Note 6.
1.8 -- Certificate of Designation of Money Market Fund -- Note 6.
1.9 -- Certificate of Designation of Asset Allocation Fund (formerly
Multiple Strategy Fund) -- Note 6.
1.10 -- Certificate of Designation of Real Estate Securities Fund -- Note 6.
1.11 -- Form of Certificate of Designation of Growth and Income Fund -- Note
6.
1.12 -- Form of Amended and Restated Certificate of Designation of Asset
Allocation Fund -- Note 6.
1.13 -- Form of Amended and Restated Certificate of Designation of Domestic
Income Fund -- Note 6.
1.14 -- Form of Amended and Restated Certificate of Designation of Enterprise
Fund -- Note 6.
2 -- Amended and Restated Bylaws -- Note 6.
4 -- Not Applicable.
5.1 -- Investment Advisory Agreement for Asset Allocation Fund, Domestic
Income Fund, Enterprise Fund, Government Fund and Money Market
Fund -- Note 6.
5.2 -- Investment Advisory Agreement for Emerging Growth Fund -- Note 6.
5.3 -- Investment Advisory Agreement for Global Equity Fund -- Note 6.
5.4 -- Investment Sub-Advisory Agreement for Global Equity Fund.
5.5 -- Investment Advisory Agreement for Real Estate Securities Fund -- Note
6.
5.6 -- Investment Sub-Advisory Agreement for Real Estate Securities
Fund -- Note 6.
5.7 -- Form of Investment Advisory Agreement for Growth and Income
Fund -- Note 6.
6.1 -- Underwriting Agreement -- Note 6.
6.2 -- Form of Addendum to Underwriting Agreement for Growth and Income
Fund -- Note 6.
8.1 -- Custodian Agreement between Registrant and State Street Bank and
Trust Company -- Note 1.
8.2 -- Transfer Agency and Servicing Agreement -- Note 6.
9 -- Data Access Services Agreement dated December 2, 1993 -- Note 4.
10 -- Inapplicable for this filing.
11 -- Consent of Independent Accountants.
13 -- Investment Letter dated October 7, 1987 -- Note 2.
13.1 -- Investment Letter dated July 3, 1995 for the Emerging Growth Fund,
Global Equity Fund and Real Estate Securities Fund.
15.2 -- Copy of Servicing Agreement -- Note 3.
16 -- Computation Measure for Performance Information.
17.1 -- List of certain investment companies in response to Item 29(a).
17.2 -- List of officers and directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b).
19.1 -- Powers of Attorney for Messrs. Branagan, Hilsman, Powell, Rees,
Sheehan, Sisto and Woodside -- Note 5.
19.2 -- Powers of Attorney for Messrs. Gaughan, Kennedy, Miller, Nelson,
Robinson and Whalen -- Note 5.
27 -- Financial Data Schedules.
</TABLE>

C-2
<PAGE> 221

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

<TABLE>
<S> <C>
Note 1 -- Custodian Contract dated December 2, 1993 incorporated herein by reference
(Exhibit 8 to Form N-1A of Van Kampen American Capital Global Managed Assets Fund,
Registration No. 33-74024 Post-Effective Amendment No. 2, filed May 6, 1994.
Note 2 -- Included in Pre-Effective Amendment No. 3 to Registrant's Registration Statement
on Form N-1A (File No. 33-628) filed on or about April 11, 1986.
Note 3 -- Included in Post-Effective Amendment No. 3 to Registrant's Registration Statement
on Form N-1A (File No. 33-628) filed on or about May 4, 1987.
Note 4 -- Data Access Services Agreement dated December 2, 1993 incorporated herein by
reference (Exhibit 9.2 to Form N-1A of Van Kampen American Capital Utilities
Income Fund, Registration No. 33-68452, Post-Effective Amendment No. 1 filed on
May 19, 1994).
Note 5 -- Included in Registrant's Registration Statement on Form N-1A (File No. 33-628)
filed on or about September 16, 1995.
Note 6 -- Included in Registrant's Registration Statement on Form N-1A (Filed No. 33-628)
filed on December 22, 1995.
</TABLE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

AS OF FEBRUARY 16, 1996

<TABLE>
<CAPTION>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS
----------------------------------------------------- ----------------
<S> <C>
Money Market Fund 5
Enterprise Fund 6
Domestic Income Fund 4
Asset Allocation Fund 3
Government Fund 3
Emerging Growth Fund 3
Global Equity Fund 3
Real Estate Securities Fund 12
Growth and Income Fund 0
</TABLE>

ITEM 27. INDEMNIFICATION.

Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.

Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such

C-3
<PAGE> 222

officer or trustee is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.

The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.

Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Investment Advisory Services" in the Prospectus and "Trustees and
Executive Officers" in the Statement of Additional Information for information
regarding the business of the Adviser. For information as to the business,
profession, vocation and employment of a substantial nature of directors and
officers of the Adviser, reference is made to the Adviser's current Form ADV
(File No. 801-1669) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit 17.1 incorporated by
reference herein.

(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17.2. Except as disclosed under the
heading, "Trustees and Executive Officers" in Part B of this Registration
Statement, none of such persons has any position or office with Registrant.

C-4
<PAGE> 223

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkway Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.

ITEM 31. MANAGEMENT SERVICES.

There are no management related services contracts not discussed in Part A.

ITEM 32. UNDERTAKINGS.

Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.

Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.

C-5
<PAGE> 224

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Houston, and State of Texas, on the 6th day of March,
1996.

