VAN KAMPEN LIFE INVESTMENT TRUST, 485BPOS, 1999-04-30

VAN KAMPEN LIFE INVESTMENT TRUST
485BPOS, 1999-04-30

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999

REGISTRATION NO. 33-00628
811-4424
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 27 [X]

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 29 [X]
</TABLE>

VAN KAMPEN LIFE INVESTMENT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE

A. THOMAS SMITH III

EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY

VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

COPIES TO:

WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700

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

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

It is proposed that this filing will become effective:

[X] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)

[ ] on (date) 1999 pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

VAN KAMPEN
LIFE INVESTMENT TRUST

ASSET ALLOCATION PORTFOLIO
COMSTOCK PORTFOLIO
DOMESTIC INCOME PORTFOLIO
EMERGING GROWTH PORTFOLIO
ENTERPRISE PORTFOLIO
GLOBAL EQUITY PORTFOLIO
GOVERNMENT PORTFOLIO
GROWTH AND INCOME PORTFOLIO
MONEY MARKET PORTFOLIO
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
STRATEGIC STOCK PORTFOLIO
Shares of the Portfolios have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulators, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
It is a criminal offense to suggest otherwise.

This prospectus is dated APRIL 30, 1999.

[VAN KAMPEN FUNDS LOGO]
<PAGE> 3

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summaries:
Asset Allocation Portfolio...................... 3
Comstock Portfolio.............................. 5
Domestic Income Portfolio....................... 7
Emerging Growth Portfolio....................... 10
Enterprise Portfolio............................ 13
Global Equity Portfolio......................... 15
Government Portfolio............................ 17
Growth and Income Portfolio..................... 20
Money Market Portfolio.......................... 23
Morgan Stanley Real Estate Securities
Portfolio.................................... 25
Strategic Stock Portfolio....................... 28
Life Investment Trust General Information......... 30
Investment Objectives and Policies:
Asset Allocation Portfolio...................... 30
Comstock Portfolio.............................. 32
Domestic Income Portfolio....................... 33
Emerging Growth Portfolio....................... 37
Enterprise Portfolio............................ 38
Global Equity Portfolio......................... 39
Government Portfolio............................ 43
Growth and Income Portfolio..................... 47
Money Market Portfolio.......................... 48
Morgan Stanley Real Estate Securities
Portfolio.................................... 49
Strategic Stock Portfolio....................... 51
Investment Practices.............................. 54
Investment Advisory Services...................... 58
Purchase of Shares................................ 62
Redemption of Shares.............................. 63
Dividends, Distributions and Taxes................ 63
Financial Highlights.............................. 66
Appendix A -- Description of Securities Ratings... A-1
</TABLE>

<PAGE> 4

ASSET ALLOCATION PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Asset Allocation Portfolio is a mutual fund with an investment objective to
seek high total investment return consistent with prudent investment risk
through a fully managed investment policy utilizing equity securities as well as
investment grade intermediate- and long-term debt securities and money market
securities. Total investment return consists of current income (including
dividends, interest and discount accruals) and capital appreciation or
depreciation. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing in a portfolio of equity securities,
investment grade intermediate- and long-term debt securities, including
preferred stocks, convertible preferred stocks and convertible debt securities,
and money market securities. The composition of the Portfolio will vary from
time to time to reflect the investment adviser's views on economic and market
trends and the anticipated relative total investment return available from a
particular type of security. The Portfolio may invest up to 25% of its total
assets in securities of foreign issuers. The Portfolio may invest in certain
derivatives, such as options and futures, which may subject the Portfolio to
additional risks.

INVESTMENT RISKS

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Portfolio generally invests in investment
grade-quality debt securities, it is subject to a lower level of credit risk
than a portfolio investing more in lower-grade quality securities.

FOREIGN RISKS. Because the Portfolio may own securities from foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options and futures are examples of derivatives.
Such transactions involve risks different from the direct investment in
underlying securities such as imperfect correlation between the value of the
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may result in losses that
partially or completely offset gains in portfolio positions; risks that the
transactions may not be liquid; and manager risk.

MANAGER RISK. As with any managed fund, the Portfolio's management may not be
successful in selecting the best-performing securities and the Portfolio's
performance may lag behind that of similar funds.

An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

3
<PAGE> 5
INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek high total investment return over the long term.

- - Can withstand volatility in the value of their shares in the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests in
a varying mix of equity, debt securities and money market securities seeking
high total investment return.

An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past ten calendar years prior to the date of
this prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

[GRAPH]

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' 17.82
'1990' 1.89
'1991' 27.05
'1992' 7.29
'1993' 7.70
'1994' -3.66
'1995' 31.36
'1996' 13.87
'1997' 21.81
'1998' 15.67
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 11.04% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -7.45% (for the quarter ended September 30, 1990).

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with the Standard &
Poor's 500-Stock Index, a broad-based market index that the Portfolio's
management believes is an applicable benchmark for the Portfolio, and with the
Lipper Flexible Portfolio Fund Index, an index of funds with similar investment
objectives. The performance figures do not include sales charges or other
expenses at the contract level that would be paid by investors. Average annual
total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1998 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C>
Van Kampen Asset
Allocation
Portfolio 15.67% 15.22% 13.60%
.......................................................
Standard & Poor's
500-Stock Index 28.58% 24.06% 19.21%
.......................................................
Lipper Flexible
Portfolio Fund
Index 16.52% 13.59% 12.96%
.......................................................
</TABLE>

4
<PAGE> 6

COMSTOCK PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Comstock Portfolio is a mutual fund with an investment objective to seek
capital growth and income through investments in equity securities, including
common stocks, preferred stocks and securities convertible into common and
preferred stocks. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing in a portfolio of equity securities,
consisting principally of common stocks. The Portfolio emphasizes a "value"
style of investing seeking well-established, undervalued companies believed to
possess the potential for capital growth and income. The Portfolio may invest up
to 15% of its total assets in securities of foreign issuers. The Portfolio may
invest in certain derivatives, such as options and futures, which may subject
the Portfolio to additional risks.

INVESTMENT RISKS

Investors who seek only long-term capital growth should be aware that the
Portfolio also seeks to generate income and that capital growth is only a part
of the Portfolio's overall investment objective. Similarly, investors who seek a
more assured level of current income should be aware that the Portfolio's income
will fluctuate and that seeking income is only a part of the Portfolio's overall
investment objective.

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek capital growth and income over the long term.

5
<PAGE> 7

- - Can withstand volatility in the value of their shares of the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that emphasize a
"value" style of investing in equity securities.

The Comstock Portfolio had not commenced investment operations as of the date of
this prospectus. Accordingly, the Portfolio had no historical annual performance
or comparative performance to provide to investors.

6
<PAGE> 8

DOMESTIC INCOME
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVES

The Domestic Income Portfolio is a mutual fund with a primary investment
objective to seek current income. When consistent with the primary investment
objective, capital appreciation is a secondary investment objective. There can
be no assurance that the Portfolio will achieve its investment objectives.

INVESTMENT STRATEGIES

The Portfolio's management seeks to achieve the investment objectives by
investing primarily in a diversified portfolio of income securities, including
convertible and non-convertible debt securities and preferred stocks. Under
normal market conditions, the Portfolio invests at least 80% of its total assets
in income securities rated at the time of purchase B or higher by Standard &
Poor's ("S&P") or rated B or higher by Moody's Investors Service, Inc.
("Moody's") or unrated securities judged by the Portfolio's investment adviser
to be of comparable quality at the time of purchase. Securities rated BB or
below by S&P or rated Ba or below by Moody's or unrated securities of comparable
quality are commonly referred to as "junk bonds" and involve special risks as
compared to investments in higher-grade securities (see sidebar for an
explanation of quality ratings). The Portfolio may invest up to 25% of its total
assets in securities of foreign issuers. The Portfolio may purchase or sell
securities on a when-issued or delayed delivery basis.

UNDERSTANDING
QUALITY RATINGS

Security ratings are based on the issuer's ability to pay interest and repay
the principal. Securities with ratings above the line are considered
"investment grade," while those with ratings below the line are regarded as
"noninvestment grade," or "junk bonds." A detailed explanation of these
ratings can be found in the appendix to this prospectus.

<TABLE>
<CAPTION>
S&P Moody's Meaning
- ------------------------------------------------------
<C> <S> <C>
AAA Aaa Highest quality
......................................................
AA Aa High quality
......................................................
A A Above-average quality
......................................................
BBB Baa Average quality
- ------------------------------------------------------
BB Ba Below-average quality
......................................................
B B Marginal quality
......................................................
CCC Caa Poor quality
......................................................
CC Ca Highly speculative
......................................................
C C Lowest quality
......................................................
D -- In default
......................................................
</TABLE>

INVESTMENT RISKS

With its holdings of medium- and lower-grade securities, the Portfolio has
greater risks than a portfolio owning only higher-grade securities.

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. The prices of income securities tend to
fall as interest rates rise and such declines tend to be greater among
securities with longer durations. Although the Portfolio has no policy limiting
the maturities of its investments, the Portfolio's investment adviser seeks to
maintain the dollar-weighted average duration of the Portfolio between four to
six years. This means the Portfolio generally will be subject to greater market
risk than a portfolio that owns only shorter term securities but lesser market
risk than a portfolio that owns only longer term securities. Lower-grade
securities, especially those with longer durations or that do not make regular
interest payments, may fluctuate more in price in response to negative issuer or
general economic news than higher-grade securities. When-issued and

7
<PAGE> 9

delayed delivery transactions are subject to changes in market conditions from
the time of the commitment until settlement. This may adversely affect the
prices or yields of the securities being purchased, as well as any portfolio
securities held for payment of such commitments. The greater the Portfolio's
outstanding commitments for these securities, the greater the Portfolio's
exposure to market price fluctuation.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Portfolio may invest in securities with
below investment grade credit quality, the Portfolio is subject to a higher
level of credit risk than a portfolio that buys only investment grade
securities. The credit quality of "noninvestment grade" securities is considered
speculative by recognized rating agencies with respect to the issuer's
continuing ability to pay interest and principal. Lower-grade securities may
have less liquidity and a higher incidence of default than investments in
higher-grade securities. The Portfolio may incur higher expenditures to protect
the Portfolio's interest in such securities. The credit risks and market prices
of lower-grade securities are more sensitive to negative issuer developments,
such as reduced revenues or increased expenditures, or adverse economic
conditions, such as a recession, than higher-grade securities.

CALL RISK. If interest rates fall, it is possible that issuers of securities
with high interest rates will prepay or "call" their securities before their
maturity dates. In this event, the proceeds from the called securities would be
reinvested by the Portfolio in securities with the new, lower interest rates,
resulting in a possible decline in the Portfolio's income and distributions to
shareholders.

INVESTOR PROFILE

In light of its objectives and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek current income and capital appreciation over the long term.

- - Are willing to take on the increased risks of medium- and lower-grade
securities in exchange for potentially higher income.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in income securities, including medium- and lower-grade income
securities.

8
<PAGE> 10

ANNUAL PERFORMANCE

[GRAPH]

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' -5.44
'1990' -7.23
'1991' 21.23
'1992' 12.50
'1993' 16.32
'1994' -4.33
'1995' 21.37
'1996' 6.68
'1997' 11.90
'1998' 6.34
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 7.16% (for the quarter ended June 30, 1995) and the lowest quarterly return
was -8.33% (for the quarter ended December 31, 1989).

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with the Lehman
Brothers Index of BBB Corporate Bonds, a broad-based market index that the
Portfolio's management believes is an applicable benchmark for the Portfolio.
The performance figures do not include sales charges or other expenses at the
contract level that would be paid by investors. Average annual total returns are
shown for the periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Portfolio is not indicative of its future performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1998 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C>
Van Kampen
Domestic Income
Portfolio 6.34% 8.07% 7.45%
.......................................................
Lehman Brothers
Index of BBB
Corporate Bonds 6.85% 7.96% 9.97%
.......................................................
</TABLE>

9
<PAGE> 11

EMERGING GROWTH
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Emerging Growth Portfolio is a mutual fund with an investment objective to
seek capital appreciation by investing in a portfolio of securities consisting
principally of common stocks of small- and medium-sized companies considered by
the Portfolio's investment adviser to be emerging growth companies. There can be
no assurance that the Portfolio will achieve its investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing at least 65% of the Portfolio's total assets
in a portfolio of common stocks of small- and medium-sized emerging growth
companies. Emerging growth companies are those domestic or foreign companies
that the Portfolio's management believes are in the early stages of their life
cycles and have the potential to become major enterprises. Investing in such
companies involves risks not ordinarily associated with investments in larger,
more established companies. The Portfolio may invest up to 20% of its total
assets in securities of foreign issuers. The Portfolio may invest in certain
derivatives, such as options and futures, which may subject the Portfolio to
additional risks.

INVESTMENT RISKS

With its investments in common stocks of smaller-and medium-sized, less
established companies, the Portfolio has greater risks than a portfolio that
invests only in larger-sized, more seasoned companies.

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

RISKS OF EMERGING GROWTH COMPANIES. Companies that the Portfolio's management
believe are emerging growth companies are often companies with limited product
lines, markets, distribution channels or financial resources and the management
of such companies may be dependent upon one or a few key people. The stocks of
emerging growth companies can therefore be subject to more abrupt or erratic
market movements than stocks of larger, more established companies or the stock
market in general.

An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. Your

10
<PAGE> 12

investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek capital appreciation over the long term.

- - Are willing to take on the increased risks of investing in smaller- and
medium-sized, less established companies in exchange for potentially higher
capital appreciation.

- - Can withstand substantial volatility in the value of their shares of the
Portfolio.

- - Wish to add to their personal holdings a portfolio that invests primarily in
common stocks of small-and medium-sized emerging growth companies.

Investors should carefully consider the additional risks associated with
investments in smaller- and medium-sized, less established companies. An
investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment and the Portfolio should not be used as a
trading vehicle.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past three calendar years prior to the date of
this prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

[GRAPH]

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1996' 16.65
'1997' 20.42
'1998' 37.56
</TABLE>

The Portfolio commenced investment operations on July 3, 1995. The return from
July 3, 1995 to December 31, 1995 was 17.20%.

During the three-year period shown in the bar chart, the highest quarterly
return was 28.01% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -12.05% (for the quarter ended September 30, 1998).

11
<PAGE> 13

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with two broad-based
market indices that the Portfolio's management believes are applicable
benchmarks for the portfolio: the Russell 2000 Stock Index and the Standard &
Poor's Midcap 400 Index. The performance figures do not include sales charges or
other expenses at the contract level that would be paid by investors. Average
annual total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1998 1 Year Inception
- ---------------------------------------------
<S> <C> <C>
Van Kampen
Emerging Growth
Portfolio 37.56% 26.31%(1)
.............................................
Russel 2000
Stock Index -2.55% 13.54%(2)
.............................................
Standard & Poor's
Midcap 400 Index 19.11% 23.00%(3)
.............................................
</TABLE>

Inception dates: (1) 7/3/95, (2) 6/30/95, (3) 7/6/95.

12
<PAGE> 14

ENTERPRISE PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Enterprise Portfolio is a mutual fund with an investment objective to seek
capital appreciation through investments in securities believed by the
Portfolio's investment adviser to have above average potential for capital
appreciation. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing primarily in common stocks of "growth"
companies focusing on those securities believed to offer a combination of strong
business fundamentals at an attractive valuation. The Portfolio may invest up to
10% of its total assets in securities of foreign issuers. The Portfolio may
invest in certain derivatives, such as options and futures, which may subject
the Portfolio to additional risks.

INVESTMENT RISKS

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek capital appreciation over the long term.

- - Do not seek current income from their investment.

- - Can withstand substantial volatility in the value of their shares of the
Portfolio.

- - Wish to add to their personal investment holdings a portfolio that emphasizes
a "growth" style of investing in common stocks.

13
<PAGE> 15

investment, and the Portfolio should not be used as a trading vehicle.

ANNUAL PERFORMANCE

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' 34.23
'1990' -6.84
'1991' 36.41
'1992' 7.48
'1993' 8.98
'1994' -3.39
'1995' 36.98
'1996' 25.80
'1997' 30.66
'1998' 25.00
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 24.94% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -16.52% (for the quarter ended September 30, 1990).

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with the Standard &
Poor's 500-Stock Index, a broad-based market index that the Portfolio's
management believes is an applicable benchmark for the Portfolio. The
performance figures do not include sales charges or other expenses at the
contract level that would be paid by investors. Average annual total returns are
shown for the periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Portfolio is not indicative of its future performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1998 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Enterprise
Portfolio 25.00% 21.95% 18.35%
.......................................................
Standard & Poor's
500-Stock Index 28.58% 24.06% 19.21%
.......................................................
</TABLE>

14
<PAGE> 16

GLOBAL EQUITY
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Global Equity Portfolio is a mutual fund with an investment objective to
seek long-term growth of capital through investments in an internationally
diversified portfolio of equity securities of companies of any nation including
the United States. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

The Portfolio's management seeks to achieve the investment objective by
investing in an internationally diversified portfolio of equity securities,
including common stocks, preferred stocks and warrants or options to acquire
such securities. The Fund's management uses a "top-down" investment management
approach that emphasizes country selection and weighting rather than individual
security selection. Within a particular country, the Portfolio selects
securities of issuers that would replicate a broad market index for that
country. The Portfolio may invest in any country, including developed or
undeveloped countries. Under normal market conditions, the Portfolio invests at
least 65% of its total assets in securities of issuers of at least three
countries (including the United States). Investments in securities of foreign
issuers include certain risks not typically associated with investments in U.S.
securities. The Portfolio may invest in certain derivatives, such as options and
futures, which may subject the Portfolio to additional risks.

INVESTMENT RISKS

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

FOREIGN RISKS. Because the Portfolio will own securities from foreign issuers,
it will be subject to risks not usually associated with owning securities of
U.S. issuers. These risks can include fluctuations in foreign currencies,
foreign currency exchange controls, political and economic instability,
differences in financial reporting, differences in securities regulation and
trading, and foreign taxation issues. The risks of investing in developing or
emerging markets (in which the Portfolio may invest) are greater than the risks
generally associated with foreign investments including greater political
uncertainties, an economy's dependence on international development assistance,
currency transfer restrictions, and greater delays and disruptions in settlement
transactions.

15
<PAGE> 17

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be appropriate
for investors who:

- - Seek long-term growth of capital.

- - Are willing to take on the increased risks associated with investing in
foreign securities.

- - Can withstand volatility in the value of their shares in the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests in
an international portfolio of equity securities.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past three calendar years prior to the date of
this prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1996' 16.72
'1997' 15.85
'1998' 21.61
</TABLE>

The Portfolio commenced investment operations on July 3, 1995. The return from
July 3, 1995 to December 31, 1995 was 3.00%.

During the three-year period shown in the bar chart, the highest quarterly
return was 16.90% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -11.02% (for the quarter ended September 30, 1998).

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with the Morgan
Stanley Capital International World Index + Dividends (the "MSCI World Index +
Dividends"), a broad-based market index that the Portfolio's management believes
is an applicable benchmark for the Portfolio. The performance figures do not
include sales charges or other expenses at the contract level that would be paid
by investors. Average annual total returns are shown for the periods ended
December 31, 1998 (the most recently completed calendar year prior to the date
of this prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns for
the Periods Ended Past Since
December 31, 1998 1 Year Inception
- ----------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Global
Equity Portfolio 21.61% 16.30%(1)
..............................................
MSCI World Index +
Dividends 24.80% 16.98(2)
..............................................
</TABLE>

Inception dates: (1) 7/3/95, (2) 6/30/95.

16
<PAGE> 18

GOVERNMENT PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Government Portfolio is a mutual fund with an investment objective to seek
to provide investors with high current return consistent with preservation of
capital. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing at least 80% of the Portfolio's total assets
in debt securities issued or guaranteed by the U.S. government, its agencies or
its instrumentalities, including mortgage-related securities issued or
guaranteed by agencies or instrumentalities of the U.S. government. Under normal
market conditions, the Portfolio may invest up to 20% of its total assets in
government-related securities, including privately issued mortgage-related and
mortgage-backed securities not directly issued or guaranteed by
instrumentalities of the U.S. government, privately issued certificates
representing "stripped" U.S. government or mortgage-related securities and
repurchase agreements fully collateralized by U.S. government securities. The
Portfolio may invest in certain derivatives, such as options, futures and
options on futures, and interest rate swaps or other interest rate-related
transactions, which may subject the Portfolio to additional risks. The Portfolio
may purchase or sell securities on a when-issued or delayed delivery basis.

INVESTMENT RISKS

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. The value of debt securities tend to fall
as interest rates rise and such declines tend to be greater among debt
securities with longer maturities or longer durations. Although the Portfolio
has no policy limiting the maturities of its investments, the Portfolio's
management seeks to moderate market risk by normally maintaining a portfolio
duration of four to six years. This means that the Portfolio will be subject to
greater market risk than a portfolio investing solely in shorter-term securities
but lesser market risk than a portfolio investing solely in longer-term
securities (see sidebar for an explanation of maturities and durations). The
yields and market prices of U.S. government securities may move differently and
adversely compared to the yields and market prices of the overall securities
markets. These securities, while backed by the U.S. government, are not
guaranteed against declines in their market prices.

The prices of mortgage-related securities, like traditional debt securities,
tend to fall as interest rates rise. Mortgage-related securities may be more
susceptible to further price declines than traditional debt securities in
periods of rising interest rates because of extension risk (described below).
Additionally, mortgage-related securities may benefit less than traditional debt
securities during periods of declining interest rates because of prepayment risk
(described below).

Market risk is often greater among certain types of debt securities, such as
zero-coupon securities or mortgage-related stripped securities, which do not
make regular or periodic interest payments. As interest rates change, these
securities often fluctuate more in price than securities that make current
interest payments. Therefore, the Portfolio may be subject to greater market
risk than a portfolio that does not own these types of securities.

Investments in when-issued and delayed delivery transactions are subject to
changes in market conditions from the time of the commitment until settlement.
This may adversely affect the prices or yields of the securities being
purchased, as well as any portfolio securities held for payment of such
commitments. The greater the Portfolio's outstanding commitments for these
securities, the greater the Portfolio's exposure to market price fluctuation.

17
<PAGE> 19

UNDERSTANDING
MATURITIES

A debt security can be categorized according to its maturity, which is the
length of time before the issuer must repay the principal.

<TABLE>
<C> <S>
Term Maturity Level
- --------------------------------------------------
1-3 years Short
..................................................
4-10 years Intermediate
..................................................
More than 10 years Long
..................................................
</TABLE>

UNDERSTANDING
DURATION

Duration provides an alternative approach to assessing a security's market
risk. Duration measures the expected life of a security by incorporating the
security's yield, coupon interest payments, final maturity and call features
into one measure. While maturity focuses only on the final principal
repayment date of a security, duration looks at the timing and present value
of all of a security's principal, interest or other payments. Typically, a
debt security with interest payments due prior to maturity has a duration
less than maturity. A zero-coupon bond, which does not make interest
payments prior to maturity, would have the same duration and maturity.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Portfolio because
it invests substantially all of its assets in U.S. government securities.

