VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST/, N-30D, 1997-03-03

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST/
N-30D, 1997-03-03

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TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Policyholders............................ 1
Performance Results................................ 3
Performance Perspective............................ 5
Portfolio Management Review........................ 9
Portfolio of Investments
Asset Allocation Fund............................ 26
Domestic Income Fund............................. 33
Emerging Growth Fund............................. 38
Enterprise Fund.................................. 46
Global Equity Fund............................... 52
Government Fund.................................. 60
Growth and Income Fund........................... 64
Money Market Fund................................ 70
Real Estate Securities Fund...................... 74
Statement of Assets and Liabilities
Asset Allocation Fund............................ 30
Domestic Income Fund............................. 35
Emerging Growth Fund............................. 43
Enterprise Fund.................................. 49
Global Equity Fund............................... 57
Government Fund.................................. 61
Growth and Income Fund........................... 67
Money Market Fund................................ 71
Real Estate Securities Fund...................... 76
Statement of Operations and Changes in Net Assets
Asset Allocation Fund............................ 31
Domestic Income Fund............................. 36
Emerging Growth Fund............................. 44
Enterprise Fund.................................. 50
Global Equity Fund............................... 58-59
Government Fund.................................. 62
Growth and Income Fund........................... 68
Money Market Fund................................ 72
Real Estate Securities Fund...................... 77
Financial Highlights
Asset Allocation Fund............................ 32
Domestic Income Fund............................. 37
Emerging Growth Fund............................. 45
Enterprise Fund.................................. 51
Global Equity Fund............................... 59
Government Fund.................................. 63
Growth and Income Fund........................... 69
Money Market Fund................................ 73
Real Estate Securities Fund...................... 78
Notes to Financial Statements...................... 79
Report of Independent Accountants.................. 87
</TABLE>

LIT ANR 2/97

<PAGE>

LETTER TO POLICYHOLDERS

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

DENNIS J. MCDONNELL AND DON G. POWELL

January 31, 1997

Dear Policyholder,
As noted in earlier reports, VK/AC Holding Inc., the parent company of Van
Kampen American Capital, Inc., was acquired by Morgan Stanley Group Inc., a
world leader in asset management and investment banking. The transaction was
completed in October, and we are excited about the opportunities it creates
for investors. As part of the acquisition, Van Kampen American Capital became
the distributor of Morgan Stanley retail funds on January 2, 1997.

ECONOMIC REVIEW

The U.S. economy experienced moderate growth and low inflation during the re-
porting period. At the beginning of 1996, economists were concerned that the
tepid economic pace of late 1995 might continue, possibly leading to a reces-
sion by year-end. That assumption soon came into question, however, when non-
farm payrolls increased by a stunning 705,000 in February, the biggest one-
month jump in 13 years. Then, a larger-than-expected 4.7 percent rate in real
GDP (the nation's gross domestic product, adjusted for inflation) during the
second quarter confirmed that the economy was back in a strong-growth mode. By
summer, the earlier talk of recession and rate cuts had changed to concerns
about economic overheating and the possibility of interest rate hikes.
Despite mounting evidence of inflation, the Federal Reserve held to a stable
monetary policy, believing the supply-and-demand imbalances in the commodity
markets were temporary and that burdensome consumer debt loads would eventu-
ally slow the economy without the need for higher interest rates. Events dur-
ing the second half of 1996 proved the wisdom of Federal Reserve policy; real
GDP growth moderated to 2.0 percent in the third quarter while commodity
prices receded. For the year, core producer prices rose by 0.6 percent, the
second-lowest annual increase on record. Including the volatile food and en-
ergy sectors, however, prices at the retail level rose by 3.3 percent.

MARKET REVIEW

The combination of steady growth and benign inflation provided the lift for
equity prices to soar still farther into record territory during the past six
months. For the year, the Standard & Poor's 500-Stock Index and the Dow Jones
Industrial Average posted returns of 22.90 percent and 26.01 percent, respec-
tively, following their 37.44 percent and 33.45 percent advance in 1995.
Downside volatility also returned for the first time since the current bull
market began in October 1990. After climbing steadily through the first four
months of 1996, stock prices suddenly hit turbulence, with the S&P 500-Stock
Industrial Index falling by about 12 percent between late May and mid-July.
The NASDAQ market, which includes many technology stocks, experienced an even
stronger correction.
The sharp drop in stock prices was caused by fears that the Fed would raise
interest rates in response to the stronger-than-expected GDP growth and infla-
tionary warning signals noted earlier. When subsequent data showed those con-
cerns to be overblown, broad-market indices recovered and climbed to a
succession of record highs by year end.
Continued on page two
1
<PAGE>

Large-capitalization and growth stocks outperformed their small-cap and value
cousins during 1996, with the financial, technology, and energy sectors turning
in the best returns among industry groups. The most dramatic news was made in
the initial public offering (IPO) market, where volume broke records that were
set the previous year. During the first half of the year, widespread specula-
tion led to overpricing among many IPO issues, especially those from high-tech
industries. Then, after the dust had cleared from the mid-year inflation scare,
sobriety returned to the IPO market and prices became more realistic.

OUTLOOK

We expect a continuation of the moderate growth, low inflation environment
that has characterized the domestic economy in recent years. Steady economic
growth may push corporate profits modestly higher during 1997, while low
inflation should allow stocks to maintain current valuation levels. While we do
not anticipate a continuation of the huge gains enjoyed during the last two
years, we believe that further advances in the broad equity market are likely
and warranted.
We caution investors to expect bumps along the way. Stock prices have appreci-
ated dramatically during the past six years, and a correction is not outside
the realm of possibility. One trigger for a short-term decline would be a re-
turn of the rapid GDP growth experienced during the first half of 1996, a de-
velopment that might persuade the Fed to raise interest rates. However, our
view is that any such burst of above-trend economic strength would be short-
lived. During the full year, we expect real GDP and inflation numbers will be
to the financial market's liking.
Additional details about the Life Investment Trust funds, including a question
and answer section with portfolio management teams, are provided in this re-
port. We appreciate your continued confidence in your investment with Van
Kampen American Capital.

Sincerely,

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

2
<PAGE>

PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
ASSET ALLOCATION FUND

TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on NAV/1/.................................. 13.87%
Five-year average annual total return based on NAV/1/.................. 10.74%
Life-of-Fund average annual total return based on NAV/1/............... 10.84%
Commencement date...................................................... 06/30/87
</TABLE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
DOMESTIC INCOME FUND

TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on NAV/1/.................................. 6.68%
Five-year average annual total return based on NAV/1/.................. 10.14%
Life-of-Fund average annual total return based on NAV/1/............... 7.93%
Commencement date...................................................... 11/04/87

DISTRIBUTION RATE AND YIELD
Distribution Rate/2/................................................... 9.14%
SEC Yield/3/........................................................... 7.55%
</TABLE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
EMERGING GROWTH FUND

TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on NAV/1/.................................. 16.55%
Life-of-Fund average annual total return based on NAV/1/............... 23.11%
Commencement Date...................................................... 07/03/95
</TABLE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
ENTERPRISE FUND

TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on NAV/1/.................................. 24.80%
Five-year average annual total return based on NAV/1/.................. 14.11%
Ten-year average annual total return based on NAV/1/................... 12.80%
Life-of-Fund average annual total return based on NAV/1/............... 11.14%
Commencement date...................................................... 04/07/86
</TABLE>

3
<PAGE>

PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996 (CONTINUED)

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
GLOBAL EQUITY FUND

TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on NAV/1/.................................. 16.72%
Life-of-Fund average annual total return based on NAV/1/............... 13.14%
Commencement date...................................................... 07/03/95
</TABLE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
GOVERNMENT FUND

TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on NAV/1/.................................. 2.12%
Five-year average annual total return based on NAV/1/.................. 5.41%
Ten-year average annual total return based on NAV/1/................... 6.96%
Life-of-Fund average annual total return based on NAV/1/............... 6.87%
Commencement date...................................................... 04/07/86

DISTRIBUTION RATE AND YIELD
Distribution rate/2/................................................... 6.57%
SEC Yield/3/........................................................... 6.25%
</TABLE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
GROWTH AND INCOME FUND

TOTAL RETURN
<TABLE>
<S> <C>
Life-of-Fund cumulative total return based on NAV/1/.................. (0.30%)
Commencement date..................................................... 12/23/96
</TABLE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
REAL ESTATE SECURITIES FUND

TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on NAV/1/.................................. 40.53%
Life-of-Fund average annual total return based on NAV/1/............... 32.35%
Commencement date...................................................... 07/03/95
</TABLE>

/1/Total return based on net asset value (NAV) assumes an investment at the be-
ginning of the period indicated, reinvestment of all distributions for the pe-
riod, and sale of all shares at the end of the period, all at NAV.

/2/Distribution rate (based on net asset value) represents the annualized dis-
tributions of the Fund at the end of the period and not the earnings of the
Fund.

/3/SEC Yield is a standardized calculation prescribed by the Securities and Ex-
change Commission for determining the amount of net income a fund should theo-
retically generate for the 30-day period ending December 31, 1996.

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

4
<PAGE>

PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE

Each of the following charts show the total return performance of a differ-
ent Life Investment Trust Fund compared to a benchmark index, excluding the
Life Investment Trust--Growth and Income Fund. Due to the short period of time
since LIT--Growth and Income Fund's inception (December 23, 1996) and the
length of time required to become adequately invested, a comparison to a
benchmark index is not appropriate at this time. It is important to track your
investment portfolio's performance at regular intervals. The indexes do not
reflect any commissions or fees that would be paid by an investor purchasing
the securities they represent. Similarly, their performances do not reflect
any sales charges or other costs which would be applicable to an actively man-
aged portfolio, such as that of the Fund. For details on market conditions and
each Fund's performance during the reporting period, please see pages nine
through twenty-five of this report.

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Life Investment Trust--Asset Allocation Fund
vs. Standard & Poor's 500-Stock Index (June 30, 1987 through December 31,
1996)

[PERFORMANCE GRAPH APPEARS HERE]

Fund's Total Return
1 Year Avg. Annual = 13.87%
5 Year Avg. Annual = 10.74%
Inception Avg. Annual = 10.84%

VKAC LIT-Asset Allocation Fund Standard & Poor's 500-Stock Index
------------------------------ ---------------------------------
June 1987 $10,000 $10,000
Dec 1987 $ 9,735 $ 8,257
Dec 1988 $10,476 $ 9,619
Dec 1989 $12,343 $12,658
Dec 1990 $12,576 $12,264
Dec 1991 $15,978 $15,984
Dec 1992 $17,142 $17,200
Dec 1993 $18,463 $18,926
Dec 1994 $17,788 $19,183
Dec 1995 $23,365 $26,366
Dec 1996 $26,607 $32,404

The above chart reflects the performance of the Fund. The Fund's performance
assumes reinvestment of all distributions and is shown at net asset value.

While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.

5
<PAGE>

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Life Investment Trust--Domestic Income Fund vs.
Lehman Brothers Corporate Bond Index (November 4, 1987 through December 31,
1996)

[PERFORMANCE GRAPH APPEARS HERE]

Fund's Total Return
1 Year Avg. Annual = 6.68%
5 Year Avg. Annual = 10.14%
Inception Avg. Annual = 7.93%

VKAC LIT-Domestic Income Fund Lehman Brothers Corporate Bond Index
----------------------------- ------------------------------------
Nov 1987 $10,000 $10,000
Dec 1987 $10,150 $10,189
Dec 1988 $11,669 $11,129
Dec 1989 $11,034 $12,699
Dec 1990 $10,237 $13,595
Dec 1991 $12,409 $16,113
Dec 1992 $13,960 $17,512
Dec 1993 $16,239 $19,643
Dec 1994 $15,535 $18,872
Dec 1995 $18,854 $23,068
Dec 1996 $20,113 $23,825

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Life Investment Trust--Emerging Growth Fund vs.
Russell 2000 Stock Index (July 3, 1995 through December 31, 1996)

[PERFORMANCE GRAPH APPEARS HERE]

Fund's Total Return
1 Year Avg. Annual = 16.55%
Inception Avg. Annual = 23.11%

VKAC LIT-Emerging Growth Russell 2000 Stock Index
------------------------ ------------------------
7/3/95 $10,000 $10,000
Sep 1995 $11,270 $10,988
Dec 1995 $11,710 $11,226
Mar 1996 $12,540 $11,802
Jun 1996 $13,690 $12,389
Sep 1996 $14,180 $12,431
Dec 1996 $13,660 $13,077

The above charts reflect the performance of the Funds. The Funds' performance
assumes reinvestment of all distributions and is shown at net asset value.

While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Funds' performance found in the following pages.

6
<PAGE>

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Life Investment Trust--Enterprise Fund vs.
Standard & Poor's 500-Stock Index (December 31, 1986 through December 31,
1996)

[PERFORMANCE GRAPH APPEARS HERE]

Fund's Total Return
1 Year Avg. Annual = 24.80%
5 Year Avg. Annual = 14.11%
10 Year Avg. Annual = 12.80%
Inception Avg. Annual = 11.14%

VKAC LIT-Enterprise Fund Standard & Poor's 500-Stock Index
------------------------ ---------------------------------
Dec 1986 $10,000 $10,000
Dec 1987 $ 8,887 $10,518
Dec 1988 $10,104 $12,253
Dec 1989 $13,563 $16,124
Dec 1990 $12,636 $15,622
Dec 1991 $17,236 $20,360
Dec 1992 $18,524 $21,909
Dec 1993 $20,188 $24,108
Dec 1994 $19,504 $24,435
Dec 1995 $26,727 $33,585
Dec 1996 $33,342 $41,276

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Life Investment Trust--Global Equity Fund vs.
Morgan Stanley Capital International (MSCI) World Index + Dividends (July
3, 1995 through December 31, 1996)

[PERFORMANCE GRAPH APPEARS HERE]

Fund's Total Return
1 Year Avg. Annual = 16.72%
Inception Avg. Annual = 13.14%

VKAC LIT-Global Equity Fund MSCI World Index + Dividends
--------------------------- ----------------------------
7/3/1995 $10,000 $10,000
Jul-1995 $10,230 $10,502
Aug-1995 $10,140 $10,270
Sep-1995 $10,280 $10,571
Oct-1995 $ 9,950 $10,407
Nov-1995 $10,160 $10,770
Dec-1995 $10,310 $11,087
Jan-1996 $10,470 $11,290
Feb-1996 $10,720 $11,360
Mar-1996 $10,930 $11,552
Apr-1996 $11,420 $11,825
May-1996 $11,560 $11,838
Jun-1996 $11,520 $11,900
Jul-1996 $11,030 $11,481
Aug-1996 $11,350 $11,615
Sep-1996 $11,610 $12,072
Oct-1996 $11,590 $12,159
Nov-1996 $12,060 $12,842
Dec-1996 $12,034 $12,639

The above charts reflect the performance of the Funds. The Funds' performance
assumes reinvestment of all distributions and is shown at net asset value.

7
<PAGE>

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Life Investment Trust--Government Fund vs.
Lehman Brothers Mutual Fund U.S. Government Index (December 31, 1986
through December 31, 1996)

[PERFORMANCE GRAPH APPEARS HERE]

Fund's Total Return
1 Year Avg. Annual = 2.12%
5 Year Avg. Annual = 5.41%
10 Year Avg. Annual = 6.96%
Inception Avg. Annual = 6.87%

Lehman Brothers Mutual Fund
VKAC LIT-Government Fund U.S. Government Index
------------------------ ---------------------------
Dec 1986 $10,000 $10,000
Dec 1987 $ 9,788 $10,219
Dec 1988 $10,462 $10,938
Dec 1989 $11,958 $12,495
Dec 1990 $12,952 $13,587
Dec 1991 $15,055 $15,669
Dec 1992 $15,918 $16,802
Dec 1993 $17,169 $18,592
Dec 1994 $16,374 $17,965
Dec 1995 $19,185 $21,258
Dec 1996 $19,598 $21,848

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Life Investment Trust--Real Estate Securities
Fund vs. the Standard & Poor's 500-Stock Index and the NAREIT Equity REIT
Index (July 3, 1995 through December 31, 1996)

[PERFORMANCE GRAPH APPEARS HERE]

Fund's Total Return
1 Year Avg. Annual = 40.53%
Inception Avg. Annual = 32.35%

VKAC LIT-Real Estate Standard & Poor's NAREIT Equity
Securities Fund 500-Stock Index REIT Index
-------------------- ----------------- -------------
July 1995 $10,000 $10,000 $10,000
Sept 1995 $10,490 $10,746 $10,049
Dec 1995 $10,835 $11,391 $10,465
Mar 1996 $11,117 $12,002 $10,703
June 1996 $11,751 $12,539 $11,179
Sep 1996 $12,700 $12,924 $11,910
Dec 1996 $15,226 $13,999 $14,158

The above charts reflect the performance of the Funds. The Funds' performance
assumes reinvestment of all distributions and is shown at net asset value.

8
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

ASSET ALLOCATION FUND

The following is an interview with the portfolio management team of the Van
Kampen American Capital Life Investment Trust--Asset Allocation Fund. The team
is led by B. Robert Baker, Jr. and Thomas Copper, co-portfolio managers, and
Alan T. Sachtleben, chief investment officer for equity investments.

Q WHAT EVENTS INFLUENCED THE STOCK AND BOND MARKETS IN 1996?
A At the beginning of the year, investors were anticipating the same slow
economic growth that helped to drive the stock and bond markets higher in
1995. By February, however, bond prices began to fall amid fears that a
strengthening economy would lead to higher inflation and increases in interest
rates. The sell-off in the bond market stretched through the first half of
1996, fueled by employment numbers that were stronger than expected, as well as
a sharp increase in the second-quarter gross domestic product (real GDP, ad-
justed for inflation) to a 4.7 percent rate. Stock prices, meanwhile, continued
to move higher, especially among small-capitalization companies.
The second half of 1996 experienced a small stock market correction in July.
This setback proved to be temporary, as stock prices quickly recovered to reach
record highs in October and surged higher after the November national
elections. Bonds also rebounded in response to modest third-quarter GDP numbers
and a weaker employment outlook.

Q HOW DID YOU MANAGE THE FUND IN RESPONSE TO THESE EVENTS?
A Because we believed the stock market was overvalued, the Fund was slightly
underweighted in stocks and overweighted in bonds during the year. At the
end of the fourth quarter, the portfolio was comprised of 53 percent stocks, 38
percent bonds, and 9 percent cash.
In selecting stocks, we continued to adhere to a value philosophy,
concentrating on stocks that are selling at low prices but hold the potential
for future appreciation. In 1996, we found many value opportunities in the
utilities, finance, and energy sectors. In the bond portion of the portfolio,
we maintained a duration of about 8 years, focusing on investment grade
securities rated A or better. Duration, which is expressed in years, is a
measurement of the Fund portfolio's sensitivity to interest rate fluctuations.
The longer the Fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations performed
better when rates are declining.

HOLDINGS BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS AS OF DECEMBER 31,
1996

[PIE CHART APPEARS HERE]

Government 19.5%
Utilities 14.8%
Finance 11.2%
Energy 10.6%
Producer Manufacturing 9.3%
Consumer Non-Durables 8.3%
Consumer Services 6.6%
Health Care 4.7%
Technology 4.6%
Consumer Distribution 4.4%
Other 6.0%

9
<PAGE>

Q HOW DID THE FUND PERFORM DURING THE 12-MONTH PERIOD ENDED DECEMBER 31,
1996?
A The Fund's bond portfolio helped to generate competitive levels of cur-
rent income for an asset allocation fund. The Fund achieved a total re-
turn at net asset value of 13.87 percent/1/. By comparison, the Standard &
Poor's 500-Stock Index achieved a total return of 20.90 percent for the same
period. Keep in mind that the S&P 500-Stock Index is a broad-based, unmanaged
index that reflects the general performance of the stock market and does not
reflect any commissions or fees that would be paid by an investor purchasing
the securities it represents. Please refer to the chart on page three for ad-
ditional Fund performance results.

Q WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A We attribute much of the Fund's results to the stock market's strong per-
formance, our disciplined stock selection criteria, and our asset alloca-
tion strategy.
Some of the individual stocks that contributed to the Fund's returns in 1996
(percentages are of total investments as of December 31, 1996) included
PanEnergy (0.9 percent), Warner Lambert (0.3 percent), Chase Manhattan (0.6
percent), Bear Stearns (0.5 percent), and Philip Morris (2.6 percent). Our
decision to overweight the portfolio's bond allocation helped to lessen the
impact of the July stock market correction but caused the Fund's performance
to trail the overall market when stock prices later rebounded.

Q WHAT DO YOU ANTICIPATE IN THE FINANCIAL MARKETS IN 1997?
A We expect more stock market volatility in 1997. Stock prices appear to be
overvalued, which opens the door to the possibility of a market downturn,
should we see renewed inflationary concerns or rising interest rates. The un-
certainty of the stock market puts even greater emphasis on our value-oriented
stock portfolio. By selecting undervalued stocks, we attempt to position the
Fund to participate in market advances, as well as to potentially help reduce
the impact of a declining market.

/s/ Alan T. Sachtleben /s/ B. Robert Baker, Jr. /s/ Thomas Copper
Alan T. Sachtleben B. Robert Baker, Jr. Thomas Copper
Chief Investment Officer Co-Portfolio Manager Co-Portfolio Manager
Equity Investments Asset Allocation Fund Asset Allocation Fund

10
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

DOMESTIC INCOME FUND

The following is an interview with the management team of the Van Kampen
American Capital Life Investment Trust--Domestic Income Fund. The team is led
by Walter W. Stabell, portfolio manager, and Peter W. Hegel, chief investment
officer for fixed-income investments.

Q WHAT FACTORS INFLUENCED THE FIXED-INCOME MARKETS IN 1996?
A The market changed direction abruptly in February, when economic growth
(real gross domestic product, adjusted for inflation) and employment rates
came in unexpectedly strong. Previously, market participants were anticipating
a slower economy in 1997 with little upward pressure on interest rates. When
the economic figures hinted at a surging economy, inflation fears took over and
investors drove the market into a sell-off.
By the third quarter, however, economic data once again showed moderate
growth and low inflation, soothing investor fears and sparking a rally that
lasted into December. Late in the year, however, we saw evidence of a
strengthening economy so the signals are mixed as to what we can expect from
the bond market in the near term.

Q HOW DID YOU POSITION THE FUND IN RESPONSE TO THESE FACTORS?
A We continued to allocate the Fund's assets across a variety of sectors in
the fixed-income market, including investment-grade corporate bonds, high-
yield corporate bonds, and U.S. Treasury securities, as shown in the pie chart
below.
Over the long term, the Fund has performed quite well in comparison to its
peer group, due in large part to its overweighting of long-term, non-callable,
investment-grade corporate bonds. However, during the course of the year,
interest rate volatility has become an increasing concern, so we reduced
exposure in this sector. By year-end, this allocation in the Fund's portfolio
was trimmed to 56.7 percent, down from 70.2 percent as of June 30, 1996.
The duration of the Fund has been reduced gradually from 5.8 years as of
December 31, 1995 to 5.1 years as of December 31, 1996. Duration, which is
expressed in years, is a measurement of a bond's price sensitivity to changes
in interest rates. The longer the Fund's duration, the greater the effect of
interest rate movements on net asset value. Typically, funds with shorter
durations have performed better in rising rate environments, while funds with
longer durations have performed better when rates are declining. We expect to
keep the duration somewhat shorter than our benchmark of Lehman Brothers Index
BBB Corporates of approximately 6.0 years for the near term, given the
uncertainty over the direction of the economy in 1997.
We continue to see value in the high-yield corporate bond sector, where our
research has identified corporate issuers with strong growth prospects,
favorable pricing environments, and attractive risk/reward profiles.
Approximately 29 percent of the portfolio has been allocated to this sector.

ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS AS OF DECEMBER 31,
1996

[PIE CHART APPEARS HERE]

Common and Preferred Stocks 4.0%
Total Corporate Obligations 85.7%
Government Obligations 10.3%

11
<PAGE>

Q HOW DID THE FUND PERFORM IN 1996?
A For the 12 months ended December 31, 1996, the Fund achieved a total re-
turn of 6.68 percent/1/. By comparison, the Lehman Brothers Corporate Bond
Index produced a total return of 3.28 percent for the same period. Keep in mind
that this index is a broad-based, unmanaged index that reflects the general
performance of investment-grade corporate bonds. It does not reflect any com-
missions or fees that would be paid by an investor purchasing the securities it
represents. From an income standpoint, the Fund's distribution rate was 9.14
percent/3/ based upon the December dividend of $.732 per share. Please refer to
the chart on page three for additional Fund performance results.

Q WHAT IS YOUR OUTLOOK FOR THE FIXED-INCOME MARKET AND THE FUND IN COMING
MONTHS?
A As time goes on, we'll get a better idea of which way the economy is head-
ing. We feel justified in being somewhat cautious at this point, so we
will keep the Fund's duration neutral or slightly shorter than the benchmark,
which may give us some protection in the event that interest rates spike up-
ward. We are confident that our research efforts will enable us to discover op-
portunities for prudent investments that are consistent with the Fund's
objectives.

/s/ Peter W. Hegel /s/ Walter W. Stabell
Peter W. Hegel Walter W. Stabell
Chief Investment Officer Portfolio Manager
Fixed Income Investments Domestic Income Fund

12
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

EMERGING GROWTH FUND

The following is an interview with the portfolio management team of Van Kampen
American Capital Life Investment Trust--Emerging Growth Fund. The team is led
by Gary M. Lewis, portfolio manager, and Alan T. Sachtleben, chief investment
officer for equity investments.

Q WHAT FACTORS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE DURING THE
12 MONTHS ENDED DECEMBER 31, 1996?
A The positive combination of solid corporate earnings growth and subdued
inflationary fears produced a very market-friendly economy in 1996. The
Dow Jones Industrial Average rose 26.01 percent, and the NASDAQ Composite In-
dex climbed 22.71 percent.
Early in the year, several factors fueled equity performance. Unexpectedly
strong corporate earnings, a growing economy, and record cash flows into
mutual funds pushed the already-healthy equity market even higher, with
technology and energy stocks leading the way.
In mid-February, the markets hit a snag. Higher-than-expected employment
numbers prompted inflation concerns and decreased the likelihood of further
interest rate cuts by the Federal Reserve Board. The bond market rally that
had begun at the end of 1995 came to an abrupt halt. Through April and May,
concerns about inflation lingered, and small- and mid-size stocks led the
broad market correction.
This correction was short-lived, however, as technology stocks bounced back
quickly. Soon after, large-company stocks began their own recovery, and by the
end of July, technology and financial stocks were leading the equity market
upward once again. Stocks continued their climb throughout the end of the
year, highlighted by post-election strength. Because the November elections
maintained the status quo of a Democratic President and Republican-controlled
Congress, the market had one of its strongest post-election gains in history.

Q DURING THE REPORTING PERIOD, WHAT STRATEGIES DID YOU UTILIZE TO MEET THE
FUND'S OBJECTIVES?
A We continued to focus on small- and mid-cap stocks. Although our focus
was on emerging companies, we ultimately selected investments on the ba-
sis of a company's potential to deliver upside earnings surprises. We invested
in the highest growth companies in each sector that met our rising earnings
estimates and improving valuations criteria. In general, this meant investing
in smaller companies with revenues of less than $2 billion. Energy and tech-
nology stocks met our stock-selection criteria during the period, and stocks
in these two sectors were among the top performers.
We also believe strongly in talking with the management teams behind the
companies in whose stocks we invest. This is the single most valuable way in
which we spend our time. These discussions help us determine if a company has
an effective business philosophy and if management is disciplined in
implementing it. During any given year, we will have in-depth discussions with
300 to 400 management teams.

Q WHICH OF THE FUND'S HOLDINGS POSTED THE GREATEST GAINS DURING THE REPORT-
ING PERIOD?
A Our biggest gainers in terms of price appreciation during the year were
Clarify, a rapidly growing automation software company; Dura Pharmaceuti-
cals, a drug company focused on specialized markets neglected by the larger
drug companies; USA Detergents, a packaged goods company with popular lower-
priced detergents and cleaners; and Chesapeake Energy, an oil and gas company
that has experienced a significant increase in production and energy prices.
The Fund's portfolio diversification at the end of December is illustrated by
the chart on the following page.

13
<PAGE>

HOLDINGS BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS AS OF DECEMBER 31,
1996

[PIE CHART APPEARS HERE]

Transportation 0.7%
Consumer Durables 0.4%
Technology 33.4%
Consumer Services 11.6%
Finance 11.4%
Energy 11.0%
Consumer Distribution 9.4%
Health Care 8.0%
Consumer Non-Durables 5.6%
Producer Manufacturing 4.5%
Raw Materials/Processing Industries 2.3%
Utilities 1.7%

Q HOW DID FUND PERFORM FOR THE 12 MONTHS ENDED DECEMBER 31, 1996?
A The Fund's performance was negatively influenced by a reversal in market
sentiment during the fourth quarter. The market moved from growth- to
value-oriented investing and favored large- over small-cap stocks. For the 12-
month period, the Fund achieved a total return at net asset value of 16.55
percent/1/. By comparison, the Standard & Poor's 500-Stock Index returned
22.90 percent and the Russell 2000 Index, which more closely reflects the
Fund's portfolio, returned 16.49 percent. The S&P 500-Stock Index is a broad-
based, unmanaged index that reflects the general performance of the stock mar-
ket. The Russell 2000 Index reflects the general performance of smaller
capitalization stocks. Keep in mind that these indices are unmanaged statisti-
cal composites that do not reflect any commissions or fees that would be in-
curred by an investor purchasing the securities they represent. Please refer
to the chart on page three for additional Fund performance results.

Q WHAT IS YOUR OUTLOOK FOR THE FUND IN THE NEXT SIX MONTHS?
A We remain optimistic about the long-term prospects for small-cap growth
stocks. However, we cannot ignore the recent setback in this market sec-
tor, which will now need to catch-up with the rest of the market.
In terms of the economy, we expect a continuation of the moderate growth and
low inflation that have characterized the domestic economy in recent years.
Steady economic growth may push corporate profits modestly higher in 1997,
providing continued support for stock prices. However, we see 1997 as a year
of increased risks for the stock market. Valuations are extended, which
suggest the potential for a significant decline in U.S. stock prices. Such a
correction might, for example, be triggered by a return of the rapid growth
experienced during the first half of 1996, which could persuade the Fed to
raise interest rates.
With this in mind, a review of your portfolio's asset mix may be warranted
at this time. Stock prices have appreciated substantially over the last six
years and dramatically over the last two. This performance may have increased
your portfolio's equity exposure well above levels you considered appropriate
a few years ago.

/s/ Alan T. Sachtleben /s/ Gary M. Lewis
Alan T. Sachtleben Gary M. Lewis
Chief Investment Officer Portfolio Manager
Equity Investments Emerging Growth Fund

14
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

ENTERPRISE FUND

The following is an interview with the portfolio management team of Van Kampen
American Capital Life Investment Trust--Enterprise Fund. The team is led by
Alan T. Sachtleben, chief investment officer for equity investments and Jeff
D. New, portfolio manager.

Q WHAT ECONOMIC FACTORS DROVE THE MARKET UPWARD DURING THE PAST 12 MONTHS?
HOW DID THEY AFFECT THE FUND?
A The positive combination of solid corporate earnings growth and subdued
inflationary fears produced a very market-friendly economy in 1996. The
Dow Jones Industrial Average rose 26.01 percent, and the Standard & Poor's
500-Stock Index returned 22.90 percent.
Early in the year, several factors fueled equity performance. Unexpectedly
strong corporate earnings, a growing economy, and record cash flows into
mutual funds pushed the already-healthy equity market even higher, with
technology and energy stocks leading the way.
In mid-February, the markets hit a snag. Higher-than-expected employment
numbers prompted inflation concerns and decreased the likelihood of further
interest rate cuts by the Federal Reserve Board. The bond market rally that
had begun at the end of 1995 came to an abrupt halt. Through April and May,
concerns about inflation lingered, and small- and mid-size stocks led the
broad market correction.
This correction was short-lived, however, as technology stocks bounced back
quickly. Soon after, large-company stocks began their own recovery, and by the
end of July, technology and financial stocks were leading the equity market
upward once again. Stocks continued their climb throughout the end of the
year, highlighted by post-election strength. Because the November elections
maintained the status quo of a Democratic President and Republican-controlled
Congress, the market had one of its strongest post-election gains in history.

Q WHAT IS YOUR FINANCIAL STRATEGY TO SEEK TO PROVIDE SHAREHOLDERS WITH A
STRONG RETURN ON THEIR INVESTMENT?
A We have an extremely disciplined stock selection process: to look for
companies with positive future fundamentals at an attractive current
price. To that end, we actively search for stocks that possess one of the fol-
lowing traits: consistent or accelerating earnings growth, a positive funda-
mental change (such as management), or better-than-expected fundamentals. We
only want to own stocks with at least one of these characteristics and with an
attractive or reasonable price. We also believe strongly in talking with the
management teams behind the companies in whose stocks we invest. This is the
single most valuable way in which we spend our time. These discussions help us
determine if a company has an effective business philosophy and if management
is disciplined in implementing it. During any given year, we will have in-
depth discussions with 300 to 400 management teams.
By the end of the year, the Fund's largest weightings were in the technology
and financial services sectors, two of the best-performing sectors in 1996. We
focused on these sectors because many technology and financial services
companies exhibited the two features we look for when selecting stocks for the
portfolio: positive fundamentals (including strong future earnings potential)
and attractive price levels. In the financial services arena, several
companies were consolidating and buying back stock, which created attractive
valuations and enhanced the prospects of strong future earnings growth. Two
standouts in this sector were Conseco, a life insurance company, and
SunAmerica, a financial services company.

15
<PAGE>

Q HOW DID THE FUND PERFORM DURING THE 12-MONTH PERIOD ENDED DECEMBER 31,
1996?
A We are pleased to report that the Fund achieved a total return at net as-
set value of 24.80 percent/1/. By comparison, the Standard & Poor's 500-
Stock Index generated a total return of 22.90 percent and the Lipper Growth
Fund Index returned 17.48 percent for the same period. The S&P 500-Stock Index
is a broad-based, unmanaged index that reflects the general performance of the
stock market, and the Lipper Growth Fund Index reflects the average perfor-
mance of the largest growth funds. Keep in mind that these indices are unman-
aged statistical composites that do not reflect any commissions, fees, or
sales charges that would be incurred by an investor purchasing the securities
they represent. Please refer to the chart on page three for additional Fund
performance results.

Q WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A We expect a continuation of the moderate growth and low inflation that
have characterized the domestic economy in recent years. Steady economic
growth may push corporate profits modestly higher in 1997, providing continued
support for stock prices. However, we see 1997 as a year of increased risks
for the stock market. Valuations are extended, which suggest the potential for
a significant decline in U.S. stock prices. Such a correction might, for exam-
ple, be triggered by a return of the rapid growth experienced during the first
half of 1996, which could persuade the Fed to raise interest rates.
With this in mind, a review of your portfolio's asset mix may be warranted
at this time. Stock prices have appreciated substantially over the last six
years and dramatically over the last two. This performance may have increased
your portfolio's equity exposure well above levels you considered appropriate
a few years ago.

/s/ Alan T. Sachtleben /s/ Jeff D. New
Alan T. Sachtleben Jeff D. New
Chief Investment Officer Portfolio Manager
Equity Investments Enterprise Fund

16
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

GLOBAL EQUITY FUND

The following is an interview with the portfolio management team of the Van
Kampen American Capital Life Investment Trust--Global Equity Fund. The team is
led by Jeff D. New, portfolio manager, and Alan T. Sachtleben, chief
investment officer for equity investments.

Q HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT YOU FACED IN MANAGING
THE FUND DURING THE PAST FISCAL YEAR?
A The performance of global stock markets was influenced primarily by pros-
pects for economic growth in the United States and Europe, the rate of
inflation worldwide, the anticipated effects of the planned European Monetary
Union (EMU), and the continued weakness of the Japanese economy.
The U.S. stock market continued its strong run, gaining momentum as domestic
economic growth and inflation remained moderate. As we closed out 1996, the
stock market repeatedly hit record-high valuations (as measured by the Dow
Jones Industrial Average), but still showed the potential for further gains
going into 1997. The U.S. dollar remained strong against most major
currencies, especially the Japanese yen, which helped the U.S. market
outperform many foreign stock markets (measured in U.S. dollars).
With the exception of the United Kingdom, which is in a fairly mature stage
of economic recovery, many of the core European markets were somewhat
sluggish. Investors continue to weigh the potential effects of slow economic
growth, higher unemployment, and generally lower interest rates, a task which
has been especially difficult in light of the EMU agreements (the EMU seeks to
implement a common currency for continental Europe in 1998). A number of the
emerging markets of Eastern Europe, on the other hand, performed quite well.
In Japan, anemic economic growth and concerns about the weakening of the
Japanese banking system have combined to hinder the recovery of the Japanese
stock market.

Top 5 Countries Represented
in the Portfolio
as of December 31, 1996

United States
Japan
United Kingdom
Netherlands
France

Q HOW WAS THE FUND POSITIONED WITHIN THESE MARKETS?
A In comparison to the Morgan Stanley Capital International (MSCI) World
Index, the Fund was overweighted in European markets, where we see the
potential for strong performance going forward. This is especially true of
the smaller and less developed European markets, such as the Czech Republic. The
portfolio is approximately in line with the index in the Pacific Basin and
slightly underweighted in the United States and Japan.
In terms of industry weightings, we have favored stocks in the capital goods
and service sectors, including companies in media, merchandising,
telecommunications, business services, and trade, while allocating a lesser
portion of the Fund's assets to stocks in the energy, consumer goods, and
financial services sectors. The largest holdings as a percentage of long-term
investments as of December 31, 1996 include Ceske Radiokomunikace (2.8
percent), Gucci Group (2.2 percent), and Christian Dior (1.8 percent).

Q HOW DID THE FUND PERFORM OVER THE REPORTING PERIOD?
A The Fund achieved a total return of 16.72 percent/1/ for the 12-month pe-
riod ended December 31, 1996, compared to a total return of 14.00 percent
for the MSCI World Index + Dividends. Keep in mind that this index is a broad-
based, unmanaged index used as a benchmark for general global equity funds and
does not reflect any commissions or fees that would be paid by an investor
purchasing the securities it represents. Please refer to the chart on page
four for additional Fund performance results.

17
<PAGE>

Q WHAT IS YOUR OUTLOOK FOR THE MARKETS AND FOR THE FUND'S PORTFOLIO IN THE
MONTHS AHEAD?
A We see the potential for a global economic recovery in 1997, especially in
smaller and emerging markets, where we expect to see superior economic
performance. In the United States, low inflation and steady but moderate eco-
nomic growth should continue to benefit stock prices in the near term.
We will continue to be very selective in our choice of investments for the
Fund, focusing on those regions and individual companies that exhibit the
greatest relative value and potential for future appreciation. As always, the
greatest attention will be paid to the characteristics of each individual
security we select for the Fund.

/s/ Alan T. Sachtleben /s/ Jeff D. New
Alan T. Sachtleben Jeff D. New
Chief Investment Officer Portfolio Manager
Equity Investments Global Equity Fund

18
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

GOVERNMENT FUND

The following is an interview with the portfolio management team of the Van
Kampen American Capital Life InvestmentTrust--Government Fund. The team is led
by John R. Reynoldson, portfolio manager, and Peter W. Hegel, chief investment
officer for fixed-income investments.

Q HOW WOULD YOU DESCRIBE THE FIXED-INCOME MARKET IN 1996?
A As the year began, investors expected the economy to continue its pattern
of slow growth, which had sparked a fixed-income rally in 1995. In Febru-
ary, however, we started to see signs of surprising economic health. Reports
showed strong employment figures and higher-than-expected first-quarter real
gross domestic product (GDP, adjusted for inflation), so investors feared ris-
ing interest rates and inflation. As a result, the bond market experienced a
sell-off that continued through mid-July.
The outlook improved during the second half of the year as the economy lost
its momentum. Employment numbers weakened, and third-quarter GDP statistics
moderated, easing investors' fears of price pressures and spurring a recovery
in bond prices. Investor optimism remained dispirited through December, when
indicators showed that the economy was, once again, heating up.

Q HOW DID YOU POSITION THE FUND IN LIGHT OF THESE ECONOMIC DEVELOPMENTS?
A We maintained an above-average weighting in mortgage-backed securities,
compared to other funds in our peer group. By the end of the fourth quar-
ter, 67 percent of the Fund's assets were invested in mortgage securities. As
inflation fears spread during the first six months of 1996, the prices of Trea-
suries fell and mortgage-backed securities began to outperform. As the year
progressed and the market rebounded, we continued to fine-tune the portfolio to
take advantage of value areas within the mortgage market.
In addition, we adjusted the duration of the Fund. Duration, which is
expressed in years, is a measurement of the Fund portfolio's sensitivity to
changes in interest rates. The longer the Fund's duration, the greater the
effect of interest rate movements on net asset value. Typically, funds with
shorter durations have performed better in rising rate environments and are
less sensitive to interest rate changes. We shortened duration in February,
which helped make the Fund more defensive during the rapid increase in interest
rates that began shortly thereafter. By the end of the year, the Fund's
duration increased slightly from 5.1 years as of December 31, 1995 to 5.3 years
as of December 31, 1996.

ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS AS OF DECEMBER 31,
1996

[PIE CHART APPEARS HERE]

FNMAs 28.8%
U.S. Treasuries 27.0%
GNMAs 29.0%
FHLMCs 13.9%
Other 1.3%

19
<PAGE>

Q HOW DID THE FUND PERFORM DURING THE 12-MONTH PERIOD ENDEDDECEMBER 31,
1996?
A The Fund generated a 12-month total return at net asset value of 2.12 per-
cent/1/. By comparison, the Lehman Brothers Mutual Fund U.S.
Government/Mortgage Index produced a total return of 3.68 percent. Keep in mind
that this index is a broad-based, unmanaged index that reflects the general
performance of U.S. government and mortgage-backed securities and does not re-
flect any commissions or fees that would be paid by an investor purchasing the
securities it represents. In addition, the Fund provided shareholders with su-
perior levels of current income. As of December 31, 1996, the distribution rate
was 6.57 percent/3/, based on a monthly dividend of $.0475 per share and a pub-
lic offering price of $8.67 per share.
Please refer to the chart on page four for additional Fund performance results.

Q WHAT IS YOUR OUTLOOK FOR THE FIXED-INCOME MARKET AND THE FUND IN 1997?
A We're cautiously optimistic. As 1996 came to a close, the economy was
showing renewed signs of life, and most analysts expect that trend to con-
tinue into 1997. This growth could trigger a new wave of inflationary fears
among fixed-income investors.
As for the Fund, we expect to keep the duration at below-average levels,
which may help to cushion the impact of any interest rate hikes. Also, we will
maintain an overweighting in mortgage-backed securities, possibly increasing
this portion of the portfolio even more if economic growth is especially
strong. However, if the economy proves to be weaker than anticipated, we're
well-positioned to lengthen the Fund's duration by increasing our Treasury
holdings.

/s/ Peter W. Hegel /s/ John R. Reynoldson
Peter W. Hegel John R. Reynoldson
Chief Investment Officer Portfolio Manager
Fixed Income Investments Government Fund

20
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

GROWTH AND INCOME FUND

The following is an interview with the portfolio management team of Van Kampen
American Capital Life Investment Trust--Growth and Income Fund. The team is
led by Alan T. Sachtleben, chief investment officer for equity investments and
James A. Gilligan, portfolio manager. The following excerpts reflect their
views on the Fund's performance from its inception on December 23, 1996
through December 31, 1996.

Q WHAT FACTORS DROVE THE MARKET UPWARD DURING THE LATTER PART OF THE YEAR?
A The combination of steady economic growth, minimal inflationary fears,
and better-than-expected corporate earnings drove the equity market
higher during the second half of 1996. By July, the market was in the late
stages of a correction. Between May and mid-July, the S&P 500 Industrial Index
fell 11.6 percent, while the NASDAQ Index dropped even more. This correction
was short-lived, as fears of a rate hike by the Federal Reserve Board proved
to be unfounded and economic growth moderated. Large-capitalization companies,
particularly stocks of technology companies, led a broad market rebound in the
third quarter. Equities finished the year with one of their strongest post-
election runs in history as the markets applauded the re-election of the sta-
tus quo (a Democratic president and a Republican Congress).
The bond market recovered nicely from its flat performance during the first
half of the year. In response to declining employment growth and lackluster
consumer spending reports, investors began bidding up prices for bonds in
September and October. This renewed strength in the bond market also helped to
push stocks higher.

Q WHAT IS YOUR FINANCIAL STRATEGY TO PROVIDE SHAREHOLDERS WITH A STRONG RE-
TURN ON THEIR INVESTMENT?
A We have an extremely disciplined stock selection process: we look for
companies with positive future fundamentals at an attractive current
price. To that end, we actively search for stocks that possess one of the fol-
lowing traits: consistent or accelerating earnings growth, a positive funda-
mental change (such as new management), or better-than-expected fundamentals.
We only want to own stocks with at least one of these characteristics and with
an attractive or reasonable price. We also believe strongly in talking with
the management teams behind the companies in whose stocks we invest. This is
the single most valuable way in which we spend our time. These discussions
help us determine if a company has an effective business philosophy and if
management is disciplined in implementing it. During any given year, we will
have in-depth discussions with 300 to 400 management teams.
We will continue to rely on our "bottom up" approach to choose the stock
portion of the Fund's portfolio. By buying what we believe are undervalued
stocks, we attempt to increase our potential return while limiting the Fund's
exposure to risk.

Q HOW DID THE FUND PERFORM DURING THE VERY SHORT REPORTING PERIOD, DECEMBER
23, 1996 (THE FUND'S INCEPTION) THROUGH DECEMBER 31, 1996?
A A nine-day period is too short a time period to adequately measure per-
formance. Our initial goal during this period was to become fully in-
vested in stocks that met our stringent requirements.
During this period, the Fund posted a total return at net asset value of -
0.30 percent/1/. By comparison, the Standard & Poor's 500-Stock Index returned
- -0.32 percent. The S&P 500-Stock Index is a broad-based, unmanaged index that
reflects the general performance of the stock market. Keep in mind that this
index is an unmanaged statistical composite that does not reflect any
commissions, fees, or sales charges that would be incurred by an investor
purchasing the securities they represent.

21
<PAGE>

Q WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A In terms of the economy, we expect a continuation of the moderate growth
and low inflation that have characterized the domestic economy in recent
years. Steady economic growth may push corporate profits modestly higher in
1997, providing continued support for stock prices. However, we see 1997 as a
year of increased risks for the stock market. Valuations are extended, which
suggest the potential for a significant decline in U.S. stock prices. Such a
correction might, for example, be triggered by a return of the rapid growth ex-
perienced during the first half of 1996, which could persuade the Fed to raise
interest rates.
With this in mind, a review of your portfolio's asset mix may be warranted at
this time. Stock prices have appreciated substantially over the last six years
and dramatically over the last two. This performance may have increased your
portfolio's equity exposure well above levels you considered appropriate a few
years ago.