VAN KAMPEN AMERICAN CAPITAL LIFE
INVESTMENT TRUST

By /s/ DON G. POWELL
----------------------------------------------
(Don G. Powell, President)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on March 6, 1996:

Principal Executive Officer:

<TABLE>
<C> <S>
/s/ *DON G. POWELL President and Trustee
--------------------------------
(Don G. Powell)

Principal Financial Officer and Accounting
Officer:
/s/ CURTIS W. MORELL Vice President and Chief
-------------------------------- Accounting Officer
(Curtis W. Morell)

Trustees:
/s/ *J. MILES BRANAGAN Trustee
--------------------------------
(J. Miles Branagan)
Trustee

--------------------------------
(Linda Hutton Heagy)

/s/ *ROGER HILSMAN Trustee
--------------------------------
(Roger Hilsman)

/s/ *R. CRAIG KENNEDY Trustee
--------------------------------
(R. Craig Kennedy)

/s/ *DONALD C. MILLER Trustee
--------------------------------
(Donald C. Miller)

/s/ *JACK E. NELSON Trustee
--------------------------------
(Jack E. Nelson)

Trustee
--------------------------------
(Dennis McDonnell)

/s/ *JEROME L. ROBINSON Trustee
--------------------------------
(Jerome L. Robinson)

/s/ *FERNANDO SISTO Trustee
--------------------------------
(Fernando Sisto)

/s/ *WAYNE W. WHALEN Trustee
--------------------------------
(Wayne W. Whalen)

/s/ *WILLIAM S. WOODSIDE Trustee
--------------------------------
(William S. Woodside)

/s/ RONALD A. NYBERG
-----------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
* Signed pursuant to a Power-of-Attorney.

<PAGE> 225

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

INDEX TO EXHIBITS TO FORM N-1A
REGISTRATION STATEMENT

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ----- ------------------------------------------------------------------------------------
<S> <C> <C>
5.4 -- Investment Sub-Advisory Agreement for Global Equity Fund.
11 -- Consent of Independent Accountants.
13.1 -- Investment letter dated July 3, 1995 for the Emerging Growth Fund, Global Equity
Fund and Real Estate Securities Fund.
16 -- Computation Measure for Performance Information.
17.1 -- List of certain investment companies in response to Item 29(a).
17.2 -- List of officers and directors of Van Kampen American Capital Distributors, Inc. in
response to Item 29(b).
27 -- Financial Data Schedules.
</TABLE>

<PAGE> 1

INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
and
JOHN GOVETT & CO. LIMITED

THIS AGREEMENT is made as of this 29th day of December, 1995 by and between
JOHN GOVETT & CO. LIMITED ("JOHN GOVETT") of Shackleton House, 4 Battle Bridge
Lane, London SE1 2HR, England, and VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC. ("VKAC") of 2800 Post Oak Boulevard, Houston, Texas 77056.

WHEREAS, VKAC has heretofore sponsored and acts as Investment Adviser to Van
Kampen American Capital Life Investment Trust (the "Trust") with respect to the
Global Equity Fund (the "Fund"); and

WHEREAS, JOHN GOVETT has available a staff of experienced investment personnel
and facilities for providing investment sub-advisory services applicable to
that portion of the investment portfolio invested in non-U.S. securities; and

WHEREAS, VKAC represents that it is a non-private investor with regard to the
Investment Management Regulatory Organization Limited ("IMRO") rules.

WHEREAS, JOHN GOVETT is a member of IMRO, a self-regulating organization
recognized under the Financial Services Act 1986 of the United Kingdom and is
willing to provide VKAC with investment advisory services on the terms and
conditions hereinafter set forth; and

WHEREAS, VKAC and JOHN GOVETT (jointly referred to as "the Advisers") desire to
enter into an agreement for JOHN GOVETT to provide sub-advisory services to the
Fund and to VKAC with respect to the Fund's non-U.S. investments.

NOW THEREFORE it is mutually agreed:

1. Investment Sub-Advisory Services

1.1 Investment Advice

a) Subject to the overall policies, control, direction and review of the
Fund's Trustees, JOHN GOVETT shall keep under review the non-U.S. investments
of the Fund and continuously furnish to the Fund and to VKAC (1) investment
advice primarily for investments in securities for which the principal trading
market(s) are in non-U.S. countries; (2) economic, statistical and research
information and advice, including advice on the allocation of investments among
countries, relating only to such portion of the Fund's assets as the Advisers
shall from time to time designate ("Non-U.S. Securities"), generally with
respect to securities issued outside

<PAGE> 2
the United States and Canada; (3) recommendations as to the voting of proxies
solicited by or with respect to Non-U.S. Securities; and (4) an investment
program with respect to Non-U.S. Securities and recommendations as to what
securities shall be purchased, sold or exchanged, and what portion, if any, of
the Non-U.S. Securities shall be held in money market instruments.

b) The Advisers are responsible for the allocation of the Fund's assets among
the various securities markets of the world. The Advisers will determine at
least quarterly the percentage of the assets that shall be allocated to each of
the Advisers (the "Asset Allocation"). The Asset Allocation will specify the
percentage and nature of the assets of the Fund allocated to each of the
Advisers for management on the effective date of the determination and will
apply to cash inflows or outflows and income and expense accruals thereafter
until such time as the Asset Allocation is redetermined. Each of the Advisers
will be responsible for the allocation of assets among the securities markets
within the area for which it is responsible. If the Advisers cannot agree on an
Asset Allocation, the Trustees shall make the final determination since the
Trustees retain in all events the control and management of the business and
affairs of the Fund.