INCOME RISK. The income you receive from the Portfolio is based primarily on
interest rates, which can vary widely over the short and long term. If interest
rates drop, your income from the Portfolio may drop as well. The more the
Portfolio invests in adjustable, variable or floating rate securities or in
securities susceptible to prepayment risk, the greater the Portfolio's income
risk.

PREPAYMENT RISK. If interest rates fall, the principal on debt securities held
by the Portfolio may be paid earlier than expected. If this happens, the
proceeds from a prepaid security would be reinvested by the Portfolio in
securities bearing the new, lower interest rates, resulting in a possible
decline in the Portfolio's income and distributions to shareholders.

The Portfolio may invest in mortgage-related securities, which are especially
sensitive to prepayment risk because property owners often refinance their
mortgages when interest rates drop.

EXTENSION RISK. The value of debt securities tends to fall as interest rates
rise. For mortgage-related securities, if interest rates rise, property owners
may prepay mortgages more slowly than expected when the security was purchased
by the Portfolio which may further reduce the market value of such security and
lengthen the duration of the security.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures, interest
rate swaps and other interest-rate related transactions are examples of
derivatives. Such transactions involve risks different from the direct
investment in underlying securities such as imperfect correlation between the
value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek high current return consistent with preservation of capital.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in debt securities issued or guaranteed by the U.S. government, its
agencies or its instrumentalities.

18
<PAGE> 20

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past ten calendar years prior to the date of
this prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If these sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' 14.31
'1990' 8.31
'1991' 16.23
'1992' 5.73
'1993' 7.86
'1994' -4.63
'1995' 17.16
'1996' 2.12
'1997' 9.61
'1998' 8.59
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 8.13% (for the quarter ended June 30, 1989) and the lowest quarterly return
was -3.98% (for the quarter ended March 31, 1994).

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with the Lehman
Brothers Mutual Fund Government/Mortgage Index, a broad-based market index that
the Portfolio's management believes is an applicable benchmark for the
Portfolio. The performance figures do not include sales charges or other
expenses at the contract level that would be paid by investors. Average annual
total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1998 1 Year 5 Years Years
- -----------------------------------------------------
<S> <C> <C> <C>
Van Kampen
Government
Portfolio 8.59% 6.32% 8.35%
.....................................................
Lehman Brothers
Mutual Fund
Government/Mortgage
Index 8.72% 7.18% 9.14%
.....................................................
</TABLE>

19
<PAGE> 21

GROWTH AND INCOME
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Growth and Income Portfolio is a mutual fund with an investment objective to
seek long-term growth of capital and income. There can be no assurance that the
Portfolio will achieve its investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing primarily in income-producing equity
securities, including common stocks and convertible securities; although
investments are also made in non-convertible preferred stocks and debt
securities. In selecting securities for investments the Portfolio focuses
primarily on the security's potential for growth of capital and income. The
Portfolio's management may focus on larger capitalization companies which it
believes possess characteristics for improved valuation. The Portfolio may
invest up to 15% of its total assets in securities of foreign issuers. The
Portfolio may invest in certain derivatives, such as options and futures, which
may subject the Portfolio to additional risks.

INVESTMENT RISKS

Investors who seek a more assured level of current income should be aware that
the Portfolio's income will fluctuate and that seeking income is only a part of
the Portfolio's overall investment objective. Similarly, investors who seek only
long-term growth should be aware that the Portfolio seeks to generate income and
that long-term growth of capital is only a part of the Portfolio's overall
investment objective.

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. During an
overall stock market decline, stock prices of small- or medium-sized companies
or newly-formed companies (in which the Portfolio may invest) often fluctuate
more than prices of larger, more established companies. The ability of the
Portfolio's equity securities holdings to generate income is dependent on the
earnings and the continuing declaration of dividends by the issuers of such
securities. The values of income-producing equity securities may or may not
fluctuate in tandem with overall changes in the stock markets. The Portfolio's
investments in fixed income or debt securities generally are affected by changes
in interest rates and creditworthiness of the issuer. The market prices of such
securities tend to fall as interest rates rise, and such declines may be greater
among securities with longer duration. The Portfolio's investments in
convertible securities are affected by changes similar to those of equity and
debt securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity security.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options and futures are examples of derivatives.
Such transactions involve risks different from the direct investment in
underlying securities such as imperfect correlation between the value of the
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may result in losses that
partially or completely offset gains in portfolio positions; and risks that the
transactions may not be liquid; and manager risk.

20
<PAGE> 22

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek growth of capital and income over the long term.

- - Can withstand volatility in the value of their shares of the Portfolio.

- - Wish to add to their personal investment holding a portfolio that invests
primarily in income-producing equity securities.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past two calendar years prior to the date of
this prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1997' 23.90
'1998' 19.61
</TABLE>

The Portfolio commenced investment operations on December 23, 1996. The return
from December 23, 1996 to December 31, 1996 was 0.30%.

During the two-year period shown in the bar chart, the highest quarterly return
was 15.84% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -10.52% (for the quarter ended September 30, 1998).

21
<PAGE> 23

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with the Standard &
Poor's 500-Stock Index, a broad-based market index that the Portfolio's
management believes is an applicable benchmark for the Portfolio, and with the
Lipper Growth and Income Fund Index, an index of funds with similar investment
objectives. The performance figures do not include sales charges or other
expenses at the contract level that would be paid by investors. Average annual
total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of a Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1998 1 Year Inception
- ---------------------------------------------
<S> <C> <C>
Van Kampen Growth
and Income
Portfolio 19.61% 21.30%(1)
.............................................
Standard & Poor's
500-Stock Index 28.58% 29.51%(2)
.............................................
Lipper Growth and
Income Fund Index 13.58% 19.38%(2)
.............................................
</TABLE>

Inception dates: (1) 12/23/96, (2) 12/26/96.

22
<PAGE> 24

MONEY MARKET
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Money Market Portfolio is a mutual fund with an investment objective to seek
protection of capital and high current income through investments in money
market instruments. There can be no assurance that the Portfolio will achieve
its investment objective.

INVESTMENT STRATEGIES

The Portfolio seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments maturing within
one year with a dollar-weighted average maturity of 90 days or less. The
Portfolio seeks high current income from these short-term investments to the
extent consistent with protection of capital.

INVESTMENT RISKS

An investment in the Portfolio is subject to investment risks.

INCOME RISK. The income you receive from the Portfolio is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Portfolio may drop as well.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Portfolio because
it invests in high-quality money market instruments.

MARKET RISK. Market risk is the possibility that the market values of
securities owned by the Portfolio will decline. An investment in the Portfolio
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the Portfolio seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
the Portfolio.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek protection of capital and high current income through investments in
money market instruments.

ANNUAL PERFORMANCE

[GRAPH]

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' 9.13
'1990' 7.83
'1991' 5.60
'1992' 3.36
'1993' 2.66
'1994' 3.71
'1995' 5.46
'1996' 4.89
'1997' 5.06
'1998' 5.02
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 2.34% (for the quarter ended June 30, 1989) and the lowest quarterly return
was 0.65% (for the quarter ended June 30, 1993).

Investors can obtain the current seven-day yield of the Portfolio by calling
(800) 341-2911.

23
<PAGE> 25

COMPARATIVE PERFORMANCE

The table below shows the Portfolio's performance for the past 1-year, 5-year
and 10-year periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). The performance figures do
not include sales charges or other expenses at the contract level that would be
paid by investors. Remember that the past performance of the Portfolio is not
indicative of its future performance.

24
<PAGE> 26

MORGAN STANLEY
REAL ESTATE
SECURITIES PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVES

The Morgan Stanley Real Estate Securities Portfolio is a mutual fund with a
primary investment objective to seek long-term growth of capital. Current income
is a secondary investment objective. There can be no assurance that the
Portfolio will achieve its investment objectives.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objectives by investing at least 65% of the Portfolio's total assets
in a portfolio of securities of companies operating in the real estate industry,
including equity securities of real estate investment trusts ("REITs") and other
securities of real estate operating companies. The Portfolio's management
diversifies its investments as to issuers, property types and regions. The
Portfolio's management emphasizes a bottom-up stock selection with a top-down
asset allocation overlay. A company operating in the real estate industry is one
that derives at least 50% of its assets, gross income or net profits from the
ownership, construction, management or sale of residential, commercial or
industrial real estate. Besides equity securities of REITs, the Portfolio may
invest in equity securities, including common stocks and convertible securities,
or non-convertible preferred stocks and investment-grade quality securities of
companies operating in the real estate industry. The Portfolio may invest up to
35% of its total assets in securities of companies outside the real estate
industry. The Portfolio may invest up to 25% of its total assets in securities
of foreign issuers, some or all of which may be in the real estate industry. The
Portfolio may invest in certain derivatives, such as options and futures, which
may subject the Portfolio to additional risks.

INVESTMENT RISKS

Because of the Portfolio's policy of concentrating its investments in securities
of companies operating in the real estate industry, the Portfolio is subject to
certain risks associated with the ownership of real estate and with the real
estate industry in general.

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

RISKS OF INVESTING IN REAL ESTATE. Because of the Portfolio's policy of
concentrating its of investments in securities of companies operating in the
real estate industry and because a substantial portion of the Portfolio's
investments may be comprised of REITs, the Portfolio is more susceptible to
risks associated with the ownership of real estate and with the real estate
industry in general. These risks can include fluctuations in the value of
underlying properties; defaults by borrowers or tenants; market saturation;
changes in general and local economic conditions; decreases in market rates for
rents; increases in competition, property taxes, capital expenditures, or
operating expenses; and other economic, political or regulatory occurrences
affecting the real estate industry. In addition, REITs depend upon specialized
management skills, may have limited financial resources, may have less trading
volume and may be subject to more abrupt or erratic price movements than the
overall securities markets. REITs must comply with certain federal income tax
law requirements to maintain their federal income tax status. Some REITs
(especially mortgage REITs) are affected by risks similar to those associated
with investments in debt securities including changes in interest rates and the
quality of credit extended.

25
<PAGE> 27

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, and forward contracts are
examples of derivatives. Such transactions involve risks different from the
direct investment in underlying securities, such as imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek to grow their capital over the long term.

- - Are willing to take on the increased risks of an investment concentrated in
securities of companies that operate within the same industry.

- - Can withstand volatility in the value of their shares of the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in companies operating in the real estate industry.

Investors should carefully consider the additional risks associated with the
Portfolio's policy of concentrating its investments in securities of companies
operating in the real estate industry. An investment in the Portfolio may not be
appropriate for all investors. The Portfolio is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision about the
Portfolio. An investment in the Portfolio is intended to be a long-term
investment and the Portfolio should not be used as a trading vehicle.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past three calendar years prior to the date of
this prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1996' 40.53
'1997' 21.47
'1998' -11.62
</TABLE>

The Portfolio commenced investment operations on July 3, 1995. The return from
July 3, 1995 to December 31, 1995 was 8.35%.

During the three-year period shown in the bar chart, the highest quarterly
return was 19.89% (for the quarter ended December 31, 1996) and the lowest
quarterly return was -9.32% (for the quarter ended September 30, 1998).

26
<PAGE> 28

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with two broad-based
market indices that the Portfolio's management believes are applicable
benchmarks for the Portfolio: Standard & Poor's 500-Stock Index and the NAREIT
Equity Index. The performance figures do not include sales charges or other
expenses at the contract level that would be paid by investors. Average annual
total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1998 1 Year Inception
- ---------------------------------------------
<S> <C> <C>
Morgan Stanley
Real Estate
Securities
Portfolio -11.62% 15.09%(1)
.............................................
Standard & Poor's
500-Stock Index 28.58% 28.62%(2)
.............................................
NAREIT Equity
Index -18.82% 8.40%(2)
.............................................
</TABLE>

Inception dates: (1) 7/3/95, (2) 6/30/95.

27
<PAGE> 29

STRATEGIC STOCK
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Strategic Stock Portfolio is a mutual fund with an investment objective to
seek an above average total return through a combination of potential capital
appreciation and dividend income, consistent with the preservation of invested
capital. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing in a portfolio of high dividend yielding
equity securities of companies included in the Dow Jones Industrial Average (the
"DJIA") or in the Morgan Stanley Capital International USA Index (the "MSCI USA
Index"). The Portfolio's investment adviser buys and sells investment securities
based primarily upon specific objective criteria (emphasizing dividend yield)
applied to DJIA and MSCI USA Index companies. The Portfolio may invest in
certain derivatives, such as options and futures, which may subject the
Portfolio to additional risks.

INVESTMENT RISKS

An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio.

STYLE RISK. Securities are purchased and sold for the Portfolio based primarily
upon specific objective criteria. The Portfolio's style may not be as successful
in selecting the best-performing securities as other styles and may underperform
the overall market.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek an above average total return through a combination of potential capital
appreciation and dividend income.

- - Can withstand volatility in the value of their shares in the Portfolio.

- - Wish to add their personal investment holdings a portfolio that invests
primarily in equity securities.

28
<PAGE> 30

ANNUAL PERFORMANCE

The following chart shows the annual return of the Portfolio over the one
calendar year prior to the date of this prospectus. Sales charges or other
expenses at the contract level are not reflected in this chart. If sales charges
or other expenses at the contract level had been included, the returns shown
below would have been lower. Remember that the past performance of the Portfolio
is not indicative of its future performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1998' 16.51
</TABLE>

The Portfolio commenced investment operations on November 3, 1997. The return
from November 3, 1997 to December 31, 1997 was 2.45%.

During the one-year period shown in the bar chart, the highest quarterly return
was 12.23% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -5.51% (for the quarter ended September 30, 1998).

COMPARATIVE PERFORMANCE

This table shows how the Portfolio's performance compares with two broad-based
market indices that the Portfolio's management believes are applicable
benchmarks for the Portfolio: Dow Jones Industrial Average and the MSCI USA
Index. The performance figures do not include sales charges or other expenses at
the contract level that would be paid by investors. Average annual total returns
are shown for the periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Portfolio is not indicative of its future performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1998 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen
Strategic Stock
Portfolio 16.51% 16.55%(1)
.............................................
Dow Jones
Industrial
Average 18.13% 21.88%(2)
.............................................
MSCI
USA Index 30.72% 32.61%(2)
.............................................
</TABLE>

Inception dates: (1) 11/3/97, (2) 10/31/97.

29
<PAGE> 31

VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION

Van Kampen Life Investment Trust (the "Trust") is a diversified, open-end
management investment company which offers shares in eleven separate Portfolios
(the "Portfolios"), each of which is described herein and offered pursuant to
this Trust's prospectus. Each Portfolio is in effect a separate mutual fund.
Each Portfolio has its own income, expenses, assets, liabilities and net asset
value and each Portfolio issues its own shares. Shares of each Portfolio
represent an interest only in that Portfolio. Shares are sold only to separate
accounts (the "Accounts") of various insurance companies to fund the benefits of
variable annuity or variable life insurance policies (the "Contracts"). The
Accounts may invest in shares of the Portfolios in accordance with allocation
instructions received from contract owners ("Contract Owners"). Such allocation
rights, as well as sales charges and other expenses imposed on Contract Owners
by the Contracts, are further described in the accompanying Contract prospectus.

Each Portfolio of the Trust has a different investment objective(s) which it
pursues through its investment policies as described below under "Investment
Objectives and Policies." The section entitled "Investment Practices" provides
further discussion of certain investment techniques, strategies or risks that
are common to some or all of the Portfolios. The investment objective(s) of each
Portfolio, except the Morgan Stanley Real Estate Securities Portfolio, is a
fundamental policy and may not be changed without shareholder approval of the
holders of a majority of the Portfolio's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). With
respect to the Morgan Stanley Real Estate Securities Portfolio, the investment
objectives may be changed by the Board of Trustees without shareholder approval,
but no change is anticipated. If there is a change in the objectives of such
Portfolio, shareholders should consider whether the Portfolio remains an
appropriate investment in light of their then current financial position and
needs. The differences in objectives and policies among the Portfolios can be
expected to affect the return of each Portfolio and the degree and types of
risks to which each Portfolio is subject. There are risks inherent in all
investments in securities; accordingly there can be no assurance that any
Portfolio will achieve its investment objective(s).

INVESTMENT OBJECTIVES
AND POLICIES

ASSET ALLOCATION PORTFOLIO

The investment objective of the Asset Allocation Portfolio is to seek a high
total investment return consistent with prudent investment risk through a fully
managed investment policy utilizing equity securities as well as investment
grade intermediate-and long-term debt securities and money market securities.
Total investment return consists of current income (including dividends,
interest and discount accrual) and capital appreciation or depreciation. There
are risks inherent in all investments in securities; accordingly, there can be
no assurance that the Portfolio will achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of equity
securities, investment grade intermediate- and long-term debt securities,
including preferred stocks, convertible preferred stocks and convertible debt
securities, and money market securities. The Portfolio's investment adviser may
vary the composition of the Portfolio from time to time based upon its
evaluation of economic and market trends and the anticipated relative total
investment return available from a particular type of security. Accordingly, the
Portfolio may, at any given time, be substantially invested in equity
securities, debt securities or money market securities. Achieving the
Portfolio's investment objective depends on the investment adviser's ability to
assess the effect of economic and market trends on different sectors of the
market.

Common stocks are equity securities of a corporation or other entity that
entitle the holder to a pro rata share of the profits of a corporation, if any,
without preference over any other class of securities, including such entity's
debt securities, preferred stock or other senior equity security. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. The common stocks in which the Portfolio invests will be primarily those
of large capitalization companies with characteristics including a strong
balance sheet, good financial resources, a

30
<PAGE> 32

satisfactory rate of return on capital, a good industry position and superior
management skills. The Portfolio's investment adviser believes that companies
that conform most closely to these characteristics often tend to exhibit
generally consistent earnings growth. Among the types of securities in which the
Portfolio may invest, the investments in common stocks generally exhibit the
greatest market risk, which at times can substantially impact the market value
of the Portfolio, sometimes suddenly and sharply.

The Portfolio may invest in intermediate- and long-term debt securities
(including preferred stock, convertible preferred stock and convertible debt
securities) which are rated at the time of purchase BBB or better by Standard &
Poor's ("S&P") or rated Baa or better by Moody's Investors Service, Inc.
("Moody's") or unrated securities determined by the Portfolio's investment
adviser to be of comparable quality at the time of purchase. To the extent
investments are made in fixed-income securities, the Portfolio will invest
primarily in such securities which are rated A or better by either rating
agency. A more complete description of security ratings is contained in the
appendix to this prospectus. The market prices of debt securities generally vary
inversely with changes in prevailing interest rates and generally vary more for
debt securities with longer maturities. The Portfolio is not limited as to the
maturities of the debt securities it may purchase and the debt securities in
which the Portfolio intends to invest are those with intermediate- or longer-
maturities. Debt securities with longer maturities generally tend to produce
higher yields but are subject to greater price fluctuation as a result of
changes in interest rates than debt securities with shorter maturities.

Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.

A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity security.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stocks of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity security.

The Portfolio may invest money market securities including securities issued or
guaranteed by the U.S. government, its agencies or its instrumentalities, prime
commercial paper, certificates of deposit, bankers' acceptances or other
obligations of certain domestic banks and repurchase agreements. Money market
securities generally have low market risk and credit risk but also generally
have a low potential for total investment return.

The Portfolio may invest up to 25% of its total assets, based on market value at
the time of each investment, in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Investment Practices -- Foreign Securities."

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures contracts and options on futures contracts which may
subject the Portfolio to additional risks. See "Investment Practices -- Using
Options, Futures Contracts and Options on Futures Contracts."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

Because of the fully managed approach of the Portfolio, the Portfolio's turnover
rate may be greater than other portfolios and result in increased transaction
costs,

31
<PAGE> 33

including higher brokerage charges, which may adversely impact the Portfolio's
performance.

COMSTOCK PORTFOLIO

The investment objective of the Comstock Portfolio is to seek capital growth and
income through investments in equity securities, including common stocks,
preferred stocks and securities convertible into common and preferred stocks.
There are risks inherent in all investments in securities; accordingly, there
can be no assurance that the Portfolio will achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in equity securities, consisting
principally of common stocks. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits of the
corporation, if any, without preference over any other class of securities,
including such entity's debt securities, preferred stock and other senior equity
securities. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so.

While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stock and securities convertible into common and preferred
stocks. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. A convertible security is a bond, debenture, note,
preferred stock, warrant or other security that may be converted into or
exchanged for a prescribed amount of common stock or other equity security of
the same or a different issuer within a particular period of time at a specified
price or formula. A convertible security generally entitles the holder to
receive interest paid or accrued on debt securities or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity security. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Preferred stocks and convertible
securities generally do not participate directly in any dividend increases or
decreases of the underlying equity security although the market prices of
preferred stocks and convertible securities may be affected by any such dividend
changes or other changes in the underlying equity security.

In selecting securities for investment, the Portfolio will focus primarily on
the security's potential for capital growth and income. The Portfolio emphasizes
a "value" style of investing seeking well-established, undervalued companies.
The Portfolio's investment adviser generally seeks to identify companies that
are undervalued and have identifiable factors that might lead to improved
valuations. This catalyst could come from within the company in the form of new
management, operational enhancements, restructurings or reorganization. It could
also be an external factor, such as an improvement in industry conditions or a
regulatory change. The Portfolio's style presents the risk that the valuations
never improve or that the returns on "value" equity securities are less than
returns on other styles of investing or the overall stock market. The Portfolio
may invest in issuers of small-, medium- or large-capitalization companies. The
securities of small- or medium-sized companies may be subject to more abrupt or
erratic market movements than securities of larger companies or the market
averages in general. In addition, such companies typically are subject to a
greater degree of change in earnings and business prospects than are larger
companies. Thus, the Portfolio may be subject to greater investment risk than
that assumed through investment in the equity securities of larger-
capitalization companies.

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

The Portfolio generally holds up to 10% of its total assets in high-quality
short-term debt securities and

32
<PAGE> 34

in investment grade corporate debt securities in order to provide liquidity.
High-quality short-term debt investments include securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, prime commercial
paper, certificates of deposit, bankers' acceptances and other obligations of
domestic banks having total assets of at least $500 million and repurchase
agreements. Investment grade corporate debt securities include securities rated
BBB or better by Standard & Poor's ("S&P") or rated Baa or better by Moody's
Investors Service, Inc. ("Moody's") or unrated securities judged by the
investment adviser to be of comparable quality. A more complete description of
security ratings is contained in the appendix to this prospectus. The market
prices of such debt securities generally vary inversely with changes in
prevailing interest rates.

The Portfolio may invest up to 15% of its total assets in securities of foreign
issuers. Such investments include certain risks not typically associated with
investments in U.S. securities. See "Investment Practices -- Foreign
Securities."

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures contracts and options on futures which may subject
the Portfolio to additional risks. See "Investment Practices -- Using Options,
Futures Contracts and Options on Futures Contracts."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

DOMESTIC INCOME PORTFOLIO

The primary investment objective of the Domestic Income Portfolio is to seek
current income. When consistent with the primary investment objective, capital
appreciation is a secondary investment objective. There are risks inherent in
all investments in securities; accordingly, there can be no assurance that the
Portfolio will achieve its investment objectives.