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

22
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

MONEY MARKET FUND

The following is an interview with the portfolio management team of the Van
Kampen American Capital Life Investment Trust--Money Market Fund. The team is
led by David R. Troth, portfolio manager, and Peter W. Hegel, chief investment
officer for fixed-income investments.

Q HOW WOULD YOU DESCRIBE THE MARKET CONDITIONS UNDER WHICH THE FUND
OPERATED IN 1996? HOW DID YOU RESPOND?
A As with any portfolio investing primarily in money market securities, the
ebb and flow of short-term interest rates is the key influence on Fund
performance. In late January, for example, the Federal Reserve Board cut the
federal funds rate from 5.50 percent to 5.25 percent, which was reflected in
the yields available on short-term fixed-income securities in general.
Investor expectations changed drastically from the first half of the year to
the second half. After being encouraged by the Fed's action to lower interest
rates in January, the market reversed course in February amid signs of a
strengthening economy and the threat of inflation. It wasn't until the third
quarter of 1996 that job growth and economic activity appeared to moderate,
and yields declined as a result.
Due to further cuts in short-term rates by the Fed, we maintained the
portfolio's average maturity in a relatively tight range (between 25 and 45
days) throughout 1996. We continue to manage the Fund on a risk-averse basis,
with Federal agency securities collateralized by U.S. government securities*
representing about 77.5 percent of the portfolio. The balance of the Fund's
net assets were invested in high-grade corporate issues.

Q HOW DID THE FUND PERFORM FOR THE PERIOD ENDED DECEMBER 31, 1996?
A The Fund generated a 12-month total return of 4.89 percent/1/. As of De-
cember 31, 1996, the Fund's generated a seven-day average yield of 4.86
percent and a 30-day effective yield of 4.81 percent. In closing, we expect
the Fund to continue providing competitive performance and relative stablility
as we enter 1997.

/s/ Peter W. Hegel /s/ David R. Troth
Peter W. Hegel David R. Troth
Chief Investment Officer Portfolio Manager
Fixed Income Investments Money Market Fund

*An investment in the portfolio is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.

23
Please see footnotes on page four
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

REAL ESTATE SECURITIES FUND

The following is an interview with the portfolio management team of Van Kampen
American Capital Life Investment Trust-- Real Estate Securities Fund. The team
is led by Alan T. Sachtleben, chief investment officer for equity investments
and Mary Jayne Maly, portfolio manager.

Effective January 1, 1997, Russell C. Platt and Theodore R. Bigman
assumed responsibility for portfolio management of the Real Estate
Securities Fund, managed under Van Kampen American Capital Asset
Management, Inc. Mr. Platt joined Morgan Stanley Asset Management Inc.
(MSAM) in 1982 and has primary responsibility for managing real estate
securities investments for MSAM. Mr. Bigman joined MSAM in 1995. He has
extensive real estate experience in a wide variety of transactions
involving the financing and sale on both individual assets and portfolios
of real estate assets, as well as the acquisition and sale of several
real estate companies.

Q OVER THE PAST 12 MONTHS, WHAT FACTORS HAD THE GREATEST IMPACT ON THE
FUND'S PORTFOLIO?
A 1996 began with a favorable environment for both the stock and bond mar-
ket. However, bond prices fell early in the year due to fears that strong
economic growth would bring higher inflation and cause the Federal Reserve
Board to raise interest rates. Bond prices fell even further after second-
quarter GDP growth (real gross domestic product, adjusted for inflation) in-
creased to 4.7 percent. While the bond market struggled, the stock market
surged during the first half of the year, led by small capitalization compa-
nies.
Early in the third quarter, stocks suffered a temporary setback but quickly
recovered. The bond market also rebounded as GDP decreased to 2.0 percent in
the third quarter, and concerns about the Fed tightening diminished. The 30-
year Treasury bond yield dropped to approximately 6.6 percent in late October,
and remained near this level through year end.

Q WHAT IS THE FUND'S STRATEGY?
A Our strategy in managing the Fund is two-fold. First, we take a top-down
approach in allocating portfolio assets to the various property sectors.
Second, we utilize a bottom-up stock-selection approach where we look for
stocks with higher-than-average valuations. This strategy served us well dur-
ing the reporting period, as noted by the Fund's strong performance.

Q WHAT HOLDINGS HAD THE MOST SIGNIFICANT IMPACT ON THE FUND'S PERFORMANCE
DURING THE PERIOD?
A Despite a broad market correction in July, REIT (Real Estate Investment
Trust) stocks generally performed well. For example, the Standard &
Poor's 500-Stock Index generated a -4.57 percent total return for July, com-
pared to a 0.75 percent total return for the NAREIT Equity Index. Investors
recognized that by investing in REITs, they were investing in a group of
stocks that had positive industry fundamentals, attractive rates of cash flow,
and yields well in excess of alternative defensive investments such as utili-
ties or bonds. Strong money flows into this industry provided for spectacular
performance in the second half of the year.
More specifically, Fund performance was enhanced by positive industry
fundamentals, particularly in the office/industrial and hotel sectors. The
supply-and-demand balance in these sectors was very tight and led to
increasing occupancies and strong rental rate growth. In addition, an
improvement in the California economy, which had long lagged the performance
of the rest of the nation, helped spur a rally in the values of California
real estate, and those REITs exposed to California performed well. Finally,
the acquisition market was very robust, and REITs with strong balance sheets
were able to add to their growth rates by making attractive acquisitions.

24
<PAGE>

HOLDINGS BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS AS OF DECEMBER 31,
1996

[PIE CHART APPEARS HERE]

Office/Industrial 27.4%
Apartments 20.7%
Hotels 11.1%
Shopping Malls 10.9%
Shopping Centers 10.4%
Net Lease 6.7%
Self-Storage 6.0%
Healthcare Facilities 4.5%
Manufactured Home Communities 2.3%

Q HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED DECEMBER 31, 1996?
A We are pleased to report that the Fund achieved a total return at net as-
set value of 40.53 percent/1/. In comparison, the Fund performed favor-
ably to the NAREIT (National Association of Real Estate Investment Trusts)
Equity Index which returned 35.29 percent and the Standard & Poor's 500-Stock
Index which returned 22.90 percent for the same period. The S&P 500-Stock In-
dex is a broad-based, unmanaged index that reflects the general performance of
the stock market. Keep in mind that these indices are unmanaged statistical
composites that do not reflect any commissions, fees or sales charges that
would be incurred by an investor purchasing the securities they represent.
Please refer to the chart on page four for additional Fund performance re-
sults.

Q WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A We believe REITs may continue to show attractive rates of return, given
that real estate fundamentals remain strong. However, we emphasize that
the high level of returns achieved in 1996 was extraordinary, and investors
should not expect to see such results going forward. If REITs can increase
cash flow at an 8- to 10-percent rate while providing a yield over 6 percent,
it may not be unreasonable to expect solid performance in 1997. Also, we be-
lieve this group of stocks may perform well in a weak stock market environment
because of the large yield component in their total return.

/s/ Alan T. Sachtleben /s/ Mary Jayne Maly
Alan T. Sachtleben Mary Jayne Maly
Chief Investment Officer Portfolio Manager
Equity Investments Real Estate Securities Fund

25
Please see footnotes on page four
<PAGE>

ASSET ALLOCATION FUND PORTFOLIO OF INVESTMENTS

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 52.5%
CONSUMER DISTRIBUTION 2.4%
Dayton Hudson Corp.......................................... 6,100 $ 239,425
Dillard Department Stores, Inc., Class A.................... 8,600 265,525
Federated Department Stores, Inc. (b)....................... 12,200 416,325
Kroger Co. (b).............................................. 6,100 283,650
Pier 1 Imports, Inc......................................... 11,600 204,450
Tupperware Corp............................................. 2,000 107,250
-----------
1,516,625
-----------
CONSUMER DURABLES 1.3%
Chrysler Corp............................................... 4,400 145,200
Cooper Tire & Rubber........................................ 6,200 122,450
Ford Motor Co............................................... 3,400 108,375
Masco Corp.................................................. 3,500 126,000
Maytag Corp................................................. 8,900 175,775
Newell Co................................................... 5,300 166,950
-----------
844,750
-----------
CONSUMER NON-DURABLES 5.9%
American Brands, Inc........................................ 8,900 441,663
First Brands Corp........................................... 6,100 173,088
Philip Morris Cos., Inc..................................... 13,100 1,475,387
Quaker Oats Co.............................................. 3,200 122,000
RJR Nabisco Holdings Corp................................... 31,500 1,071,000
Tambrands, Inc.............................................. 3,200 130,800
Unilever NV - New York Shares (Netherlands)................. 2,100 368,025
-----------
3,781,963
-----------
CONSUMER SERVICES 4.4%
Comcast Corp., Class A...................................... 9,600 171,000
Cox Communications, Inc., Class A (b)....................... 8,900 205,813
Gannett, Inc................................................ 2,300 172,213
Harcourt General, Inc....................................... 5,800 267,525
Tele-Communications, Inc., Class A (b)...................... 84,600 1,105,087
Time Warner, Inc............................................ 24,100 903,750
-----------
2,825,388
-----------
ENERGY 6.1%
Amerada Hess Corp........................................... 6,000 347,250
Amoco Corp.................................................. 2,500 201,250
Atlantic Richfield Co....................................... 1,900 251,750
British Petroleum PLC - ADR (United Kingdom)................ 1,100 155,513
Coastal Corp................................................ 3,400 166,175
Coflexip SA - ADR (France) (b).............................. 4,700 123,375
J. Ray McDermott SA (b)..................................... 9,400 206,800
Occidental Petroleum Corp................................... 7,200 168,300
PanEnergy Corp.............................................. 12,100 544,500
Repsol SA - ADR (Spain)..................................... 7,800 297,375
Seagull Energy Corp. (b).................................... 7,900 173,800
Sonat, Inc.................................................. 800 41,200
Texaco, Inc................................................. 2,700 264,937
Total SA - ADR (France)..................................... 3,956 152,950
Unocal Corp................................................. 6,500 264,062
USX Marathon Group.......................................... 10,000 238,750
YPF Sociedad Anonima - ADR (Argentina), Class D............. 12,500 315,625
-----------
3,913,612
-----------
</TABLE>

26
See Notes to Financial Statements
<PAGE>

ASSET ALLOCATION FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 8.4%
Aetna, Inc.................................................. 8,400 $ 672,000
AFLAC, Inc.................................................. 7,200 307,800
Allstate Corp............................................... 4,000 231,500
AMBAC, Inc.................................................. 3,900 258,862
American Bankers Insurance Group, Inc....................... 8,400 429,450
BankAmerica Corp............................................ 2,600 259,350
Bankers Trust New York Corp................................. 2,300 198,375
Bear Stearns Cos., Inc...................................... 10,465 291,712
Chase Manhattan Corp........................................ 3,600 321,300
CIGNA Corp.................................................. 2,500 341,562
CMAC Investment Corp........................................ 7,600 279,300
Conseco, Inc................................................ 2,500 159,375
Everest Reinsurance Holdings................................ 6,400 184,000
First USA, Inc.............................................. 4,100 141,963
Great Western Financial Corp................................ 5,200 150,800
J.P. Morgan & Co., Inc...................................... 3,200 312,400
MBIA, Inc................................................... 4,400 445,500
PNC Financial Corp.......................................... 5,800 218,225
Travelers Group, Inc........................................ 4,133 187,535
----------
5,391,009
----------
HEALTHCARE 2.7%
American Home Products Corp................................. 7,800 457,275
Lincare Holdings, Inc. (b).................................. 4,500 184,500
Mallinckrodt, Inc........................................... 13,600 600,100
Schering Plough Corp........................................ 1,700 110,075
SmithKline Beecham PLC - ADR (United Kingdom)............... 1,900 129,200
Warner Lambert Co........................................... 2,400 180,000
Wellpoint Health Networks, Inc., Class A (b)................ 700 24,063
----------
1,685,213
----------
PRODUCER MANUFACTURING 4.8%
Bouygues Offshore SA - ADR (France) (b)..................... 14,800 190,550
Browning Ferris Industries, Inc............................. 12,800 336,000
Caterpillar, Inc............................................ 2,700 203,175
Dover Corp.................................................. 2,600 130,650
Ingersoll Rand Co........................................... 6,000 267,000
Johnson Controls, Inc....................................... 1,000 82,875
LucasVarity PLC - ADR (United Kingdom) (b).................. 4,300 163,400
Rockwell International Corp................................. 1,900 115,662
Stewart & Stevenson Services, Inc........................... 4,600 133,975
TRW, Inc.................................................... 2,400 118,800
WMX Technologies, Inc....................................... 41,200 1,344,150
----------
3,086,237
----------
RAW MATERIALS/PROCESSING INDUSTRIES 3.6%
Bethlehem Steel Corp. (b)................................... 44,900 404,100
Boise Cascade Corp.......................................... 22,600 717,550
Dow Chemical Co............................................. 3,700 289,987
LTV Corp.................................................... 14,500 172,187
Lyondell Petrochemical Co................................... 6,900 151,800
Mead Corp................................................... 2,100 122,063
Stone Container Corp........................................ 6,600 98,175
Weyerhaeuser Co............................................. 3,600 170,550
Willamette Industries, Inc.................................. 2,100 146,213
----------
2,272,625
----------
</TABLE>

27
See Notes to Financial Statements
<PAGE>

ASSET ALLOCATION FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 2.5%
Avnet, Inc.................................................. 4,500 $ 262,125
BMC Software, Inc. (b)...................................... 4,200 173,775
Computer Associates International, Inc...................... 2,800 139,300
Ericsson L M Telephone Co. - ADR (Sweden), Class B.......... 4,500 135,844
Gateway 2000, Inc. (b)...................................... 1,900 101,769
Hewlett Packard Co.......................................... 2,600 130,650
International Business Machines Corp........................ 1,300 196,300
Nokia Corp. - ADR (Finland)................................. 2,900 167,112
Pitney Bowes, Inc........................................... 1,500 81,750
SunGard Data Systems, Inc. (b).............................. 4,800 189,600
-----------
1,578,225
-----------
TRANSPORTATION 0.4%
Canadian National Railway Co................................ 7,100 269,800
-----------
UTILITIES 10.0%
Ameritech Corp. ............................................ 3,000 181,875
AT & T Corp. ............................................... 17,000 739,500
Baltimore Gas & Electric Co. ............................... 3,700 98,975
Bell Atlantic Corp. ........................................ 3,400 220,150
Bellsouth Corp. ............................................ 2,700 109,013
Boston Edison Co. .......................................... 4,000 107,500
Carolina Power & Light Co. ................................. 3,100 113,150
Central & South West Corp. ................................. 3,300 84,563
Cincinnati Bell, Inc. ...................................... 3,250 200,281
CMS Energy Corp. ........................................... 3,200 107,600
DTE Energy Co. ............................................. 9,000 291,375
Entergy Corp. .............................................. 4,800 133,200
FPL Group, Inc. ............................................ 2,600 119,600
GPU, Inc. .................................................. 4,200 141,225
Houston Industries, Inc. ................................... 14,100 319,012
Idaho Power Co. ............................................ 5,500 171,187
Illinova Corp. ............................................. 7,700 211,750
MCI Communications Corp. ................................... 30,000 980,625
Nipsco Industries, Inc. .................................... 1,700 67,363
Oklahoma Gas & Electric Co. ................................ 8,300 346,525
Pacificorp.................................................. 4,900 100,450
Peco Energy Co. ............................................ 6,800 171,700
Pinnacle West Capital Corp. ................................ 4,400 139,700
Public Service Co. of New Mexico............................ 6,800 133,450
SBC Communications, Inc. ................................... 5,500 284,625
Sierra Pacific Resources.................................... 2,400 69,000
Southwestern Public Service Co. ............................ 3,900 137,962
Sprint Corp. ............................................... 8,000 319,000
Texas Utilities Co. ........................................ 6,800 277,100
-----------
6,377,456
-----------
TOTAL COMMON STOCK................................................. 33,542,903
-----------
</TABLE>

28
See Notes to Financial Statements
<PAGE>

ASSET ALLOCATION FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE DEBT 19.8%
CONSUMER DISTRIBUTION 1.5%
$1,000 Sears Roebuck Acceptance Corp.......... 6.750% 09/15/05 $ 984,790
-----------
CONSUMER NON-DURABLES 1.6%
1,000 Anheuser Busch Co., Inc................ 7.000 09/01/05 1,001,090
-----------
CONSUMER SERVICES 1.5%
1,000 Cox Communications, Inc................ 6.875 06/15/05 984,210
-----------
ENERGY 3.4%
1,000 Burlington Resources, Inc.............. 9.125 10/01/21 1,174,800
1,000 Enron Corp............................. 6.875 10/15/07 989,450
-----------
2,164,250
-----------
FINANCE 1.7%
1,000 American General Corp.................. 9.625 02/01/18 1,065,900
-----------
HEALTHCARE 1.6%
1,000 Aetna, Inc............................. 7.125 08/15/06 1,007,550
-----------
PRODUCER MANUFACTURING 1.8%
1,000 Caterpillar, Inc....................... 9.000 04/15/06 1,144,900
-----------
TECHNOLOGY 3.4%
1,000 Boeing, Inc............................ 8.100 11/15/06 1,089,800
1,000 Phillips Electronics NV................ 8.375 09/15/06 1,087,900
-----------
2,177,700
-----------
UTILITIES 3.3%
1,000 Baltimore Gas & Electric Co............ 7.500 01/15/07 1,042,000
1,000 Texas Utilities Electric Co............ 8.250 04/01/04 1,073,750
-----------
2,115,750
-----------
TOTAL CORPORATE DEBT.................................... 12,646,140
-----------
U.S. GOVERNMENT OBLIGATIONS 15.9%
3,000 U.S. Treasury Bond..................... 7.250 05/15/16 3,172,020
4,200 U.S. Treasury Bond..................... 7.125 02/15/23 4,385,724
2,500 U.S. Treasury Note..................... 7.250 08/15/04 2,633,975
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS....................... 10,191,719
-----------
GOVERNMENT AND AGENCY FIXED-INCOME
OBLIGATIONS 1.6%
1,000 Province of Nova Scotia (Canada)....... 7.250 07/27/13 1,010,500
-----------
TOTAL LONG-TERM INVESTMENTS 89.8%
(Cost $52,474,795) (a)....................................... 57,391,262
REPURCHASE AGREEMENT 8.8%
BA Securities ($5,650,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated
12/31/96, to be sold on 01/02/97 at $5,652,175)............. 5,650,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%.................... 907,803
-----------
NET ASSETS 100.0%............................................. $63,949,065
-----------
</TABLE>
(a) At December 31, 1996, for federal income tax purposes cost is $52,576,003,
the aggregate gross unrealized appreciation is $5,557,365 and the
aggregate gross unrealized depreciation is $742,106, resulting in net
unrealized appreciation of $4,815,259.
(b) Non-income producing security as this stock currently does not declare
dividends.

29
See Notes to Financial Statements
<PAGE>

ASSET ALLOCATION FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $52,474,795) (Note 1). $57,391,262
Repurchase Agreement (Note 1)...................................... 5,650,000
Cash............................................................... 5,090
Receivables:
Securities Sold................................................... 822,495
Interest.......................................................... 502,024
Dividends......................................................... 86,961
Other.............................................................. 15,551
-----------
Total Assets...................................................... 64,473,383
-----------
LIABILITIES:
Payables:
Fund Shares Repurchased........................................... 228,869
Securities Purchased.............................................. 205,612
Investment Advisory Fee (Note 2).................................. 20,115
Distributor and Affiliates (Note 2)............................... 2,562
Deferred Compensation and Retirement Plans (Note 2)................ 39,272
Accrued Expenses................................................... 27,888
-----------
Total Liabilities................................................. 524,318
-----------
NET ASSETS......................................................... $63,949,065
-----------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................... $57,866,139
Accumulated Net Realized Gain on Securities........................ 1,119,228
Net Unrealized Appreciation on Securities.......................... 4,916,467
Accumulated Undistributed Net Investment Income.................... 47,231
-----------
NET ASSETS......................................................... $63,949,065
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
(Based on net assets of $63,949,065 and 5,633,242 shares of
beneficial interest issued and outstanding)....................... $ 11.35
-----------
</TABLE>

30
See Notes to Financial Statements
<PAGE>

ASSET ALLOCATION FUND STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $ 1,889,646
Dividends.......................................................... 879,270
-----------
Total Income...................................................... 2,768,916
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 316,002
Accounting (Note 2)................................................ 51,837
Trustees Fees and Expenses (Note 2)................................ 30,314
Custody............................................................ 22,628
Audit.............................................................. 19,433
Shareholder Services (Note 2)...................................... 15,323
Legal (Note 2)..................................................... 9,796
Other ............................................................. 45,742
-----------
Total Expenses.................................................... 511,075
Less Fees Waived and Expenses Reimbursed ($113,873 and $18,000,
respectively) (Note 2)............................................ 131,873
-----------
Net Expenses...................................................... 379,202
-----------
NET INVESTMENT INCOME.............................................. $ 2,389,714
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments................................... $ 6,901,393
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 6,032,972
End of the Period:
Investments....................................................... 4,916,467
-----------
Net Unrealized Depreciation on Securities During the Period........ (1,116,505)
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... $ 5,784,888
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $ 8,174,602
-----------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 2,389,714 $ 2,324,931
Net Realized Gain on Securities.......... 6,901,393 6,122,759
Net Unrealized Appreciation/Depreciation
on Securities During the Period......... (1,116,505) 7,920,361
------------ ------------
Change in Net Assets from Operations..... 8,174,602 16,368,051
------------ ------------
Distributions from Net Investment Income. (2,362,025) (2,326,257)
Distributions from Net Realized Gain on
Securities (Note 1)..................... (6,874,314) (4,841,441)
------------ ------------
Total Distributions...................... (9,236,339) (7,167,698)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................... (1,061,737) 9,200,353
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................ 4,725,803 1,931,514
Net Asset Value of Shares Issued Through
Dividend Reinvestment.................... 9,236,339 7,167,697
Cost of Shares Repurchased............... (11,932,457) (11,954,380)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................. 2,029,685 (2,855,169)
------------ ------------
TOTAL INCREASE IN NET ASSETS............. 967,948 6,345,184
NET ASSETS:
Beginning of the Period.................. 62,981,117 56,635,933
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$47,231 and $19,542, respectively)...... $ 63,949,065 $ 62,981,117
------------ ------------
</TABLE>

31
See Notes to Financial Statements
<PAGE>

ASSET ALLOCATION FUND FINANCIAL HIGHLIGHTS

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

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.. $11.64 $9.99 $11.80 $11.92 $12.08
------- ------ ------ ------ ------
Net Investment Income.................... .482 .48 .45 .29 .37
Net Realized and Unrealized
Gain/Loss on Securities................. 1.083 2.6425 (.89) .6025 .493
------- ------ ------ ------ ------
Total from Investment Operations.......... 1.565 3.1225 (.44) .8925 .863
------- ------ ------ ------ ------
Less:
Distributions from Net Investment Income. .478 .4775 .45 .2925 .3689
Distributions from Net Realized
Gain on Securities...................... 1.375 .995 .90 .63 .6541
Distributions in Excess of Net Realized
Gain on Securities...................... -0- -0- .02 .09 -0-
------- ------ ------ ------ ------
Total Distributions....................... 1.853 1.4725 1.37 1.0125 1.023
------- ------ ------ ------ ------
Net Asset Value, End of the Period........ $11.352 $11.64 $9.99 $11.80 $11.92
------- ------ ------ ------ ------
Total Return*............................. 13.87% 31.36% (3.66%) 7.71% 7.28%
Net Assets at End of the Period (In
millions)................................. $63.9 $63.0 $56.6 $64.9 $59.6
Ratio of Expenses to Average Net Assets*.. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average
Net Assets*............................... 3.78% 3.85% 3.70% 2.34% 3.05%
Portfolio Turnover........................ 118% 124% 163% 150% 126%
Average Commission Paid Per Equity Share
Traded (a)................................ $.0561 -- -- -- --
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets... .81% .74% .72% .74% .77%
Ratio of Net Investment Income to Average
Net Assets................................ 3.57% 3.71% 3.58% 2.20% 2.88%
</TABLE>
(a) Represents the average brokerage commissions paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.