c) Unless otherwise instructed by VKAC or the Trustees, and subject to the
provisions of this Agreement and to any guidelines or limitations specified
from time to time by VKAC or by the Trustees, JOHN GOVETT shall determine the
Non-U.S. Securities to be purchased and sold by the Fund and shall place
orders for the purchase, sale or exchange of Non-U.S. Securities for the
Fund's accounts with brokers or dealers and to that end JOHN GOVETT is
authorized by the Trustees to give instructions to the Custodian and any
Sub-Custodian of the Fund as to deliveries of such Non-U.S. Securities,
transfers of currencies and payments of cash for the account of the Fund.

d) In performing these services, JOHN GOVETT shall adhere to the Fund's
investment objectives, restrictions and limitations as contained in its
Prospectus, Statement of Additional Information, or Agreement and Declaration
of Trust and shall comply with all statutory and regulatory restrictions,
limitations and requirements applicable to the activity of the Fund.

e) Unless otherwise instructed by VKAC or the Trustees, and subject to the
provisions of this Agreement and to any guidelines or limitations specified
from time to time by VKAC or by the Trustees, JOHN GOVETT shall have executed
and performed on behalf of and at the expense of the Fund:

i) Purchases, sales, exchanges, conversions, and placement or orders for
execution, and

2
<PAGE> 3
ii) Reporting of all transactions to VKAC and to other entities as directed by
VKAC or by the Trustees.

f) JOHN GOVETT shall provide the Trustees at least quarterly, in advance of
the regular meetings of the Trustees, a report of its activities hereunder on
behalf of the Fund and its proposed strategy for the next quarter, all in such
form and detail as requested by the Trustees. JOHN GOVETT shall also make an
investment officer available to attend such meetings of the Trustees as the
Trustees may reasonably request.

1.2 Restriction of JOHN GOVETT's Powers

(a) JOHN GOVETT shall not commit the Fund to any extent beyond the amount of
the cash and securities placed by the Fund under the control of JOHN GOVETT.

(b) In carrying out its duties hereunder JOHN GOVETT shall comply with all
reasonable instruction of the Fund or VKAC in connection therewith. Such
instructions may be given by letter, telex, telefax or telephone confirmed by
telex, by the Trustees or by any other person authorized by a resolution of the
Trustees provided a certified copy of such resolution has been supplied to JOHN
GOVETT.

(c) All securities, cash, and other assets of the Fund shall be placed and
maintained in the care of a member bank of the Federal Reserve System of the
United States approved by the Trustees as custodian and one or more "Eligible
Foreign Custodians" (as defined in Rule 17f-5 under the Investment Company Act
of 1940 (the "1940 Act")) approved by the Trustees as sub-custodians.

(d) Persons authorized by resolution of the Trustees shall have the right to
inspect and copy contracts, notes, vouchers, and copies of entries in books or
electronic recording media relating to the Fund's transactions at the
registered office of JOHN GOVETT at any time during normal business hours. Such
records, in relation to each transaction effected by JOHN GOVETT on behalf of
the Fund shall be maintained by JOHN GOVETT for a period of seven years from
the date of such transaction.

1.3 Purchase and Sale of Securities

In performing the services described above, JOHN GOVETT shall use its best
efforts to obtain for the Fund the most favorable price and execution
available. Subject to prior authorization of appropriate policies and
procedures by the Trustees, JOHN GOVETT may, to the extent authorized by law,
cause the Fund to pay a broker or dealer who provides brokerage and research
services an amount of commission for effecting the Fund's investment
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction, in

3
<PAGE> 4
recognition of the brokerage and research services provided by the broker or
dealer. To the extent authorized by law, JOHN GOVETT shall not be deemed to
have acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of such action.

1.4 Custodian

JOHN GOVETT shall not act as Custodian for the securities or any other assets
of the Fund. All such assets shall be held by the Custodian or Sub-Custodian
appointed by the Trustees.

2. Duties of VKAC

2.1 Provision of Information

VKAC shall advise JOHN GOVETT from time to time with respect to the Fund of its
investment objectives and of any changes or modifications thereto, as well as
any specific investment restrictions or limitations by sending to JOHN GOVETT a
copy of each registration statement relating to the Fund as filed with the
Securities and Exchange Commission. As requested by JOHN GOVETT, VKAC shall
furnish such information to JOHN GOVETT as to holdings, purchases, and sales of
the securities under its management as will reasonably enable JOHN GOVETT to
furnish its investment advice under this Agreement.

2.2 Compensation to JOHN GOVETT

The fee for the services provided under this Agreement will be determined as
follows:

(a) Subject to paragraph (c) below, an amount for each month (or such other
valuation period as may be mutually agreed upon) equivalent, on an annual basis,
to 50% of the compensation actually received by VKAC pursuant to the investment
advisory fee schedule set forth in the Investment Advisory Agreement between the
Fund and VKAC taking into account any waiver or return to the Fund of any or all
of such advisory fee by VKAC (with any such return of fees to be treated as if
not actually received). The value of the assets of the Fund shall be computed as
of the close of business on the last day of each valuation period for the Fund,
using the average of all the daily determinations of the net value of the assets
of the Fund.

(b) The foregoing fee shall be paid in cash by VKAC to JOHN GOVETT within five
(5) business days after the last day of the valuation period.

(c) During an interim period of not more than 120 days beginning on December
29, 1995 and continuing through the date of this Agreement is approved by the
shareholders of the Fund (the "Interim Period") the portion of the fee received
by VKAC from the Fund and otherwise payable to John Govett for services
rendered during this Interim Period will be maintained in a interest-bearing
escrow account. Amounts in the account will be paid to John Govett only upon
approval of this Agreement by vote of a majority of the non-interested Trustees
at in-person meetings and by the shareholders and upon receipt of the requested
exemptive relief from the Securities and Exchange Commission. The amount in the
escrow account will be returned to the Fund if the required approvals are not
obtained or if the requested exemptive relief is not granted.