The Portfolio's investment adviser seeks to achieve these investment objectives
by investing primarily in a diversified portfolio of income securities,
including convertible and non-convertible debt securities and preferred stocks.
The Portfolio may invest in investment grade securities and lower-rated and
unrated securities. Under normal market conditions, the Portfolio invests at
least 80% of its total assets in income securities rated at the time of purchase
B or higher by S&P or rated B or higher by Moody's or unrated securities judged
by the Portfolio's investments adviser to be of comparable quality. Securities
rated BB or below by S&P or Ba or below by Moody's or unrated securities of
comparable quality are commonly referred to as "junk bonds" and involve special
risks as compared to investments in higher-grade securities. See "Risks of Lower
Grade Securities" below.

In general, the prices of income securities vary inversely with interest rates.
If interest rates rise, income security prices generally fall; if interest rates
fall, income security prices generally rise. In general, longer-maturity income
securities offer higher yields than shorter-maturity income securities, all
other factors, including credit quality, being equal; however, for a given
change in interest rates, longer-maturity income securities generally fluctuate
more in price (gaining or losing more in value) than shorter-maturity income
securities. While the Portfolio has no policy limiting the maturities of the
income securities in which it may invest, the Portfolio's investment adviser
seeks to moderate market risk by generally maintaining a portfolio duration
within a range of four to six years. Duration is a measure of the expected life
of an income security that was developed as an alternative to the concept of
"term to maturity." Duration incorporates an income security's yield, coupon
interest payments, final maturity and call features into one measure. A duration
calculation looks at the present value of a security's entire payment stream
whereas term to maturity is based solely on the date of a security's final
principal repayment.

The higher yields sought by the Portfolio are generally obtainable from
securities rated in the lower categories by recognized rating services or
unrated securities of comparable quality. These securities may be issued in
connection with corporate restructurings, such as leveraged buyouts, mergers,
acquisitions, debt recapitalization or similar events. These securities are
often issued by smaller, less creditworthy companies or companies with
substantial debt and may include financially troubled companies or companies in
default or in restructuring. Lower-grade securities often are subordinated to
the prior claims of banks and other senior lenders. Lower-grade securities are
regarded by the rating agencies as predominately speculative with respect to the
issuer's continuing ability to make principal and interest payments. The ratings
of S&P and Moody's

33
<PAGE> 35

represent their opinions of the quality of the securities they undertake to
rate, but not the market risk of such securities. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, securities with the same maturity, coupon and rating may have
different yields while securities of the same maturity and coupon with different
ratings may have the same yield. See "Risks of Lower-Grade Securities" below.

In purchasing securities for the Portfolio, the investment adviser considers,
among other thing, the security's current income potential, the rating assigned
to the security, the issuer's experience and managerial strength, the financial
soundness of the issuer and the outlook of its industry, changing financial
condition, borrowing requirements or debt maturity schedules, regulatory
concerns, and responsiveness to changes in business conditions and interest
rates. The Portfolio's investment adviser also may consider relative values
based on anticipated cash flow, interest or dividend coverage, balance sheet
analysis, and earnings prospects. The investment adviser evaluates each
individual income security for credit quality and value and attempts to identify
higher-yielding securities of companies whose financial condition has improved
since the issuance of such securities or is anticipated to improve in the
future. Because of the number of investment considerations involved in investing
in medium- and lower-grade securities, achievement of the Portfolio's investment
objectives may be more dependent upon the investment adviser's credit analysis
than is the case with investing solely in higher-grade securities.

The Portfolio may invest in securities not producing immediate cash income when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Portfolio's investment adviser will weigh these concerns
against the expected total returns from such instruments.

The Portfolio also may purchase or sell U.S. government securities on a forward
commitment basis. See "When-Issued and Delayed Delivery" below.

Although the Portfolio invests primarily in domestic income securities, the
Portfolio may invest up to 25% of its total assets based on the market value at
the time of investment in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Investment Practices -- Foreign Securities."

Income securities in which the Portfolio may invest include the following:

STRAIGHT INCOME SECURITIES. These include bonds and other debt obligations which
bear a fixed or variable rate of interest payable at regular intervals and have
a fixed or resettable maturity date, and preferred stock, which generally has a
fixed or variable dividend rate (and, unlike interest on debt securities, such
dividends must be declared by the issuer's board of directors before becoming
payable) and may be subject to optional or mandatory redemption provisions. The
particular terms of such securities vary and may include features such as call
provisions and sinking funds.

PAY-IN-KIND INCOME SECURITIES. These pay interest in additional income
securities rather than in cash.

ZERO-COUPON SECURITIES. These bear no interest obligation but are issued at a
discount from their value at maturity. When held to maturity, their entire
return equals the difference between their issue price and their maturity value.
Interest is however accrued by the Portfolio each day for accounting and federal
income tax purposes.

ZERO-FIXED-COUPON SECURITIES. These are zero-coupon securities which convert on
a specified date to interest-bearing income securities.

The Portfolio may invest in securities rated below B by both S&P and Moody's,
common stocks or other equity securities and income securities on which interest
or dividends are not being paid when such investments are consistent with the
Portfolio's investment objectives or are acquired as part of a unit consisting
of a combination of income or equity securities. The Portfolio will not purchase
any such securities which will cause more than 20% of its total assets to be so
invested or which would cause more than 10% of its total assets to be invested
in common stocks or other equity securities. Equity securities as referred to
herein do not include preferred stocks (which the Portfolio considers income
securities).

34
<PAGE> 36

This limitation does not require the Portfolio to sell a portfolio security
because its rating has been changed.

Securities rated below B by both S&P and Moody's often include debt obligations
or other securities of companies that are financially troubled, in default or
are in bankruptcy or reorganization. Securities of such companies are usually
available at a deep discount from the face value of the instrument. The
Portfolio may invest in deep discount securities when the Portfolio's investment
adviser believes that existing factors are likely to restore the company to a
healthy financial condition. Such factors include a restructuring of debt,
management changes, existence of adequate assets, or other unusual
circumstances.

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

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

RISKS OF LOWER-GRADE SECURITIES. Securities which are in the lower-grade
categories generally offer a higher current yield than is offered by
higher-grade securities of similar maturities, but they also generally involve
greater risks, such as greater credit risk, greater market risk, greater
liquidity concerns and potentially greater manager risk. Investors should
carefully consider the risks of owning shares of a portfolio which invests in
lower-grade securities before investing in the Portfolio.

Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade debt securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Portfolio
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Portfolio may
incur additional expenses and may determine to invest additional assets with
respect to such issuer or the project or projects to which the Portfolio's
securities relate. Further, the Portfolio may incur additional expenses to the
extent that it is required to seek recovery upon a default in the payment of
interest or the repayment of principal on its portfolio holdings, and the
Portfolio may be unable to obtain full recovery on such amounts.

Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Portfolio's investments can be expected
to fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Portfolio
and thus in the net asset value of the Portfolio. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value and
liquidity of lower-grade securities.

The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities.

35
<PAGE> 37

Liquidity relates to the ability of a fund to sell a security in a timely manner
at a price which reflects the value of that security. To the extent that there
is no established retail market for some of the lower-grade securities in which
the Portfolio may invest, trading in such securities may be relatively inactive.
Prices of lower-grade securities may decline rapidly in the event a significant
number of holders decide to sell. Changes in expectations regarding an
individual issuer or lower-grade securities generally could reduce market
liquidity for such securities and make their sale by the Portfolio more
difficult, at least in the absence of price concessions. The effects of adverse
publicity and investor perceptions may be more pronounced for securities for
which no established retail market exists as compared with the effects on
securities for which such a market does exist. An economic downturn or an
increase in interest rates could severely disrupt the market for such securities
and adversely affect the value of outstanding securities or the ability of the
issuers to repay principal and interest. Further, the Portfolio may have more
difficulty selling such securities in a timely manner and at their stated value
than would be the case for securities for which an established retail market
does exist.

The Portfolio's investment adviser is responsible for determining the net asset
value of the Portfolio, subject to the supervision of the Portfolio's Board of
Trustees. During periods of reduced market liquidity and in the absence of
readily available market quotations for lower-grade securities held in the
Portfolio's portfolio, the ability of the Portfolio's investment adviser to
value the Portfolio's securities becomes more difficult and the investment
adviser's use of judgment may play a greater role in the valuation of the
Portfolio's securities due to the reduced availability of reliable objective
data.

New or proposed laws may have an impact on the market for lower-grade
securities. The Portfolio's investment adviser is unable at this time to predict
what effect, if any, legislation may have on the market for lower-grade
securities.

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

The Portfolio will rely on its investment adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. The amount of
available information about the financial condition of certain lower-grade
issuers may be less extensive than other issuers. In its analysis, the
Portfolio's investment adviser may consider the credit ratings of S&P and
Moody's in evaluating securities although the investment adviser does not rely
primarily on these ratings. Ratings evaluate only the safety of principal and
interest payments, not the market value risk. Additionally, ratings are general
and not absolute standards of quality, and credit ratings are subject to the
risk that the creditworthiness of an issuer may change and the rating agencies
may fail to change such ratings in a timely fashion. A rating downgrade does not
require the Portfolio to dispose of a security. The Portfolio's investment
adviser continuously monitors the issuers of securities held in the Portfolio.
Because of the number of investment considerations involved in investing in
lower-grade securities, achievement of the Portfolio's investment objectives may
be more dependent upon the investment adviser's credit analysis than is the case
with investing in higher-grade securities.

The table below sets forth the percentages of the Portfolio's assets invested
during the fiscal year ended December 31, 1998 in the various S&P's and Moody's
rating categories and in unrated securities determined by the Portfolio's
investment adviser to be of comparable quality. The percentages are based on the
dollar-weighted average of credit ratings of all securities held by the
Portfolio during the 1998 fiscal year computed on a monthly basis.

<TABLE>
<CAPTION>
Period Ended December 31, 1998
Unrated Securities of
Rated Securities Comparable Quality
(As a Percentage of (As a Percentage of
Rating Category Portfolio Value) Portfolio Value)
- --------------------------------------------------------------------
<S> <C> <C>
AAA/Aaa 2.56% 0.00%
....................................................................
AA/Aa 0.00% 0.00%
....................................................................
A/A 13.96% 0.00%
....................................................................
BBB/Baa 55.01% 0.00%
....................................................................
BB/Ba 28.47% 0.00%
....................................................................
Percentage of
Rated and
Unrated
Securities 100.00% 0.00%
....................................................................
</TABLE>

36
<PAGE> 38

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase or sell
U.S. government securities on a "when-issued" or "delayed delivery" basis
("Forward Commitments"). These transactions occur when securities are purchased
or sold by the Portfolio with payment and delivery taking place in the future,
frequently a month or more after such transaction. The price is fixed on the
date of the commitment, and the seller continues to accrue interest on the
securities covered by the Forward Commitment until delivery and payment take
place. At the time of settlement, the market value of the securities may be more
or less than the purchase or sale price. The Portfolio may either settle a
Forward Commitment by taking delivery of the securities or may either resell or
repurchase a Forward Commitment on or before the settlement date in which event
the Portfolio may reinvest the proceeds in another Forward Commitment. These
transactions are subject to market risk as the value or yield of a security at
delivery may be more or less than the purchase price or the yield generally
available on securities when delivery occurs. When engaging in Forward
Commitments, the Portfolio relies on the other party to complete the
transaction, should the other party fail to do so, the Portfolio might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure. The Portfolio maintains a segregated
account (which is marked to market daily) of cash or liquid portfolio securities
with the Portfolio's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase or sell continues.

EMERGING GROWTH PORTFOLIO

The investment objective of the Emerging Growth Portfolio is to seek capital
appreciation by investing in a portfolio of securities consisting principally of
common stocks of small- and medium-sized companies considered by the Portfolio's
investment adviser to be emerging growth companies. Any ordinary income received
from securities owned by the Portfolio is entirely incidental to the Portfolio's
investment objective of capital appreciation. There are risks inherent in all
investments in securities; accordingly, there can be no assurance that the
Portfolio will achieve its investment objective.

As a fundamental investment policy, the Portfolio under normal conditions,
invests at least 65% of its total assets in common stocks of small- and medium-
sized companies both domestic and foreign, in the early stages of their life
cycles that the Portfolio's investment adviser believes have the potential to
become major enterprises. The Portfolio's investment adviser, under current
market conditions, generally defines small- and medium-sized companies by
reference to the Standard & Poor's Midcap 400 Index (which consists of companies
in the capitalization range of approximately $170 million to $14 billion as of
March 31, 1999). Investments in such companies may offer greater opportunities
for growth of capital than larger, more established companies, but also may
involve certain special risks. Emerging growth companies often have limited
product lines, markets, distribution channels or financial resources, and they
may be dependent upon one or a few key people for management. The securities of
such companies may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general.

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

The Portfolio's primary approach is to seek what the Portfolio's investment
adviser believes to be unusually attractive growth investments on an individual
company basis. The Portfolio may invest in securities that have above average
volatility of price movement. Because prices of common stocks and other
securities fluctuate, the value of an investment in the Portfolio will vary
based upon the Portfolio's investment performance. The Portfolio attempts to
reduce overall exposure to risk from declines in securities prices by spreading
its investments over many different companies in a variety of industries. There
is, however, no assurance that the Portfolio will be successful in achieving its
objective.

Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually

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carries with it the right to vote and frequently an exclusive right to do so.

While the Portfolio invests principally in common stocks, the Portfolio may
invest to a limited extent in other securities such as preferred stocks,
convertible securities and warrants. Preferred stock generally has a preference
as to dividends and liquidation over an issuer's common stock but ranks junior
to debt securities in an issuer's capital structure. Unlike interest payments on
debt securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. Generally, warrants are securities that may be
exchanged for a prescribed amount of common stock or other equity security of
the issuer within a particular period of time at a specified price or in
accordance with a specified formula.

The Portfolio may invest up to 20% of its total assets in securities of foreign
issuers. Such investments include certain risks not typically associated with
investments in U.S. securities. See "Investment Practices -- Foreign
Securities."

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures contracts and related options which may subject the
Portfolio to additional risks. See "Investment Practices -- Using Options,
Futures Contracts and Options on Futures Contracts."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

ENTERPRISE PORTFOLIO

The investment objective of the Enterprise Portfolio is to seek capital
appreciation through investments in securities believed by the Portfolio's
investment adviser to have above average potential for capital appreciation. Any
income received on securities owned by the Portfolio is entirely incidental to
the Portfolio's investment objective of capital appreciation. There are risks
inherent in all investments in securities; accordingly, there can be no
assurance that the Portfolio will achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing primarily in common stocks which
it believes have above-average potential for capital appreciation. The
Portfolio's primary approach is to seek what the Portfolio's investment adviser
believes to be unusually attractive growth investments on an individual company
basis. The Portfolio may invest in securities that have above average volatility
of price movement. Because prices of common stocks and other securities
fluctuate, the value of an investment in the Portfolio will vary. The Portfolio
attempts to reduce overall exposure to risk from declines in securities prices
by spreading its investments over many different companies in a variety of
industries.

While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stocks and warrants. Preferred stock generally has a
preference as to dividends and liquidation over an issuer's common stock but
ranks junior to debt securities in an issuer's capital structure. Unlike
interest payments on debt securities, preferred stock dividends are payable only
if declared by the issuer's board of directors. Preferred stock also may be
subject to optional mandatory redemption provisions. Generally, warrants are
securities that may be exchanged for a prescribed amount of common stock or
other equity security of the issuer within a particular period of time at a
specified price or in accordance with a specific formula.

In selecting securities for investment, the Portfolio will generally focus on
common stocks of "growth" companies, including companies with new products,
services or processes. The investment adviser seeks such securities which it
believes offer a combination of strong business fundamentals at an attractive
price. Growth companies generally include those companies with established
records of growth in sales or earnings that the Portfolio's investment adviser
believes are entering into a growth cycle in their respective businesses, with
the expectation that the stock of such companies will increase in value. Stocks
of different types, such as "growth" stocks or "value" stocks, tend to shift in
and out of favor depending on market and economic conditions. Thus, the value of
the Portfolio's investments in "growth"

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stocks will vary and may at times be lower or higher than that of other types of
funds. The market values of "growth" common stocks may be more volatile than
other types of investments. The Portfolio may invest in companies generating or
applying new technologies, new or improved distribution techniques or new
services, which companies may benefit from changing consumer demands or
lifestyles, or companies that have projected earnings in excess of the average
for their sector or industry. In each case, such companies have prospects that
the Portfolio's investment adviser believes are favorable for above-average
capital appreciation. The Portfolio also may focus its investments on stocks of
companies in cyclical industries during periods when their securities appear
attractive for capital appreciation.

The companies in which the Portfolio invests may be in any market capitalization
range, provided the Portfolio's investment adviser believes the investment is
consistent with the Portfolio's objective. The securities of small- or
medium-sized companies may be subject to more abrupt or erratic market movements
than securities of larger companies or the market averages in general. In
addition, such companies typically are subject to a greater degree of change in
earnings and business prospects than are larger companies. Thus, to the extent
the Portfolio invests in small- and medium-sized companies, the Portfolio may be
subject to greater investment risk than that assumed through investment in the
equity securities of larger-capitalization companies.

The Portfolio generally holds a portion of its assets in investment grade
short-term debt securities and in investment grade corporate debt securities in
order to provide liquidity. Investment grade short-term debt investments include
securities issued or guaranteed by the U.S. government, its agencies or its
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and other obligations of domestic banks having total assets of at
least $500 million and repurchase agreements. Investment grade corporate debt
securities include securities rated BBB or better by Standard & Poor's ("S&P")
or Baa or higher by Moody's Investors Service, Inc. ("Moody's"). A more complete
description of security ratings is contained in the appendix to this prospectus.
The market prices of such debt securities generally vary inversely with changes
in prevailing interest rates.

The Portfolio may invest up to 10% of its total assets, based on market value at
the time of each investment, in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Investment Practices -- Foreign Securities."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

GLOBAL EQUITY PORTFOLIO

The investment objective of the Global Equity Portfolio is to seek long-term
growth of capital through investments in an internationally diversified
portfolio of equity securities of companies of any nation including the United
States. There are risks inherent in all investments in securities; accordingly,
there can be no assurance that the Portfolio will achieve its investment
objective.

The Portfolio's investment adviser seeks to achieve the investment objective by
investing in an internationally diversified portfolio of equity securities,
including common stocks, preferred stocks and warrants or options to acquire
such securities, based upon the evaluation by the Portfolio's investment adviser
of economic and market trends and the anticipated relative capital growth
opportunities available from a particular country or security. Under normal
market conditions, the Portfolio invests at least 65% of its total assets in
securities of issuers of at least three countries (including the United States.)

The Portfolio's investment adviser, subject to the direction of the Portfolio's
Board of Trustees, provides the Portfolio with an overall investment

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<PAGE> 41

program consistent with the Portfolio's objective and policies. The Portfolio's
investments may be shifted among the world's various capital markets, including
developed and undeveloped countries, and among different types of securities in
accordance with the investment adviser's ongoing analysis of economic or market
trends, developments affecting the markets and securities in which the Portfolio
may invest and the anticipated relative capital growth opportunities available
from a particular country or security.

In selecting non-U.S. investments for the Portfolio, the Portfolio's investment
adviser uses a "top-down" approach that emphasizes country and sector selection
and weighting rather than individual security selection. This approach reflects
the investment adviser's philosophy for this Portfolio that a broad selection of
securities representing exposure to world markets based upon the economic
outlook and current valuation levels for each country and certain sectors is an
effective way to maximize the return and minimize the risk associated with
global investment.

The Portfolio's investment adviser determines country and sector allocations for
the Portfolio on an ongoing basis. The Portfolio will invest in the United
States and other industrialized countries throughout the world that comprise the
Morgan Stanley Capital International World Index. In addition, the Portfolio may
invest a portion of its assets in securities of certain developing or emerging
markets countries.

By analyzing a variety of macroeconomic and political factors, the Portfolio's
investment adviser develops fundamental projections on interest rates,
currencies, corporate profits and economic growth for each country or sector.
These country projections are then used to determine what the investment adviser
believes to be a fair value for the stock market of each country or sector.
Discrepancies between actual value and fair value, as determined by the
investment adviser, provide an expected return for each stock market. The
expected return is adjusted by currency return expectations derived from the
investment adviser's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country and sector allocation
decision is then reached by considering the expected total return in light of
various considerations such as market size, volatility, liquidity and country
risk.

Within a particular country or sector, investments are made through the purchase
of equity securities which, in the aggregate, replicate a broad market index for
that country or sector, which in most cases will be the Morgan Stanley Capital
International Index ("MSCI Index") for the particular country or sector. The
MSCI Indices measure the performance of stock markets worldwide and are based on
the share prices of companies listed on the local stock exchange of the
specified country or countries within a specified region. The combined market
capitalization of companies in these indices represent approximately 60% of the
aggregate market value of the covered stock exchanges. Companies included in the
MSCI Index for a country replicate the industry composition of the local market
and are a representative sampling of large-, medium- and small-companies,
subject to liquidity. Non-domiciled companies traded on the country's local
exchange and companies with restricted float due to dominant shareholders or
cross-ownership are avoided. The Portfolio's investment adviser may overweight
or underweight an industry segment of a particular index if it concludes this
would be advantageous to the Portfolio.

The Portfolio may invest in equity securities including common stocks, preferred
stocks, warrants or options to acquire such securities and depository receipts.
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. Generally, warrants or options to acquire equity
securities are securities that may be exchanged for a prescribed amount of such
equity securities of the issuer within a particular period of time at a
specified price or in accordance with a specified formula.

The Portfolio may invest in issuers of small-, medium- or large-capitalization
companies. The securities of small- or medium-sized companies may be subject to
more abrupt or erratic market movements than securities of larger companies or
the market averages in general. In addition, such

40
<PAGE> 42

companies typically are subject to a greater degree of change in earnings and
business prospects than are larger companies. Thus, to the extent the Portfolio
invests in small- and medium-sized companies, the Portfolio may be subject to
greater investment risk than that assumed through investment in the equity
securities of larger-capitalization companies.

The Portfolio may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. These securities are not
necessarily denominated in the same currency as the underlying securities but
generally are denominated in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by foreign
corporations. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid by the ADR holders. In addition, less information
generally is available for an unsponsored ADR than a sponsored ADR, and
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Portfolio may invest in ADRs through both
sponsored and unsponsored arrangements. EDRs are receipts issued in Europe by
banks or depositaries which evidence similar ownership arrangements.

The Portfolio generally holds a portion of its assets in short-term debt
securities in order to provide liquidity. Short-term debt securities include
securities issued or guaranteed by the U.S. government or foreign governments,
their agencies or instrumentalities, prime commercial paper, certificates of
deposit, bankers' acceptances and other obligations of banks having total assets
of at least $500 million and repurchase agreements.