32
See Notes to Financial Statements
<PAGE>

DOMESTIC INCOME FUND PORTFOLIO OF INVESTMENTS

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE DEBT OBLIGATIONS 81.9%
CONSUMER DISTRIBUTION 15.8%
$ 500 Borden, Inc............................ 7.875% 02/15/23 $ 447,800
500 CompUSA, Inc........................... 9.500 06/15/00 513,750
300 ConAgra, Inc........................... 9.750 03/01/21 374,730
500 Nabisco, Inc........................... 7.550 06/15/15 497,500
500 Orchard Supply......................... 9.375 02/15/02 531,875
500 Petro PSC Properties................... 12.500 06/01/02 508,750
250 Specialty Retailers, Inc............... 11.000 08/15/03 261,875
-----------
3,136,280
-----------
CONSUMER NON-DURABLES 2.7%
500 Dimon, Inc............................. 8.875 06/01/06 524,750
-----------
CONSUMER SERVICES 15.3%
500 Circus Circus Enterprises, Inc......... 6.450 02/01/06 481,300
500 Cox Communications, Inc................ 7.250 11/15/15 488,400
500 News America Holdings, Inc............. 10.125 10/15/12 578,290
500 TCI Communications, Inc................ 8.750 08/01/15 497,700
500 Valassis Communications, Inc........... 9.550 12/01/03 523,500
500 Viacom, Inc............................ 7.625 01/15/16 463,500
-----------
3,032,690
-----------
ENERGY 12.5%
455 Coastal Corp........................... 10.250 10/15/04 539,995
500 HS Resources, Inc...................... 9.875 12/01/03 522,500
300 Noram Energy Corp...................... 10.000 11/15/19 337,875
500 Occidental Petroleum Corp.............. 10.125 11/15/01 570,850
500 PDV America, Inc....................... 7.875 08/01/03 497,550
-----------
2,468,770
-----------
FINANCE 4.9%
376 First PV Funding Corp., Ser 1986A...... 10.300 01/15/14 399,970
540 Phoenix RE Corp........................ 9.750 08/15/03 580,500
-----------
980,470
-----------
HEALTHCARE 8.0%
500 Allegiance Corp........................ 7.800 10/15/16 511,600
500 Manor Care, Inc........................ 7.500 06/15/06 513,900
500 Quorum Health Group.................... 11.875 12/15/02 550,000
-----------
1,575,500
-----------
PRODUCER MANUFACTURING 3.9%
500 Tarkett International GMBH (Germany)
(Yankee Bond).......................... 9.000 03/01/02 513,750
250 U.S. Can Corp., 144A Private Placement
(c).................................... 10.125 10/15/06 263,125
-----------
776,875
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 2.9%
500 Georgia-Pacific Corp................... 9.950 06/15/02 571,600
-----------
TRANSPORTATION 9.6%
500 Delta Airlines, Inc.................... 9.750 05/15/21 605,500
500 International Shipholding Corp......... 9.000 07/01/03 505,000
500 Southwest Airlines Co.................. 9.400 07/01/01 553,415
200 United Airlines, Inc................... 10.020 03/22/14 241,200
-----------
1,905,115
-----------
</TABLE>

33
See Notes to Financial Statements
<PAGE>

DOMESTIC INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

COMMON AND PREFERRED STOCK 3.8%
FF Holdings Co., 2,500 common shares (b)................ 25
Supermarkets General Holdings Corp., 6,889 preferred
shares, dividends of $3.52 per share (d)................ 175,669
Time Warner, Inc., 537 Series M preferred shares,
dividend rate of $10.251 (c)............................ 583,108
-----------
TOTAL COMMON AND PREFERRED STOCK........................ 758,802
-----------
TOTAL LONG-TERM INVESTMENTS 95.6%
(Cost $18,265,945) (a)........................................ 18,929,744
REPURCHASE AGREEMENT 3.0%
BA Securities ($585,000 par collateralized by U.S. Government
obligations in a pooled cash
account, dated 12/31/96, to be sold on 01/02/97 at $585,225).. 585,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%..................... 282,553
-----------
NET ASSETS 100.0%.............................................. $19,797,297
-----------
</TABLE>

(a) At December 31, 1996, for federal income tax purposes cost is $18,268,915,
the aggregate gross unrealized appreciation is $786,395 and the aggregate
gross unrealized depreciation is $125,565 resulting in net unrealized
appreciation of $660,830.

(b) Non-income producing security as this stock currently does not declare
dividends.

(c) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.

(d) Payment-in-kind security.

34
See Notes to Financial Statements
<PAGE>

DOMESTIC INCOME FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $18,265,945) (Note
1)................................................................ $18,929,744
Repurchase Agreement (Note 1)..................................... 585,000
Cash.............................................................. 1,401
Interest Receivable............................................... 371,587
Other............................................................. 1,132
-----------
Total Assets..................................................... 19,888,864
-----------
LIABILITIES:
Payables:
Fund Shares Repurchased.......................................... 34,998
Distributor and Affiliates (Note 2).............................. 2,510
Deferred Compensation and Retirement Plans (Note 2)............... 44,659
Accrued Expenses.................................................. 9,400
-----------
Total Liabilities................................................ 91,567
-----------
NET ASSETS........................................................ $19,797,297
-----------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $20,772,963
Net Unrealized Appreciation on Securities......................... 663,799
Accumulated Undistributed Net Investment Income................... 34,326
Accumulated Net Realized Loss on Securities....................... (1,673,791)
-----------
NET ASSETS........................................................ $19,797,297
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
(Based on net assets of $19,797,297 and 2,472,121 shares of
beneficial interest issued and outstanding)...................... $ 8.01
-----------
</TABLE>

35
See Notes to Financial Statements
<PAGE>

DOMESTIC INCOME FUND STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................ $1,836,107
Dividends........................................................... 38,241
Other............................................................... 15,000
----------
Total Income....................................................... 1,889,348
----------
EXPENSES:
Investment Advisory Fee (Note 2).................................... 110,243
Accounting (Note 2)................................................. 44,328
Trustees Fees and Expenses (Note 2)................................. 38,560
Audit............................................................... 20,174
Shareholder Services (Note 2)....................................... 15,317
Printing............................................................ 13,977
Custody............................................................. 12,116
Legal (Note 2)...................................................... 7,282
Other .............................................................. 21,397
----------
Total Expenses..................................................... 283,394
Less Fee Waived and Expenses Reimbursed ($110,243 and $40,859,
respectively) (Note 2)............................................. 151,102
----------
Net Expenses....................................................... 132,292
----------
NET INVESTMENT INCOME............................................... $1,757,056
----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments........................................................ $ 372,946
</TABLE>
<TABLE>
<S> <C>
Forward Commitments................................................ (22,031)
----------
Net Realized Gain on Securities..................................... 350,915
----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................ 1,508,520
End of the Period:
Investments........................................................ 663,799
----------
Net Unrealized Depreciation on Securities During the Period......... (844,721)
----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES...................... $ (493,806)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......................... $1,263,250
----------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 1,757,056 $ 2,110,912
Net Realized Gain on Securities.......... 350,915 222,049
Net Unrealized Appreciation/Depreciation
on Securities During the Period......... (844,721) 2,671,771
----------- -----------
Change in Net Assets from Operations..... 1,263,250 5,004,732
Distributions from Net Investment Income. (1,735,294) (2,098,216)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................... (472,044) 2,906,516
----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................ 6,174,993 7,719,168
Net Asset Value of Shares Issued Through
Dividend Reinvestment.................... 1,735,294 2,098,217
Cost of Shares Repurchased............... (14,203,241) (7,435,575)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................. (6,292,954) 2,381,810
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS.... (6,764,998) 5,288,326
NET ASSETS:
Beginning of the Period.................. 26,562,295 21,273,969
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of
$34,326 and $16,531, respectively)...... $19,797,297 $26,562,295
----------- -----------
</TABLE>

36
See Notes to Financial Statements
<PAGE>

DOMESTIC INCOME FUND FINANCIAL HIGHLIGHTS

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

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $8.21 $7.35 $8.58 $8.00 $7.74
------ ------ -------- ------ -------
Net Investment Income................. .755 .71 .85 .72 .69
Net Realized and Unrealized
Gain/Loss on Securities.............. (.212) .8525 (1.2275) .5825 .2725
------ ------ -------- ------ -------
Total from Investment Operations....... .543 1.5625 (.3775) 1.3025 .9625
Less Distributions from Net Investment
Income................................. .745 .7025 .8525 .7225 .7025
------ ------ -------- ------ -------
Net Asset Value, End of the Period..... $8.008 $8.21 $7.35 $8.58 $8.00
------ ------ -------- ------ -------
Total Return*.......................... 6.68% 21.37% (4.33%) 16.32% 12.50%
Net Assets at End of the Period (In
millions).............................. $19.8 $26.6 $21.3 $27.4 $21.1
Ratio of Expenses to Average Net
Assets*................................ .60% .60% .60% .60% .60%
Ratio of Net Investment Income to
Average Net Assets*.................... 7.97% 8.11% 8.35% 7.80% 8.89%
Portfolio Turnover..................... 77% 54% 94% 130% 117%
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................. 1.29% .93% .95% .95% .95%
Ratio of Net Investment Income to
Average Net Assets..................... 7.28% 7.78% 8.00% 7.40% 8.54%
</TABLE>

37
See Notes to Financial Statements
<PAGE>

EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 94.0%
CONSUMER DISTRIBUTION 8.8%
Bed Bath & Beyond, Inc. (b)................................ 1,050 $ 25,462
CDW Computer Centers, Inc. (b)............................. 400 23,725
Central Garden & Pet Co. (b)............................... 300 6,319
CompUSA, Inc. (b).......................................... 1,100 22,688
Consolidated Stores Corp. (b).............................. 812 26,085
Danka Business Systems--ADR (United Kingdom)............... 325 11,497
Dollar General Corp........................................ 350 11,200
Eagle Hardware & Garden, Inc. (b).......................... 600 12,450
Finish Line, Inc., Class A (b)............................. 600 12,675
Hughes Supply, Inc......................................... 200 8,625
Inacom Corp. (b)........................................... 375 15,000
Ingram Micro, Inc., Class A (b)............................ 500 11,500
Interstate Bakeries Corp................................... 500 24,562
Just for Feet, Inc. (b).................................... 450 11,813
Kroger Co. (b)............................................. 450 20,925
Miller (Herman) Inc........................................ 100 5,663
Richfood Holdings, Inc..................................... 525 12,731
Ross Stores, Inc........................................... 550 27,500
Safeway, Inc. (b).......................................... 950 40,612
Saks Holdings, Inc......................................... 400 10,800
Sports Authority, Inc. (b)................................. 300 6,525
Staples, Inc. (b).......................................... 700 12,644
Tiffany & Co............................................... 550 20,144
TJX Cos., Inc.............................................. 450 21,319
U.S. Office Products Co. (b)............................... 250 8,531
Vons Cos., Inc. (b)........................................ 750 44,906
----------
455,901
----------
CONSUMER DURABLES 0.4%
Blyth Industries, Inc. (b)................................. 200 9,125
Ethan Allen Interiors, Inc................................. 300 11,550
----------
20,675
----------
CONSUMER NON-DURABLES 5.3%
Borders Group, Inc. (b).................................... 350 12,556
Coca-Cola Enterprises, Inc................................. 500 24,250
Gadzooks, Inc. (b)......................................... 350 6,388
Gucci Group NV (b)......................................... 275 17,566
Liz Claiborne, Inc......................................... 450 17,381
Nautica Enterprises, Inc. (b).............................. 1,050 26,512
Nike, Inc., Class B........................................ 1,275 76,181
St. John Knits, Inc........................................ 550 23,925
Tommy Hilfiger Corp. (b)................................... 750 36,000
USA Detergents, Inc. (b)................................... 400 16,650
Wolverine World Wide, Inc.................................. 625 18,125
----------
275,534
----------
CONSUMER SERVICES 10.9%
AccuStaff, Inc. (b)........................................ 706 14,914
Amresco, Inc. (b).......................................... 800 21,400
APAC Teleservices, Inc. (b)................................ 700 26,862
Apollo Group, Inc., Class A (b)............................ 500 16,719
Boston Chicken, Inc. (b)................................... 250 8,969
Caribiner International, Inc. (b).......................... 150 7,538
CKE Restaurants, Inc....................................... 100 3,600
</TABLE>

38
See Notes to Financial Statements
<PAGE>

EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Consolidated Graphics, Inc. (b)............................ 250 $ 14,000
COREstaff, Inc. (b)........................................ 450 10,659
Corrections Corp. of America (b)........................... 900 27,562
Doubletree Corp. (b)....................................... 900 40,500
Evergreen Media, Class A (b)............................... 675 16,875
Gartner Group, Inc., Class A (b)........................... 650 25,309
HA-LO Industries, Inc. (b)................................. 437 12,017
HFS, Inc. (b).............................................. 1,000 59,750
Imperial Credit Industries, Inc. (b)....................... 1,800 37,800
Infinity Broadcasting Corp. (b)............................ 300 10,088
International Game Technology.............................. 500 9,125
Interpublic Group of Cos., Inc............................. 350 16,625
Landry's Seafood Restaurant, Inc. (b)...................... 200 4,275
Meredith Corp.............................................. 600 31,650
MGM Grand, Inc. (b)........................................ 200 6,975
National Data Corp......................................... 450 19,575
Omnicom Group.............................................. 400 18,300
Penske Motorsports, Inc. (b)............................... 200 5,050
Prime Hospitality Corp. (b)................................ 300 4,838
Promus Hotel Corp. (b)..................................... 450 13,331
Rainforest Cafe, Inc. (b).................................. 350 8,225
Regal Cinemas, Inc. (b).................................... 900 27,675
Reynolds & Reynolds Co., Class A........................... 725 18,850
Robert Half International, Inc. (b)........................ 300 10,313
Sitel Corp. (b)............................................ 1,000 14,125
Whittman-Hart, Inc......................................... 100 2,563
----------
566,057
----------
ENERGY 10.3%
Baker Hughes, Inc.......................................... 300 10,350
Barrett Resources Corp. (b)................................ 300 12,788
Benton Oil & Gas Co. (b)................................... 400 9,050
BJ Services Co. (b)........................................ 300 15,300
Chesapeake Energy Corp. (b)................................ 850 47,281
Cliffs Drilling Co. (b).................................... 250 15,813
Comstock Resources, Inc. (b)............................... 700 9,100
Cooper Cameron Corp. (b)................................... 500 38,250
Diamond Offshore Drilling, Inc. (b)........................ 600 34,200
ENSCO International, Inc. (b).............................. 375 18,188
Falcon Drilling (b)........................................ 300 11,775
Flores & Rucks, Inc. (b)................................... 400 21,300
Forcenergy Gas Exploration, Inc. (b)....................... 550 19,938
Global Marine, Inc. (b).................................... 1,100 22,687
Marine Drilling Cos., Inc. (b)............................. 750 14,766
Noble Drilling Corp. (b)................................... 650 12,919
Nuevo Energy Co. (b)....................................... 200 10,400
Pogo Producing Co.......................................... 650 30,712
Reading & Bates Corp. (b).................................. 1,000 26,500
Rowan Cos., Inc. (b)....................................... 1,350 30,544
Smith International, Inc. (b).............................. 750 33,656
Tidewater, Inc............................................. 550 24,887
Transocean Offshore, Inc................................... 650 40,706
United Meridian Corp. (b).................................. 450 23,287
----------
534,397
----------
</TABLE>

39
See Notes to Financial Statements
<PAGE>

EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 10.7%
Aames Financial Corp....................................... 450 $ 16,144
American Bankers Insurance Group, Inc...................... 250 12,781
Astoria Financial Corp..................................... 200 7,375
Bank of Boston Corp........................................ 500 32,125
CMAC Investment Corp....................................... 800 29,400
Conseco, Inc............................................... 700 44,625
ContiFinancial Corp. (b)................................... 200 7,225
CRA Managed Care, Inc. (b)................................. 100 4,500
Cullen Frost Bankers, Inc.................................. 300 9,975
Finova Group, Inc.......................................... 600 38,550
First Bank System, Inc..................................... 250 17,063
Green Tree Financial Corp.................................. 700 27,037
GreenPoint Financial Corp.................................. 275 12,994
Household International, Inc............................... 400 36,900
Money Store, Inc........................................... 600 16,575
North Fork Bancorp, Inc.................................... 250 8,906
Old Republic International Corp............................ 400 10,700
Penncorp Financial Group, Inc.............................. 600 21,600
Peoples Heritage Financial Group........................... 350 9,800
RAC Financial Group, Inc. (b).............................. 400 8,450
Star Banc Corp............................................. 175 16,078
Student Loan Marketing Assn................................ 350 32,594
SunAmerica, Inc............................................ 1,200 53,250
TCF Financial Corp. (b).................................... 600 26,100
TIG Holdings Inc........................................... 250 8,469
Washington Mutual, Inc..................................... 1,000 43,312
----------
552,528
----------
HEALTHCARE 7.5%
Curative Health Services, Inc. (b)......................... 300 8,306
Dura Pharmaceuticals, Inc. (b)............................. 1,400 66,850
ESC Medical Systems, Ltd. (b).............................. 200 5,100
HBO & Co................................................... 550 32,656
Health Management Association, Inc., Class A (b)........... 1,000 22,500
Healthsouth Corp. (b)...................................... 1,050 40,556
Henry Schein, Inc. (b)..................................... 200 6,875
Jones Medical Industries, Inc.............................. 500 18,313
Medicis Pharmaceutical Corp., Class A (b).................. 400 17,600
Mentor Corp................................................ 600 17,700
MiniMed Inc. (b)........................................... 400 12,900
Omnicare, Inc.............................................. 1,650 53,006
Parexel International Corp. (b)............................ 200 10,325
Quintiles Transnational Corp. (b).......................... 350 23,187
Renal Treatment Centers, Inc. (b).......................... 750 19,125
Rexall Sundown, Inc. (b)................................... 350 9,516
Total Renal Care Holdings, Inc. (b)........................ 350 12,688
Universal Health Services, Inc., Class B (b)............... 350 10,019
----------
387,222
----------
PRODUCER MANUFACTURING 4.2%
American Power Conversion Corp. (b)........................ 400 10,900
Camco International, Inc................................... 300 13,838
Danaher Corp............................................... 425 19,816
ITT Hartford Group, Inc.................................... 200 13,500
Mastec, Inc. (b)........................................... 300 15,900
</TABLE>

40
See Notes to Financial Statements
<PAGE>

EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
Mueller Industries, Inc. (b)............................... 250 $ 9,625
Precision Castparts Corp................................... 350 17,369
Shaw Group, Inc. (b)....................................... 200 4,675
U.S. Filter Corp. (b)...................................... 1,050 33,337
United Waste Systems, Inc. (b)............................. 1,000 34,375
USA Waste Services, Inc. (b)............................... 1,285 40,959
----------
214,294
----------
RAW MATERIALS/PROCESSING INDUSTRIES 2.2%
Cytec Industries, Inc. (b)................................. 200 8,125
Goodrich (B.F.) Co......................................... 600 24,300
Praxair, Inc............................................... 550 25,369
Raychem Corp............................................... 400 32,050
Sealed Air Corp. (b)....................................... 250 10,406
Titanium Metals Corp. (b).................................. 400 13,150
----------
113,400
----------
TECHNOLOGY 31.4%
Acxiom Corp. (b)........................................... 1,000 24,000
ADC Telecommunications, Inc. (b)........................... 1,100 34,237
Andrew Corp. (b)........................................... 500 26,531
Applied Magnetics Corp. (b)................................ 200 5,975
Ascend Communications, Inc................................. 1,400 86,975
Aspect Telecommunications Corp. (b)........................ 600 38,100
Aspen Technology, Inc. (b)................................. 300 24,075
BMC Industries, Inc........................................ 350 11,025
BMC Software, Inc. (b)..................................... 1,350 55,856
Cadence Design Systems, Inc. (b)........................... 1,100 43,725
Cambridge Technology Partners (b).......................... 700 23,494
Cascade Communications Corp. (b)........................... 850 46,856
CBT Group PLC--ADR (Ireland) (b)........................... 100 5,425
Ciber, Inc. (b)............................................ 400 12,000
Cisco Systems, Inc. (b).................................... 1,200 76,350
Citrix Systems, Inc. (b)................................... 500 19,531
Clarify, Inc. (b).......................................... 400 19,200
Cognos, Inc. (b)........................................... 400 11,250
Compuware Corp. (b)........................................ 700 35,087
Comverse Technology, Inc. (b).............................. 450 17,016
Concord EFS, Inc. (b)...................................... 475 13,419
Dell Computer Corp. (b).................................... 1,600 85,000
DSP Communications, Inc. (b)............................... 300 5,813
Dynatech Corp. (b)......................................... 650 28,763
Encad, Inc. (b)............................................ 300 12,375
Engineering Animation, Inc. (b)............................ 100 2,425
Intel Corp................................................. 325 42,555
Legato Systems Inc. (b).................................... 450 14,681
Lucent Technologies, Inc................................... 400 18,500
McAfee Associates, Inc. (b)................................ 2,187 96,228
National TechTeam, Inc. (b)................................ 250 5,000
Network General Corp. (b).................................. 300 9,075
Oracle Systems Corp. (b)................................... 550 22,963
PairGain Technologies, Inc. (b)............................ 2,900 88,269
Parametric Technology Corp. (b)............................ 900 46,237
Paychex, Inc............................................... 600 30,862
</TABLE>

41
See Notes to Financial Statements
<PAGE>

EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Peoplesoft, Inc. (b)....................................... 1,950 $ 93,478
Rational Software Corp. (b)................................ 350 13,847
Remedy Corp. (b)........................................... 200 10,750
Sanmina Corp. (b).......................................... 250 14,125
Saville Systems PLC--ADR (Ireland) (b)..................... 300 12,188
SCI Systems, Inc. (b)...................................... 500 22,313
Security Dynamics Technology (b)........................... 700 22,050
Sun Microsystems, Inc. (b)................................. 900 23,119
SunGard Data Systems, Inc. (b)............................. 700 27,650
Technology Solutions Co. (b)............................... 400 16,600
Tellabs, Inc. (b).......................................... 1,300 48,912
3Com Corp. (b)............................................. 500 36,687
Ultrak, Inc. (b)........................................... 150 4,575
Uniphase Corp. (b)......................................... 250 13,125
Vanstar Corp. (b).......................................... 800 19,600
Vantive Corp. (b).......................................... 400 12,500
Viasoft, Inc. (b).......................................... 1,000 47,250
Visio Corp. (b)............................................ 100 4,950
Vitesse Semiconductor Corp. (b)............................ 550 25,025
Wind River Systems, Inc. (b)............................... 400 18,950
----------
1,626,567
----------
TRANSPORTATION 0.7%
Comair Holdings, Inc....................................... 450 10,800
Continental Airlines, Inc., Class B (b).................... 600 16,950
Trico Marine Services, Inc. (b)............................ 200 9,600
----------
37,350
----------
UTILITIES 1.6%
ACC Corp. (b).............................................. 400 12,100
AES Corp. (b).............................................. 350 16,275
Billing Information Concepts Corp. (b)..................... 500 14,375
Cincinnati Bell, Inc....................................... 600 36,975
VideoServer, Inc. (b)...................................... 100 4,250
----------
83,975
----------
TOTAL LONG-TERM INVESTMENTS 94.0%
(Cost $3,923,841) (a)............................................ 4,867,900
REPURCHASE AGREEMENT 5.9%
BA Securities ($305,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/96, to be sold
on 01/02/97 at $305,117)......................................... 305,000
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%........................ 5,287
----------
NET ASSETS 100.0%................................................. $5,178,187
----------
</TABLE>

(a) At December 31, 1996, for federal income tax purposes cost is $3,933,227,
the aggregate gross unrealized appreciation is $1,047,590 and the aggregate
gross unrealized depreciation is $112,917, resulting in net unrealized ap-
preciation of $934,673.