3. Miscellaneous

3.1 Activities of JOHN GOVETT

4
<PAGE> 5
The services of JOHN GOVETT as Sub-Adviser to VKAC under this Agreement are not
to be deemed exclusive, JOHN GOVETT and its affiliates being free to render
services to others. It is understood that shareholders, directors, officers and
employees of JOHN GOVETT may become interested in the Fund or VKAC as a
shareholder, trustee, officer, partner or otherwise.

3.2 Services to Other Clients

VKAC acknowledges that JOHN GOVETT may have investment responsibilities, or
render investment advice to, or perform other investment advisory services for,
other individuals or entities, ("Clients"). Subject to the provisions of this
paragraph, VKAC agrees that JOHN GOVETT may give advice or exercise investment
responsibility and take such other action with respect to such Clients which
may differ from advice given or the timing or nature of action taken with
respect to the Fund, provided that JOHN GOVETT acts in good faith, and
provided, further, that it is JOHN GOVETT policy to allocate, within its
reasonable discretion, investment opportunities to the Fund over a period of
time on a fair and equitable basis relative to the Clients, taking into account
the investment objectives and policies of the Fund and any specific investment
restrictions applicable thereto. VKAC acknowledges that one or more of the
Clients may at any time hold, acquire, increase, decrease, dispose of or
otherwise deal with positions in investments in which the Fund may have an
interest from time to time, whether in transactions which may involve the Fund
or otherwise. JOHN GOVETT shall have no obligation to acquire for the Fund a
position in any investment which any Client may acquire, and VKAC shall have no
first refusal, coinvestment or other rights in respect of any such investment,
either for the Fund or otherwise.

3.3 Best Efforts

It is understood and agreed that in furnishing the investment advice and other
services as herein provided, JOHN GOVETT shall use its best professional
judgment to recommend actions which will provide favorable results for the
Fund. JOHN GOVETT shall not be liable to the Fund or to any shareholder of the
Fund to any greater degree than VKAC.

3.4 Indemnity for Taxes

a) Notwithstanding any other provision of this Agreement, VKAC shall indemnify
and save JOHN GOVETT and each of its affiliates, officers, directors and
employees (each an "Indemnified Party") harmless from, against, for and in
respect of all taxes imposed by the United Kingdom on VKAC or the Fund, in
relation to the matters contemplated by this Agreement in the event that any
such tax is assessed or charged on an Indemnified Party as a branch or agent of
VKAC or the Fund.

5
<PAGE> 6
b) VKAC will not be liable under this indemnification provision with respect
to any liabilities incurred by reason of an Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the Fund.

c) VKAC will not be liable under this indemnification provision with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified VKAC in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated agent). In
case any such action is brought against the Indemnified Parties, VKAC will be
entitled to participate, at its own expense, in the defense thereof. VKAC also
will be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from VKAC to such party of VKAC's
election to assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and VKAC will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof.

3.5 Duration of Agreement

a) This Agreement, unless terminated pursuant to paragraph b or c below or
Section 2.2(c), shall continue in effect through April 30, 1997, and thereafter
shall continue in effect from year to year, provided its continued applicability
is specifically approved at least annually by the Trustees or by a vote of the
holders of a majority of the outstanding shares of the Fund. In addition, such
continuation shall be approved by vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. As used
in this paragraph, the term "interested person" shall have the same meaning as
set forth in the 1940 Act.

b) This Agreement may be terminated by sixty (60) days written notice by
either VKAC or JOHN GOVETT to the other party. The Agreement may also be
terminated at any time, without the payment of any penalty, by the Fund (by
vote of the Trustees or, by the vote of a majority of the outstanding voting
securities of such Fund), on sixty (60) days written notice to both VKAC and
JOHN GOVETT. This Agreement shall automatically terminate in the event of the
termination of the investment advisory agreement between VKAC and the Fund.

c) This Agreement shall terminate in the event of its assignment. The term
"assignment" for this purpose shall have the same meaning

6
<PAGE> 7
set forth in Section 2(a)(4) of the 1940 Act.

d) Termination shall be without prejudice to the completion of any
transactions which JOHN GOVETT shall have committed to on behalf of the Fund
prior to the time of termination. JOHN GOVETT shall not effect and the Fund
shall not be entitled to instruct JOHN GOVETT to effect any further
transactions on behalf of the Fund subsequent to the time termination takes
effect.

e) This Agreement shall terminate forthwith by notice in writing on the
happening of any of the following events:

i) If VKAC or JOHN GOVETT shall go into liquidation (except a voluntary
liquidation for the purpose of and followed by a bona fide reconstruction or
amalgamation upon terms previously approved in writing by the party not in
liquidation) or if a receiver or receiver and manager of any of the assets of
any of them is appointed; or

ii) If either of the parties hereto shall commit any breach of the provisions
hereof and shall not have remedied such breach within 30 days after the service
of notice by the party not in breach on the other requiring the same to be
remedied.

f) On the termination of this Agreement and completion of all matters referred
to in the foregoing paragraph (d) JOHN GOVETT shall deliver or cause to be
delivered to the Fund copies of all documents, records and books of the Fund
required to be maintained pursuant to Rules 31a-1 or 31a-2 of the 1940 Act
which are in JOHN GOVETT's possession, power or control and which are valid and
in force at the date of termination.