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

RISK FACTORS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS. An investment in the
Portfolio involves risks similar to those of investing in foreign securities
generally. The Portfolio invests in securities denominated in U.S. dollars and
in currencies other than U.S. dollars. The percentage of assets invested in
securities of a particular country or denominated in a particular currency will
vary in accordance with the investment adviser's assessment of the relative
yield, growth potential and the relationship of a country's currency to the U.S.
dollar, which is based upon such factors as fundamental economic strength,
credit quality and interest rate trends. Investments in foreign securities
present certain risks not ordinarily associated with investments in securities
of U.S. issuers. These risks include fluctuations in foreign currency exchange
rates, political, economic or legal developments (including war or other
instability, expropriation of assets, nationalization and confiscatory
taxation), imposition of foreign exchange limitations (including currency
blockage), withholding taxes on dividend or interest payments or capital
transactions or other restrictions, higher transaction costs (including higher
brokerage, custodial and settlement costs and currency translation costs) and
possible difficulty in enforcing contractual obligations or taking judicial
action. Also, foreign securities may not be as liquid and may be more volatile
than comparable domestic securities.

In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.

Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise

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<PAGE> 43

could impact yields and result in temporary periods when assets are not fully
invested or attractive investment opportunities are foregone.

The Portfolio's investments in securities of developing or emerging markets are
subject to greater risks than the Portfolio's investments in securities of
developed countries since emerging markets tend to have economic structures that
are less diverse and mature and political systems that are less stable than
developed countries.

Since the Portfolio invests in securities denominated or quoted in currencies
other than the U.S. dollar, the Portfolio will be affected by changes in foreign
currency exchange rates (and exchange control regulations) which affect the
value of securities in the Portfolio and the income and appreciation or
depreciation of Portfolio investments. Changes in foreign currency exchange
ratios relative to the U.S. dollar will affect the U.S. dollar value of the
Portfolio's assets denominated in that currency and the Portfolio's yield on
such assets. In addition, the Portfolio will incur costs in connection with
conversions between various currencies. The Portfolio's foreign currency
exchange transactions generally will be conducted on a spot basis (that is, cash
basis) at the spot rate for purchasing or selling currency prevailing in the
foreign currency exchange market. The Portfolio purchases and sells foreign
currency on a spot basis in connection with the settlement of transactions in
securities traded in such foreign currency. The Portfolio does not purchase and
sell foreign currencies as an investment.

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

The Portfolio may attempt to hedge against changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency futures contract for such
amount. Futures contracts are described below under the heading "Investment
Practices -- Using Options, Futures Contracts and Options in Futures Contracts."
Such hedging strategies may be employed before the Portfolio purchases a foreign
security traded in the hedged currency which the Portfolio anticipates acquiring
or between the date the foreign security is purchased or sold and the date on
which payment therefor is made or received. Hedging against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
move in the direction opposite to the hedged position. Unanticipated changes in
currency prices may result in poorer overall performance for the Portfolio than
if it had not entered into such contracts.

The Portfolio's custodian will place cash or liquid securities in a segregated
account having a value equal to the aggregate amount of the Portfolio's
commitments under forward contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities are placed in the
account on a daily basis so that the value of the account equals the amount of
the Portfolio's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign currency
by a forward sale contract at a price no higher than the forward contract price
or the Portfolio may purchase a put option permitting the Portfolio to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price.

SHORT SALES The Portfolio may from time to time make short sales of securities
it owns or has the right to acquire through conversion or exchange of other
securities it owns. A short sale is "against the box" to the extent that the
Portfolio contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short. In a short sale, the Portfolio does
not immediately deliver the securities sold and does not receive the proceeds
from the sale. The Portfolio is required to recognize gain from the short sale
for federal income tax purposes at the time it enters into the short sale, even
though it does not receive the sales proceeds until it delivers the securities.
The Portfolio is said to have a

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<PAGE> 44

short position in the securities sold until it delivers the securities sold, at
which time it receives the proceeds of the sale. The Portfolio may not make
short sales or maintain a short position if to do so would cause more than 25%
of its total assets, taken at market value, to be held as collateral for such
sales. To secure its obligation to deliver the securities sold short, the
Portfolio will deposit in escrow in a separate account with its custodian an
equal amount of the securities sold short or securities convertible into or
exchangeable for such securities. The Portfolio may close out a short position
by purchasing and delivering an equal amount of the securities sold short,
rather than by delivering securities already held by the Portfolio, because it
may want to continue to receive interest and dividend payments on its
investments that are convertible into the securities sold short.

GOVERNMENT PORTFOLIO

The investment objective of the Government Portfolio is to seek to provide
investors with high current return consistent with preservation of capital.
There are risks inherent in all investments in securities; accordingly, there
can be no assurance that the Portfolio will achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing at least 80% of the Portfolio's
total assets in debt securities issued or guaranteed by the U.S. government, its
agencies or its instrumentalities, including mortgage-related securities issued
or guaranteed by instrumentalities of the U.S. government. Under normal market
conditions, the Portfolio may invest up to 20% of its total assets in other
government-related securities, including privately issued mortgage-related and
mortgage-backed securities not issued or directly guaranteed by
instrumentalities of the U.S. government, privately issued certificates
representing "stripped" U.S. government or mortgage-related securities and
repurchase agreements fully collateralized by U.S. government securities. While
securities purchased for the Portfolio's investments may be issued or guaranteed
by the U.S. government, the shares issued by the Portfolio to investors are not
insured or guaranteed by the U.S. government, its agencies or its
instrumentalities or any other person or entity. For more information on the
Portfolio's investments, see "U.S. Government Securities" and "Government-
Related Securities" below.

The value of debt securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, debt security prices
generally fall; if interest rates fall, debt security prices generally rise.
Debt securities with longer maturities generally offer higher yields than debt
securities with shorter maturities assuming all other factors, including credit
quality, being equal. For a given change in interest rates, the market prices of
longer-maturity debt securities generally fluctuate more than the market prices
of shorter-maturity debt securities. While the Portfolio has no policy limiting
the maturities of the individual debt securities in which it may invest, the
Portfolio's investment adviser seeks to moderate market risk by generally
maintaining a portfolio duration of four to six years. Duration is a measure of
the expected life of a debt security that was developed as an alternative to the
concept of "term to maturity." Duration incorporates a debt security's yield,
coupon interest payments, final maturity and call features into one measure. A
duration calculation looks at the present value of a security's entire payment
stream whereas term to maturity is based solely on the date of a security's
final principal repayment.

The Portfolio may invest in mortgage-related or mortgage-backed securities. The
value of such securities tend to vary inversely with changes in prevailing
interest rates, but also are more susceptible to prepayment risk and extension
risk than other debt securities.

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

In order to hedge against changes in interest rates, the Portfolio may enter
into certain derivative transactions, such as the purchase or sell options,
futures contracts and options on such contracts and interest rate swaps or other
interest rate-related transactions. By using such strategies, the Portfolio
seeks to limit its exposure to adverse interest rate changes, but the Portfolio
also reduces its potential for capital appreciation on debt securities if
interest

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<PAGE> 45

rates decline. The purchase and sale of such securities may result in a higher
portfolio turnover rate than if the Portfolio had not purchased or sold such
securities. See "Interest Rate Transactions" and "Investment Practices -- Using
Options, Futures Contracts and Options on Futures Contracts."

The Portfolio also may purchase or sell U.S. government securities on a forward
commitment basis. See "When-Issued and Delayed Delivery Securities" below.

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

The Portfolio intends to invest in U.S. Treasury securities and in securities
issued by at least four U.S. government agencies or instrumentalities in the
amounts necessary to permit the Accounts to meet certain diversification
requirements imposed by Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code"), at the end of each quarter of the year (or within 30 days
thereafter). See "Dividends, Distributions and Taxes." In the event the
Portfolio does not meet the diversification requirements of Section 817(h) of
the Code, the policies funded by shares of the Portfolio will not be treated as
life insurance for federal income tax purposes and the owners of the policies
will be subject to taxation on their share of the dividends and distributions
paid by the Portfolio.

U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities include: (1) U.S. Treasury
obligations, which differ in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturity of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years), including the principal components or the
interest components issued by the U.S. government under the Separate Trading of
Registered Interest and Principal Securities program (i.e. "STRIPS"), all of
which are backed by the full faith and credit of the U.S.; and (2) obligations
issued or guaranteed by U.S. government agencies or instrumentalities, including
government guaranteed mortgage-related securities, some of which are backed by
the full faith and credit of the U.S. Treasury, some of which are supported by
the right of the issuer to borrow from the U.S. government and some of which are
backed only by the credit of the issuer itself.

MORTGAGE-RELATED SECURITIES. Mortgage loans securing real property made by
banks, savings and loan institutions, and other lenders are often assembled into
pools. Interests in such pools may then be issued by private entities or also
may be issued or guaranteed by an agency or instrumentality of the U.S.
government. Interests in such pools are what this prospectus calls
"mortgage-related securities." Mortgage-related securities include, but are not
limited to, obligations issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA is a wholly owned
corporate instrumentality of the U.S. whose securities and guarantees are backed
by the full faith and credit of the U.S. FNMA, a federally chartered and
privately owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the U.S. The securities and guarantees of FNMA and FHLMC
are not backed, directly or indirectly, by the full faith and credit of the U.S.
Although the Secretary of the Treasury of the U.S. has discretionary authority
to lend amounts to FNMA up to certain specified limits, neither the U.S.
government nor any agency thereof is obligated to finance FNMA's or FHLMC's
operations or to assist FNMA or FHLMC in any other manner. Securities of FNMA
and FHLMC include those issued in principal only or interest only components.

The yield and payment characteristics of mortgage-related securities differ from
traditional debt securities. Mortgage-related securities are characterized by
monthly payments to the holder, reflecting the monthly payments made by the
borrowers who received the underlying mortgage loans less fees paid to the
guarantor and the servicer of such mortgage loans. The payments to the holders
of mortgage-related securities (such as the Portfolio), like the payments on the
underlying mortgage loans, represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such as 20 or 30
years, the borrowers can, and typically do, pay them off sooner. Thus, the
holders of mortgage-related securities frequently receive prepayments of
principal, in addition to the principal which is part of the regular monthly
payment. Faster or slower prepayments than expected on underlying mortgage loans
can dramatically alter the valuation and yield-to-maturity of mortgage-related
securities. The value of mortgage-related securities, like traditional debt
securities, tends to vary inversely with changes in prevailing interest rates.
Mortgage-related securities, however, may benefit less than traditional debt
securities from declining interest rates because a

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property owner is more likely to refinance a mortgage which bears a relatively
high rate of interest during a period of declining interest rates. This means
some of the Portfolio's higher yielding securities might be converted to cash,
and the Portfolio will be forced to accept lower interest rates when that cash
is used to purchase new securities at prevailing interest rates. The increased
likelihood of prepayment when interest rates decline also limits market price
appreciation of mortgage-related securities. If the Portfolio buys
mortgage-related securities at a premium, mortgage foreclosures or mortgage
prepayments may result in a loss to the Portfolio of up to the amount of the
premium paid since only timely payment of principal and interest is guaranteed.
Alternatively, during periods of rising interest rates, mortgage-related
securities are often more susceptible to extension risk (i.e. rising interest
rates could cause property owners to prepay their mortgage loans more slowly
than expected when the security was purchased by the Portfolio which may further
reduce the market value of such security and lengthen the duration of such
security).

The Portfolio may invest in collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs"). CMOs are debt obligations
collateralized by a pool of mortgage loans or mortgaged-related securities which
generally are held under an indenture issued by financial institutions or other
mortgage lenders or issued or guaranteed by agencies or instrumentalities of the
U.S. government. REMICs are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. CMOs and REMICs
generally are issued in a number of classes or series with different maturities.
The classes or series are retired in sequence as the underlying mortgages are
repaid. Such securities generally are subject to market risk, prepayment risk
and extension risk like other mortgage-related securities. Certain of these
securities may have variable or floating interest rates and others may be
stripped (securities which provide only the principal or interest feature of the
underlying security). CMOs or REMICs issued or guaranteed by agencies or
instrumentalities of the U.S. government are treated by the Portfolio as U.S.
government securities.

GOVERNMENT-RELATED SECURITIES. Under normal market conditions, the Portfolio may
invest up to 20% of its assets in, among other things, government-related
securities, including privately issued mortgage-related and mortgage-backed
securities not directly guaranteed by instrumentalities of the U.S. government,
privately issued certificates representing stripped U.S. government or
mortgage-related securities and repurchase agreements fully collateralized by
U.S. government securities.

The Portfolio may invest in private mortgage-related securities ("Private
Pass-Throughs") as opposed to mortgage-related securities issued or guaranteed
by GNMA, FNMA, and FHLMC only if such Private Pass-Throughs are rated at the
time of purchase in the two highest grades by a nationally recognized
statistical rating agency ("NRSRO") or in any unrated debt security considered
by the Portfolio's investment adviser to be of comparable quality. CMOs and
REMICs issued by private entities and not directly guaranteed by any government
agency or instrumentality are secured by the underlying collateral of the
private issuer. The Portfolio will invest in such privately issued securities
only if: they are 100% collateralized at the time of issuance by securities
issued or guaranteed by the U.S. government, its agencies or its
instrumentalities and they are rated at the time of purchase in the two highest
grades by a NRSRO. A more complete description of security ratings, is contained
in the appendix to this prospectus.

The Portfolio may invest in the principal only or interest only components of
U.S. government securities. In the last few years, agencies or instrumentalities
of the U.S. government and a number of banks and brokerage firms have separated
("stripped") the principal portions from the coupon portions of U.S. Treasury
bonds and notes and sold them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
often held by a bank in a custodial or trust account). Such custodial receipts
or certificates of private issuers are not considered by the Fund to be U.S.
government securities. The principal only securities are not entitled to any
periodic payments of interest prior to maturity. Such securities usually trade
at a deep discount from their face or par value and are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Current federal tax law requires that a holder (such as the Portfolio)
of a principal only security accrue a portion of the discount at which the
security was purchased as income each year even though the Portfolio received no
interest payment in cash on the security during the year. The Portfolio is
required to distribute substantially all of its income each year and, in order
to generate sufficient cash to

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<PAGE> 47

make distributions of such income, the Portfolio may have to dispose of
securities that it would otherwise continue to hold, which, in some cases may be
disadvantageous to the Fund.

Stripped mortgage-related securities (hereinafter referred to as "stripped
mortgage securities") are derivative multiclass mortgage securities. Stripped
mortgage securities may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities usually are structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage securities will have one
class receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment in these securities even if the security is rated the highest
quality by a NRSRO. Holders of PO securities are not entitled to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Current federal tax law requires that a holder (such as the Portfolio)
of principal only securities accrue a portion of the discount at which the
security was purchased as income each year even though the holder receives no
interest payment in cash on the certificate during the year. In order to
generate sufficient cash to make distributions of such income, the Portfolio may
have to dispose of securities that it would otherwise continue to hold, which,
in some cases, may be disadvantageous to the Portfolio.

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

INTEREST RATE TRANSACTIONS. The Portfolio may enter into interest rate swaps and
may purchase or sell interest rate caps, floors and collars. The Portfolio
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio. The Portfolio may
also enter into these transactions to protect against any increase in the price
of securities the Portfolio anticipates purchasing at a later date. Interest
rate swaps, caps, floors and collars will be treated as illiquid securities for
the purposes of the Portfolio's investment restriction limiting investment in
illiquid securities. Besides liquidity, such transactions include market risk,
risk of default by the other party to the transaction, risk of imperfect
correlation and manager risk. Such transactions may involve commissions or other
costs. A more complete discussion of interest rate transactions and their risks
is contained in the Statement of Additional Information.

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<PAGE> 48

or the yield generally available on securities when delivery occurs. When
engaging in Forward Commitments, the Portfolio relies on the other party to
complete the transaction, should the other party fail to do so, the Portfolio
might lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. The Portfolio maintains a
segregated account (which is marked to market daily) of cash or liquid portfolio
securities with the Portfolio's custodian in an aggregate amount equal to the
amount of its commitment as long as the obligation to purchase or sell
continues.

GROWTH AND INCOME PORTFOLIO

The investment objective of the Growth and Income Portfolio is to seek long-term
growth of capital and income. There are risks inherent in all investments in
securities; accordingly, there can be no assurance that the Portfolio will
achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing primarily in income-producing
equity securities, including common stocks and convertible securities; although
investments are also made in non-convertible preferred stocks and debt
securities rated "investment grade," which are securities rated within the four
highest grades assigned by Standard & Poor's ("S&P") or by Moody's Investors
Service, Inc. ("Moody's"). A more complete description of security ratings is
contained in the appendix to this prospectus.

A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity security. Convertible
securities ordinarily provide a stream of income with generally higher yields
than those of common stock of the same or similar issuers. Convertible
securities generally rank senior to common stock in a corporation's capital
structure but are usually subordinated to comparable nonconvertible securities.
Convertible securities generally do not participate directly in any dividend
increases or decreases of the underlying equity security although the market
prices of convertible securities may be affected by any such dividend changes or
other changes in the underlying equity security.

While the Portfolio invests primarily in income-producing equity securities, the
Portfolio may invest in non-convertible adjustable or fixed rate preferred stock
and debt securities. Preferred stock generally has a preference as to dividends
and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The Portfolio may invest in debt securities of
various maturities. The Portfolio invests only in debt securities rated
investment grade at the time of investment, and a subsequent reduction in rating
does not require the Portfolio to dispose of a security. Securities rated BBB by
S&P or Baa by Moody's are in the lowest of the four investment grades and are
considered by the rating agencies to be medium grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated securities. A more
complete description of security ratings is contained in the appendix to this
prospectus. The market prices of debt securities generally fluctuate inversely
with changes in interest rates so that the value of investments in such
securities can be expected to decrease as interest rates rise and increase as
interest rates fall and such fluctuations generally are larger among securities
with longer durations.

In selecting common stocks for investment, the Portfolio will focus primarily on
the security's potential for capital growth and income. The Portfolio's
investment adviser may focus on larger capitalization companies which it
believes possess

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characteristics for improved valuation. The Portfolio may invest in issuers of
small-, medium- or large-capitalization companies. The securities of small- or
medium-sized companies may be subject to more abrupt or erratic market movements
than securities of larger, more established companies or the market averages in
general. In addition, such companies typically are subject to a greater degree
of change in earnings and business prospects than are larger, more established
companies. Thus, the Portfolio may be subject to greater investment risk than
that assumed through investment in the equity securities of larger, more
established companies.

The Portfolio may invest up to 15% of its total assets in securities of foreign
issuers. See "Investment Practices -- Foreign Securities."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

MONEY MARKET PORTFOLIO

The investment objective of the Money Market Portfolio is to seek protection of
capital and high current income through investments in money market instruments.
There are risks inherent in all investments in securities; accordingly there can
be no assurance that the Portfolio will achieve its investment objective.

The investment policies, the percentage limitations, and the kinds of securities
in which the Portfolio can invest may be changed by the Portfolio's Board of
Trustees, unless expressly governed by those limitations stated under
"Investment Restrictions" in the Trust's Statement of Additional Information
which can be changed only by action of the shareholders of the Portfolio. It is
not the intention of the Portfolio's Trustees, however, to change these policies
without prior notice to shareholders.

There are risks inherent in all investments in securities, accordingly there can
be no assurance that the Portfolio will achieve its investment objective or that
the Portfolio will be able at all times to preserve the net asset value per
share at $1.00 per share. The daily dividend rate paid by the Portfolio is
expected to fluctuate with changes in prevailing market interest rates. The
Portfolio uses the amortized cost method for valuing portfolio securities
purchased at a discount.

The Portfolio may invest in money market instruments of the following types, all
of which will be U.S. dollar obligations:

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

BANK OBLIGATIONS. The Portfolio may invest in negotiable time deposits,
certificates of deposit and bankers' acceptances which are obligations of
domestic banks having total assets in excess of $1 billion as of the date of
their most recently published financial statements. The Portfolio is also
authorized to invest up to 5% of its total assets in certificates of deposit
issued by domestic banks having total assets of less than $1 billion, provided
that the principal

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<PAGE> 50

amount of the certificate of deposit acquired by the Portfolio is insured in
full by the Federal Deposit Insurance Corporation.

COMMERCIAL PAPER. The Portfolio may invest in short-term commercial paper
obligations of companies which at the time of investment are (a) rated in one of
the two highest categories by at least two nationally recognized statistical
organizations (or one rating organization if the obligation was rated by only
one such organization) or (b) if unrated, are of comparable quality as
determined in accordance with procedures established by the Portfolio's Board of
Trustees. Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. The Portfolio's current policy is to limit investments in
commercial paper to obligations rated in the highest rating category. A more
complete description of security ratings is in the appendix to this prospectus.

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

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

MORGAN STANLEY

REAL ESTATE SECURITIES PORTFOLIO

The primary investment objective of the Morgan Stanley Real Estate Securities
Portfolio is to seek long-term growth of capital. Current income is a secondary
investment objective. There are risks inherent in all investments in securities;
accordingly, there can be no assurance that the Portfolio will achieve its
investment objectives.

The Portfolio's investment adviser seeks to achieve the investment objectives by
investing primarily in a portfolio of securities of companies operating in the
real estate industry. A company operating in the real estate industry is one
that derives at least 50% of its assets (marked-to-market), gross income or net
profits from the ownership, construction, management or sale of residential,
commercial or industrial real estate. Real estate industry companies include,
among others: equity real estate investment trusts, which pool investors' funds
for investment primarily in commercial real estate properties; mortgage real
estate investment trusts, which invest pooled funds in real estate related
loans; brokers or real estate developers; and companies with substantial real
estate holdings, such as paper and lumber products and hotel and entertainment
companies. Because of the Portfolio's policy of concentrating its investments in
real estate securities, the Portfolio may be more susceptible to economic,
political or regulatory occurrences affecting the real estate industry than a
portfolio without such a policy.

Under normal market conditions, the Portfolio invests at least 65% of its total
assets in securities of companies operating in the real estate industry,
including equity securities of REITs and other securities of real estate
operating companies. The Portfolio's investment adviser diversifies its
investments as to issuers, property types and regions. The investment adviser's
approach emphasizes a bottom-up stock selection with a top-down asset allocation
overlay. Besides equity securities of REITs, the Portfolio also invests in
equity securities, including common stocks and convertible securities, or non-
convertible preferred stocks and investment-grade debt securities of real estate
industry companies. REITs pool investors' funds for investment primarily in
income producing real estate or real estate related loans or interests. REITs
can generally be classified as equity REITs, mortgage REITs or a combination of
both. Equity REITs, which invest the majority of their assets directly in real
property, derive their income from rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs,
which invest the majority of their assets in real estate mortgagees, derive
their income primarily from interest payments. REITs are not taxed on income
distributed to shareholders provided such REITs comply with several requirements
of the Internal Revenue Code of 1986, as amended (the "Code").

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<PAGE> 51

the same or a different issuer within a particular period of time at a specified
price or formula. A convertible security generally entitles the holder to
receive interest paid or accrued on debt securities or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity security. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Convertible securities generally do not
participate directly in any dividend increases or decreases of the underlying
equity security although the market prices of convertible securities may be
affected by any such dividend changes or other changes in the underlying equity
security.

Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by an issuer's board of directors.
Preferred stock may be subject to optional or mandatory redemption provisions.
The ability of common stocks and preferred stocks to generate income is
dependent on the earnings and continuing declaration of dividends by the issuers
of such securities.

Debt securities of a corporation or other entity generally entitle the holder to
receive interest, at a fixed, variable or floating interest rate, during the
term of the security and repayment of principal at maturity or redemption. The
Portfolio invests in investment-grade debt securities (securities rated at the
time of investment BBB or higher by Standard & Poor's ("S&P") or rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or comparably rated by
another nationally recognized statistical rating organization ("NRSRO") or
unrated securities considered by the Portfolio's investment adviser to be of
comparable quality). Credit quality at the time of purchase determines which
securities may be acquired, and a subsequent reduction in ratings does not
require the Portfolio to dispose of a security. Securities rated BBB by S&P or
Baa by Moody's are considered to be medium-grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher-rated securities. The ratings
assigned by the ratings agencies represent their opinions of the quality of the
debt securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized that ratings are general and are not
absolute standards of quality. A more complete description of security ratings
is contained in the appendix to this prospectus.

Under normal market conditions, the Portfolio may invest up to 35% of its total
assets in securities of companies outside the real estate industry.

The Portfolio may invest up to 25% of its total assets in securities issued by
foreign issuers, some or all of which also may be in the real estate industry.
See "Investment Practices -- Foreign Securities."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

RISK FACTORS OF INVESTING IN REAL ESTATE SECURITIES. The values and return on
securities of companies in the real estate industry may or may not fluctuate in
tandem with the overall securities' markets. Although the Portfolio does not
invest directly in real estate, an investment in the Portfolio generally will be
subject to the risks associated with investments in real estate because of its
policy of concentrating in the securities of companies operating in the real
estate industry. These risks include, among others: declines in the value of
real estate; defaults by borrowers or tenants; risks related to general and
local economic conditions; overbuilding and increased competition; increases in
property taxes, capital expenditures or operating expenses; changes in zoning
laws; casualty or condemnation losses; variations in rental income; changes in
neighborhood values; the appeal of properties to tenants; changes in interest
rates; and political or regulatory occurrences affecting the real estate
industry. The value of securities of companies which service the real estate
industry also will be affected by such risks. If the Portfolio has rental income
or income from the disposition of real

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property acquired as a result of a default on securities the Portfolio may own,
the receipt of such income may adversely affect the Portfolio's ability to
retain its tax status as a regulated investment company.

Equity REITs may be affected by changes in the value of the underlying property
owned by the trusts, while mortgage REITs may be affected by changes in interest
rates and the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, may not be diversified (which may increase the
volatility of the REIT's value) and are subject to the risks of financing
projects. REITs are subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Code and to maintain exemption from
the Investment Company Act of 1940, as amended (the "1940 Act"). REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Code. Mortgage REITs, like debt securities, tend to decline
in value as interest rates rise. Mortgage REITs are often more susceptible than
traditional debt securities to further price declines in periods of rising
interest rates because of extension risks (i.e. rising interest rates could
cause property owners to prepay their mortgages more slowly than expected when
the security was purchased by the Portfolio which may further reduce the market
value of such security and lengthen the duration of the security). In addition,
mortgage REITs tend to benefit less than traditional debt securities when
interest rates decline because underlying mortgages often get prepaid faster
than expected in periods of declining interest rates. In addition, the Portfolio
indirectly will bear its proportionate share of any expenses paid by the REITs
in which it invests.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase and sell
debt securities on a "when-issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions occur when securities are purchased or sold by
the Portfolio with payment and delivery taking place in the future, frequently a
month or more after such transaction. The price is fixed on the date of the
commitment, and the seller continues to accrue interest on the securities
covered by the Forward Commitment until delivery and payment take place. At the
time of settlement, the market value of the securities may be more or less than
the purchase or sale price. The Portfolio may either settle a Forward Commitment
by taking delivery of the securities or may either resell or repurchase a
Forward Commitment on or before the settlement date in which event the Portfolio
may reinvest the proceeds in another Forward Commitment. These transactions are
subject to market risk as the value or yield of a security at delivery may be
more or less than the purchase price or the yield generally available on
securities when delivery occurs. When engaging in Forward Commitments, the
Portfolio relies on the other party to complete the transaction, should the
other party fail to do so, the Portfolio might lose a purchase or sale
opportunity that could be more advantageous than alternative opportunities at
the time of the failure. The Portfolio maintains a segregated account (which is
marked to market daily) of cash or liquid portfolio securities with the
Portfolio's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase or sell continues.

STRATEGIC STOCK PORTFOLIO

The investment objective of the Strategic Stock Portfolio is to seek an above
average total return through a combination of potential capital appreciation and
dividend income, consistent with the preservation of invested capital. There are
risks inherent in all investments in securities; accordingly, there can be no
assurance that the Portfolio will achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of high dividend
yielding equity securities of companies included in the DJIA or in the MSCI USA
Index. The DJIA was first published in The Wall Street Journal in 1896.
Initially consisting of just 12 stocks, the DJIA expanded to 20 stocks in 1916
and to its present size of 30 stocks on October 1, 1928. The MSCI USA Index
consists of approximately 370 large domestic companies in the United States and
has existed since January 1, 1970.

The Portfolio's investment adviser selects investment securities for the
Portfolio based upon the Portfolio's strategic selection policies (the
"Strategic Selection Policies") as follows:

The ten highest dividend yielding securities in the DJIA are identified for
investment. In addition, all companies having securities in the MSCI USA Index
are reviewed by the Portfolio's investment adviser. Securities of companies in
the financial or utility sectors and companies having securities included in the
DJIA are excluded. The remaining pool of MSCI USA Index

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<PAGE> 53

securities is further evaluated and securities of companies that do not have
positive one- and three-year sales and earnings growth rates and two years of
positive dividend growth are excluded. The Portfolio's investment adviser also
excludes MSCI USA Index securities that are in the bottom 25% of all MSCI USA
Index securities measured in terms of total annual trading volume. MSCI USA
Index securities of the remaining companies are ranked by dividend yield, and
the ten highest-yielding such MSCI USA Index securities are identified for
investment. In the event that this process results in less than 10 remaining
MSCI USA Index securities, those companies with the most favorable one- and
three-year sales and earnings performance and two-year dividend performance as
determined by the Portfolio's investment adviser are added back until the number
of MSCI USA Index securities equals 10. Dividend yield for purposes of applying
the foregoing investment policies is calculated for each security by annualizing
the last quarterly or semi-annual ordinary dividend declared on the security and
dividing the result by the security's closing sale price on the applicable date.
This yield is historical and there can be no assurance that any dividends will
be declared or paid in the future.

At the commencement of the Portfolio's investment operations, the 20 securities
so identified at that time represented the Portfolio's initial investments.
Approximately monthly, the Portfolio's investment adviser employs the same
Strategic Selection Policies to identify a new list of 20 strategic securities.
Based on a rolling 12-month schedule, the investment adviser reviews and adjusts
the oldest one-twelfth portion of the Portfolio's assets so as to invest that
portion of the Portfolio's assets approximately equally in the new list of 20
strategic securities. For a more detailed discussion of the Portfolio's
investment policies, including the frequency of security re-evaluations and the
portion of the Portfolio's assets that the Portfolio's investment adviser
presently expects to re-evaluate at the end of each period, see the Statement of
Additional Information.

The Portfolio's investment adviser generally seeks to allocate cash available
for investment due to the sale of new shares of the Portfolio and the receipt of
dividends and interest income from Portfolio investments approximately
proportionately among its current list of strategic securities in the Portfolio.
To the extent that the Portfolio is required to dispose of securities in order
to satisfy redemption requests, make distributions, pay expenses or otherwise
raise cash for operational purposes, the Portfolio's investment adviser
generally intends to sell approximately proportionate amounts of securities from
all securities in the Portfolio.

Application of the foregoing Strategic Selection Policies is subject to and
limited by certain of the Portfolio's other investment policies and
restrictions, including restrictions and limitations which must be met in order
for the Portfolio to qualify for U.S. federal income tax purposes as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), or in order to comply with requirements of the
1940 Act. The Portfolio is subject to investment diversification requirements
that generally provide that the Portfolio may not, with respect to 75% of its
assets, invest more than 5% of its assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities of any one issuer.
Further, the Portfolio generally may not invest more than 25% of the value of
its total assets in securities of issuers in any particular industry. The
Portfolio's satisfaction of these requirements will take precedent over the
Strategic Selection Policies. In addition, the Portfolio's investment adviser
will try to avoid transacting in odd-lots of securities in order to minimize
transaction costs. These limitations may, at times, cause the composition of the
Portfolio's investment portfolio to differ significantly from that which would
have resulted had the Strategic Selection Policies been fully implemented. In
selecting securities for investment or disposition at times that the Portfolio's
investment policies and restrictions do not permit full implementation of the
Strategic Selection Policies, the Portfolio's investment adviser will have sole
discretion to select securities for purchase or sale and generally will make
such selections in a manner that is consistent with the Portfolio's investment
objective and in a manner that it believes is consistent with the investment
rationale that is the basis for the Strategic Selection Policies.

The Portfolio will continue to hold securities, even though such securities may
not be included in the most recent list of strategic securities determined for
the review and adjustment of a portion of the Portfolio's assets. In addition,
although each new list of strategic securities will include only 20 securities,
because only a portion of the Portfolio's assets may be reviewed and adjusted at
any given time, the Portfolio's investment adviser expects that the number of
securities held by the Portfolio may over time increase and that the Portfolio
may at times hold forty or more different securities.

The Portfolio may invest up to 5% of its total assets in options on equity
securities indices, futures

52
<PAGE> 54

contracts on such indices and options on such futures contracts for both hedging
purposes and in an attempt to enhance gain. The Portfolio also may invest up to
5% of its total assets in securities of other registered investment companies
that seek to provide investment results that generally correspond to the
performance of securities included in one or more broad market indices.
Investment in securities of other investment companies will subject the
Portfolio to additional and potentially duplicative costs and expenses,
including investment management fees charged by such registered investment
companies. Pending investment and for temporary defensive purposes the Portfolio
may invest without limit in short-term, high quality fixed income securities and
in money-market instruments.

The DJIA is the property of Dow Jones & Company, Inc. Dow Jones & Company, Inc.
has not granted to the Portfolio a license to use the DJIA. Dow Jones & Company,
Inc. has not participated in any way in the creation of the Portfolio or in the
selection of the stocks included in such Portfolio and has not approved any
information herein relating thereto. Shares of the Portfolio are not designed so
that their prices will parallel or correlate with any movements in the DJIA, and
it is expected that their prices will not parallel or correlate with such
movements.

The MSCI USA Index is the property of Morgan Stanley Dean Witter & Co. ("Morgan
Stanley"). Morgan Stanley makes no representation or warranty, express or
implied, to the owners of shares of the Portfolio or any member of the public
regarding the advisability of investing in investment portfolios generally or in
the Portfolio particularly or the ability of the MSCI USA Index to track general
stock market performance. Morgan Stanley is the licensor of certain trademarks,
service marks and trade names of Morgan Stanley and of the MSCI USA Index which
is determined, composed and calculated by Morgan Stanley without regard to this
Portfolio. Morgan Stanley has no obligation to take the needs of this Portfolio
or the owners of this Portfolio into consideration in determining, composing or
calculating the MSCI USA Index. Morgan Stanley is not responsible for and has
not participated in the determination of the timing of, prices at, or quantities
of this Portfolio to be issued. Morgan Stanley has no obligation or liability to
owners of this Portfolio in connection with the administration, marketing or
trading of this Portfolio.

ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDICES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE ACCURACY
AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN. NEITHER
MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES,
OWNERS OF THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
HEREUNDER OR FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR ANY OTHER PARTY MAKES
ANY EXPRESS OR IMPLIED WARRANTIES, AND MORGAN STANLEY HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.

RISK FACTORS. There is no guarantee that the investment objective of the
Portfolio will be achieved because it is subject to the continuing ability of
the respective issuers of equity securities in which the Portfolio invests to
declare and pay dividends and because the market value of such equity securities
can be affected by a variety of factors. Common stocks may be especially
susceptible to general stock market movements and to volatile increases and
decreases of value as market confidence in and perceptions of the issuers
change. There can be no assurance that the value of the underlying securities
will increase or that the issuers of the securities will pay dividends on
outstanding securities. The declaration of dividends by any issuer depends upon
several factors including the financial condition of the issuer and general
economic conditions. Risks associated with an investment in the Portfolio
include the possible deterioration of either the financial condition of the
issuers or the general condition of the stock market, and general price
volatility. The relatively high dividend yield of certain securities that the
Portfolio will acquire may reflect the market's assessment of the risk that the
company may reduce or eliminate the dividend in the current period or in the
future, or otherwise reflect the market's unfavorable assessment of the
company's performance outlook. The Portfolio's investment adviser generally will
not take

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<PAGE> 55

these considerations into account in implementing the Strategic Selection
Policies and, accordingly, the Portfolio may at times acquire securities of
companies that the market and the Portfolio's investment adviser believe are
more susceptible to financial difficulty and corresponding adverse market
performance than are other companies with securities included in the DJIA or in
the MSCI USA Index.

In addition, investors should be aware that the Portfolio is not "actively
managed." Except to raise cash for operational purposes, the Portfolio
ordinarily will not sell securities or re-evaluate its investments except as
periodically determined by the Portfolio's investment adviser. In addition, only
a portion of the Portfolio's assets may be reviewed and adjusted for any given
period. As a result, although the Portfolio may (but need not) dispose of a
security in certain events such as the issuer having defaulted on the payment on
any of its outstanding obligations or the price of a security having declined to
such an extent or other factors existing so that in the opinion of the
Portfolio's investment adviser the retention of such security would be
detrimental to the Portfolio, the adverse financial condition of a company will
not result in its elimination from the Portfolio prior to scheduled review and
adjustment except under extraordinary circumstances. Similarly, securities held
in the Portfolio ordinarily will not be sold by the Portfolio for the purpose of
taking advantage of market fluctuations or changes in anticipated rates of
appreciation.

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

INVESTMENT PRACTICES

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements with banks or broker-dealers
in order to earn a return on temporarily available cash. A repurchase agreement
is a short-term investment in which the purchaser (i.e., the Portfolio) acquires
ownership of a debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield during the holding
period. Repurchase agreements involve certain risks in the event of default by
the other party. Each Portfolio may enter into repurchase agreements with banks
or broker-dealers deemed to be creditworthy by the Portfolio's investment
adviser under guidelines approved by the Portfolio's Board of Trustees. No
Portfolio will invest in repurchase agreements maturing in more than seven days
if any such investment, together with any other illiquid securities held by such
Portfolio, would exceed the Portfolio's limitation on illiquid securities
described below. In the event of the bankruptcy or other default of a seller of
a repurchase agreement, a Portfolio could experience both delays in liquidating
the underlying securities and losses including: (a) possible decline in the
value of the underlying security during the period while the Portfolio seeks to
enforce its rights thereto; (b) possible lack of access to income on the
underlying security during this period; and (c) expenses of enforcing its
rights.

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

Repurchase agreements are fully collateralized by the underlying debt securities
and are considered to be loans under the 1940 Act. A Portfolio pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase

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<PAGE> 56

agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies and its
instrumentalities) may have maturity dates exceeding one year. A Portfolio does
not bear the risk of a decline in value of the underlying security unless the
seller defaults under its repurchase obligation.

FOREIGN SECURITIES

Each of the Portfolios listed below may invest in securities issued by foreign
issuers up to the following limits:

<TABLE>
<S> <C> <C>
Asset Allocation Portfolio Up to 25% of total assets
..........................................................
Comstock Portfolio Up to 15% of total assets
..........................................................
Domestic Income Portfolio Up to 25% of total assets
..........................................................
Emerging Growth Portfolio Up to 20% of total assets
..........................................................
Enterprise Portfolio Up to 10% of total assets
..........................................................
Global Equity Portfolio Up to 100% of total assets
..........................................................
Growth and Income Up to 15% of total assets
Portfolio
..........................................................
Morgan Stanley Real Estate Up to 25% of total assets
Securities Portfolio
..........................................................
</TABLE>

Such securities may be denominated in U.S. dollars or in currencies other than
U.S. dollars. Investments in foreign securities present certain risks not
ordinarily associated with investments in securities of U.S. issuers. These
risks include fluctuations in foreign currency exchange rates, political,
economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.

In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., a Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.

Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets are not fully
invested or attractive investment opportunities are foregone.

A Portfolio's investments in securities of developing or emerging markets are
subject to greater risks than a Portfolio's investments in securities of
developed countries since emerging markets tend to have economic structures that
are less diverse and mature and political systems that are less stable than
developed countries.

Each of these Portfolios may purchase foreign securities in the form of American
Depository Receipts, European Depositary Receipts or other securities
representing underlying shares of foreign companies. The risks of foreign
investments should be considered carefully by an investor in a Portfolio that
invests in foreign securities.

FOREIGN CURRENCY TRANSACTIONS

Each Portfolio's securities that are denominated or quoted in currencies other
than the U.S. dollar will be affected by changes in foreign currency exchange
rates (and exchange control regulations) which affects the value of the
securities in the Portfolio and the income or dividends and appreciation or
depreciation of its investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Portfolio's
assets denominated in that currency and the Portfolio's yield on such assets. In
addition, the Portfolio will incur costs in connection with conversions between
various currencies. A Portfolio's foreign currency exchange transactions
generally will be conducted on a spot basis (that is, cash basis) at the spot
rate for purchasing or selling currency prevailing in the foreign currency
exchange market. A Portfolio purchases and sells foreign currency on a spot
basis in

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<PAGE> 57

connection with the settlement of transactions in securities traded in such
foreign currency. The Portfolios do not purchase and sell foreign currencies as
an investment.

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

A Portfolio may attempt to hedge against changes in the value of the U.S. dollar
in relation to a foreign currency by entering into a forward contract for the
purchase or sale of the amount of foreign currency invested or to be invested,
or by buying or selling a foreign currency futures contract for such amount.
Futures contracts are described below under the heading "Investment
Practices -- Using Options, Futures Contracts and Options in Futures Contracts."
Such hedging strategies may be employed before a Portfolio purchases a foreign
security traded in the hedged currency which a Portfolio anticipates acquiring
or between the date the foreign security is purchased or sold and the date on
which payment therefore is made or received. Hedging against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
move in the direction opposite to the hedged position. Unanticipated changes in
currency prices may result in poorer overall performance for the Portfolio than
if it had not entered into such contracts.

ILLIQUID SECURITIES

Each of the Portfolios listed below may invest in illiquid securities and
certain restricted securities up to the following limits:

<TABLE>
<S> <C> <C>
Asset Allocation Up to 5% of net assets
Portfolio
......................................................
Comstock Portfolio Up to 10% of net assets
......................................................
Domestic Income Up to 5% of net assets
Portfolio
......................................................
Emerging Growth Up to 15% of net assets
Portfolio
......................................................
Enterprise Portfolio Up to 5% of net assets
......................................................
Global Equity Portfolio Up to 15% of net assets
......................................................
Government Portfolio Up to 5% of net assets
......................................................
Growth and Income Up to 15% of net assets
Portfolio
......................................................
Money Market Portfolio Up to 5% of net assets
......................................................
Morgan Stanley Real
Estate Securities Up to 15% of net assets
Portfolio
......................................................
Strategic Stock Up to 15% of net assets
Portfolio
......................................................
</TABLE>

Such securities may be difficult or impossible to sell at the time and the price
that the Portfolio would like. Thus, the Portfolio may have to sell such
securities at a lower price, sell other securities instead to obtain cash or
forego other investment opportunities.

USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Each Portfolio (excluding the Domestic Income Portfolio and the Money Market
Portfolio) may use options, futures contracts or options on futures contracts in
several different ways, depending upon the status of a Portfolio's portfolio
securities and the investment adviser's expectations concerning the securities
or currency markets.

In times of stable or rising securities' prices, the Portfolios generally seek
to be fully invested. Even when the Portfolios are fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs.

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<PAGE> 58

The Portfolios may also have cash on hand that has not yet been invested. The
portion of a Portfolio's assets that is invested in cash or cash equivalents
does not fluctuate with overall market prices, so that, in times of rising
market prices, the Portfolio may underperform the market in proportion to the
amount of cash or cash equivalents in the Portfolio. By purchasing stock or bond
index futures contracts, however, the Portfolios can compensate for the cash
portion of its assets and may obtain performance equivalent to investing all of
its assets in securities.

If the Portfolios' investment adviser forecasts a market decline, the Portfolios
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock or bond index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolios'
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolios could then liquidate
securities in a more deliberate manner, reducing its futures position
simultaneously to maintain the desired balance, or it could maintain the hedged
position.

As an alternative to futures contracts, the Portfolios can engage in options (or
stock or bond index options or stock or bond index futures options) to manage
the Portfolios' risk in advancing or declining markets. For example, the value
of a put option generally increases as the underlying security declines below a
specified level, value is protected against a market decline to the degree the
performance of the put correlates with the performance of the Portfolios'
investment portfolio. If the market remains stable or advances, the Portfolios
can refrain from exercising the put and the Portfolios will participate in the
advance, having incurred only the premium cost for the put.

The Portfolios are authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.

In addition to futures and options on securities, the Portfolios may engage in
foreign currency futures and options. The Portfolios may use currency options to
increase its gross income or to protect it against declines in the U.S. dollar
value of foreign currency denominated securities and against increases in the
U.S. dollar cost of such securities to be acquired. As in the case of other
kinds of options, however, the selling of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
the Portfolios could be required to cover its position by purchasing or selling
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Portfolio's position, the Portfolio may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies in which the Portfolios invest are traded on U.S. and foreign
exchanges or over-the-counter.

In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase a Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.

OTHER INVESTMENT PRACTICES AND RISK FACTORS

Although the Portfolios do not intend to engage in substantial short-term
trading, each may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's management believes the securities potential relative to the
respective Portfolio's investment objective has lessened or otherwise. Each
Portfolio's turnover rate is shown under the heading "Financial Highlights." The
portfolio turnover rate for each Portfolio may be expected to vary from year to
year. A high portfolio turnover rate (100% or more) increases the

57
<PAGE> 59

Portfolio's transaction costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Portfolio had lower portfolio turnover. The turnover rate will not be a limiting
factor, however, if the Portfolio's investment adviser considers portfolio
changes appropriate.

Further information about these types of investments and other investment
practices that may be used by the Portfolios is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.

TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, each Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. With respect to the Global
Equity Portfolio, the temporary investments may include comparable securities of
foreign governments, their agencies or instrumentalities; however, during times
of international political or economic uncertainty, all or a portion of the
Portfolio's assets may be in U.S. issuers and denominated in U.S. dollars.
Except with respect to the Money Market Portfolio, the effect of taking a
defensive position may be that such Portfolio does not achieve its investment
objective(s).