(b) Non-income producing security as this stock currently does not declare div-
idends.

42
See Notes to Financial Statements
<PAGE>

EMERGING GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $3,923,841) (Note 1).. $4,867,900
Repurchase Agreement (Note 1)...................................... 305,000
Cash............................................................... 4,586
Receivables:
Securities Sold................................................... 44,738
Fund Shares Sold.................................................. 4,419
Dividends......................................................... 1,142
Unamortized Organizational Expenses (Note 1)....................... 4,779
----------
Total Assets...................................................... 5,232,564
----------
LIABILITIES:
Payables:
Fund Shares Repurchased........................................... 28,363
Distributor and Affiliates (Note 2)............................... 2,150
Accrued Expenses................................................... 18,937
Deferred Compensation and Retirement Plans (Note 2)................ 4,927
----------
Total Liabilities................................................. 54,377
----------
NET ASSETS......................................................... $5,178,187
----------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................... $4,650,241
Net Unrealized Appreciation on Securities.......................... 944,059
Accumulated Net Investment Loss.................................... (4,926)
Accumulated Net Realized Loss on Securities........................ (411,187)
----------
NET ASSETS......................................................... $5,178,187
----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
(Based on net assets of $5,178,187 and 379,065 shares of
beneficial interest issued and outstanding)....................... $ 13.66
----------
</TABLE>
See Notes to Financial Statements

43
<PAGE>

EMERGING GROWTH FUND STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................ $ 15,312
Dividends........................................................... 12,069
---------
Total Income....................................................... 27,381
---------
EXPENSES:
Accounting (Note 2)................................................. 41,089
Investment Advisory Fee (Note 2).................................... 28,284
Audit............................................................... 15,874
Shareholder Services (Note 2)....................................... 15,534
Printing............................................................ 13,817
Trustees Fees and Expenses (Note 2)................................. 9,414
Legal (Note 2)...................................................... 6,223
Amortization of Organizational Expenses (Note 1).................... 1,365
Other .............................................................. 732
---------
Total Expenses..................................................... 132,332
Less Fees Waived and Expenses Reimbursed ($28,284 and $69,703,
respectively) (Note 2)............................................. 97,987
---------
Net Expenses....................................................... 34,345
---------
NET INVESTMENT LOSS................................................. $ (6,964)
---------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Loss on Investments.................................... $(353,684)
---------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................ 244,665
End of the Period:
Investments........................................................ 944,059
---------
Net Unrealized Appreciation on Securities During the Period......... 699,394
---------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES...................... $ 345,710
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......................... $ 338,746
---------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the Year Ended December 31, 1996 and the Period July 3, 1995 (Commencement
of Investment Operations) to December 31, 1995

44
See Notes to Financial Statements
<PAGE>

EMERGING GROWTH FUND FINANCIAL HIGHLIGHTS

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

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
of Investment
Year Ended Operations)
December 31, to December
1996 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period......... $11.72 $10.00
------- ------
Net Investment Loss............................. (.016) (.08)
Net Realized and Unrealized
Gain on Securities............................. 1.956 1.80
------- ------
Total from Investment Operations................. 1.940 1.72
------- ------
Net Asset Value, End of the Period............... $13.660 $11.72
------- ------
Total Return*.................................... 16.55% 17.20%**
Net Assets at End of the Period (In millions).... $5.2 $2.3
Ratio of Expenses to Average Net Assets*......... .85% 2.50%
Ratio of Net Investment Loss to Average Net
Assets*.......................................... (.17%) (1.45%)
Portfolio Turnover............................... 102% 41%**
Average Commission Per Equity Share Traded (a)... $ .0470 --
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.......... 3.28% 5.40%
Ratio of Net Investment Loss to Average Net
Assets........................................... (2.60%) (4.35%)
</TABLE>
**Non-Annualized
(a) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.
See Notes to Financial Statements

45
<PAGE>

ENTERPRISE FUND PORTFOLIO OF INVESTMENTS

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 97.0%
CONSUMER DISTRIBUTION 9.1%
Bed Bath & Beyond, Inc. (b)................................. 10,000 $ 242,500
CompUSA, Inc. (b)........................................... 20,000 412,500
Gap, Inc.................................................... 9,800 295,225
General Nutrition Companies, Inc. (b)....................... 16,000 270,000
Kroger Co. (b).............................................. 16,500 767,250
Lear Corp. (b).............................................. 7,100 242,288
Lowe's Companies, Inc....................................... 10,000 355,000
Ross Stores, Inc............................................ 11,500 575,000
Safeway, Inc. (b)........................................... 36,300 1,551,825
Sears Roebuck & Co.......................................... 10,800 498,150
Tiffany & Co................................................ 13,000 476,125
TJX Companies, Inc.......................................... 14,300 677,462
U.S. Office Products Co. (b)................................ 14,600 498,225
Vons Companies, Inc. (b).................................... 14,500 868,187
-----------
7,729,737
-----------
CONSUMER DURABLES 1.0%
Chrysler Corp............................................... 14,100 465,300
Harley Davidson, Inc........................................ 8,700 408,900
-----------
874,200
-----------
CONSUMER NON-DURABLES 8.8%
Fila Holdings SpA - ADR (Italy) (b)......................... 7,600 441,750
Liz Claiborne, Inc.......................................... 12,800 494,400
Nautica Enterprises, Inc. (b)............................... 15,800 398,950
Nike, Inc., Class B......................................... 7,000 418,250
Philip Morris Companies, Inc................................ 37,900 4,268,487
Procter & Gamble Co......................................... 4,500 483,750
RJR Nabisco Holdings Corp................................... 19,000 646,000
Tommy Hilfiger Corp. (b).................................... 7,000 336,000
-----------
7,487,587
-----------
CONSUMER SERVICES 6.7%
AccuStaff, Inc. (b)......................................... 16,524 349,070
Boston Chicken, Inc. (b).................................... 12,000 430,500
Equifax, Inc................................................ 17,500 535,937
Evergreen Media Corp., Class A (b).......................... 23,700 592,500
Hilton Hotels Corp.......................................... 14,000 365,750
Knight Ridder, Inc.......................................... 3,000 114,750
Marriot International, Inc.................................. 13,700 756,925
Omnicom Group............................................... 19,000 869,250
Promus Hotel Corp. (b)...................................... 10,500 311,063
RAC Financial Group, Inc. (b)............................... 17,400 367,575
Scripps Co. (EW), Class A (b)............................... 5,000 175,000
Service Corp. International................................. 30,000 840,000
-----------
5,708,320
-----------
ENERGY 5.4%
Apache Corp................................................. 10,000 353,750
Baker Hughes, Inc........................................... 9,800 338,100
Exxon Corp.................................................. 6,500 637,000
Phillips Petroleum Co....................................... 16,000 708,000
Smith International, Inc. (b)............................... 19,500 875,062
Texaco, Inc................................................. 5,000 490,625
Transocean Offshore, Inc.................................... 6,000 375,750
Williams Companies, Inc..................................... 21,975 824,063
-----------
4,602,350
-----------
</TABLE>

46
See Notes to Financial Statements
<PAGE>

ENTERPRISE FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 20.0%
Aames Financial Corp........................................ 10,650 $ 382,069
Alex Brown, Inc............................................. 7,300 529,250
Bank of Boston Corp......................................... 13,000 835,250
BankAmerica Corp............................................ 10,200 1,017,450
Charles Schwab Corp......................................... 10,000 320,000
Chase Manhattan Corp........................................ 14,300 1,276,275
Citicorp.................................................... 5,100 525,300
CMAC Investment Corp........................................ 16,600 610,050
Conseco, Inc................................................ 19,100 1,217,625
Federal National Mortgage Association....................... 68,000 2,533,000
First Bank System, Inc...................................... 6,500 443,625
Green Tree Financial Corp................................... 24,500 946,312
Merrill Lynch & Co., Inc.................................... 14,645 1,193,567
MGIC Investment Corp........................................ 7,200 547,200
Money Store, Inc............................................ 15,100 417,138
Penncorp Financial Group, Inc............................... 11,800 424,800
Student Loan Marketing Association.......................... 8,900 828,813
SunAmerica, Inc............................................. 34,800 1,544,250
Travelers Group, Inc........................................ 30,000 1,361,250
-----------
16,953,224
-----------
HEALTHCARE 13.6%
Amgen, Inc. (b)............................................. 12,300 668,812
Bristol Myers Squibb Co..................................... 12,100 1,315,875
Columbia / HCA Healthcare Corp.............................. 15,000 611,250
ESC Medical Systems, Ltd. (b)............................... 8,900 226,950
Health Management Association, Inc., Class A (b)............ 18,500 416,250
Healthsouth Corp. (b)....................................... 17,900 691,387
Johnson & Johnson........................................... 23,700 1,179,075
Lincare Holdings, Inc. (b).................................. 14,000 574,000
Medtronic, Inc.............................................. 8,300 564,400
Merck & Co., Inc............................................ 18,400 1,458,200
Pfizer, Inc................................................. 14,900 1,234,837
Physician Reliance Network, Inc. (b)........................ 9,200 71,300
Renal Treatment Centers, Inc. (b)........................... 15,800 402,900
Schering Plough Corp........................................ 13,200 854,700
Universal Health Services, Inc., Class B (b)................ 13,700 392,163
Warner Lambert Co........................................... 6,000 450,000
Watson Pharmaceuticals, Inc. (b)............................ 9,800 440,388
-----------
11,552,487
-----------
PRODUCER MANUFACTURING 6.4%
Allied Signal, Inc.......................................... 6,400 428,800
Deere & Co.................................................. 14,700 597,187
Dover Corp.................................................. 12,200 613,050
Illinois Tool Workers, Inc.................................. 5,500 439,313
Textron Inc................................................. 4,500 424,125
Tyco International, Ltd..................................... 11,600 613,350
United Technologies Corp.................................... 11,600 765,600
United Waste Systems, Inc. (b).............................. 30,000 1,031,250
USA Waste Services, Inc. (b)................................ 15,400 490,875
-----------
5,403,550
-----------
</TABLE>

47
See Notes to Financial Statements
<PAGE>

ENTERPRISE FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 3.6%
Air Products & Chemicals, Inc.............................. 7,000 $ 483,875
Cytec Industries, Inc. (b)................................. 11,100 450,938
Praxair, Inc............................................... 25,700 1,185,412
Raychem Corp............................................... 8,000 641,000
Union Carbide Corp......................................... 6,200 253,425
-----------
3,014,650
-----------
TECHNOLOGY 21.8%
3Com Corp. (b)............................................. 17,300 1,269,387
ADC Telecommunications, Inc. (b)........................... 21,000 653,625
Altera Corp. (b)........................................... 5,000 363,438
Analog Devices, Inc. (b)................................... 7,500 254,063
Ascend Communications, Inc. (b)............................ 10,000 621,250
Aspect Telecommunications Corp. (b)........................ 9,700 615,950
Atmel Corp. (b)............................................ 12,000 397,500
BMC Industries, Inc........................................ 9,100 286,650
BMC Software, Inc. (b)..................................... 26,000 1,075,750
Boeing Co.................................................. 8,700 925,462
Cadence Design Systems, Inc. (b)........................... 17,000 675,750
Cisco Systems, Inc. (b).................................... 19,400 1,234,325
Compaq Computer Corp. (b).................................. 8,700 645,975
Computer Associates International, Inc..................... 14,450 718,887
Compuware Corp. (b)........................................ 5,000 250,625
DST Systems, Inc. (b)...................................... 13,900 436,112
Input/Output, Inc. (b)..................................... 6,800 125,800
Intel Corp................................................. 13,900 1,820,031
International Business Machines Corp....................... 4,200 634,200
Linear Technology Corp..................................... 7,700 337,838
Lucent Technologies, Inc................................... 7,500 346,875
Microsoft Corp. (b)........................................ 17,400 1,437,675
PairGain Technologies, Inc. (b)............................ 10,000 304,375
Sanmina Corp. (b).......................................... 10,000 565,000
SCI Systems, Inc. (b)...................................... 8,500 379,313
Sun Microsystems, Inc. (b)................................. 38,000 976,125
Tellabs, Inc. (b).......................................... 20,000 752,500
Wind River Systems, Inc. (b)............................... 7,300 345,838
-----------
18,450,319
-----------
UTILITIES 0.6%
Worldcom, Inc. (b)......................................... 20,000 521,250
-----------
TOTAL LONG-TERM INVESTMENTS 97.0%
(Cost $63,240,692) (a)........................................... 82,297,674
REPURCHASE AGREEMENT 4.1%
BA Securities ($3,470,000 par collateralized by U.S. Government
obligations in a pooled cash account,
dated 12/31/96, to be sold on 01/02/97 at $3,471,336)........... 3,470,000
LIABILITIES IN EXCESS OF OTHER ASSETS (1.1%)...................... (962,504)
-----------
NET ASSETS 100.0%................................................. $84,805,170
-----------
</TABLE>

(a) At December 31, 1996, for federal income tax purposes cost is $63,335,245,
the aggregate gross unrealized appreciation is $19,634,505 and the
aggregate gross unrealized depreciation is $672,076, resulting in net
unrealized appreciation of $18,962,429.

(b) Non-income producing security as this stock currently does not declare
dividends.

See Notes to Financial Statements

48
<PAGE>

ENTERPRISE FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $63,240,692) (Note 1). $82,297,674
Repurchase Agreement (Note 1)...................................... 3,470,000
Cash............................................................... 2,257
Receivables:
Securities Sold................................................... 690,496
Dividends......................................................... 91,618
Other.............................................................. 1,856
-----------
Total Assets...................................................... 86,553,901
-----------
LIABILITIES:
Payables:
Securities Purchased.............................................. 1,584,170
Fund Shares Repurchased........................................... 83,451
Investment Advisory Fee (Note 2).................................. 13,203
Distributor and Affiliates (Note 2)............................... 2,750
Deferred Compensation and Retirement Plans (Note 2)................ 44,929
Accrued Expenses................................................... 20,228
-----------
Total Liabilities................................................. 1,748,731
-----------
NET ASSETS......................................................... $84,805,170
-----------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................... $64,671,892
Net Unrealized Appreciation on Securities.......................... 19,056,982
Accumulated Net Realized Gain on Securities........................ 1,016,856
Accumulated Undistributed Net Investment Income.................... 59,440
-----------
NET ASSETS......................................................... $84,805,170
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
(Based on net assets of $84,805,170 and 5,214,950 shares of
beneficial interest issued and outstanding)....................... $ 16.26
-----------
</TABLE>

49
See Notes to Financial Statements
<PAGE>

ENTERPRISE FUND STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends.......................................................... $ 946,594
Interest........................................................... 99,309
-----------
Total Income...................................................... 1,045,903
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 407,693
Accounting (Note 2)................................................ 53,732
Custody............................................................ 23,024
Shareholder Services (Note 2)...................................... 15,628
Trustees Fees and Expenses (Note 2)................................ 13,897
Legal (Note 2)..................................................... 10,696
Other ............................................................. 88,143
-----------
Total Expenses.................................................... 612,813
Less Fees Waived and Expenses Reimbursed ($104,582 and $19,000,
respectively) (Note 2)............................................ 123,582
-----------
Net Expenses...................................................... 489,231
-----------
NET INVESTMENT INCOME.............................................. $ 556,672
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments................................... $ 7,574,164
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 9,274,444
End of the Period:
Investments....................................................... 19,056,982
-----------
Net Unrealized Appreciation on Securities During the Period........ 9,782,538
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... $17,356,702
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $17,913,374
-----------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 556,672 $ 1,464,956
Net Realized Gain on Securities.......... 7,574,164 10,869,574
Net Unrealized Appreciation on Securities
During the Period....................... 9,782,538 9,837,636
----------- ------------
Change in Net Assets from Operations..... 17,913,374 22,172,166
----------- ------------
Distributions from Net Investment Income. (530,417) (1,446,938)
Distributions from Net Realized Gain on
Securities (Note 1)..................... (9,089,491) (8,808,250)
----------- ------------
Total Distributions...................... (9,619,908) (10,255,188)
----------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................... 8,293,466 11,916,978
----------- ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................ 7,883,906 6,340,082
Net Asset Value of Shares Issued Through
Dividend Reinvestment.................... 9,619,909 10,255,188
Cost of Shares Repurchased............... (17,001,971) (19,974,310)
----------- ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................. 501,844 (3,379,040)
----------- ------------
TOTAL INCREASE IN NET ASSETS............. 8,795,310 8,537,938
NET ASSETS:
Beginning of the Period.................. 76,009,860 67,471,922
----------- ------------
End of the Period (Including accumulated
undistributed net investment income of
$59,440 and $33,185, respectively)...... $84,805,170 $ 76,009,860
----------- ------------
</TABLE>

50
See Notes to Financial Statements
<PAGE>

ENTERPRISE FUND
FINANCIAL HIGHLIGHTS

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

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period. $14.69 $12.39 $14.57 $14.21 $13.44
------- ------ ------- ------ ------
Net Investment Income................... .113 .32 .25 .21 .23
Net Realized and Unrealized Gain/Loss on
Securities............................. 3.417 4.22 (.7625) 1.0325 .77
------- ------ ------- ------ ------
Total from Investment Operations......... 3.530 4.54 (.5125) 1.2425 1.00
------- ------ ------- ------ ------
Less:
Distributions from Net Investment
Income.................................. .109 .3175 .25 .215 .23
Distributions from Net Realized Gain on
Securities............................. 1.849 1.9225 1.4175 .6675 -0-
------- ------ ------- ------ ------
Total Distributions...................... 1.958 2.24 1.6675 .8825 .23
------- ------ ------- ------ ------
Net Asset Value, End of the Period....... $16.262 $14.69 $12.39 $14.57 $14.21
------- ------ ------- ------ ------
Total Return*............................ 24.80% 36.98% (3.39)% 8.98% 7.48%
Net Assets at End of the Period (In
millions)................................ $84.8 $76.0 $67.5 $72.3 $65.6
Ratio of Expenses to Average Net Assets*. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average
Net Assets*.............................. .68% 2.06% 1.72% 1.41% 1.78%
Portfolio Turnover....................... 152% 145% 153% 139% 116%
Average Commission Paid per Equity Share
Traded (a)............................... $.0435 -- -- -- --
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.. .75% .68% .68% .72% .74%
Ratio of Net Investment Income to Average
Net Assets............................... .53% 1.98% 1.64% 1.29% 1.64%
</TABLE>
(a) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
See Notes to Financial Statements

51
<PAGE>

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK & EQUIVALENTS 95.0%
AUSTRIA 4.2%
Flughafen Wien............................................. 300 $ 15,293
Scala ECE (b).............................................. 200 27,797
Slovakofarma (b)........................................... 300 39,710
Wolford.................................................... 200 24,195
----------
106,995
----------
CROATIA 0.3%
Pliva d.d. (GDR) (b)....................................... 168 8,820
----------
CZECH REPUBLIC 4.8%
Ceske Radiokomunikace (b).................................. 500 70,228
Inzenyrske a Prumyslove Stavby Praha (b)................... 2,200 23,458
Komercni Banka (GDR) (b)................................... 1,000 26,600
----------
120,286
----------
FRANCE 5.9%
Adecco SA.................................................. 102 25,812
Cap Gemini Sogeti (b)...................................... 500 24,178
Christian Dior SA.......................................... 280 45,169
Cie De St. Gobain.......................................... 200 28,293
Compagnie Financiere de Paris (GDR)........................ 600 18,150
Sidel SA (b)............................................... 120 8,257
----------
149,859
----------
GERMANY 3.7%
Adidas AG.................................................. 500 43,215
Deutsche Telekom (b)....................................... 1,000 21,088
SAP AG..................................................... 200 27,944
----------
92,247
----------
HONG KONG 1.6%
First Pacific Co........................................... 7,000 9,096
Henderson Land Development................................. 1,000 10,085
Jilin Chemical Industries, Class H (b)..................... 70,000 10,860
Swire Pacific.............................................. 1,000 9,535
----------
39,576
----------
HUNGARY 3.1%
Graboplast Textiles........................................ 1,000 33,828
Tiszai Vegyi Kombinat (GDR) (b)............................ 4,000 44,800
----------
78,628
----------
INDONESIA 0.5%
BK Bira.................................................... 10,000 11,854
----------
IRELAND 1.5%
Adare Printing Group....................................... 2,000 19,188
Bank of Ireland............................................ 2,000 18,263
----------
37,451
----------
ITALY 4.6%
Bulgari SpA................................................ 2,000 40,606
Gucci Group................................................ 875 55,891
Mediolanum SpA (b)......................................... 2,000 18,932
----------
115,429
----------
JAPAN 10.5%
Bank of Tokyo.............................................. 1,600 29,704
Fuji Photo Film Co......................................... 1,000 32,985
Honda Motor Co............................................. 1,000 28,581
Japan Radio Co............................................. 1,000 10,707
Kawasaki Heavy Industries.................................. 6,000 24,817
</TABLE>

52
See Notes to Financial Statements
<PAGE>

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Matsushita Electric Industries............................. 1,000 $ 16,320
Mitsubishi Chemical........................................ 4,000 12,952
Mitsubishi Estate.......................................... 2,000 20,551
Nichiei Construction....................................... 2,000 13,850
Nomura Securities.......................................... 1,000 15,025
NTT Data Communications Systems............................ 1 29,272
Takashimaya Co............................................. 1,000 12,002
Toshiba Corp............................................... 3,000 18,858
----------
265,624
----------
MALAYSIA 0.8%
Jaya Tiasa Holdings........................................ 2,000 10,612
Metacorp Berhad............................................ 4,000 10,216
----------
20,828
----------
MEXICO 1.4%
Cemex SA (ADR)............................................. 1,100 8,456
Empresas ICA Sociedad Controladora (ADR) (b)............... 1,000 14,625
Telefonos de Mexico (ADR).................................. 400 13,200
----------
36,281
----------
NETHERLANDS 6.2%
ASM Lithography Holding (b)................................ 400 19,994
Cap Gemini Group........................................... 1,000 29,076
ING Groep.................................................. 1,100 39,629
PolyGram................................................... 500 25,485
Ver Ned Uitgevers.......................................... 2,000 41,819
----------
156,003
----------
NORWAY 3.4%
Tandberg (b)............................................... 1,000 30,886
Uni-Storebrand ASA (b)..................................... 5,500 31,584
VISMA...................................................... 4,500 23,048
----------
85,518
----------
POLAND 0.6%
Bank Gdanski SA (GDR)...................................... 1,000 12,520
Krosno SA.................................................. 71 1,362
----------
13,882
----------
SINGAPORE 1.0%
Fraser & Neave............................................. 1,400 14,407
Singapore Land............................................. 2,000 11,077
----------
25,484
----------
SWEDEN 2.7%
Astra, Class B............................................. 800 38,593
Nobel Biocare.............................................. 1,600 28,153
----------
66,746
----------
SWITZERLAND 3.0%
Adecco SA.................................................. 100 25,103
Novartis AG (b)............................................ 21 24,430
Schweizerischer Bankverein................................. 140 26,619
----------
76,152
----------
THAILAND 0.1%
Thai Military Bank PLC..................................... 1,100 2,166
----------
UNITED KINGDOM 7.9%
Astec (BSR)................................................ 10,000 26,884
BOC Group.................................................. 1,000 14,973
</TABLE>