3.6 Notices

Any notice, request, instruction, or other document to be given under this
Agreement by any party hereto to the other parties shall be in writing and
delivered personally or sent by mail or telecopy (with a hard copy to follow),

If to JOHN GOVETT, to:

Shackleton House
4 Battle Bridge Lane
London SE1 2HR
England
attn: The Hon. Kevin Pakenham

7
<PAGE> 8
with a copy to:

Shackleton House
4 Battle Bridge Lane
London SE1 2HR
England
attn: Colin Kreidelwolf

If to VKAC, to:

2800 Post Oak Blvd.
Houston, TX 77056
telecopy: (713) 993-4300
attn: Don Powell

with a copy to:

2800 Post Oak Blvd.
Houston, TX 77056
telecopy: (713) 993-4317
attn: Nori L. Gabert, Esq.

or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be presumed to have
been duly given to the party to which it is addressed, on the date three (3)
days after mailing, and in the case of delivery by telecopy, on the date the
hard copy is received.

8
<PAGE> 9
3.7 IMRO Rules

As a member of IMRO and in light of IMRO Rules, the Sub-Adviser places on
record that it regards this Agreement as not necessitating any ancillary
agreement with the Fund or VKAC on the grounds that, within meanings of the
IMRO Rules (a) the Fund is an open-ended investment company and a business
investor, (b) VKAC is a professional investor and (c) the subject matter of
this Agreement is a scheme management activity.

3.8 Choice of Law

This Agreement shall be construed according to, and the rights and liabilities
of the parties hereto shall be governed by, the laws of the United States and
the State of California.

3.9 Miscellaneous Provisions

The execution of this Agreement has been authorized by the Trust's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Trust or
the Trustees of the Trust as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Trust individually but are binding only upon
the assets and property of the Trust. A Certificate of Trust in respect of the
Trust is on file with the Secretary of State of Delaware.

IN WITNESS WHEREOF, the Agreement has been executed as of the date first above
given.

JOHN GOVETT & CO. LIMITED

By: /s/ BRIAN LEE
_____________________________________

Name: Brian Lee
___________________________________

Its: Managing Director: Operations
___________________________________

VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.

/s/ NORI L. GABERT
By: ____________________________________

Name: Nori L. Gabert
___________________________________

Its: Vice President
___________________________________

<PAGE> 1

EXHIBIT 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 21, Amendment No. 23 to
the registration statement on Form N-1A (the "Registration Statement") of our
report dated February 21, 1996, relating to the financial statements and
financial highlights of the Common Stock Fund, Domestic Strategic Income Fund,
Government Fund, Money Market Fund, Multiple Strategy Fund, Real Estate Fund,
Emerging Growth Fund and Global Equity Fund (constituting Van Kampen American
Capital Life Investment Trust) which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Prospectus and to the reference to us under
the heading "Independent Accountants" in such Statement of Additional
Information.

/s/ PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP

Houston, Texas

March 6, 1996

<PAGE> 1

Exhibit 13.1

[VAN KAMPEN AMERICAN CAPITAL LETTERHEAD]

July 3, 1995

American Capital Life Investment Trust
2800 Post Oak Blvd.
Houston, TX 77056

Re: Investment Letter for American Capital Life Investment Trust -
American Capital Emerging Growth Portfolio
American Capital Global Equity Portfolio
American Capital Real Estate Securities Portfolio

Gentlemen:

We are purchasing 50,000 shares, 200,000 shares and 50,000 shares of
beneficial interest of American Capital Emerging Growth Portfolio, American
Capital Global Equity Portfolio and American Capital Real Estate Securities
Portfolio, at a price of $10.00 per share, $10.00 per share and $10.00 per
share, respectively, $0.01 par value per share (the "Shares"), upon the terms
and conditions set forth below.

We understand that the Shares have not been registered under any state
or federal securities laws and that the Fund is relying on certain exemptions
from such registration requirements including exemptions dependent upon our
intent in acquiring the Shares. We also understand that any resale of the
Shares or any portion thereof may be subject to restrictions under state and
federal securities laws. Thus we may be required to bear the economic risk of
an investment in the Shares for an indefinite period of time.

We hereby represent and warrant that we are acquiring the Shares
solely for our own account and solely for investment purposes and not with a
view to the resale, redemption or disposition of all or any part thereof and
that we have no present plan or intention to sell, redeem or otherwise dispose
of the Shares or any part thereof. We also represent that the Shares will not
be resold except through redemption or repurchase.

<PAGE> 2
We understand that your organizational expenses will be capitalized
and charged to operations over a period of five years from the date of
commencement of operations. In the event that we redeem any of the Shares
within such five- year amortization period, we understand that the proceeds
payable to us will be reduced by the pro rata share (based upon the proportion
of the Shares redeemed to the total number of the remaining Shares purchased by
us) of the then unamortized deferred organizational expenses as of the date of
any such redemption. We further understand that in the event you liquidate
before the deferred organizational expenses are fully amortized, then the
Shares shall bear their pro rata share (as described above) of such unamortized
deferred organizational expenses.

Very truly yours,

VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC.

By /s/ Nori L. Gabert
-------------------------------
Nori L. Gabert,
Vice President, Associate
General Counsel and Secretary

<PAGE> 1

EXHIBIT 16

COMPUTATION MEASURE FOR PERFORMANCE INFORMATION

CALCULATION OF TOTAL RETURN

Each Fund calculates its average annual total return quotations for
the 1, 5 and 10 year (or since inception if less than 10 years) periods ended
December 31, 1995, the date of the most recent balance sheet included in the
registration statement, by finding the average annual compounded rates of
return over the 1, 5 and 10 year (or since inception if less than 10 years)
periods that would equate the initial amount invested to the ending redeemable
value, according to the following formula:

P(1+T)n = ERV

<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods, at the end of the 1, 5 and 10 year
periods, or fractional portion thereof
</TABLE>

These calculations incorporate the following assumptions:

1. The maximum sales load, or other charges deducted from payments, is
deducted from the initial $1,000 payment.

2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period,
i.e., any sales load charged upon reinvestment of dividends would be
reflected.