YEAR 2000 RISKS

Like other mutual funds, financial and business organizations and individuals
around the world, the Portfolios could be adversely affected if the computer
systems used by the Portfolios' investment adviser and other service providers
do not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." The
Portfolios' investment adviser is taking steps that it believes are reasonably
designed to address the Year 2000 Problem with respect to computer systems that
it uses and to obtain reasonable assurances that comparable steps are being
taken by the Portfolios' other major service providers. At this time, there can
be no assurances that these steps will be sufficient to avoid any adverse impact
to the Portfolios. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Portfolios may invest which,
in turn, may adversely affect the net asset values of the Portfolios. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Portfolios'
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.

INVESTMENT ADVISORY
SERVICES

THE INVESTMENT ADVISER

Van Kampen Asset Management Inc. is the investment adviser for each of the
Portfolios (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $75 billion under management or supervision. Van Kampen Investments' more
than 50 open-end and 39 closed-end funds and more than 2,500 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen Funds Inc., the distributor of the Portfolios (the "Distributor") and
the sponsor of the funds mentioned above, is also a wholly owned subsidiary of
Van Kampen Investments. Van Kampen Investments is an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.

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<PAGE> 60

THE INVESTMENT SUBADVISER

Morgan Stanley Dean Witter Investment Management Inc. is the subadviser (the
"Subadviser") for the Global Equity Portfolio and the Morgan Stanley Real Estate
Securities Portfolio. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser's
address is 1221 Avenue of the Americas, New York, New York 10020.

ADVISORY AGREEMENTS

Each Portfolio retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement (the "Combined Advisory Agreement") between the
Adviser and the Trust, on behalf of the Asset Allocation Portfolio, the Domestic
Income Portfolio, the Enterprise Portfolio, the Government Portfolio and the
Money Market Portfolio (the "Combined Portfolios") and under six additional
advisory agreements between the Adviser and the Trust on behalf of each
remaining Portfolio, the Trust pays the Adviser a monthly fee computed based
upon an annual rate applied to average daily net assets of the Portfolios as
follows:

<TABLE>
<S> <C>
- -----------------------------------------

Asset Allocation Portfolio,
Domestic Income Portfolio,
Enterprise Portfolio, Government
Portfolio and Money Market
Portfolio (based upon their
combined average daily net assets)

First $500 million........... 0.50%

Next $500 million............ 0.45%

Over $1 billion.............. 0.40%

(The resulting fee is prorated to
each of these Portfolios based upon
their respective average daily net
assets.)

Comstock Portfolio and Growth and
Income Portfolio (based upon each
Portfolio's average daily net
assets)

First $500 million........... 0.60%

Over $500 million............ 0.55%

Emerging Growth Portfolio......... 0.70%
Global Equity Portfolio........... 1.00%

Morgan Stanley Real Estate
Securities Portfolio............ 1.00%

Strategic Stock Portfolio

First $500 million........... 0.50%

Over $500 million............ 0.45%
</TABLE>

After voluntary fee waivers applicable to certain Portfolios, each Portfolio
paid the Adviser an advisory fee for the fiscal year ended December 31, 1998 at
the effective rate applied to the Portfolio's average daily net assets as
follows:

<TABLE>
<S> <C>
- -----------------------------------------

Asset Allocation Portfolio........ 0.38%

Comstock Portfolio................ *

Domestic Income Portfolio......... 0.01%

Emerging Growth Portfolio......... 0.32%

Enterprise Portfolio.............. 0.46%

Global Equity Portfolio........... 0.00%

Government Portfolio.............. 0.37%

Growth and Income Portfolio....... 0.26%

Money Market Portfolio............ 0.11%

Morgan Stanley Real Estate
Securities Portfolio............ 1.00%

Strategic Stock Portfolio......... 0.00%
</TABLE>

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

* As of December 31, 1998, the Comstock Portfolio had not commenced investment
operations and, accordingly, had no assets nor paid advisory fees from which
an effective rate could be derived.

Under each advisory agreement, the Portfolio reimburses the Adviser for the cost
of the Portfolio's accounting services, which include maintaining its financial
books and records and calculating its daily net asset value. Other operating
expenses paid by the Portfolio include service fees, distribution fees,

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<PAGE> 61

custodial fees, legal and independent accountant fees, the costs of reports and
proxies to shareholders, trustees' fees (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments) and all other
business expenses not specifically assumed by the Adviser.

For the Global Equity Portfolio and Morgan Stanley Real Estate Securities
Portfolio, the Adviser has entered into subadvisory agreements (the "Subadvisory
Agreements") with the Subadviser to assist the Adviser in performing its
investment advisory functions. Under the Subadvisory Agreements, the Subadviser
receives on an annual basis 50% of the net advisory fees received by the Adviser
with respect to such Portfolios.

The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").

PERSONAL INVESTMENT POLICIES

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

PORTFOLIO MANAGEMENT

The Portfolios have different portfolio managers. Except as described below for
the Global Equity Portfolio and the Morgan Stanley Real Estate Securities
Portfolio, each portfolio manager is an employee of the Adviser.

The Asset Allocation Portfolio is managed by a management team headed by John
Cunniff, Senior Portfolio Manager. Mr. Cunniff is responsible for allocating the
Portfolio's assets between the equity and fixed-income categories. Mr. Cunniff
has been affiliated with the Portfolio since March 1996. Mr. Cunniff has been a
Vice President and Director of Equity Research with the Adviser since October
1995. Prior to October 1995, Mr. Cunniff was a portfolio manager with Templeton
Quantitative Advisors, a subsidiary of the Franklin Group. Tom Copper and Raj
Wagle are Portfolio Managers responsible for the day-to-day management of the
Portfolio's equity investments. Mr. Copper assists with managing the stock
portion of the Portfolio and has been affiliated with the Portfolio since April
1999. Mr. Copper has been Vice President and Portfolio Manager of the Adviser
since December 1986. Mr. Wagle assists with the asset allocation decision and
has been affiliated with the Portfolio since April 1999. Mr. Wagle has been
Portfolio Manager of the Adviser since April 1999 and a Quantitative Equity
Analyst since February 1998. Prior to November 1997, he was an Equity Analyst
with Aeltus Investment Management. Prior to December 1995, he was an Equity
Analyst with Oppenheimer & Company. Walter W. Stabell, III manages the
Portfolio's fixed-income investments and has been affiliated with the Portfolio
since May 1998. Mr. Stabell has been a Vice President and Portfolio Manager of
the Adviser since 1989.

The Comstock Portfolio is managed by a management team headed by B. Robert
Baker, Jr., Senior Portfolio Manager. Mr. Baker has been primarily responsible
for managing the Comstock Portfolio's investment portfolio since July 1994. Mr.
Baker has been a Senior Vice President since March 1999 and a Vice President and
a Portfolio Manager of the Adviser and Advisory Corp. since June 1995. Prior to
June 1995, Mr. Baker was an Associate Portfolio Manager of the Adviser.
Portfolio Managers Jason Leder and Edie Terreson have been responsible as
co-managers for the day-to-day management of the Comstock Portfolio's investment
portfolio since December 1995 and December 1997, respectively. Mr. Leder has
been a Vice President since March 1999 and an Assistant Vice President of the
Adviser and Advisory Corp. since October 1996. Prior to October 1996, Mr. Leder
was an Associate Portfolio Manager of the Adviser. Prior to February 1995, Mr.
Leder was a Securities Analyst with Salomon Brothers, Inc. Prior to August 1992,
Mr. Leder was a Securities Analyst with Fidelity Management and Research. Ms.
Terreson has been a Vice President since March 1999 and an Assistant Vice
President of the Adviser and Advisory Corp. since December 1997. Prior to
December 1997, Ms. Terreson was an Associate Portfolio Manager of the Adviser.
Prior to March 1997, Ms. Terreson was a Securities Analyst and Associate
Portfolio Manager with Delaware Investment Advisers. Prior to May 1996, Ms.
Terreson was a Securities Analyst and Associate Portfolio Manager with J.W.
Seligman & Co.

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<PAGE> 62

The Domestic Income Portfolio has been managed by Walter W. Stabell, III since
June 1990. Mr. Stabell is a Vice President and Portfolio Manager of the Adviser.
From December 1986 to August 1989, Mr. Stabell was a Senior Securities Analyst
of the Adviser.

The Emerging Growth Portfolio is managed by a management team headed by Gary M.
Lewis, Senior Portfolio Manager. Mr. Lewis has been primarily responsible for
managing the Portfolio since its inception. Mr. Lewis has been Senior Vice
President of the Adviser since October 1995 and Advisory Corp. since June 1995.
Prior to October 1995, Mr. Lewis was Vice President and Portfolio Manager of the
Adviser. Portfolio Managers Dudley Brickhouse, David Walker and Janet Luby are
responsible as co-managers for the day-to-day management of the Portfolio. Mr.
Brickhouse has been a Portfolio Manager and Vice President of the Adviser and
Advisory Corp. since January 1999 and an Associate Portfolio Manager of the
Adviser since September 1997. Prior to September 1997, Mr. Brickhouse was with
NationsBank Investment Management. Mr. Brickhouse has been affiliated with the
Portfolio since September 1997. Mr. Walker has been a Portfolio Manager and Vice
President of the Adviser and Advisory Corp. since January 1999 and an Assistant
Vice President of the Adviser since June 1995. Prior to June 1995 Mr. Walker was
a Quantitative Analyst of the Adviser. Mr. Walker has been affiliated with the
Portfolio since May 1996. Ms. Luby, has been Portfolio Manager and Vice
President of the Adviser and Advisory Corp. since January 1999 and an Assistant
Vice President of the Adviser since December 1997. Prior to January 1997, Ms.
Luby was an Associate Portfolio Manager of the Adviser. Prior to July 1995, Ms.
Luby was with AIM Capital Management, Inc. Ms. Luby has been affiliated with the
Portfolio since May 1995.

The Enterprise Portfolio is managed by a management team headed by Jeff New,
Senior Portfolio Manager. Mr. New has been affiliated with the Portfolio since
1991, has assisted in co-managing the Portfolio since July 1994 and has been the
Senior Portfolio Manager of the Portfolio since December 1994. Mr. New has been
a Senior Vice President and Senior Portfolio Manager of the Adviser since
December 1997. Prior to December 1997, Mr. New was a Vice President and
Portfolio Manager of the Adviser. Prior to December 1994, he was an Associate
Portfolio Manager of the Adviser. He joined the Adviser in 1990. Portfolio
Managers Michael Davis and Mary Jayne Maly are responsible for the day-to-day
management of the Portfolio. Mr. Davis has been a Vice President and Portfolio
Manager of the Adviser since March 1998. Prior to March 1998 he was the owner of
Davis Equity Research, a stock research company. Mr. Davis has been an
investment professional since 1983. Mr. Davis has been affiliated with the
Portfolio since March 1998. Ms. Maly has been a Vice President and Portfolio
Manager of the Adviser since July 1998. From July 1997 to June 1998, she was a
Vice President at the Subadviser and assisted in the management of the Morgan
Stanley Institutional Real Estate Funds and the Van Kampen Real Estate
Securities Fund. Prior to July 1997, she was a Vice President and Portfolio
Manager of the Adviser. Prior to November 1992, she was a Vice President and
Senior Equity Analyst at Texas Commerce Investment Management Company. Ms. Maly
has been affiliated with the Portfolio since July 1998.

The Global Equity Portfolio has been managed by Barton M. Biggs and Ann D.
Thivierge since April 1997. Mr. Biggs has been Chairman and a director of the
Subadviser since 1980. Mr. Biggs is also a Managing Director of the Subadviser
and Morgan Stanley & Co. Incorporated and is a director and chairman of various
registered investment companies to which the Subadviser and certain of its
affiliates provide investment advisory services. Mr. Biggs holds a B.A. from
Yale University and an M.B.A. from New York University. Ms. Thivierge is a
Managing Director of the Subadviser and Morgan Stanley & Co. Incorporated. She
is a member of the Subadviser's asset allocation committee team. Ms. Thivierge
has been with the Subadviser since 1986. Ms. Thivierge holds a B.A. in
International Relations from James Madison College, Michigan State University,
and an M.B.A. in Finance from New York University.

The Government Portfolio has been managed by John R. Reynoldson since December
1989. Mr. Reynoldson has been Senior Vice President of the Adviser since July
1991.

The Growth and Income Portfolio is managed by a management team of James A.
Gilligan, Senior Portfolio Manager, and Scott Carroll, Portfolio Manager. Mr.
Gilligan has been primarily responsible for managing the Portfolio since its
inception. Mr. Gilligan has been Senior Vice President and Portfolio Manager of
the Adviser since September 1995. Prior to September 1995, Mr. Gilligan was a
Vice President and Portfolio Manager of the Adviser.

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<PAGE> 63

Mr. Carroll has been a Portfolio Manager of the Portfolio since July 1997 and of
the Adviser since December 1996. Prior to December 1996, Mr. Carroll was an
Equity Analyst with Lincoln Capital Management Company. Prior to September 1992,
Mr. Carroll was a Senior Internal Auditor with Pittway Corporation.

The Morgan Stanley Real Estate Securities Portfolio is managed by Theodore R.
Bigman and Douglas A. Funke. Theodore R. Bigman joined the Subadviser in 1995
and currently is a Principal of the Subadviser and Morgan Stanley & Co.
Incorporated. He has primary responsibility for managing the Subadviser's global
real estate securities business. Prior to joining the Subadviser, he was a
Director at CS First Boston, where he worked for eight years in the Real Estate
Group. While at CS First Boston, Mr. Bigman established and managed that firm's
REIT effort, including primary responsibility for $2.5 billion of initial public
offerings by REITs. Mr. Bigman graduated from Brandeis University in 1983 with a
B.A. in Economics and received his M.B.A. from Harvard University in 1987.
Douglas A. Funke joined Morgan Stanley in 1993 as a Financial Analyst.
Currently, he is Vice President of the Subadviser and Morgan Stanley & Co.
Incorporated and is responsible for providing research and analytical support
for the group's real estate securities investment business. Prior to joining the
Subadviser, he was a member of Morgan Stanley's Interest Rate and Foreign
Exchange Risk Management Group, where he assisted in the execution of more than
$3 billion of structured financings and firm-related risk management projects.
Mr. Funke graduated from the University of Chicago in 1993 with a B.A. in
Economics and Political Science. He is a member of the National Association of
Real Estate Investment Trusts and the New York Society of Securities Analysts.
Mr. Bigman has shared primary responsibility for managing the Portfolio's assets
since March 1995. Mr. Funke has shared primary responsibility for managing the
Portfolio's assets since January 1999.

The Strategic Stock Portfolio is managed by a management headed by John Cunniff,
Senior Portfolio Manager. Mr. Cunniff has had responsibility for the Portfolio
since its inception. Mr. Cunniff has been a Vice President and Director of
Equity Research with the Adviser since October 1995. Prior to October 1995, Mr.
Cunniff was a portfolio manager with Templeton Quantitative Advisors, a
subsidiary of the Franklin Group. Raj Wagle, Portfolio Manager, has been
affiliated with the Portfolio since April 1999. Mr. Wagle has been a Portfolio
Manager of the Adviser since April 1999 and Quantitative Equity Analyst since
February 1998. Prior to November 1997, he was an Equity Analyst with Aeltus
Investment Management. Prior to December 1995, he was an Equity Analyst with
Oppenheimer & Company.

PURCHASE OF SHARES

The Trust is offering its shares only to Accounts of various insurance companies
to fund the benefits of variable annuity or variable life insurance contracts.
The Trust does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Trust's
Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Trust's prospectus.

The Trust continuously offers shares in each of the Portfolios to the Accounts
at prices equal to the respective per share net asset value of the Portfolio.
The Distributor, located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace,
Illinois 60181-5555, acts as the distributor of the shares. Each of the Trust
and the Distributor reserves the right to refuse any order for the purchase of
shares. Net asset value is determined in the manner set forth below under
"Determination of Net Asset Value."

DETERMINATION OF NET ASSET VALUE

Net asset value per share is computed for each Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies for
information regarding holidays observed by the insurance company. Net asset
value of each Portfolio is determined by adding the total market value of all
portfolio securities held by the Portfolio, cash and other assets, including
accrued interest. All liabilities, including accrued expenses, of the Portfolio
are subtracted. The resulting amount is divided by the total number of
outstanding shares of the Portfolio to arrive at the net

62
<PAGE> 64

asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.

Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for all Portfolios other than the Money Market Portfolio
are valued as described in the notes to financial statements in the Statement of
Additional Information.

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

Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which a Portfolio's net asset value is not calculated and on which a Portfolio
does not effect sales, redemptions and exchanges of its shares. The Portfolio
calculates net asset value per share, and therefore effects sales, redemptions
and exchanges of its shares, as of the close of trading on the Exchange each day
the Exchange is open for trading. Such calculation does not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when a Portfolio's net asset value is calculated, such
securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Trustees.

REDEMPTION OF SHARES

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

DIVIDENDS,
DISTRIBUTIONS
AND TAXES

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

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

DIVIDENDS OF THE MONEY MARKET PORTFOLIO. The Money Market Portfolio declares
income dividends each business day payable monthly. The Money Market Portfolio's
net income for dividend purposes is calculated daily and consists of interest
accrued or discount earned, plus or minus any net realized gains or losses on
portfolio securities, less any amortization of premium and the expenses of the
Money Market Portfolio.

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<PAGE> 65

DIVIDENDS AND DISTRIBUTIONS OF THE ASSET ALLOCATION PORTFOLIO, THE COMSTOCK
PORTFOLIO, THE DOMESTIC INCOME PORTFOLIO, THE EMERGING GROWTH PORTFOLIO, THE
ENTERPRISE PORTFOLIO, THE GLOBAL EQUITY PORTFOLIO, THE GOVERNMENT PORTFOLIO, THE
GROWTH AND INCOME PORTFOLIO, THE MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
AND THE STRATEGIC STOCK PORTFOLIO. Dividends from stocks and interest earned
from other investments are the main source of income for these Portfolios.
Substantially all of this income, less expenses, is distributed to Accounts on
an annual basis. When a Portfolio sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Portfolio paid to purchase them. Net
capital gains represent the excess of net long term capital gains over net
short-term capital losses and any losses carried forward from prior years. Each
of these Portfolios distributes any net capital gains to Accounts no less
frequently than annually.

TAX STATUS OF THE PORTFOLIOS. Each Portfolio has elected to be taxed as a
"regulated investment company" under the Code. By maintaining its qualification
as a "regulated investment company," a Portfolio is not subject to federal
income taxes to the extent it distributes its net investment income and net
capital gains. If for any taxable year a Portfolio does not qualify for the
special tax treatment afforded regulated investment companies, all of its
taxable income, including any net capital gains, would be subject to tax at
regular corporate rates (without any deduction for distributions to
shareholders).

TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each quarter of the
year (or within 30 days thereafter). Regulations issued by the Secretary of the
Treasury have the effect of requiring the Accounts to invest no more than 55% of
their total assets in securities of any one issuer, no more than 70% in the
securities of any two issuers, no more than 80% in the securities of any three
issuers, and no more than 90% in the securities of any four issuers. For this
purpose, the U.S. Treasury and each U.S. Government agency and instrumentality
is considered to be a separate issuer. In the event the investments of the
Accounts in the Portfolios are not properly diversified under Code Section
817(h), then the policies funded by shares of the Portfolios will not be treated
as life insurance for federal income tax purposes and the owners of the policies
will be subject to taxation on their respective shares of the dividends and
distributions paid by the relevant Portfolios.

Dividends paid by each Portfolio from its ordinary income and distributions of
each Portfolio's net short-term capital gains are includable in the insurance
company's gross income. The tax treatment of such dividends and distributions
depends on the insurance company's tax status. To the extent that income of a
Portfolio represents dividends on equity securities rather than interest income,
its distributions are eligible for the 70% dividends received deduction
applicable in the case of a life insurance company as provided in the Code. The
Trust will send to the Accounts a written notice required by the Code
designating the amount and character of any distributions made during such year.

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

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

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<PAGE> 66

CERTAIN INVESTMENT PRACTICES OF PORTFOLIOS. Certain investment practices of a
Portfolio may be subject to special provisions of the Code that, among other
things, may defer the use of certain losses of the Portfolio and affect the
holding period of the securities held by the Portfolio and the character of the
gains or losses realized by the Portfolio. These provisions may also require the
Portfolio to recognize income or gain without receiving cash with which to make
distributions in the amounts necessary to maintain the Portfolio's qualification
as a regulated investment company and avoid income and excise taxes. Each
Portfolio will monitor its transactions and may make certain tax elections in
order to mitigate the effect of these rules and prevent disqualification of the
Portfolio as a regulated investment company.

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<PAGE> 67

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the past five years. The Comstock
Portfolio had not commenced investment operations prior to December 31, 1998 and
has no historical financial highlights to report. Certain information reflects
financial results for a single share of a Portfolio. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with each Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.