53
See Notes to Financial Statements
<PAGE>

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Boots Co................................................... 2,000 $ 20,627
Carlton Communications..................................... 3,000 26,294
Dixons Group............................................... 4,000 37,211
Marks & Spencer............................................ 2,800 23,601
National Westminster Bank.................................. 2,000 23,505
Reuters Holdings........................................... 2,000 25,715
----------
198,810
----------
UNITED STATES 27.2%
Aames Financial Corp....................................... 150 5,381
AccuStaff, Inc. (b)........................................ 107 2,260
ADC Telecommunications, Inc. (b)........................... 140 4,357
Air Products & Chemicals, Inc.............................. 70 4,839
Alex Brown, Inc............................................ 70 5,075
Allied Signal, Inc......................................... 60 4,020
Amgen, Inc. (b)............................................ 120 6,525
Apache Corp................................................ 70 2,476
Ascend Communications, Inc. (b)............................ 50 3,106
Aspect Telecommunications Corp. (b)........................ 70 4,445
Atmel Corp. (b)............................................ 100 3,312
Baker Hughes, Inc.......................................... 70 2,415
Bank of Boston Corp........................................ 90 5,782
BankAmerica Corp........................................... 70 6,982
Bed Bath & Beyond, Inc. (b)................................ 150 3,637
BMC Industries, Inc........................................ 70 2,205
BMC Software, Inc. (b)..................................... 200 8,275
Boeing Co.................................................. 50 5,319
Boston Chicken, Inc. (b)................................... 70 2,511
Bristol-Myers Squibb Co.................................... 90 9,787
Cadence Design Systems, Inc. (b)........................... 110 4,372
Chase Manhattan Corp. (c).................................. 120 10,710
Chrysler Corp.............................................. 100 3,300
Cisco Systems, Inc. (b)(c)................................. 190 12,089
Citicorp................................................... 50 5,150
CMAC Investment Corp....................................... 140 5,145
Columbia / HCA Healthcare Corp............................. 100 4,075
Compaq Computer Corp. (b).................................. 50 3,712
CompUSA, Inc. (b).......................................... 140 2,887
Computer Associates International, Inc..................... 200 9,950
Compuware Corp. (b)........................................ 50 2,506
Conseco, Inc............................................... 150 9,563
Cytec Industries, Inc. (b)................................. 220 8,938
Deere & Co................................................. 70 2,844
Dover Corp................................................. 70 3,518
DST Systems, Inc. (b)...................................... 70 2,196
Equifax, Inc............................................... 180 5,513
Evergreen Media Corp., Class A (b)......................... 220 5,500
Exxon Corp................................................. 60 5,975
Federal National Mortgage Association (b)(c)............... 590 21,978
First Bank System, Inc..................................... 50 3,413
Gap, Inc................................................... 120 3,615
General Nutrition Cos., Inc. (b)........................... 150 2,531
Green Tree Financial Corp. (c)............................. 260 10,043
</TABLE>

54
See Notes to Financial Statements
<PAGE>

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Harley-Davidson, Inc....................................... 70 $ 3,290
Health Management Associates, Inc., Class A (b)............ 190 4,275
Healthsouth Corp. (b)...................................... 150 5,794
Illinois Tool Workers, Inc................................. 70 5,591
Input/Output, Inc. (b)..................................... 70 1,295
Intel Corp. (c)............................................ 130 17,022
International Business Machines............................ 30 4,530
Johnson & Johnson.......................................... 175 8,706
Kroger Co. (b)............................................. 150 6,975
Lear Corp. (b)............................................. 70 2,389
Lincare Holdings, Inc. (b)................................. 150 6,150
Liz Claiborne, Inc......................................... 125 4,828
Lowe's Co., Inc............................................ 75 2,663
Lucent Technologies, Inc................................... 70 3,238
Marriott International, Inc................................ 150 8,288
Medtronic, Inc............................................. 70 4,760
Merck & Co., Inc. (c)...................................... 150 11,888
Merrill Lynch & Co., Inc. (c).............................. 125 10,188
Metalclad Corp. (b)........................................ 3,000 5,437
MGIC Investment Corp....................................... 70 5,320
Microsoft Corp. (b)(c)..................................... 120 9,915
Money Store, Inc........................................... 150 4,144
Nautica Enterprises, Inc. (b).............................. 150 3,788
Nike, Inc., Class B........................................ 50 2,988
Omnicom Group, Inc......................................... 150 6,863
PairGain Technologies, Inc. (b)............................ 100 3,044
Penncorp Financial Group, Inc.............................. 110 3,960
Pfizer, Inc................................................ 120 9,945
Philip Morris Cos., Inc. (c)............................... 325 36,603
Phillips Petroleum Co...................................... 110 4,868
Physician Reliance Network, Inc. (b)....................... 150 1,163
Praxair, Inc. (c).......................................... 220 10,148
Procter & Gamble Co........................................ 40 4,300
Promus Hotel Corp. (b)..................................... 70 2,074
RAC Financial Group, Inc. (b).............................. 140 2,958
Raychem Corp............................................... 70 5,609
Renal Treatment Centers, Inc. (b).......................... 150 3,825
RJR Nabisco Holdings Corp.................................. 170 5,756
Ross Stores, Inc........................................... 70 3,500
Safeway, Inc. (b)(c)....................................... 330 14,108
Sanmina Corp. (b).......................................... 70 3,955
Schering-Plough Corp....................................... 100 6,475
Schwab (Charles) Corp...................................... 100 3,200
SCI Systems, Inc. (b)...................................... 70 3,124
Scripps Howard, Inc., Class A.............................. 50 1,750
Service Corp. International................................ 300 8,400
Smith International, Inc. (b).............................. 150 6,731
Student Loan Marketing Association......................... 70 6,519
Sun Microsystems, Inc. (b)................................. 300 7,706
SunAmerica, Inc. (c)....................................... 300 13,313
Tellabs, Inc. (b).......................................... 250 9,406
Texaco, Inc................................................ 70 6,869
</TABLE>

55
See Notes to Financial Statements
<PAGE>

GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

(a) At December 31, 1996, for federal income tax purposes cost is $2,125,213,
the aggregate gross unrealized appreciation is $488,693 and the aggregate
gross unrealized depreciation is $90,784, resulting in net unrealized
appreciation of $397,909.

(b) Non-income producing security as this stock currently does not declare
dividends.

56
See Notes to Financial Statements
<PAGE>

GLOBAL EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $2,034,679) (Note 1).. $2,430,947
Foreign Currency, at Market Value (Cost $90,172) (Note 1).......... 92,175
Cash............................................................... 21,012
Receivables:
Dividends......................................................... 3,484
Securities Sold................................................... 3,452
Interest.......................................................... 27
Unamortized Organizational Expenses (Note 1)....................... 4,770
----------
Total Assets...................................................... 2,555,867
----------
LIABILITIES:
Payables:
Securities Purchased.............................................. 13,483
Distributor and Affiliates (Note 2)............................... 3,050
Fund Shares Repurchased........................................... 991
Accrued Expenses................................................... 15,172
Deferred Compensation and Retirement Plans (Note 2)................ 4,642
Forward Currency Contracts (Note 5)................................ 1,505
----------
Total Liabilities................................................. 38,843
----------
NET ASSETS......................................................... $2,517,024
----------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................... $2,102,301
Net Unrealized Appreciation on Securities.......................... 396,734
Accumulated Net Realized Gain on Securities........................ 27,719
Accumulated Distributions in Excess of Net Investment Income (Note
1)................................................................. (9,730)
----------
NET ASSETS......................................................... $2,517,024
----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
(Based on net assets of $2,517,024 and 215,901 shares of
beneficial interest issued and outstanding)....................... $ 11.66
----------
</TABLE>

57
See Notes to Financial Statements
<PAGE>

GLOBAL EQUITY FUND
STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $4,658)................ $ 38,087
Interest.............................................................. 3,720
--------
Total Income......................................................... 41,807
--------
EXPENSES:
Custody and Accounting................................................ 116,865
Investment Advisory Fee (Note 2)...................................... 28,416
Audit................................................................. 18,897
Shareholder Services (Note 2)......................................... 15,384
Printing.............................................................. 15,219
Trustees Fees and Expenses (Note 2)................................... 8,980
Legal (Note 2)........................................................ 5,843
Amortization of Organizational Expenses (Note 1)...................... 1,369
Other ................................................................ 265
--------
Total Expenses....................................................... 211,238
Less Fees Waived and Expenses Reimbursed ($28,416 and $148,723,
respectively) (Note 2)............................................... 177,139
--------
Net Expenses......................................................... 34,099
--------
NET INVESTMENT INCOME................................................. $ 7,708
--------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments.......................................................... $ 73,020
Forward Currency Contracts........................................... 34,640
--------
Net Realized Gain on Securities....................................... 107,660
--------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.............................................. 102,678
--------
End of the Period:
Investments.......................................................... 396,268
Forward Currency Contracts........................................... (1,505)
Foreign Currency Translation......................................... 1,971
--------
396,734
--------
Net Unrealized Appreciation on Securities During the Period........... 294,056
--------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES........................ $401,716
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS............................ $409,424
--------
</TABLE>

58
See Notes to Financial Statements
<PAGE>

GLOBAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS

For the Year Ended December 31, 1996 and the Period July 3, 1995 (Commencement
of Investment Operations) to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income/Loss.............. $ 7,708 $ (30,335)
Net Realized Gain/Loss on Securities.... 107,660 (6,056)
Net Unrealized Appreciation on
Securities During the Period........... 294,056 102,678
---------- ----------
Change in Net Assets from Operations.... 409,424 66,287
---------- ----------
Distributions from Net Investment
Income.................................. (7,708) -0-
Distributions in Excess of Net
Investment Income (Note 1).............. (32,197) -0-
---------- ----------
Distributions from and in Excess of Net
Investment Income....................... (39,905) -0-
Distributions from Net Realized Gain on
Securities (Note 1)..................... (37,458) -0-
---------- ----------
Total Distributions..................... (77,363) -0-
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.............................. 332,061 66,287
---------- ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............... 1,241,023 2,319,291
Net Asset Value of Shares Issued through
Dividend Reinvestment................... 42,743 -0-
Cost of Shares Repurchased.............. (1,473,972) (10,509)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................ (190,206) 2,308,782
---------- ----------
TOTAL INCREASE IN NET ASSETS............ 141,855 2,375,069
NET ASSETS:
Beginning of the Period................. 2,375,169 100
---------- ----------
End of the Period (Including accumulated
distributions in excess of net
investment income of $9,730 and
$12,173, respectively)................. $2,517,024 $2,375,169
---------- ----------
</TABLE>

FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the
Fundoutstanding throughout the periods indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year of Investment
Ended Operations)
December 31, to December
1996 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period......... $10.30 $10.00
------- ------
Net Investment Income/Loss...................... .035 (.16)
Net Realized and Unrealized Gain on Securities.. 1.687 .46
------- ------
Total from Investment Operations................. 1.722 .30
------- ------
Less:
Distributions from and in Excess of Net
Investment Income............................... .188 -0-
Distributions from Net Realized Gain on
Securities...................................... .176 -0-
------- ------
Total Distributions.............................. .364 -0-
------- ------
Net Asset Value, End of the Period............... $11.658 $10.30
------- ------
Total Return*.................................... 16.72% 3.00%**
Net Assets at End of the Period (In millions).... $2.5 $2.4
Ratio of Expenses to Average Net Assets*......... 1.20% 4.35%
Ratio of Net Investment Income/Loss to Average
Net Assets*...................................... .27% (2.76%)
Portfolio Turnover............................... 94% 42%**
Average Commission Rate per Equity Share Traded
(a).............................................. $.0245 --
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.......... 7.43% 8.27%
Ratio of Net Investment Loss to Average Net
Assets........................................... (5.96%) (6.68%)
</TABLE>
**Non-Annualized
(a) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.

59
See Notes to Financial Statements
<PAGE>

GOVERNMENT FUND PORTFOLIO OF INVESTMENTS

December 31, 1996

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT
AGENCY OBLIGATIONS 67.6%
$2,399 Federal Home Loan Mortgage
Corp. CMO................. 6.088% 11/15/18 $ 2,341,379
2,603 Federal Home Loan Mortgage
Corp. Gold 30 Year Pool
(b)....................... 7.000 05/01/24 to 07/01/24 2,554,113
1,479 Federal Home Loan Mortgage
Corp. Gold 30 Year Pool
(b)....................... 7.500 06/01/24 to 10/01/24 1,479,908
1,507 Federal Home Loan Mortgage
Corp. Gold 30 Year Pool... 8.000 09/01/24 to 10/01/24 1,535,527
1,985 Federal National Mortgage
Association Var Rate Cpn
(b)....................... 6.149 03/25/09 1,986,364
2,066 Federal National Mortgage
Association CMO Var Rate
Cpn....................... 6.169 03/25/09 2,071,656
1,943 Federal National Mortgage
Association 15 Year Dwarf
Pool...................... 6.500 06/01/09 to 04/01/11 1,907,791
1,980 Federal National Mortgage
Association 15 Year Dwarf
Pool...................... 7.000 07/01/10 to 12/01/11 1,979,387
997 Federal National Mortgage
Association Pool.......... 6.500 03/01/26 to 05/01/26 950,350
1,781 Federal National Mortgage
Association Pool.......... 7.000 12/01/23 to 06/01/24 1,743,821
1,638 Federal National Mortgage
Association Pool.......... 7.500 05/01/24 to 10/01/24 1,636,947
744 Federal National Mortgage
Association Pool.......... 8.000 06/01/24 to 10/01/24 757,678
1,985 Federal National Mortgage
Association Pool (b)...... 9.000 02/01/17 2,112,158
1,134 Federal National Mortgage
Association Pool.......... 11.000 11/01/20 1,257,610
6,355 Government National
Mortgage Association Pool. 7.000 04/15/23 to 10/15/24 6,214,371
2,195 Government National
Mortgage Association Pool. 7.500 04/15/22 to 06/15/24 2,195,812
2,855 Government National
Mortgage Association Pool. 8.000 05/15/17 to 11/15/24 2,913,926
2,632 Government National
Mortgage Association Pool
(b)....................... 8.500 03/15/17 to 07/15/17 2,770,516
240 Government National
Mortgage Association Pool. 11.000 09/15/10 to 08/15/20 267,934
-----------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS...... 38,677,248
-----------
UNITED STATES TREASURY
OBLIGATIONS 26.8%
1,000 United States Treasury
Notes (b)................. 5.000 02/15/99 982,030
2,000 United States Treasury
Notes (b)................. 5.625 02/15/06 1,893,760
3,000 United States Treasury
Notes (b)................. 6.750 05/31/99 3,052,020
4,000 United States Treasury
Notes (b)................. 7.750 11/30/99 4,180,640
1,000 United States Treasury
Notes (b)................. 7.875 04/15/98 1,025,780
4,000 United States Treasury
Notes (b)................. 8.000 08/15/99 to 05/15/01 4,235,020
-----------
TOTAL UNITED STATES TREASURY OBLIGATIONS............... 15,369,250
-----------
OTHER MORTGAGE-BACKED
SECURITIES 1.3%
720 FBC Mortgage Securities
Trust 7 Var Rate Cpn...... 5.963 01/25/17 720,361
-----------
FORWARD PURCHASE COMMITMENT 3.7%
2,000 Government National
Mortgage Association,
January Forward........... 9.000 TBA 2,141,260
-----------
TOTAL LONG-TERM INVESTMENTS 99.4%
(Cost $56,238,811) (a)....................................... 56,908,119
SHORT-TERM INVESTMENTS AT AMORTIZED COST 4.1%
Federal Home Loan Mortgage Corp. Discount Note ($2,325,000
par yielding 6.502%, maturity 01/02/97)...................... 2,324,160
LIABILITIES IN EXCESS OF OTHER ASSETS (3.5%).................. (1,977,897)
-----------
NET ASSETS 100.0%............................................. $57,254,382
-----------
</TABLE>

(a) At December 31, 1996, for federal income tax purposes cost is $56,242,249,
the gross unrealized appreciation is $833,009 and the gross unrealized
depreciation is $191,607, resulting in net unrealized appreciation
including open forward commitments of $641,402.

(b) Assets segregated as collateral for open forward commitments and open
futures transactions.

TBA--To be announced, maturity date has not yet been established. Upon
settlement and delivery of the mortgage pools, maturity dates will be
assigned.

60
See Notes to Financial Statements
<PAGE>

GOVERNMENT FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $56,238,811) (Note
1)................................................................ $56,908,119
Short-Term Investments (Note 1)................................... 2,324,160
Cash.............................................................. 2,070
Interest Receivable............................................... 460,013
Other............................................................. 14,566
-----------
Total Assets..................................................... 59,708,928
-----------
LIABILITIES:
Payables:
Securities Purchased............................................. 2,156,057
Variation Margin on Futures (Note 5)............................. 143,170
Fund Shares Repurchased.......................................... 32,974
Forward Commitments (Note 6)..................................... 24,468
Distributor and Affiliates (Note 2).............................. 2,650
Deferred Compensation and Retirement Plans (Note 2)............... 41,849
Accrued Expenses.................................................. 53,378
-----------
Total Liabilities................................................ 2,454,546
-----------
NET ASSETS........................................................ $57,254,382
-----------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $70,107,395
Net Unrealized Appreciation on Securities......................... 446,722
Accumulated Distributions in Excess of Net Investment Income (Note
1)................................................................ (11,355)
Accumulated Net Realized Loss on Securities....................... (13,288,380)
-----------
NET ASSETS........................................................ $57,254,382
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
(Based on net assets of $57,254,382 and 6,606,459 shares of
beneficial interest issued and outstanding)...................... $ 8.67
-----------
</TABLE>

61
See Notes to Financial Statements
<PAGE>

GOVERNMENT FUND STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $ 4,347,277
-----------
EXPENSES:
Investment Advisory Fee (Note 2).................................. 303,695
Accounting Services (Note 2)...................................... 55,531
Shareholder Services (Note 2)..................................... 15,421
Trustees Fees and Expenses (Note 2)............................... 12,119
Legal (Note 2).................................................... 9,843
Custody........................................................... 8,206
Other ............................................................ 82,093
-----------
Total Expenses................................................... 486,908
Less Fees Waived and Expenses Reimbursed ($103,474 and $19,000,
respectively) (Note 2)........................................... 122,474
-----------
Net Expenses..................................................... 364,434
-----------
NET INVESTMENT INCOME............................................. $ 3,982,843
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments...................................................... $ (703,703)
Futures.......................................................... (103,280)
Forward Commitments.............................................. (86,987)
-----------
Net Realized Loss on Securities................................... (893,970)
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.......................................... 2,397,568
-----------
End of the Period:
Investments...................................................... 669,308
Futures.......................................................... (198,118)
Forward Commitments.............................................. (24,468)
-----------
446,722
-----------
Net Unrealized Depreciation on Securities During the Period....... (1,950,846)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.................... $(2,844,816)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $ 1,138,027
-----------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 3,982,843 $ 4,592,403
Net Realized Gain/Loss on Securities..... (893,970) 1,258,015
Net Unrealized Appreciation/Depreciation
on Securities During the Period......... (1,950,846) 4,705,976
----------- -----------
Change in Net Assets from Operations..... 1,138,027 10,556,394
----------- -----------
Distributions from Net Investment Income. (3,998,258) (4,588,452)
Distributions in Excess of Net Investment
Income (Note 1)......................... (25,823) -0-
----------- -----------
Distributions from and in Excess of Net
Investment Income....................... (4,024,081) (4,588,452)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................... (2,886,054) 5,967,942
----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................ 1,607,635 2,668,721
Net Asset Value of Shares Issued Through
Dividend Reinvestment.................... 4,024,080 4,588,452
Cost of Shares Repurchased............... (12,510,487) (11,719,168)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................. (6,878,772) (4,461,995)
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS.... (9,764,826) 1,505,947
NET ASSETS:
Beginning of the Period.................. 67,019,208 65,513,261
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of
$(11,355) and $15,415, respectively).... $57,254,382 $67,019,208
----------- -----------
</TABLE>

See Notes to Financial Statements

62
<PAGE>

GOVERNMENT FUND FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of the
Fundoutstanding throughout the periods indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.. $9.06 $8.28 $9.26 $9.13 $9.29
------ ------ ------ ----- ------
Net Investment Income.................... .569 .60 .56 .57 .665
Net Realized and Unrealized Gain/Loss on
Securities.............................. (.388) .78 (.985) .135 (.1575)
------ ------ ------ ----- ------
Total from Investment Operations.......... .181 1.38 (.425) .705 .5075
Less Distributions from and in Excess of
Net Investment Income (Note 1)............ .575 .60 .555 .575 .6675
------ ------ ------ ----- ------
Net Asset Value, End of the Period........ $8.666 $9.06 $8.28 $9.26 $9.13
------ ------ ------ ----- ------
Total Return*............................. 2.12% 17.17% (4.63%) 7.86% 5.73%
Net Assets at End of the Period (In
millions)................................. $57.3 $67.0 $65.5 $80.6 $74.8
Ratio of Expenses to Average Net Assets*.. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average
Net Assets*............................... 6.56% 6.89% 6.71% 6.45% 7.29%
Portfolio Turnover........................ 143% 164% 192% 91% 36%
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets... .80% .72% .70% .70% .70%
Ratio of Net Investment Income to Average
Net Assets................................ 6.36% 6.77% 6.61% 6.35% 7.19%
</TABLE>

63
See Notes to Financial Statements
<PAGE>

GROWTH AND INCOME FUND PORTFOLIO OF INVESTMENTS

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 98.7%
CONSUMER DISTRIBUTION 5.4%
Dayton Hudson Corp......................................... 110 $ 4,318
Federated Department Stores, Inc. (b)...................... 260 8,873
Gymboree Corp. (b)......................................... 70 1,601
Revco D.S., Inc. (b)....................................... 40 1,480
Sears Roebuck & Co......................................... 60 2,768
Talbots, Inc............................................... 100 2,863
Toys R Us, Inc. (b)........................................ 60 1,800
Vons Companies, Inc. (b)................................... 50 2,994
--------
26,697
--------
CONSUMER DURABLES 1.9%
Eastman Kodak Co........................................... 40 3,210
Masco Corp................................................. 100 3,600
Newell Co.................................................. 90 2,835
--------
9,645
--------
CONSUMER NON-DURABLES 9.0%
Adidas AGS (Germany)....................................... 100 4,263
American Brands, Inc....................................... 80 3,970
Campbell Soup Co........................................... 30 2,408
Colgate Palmolive Co....................................... 40 3,690
Nabisco Holdings Corp., Class A............................ 140 5,443
Philip Morris Companies, Inc............................... 100 11,259
Procter & Gamble Co........................................ 30 3,225
Quaker Oats Co............................................. 80 3,050
Ralston Purina Group....................................... 30 2,201
RJR Nabisco Holdings Corp.................................. 160 5,440
--------
44,949
--------
CONSUMER SERVICES 3.2%
Cognizant Corp............................................. 40 1,320
Deluxe Corp................................................ 70 2,293
H&R Block, Inc............................................. 90 2,610
Omnicom Group.............................................. 70 3,203
Time Warner, Inc........................................... 50 1,875
Tribune Co................................................. 30 2,366
Walt Disney Co............................................. 30 2,089
--------
15,756
--------
ENERGY 9.2%
Apache Corp................................................ 70 2,476
Burlington Resources, Inc.................................. 80 4,030
Coastal Corp............................................... 50 2,444
Exxon Corp................................................. 25 2,450
Royal Dutch Petroleum Co.--ADR (Netherlands)............... 50 8,538
Texaco, Inc................................................ 160 15,695
Unocal Corp................................................ 160 6,500
USX-Marathon Group......................................... 150 3,581
--------
45,714
--------
</TABLE>