3. All recurring fees, if any, charged to all shareholder accounts are
included.

4. The ending redeemable value assumes a complete redemption at the
end of 1, 5 and 10 year (or since inception if less than 10 years) periods
and the deduction of all nonrecurring charges, if any, deducted at the end
of each period.
<PAGE> 2

CALCULATION OF YIELD

Each Fund calculates their yield quotations based on a 30-day
period ended on December 31, 1995, the date of the most recent balance sheet
included in the registration statement, by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
<TABLE>
<S> <C> <C>
a-b
YIELD (y) = 2[ ----- + 1)6 - 1]
cd
</TABLE>

Where: a = dividends and interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during the period that
were entitled to receive dividends

d = the maximum offering price per share on the last day of the period

DOMESTIC
GOVERNMENT STRATEGIC
FUND FUND
- ---------------- --------------
<S> <C>
a = $ 364,736 a = $ 179,812
b = $ 33,920 b = $ 13,363
c = 7,402,945 c = 3,103,072
d = $9.06 d = $8.21
y = 5.99% y = 7.97%
</TABLE>

<PAGE> 3
CALCULATION OF YIELD

The Money Market Portfolio calculates its annualized current yield quotations
based on the seven days ended December 31, 1995, the date of the most recent
balance sheet included in the registration statement, computed by determining
the net change, exclusive of capital charges, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and then
multiplying the base period by (365/7).

Annualized Current Yield = 5.02%

The Money Market Portfolio calculates its effective yield based on the seven
days ended December 31, 1995, the date of the most recent balance sheet
included in the registration statement, computed by determining the net change
exclusive of capital charges, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, according
to the following formula:

Effective Yield = [(Base Period Return +1) 365/7]-1

Effective Yield = 5.14%

<PAGE> 1

EXHIBIT 17.1

INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
DECEMBER 5, 1995

Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Limited Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Emerging Markets Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Balanced Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen Merritt Series Trust
Van Kampen American Capital Quality Income Portfolio
Van Kampen American Capital High Yield Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Stock Index Portfolio
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Common Stock Fund
Van Kampen American Capital Domestic Strategic Income Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Government Fund
Van Kampen American Capital Money Market Fund
Van Kampen American Capital Multiple Strategy Fund
Van Kampen American Capital Real Estate Securities Fund
<PAGE> 2

Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Texas Tax Free Income Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
<PAGE> 3

<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 361
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1 through 1009
Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . . . . Series 5 through 85
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . Series 9 through 82
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 92
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 147
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . Series 1 through 22
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 28
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 99
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . . . Series 1 through 13
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 56
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 74
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 133
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 57
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 93
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9

</TABLE>

<PAGE> 4

<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 107
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 129
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 84
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 99
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 211
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 81
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-33
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 67
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 5
</TABLE>

<PAGE> 1

EXHIBIT 17.2

OFFICERS

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX

William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer

Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX

Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Douglas B. Gehrman Sr. Vice President Houston, TX
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Debra A. Nichols Sr. Vice President Houston, TX
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL

Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL

Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL

</TABLE>

<PAGE> 2

<TABLE>
<S> <C> <C>
Howard A. Doss Vice President Tampa, FL
Jonathan Eckhard Vice President Boulder, CO
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Nori L. Gabert Vice President, Assoc. General Houston, TX
Counsel & Asst. Secretary
Erich P. Gerth Vice President Dallas, TX
Daniel Hamilton Vice President Houston, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Lowell Jackson Vice President Norcross, GA
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Ruth L. McKeel Vice President Oakbrook Terrace, IL
John Mills Vice President Kenner, LA
Robert Muller, Jr. Vice President Houston, TX
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, Va
Stephanie Scarlata Vice President Lynbrook, NY
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL

James J. Boyne Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL

</TABLE>

<PAGE> 3

<TABLE>
<S> <C> <C>
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Rocco Fiordelisi III Asst. Vice President St. Louis, MO
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Hunter Knapp Asst. Vice President Laguna, CA
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
Gary Steele Asst. Vice President Philadelphia, PA
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX

David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL

Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
Gina Grippo Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
Francis McGarvey Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Becky Newman Officer Houston, TX
Rosemary Pretty Officer Houston, TX
Colette Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX

</TABLE>

<PAGE> 4

DIRECTORS

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd.
Houston, TX 77056

William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181

Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181

William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 1
<NAME> COMMON STOCK PORTFOLIO

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 61,318,699
<INVESTMENTS-AT-VALUE> 69,109,911
<RECEIVABLES> 3,278,805
<ASSETS-OTHER> 1,856
<OTHER-ITEMS-ASSETS> 847
<TOTAL-ASSETS> 72,391,419
<PAYABLE-FOR-SECURITIES> 849,564
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 270,336
<TOTAL-LIABILITIES> 1,119,900
<SENIOR-EQUITY> 48,393
<PAID-IN-CAPITAL-COMMON> 59,415,422
<SHARES-COMMON-STOCK> 4,839,261
<SHARES-COMMON-PRIOR> 5,444,930
<ACCUMULATED-NII-CURRENT> 752,832
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,263,660
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,791,212
<NET-ASSETS> 71,271,519
<DIVIDEND-INCOME> 848,513
<INTEREST-INCOME> 134,028
<OTHER-INCOME> 0
<EXPENSES-NET> 207,491
<NET-INVESTMENT-INCOME> 775,050
<REALIZED-GAINS-CURRENT> 3,552,959
<APPREC-INCREASE-CURRENT> 8,354,404
<NET-CHANGE-FROM-OPS> 12,682,413
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 37,385
<DISTRIBUTIONS-OF-GAINS> 760,158
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 255,130
<NUMBER-OF-SHARES-REDEEMED> 919,572
<SHARES-REINVESTED> 58,773
<NET-CHANGE-IN-ASSETS> 3,799,597
<ACCUMULATED-NII-PRIOR> 15,167
<ACCUMULATED-GAINS-PRIOR> 470,859
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,909
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 240,359
<AVERAGE-NET-ASSETS> 69,163,538
<PER-SHARE-NAV-BEGIN> 12.39
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 2.34
<PER-SHARE-DIVIDEND> .008
<PER-SHARE-DISTRIBUTIONS> .152
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.73
<EXPENSE-RATIO> .60<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 2
<NAME> DOMESTIC STRATEGIC PORTFOLIO