<TABLE>
<CAPTION>
Year Ended December 31,
ASSET ALLOCATION PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $11.910 $11.352 $ 11.64 $ 9.99 $11.80
------- ------- ------- ------- ------
Net Investment Income................... .425 .513 .482 .48 .45
Net Realized and Unrealized Gain/Loss... 1.416 1.897 1.083 2.6425 (.89)
------- ------- ------- ------- ------

Total from Investment Operations.......... 1.841 2.410 1.565 3.1225 (.44)
------- ------- ------- ------- ------

Less:
Distributions from Net Investment
Income............................... .013 .518 .478 .4775 .45
Distributions from Net Realized Gain.... .354 1.334 1.375 .995 .90
Distributions in Excess of Net Realized
Gain................................. - - - - .02
------- ------- ------- ------- ------

Total Distributions....................... .367 1.852 1.853 1.4725 1.37
------- ------- ------- ------- ------

Net Asset Value, End of the Period........ $13.384 $11.910 $11.352 $ 11.64 $ 9.99
======= ======= ======= ======= ======

Total Return*............................. 15.67% 21.81% 13.87% 31.36% (3.66%)
Net Assets at End of the Period (In
millions)............................... $ 61.5 $ 63.3 $ 63.9 $ 63.0 $ 56.6
Ratio of Expenses to Average Net
Assets*................................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average
Net Assets*............................. 3.17% 3.86% 3.78% 3.85% 3.70%
Portfolio turnover........................ 93% 58% 118% 124% 163%

*If certain expenses had not been assumed
by the Adviser, Total Return would have
been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets... .72% .71% .81% .74% .72%
Ratio of Net Investment Income to Average
Net Assets.............................. 3.05% 3.75% 3.57% 3.71% 3.58%
</TABLE>

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<PAGE> 68

<TABLE>
<CAPTION>
Year Ended December 31,
DOMESTIC INCOME PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Net Asset Value, Beginning of the Period...... $8.252 $8.008 $ 8.21 $ 7.35 $ 8.58
------ ------ ------ ------ -------

Net Investment Income....................... .614 .704 .755 .71 .85
Net Realized and Unrealized Gain/Loss....... (.096) .252 (.212) .8525 (1.2275)
------ ------ ------ ------ -------

Total from Investment Operations.............. .518 .956 .543 1.5625 (.3775)
------ ------ ------ ------ -------

Less Distributions from Net Investment
Income................................... .022 .712 .745 .7025 .8525
------ ------ ------ ------ -------

Net Asset Value, End of the Period............ $8.748 $8.252 $8.008 $ 8.21 $ 7.35
====== ====== ====== ====== =======

Total Return*................................. 6.34% 11.90% 6.68% 21.37% (4.33%)
Net Assets at End of the Period (In
millions)................................... $ 17.9 $ 17.2 $ 19.8 $ 26.6 $ 21.3
Ratio of Expenses to Average Net Assets*...... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*..................................... 7.29% 7.74% 7.97% 8.11% 8.35%

Portfolio Turnover............................ 46% 78% 77% 54% 94%

*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets....... 1.09% 1.05% 1.29% .93% .95%
Ratio of Net Investment Income to Average Net
Assets...................................... 6.80% 7.29% 7.28% 7.78% 8.00%
</TABLE>

<TABLE>
<CAPTION>
July 3, 1995
(Commencement of
Year Ended December 31, Investment Operations) to
Emerging Growth Portfolio 1998 1997 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $16.450 $13.660 $ 11.72 $10.00
------- ------- ------- ------

Net Investment Loss......................... (.014) (.007) (.016) (.08)
Net Realized and Unrealized Gain............ 6.186 2.797 1.956 1.80
------- ------- ------- ------

Total from Investment Operations.............. 6.172 2.790 1.940 1.72
Less Distributions in Excess of Net
Investment Income........................ .007 -0- -0- -0-
------- ------- ------- ------

Net Asset Value, End of the Period............ $22.615 $16.450 $13.660 $11.72
======= ======= ======= ======

Total Return*................................. 37.56% 20.42% 16.55% 17.20%**
Net Assets at End of the Period (In
millions)................................... $ 33.4 $ 10.5 $ 5.2 $ 2.3
Ratio of Expenses to Average Net Assets*...... .85% .85% .85% 2.50%
Ratio of Net Investment Loss to Average Net
Assets*..................................... (.23%) (.11%) (.17%) (1.45%)
Portfolio Turnover............................ 91% 116% 102% 41%**

*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets....... 1.23% 2.14% 3.28% 5.40%
Ratio of Net Investment Loss to Average Net
Assets...................................... (.61%) (1.40%) (2.60%) (4.35%)
</TABLE>

** Non-Annualized

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<PAGE> 69

<TABLE>
<CAPTION>
Year Ended December 31,
ENTERPRISE PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $18.106 $16.262 $ 14.69 $ 12.39 $ 14.57
------- ------- ------- ------- --------

Net Investment Income....................... .069 .091 .113 .32 .25
Net Realized and Unrealized Gain/Loss....... 4.441 4.734 3.417 4.22 (.7625)
------- ------- ------- ------- --------

Total from Investment Operations.............. 4.510 4.825 3.530 4.54 (.5125)
------- ------- ------- ------- --------

Less:

Distributions from Net Investment Income.... .017 .096 .109 .3175 .25

Distributions from Net Realized Gain........ .209 2.885 1.849 1.9225 1.4175
------- ------- ------- ------- --------

Total Distributions........................... .226 2.981 1.958 2.24 1.6675
------- ------- ------- ------- --------

Net Asset Value, End of the Period............ $22.390 $18.106 $16.262 $ 14.69 $ 12.39
======= ======= ======= ======= ========

Total Return*................................. 25.00% 30.66% 24.80% 36.98% (3.39%)
Net Assets at End of the Period (In
millions)................................... $ 123.6 $ 98.7 $ 84.8 $ 76.0 $ 67.5
Ratio of Expenses to Average Net Assets*...... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*..................................... .35% .47% .68% 2.06% 1.72%

Portfolio Turnover............................ 82% 82% 152% 145% 153%

*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expense to Average Net Assets........ 64% .66% .75% .68% .68%
Ratio of Net Investment Income to Average Net
Assets...................................... .31% .41% .53% 1.98% 1.64%
</TABLE>

<TABLE>
<CAPTION>
July 3, 1995
(Commencement of
Year Ended December 31, Investment Operations) to
Global Equity Portfolio 1998 1997 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $11.004 $11.658 $ 10.30 $10.00
------- ------- ------- ------

Net Investment Income/Loss.................. .089 .110 .035 (.16)
Net Realized and Unrealized Gain............ 2.258 1.696 1.687 .46
------- ------- ------- ------

Total from Investment Operations.............. 2.347 1.806 1.722 .30
------- ------- ------- ------

Less:
Distributions from and in Excess of Net
Investment Income........................ .143 .106 .188 -
Distributions from and in Excess of Net
Realized Gain............................ - 2.354 .176 -
------- ------- ------- ------

Total Distributions........................... .143 2.460 .364 -
------- ------- ------- ------
Net Asset Value, End of the Period............ $13.208 $11.004 $11.658 $10.30
======= ======= ======= ======

Total Return*................................. 21.61% 15.85% 16.72% 3.00%**
Net Assets at End of the Period (In
millions)................................... $ 3.4 $ 3.0 $ 2.5 $ 2.4
Ratio of Expenses to Average Net Assets*...... 1.20% 1.20% 1.20% 4.35%
Ratio of Net Investment Income/Loss to Average
Net Assets*................................. .79% .76% .27% (2.76%)
Portfolio Turnover............................ 3% 132% 94% 42%**

*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets....... 6.27% 6.78% 7.43% 8.27%
Ratio of Net Investment Loss to Average Net
Assets...................................... (4.28%) (4.82%) (5.96%) (6.68%)
</TABLE>

** Non-Annualized

68
<PAGE> 70

<TABLE>
<CAPTION>
Year Ended December 31,
GOVERNMENT PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $8.920 $8.666 $ 9.06 $ 8.28 $ 9.26
------ ------ ------ ------ ------

Net Investment Income........................ .520 .566 .569 .60 .56
Net Realized and Unrealized Gain/Loss........ .244 .231 (.388) .78 (.985)
------ ------ ------ ------ ------

Total From Investment Operations............... .764 .797 .181 1.38 (.425)

Less Distributions from and in Excess of Net
Investment Income............................ .090 .543 .575 .60 .555
------ ------ ------ ------ ------

Net Asset Value, End of the Period............. $9.594 $8.920 $8.666 $ 9.06 $ 8.28
====== ====== ====== ====== ======

Total Return*.................................. 8.59% 9.61% 2.12% 17.17% (4.63%)
Net Assets at End of the Period (In
millions).................................... $ 57.1 $ 52.6 $ 57.3 $ 67.0 $ 65.5
Ratio of Expenses to Average Net Assets*....... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*...................................... 5.74% 6.51% 6.56% 6.89% 6.71%
Portfolio Turnover............................. 107% 119% 143% 164% 192%

*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets........ .73% .74% .80% .72% .70%
Ratio of Net Investment Income to Average Net
Assets....................................... 5.61% 6.37% 6.36% 6.77% 6.61%
</TABLE>

<TABLE>
<CAPTION>
December 23, 1996
(Commencement of
Year Ended December 31, Investment Operations) to
Growth and Income Portfolio 1998 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $12.123 $ 9.970 $10.000
------- ------- -------

Net Investment Income........................ .120 .072 .011
Net Realized and Unrealized Gain/Loss........ 2.254 2.309 (.041)
------- ------- -------

Total From Investment Operations............... 2.374 2.381 (.030)
------- ------- -------

Less:
Distributions from Net Investment Income..... .016 .065 -0-
Distributions from and in Excess of Net
Realized Gain............................. -0- .163 -0-
------- ------- -------

Total Distributions............................ .016 .228 -0-
------- ------- -------

Net Asset Value, End of the Period............. $14.481 $12.123 $ 9.970
======= ======= =======

Total Return*.................................. 19.61% 23.90% (.30%) **
Net Assets at End of the Period (In
millions).................................... $ 32.2 $ 11.7 $ 0.5
Ratio of Expenses to Average Net Assets*....... .75% .75% .75%
Ratio of Net Investment Income to Average Net
Assets*...................................... 1.27% 1.19% 4.47%
Portfolio Turnover............................. 70% 96% 0%**

*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets........ 1.09% 1.63% 45.97%
Ratio of Net Investment Income/Loss to Average
Net Assets................................... .93% .31% (40.74%)
</TABLE>

** Non-Annualized

69
<PAGE> 71

<TABLE>
<CAPTION>
Year Ended December 31,
MONEY MARKET PORTFOLIO 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<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......................... .049 .049 .048 .0533 .0365

Less Distributions from Net Investment Income... .049 .049 .048 .0533 .0365
----- ----- ----- ----- ------

Net Asset Value, End of the Period.............. $1.00 $1.00 $1.00 $1.00 $ 1.00
===== ===== ===== ===== ======

Total Return*................................... 5.02% 5.06% 4.89% 5.46% 3.71%
Net Assets at End of the Period (In millions)... $26.7 $19.7 $19.6 $21.6 $ 28.5
Ratio of Expenses to Average Net Assets*........ .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*....................................... 4.88% 4.95% 4.78% 5.33% 3.63%

*If certain expenses had not been assumed by the
Adviser, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average Net Assets......... .99% .98% 1.29% .93% .87%
Ratio of Net Investment Income to Average Net
Assets........................................ 4.49% 4.57% 4.10% 5.00% 3.37%
</TABLE>

<TABLE>
<CAPTION>
July 3, 1995
(Commencement of
Year Ended December 31, Investment Operations) to
Morgan Stanley Real Estate Securities Portfolio 1998 1997 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $15.846 $14.784 $ 10.74 $10.00
------- ------- ------- ------

Net Investment Income........................ .781 .464 .217 .20
Net Realized and Unrealized Gain/Loss........ (2.597) 2.617 4.117 .6325
------- ------- ------- ------

Total from Investment Operations............... (1.816) 3.081 4.334 .8325
------- ------- ------- ------

Less:

Distributions from Net Investment Income..... .025 .470 .199 .0925

Distributions from Net Realized Gain......... .246 1.549 .091 -0-
------- ------- ------- ------

Total Distributions............................ .271 2.019 .290 .0925
------- ------- ------- ------ ---

Net Asset Value, End of the Period............. $13.759 $15.846 $14.784 $10.74
======= ======= ======= ======

Total Return*.................................. (11.62%) 21.47% 40.53% 8.35%**
Net Assets at End of the Period (In
millions).................................... $ 208.8 $ 299.4 $ 167.5 $ 8.6
Ratio of Expenses to Average Net Assets*....... 1.08% 1.07% 1.10% 2.50%
Ratio of Net Investment Income to Average Net
Assets*...................................... 4.72% 3.42% 5.06% 3.75%
Portfolio Turnover............................. 110% 177% 84% 85%**

*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets........ N/A N/A 1.27% 2.90%
Ratio of Net Investment Income to Average Net
Assets....................................... N/A N/A 4.89% 3.36%
</TABLE>

** Non-Annualized

N/A = Not Applicable

70
<PAGE> 72

<TABLE>
<CAPTION>
November 3, 1997
Year Ended (Commencement of
December 31, Investment Operations) to
Strategic Stock Portfolio 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period............ $10.245 $10.000
------- -------

Net Investment Income............................. .113 .027
Net Realized and Unrealized Gain.................. 1.586 .218
------- -------

Total from Investment Operations.................... 1.699 .245

Less Distributions from Net Investment Income....... .012 -0-
------- -------

Net Asset Value, End of the Period.................. $11.932 $10.245
======= =======

Total Return*....................................... 16.51% 2.45%**
Net Assets at End of the Period (In millions)....... $ 21.4 $ 2.5
Ratio of Expenses to Average Net Assets*............ .65% .61%
Ratio of Net Investment Income to Average Net
Assets*........................................... 2.01% 2.67%
Portfolio Turnover.................................. 10% 0%**

*If certain expenses had not been assumed by the
Adviser, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net Assets............. 1.25% 2.59%
Ratio of Net Investment Income to Average Net
Assets............................................ 1.41% .68%
</TABLE>

** Non-Annualized

71
<PAGE> 73

APPENDIX --
DESCRIPTION OF
SECURITIES RATINGS

STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:

A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:

2. Nature of and provisions of the obligation:

3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.

1. LONG-TERM DEBT -- INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.

AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.

A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.

BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.

CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

A- 1
<PAGE> 74

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.

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

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:

A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.

D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.

A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or

A- 2
<PAGE> 75

withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.

3. PREFERRED STOCK

A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.

The preferred stock ratings are based on the following considerations:

i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.

ii. Nature of, and provisions of, the issuer.

iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.

AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.

AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".

A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.

BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.

BB, B and CCC: Preferred stock rated "B", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.

"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.

C: A preferred stock rated "C" is a nonpaying issue.

D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.

NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings from "AA" to "CCC" may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:

1. LONG-TERM DEBT

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or

A- 3
<PAGE> 76

by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

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

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

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

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

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

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

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

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

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

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

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

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

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

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

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

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

2. SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:

Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

- -- Leading market positions in well-established industries.

A- 4
<PAGE> 77

- -- High rates of return on funds employed.

- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- -- Broad margins is earnings coverage of fixed financial charges and high
internal cash generation.

- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

AAA: As issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.

AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.

A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.

BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.

C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.

A- 5
<PAGE> 78

FOR MORE INFORMATION

EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday

DEALERS
For dealer information, selling agreements, wire orders, or redemptions, call
the Distributor at (800) 421-5666

TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833

FUND INFO(R)
For automated telephone services, call (800) 847-2424

WEB SITE
www.vankampen.com

VAN KAMPEN LIFE INVESTMENT TRUST
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Investment Adviser

VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Investment Subadviser -- Global Equity and Morgan Stanley
Real Estate Securities Portfolios only

MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020

Distributor

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Transfer Agent

VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Life Investment Trust

Custodian

STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust

Legal Counsel

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

Independent Accountants

PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 79

VAN KAMPEN
LIFE INVESTMENT TRUST

PROSPECTUS

APRIL 30, 1999

A Statement of Additional Information, which
contains more details about the Trust and its
Portfolios, is incorporated by reference in
its entirety into this prospectus.

You will find additional information about the
Portfolios in their annual and semiannual
reports, which explain the market conditions
and investment strategies affecting the
Portfolios' recent performance.

You can ask questions or obtain a free copy of
the Portfolios' reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Portfolios' reports can also be ordered from
our web site at www.vankampen.com.

Information about the Trust and its
Portfolios, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC Public Reference Room in
Washington, DC or online at the SEC's web site
(http://www.sec.gov). For more information,
please call the SEC at (800) SEC-0330. You can
also request these materials by writing the
Public Reference Section of the SEC,
Washington DC, 20549-6009, and paying a
duplication fee.

[VAN KAMPEN FUNDS LOGO]

Investment Company Act File No. 811-4424. LIT PRO 4/99
<PAGE> 80

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN LIFE INVESTMENT TRUST

Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company with eleven Portfolios (the "Portfolios"): Asset Allocation
Portfolio (formerly Multiple Strategy Fund), Comstock Portfolio, Domestic Income
Portfolio (formerly Domestic Strategic Income Fund), Emerging Growth Portfolio
(formerly Emerging Growth Fund), Enterprise Portfolio (formerly Common Stock
Fund), Global Equity Portfolio (formerly Global Equity Fund), Government
Portfolio (formerly Government Fund), Growth and Income Portfolio (formerly
Growth and Income Fund), Money Market Portfolio (formerly Money Market Fund),
Morgan Stanley Real Estate Securities Portfolio (formerly Real Estate Securities
Portfolio) and Strategic Stock Portfolio. Each Portfolio is in effect a separate
diversified mutual fund issuing its own shares.

This Statement of Additional Information is not a Prospectus. This
Statement of Additional Information should be read in conjunction with the
Trust's applicable prospectus (the "Prospectus") dated as of the same date as
this Statement of Additional Information. This Statement of Additional
Information does not include all the information a prospective investor should
consider before purchasing shares of the Trust. Investors should obtain and read
a Prospectus containing disclosure with respect to the Portfolio in which the
investor wishes to invest prior to purchasing shares of such Portfolio. A
Prospectus may be obtained without charge by writing or calling Van Kampen Funds
Inc. (the "Distributor") at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace,
Illinois 60181-5555 at (800) 421-5666 or (800) 421-2833 for the hearing
impaired.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Practices........................................ B-6
Options, Futures Contracts and Options on Futures
Contracts................................................. B-14
Investment Restrictions..................................... B-21
Trustees and Officers....................................... B-38
Investment Advisory Agreements.............................. B-46
Distributor................................................. B-49
Transfer Agent.............................................. B-50
Portfolio Transactions and Brokerage Allocation............. B-50
Determination of Net Asset Value............................ B-52
Purchase and Redemption of Shares........................... B-53
Tax Status.................................................. B-54
Portfolio Performance....................................... B-55
Money Market Portfolio Yield Information.................... B-58
Other Information........................................... B-59
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-72
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1999.

<PAGE> 81

GENERAL INFORMATION

Van Kampen Life Investment Trust, formerly known as Van Kampen American
Capital Life Investment Trust (the "Trust"), was originally organized as a
business trust under the laws of the Commonwealth of Massachusetts on June 3,
1985 under the name American Capital Life Investment Trust. As of September 16,
1995, the Trust was reorganized as a business trust under the laws of the State
of Delaware and changed its name. On July 14, 1998, the Trust adopted its
current name.

Van Kampen Asset Management Inc. (the "Adviser"), Van Kampen Funds Inc.
(the "Distributor"), and Van Kampen Investor Services Inc. ("Investor Services")
are wholly owned subsidiaries of Van Kampen Investments Inc. ("Van Kampen
Investments"), which is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The principal office of the Fund, the Adviser, the Distributor
and Van Kampen Investments is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.

Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Dean Witter Investment Management
Inc., an investment adviser (the "Subadviser"), Morgan Stanley & Co.
Incorporated, a registered broker-dealer and investment adviser, and Morgan
Stanley International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; credit
services; asset management; trading of futures, options, foreign exchange,
commodities and swaps (involving foreign exchange, commodities, indices and
interest rates); real estate advice, financing and investing; and global
custody, securities clearance services and securities lending.

The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Portfolios. Each share represents an equal
proportionate interest in the assets of the series with each other share in such
series and no interest in any other series. No series is subject to the
liabilities of any other series. The Declaration of Trust provides that
shareholders are not liable for any liabilities of the Trust or any of its
series, requires inclusion of a clause to that effect in every agreement entered
into by the Trust or any of its series and indemnifies shareholders against any
such liability.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as otherwise described
in the Prospectus or herein, shares do not have cumulative voting rights,
preemptive rights or any conversion, subscription or exchange rights.

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of majority of the shares then outstanding cast in
person or by proxy at such meeting. The Trust will assist such holders in
communicating with other shareholders of the Trust to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").

The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.

Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.

B-2
<PAGE> 82

As of April 6, 1999, no person was known by the Trust to own beneficially
or to hold of record 5% or more of the outstanding shares of any portfolio
except as set forth below. The Trust offers its shares only to separate accounts
of various insurance companies. Those separate accounts have authority to vote
shares from which they have not received instructions from the Contract Owners,
but only in the same proportion with respect to "yes" votes, "no" votes or
abstentions as is the case with respect to shares for which instructions were
received.

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL 6, 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
ASSET ALLOCATION FUND
Nationwide Life Insurance Co............................ 2,390,991 47.49%
Nationwide VL1 -- Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co............................ 2,533,719 50.32%
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
DOMESTIC INCOME PORTFOLIO
American General Life Insurance Co...................... 581,574 24.85%
Separate Account D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co............................ 192,354 8.22%
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co............................ 794,275 33.94%
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen Generations Variable Annuities............... 503,848 21.53%
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
The Travelers Separate Account for...................... 213,676 9.13%
Variable Annuities of the
Travelers Insurance Co.
One Tower Square 5MS
Hartford, CT 06183-0002
EMERGING GROWTH PORTFOLIO
Van Kampen Generations Variable Annuities............... 901,625 41.02%
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
</TABLE>

B-3
<PAGE> 83

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL 6, 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
Nationwide Life Insurance Co............................ 177,834 8.09%
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co............................ 122,628 5.58%
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Northbrook Life Insurance Co............................ 877,857 39.94%
MSDWVA II
3100 Sanders Road Station N4A
Northbrook, IL 60062-7156
ENTERPRISE PORTFOLIO
American General Life Insurance Co...................... 704,780 11.56%
Separate Account -- D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co............................ 1,782,774 29.25%
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co............................ 1,736,413 28.49%
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen Generations Variable Annuities............... 1,185,522 19.45%
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
Hartford Life and Annuity Insurance Company............. 399,893 6.56%
Separate Account Three
MSDW Select Dimensions
Attn: Carol Lewis
P.O. Box 2999
Hartford, CT 06104-2999
GLOBAL EQUITY PORTFOLIO
Van Kampen Funds Inc.................................... 95,241 40.75%
One Chase Manhattan Plaza
37th Floor
New York, NY 10005
Nationwide Life Insurance Co............................ 80,758 34.55%
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>

B-4
<PAGE> 84

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL 6, 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
Nationwide Life Insurance Co............................ 57,718 24.70%
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
GOVERNMENT PORTFOLIO
Nationwide Life Insurance Co............................ 4,821,210 76.15%
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen Generations Variable Annuities............... 798,801 12.62%
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co............................ 473,445 7.48%
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
GROWTH AND INCOME PORTFOLIO
Van Kampen Generations Variable Annuities............... 2,340,803 87.62%
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
The Travelers Separate Account for...................... 235,893 8.83%
Variable Annuities of the
Travelers Insurance Co.
One Tower Square JMS
Hartford, CT 06183-0002
MONEY MARKET PORTFOLIO
American General Life Insurance Co...................... 4,062,184 13.49%
Separate Account D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co............................ 8,546,711 28.39%
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co............................ 7,982,466 26.52%
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen Generations Variable Annuities............... 3,898,033 12.95%
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
</TABLE>

B-5
<PAGE> 85

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL 6, 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
The Travelers Separate Account for...................... 4,951,637 16.45%
Variable Annuities of the
Travelers Insurance Co.
One Tower Square JMS
Hartford, CT 06183-0002
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Nationwide Life Insurance Co............................ 10,116,295 73.11%
Nationwide Variable Account II
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co............................ 1,394,840 10.08%
NWVA-9
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
STRATEGIC STOCK PORTFOLIO
Van Kampen Generations Variable Annuities............... 1,346,615 64.30%
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
Hartford Life and Annuity Insurance Co.................. 648,940 30.99%
Separate Account Three
MSDW Select Dimensions
Attn. Carol Lewis
P.O. Box 2999
Hartford, CT 06104-2999
</TABLE>

INVESTMENT PRACTICES

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

FOREIGN SECURITIES

The Portfolios also may purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. These securities
may not necessarily be denominated in the same currency as the underlying
securities but generally are denominated in the currency of the market in which
they are traded. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid by the ADR holders. In addition, less information
generally is available for an unsponsored ADR than about a sponsored ADR and
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Portfolios may invest in ADRs through both
sponsored and unsponsored arrangements. EDRs are receipts issued in Europe by
banks or depositaries which evidence similar ownership arrangement.