64
See Notes to Financial Statements
<PAGE>

GROWTH AND INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 17.9%
Aetna, Inc.................................................. 45 $ 3,600
Allstate Corp............................................... 100 5,788
American International Group, Inc........................... 60 6,495
BankAmerica Corp............................................ 110 10,973
Bankers Trust Corp.......................................... 50 4,313
Chase Manhattan Corp........................................ 60 5,355
Comerica, Inc............................................... 70 3,666
Conseco, Inc................................................ 50 3,188
Everest Reinsurance Holdings................................ 130 3,738
Federal National Mortgage Association....................... 210 7,823
First Bank System, Inc...................................... 50 3,413
First Union Corp............................................ 30 2,220
Horace Mann Educators Corp.................................. 80 3,230
J.P. Morgan & Co., Inc...................................... 50 4,881
MBIA, Inc................................................... 40 4,050
NationsBank Corp............................................ 30 2,933
Student Loan Marketing Association.......................... 60 5,588
Travelers Group, Inc........................................ 110 4,991
USF&G Corp.................................................. 150 3,131
--------
89,376
--------
HEALTHCARE 11.6%
Abbott Labs................................................. 110 5,583
Amgen, Inc. (b)............................................. 70 3,806
Bristol Myers Squibb Co..................................... 60 6,525
Glaxo Wellcome--ADR (United Kingdom)........................ 160 5,080
Merck & Co., Inc............................................ 80 6,340
Nellcor Puitan Bennett, Inc. (b)............................ 60 1,313
Novartis AG--ADR (Switzerland) (b).......................... 100 5,700
Pacificare Health Sysem, Inc., Class B (b).................. 60 5,115
SmithKline Beecham--ADR (United Kingdom).................... 110 7,480
Teva Pharmaceutical Industries Ltd.--ADR (Israel)........... 60 3,015
Warner Lambert Co........................................... 70 5,250
Watsons Pharmaceuticals, Inc. (b)........................... 60 2,696
--------
57,903
--------
PRODUCER MANUFACTURING 8.5%
Allied Signal, Inc.......................................... 100 6,700
Canadian Pacific Ltd........................................ 260 6,890
General Electric Co......................................... 50 4,944
Honeywell, Inc.............................................. 80 5,260
Ingersoll Rand Co........................................... 110 4,895
Johnson Controls, Inc....................................... 40 3,315
Keystone International, Inc................................. 60 1,208
Stewart & Stevenson Services, Inc........................... 160 4,660
WMX Technologies, Inc....................................... 140 4,568
--------
42,440
--------
RAW MATERIALS/PROCESSING INDUSTRIES 4.9%
Betzdearborn, Inc........................................... 60 3,510
Crown Cork & Seal, Inc...................................... 160 8,700
James River Corp............................................ 90 2,981
Monsanto Co................................................. 40 1,555
Morton International, Inc................................... 60 2,445
Praxair, Inc................................................ 110 5,074
--------
24,265
--------
</TABLE>

65
See Notes to Financial Statements
<PAGE>

GROWTH AND INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 15.4%
3Com Corp. (b)............................................. 90 $ 6,604
BMC Software, Inc. (b)..................................... 120 4,965
Boeing Co.................................................. 60 6,383
Cisco Systems, Inc. (b).................................... 60 3,818
Computer Associates International, Inc..................... 120 5,970
Ericsson (LM) Class B--ADR (Sweden)........................ 140 4,226
General Instruments Corp. (b).............................. 170 3,676
General Signal Corp........................................ 100 4,275
Hewlett Packard Co......................................... 40 2,010
Intel Corp................................................. 50 6,547
International Business Machines, Inc....................... 40 6,040
Linear Technology Corp..................................... 50 2,194
Lucent Technologies, Inc................................... 90 4,163
Microsoft Corp. (b)........................................ 50 4,131
Newbridge Networks Corp. (b)............................... 150 4,238
Nokia Corp.--ADR (Finland)................................. 80 4,610
Tellabs, Inc. (b).......................................... 80 3,010
--------
76,860
--------
TRANSPORTATION 1.5%
Canadian National Railway Co............................... 120 4,560
Union Pacific Corp......................................... 50 3,006
--------
7,566
--------
UTILITIES 10.2%
Allegheny Power Systems, Inc. ............................. 70 2,126
AT&T Corp. ................................................ 350 15,220
Boston Edison Co. ......................................... 120 3,225
Cable & Wireless--ADR (United Kingdom)..................... 110 2,709
Cincinnati Bell, Inc. ..................................... 70 4,314
DTE Energy Co. ............................................ 220 7,123
Edison International....................................... 130 2,584
Frontier Corp. ............................................ 120 2,715
Houston Industries, Inc. .................................. 60 1,358
Nipsco Industries, Inc. ................................... 10 396
Ohio Edison Co. ........................................... 150 3,413
Scana Corp. ............................................... 90 2,408
Unicom Corp. .............................................. 110 2,984
--------
50,575
--------
TOTAL LONG-TERM INVESTMENTS 98.7%
(Cost $493,716) (a).............................................. 491,746
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%........................ 6,756
--------
NET ASSETS 100.0%................................................. $498,502
--------
</TABLE>

(a) At December 31, 1996, for federal income tax purposes cost is $493,716,
the aggregate gross unrealized appreciation is $5,528 and the aggregate
gross unrealized depreciation is $7,498, resulting in net unrealized
depreciation of $1,970.

(b) Non-income producing security as this stock currently does not declare
dividends.

66
See Notes to Financial Statements
<PAGE>

GROWTH AND INCOME FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $493,716) (Note 1)...... $491,746
Cash................................................................. 22,120
Receivables:
Securities Sold..................................................... 1,699
Dividends........................................................... 363
--------
Total Assets........................................................ 515,928
--------
LIABILITIES:
Payable for Securities Purchased..................................... 17,333
Accrued Expenses..................................................... 93
--------
Total Liabilities................................................... 17,426
--------
NET ASSETS........................................................... $498,502
--------
NET ASSETS CONSIST OF:
Capital (Note 3)..................................................... $500,000
Accumulated Undistributed Net Investment Income...................... 553
Accumulated Net Realized Loss on Securities.......................... (81)
Net Unrealized Depreciation on Securities............................ (1,970)
--------
NET ASSETS........................................................... $498,502
--------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE (Based
on net assets of $498,502 and 50,000 shares of
beneficial interest issued and outstanding)......................... $ 9.97
--------
</TABLE>
See Notes to Financial Statements

67
<PAGE>

GROWTH AND INCOME FUND STATEMENT OF OPERATIONS

For the Period December 23, 1996 (Commencement of Investment Operations) to
December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................. $ 363
Interest.............................................................. 283
-------
Total Income......................................................... 646
-------
EXPENSES:
Audit................................................................. 5,000
Printing.............................................................. 200
Registration.......................................................... 160
Custody............................................................... 150
Investment Advisory Fee (Note 2)...................................... 74
Other................................................................. 100
-------
Total Expenses....................................................... 5,684
Less Fees Waived and Expenses Reimbursed ($74 and $5,517,
respectively) (Note 2)............................................... 5,591
-------
Net Expenses......................................................... 93
-------
NET INVESTMENT INCOME................................................. $ 553
-------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Loss on Investments...................................... $ (81)
-------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.............................................. 0
End of the Period:
Investments.......................................................... (1,970)
-------
Net Unrealized Depreciation on Securities During the Period........... (1,970)
-------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES........................ $(2,051)
-------
NET DECREASE IN NET ASSETS FROM OPERATIONS............................ $(1,498)
-------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the Period December 23, 1996 (Commencement of Investment Operations) to
December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
December 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income ...................................... $ 553
Net Realized Loss on Securities............................. (81)
Net Unrealized Depreciation on Securities During the Period. (1,970)
--------
TOTAL DECREASE IN NET ASSETS................................ (1,498)
NET ASSETS:
Beginning of the Period..................................... 500,000
--------
End of the Period (Including accumulated undistributed net
investment income of $553)................................. $498,502
--------
</TABLE>

68
See Notes to Financial Statements
<PAGE>

GROWTH AND INCOME FUND FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the period indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 23, 1996
(Commencement
of Investment
Operations) to
December 31,
1996
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period.................... $10.000
--------
Net Investment Income...................................... .011
Net Realized and Unrealized
Loss on Securities........................................ (.041)
--------
Total from Investment Operations............................ (.030)
--------
Net Asset Value, End of the Period.......................... $9.970
--------
Total Return*............................................... (.30)%**
Net Assets at End of the Period (In millions)............... $0.5
Ratio of Expenses to Average Net Assets*.................... .75%
Ratio of Net Investment Income to Average Net Assets*....... 4.47%
Portfolio Turnover.......................................... 0%**
Average Commission Paid Per Equity Share Traded (a)......... $.0203
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets..................... 45.97%
Ratio of Net Investment Loss to Average Net Assets.......... (40.74)%
</TABLE>
**Non-Annualized

(a) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable.
See Notes to Financial Statements

69
<PAGE>

MONEY MARKET FUND PORTFOLIO OF INVESTMENTS

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Date of Amortized
(000) Description Maturity Purchase Cost
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS
77.5%.
$2,000 Federal Farm Credit Bank Discount
Note.................................. 01/09/97 5.387% $ 1,997,315
1,000 Federal Home Loan Bank Discount Note.. 01/06/97 5.241 999,132
1,000 Federal Home Loan Bank Discount Note.. 03/17/97 5.571 988,558
1,000 Federal Home Loan Mortgage Corp.
Discount Note......................... 01/07/97 5.304 998,981
1,000 Federal Home Loan Mortgage Corp.
Discount Note......................... 03/19/97 5.413 988,408
1,000 Federal National Mortgage Association
Discount Note......................... 01/17/97 5.379 997,507
1,000 Federal National Mortgage Association
Discount Note......................... 02/18/97 5.433 992,772
1,000 Federal National Mortgage Association
Discount Note......................... 03/06/97 5.637 990,106
1,000 Federal National Mortgage Association
Discount Note......................... 03/27/97 5.457 987,315
1,000 Federal National Mortgage Association
Discount Note......................... 06/10/97 5.281 977,012
2,260 Student Loan Marketing Association
Discount Note......................... 01/02/97 6.502 2,259,184
2,000 Tennessee Valley Authority Discount
Note.................................. 01/28/97 5.296 1,991,818
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS............... 15,168,108
-----------
COMMERCIAL PAPER 23.0%
900 Associates Corp. of North America..... 01/10/97 5.404 898,655
900 Chevron Oil Finance Corp.............. 01/06/97 5.211 899,214
900 General Electric Capital Corp......... 01/10/97 5.424 898,650
900 Metlife Funding Inc................... 02/18/97 5.376 893,483
900 Toronto Dominion Holdings............. 01/13/97 5.307 898,290
-----------
TOTAL COMMERCIAL PAPER................................. 4,488,292
-----------
TOTAL INVESTMENTS 100.5% (A).................................... 19,656,400
LIABILITIES IN EXCESS OF OTHER ASSETS (0.5%).................... (90,465)
-----------
NET ASSETS 100.0%............................................... $19,565,935
-----------
</TABLE>

(a) At December 31, 1996, cost is identical for both book and federal income
tax purposes.

70
See Notes to Financial Statements
<PAGE>

MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Amortized Cost which Approximates Market (Note 1). $19,656,400
Cash.............................................................. 3,525
Other............................................................. 18,092
-----------
Total Assets..................................................... 19,678,017
-----------
LIABILITIES:
Payables:
Fund Shares Repurchased.......................................... 49,883
Distributor and Affiliates (Note 2).............................. 2,188
Deferred Compensation and Retirement Plans (Note 2)............... 40,062
Accrued Expenses.................................................. 19,949
-----------
Total Liabilities................................................ 112,082
-----------
NET ASSETS........................................................ $19,565,935
-----------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $19,565,725
Accumulated Undistributed Net Investment Income................... 210
-----------
NET ASSETS (Equivalent to $1.00 per share for 19,565,725 shares
outstanding)...................................................... $19,565,935
-----------
</TABLE>

See Notes to Financial Statements

71
<PAGE>

MONEY MARKET FUND STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 1,002,363 $ 1,294,856
Net Realized Gain on Securities.......... 415 -0-
------------ ------------
Change in Net Assets from Operations..... 1,002,778 1,294,856
------------ ------------
Distributions from Net Investment Income. (1,001,453) (1,295,753)
Distributions from Net Realized Gain on
Securities (Note 1)..................... (415) -0-
------------ ------------
Total Distributions...................... (1,001,868) (1,295,753)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................... 910 (897)
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................ 15,915,843 10,862,643
Net Asset Value of Shares Issued Through
Dividend Reinvestment.................... 1,001,868 1,295,753
Cost of Shares Repurchased............... (18,927,603) (19,130,257)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................. (2,009,892) (6,971,861)
------------ ------------
TOTAL DECREASE IN NET ASSETS............. (2,008,982) (6,972,758)
NET ASSETS:
Beginning of the Period.................. 21,574,917 28,547,675
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$210 and $(700), respectively).......... $ 19,565,935 $ 21,574,917
------------ ------------
</TABLE>

See Notes to Financial Statements

72
<PAGE>

MONEY MARKET FUND FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of the
Fundoutstanding throughout the periods indicated.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Net Investment Income........................... .048 .0533 .0365 .0262 .0331
Less Distributions from Net Investment Income... .048 .0533 .0365 .0262 .0331
----- ----- ----- ----- -----
Net Asset Value, End of the Period.............. $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Total Return*................................... 4.89% 5.46% 3.71% 2.66% 3.36%
Net Assets at End of the Period (In millions)... $19.6 $21.6 $28.5 $30.0 $32.9
Ratio of Expenses to Average Net Assets*........ .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*......................................... 4.78% 5.33% 3.63% 2.63% 3.32%
*If certain expenses had not been assumed by
VKAC, Total Return would have
been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets......... 1.29% .93% .87% .95% .89%
Ratio of Net Investment Income to Average Net
Assets.......................................... 4.10% 5.00% 3.37% 2.28% 3.03%
</TABLE>

See Notes to Financial Statements

73
<PAGE>

REAL ESTATE SECURITIES FUND PORTFOLIO OF INVESTMENTS

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 87.5%
APARTMENTS 18.1%
Ambassador Apartments, Inc................................ 138,800 $ 3,279,150
Avalon Properties, Inc.................................... 105,900 3,044,625
Bay Apartment Communities, Inc............................ 126,500 4,554,000
BRE Properties, Inc., Class A............................. 121,100 2,997,225
Camden Property Trust..................................... 96,600 2,765,175
Columbus Realty Trust..................................... 103,900 2,363,725
Equity Residential Properties Trust....................... 94,700 3,906,375
Gables Residential Trust.................................. 98,500 2,856,500
Oasis Residential, Inc.................................... 82,600 1,879,150
Summit Properties, Inc.................................... 121,100 2,679,337
------------
30,325,262
------------
HEALTHCARE FACILITIES 3.9%
Nationwide Health Properties, Inc......................... 96,700 2,344,975
Omega Healthcare Investors................................ 128,600 4,275,950
------------
6,620,925
------------
HOTELS 9.7%
American General Hospitality Corp......................... 96,700 2,296,625
Felcor Suite Hotels, Inc.................................. 60,200 2,129,575
Innkeepers USA Trust...................................... 216,500 3,003,938
Patriot American Hospitality, Inc......................... 74,200 3,199,875
Starwood Lodging Trust.................................... 101,600 5,600,700
------------
16,230,713
------------
MANUFACTURED HOME COMMUNITIES 2.1%
Sun Communities, Inc...................................... 100,300 3,460,350
------------
NET LEASE 5.9%
Excel Realty Trust, Inc................................... 140,200 3,557,575
Franchise Finance Corp. of America........................ 125,000 3,453,125
Trinet Corporate Realty Trust, Inc........................ 81,700 2,900,350
------------
9,911,050
------------
OFFICE/INDUSTRIAL 24.0%
Arden Realty Group, Inc................................... 126,500 3,510,375
Beacon Properties Corp.................................... 98,300 3,600,237
Bedford Property Investors, Inc........................... 173,700 3,039,750
Cali Realty Corp.......................................... 137,800 4,254,575
CarrAmerica Realty Corp................................... 108,400 3,170,700
Crescent Real Estate Equities Trust....................... 75,100 3,961,525
First Industrial Realty Trust, Inc........................ 123,800 3,760,425
Highwoods Properties, Inc................................. 98,300 3,317,625
Meridan Industrial Trust, Inc............................. 118,100 2,480,100
Reckson Associates Realty Corp. .......................... 84,700 3,578,575
Security Capital Industrial Trust......................... 95,700 2,045,588
Spieker Properties, Inc. ................................. 95,700 3,445,200
------------
40,164,675
------------
SELF-STORAGE 5.2%
Public Storage, Inc. ..................................... 156,700 4,857,700
Storage Trust Realty...................................... 143,900 3,885,300
------------
8,743,000
------------
SHOPPING CENTERS 9.1%
Bradley Real Estate, Inc. ................................ 197,400 3,553,200
JDN Realty Corp. ......................................... 137,100 3,787,387
Kimco Realty Corp. ....................................... 78,200 2,727,225
</TABLE>

74
See Notes to Financial Statements
<PAGE>

REAL ESTATE SECURITIES FUND PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

(a) At December 31, 1996, for federal income tax purposes cost is $124,672,190;
the aggregate gross unrealized appreciation is $21,955,365 and the
aggregate gross unrealized depreciation is $29,427, resulting in net
unrealized appreciation of $21,925,938.

75
See Notes to Financial Statements
<PAGE>

REAL ESTATE SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $124,552,063) (Note
1)................................................................ $146,598,128
Repurchase Agreement (Note 1)..................................... 9,385,000
Cash.............................................................. 1,836
Receivables:
Fund Shares Sold................................................. 10,697,189
Dividends........................................................ 952,583
Unamortized Organizational Expenses (Note 1)...................... 5,007
------------
Total Assets..................................................... 167,639,743
------------
LIABILITIES:
Payables:
Investment Advisory Fee (Note 2)................................. 125,871
Distributor and Affiliates (Note 2).............................. 2,950
Fund Shares Repurchased.......................................... 114
Accrued Expenses.................................................. 22,194
Deferred Compensation and Retirement Plans (Note 2)............... 4,860
------------
Total Liabilities................................................ 155,989
------------
NET ASSETS........................................................ $167,483,754
------------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $144,550,380
Net Unrealized Appreciation on Securities......................... 22,046,065
Accumulated Net Realized Gain on Securities....................... 558,446
Accumulated Undistributed Net Investment Income................... 328,863
------------
NET ASSETS........................................................ $167,483,754
------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
(Based on net assets of $167,483,754 and 11,328,283 shares of
beneficial interest issued and outstanding)...................... $14.78
------------
</TABLE>

76
See Notes to Financial Statements
<PAGE>

REAL ESTATE SECURITIES FUND STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................... $ 2,436,458
Interest............................................................ 199,508
-----------
Total Income....................................................... 2,635,966
-----------
EXPENSES:
Investment Advisory Fee (Note 2).................................... 428,166
Accounting (Note 2)................................................. 44,869
Shareholder Services (Note 2)....................................... 16,205
Trustees Fees and Expenses (Note 2)................................. 9,612
Legal (Note 2)...................................................... 7,214
Custody............................................................. 2,824
Amortization of Organizational Expenses (Note 1) ................... 1,138
Other .............................................................. 31,896
-----------
Total Expenses..................................................... 541,924
Less Fees Waived (Note 2).......................................... 70,941
-----------
Net Expenses....................................................... 470,983
-----------
NET INVESTMENT INCOME............................................... $ 2,164,983
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments.................................... $ 1,465,073
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................ 332,105
End of the Period:
Investments........................................................ 22,046,065
-----------
Net Unrealized Appreciation on Securities During the Period......... 21,713,960
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES...................... $23,179,033
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......................... $25,344,016
-----------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the Year Ended December 31, 1996 and the Period July 3, 1995
(Commencement of Investment Operations) to December 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................. $ 2,164,983 $ 68,091
Net Realized Gain/Loss on Securities... 1,465,073 (32,530)
Net Unrealized Appreciation on
Securities During the Period.......... 21,713,960 332,105
------------ ----------
Change in Net Assets from Operations... 25,344,016 367,666
------------ ----------
Distributions from Net Investment
Income................................ (1,844,832) (60,786)
Distributions from Net Realized Gain on
Securities (Note 1)................... (874,097) -0-
------------ ----------
Total Distributions.................... (2,718,929) (60,786)
------------ ----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.................. 22,625,087 306,880
------------ ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.............. 178,078,191 11,796,374
Net Asset Value of Shares Issued
Through Dividend Reinvestment.......... 2,718,725 60,786
Cost of Shares Repurchased............. (44,523,570) (3,578,819)
------------ ----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS........................... 136,273,346 8,278,341
------------ ----------
TOTAL INCREASE IN NET ASSETS........... 158,898,433 8,585,221
NET ASSETS:
Beginning of the Period................ 8,585,321 100
------------ ----------
End of the Period (Including
accumulated undistributed net
investment income of $328,863 and
$8,712, respectively)................. $167,483,754 $8,585,321
------------ ----------
</TABLE>

77
See Notes to Financial Statements
<PAGE>

REAL ESTATE SECURITIES FUND FINANCIAL HIGHLIGHTS

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

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995
(Commencement of
Year Ended Investment Operations)
December 31, 1996 to December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $10.74 $10.00
------- ------
Net Investment Income.............. .217 .20
Net Realized and Unrealized Gain on
Securities........................ 4.117 .6325
------- ------
Total from Investment Operations.... 4.334 .8325
------- ------
Less:
Distributions from Net Investment
Income............................. .199 .0925
Distributions from Net Realized
Gain on Securities (Note 1)........ .091 -0-
------- ------
Total Distributions................. .290 .0925
------- ------
Net Asset Value, End of the Period.. $14.784 $10.74
------- ------
Total Return*....................... 40.53% 8.35%**
Net Assets at End of the Period (In
millions)........................... $167.5 $8.6
Ratio of Expenses to Average Net
Assets*............................. 1.10% 2.50%
Ratio of Net Investment Income to
Average Net Assets*................. 5.06% 3.75%
Portfolio Turnover.................. 84% 85%**
Average Commission Paid Per Equity
Share Traded (a).................... $.0313 --
*If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets.............................. 1.27% 2.90%
Ratio of Net Investment Income to
Average Net Assets.................. 4.89% 3.36%
</TABLE>
**Non-Annualized

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

78
See Notes to Financial Statements
<PAGE>

NOTES TO FINANCIAL STATEMENTS

December 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Life Investment Trust (the "Trust") is registered
under the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company comprised of nine Portfolios, hereafter referred
to as Funds: Asset Allocation Fund ("Asset Allocation", formerly known as Mul-
tiple Strategy Fund), Domestic Income Fund ("Domestic", formerly known as Do-
mestic Strategic Income Fund), Emerging Growth Fund ("Emerging Growth"),
Enterprise Fund ("Enterprise", formerly known as Common Stock Fund), Global Eq-
uity Fund ("Global Equity"), Government Fund ("Government"), Growth and Income
Fund ("Growth and Income"), Money Market Fund ("Money Market") and Real Estate
Securities Fund ("Real Estate") (collectively the "Funds"). Each Fund is ac-
counted for as a separate entity.
The goals of the Funds are as follows: Asset Allocation seeks a high total in-
vestment return consistent with prudent risk; Domestic seeks income as its pri-
mary objective and capital appreciation as a secondary objective; Emerging
Growth seeks capital appreciation by investing principally in common stocks of
small and medium sized companies; Enterprise seeks capital appreciation by in-
vesting principally in common stocks; Global Equity seeks long-term growth of
capital through an internationally diversified portfolio of equity securities
of any nation, including the United States; Government seeks high current re-
turn consistent with preservation of capital; Growth and Income seeks long-term
growth of capital and income by investing primarily in income-producing equity
securities including common stocks and convertible securities; Money Market
seeks protection of capital and high current income by investing in short-term
money market instruments; and Real Estate seeks long-term growth of capital by
investing principally in securities of companies operating in the real estate
industry.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. SECURITY VALUATION-Investments in securities listed on a securities exchange
are valued at their sales price as of the close of such securities exchange.
Fixed income investments are stated at value using market quotations. Unlisted
securities and listed securities for which the last sales price is not avail-
able are valued at the last bid price. For those securities where prices or
quotations are not available, valuations are determined in accordance with pro-
cedures established in good faith by the Board of Trustees. Short-term securi-
ties with remaining maturities of 60 days or less are valued at amortized cost.
For Money Market, all investments are valued at amortized cost.
Domestic's investments include lower rated and unrated debt securities which
may be more susceptible to a decline in value due to adverse economic condi-
tions than other investment grade holdings. These securities are often subordi-
nated to the prior claims of other senior lenders and uncertainties exist as to
an issuer's ability to meet principal and interest payments. Debt securities
rated below investment grade and comparable unrated securities represented ap-
proximately 41% of Domestic's net assets at December 31, 1996.