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 27,717,166
<INVESTMENTS-AT-VALUE> 28,568,762
<RECEIVABLES> 1,046,153
<ASSETS-OTHER> 1,132
<OTHER-ITEMS-ASSETS> 2,049
<TOTAL-ASSETS> 29,618,096
<PAYABLE-FOR-SECURITIES> 2,519,583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,030
<TOTAL-LIABILITIES> 2,567,613
<SENIOR-EQUITY> 32,420
<PAID-IN-CAPITAL-COMMON> 27,167,842
<SHARES-COMMON-STOCK> 3,241,975
<SHARES-COMMON-PRIOR> 2,894,700
<ACCUMULATED-NII-CURRENT> 1,070,870
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,072,245)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 851,596
<NET-ASSETS> 27,050,483
<DIVIDEND-INCOME> 3,265
<INTEREST-INCOME> 1,157,866
<OTHER-INCOME> 0
<EXPENSES-NET> 77,108
<NET-INVESTMENT-INCOME> 1,084,023
<REALIZED-GAINS-CURRENT> 186,262
<APPREC-INCREASE-CURRENT> 2,014,847
<NET-CHANGE-FROM-OPS> 3,285,134
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24,775
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 767,791
<NUMBER-OF-SHARES-REDEEMED> 423,688
<SHARES-REINVESTED> 3,172
<NET-CHANGE-IN-ASSETS> 5,776,514
<ACCUMULATED-NII-PRIOR> 11,622
<ACCUMULATED-GAINS-PRIOR> (2,258,509)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 64,257
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 128,156
<AVERAGE-NET-ASSETS> 25,702,682
<PER-SHARE-NAV-BEGIN> 7.35
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> .668
<PER-SHARE-DIVIDEND> .008
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.34
<EXPENSE-RATIO> .60<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 3
<NAME> GOVERNMENT PORTFOLIO

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 73,291,354
<INVESTMENTS-AT-VALUE> 74,741,030
<RECEIVABLES> 7,104,718
<ASSETS-OTHER> 1,571
<OTHER-ITEMS-ASSETS> 2,002
<TOTAL-ASSETS> 81,849,321
<PAYABLE-FOR-SECURITIES> 13,529,294
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110,919
<TOTAL-LIABILITIES> 13,640,213
<SENIOR-EQUITY> 77,386
<PAID-IN-CAPITAL-COMMON> 81,072,017
<SHARES-COMMON-STOCK> 7,738,562
<SHARES-COMMON-PRIOR> 7,914,930
<ACCUMULATED-NII-CURRENT> 17,814
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14,473,605)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,515,496
<NET-ASSETS> 68,209,108
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,540,909
<OTHER-INCOME> 0
<EXPENSES-NET> 199,224
<NET-INVESTMENT-INCOME> 2,341,685
<REALIZED-GAINS-CURRENT> 313,438
<APPREC-INCREASE-CURRENT> 3,823,904
<NET-CHANGE-FROM-OPS> 6,479,027
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,319,734
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 204,427
<NUMBER-OF-SHARES-REDEEMED> 649,813
<SHARES-REINVESTED> 269,018
<NET-CHANGE-IN-ASSETS> 2,695,847
<ACCUMULATED-NII-PRIOR> (4,137)
<ACCUMULATED-GAINS-PRIOR> (14,787,043)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 166,020
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 243,445
<AVERAGE-NET-ASSETS> 66,407,858
<PER-SHARE-NAV-BEGIN> 8.28
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .528
<PER-SHARE-DIVIDEND> .298
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.81
<EXPENSE-RATIO> .60<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 4
<NAME> MONEY MARKET PORTFOLIO

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 24,445,279
<INVESTMENTS-AT-VALUE> 24,445,279
<RECEIVABLES> 28,166
<ASSETS-OTHER> 1,120
<OTHER-ITEMS-ASSETS> 2,663
<TOTAL-ASSETS> 24,477,228
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,991
<TOTAL-LIABILITIES> 41,991
<SENIOR-EQUITY> 244,354
<PAID-IN-CAPITAL-COMMON> 24,191,049
<SHARES-COMMON-STOCK> 24,435,403
<SHARES-COMMON-PRIOR> 28,547,478
<ACCUMULATED-NII-CURRENT> (166)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 24,435,237
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 746,404
<OTHER-INCOME> 0
<EXPENSES-NET> 74,740
<NET-INVESTMENT-INCOME> 671,664
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 671,664
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 672,027
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,596,311
<NUMBER-OF-SHARES-REDEEMED> 11,380,413
<SHARES-REINVESTED> 672,027
<NET-CHANGE-IN-ASSETS> (4,112,438)
<ACCUMULATED-NII-PRIOR> 197
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 62,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 150,239
<AVERAGE-NET-ASSETS> 24,913,389
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .027
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .027
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .60<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 5
<NAME> MULTIPLE STRATEGY PORTFOLIO

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 57,948,506
<INVESTMENTS-AT-VALUE> 62,622,724
<RECEIVABLES> 2,524,967
<ASSETS-OTHER> 567
<OTHER-ITEMS-ASSETS> 1,702
<TOTAL-ASSETS> 65,149,960
<PAYABLE-FOR-SECURITIES> 3,949,523
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 150,322
<TOTAL-LIABILITIES> 4,099,845
<SENIOR-EQUITY> 52,062
<PAID-IN-CAPITAL-COMMON> 53,658,822
<SHARES-COMMON-STOCK> 5,206,212
<SHARES-COMMON-PRIOR> 5,668,898
<ACCUMULATED-NII-CURRENT> 1,236,378
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,428,635
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,674,218
<NET-ASSETS> 61,050,115
<DIVIDEND-INCOME> 397,890
<INTEREST-INCOME> 1,041,211
<OTHER-INCOME> 0
<EXPENSES-NET> 176,524
<NET-INVESTMENT-INCOME> 1,262,577
<REALIZED-GAINS-CURRENT> 1,638,514
<APPREC-INCREASE-CURRENT> 6,561,607
<NET-CHANGE-FROM-OPS> 9,462,698
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40,666
<DISTRIBUTIONS-OF-GAINS> 27,111
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100,399
<NUMBER-OF-SHARES-REDEEMED> 569,332
<SHARES-REINVESTED> 6,247
<NET-CHANGE-IN-ASSETS> 4,414,182
<ACCUMULATED-NII-PRIOR> 14,467
<ACCUMULATED-GAINS-PRIOR> (182,768)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 106,886
<GROSS-ADVISORY-FEES> 147,104
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 224,439
<AVERAGE-NET-ASSETS> 58,841,523
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> 1.513
<PER-SHARE-DIVIDEND> .008
<PER-SHARE-DISTRIBUTIONS> .005
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.73
<EXPENSE-RATIO> .60<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 6
<NAME> EMERGING GROWTH PORTFOLIO

<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-03-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 765,834
<INVESTMENTS-AT-VALUE> 812,919
<RECEIVABLES> 9,838
<ASSETS-OTHER> 610
<OTHER-ITEMS-ASSETS> 836
<TOTAL-ASSETS> 824,203
<PAYABLE-FOR-SECURITIES> 131,110
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,722
<TOTAL-LIABILITIES> 132,832
<SENIOR-EQUITY> 637
<PAID-IN-CAPITAL-COMMON> 643,824
<SHARES-COMMON-STOCK> 63,687
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (175)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,085
<NET-ASSETS> 691,371
<DIVIDEND-INCOME> 115
<INTEREST-INCOME> 822
<OTHER-INCOME> 0
<EXPENSES-NET> 1,112
<NET-INVESTMENT-INCOME> (175)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 47,085
<NET-CHANGE-FROM-OPS> 46,910
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63,687
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 691,271
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 312
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,034
<AVERAGE-NET-ASSETS> 533,671
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .86
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.86
<EXPENSE-RATIO> 2.50<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 7
<NAME> GLOBAL EQUITY PORTFOLIO

<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-03-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 2,033,502
<INVESTMENTS-AT-VALUE> 2,069,817
<RECEIVABLES> 27,503
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 3,883
<TOTAL-ASSETS> 2,125,314
<PAYABLE-FOR-SECURITIES> 58,689
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,868
<TOTAL-LIABILITIES> 2,057,757
<SENIOR-EQUITY> 2,016
<PAID-IN-CAPITAL-COMMON> 2,014,272
<SHARES-COMMON-STOCK> 201,597
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (2,319)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,596
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,192
<NET-ASSETS> 2,057,757
<DIVIDEND-INCOME> 561
<INTEREST-INCOME> 4,438
<OTHER-INCOME> 0
<EXPENSES-NET> 7,318
<NET-INVESTMENT-INCOME> (2,319)
<REALIZED-GAINS-CURRENT> 7,596
<APPREC-INCREASE-CURRENT> 36,192
<NET-CHANGE-FROM-OPS> 41,469
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 201,597
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,057,657
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,610
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,318
<AVERAGE-NET-ASSETS> 1,932,050
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> 4.55<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>expense ratio is annualized
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 0000778536
<NAME> AC LIFE INVESTMENT TRUST
<SERIES>
<NUMBER> 8
<NAME> REAL ESTATE PORTFOLIO

<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-03-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 1,673,652
<INVESTMENTS-AT-VALUE> 1,690,650
<RECEIVABLES> 21,703
<ASSETS-OTHER> 402
<OTHER-ITEMS-ASSETS> 2,909
<TOTAL-ASSETS> 1,715,664
<PAYABLE-FOR-SECURITIES> 407,505
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,258
<TOTAL-LIABILITIES> 434,763
<SENIOR-EQUITY> 1,256
<PAID-IN-CAPITAL-COMMON> 1,262,821
<SHARES-COMMON-STOCK> 125,628
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,728
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,902)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,998
<NET-ASSETS> 1,280,901
<DIVIDEND-INCOME> 1,995
<INTEREST-INCOME> 1,277
<OTHER-INCOME> 0
<EXPENSES-NET> 1,544
<NET-INVESTMENT-INCOME> 1,728
<REALIZED-GAINS-CURRENT> (1,902)
<APPREC-INCREASE-CURRENT> 16,998
<NET-CHANGE-FROM-OPS> 16,824
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 135,598
<NUMBER-OF-SHARES-REDEEMED> 9,970
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,280,801
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 618
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,562
<AVERAGE-NET-ASSETS> 741,202
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.20
<EXPENSE-RATIO> 2.50<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Expense ratio is annualized
</FN>

</TABLE>