B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date ba-
sis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggre-
gate value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.

79
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees
to repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by Van Kampen American Capital Asset Management, Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The
seller is required to maintain the value of the underlying security at not less
than the repurchase proceeds due the Fund.
Domestic, Global Equity, Government and Real Estate may trade certain securi-
ties under the terms of forward commitments, whereby the settlement for payment
and delivery occurs at a specified future date. Forward commitments are pri-
vately negotiated transactions between the Fund and dealers. Upon executing a
forward commitment and during the period of obligation, the Fund maintains col-
lateral of cash or securities in a segregated account with its custodian in an
amount sufficient to relieve the obligation. If the intent of the Fund is to
accept delivery of a security traded under a forward purchase commitment, the
commitment is recorded as a long-term purchase. For forward purchase commit-
ments for which security settlement is not intended by the Fund, changes in the
value of the commitment are recognized by marking the commitment to market on a
daily basis. During the term of the commitment, the Fund may sell the forward
commitment and enter into a new forward commitment, the effect of which is to
extend the settlement date. In addition, the Fund may occasionally close such
forward commitments prior to delivery.

C. INVESTMENT INCOME-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Issuers of Payment-in-Kind se-
curities may make dividend or interest payments by issuing additional stocks or
bonds in lieu of cash payments. Original issue discounts on debt securities
purchased are amortized over the expected life of each applicable security.
Premiums on debt securities are not amortized. Market discounts are recognized
at the time of sale as realized gains for book purposes and ordinary income for
tax purposes.

D. ORGANIZATIONAL EXPENSES-Emerging Growth, Global Equity and Real Estate have
reimbursed Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with each Fund's organi-
zation in the amount of $6,828 per Fund. These costs are being amortized on a
straight line basis over the 60 month period ending July 2, 2000. The Adviser
has agreed that in the event any of the initial shares of the Funds originally
purchased by VKAC are redeemed during the amortization period, the Funds will
be reimbursed for any unamortized organizational expenses in the same propor-
tion as the number of shares redeemed bears to the number of initial shares
held at the time of redemption.

E. FEDERAL INCOME TAXES-It is each Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Each Fund intends to utilize provisions of the federal income tax laws which
allow each Fund to carry a realized capital loss forward for eight years fol-
lowing the year of the loss and offset such losses against any future realized
capital gains. The following table presents the realized capital loss
carryforward for each applicable Fund at December 31, 1996, along with its ex-
piration period:

<TABLE>
<CAPTION>
GROWTH
EMERGING AND MONEY
DOMESTIC GROWTH GOVERNMENT INCOME MARKET
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Realized capital loss
carryforward................... $1,670,821 $ 318,252 $13,378,887 $ 81 $1,644
Expiration dates of capital loss
carryforward.................... 1998-2002 2003-2004 1997-2004 2004 2003
Amount expiring on 12/31/97..... -- -- $ 3,377,875 -- --
</TABLE>

80
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

Net realized gains or losses may differ for financial and tax reporting pur-
poses primarily as a result of post October 31 losses which are not recognized
for tax purposes until the first day of the following fiscal year, gains or
losses recognized for tax purposes on the mark-to-market of open futures at De-
cember 31, 1996, and the deferral of losses for tax purposes resulting from
wash sales.

F. DISTRIBUTION OF INCOME AND GAINS-Government and Money Market declare divi-
dends from net investment income on each business day. Asset Allocation, Domes-
tic, Emerging Growth, Enterprise, Global Equity, Growth and Income and Real
Estate declare dividends annually. Government declares distributions from
short-term capital gains, if any, monthly. Asset Allocation, Domestic, Emerging
Growth, Enterprise, Global Equity, Growth and Income, Money Market and Real Es-
tate distribute net realized gains, if any, annually. Distributions from net
realized gains for book purposes may include short-term capital gains and gains
on option and futures transactions. All short-term capital gains and a portion
of option and futures gains are included in ordinary income for tax purposes.
The following table presents the amount of long-term capital gains distributed
during the period:

<TABLE>
<CAPTION>
FUND AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
Asset Allocation..................................................... $2,465,254
Enterprise........................................................... 4,855,272
Global Equity........................................................ 20,006
Real Estate.......................................................... 24,014
</TABLE>

Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and for
federal income tax purposes, the amount of distributable net investment income
may differ between book and federal income tax purposes for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods. The
following permanent differences between book and tax basis reporting for the
1996 fiscal year have been identified and appropriately reclassified:

<TABLE>
<CAPTION>
EMERGING GLOBAL
DOMESTIC GROWTH EQUITY GOVERNMENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated
Undistributed Net
Investment Income....... $(3,967)(c) $3,088 (a) $34,640 (b) $14,468 (c)
Accumulated Net Realized
Gain/Loss on Securities. 3,967 (c) -- (34,640)(b) 1,150,219 (c,d)
Capital................. -- (3,088)(a) -- (1,164,687)(d)
</TABLE>

(a) For federal income tax purposes, net operating losses may not be used to
offset income generated in future tax years, therefore, these losses have
been reclassified from accumulated undistributed net investment income to
capital.

(b) For federal income tax purposes, realized gains and losses on transactions
in foreign currencies are included as ordinary income. These realized gains
and losses are included in net realized gain/loss on securities for
financial reporting purposes and have been reclassified from accumulated
net realized gain/loss on securities to accumulated undistributed net
investment income.

(c) Accretion of market discounts on bonds and paydowns of mortgage pool
obligations are recognized as ordinary income/loss for federal income tax
purposes but as realized gains or losses for book purposes. These permanent
differences have been reclassified from accumulated net realized gain/loss
on securities to accumulated undistributed net investment income.

(d) At December 31, 1996, all or a portion of capital loss carryforward expired
creating a permanent difference between book and tax basis reporting. These
items have been reclassified from accumulated net realized loss on
securities to capital.

G. FOREIGN CURRENCY TRANSLATION-The market values of foreign securities, for-
ward currency exchange contracts and other assets and liabilities denominated
in a foreign currency are translated into U.S. dollars based on quoted exchange
rates as of noon Eastern Standard Time. The cost of securities is determined
using historical exchange rates. Income and expenses are translated at prevail-
ing exchange 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

81
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996

- -------------------------------------------------------------------------------
exchange rates and amounts arising from changes in the market prices of secu-
rities. Realized gain and loss on foreign currency includes the net realized
amount from the sale of currency and the amount realized between trade date
and settlement date on security transactions.

H. 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 trans-
action 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 pri-
vately placed debt securities held by a Fund generally have agreed to register
the securities within specified time periods or increase the interest paid on
such securities.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee pay-
able monthly based on the combined average daily net assets of Asset Alloca-
tion, Domestic, Enterprise, Government and Money Market as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------------------
<S> <C>
First $500 million.................................................. .50 of 1%
Next $500 million................................................... .45 of 1%
Over $1 billion..................................................... .40 of 1%
</TABLE>

The resulting fee is prorated to Asset Allocation, Domestic, Enterprise, Gov-
ernment and Money Market based on their respective average daily net assets.
Under the terms of the advisory agreement, if the total ordinary business ex-
penses, exclusive of taxes, distribution fees and interest, exceed .60% of av-
erage daily net assets, the Adviser will reimburse Asset Allocation, Domestic,
Enterprise, Government, and Money Market for the amount of the excess. The
contractual expense reimbursement shall be made monthly.
For Emerging Growth, the Adviser will provide investment advice and facilities
to the Fund for an annual fee payable monthly of .70% of the average daily net
assets of the Fund.
For Global Equity, the Adviser has entered into a subadvisory agreement which
will terminate on March 31, 1997 with John Govett & Co., Limited
("Subadviser--Global Equity"), who provides advisory services to Global Equity
and the Adviser with respect to Global Equity's investments in foreign securi-
ties. Advisory fees are calculated monthly, based on the average daily net as-
sets of Global Equity at the annual rate of 1.00%. The Adviser pays 50% of its
advisory fee to the Subadviser--Global Equity. Shareholders have approved a
change in the Subadvisor--Global Equity from John Govett & Co., Limited to
Morgan Stanley Asset Management Inc. effective April 1, 1997.
For Growth and Income, the Adviser will provide investment advice and facili-
ties to the Fund for an annual fee payable monthly, based on the average daily
net assets of the Fund, of .60% for the first $500 million and .55% for the
amount in excess of $500 million.
For Real Estate, the Adviser will provide investment advice and facilities to
the Fund for an annual fee equal to 1.00% of the average net assets of the
Fund. This fee is payable monthly. During the period, the Adviser had a
subadvisory agreement with Hines Interest Realty Advisers Limited Partnership
("Hines"), who provided advisory services to the Fund and the Adviser with re-
spect to the Fund's investments in real estate. The Adviser paid 50% of its
investment advisory fee to Hines for these services. Effective December 31,
1996, the subadvisory agreement was terminated.
For the period, the Adviser has volunteered to reimburse all expenses in ex-
cess of .85% for Emerging Growth, 1.20% for Global Equity, .75% for Growth and
Income and 1.10% for Real Estate, of each of the Funds' average daily net as-
sets.

82
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------
Other transactions with affiliates during the period were approximately as
follows:

<TABLE>
<CAPTION>
GROWTH
ASSET EMERGING GLOBAL AND MONEY REAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY GOVERNMENT INCOME MARKET ESTATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounting.............. $51,800 $44,300 $41,100 $53,700 $29,400 $55,500 -- $47,000 $44,900
Shareholder servicing
agent's fees........... 15,000 15,000 15,000 15,000 15,000 15,000 -- 15,000 15,000
</TABLE>

For the year ended December 31, 1996, the Funds incurred expenses as shown in
the table above representing VKAC's cost of providing accounting and cash man-
agement services to the Funds. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser, serves
as the shareholder servicing agent for the Funds. For the year ended December
31, 1996, the Funds incurred expenses as shown in the table above, representing
ACCESS' cost of providing transfer agency and shareholder services plus a prof-
it.
Certain officers and trustees of the Funds are also officers and directors of
VKAC. The Funds do not compensate their officers or trustees who are officers
of VKAC.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom (Illi-
nois), counsel to the Funds, of which a trustee of the Funds is an affiliated
person.
The Funds have implemented deferred compensation and retirement plans for
their trustees. Under the deferred compensation plan, trustees may elect to
defer all or a portion of their compensation to a later date. The retirement
plan covers those trustees who are not officers of VKAC. During the year ended
December 31, 1996, VKAC reimbursed the Fund for all expenses related to the
retirement plan. At December 31, 1996, VKAC owned 10 shares of Emerging Growth,
95,241 shares of Global Equity, 50,000 shares of Growth and Income and 10 shares
of Real Estate.

3. CAPITAL TRANSACTIONS
The Funds have outstanding shares of beneficial interest with a par value of
$.01 per share. There are an unlimited number of shares authorized.
For the year ended December 31, 1996, share transactions were as follows:

<TABLE>
<CAPTION>
GLOBAL GROWTH AND MONEY REAL
EQUITY GOVERNMENT INCOME MARKET ESTATE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares........ 230,530 7,399,648 50,000/1/ 21,575,617 799,347
Sales................... 110,151 184,739 -0- 15,915,843 13,855,117
Dividend Reinvestment... 3,772 464,018 -0- 1,001,868 197,332
Repurchases............. (128,552) (1,441,946) -0- (18,927,603) (3,523,513)
-------- ---------- --------- ----------- ----------
Ending Shares........... 215,901 6,606,459 50,000 19,565,725 11,328,283
-------- ---------- --------- ----------- ----------
</TABLE>

/1/Fund commenced investment operations during the period.

83
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996

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

For the year ended December 31, 1995, share transactions were as follows:

<TABLE>
<CAPTION>
ASSET EMERGING
ALLOCATION DOMESTIC GROWTH ENTERPRISE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning Shares............ 5,668,898 2,894,700 10 5,444,930
Sales....................... 166,906 997,934 217,875 438,275
Dividend Reinvestment....... 619,366 258,208 -0- 703,905
Repurchases................. (1,045,554) (915,148) (22,465) (1,413,351)
----------- ----------- ----------- -----------
Ending Shares............... 5,409,616 3,235,694 195,420 5,173,759
----------- ----------- ----------- -----------
Ending Capital.............. $55,836,454 $27,065,917 $2,103,545 $64,170,048
----------- ----------- ----------- -----------
<CAPTION>
GLOBAL MONEY REAL
EQUITY GOVERNMENT MARKET ESTATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning Shares............ 10 7,914,930 28,547,478 10
Sales....................... 231,560 307,711 10,862,643 1,140,133
Dividend Reinvestment....... -0- 524,601 1,295,753 5,789
Repurchases................. (1,040) (1,347,594) (19,130,257) (346,585)
----------- ----------- ----------- -----------
Ending Shares............... 230,530 7,399,648 21,575,617 799,347
----------- ----------- ----------- -----------
Ending Capital.............. $2,292,507 $78,150,854 $21,575,617 $8,277,034
----------- ----------- ----------- -----------
</TABLE>

4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of invest-
ments, including principal paydowns and excluding forward commitment transac-
tions and short-term investments, were:

<TABLE>
<CAPTION>
GROWTH
ASSET EMERGING GLOBAL AND
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY GOVERNMENT INCOME REAL ESTATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $66,177,988 $16,681,252 $6,028,295 $121,174,572 $2,507,479 $84,157,768 $495,497 $151,556,550
Sales................... 70,975,721 22,906,157 3,768,758 128,112,318 2,773,679 106,194,527 1,700 35,707,086
</TABLE>

5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Funds have a variety of reasons to use derivative instruments, such as to
attempt to protect the Funds against possible changes in the market value of
its portfolio, manage the portfolio's effective yield, foreign currency expo-
sure, maturity and duration or generate potential gain. All of the Funds' port-
folio holdings, including derivative instruments, are marked to market each day
with the change in value reflected in the unrealized appreciation/ depreciation
on securities. Upon disposition, a realized gain or loss is recognized accord-
ingly, except when taking delivery of a security underlying a futures or for-
ward contract. In these instances, the recognition of gain or loss is postponed
until the disposal of the security underlying the futures or forward contract.
Summarized below are the specific types of derivative financial instruments
used by the Funds.

84
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996

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

A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Funds generally invests in futures on U.S. Treasury Bonds and Notes. Upon en-
tering into futures contracts, the Funds maintain, in a segregated account with
its custodian, securities with a value equal to its obligation under the
futures contracts. During the period the futures contract is open, payments are
received from or made to the broker based upon changes in the value of the con-
tract (the variation margin).
Transactions in futures contracts for the year ended December 31, 1996 for
Government, were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995..................................... 175
Futures Opened....................................................... 2,021
Futures Closed....................................................... (2,086)
------
Outstanding at December 31, 1996..................................... 110
------
</TABLE>

The futures contracts outstanding at December 31, 1996, and the descriptions
and unrealized depreciation for Government are as follows:

<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C>
BUYS TO OPEN
U.S. Treasury Bonds--Mar 1997 (Current Notional Value
$112,625 per contract)................................ 99 $183,214
U.S. Treasury Notes--Mar 1997 (Five Year) (Current
Notional Value $106,593 per contract)................. 5 5,453
U.S. Treasury Notes--Mar 1997 (Ten Year) (Current
Notional Value $109,125 per contract)................. 6 9,451
--- --------
110 $198,118
--- --------
</TABLE>

B. FORWARD CURRENCY CONTRACTS-A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Upon the settlement of the contract, a realized gain or loss is recog-
nized and is included as a component of realized gain/loss on forwards.
The following forward currency contracts were outstanding in Global Equity as
of December 31, 1996:

<TABLE>
<CAPTION>
UNREALIZED
ORIGINAL CURRENT APPRECIATION/
DESCRIPTION VALUE VALUE DEPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SELLS TO OPEN
British Pound Sterling, 66,698, expiring
07/16/97..................................... $100,000 $113,650 $(13,650)
Japanese Yen, 10,140,000, expiring 01/24/97... 100,000 87,855 12,145
--------
$ (1,505)
--------
</TABLE>

6. FORWARD COMMITMENTS
Government trades certain securities under the terms of forward commitments, as
described in Note 1. The change in value of these items is reflected as a
component of unrealized appreciation/depreciation on forward commitments.

85
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
The following forward commitments were outstanding in Government as of December
31, 1996:

<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT ORIGINAL CURRENT APPRECIATION/
(000) DESCRIPTION EXPIRATION VALUE VALUE DEPRECIATION
- -----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
BUYS TO OPEN
$4,000 U.S. T-Note, 7.25%,
08/15/04 maturity...... 01/16/97 $4,250,313 $4,212,400 $(37,913)
SELLS TO OPEN
1,000 FHLMC Gold 30 Yr, 8.00%,
12/31/23 maturity...... 01/14/97 1,021,875 1,019,060 2,815
2,000 GNMA, 7.00%, 12/31/23
maturity............... 01/21/97 1,966,250 1,955,620 10,630
--------
$(24,468)
--------
</TABLE>

86
<PAGE>

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 positions of the Asset
Allocation Fund, Domestic Income Fund, Emerging Growth Fund, Enterprise Fund,
Global Equity Fund, Government Fund, Growth and Income Fund, Money Market Fund
and Real Estate Securities Fund (constituting Van Kampen American Capital Life
Investment Trust, hereafter referred to as the "Trust") at December 31, 1996,
and the results of each of their operations, the changes in each of their net
assets and the financial highlights for each of the 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, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
for unsettled security transactions, provide a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP

Houston, Texas
February 7, 1997

87
<PAGE>

VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

BOARD OF TRUSTEES

J. MILES BRANAGAN

LINDA HUTTON HEAGY

R. CRAIG KENNEDY

DENNIS J. MCDONNELL*

JACK E. NELSON

JEROME L. ROBINSON

FERNANDO SISTO

WAYNE W. WHALEN* -- Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*

ALAN T. SACHTLEBEN*

PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

INVESTMENT SUBADVISER
(GLOBAL EQUITY FUND)

JOHN GOVETT & CO. LIMITED
4 Battle Bridge Lane
London SE1 2HR
England

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

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

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street,
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT ACCOUNTANTS

PRICE WATERHOUSE LLP
1201 Louisiana
Houston, Texas 77002

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

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

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

88
<PAGE>

RESULTS OF SHAREHOLDER VOTES

(Unaudited)

- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of the Life Investment Trust was held
on October 25, 1996.
1) With respect to the Trust on behalf of each Fund, approval of a new
investment advisory agreement between Van Kampen American Capital Asset
Management, Inc. and Life Investment Trust.

<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR AGAINST ABSTAINING
----------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund........................ 4,523,133 54,424 332,195
Domestic Income Fund......................... 1,635,309 47,972 155,184
Emerging Growth Fund......................... 314,893 67,982 13,173
Enterprise Fund.............................. 3,558,929 104,009 247,443
Global Equity Fund........................... 286,201 4,789 9,764
Government Fund.............................. 6,233,684 228,865 257,997
Money Market Fund............................ 13,956,531 566,007 693,128
Real Estate Securities Fund.................. 3,248,377 86,982 224,988
</TABLE>

2) With respect to the Trust on behalf of Global Equity Fund, approval
of a new investment subadvisory agreement between Van Kampen American
Capital Asset Management, Inc. and Morgan Stanley Asset Management, Inc.
which will take effect on April 1, 1997.
288,231 shares voted for the proposal; 2,759 voted against and 9,764
abstained.
3) With respect to the Trust on behalf of Global Equity Fund, approval
of an interim investment subadvisory agreement which will terminate on
March 31, 1997, between Van Kampen American Capital Asset Management,
Inc. and John Govett & Co. Limited.
285,795 shares voted for the proposal; 2,759 voted against and 12,201
abstained.
4) With respect to the Trust on behalf of Real Estate Securities Fund,
approval of a new investment subadvisory agreement between Van Kampen
American Capital Asset Management, Inc. and Hines Interest Realty Lim-
ited Partnership.
3,239,654 shares voted for the proposal; 95,670 voted against and
225,022 abstained.
5) With respect to the Trust on behalf of each Fund, approval of certain
changes to its fundamental investment policies with respect to invest-
ment in other investment companies.

<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR AGAINST ABSTAINING
----------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund........................ 4,429,754 75,569 402,428
Domestic Income Fund......................... 1,662,757 34,793 140,916
Emerging Growth Fund......................... 316,521 67,982 11,545
Enterprise Fund.............................. 3,510,195 114,146 286,039
Global Equity Fund........................... 263,022 2,030 35,703
Government Fund.............................. 6,265,504 270,541 184,501
Money Market Fund............................ 13,072,175 715,462 1,428,029
Real Estate Securities Fund.................. 3,177,266 123,806 259,274
</TABLE>

89
<PAGE>

RESULTS OF SHAREHOLDER VOTES (CONTINUED)

(Unaudited)

- --------------------------------------------------------------------------------
6) With respect to the Trust, ratification of the selection of Price
Waterhouse LLP as independent accountants for the current fiscal year.

<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR AGAINST ABSTAINING
----------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund........................ 4,582,135 24,434 301,183
Domestic Income Fund......................... 1,705,809 17,034 115,623
Emerging Growth Fund......................... 384,531 3,119 6,396
Enterprise Fund.............................. 3,651,838 44,893 213,649
Global Equity Fund........................... 267,726 2,759 30,269
Government Fund.............................. 6,346,619 201,168 172,758
Money Market Fund............................ 14,446,631 296,726 472,310
Real Estate Securities Fund.................. 3,257,358 83,986 219,002
</TABLE>

Tax Notice to Corporate
Shareholders

The following represents
the percentage of 1996
income distributions paid
by the designated fund
which qualify for the 70%
dividends received
deduction for corporations:

<TABLE>
<S> <C>
Asset Allocation
Fund............ 12.53%
Domestic Income
Fund............ 2.14%
Enterprise Fund. 21.75%
Global Equity
Fund............ 12.36%
</TABLE>

90
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VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST

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