B-6
<PAGE> 86

DURATION

Duration is a measure of the expected life of a debt security that was
developed as an alternative to the concept of "term to maturity." Duration
incorporates a debt security's yield, coupon interest payments, final maturity
and call features into one measure. Traditionally a debt security's "term to
maturity" has been used as a proxy for the sensitivity of the security's price
to changes in interest rates. However, "term to maturity" measures only the time
until a debt security provides its final payment taking no account of the
pattern of the security's payments of interest or principal prior to maturity.
Duration is a measure of the expected life of a debt security on a present value
basis expressed in years. It measures the length of the time interval between
the present and the time when the interest and principal payments are scheduled
(or in the case of a callable bond, expected to be received), weighing them by
the present value of the cash to be received at each future point in time. For
any debt security with interest payments occurring prior to the payment of
principal, duration is always less than maturity, and for zero coupon issues,
duration and term to maturity are equal. In general, the lower the coupon rate
of interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration. There are some situations where even
the standard duration calculation does not properly reflect the interest rate
exposure of a security. For example, floating and variable rate securities often
have final maturities of ten or more years; however, their interest rate
exposure corresponds to the frequency of the coupon reset. Another example where
the interest rate exposure is not properly captured by duration is the case of
mortgage pass-through securities. The stated final maturity of such securities
is generally 30 years, but current prepayment rates are more critical in
determining the securities' interest rate exposure. In these and other similar
situations, the Adviser will use more sophisticated analytical techniques that
incorporate the economic life of a security into the determination of its
interest rate exposure.

MORTGAGE-RELATED SECURITIES

The Government Portfolio invests in mortgage-related securities.
Mortgage-related securities may be issued or guaranteed by an agency or
instrumentality of the U.S. government, but not necessarily by the U.S.
government itself. One type of mortgage-related security is a Government
National Mortgage Association ("GNMA") Certificate which is backed as to
principal and interest by the full faith and credit of the U.S. government.
Another type of mortgage-related security is a Federal National Mortgage
Association ("FNMA") Certificate. Principal and interest payments of FNMA
Certificates are guaranteed only by FNMA itself, not by the full faith and
credit of the U.S. government. A third type of mortgage-related security is a
Federal Home Loan Mortgage Association ("FHLMC") Participation Certificate. This
type of security is backed by FHLMC as to payment of principal and interest but,
like a FNMA security, it is not backed by the full faith and credit of the U.S.
government.

GNMA Certificates

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

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

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

B-7
<PAGE> 87

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

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

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

Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer.

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

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

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

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

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

In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a twelve-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1.00% more
than high grade corporate bonds and 1/2 of 1.00% more than U.S. government and
U.S. government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a twelve-year life.

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

FNMA Securities

The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates

B-8
<PAGE> 88

("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all principal and interest
payments made and owed on the underlying pool. FNMA guarantees timely payment of
interest and principal on FNMA Certificates. The FNMA guarantee is not backed by
the full faith and credit of the United States.

FHLMC Securities

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

COLLATERALIZED MORTGAGE OBLIGATIONS

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

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

B-9
<PAGE> 89

LENDING OF SECURITIES

Consistent with applicable regulatory requirements and applicable
investment restrictions, certain Portfolios may lend portfolio securities to
broker-dealers and other financial institutions provided that such loans are
callable at any time by the Portfolio, and are at all times secured by cash
collateral that is at least equal to the market value, determined daily, of the
loaned securities. The advantage of such loans is that the Portfolio continues
to receive the interest on the loaned securities, while at the same time earning
interest on the collateral which will be invested in short-term obligations. The
Portfolio pays lending fees and custodial fees in connection with loans of its
securities. There is no assurance as to the extent to which securities loans can
be effected.

A loan may be terminated by the borrower on one business day's notice or by
the Portfolio at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Portfolio could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Adviser to be creditworthy and when the consideration which can be earned
from such loans is believed to justify the attendant risks. On termination of
the loan, the borrower is required to return the securities to the Portfolio;
any gain or loss in the market price during the loan would inure to the
Portfolio.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Portfolio will follow the policy of calling the loan, whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Portfolio's investment in the
securities which are the subject of the loan.

FORWARD COMMITMENTS

Each of the Government Portfolio, Domestic Income Portfolio and Morgan
Stanley Real Estate Securities Portfolio may purchase or sell securities on a
"when-issued" or "delayed-delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Portfolio with
payment and delivery taking place in the future, frequently a month or more
after such transaction. The price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment takes place. At the time of settlement,
the market value of the securities may be more or less than the purchase or sale
price. The Portfolio may either settle a Forward Commitment by taking delivery
of the securities or may either resell or repurchase a Forward Commitment on or
before the settlement date in which event the Portfolio may reinvest the
proceeds in another Forward Commitment.

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

A Forward Commitment sale is covered if the Portfolio owns or has the right
to acquire the underlying securities subject to the Forward Commitment. A
Forward Commitment sale is for cross-hedging purposes if it is not covered, but
is designed to provide a hedge against a decline in value of a security or
currency which the Portfolio owns or has the right to acquire. Only the
Government Portfolio and the Real Estate Securities Portfolio may engage in
forward commitment transactions for cross-hedging purposes. In either
circumstance, the Portfolio maintains in a segregated account (which is marked
to market daily) either the security covered by the Forward Commitment or cash
or liquid securities with the Portfolio's custodian in an aggregate amount

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equal to the amount of its commitment as long as the obligation to sell
continues. By entering into a Forward Commitment sale transaction, the Portfolio
foregoes or reduces the potential for both gain and loss in the security which
is being hedged by the Forward Commitment sale.

When engaging in Forward Commitments, the Fund relies on the other party to
complete the transaction. Should the other party fail to do so, the Fund might
lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. Forward Commitments are
not traded on an exchange and thus may be less liquid than exchange traded
contracts.

INTEREST RATE TRANSACTIONS

The Government Portfolio may enter into interest rate swaps and may
purchase or sell interest rate caps, floors and collars. The Portfolio expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Portfolio may also enter
into these transactions to protect against any increase in the price of
securities the Portfolio anticipates purchasing at a later date. The Portfolio
does not intend to use these transactions as speculative investments and will
not enter into interest rate swaps or sell interest rate caps or floors where it
does not own or have the right to acquire the underlying securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling the interest rate floor. An interest rate collar combines the
elements of purchasing a cap and selling a floor. The collar protects against an
interest rate rise above the maximum amount but foregoes the benefit of an
interest rate decline below the minimum amount. Interest rate swaps, caps,
floors and collars may be treated as illiquid securities and be subject to the
Portfolio's investment restriction limiting investment in illiquid securities.

The Portfolio may enter into interest rate swaps, caps, floors and collars
on either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be accrued on a daily basis and an amount of cash or liquid securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. If the
Portfolio enters into an interest rate swap on other than a net basis, the
Portfolio would maintain a segregated account in the full amount accrued on a
daily basis of the Portfolio's obligations with respect to the swap. Interest
rate transactions do not constitute senior securities under the 1940 Act when
the Portfolio segregates assets to cover the obligations under the transactions.
The Portfolio will enter into interest rate swap, cap or floor transactions only
with counterparties approved by the Trustees. The Adviser will monitor the
creditworthiness of counterparties to its interest rate swap, cap, floor and
collar transactions on an ongoing basis. If there is a default by the other
party to such a transaction, the Portfolio will have contractual remedies
pursuant to the agreements related to the transaction. To the extent the
Portfolio sells (i.e., writes) caps, floors and collars, it will maintain in a
segregated account cash or liquid securities having an aggregate net asset value
at least equal to the full amount, accrued on a daily basis, of the Portfolio's
net obligations with respect to the caps, floors or collars. The use of interest
rate swaps is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its forecasts of the market values,
interest rates and other applicable factors, the investment performance of the
Portfolio would diminish compared with what it would have been if these
investment techniques were not used. The use of interest rate swaps, caps,
collars and floors may also have the effect of shifting the recognition of
income between current and future periods.

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These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap defaults, the Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio contractually is entitled to receive.

PORTFOLIO TURNOVER

A Portfolio's turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Portfolio's portfolio securities during such fiscal year.
The turnover rate may vary greatly from year to year as well as within a year. A
Portfolio's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Portfolio's portfolio excluding all securities whose maturities at
acquisition were one year or less) is shown in the table of "Financial
Highlights" in the Prospectus. A high portfolio turnover rate (100% or more)
increases the Portfolio's transaction costs, including brokerage commissions,
and may result in the realization of more short-term capital gains than if the
Portfolio had a lower portfolio turnover. The turnover rate will not be a
limiting factor, however, if the Adviser deems portfolio changes appropriate.

ILLIQUID SECURITIES

Each Portfolio, subject to its investment restrictions, may invest a
portion of its assets in illiquid securities, which includes securities that are
not readily marketable, repurchase agreements which have a maturity of longer
than seven days and generally includes securities that are restricted from sale
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"). The sale of such securities often requires more time and
results in higher brokerage charges or dealer discounts and other selling
expenses than does the sale of liquid securities trading on national securities
exchanges or in over-the-counter markets. Restricted securities are often
purchased at a discount from the market price of unrestricted securities of the
same issuer reflecting the fact that such securities may not be readily
marketable without some time delay. Investments in securities which have no
ready market are valued at fair value as determined in good faith by the Adviser
in accordance with procedures approved by the Portfolio's Trustees. Ordinarily,
the Portfolio would invest in restricted securities only when it receives the
issuer's commitment to register the securities without expense to the Portfolio.
However, registration and underwriting expenses (which may range from 7% to 15%
of the gross proceeds of the securities sold) may be paid by the Portfolio.
Restricted securities which can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act ("144A Securities") and are determined
to be liquid under guidelines adopted by and subject to the supervision of the
Portfolio's Board of Trustees are not subject to the limitation on illiquid
securities. Such 144A Securities are subject to monitoring and may become
illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Portfolio in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.

MONEY MARKET PORTFOLIO

The Money Market Portfolio seeks to maintain a net asset value of $1.00 per
share. To do so, the Portfolio uses the amortized cost method of valuing the
Portfolio's securities pursuant to Rule 2a-7 under the 1940 Act, certain
requirements of which are summarized below.

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

In addition, the Portfolio will not invest more than 5% of its total assets
in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that (i)
the Portfolio may invest more than 5% of its total assets in a single issuer for
a period of up to three business days in certain limited circumstances, (ii) the
Portfolio may invest in obligations issued or guaranteed by the U.S. government
without any such limitation, and (iii) the limitation with respect to puts does
not apply to unconditional puts if no more than 10% of the Portfolio's total
assets is invested in securities issued or guaranteed by the issuer of the
unconditional put. Investments in rated securities not rated in the highest
category by at least two rating organizations (or one rating organization if the
instrument was rated by only one such organization), and unrated securities not
determined by the Trustees to be comparable to those rated in the highest
category, will be limited to 5% of the Portfolio's total assets, with the
investment in any one such issuer being limited to no more than the greater of
one percent of the Portfolio's total assets or $1,000,000. As to each security,
these percentages are measured at the time the Portfolio purchases the security.
There can be no assurance that the Portfolio will be able to maintain a stable
net asset value of $1.00 per share.

STRATEGIC STOCK PORTFOLIO

The Strategic Stock Portfolio invests primarily in dividend paying equity
securities of companies included in the DJIA or in the MSCI USA Index. In
selecting securities for the Portfolio, the Adviser presently intends to follow
the following procedures, subject to and limited by the Portfolio's other
investment policies and restrictions.

The Portfolio will reflect on its books twelve separate sub-accounts (each
a "Strategic Sub-Account"). Strategic Sub-Accounts will be successively
designated Strategic Sub-Account 1 through Strategic Sub-Account 12.

As of the close of business on (i) the business day immediately prior to
the Portfolio's commencement of investment operations and (ii) the last business
day of each month thereafter (each a "Strategic Determination Date"), the
Adviser will identify 20 securities pursuant to the Strategic Selection Policies
discussed in the Prospectus (the "Current Period Strategic Securities").

As of commencement of investment operations, the Portfolio invested the
assets of Strategic Sub-Account 1 approximately equally in each of the Current
Period Strategic Securities determined on the first Strategic Determination
Date. This resulted in approximately 5% of the Portfolio's assets being invested
in each of the initial Current Period Strategic Securities. On each of the
eleven subsequent Strategic Determination Dates, the Adviser invested the cash
available for investment due to the sale of new shares and the receipt of
dividend and interest income in the next successive Strategic Sub-Account
approximately equally in each of the Current Period Strategic Securities for
that Strategic Determination Date. Following the twelfth Strategic Determination
Date the assets of one Strategic Sub-Account will be evaluated and adjusted each
month so that the assets of each Strategic Sub-Account will be reviewed and
adjusted once every 12 months.

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Consistent with the Portfolio's investment objective, the Adviser may
modify these procedures without prior notice to investors to adjust the
frequency of portfolio review and adjustment and to adjust the portion of the
Portfolio's assets that is reviewed and adjusted during each period.

The following disclosures supplement disclosures set forth in the
Prospectus. Readers must refer also to the Prospectus for a complete
presentation.

OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

All of the Portfolios except the Domestic Income Portfolio and the Money
Market Portfolio may engage in transactions in options, futures contracts and
options on futures contracts. Set forth below is certain additional information
regarding options, futures contracts and options on futures contracts. See the
Prospectus for further information.

WRITING CALL AND PUT OPTIONS

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

Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. Each Portfolio writes call
options only on a covered basis and only the Government Portfolio and Comstock
Portfolio write call options either on a covered basis or for cross-hedging
purposes. A call option is covered if at all times during the option period the
Portfolio owns or has the right to acquire securities of the type that it would
be obligated to deliver if any outstanding option were exercised. Thus, the
Government Portfolio may write options on mortgage-related or other U.S.
Government securities or forward commitments of such securities. An option is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a security which a Portfolio owns or has the right to acquire. In
such circumstances, a Portfolio collateralizes the option by maintaining in a
segregated account with a Portfolio's custodian, cash or liquid securities in an
amount not less than the market value of the underlying security, marked to
market daily, while the option is outstanding.

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

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

A Portfolio could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A
Portfolio could close out its position as writer of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, a Portfolio could purchase an offsetting option,
which would not close

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out its position as a writer, but would provide an asset of equal value to its
obligation under the option written. The Portfolios will only enter into
over-the-counter options (other than currency options) that are subject to a
buy-back provision permitting the Fund to require the counterparty to close out
the option at a formula price within seven days. If a Portfolio is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has written, it will be required to maintain the
securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so. Such options may be
considered illiquid and subject to a Portfolio's limitation on illiquid
securities.

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

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

PURCHASING CALL AND PUT OPTIONS

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

Put options may be purchased to protect (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of a
Portfolio's assets generally. In addition, the Comstock Portfolio, the Emerging
Growth Portfolio, the Enterprise Portfolio, the Growth and Income Portfolio, the
Real Estate Securities Portfolio and the Strategic Stock Portfolio may purchase
put options for capital appreciation in anticipation of a price decline in the
underlying security and a corresponding increase in the value of the put option.
The purchase of put options for capital appreciation involves the same
significant risk of loss as described above for call options.

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

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

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

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

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

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options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.

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

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

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

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

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

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

FOREIGN CURRENCY OPTIONS

Certain Portfolios may purchase put and call options on foreign currencies
to reduce the risk of currency exchange fluctuation. Premiums paid for such put
and call options will be limited to no more than five percent of the Portfolio's
net assets at any given time. Options on foreign currencies operate similarly to
options on

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securities, and are traded primarily in the over-the-counter market, although
options on foreign currencies are traded on United States and foreign exchanges.
Exchange-traded options are expected to be purchased by the Portfolio from time
to time and over-the-counter options may also be purchased, but only when the
Adviser believes that a liquid secondary market exists for such options,
although there can be no assurance that a liquid secondary market will exist for
a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investment generally. See "Investment Practices -- Using Options, Futures
Contracts and Options on Futures Contracts" in the Prospectus.

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

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

FUTURES CONTRACTS

Certain Portfolios may engage in transactions involving futures contracts
and related options in accordance with rules and interpretations of the
Commodity Futures Trading Commission ("CFTC") under which the Trust and its
Portfolios would be exempt from registration as a "commodity pool."

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

A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures contracts
can be purchased with respect to several indices on various exchanges.
Differences in the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value of the
securities being hedged.

A Portfolio also may invest in foreign stock index futures traded outside
the United States which involve additional risks, including fluctuations in
foreign exchange rates, future foreign political and economic developments, and
the possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments.

Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, a Portfolio is required to deposit with its custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The
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nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Portfolio upon termination of
the futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation margin, are made on a daily
basis as the price of the underlying securities or index fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as marking to market.

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

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

Futures Strategies. When a Portfolio anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Portfolio is
otherwise fully invested ("anticipatory hedge"). Such purchase of a futures
contract serves as a temporary substitute for the purchase of individual
securities, which may be purchased in an orderly fashion once the market has
stabilized. As individual securities are purchased, an equivalent amount of
futures contracts could be terminated by offsetting sales. A Portfolio may sell
futures contracts in anticipation of or in a general market or market sector
decline that may adversely affect the market value of the Portfolio's securities
("defensive hedge"). To the extent that the Portfolio's portfolio of securities
changes in value in correlation with the underlying security or index, the sale
of futures contracts substantially reduces the risk to a Portfolio of a market
decline and, by so doing, provides an alternative to the liquidation of
securities positions in the Portfolio with attendant transaction costs.
Ordinarily commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of securities.

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

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

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

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

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

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

A Portfolio will not enter into a futures contract or option (except for
closing transactions) for other than for bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options would exceed 5% of the Portfolio's total
assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. Certain state securities laws to
which a Portfolio may be subject may further restrict the Portfolio's ability to
engage in transactions in futures contracts and related options. In order to
prevent leverage in connection with the purchase of futures contracts by a
Portfolio, an amount of cash or liquid securities equal to the market value of
the obligation under the futures contracts (less any related margin deposits)
will be maintained in a segregated account with the custodian.

OPTIONS ON FUTURES CONTRACTS

A Portfolio could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, a Portfolio is subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option

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premiums received by a Portfolio are required to be included as initial margin
deposits. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise price of the
option. A Portfolio could purchase put options on futures contracts in lieu of,
and for the same purposes as the sale of a futures contract; at the same time,
it could write put options at a lower strike price (a "put bear spread") to
offset part of the cost of the strategy to the Portfolio. The purchase of call
options on futures contracts is intended to serve the same purpose as the actual
purchase of the futures contract.

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

ADDITIONAL RISKS OF OPTIONS AND FUTURES TRANSACTIONS

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

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

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

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

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

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counter market, potentially permitting the Portfolio to liquidate open positions
at a profit prior to exercise or expiration, or to limit losses in the event of
adverse market movements.

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

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

INVESTMENT RESTRICTIONS

Each Portfolio has adopted the following restrictions which may not be
changed without approval by the vote of a majority of its outstanding voting
shares; which is defined by the 1940 Act as the lesser of (i) 67% or more of the
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present or represented by
proxy; or (ii) more than 50% of the Portfolio's outstanding voting securities.
The percentage limitations need only be met at the time the investment is made
or after relevant action is taken. The Portfolios are subject to the
restrictions set forth below. (Those restrictions that are only applicable to
certain Portfolios are noted as such.)

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

A Portfolio shall not:

1. Invest in securities of any company if any officer or trustee of the
Portfolio or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more
than 5% of the outstanding securities of such issuer;

2. Invest in companies for the purpose of acquiring control or management
thereof except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act;

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

4. Lend its portfolio securities in excess of 10% of its total assets,
both taken at market value provided that any loans shall be in
accordance with the guidelines established for such loans by the Board
of

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Trustees of the Trust as described under "Investment Practices--Lending
of Securities" including the maintenance of collateral from the
borrower equal at all times to the current market value of the
securities loaned.

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

A Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

2. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

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

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

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Portfolio may purchase securities of other investment companies
to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act;

6. Lend money, except that a Portfolio may invest in repurchase agreements
in accordance with applicable requirements set forth in the Prospectus
and may acquire debt securities which the Portfolio's investment
policies permit. A Portfolio will not invest in repurchase agreements
maturing in more than seven days (unless subject to a demand feature) if
any such investment, together with any illiquid securities (including
securities which are subject to legal or contractual restrictions on
resale) held by the Portfolio, exceeds 10% of the market or other fair
value of its total net assets; provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company. See
"Repurchase Agreements" in the Prospectus;

7. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby); provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company;

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

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9. Purchase securities on margin, except that a Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Portfolio of
initial or maintenance margin in connection with transactions in
options, futures contracts or options on futures contracts is not
considered the purchase of a security on margin;

10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act; or

11. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of covered call or secured put options, or in
connection with the purchase or sale of futures contracts and related
options are not deemed or to be a pledge or other encumbrance.

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

The Enterprise Portfolio may not invest more than 5% of its net assets
in warrants or rights valued at the lower of cost or market, nor more than
2% of its net assets in warrants or rights (valued on such basis) which are
not listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation. Furthermore, the Enterprise Portfolio may not invest
in the securities of a foreign issuer if, at the time of acquisition, more
than 10% of the value of the Enterprise Portfolio's total assets would be
invested in such securities. Foreign investments may be subject to special
risks, including future political and economic developments, the possible
imposition of additional withholding taxes on dividend or interest income
payable on the securities, or the seizure or nationalization of companies,
or establishment of exchange controls or adoption of other restrictions
which might adversely affect the investment.

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

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

The Domestic Income Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the
outstanding voting securities of any one issuer except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act;

2. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act;

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

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

5. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Portfolio's assets would be invested in such
securities except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act;

6. Lend money, except that the Portfolio may invest in repurchase
agreements in accordance with applicable requirements set forth in the
Prospectus and may acquire debt securities which the Portfolio's
investment policies permit. The Portfolio will not invest in repurchase
agreements maturing in more than seven days (unless subject to a demand
feature) if any such investment, together with any illiquid securities
(including securities which are subject to legal or contractual
restrictions on resale) held by the Portfolio, exceeds 10% of the
market or other fair value of its total net assets. See "Repurchase
Agreements" in the Prospectus;

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

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

11. Write put or call options;

12. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of covered call or secured put options, or in
connection with the purchase or sale of futures contracts and related
options are not deemed or to be a pledge or other encumbrance; or

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

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE COMSTOCK PORTFOLIO:

The Comstock Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the United States Government)
or purchase more than 10% of the outstanding voting securities of any
one issuer, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.

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2. Make short sales or purchase securities on margin; but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities, and it may engage in transactions in
options, futures contracts and related options and make margin deposits
and payments in connection therewith.

3. Pledge any of its assets, except that the Portfolio may pledge assets
having a value of not more than 10% of its total assets in order to
secure permitted borrowings from banks. Such borrowings may not exceed
5% of the value of the Portfolio's assets and can be made only as a
temporary measure for extraordinary or emergency purposes.
Notwithstanding the foregoing, the Portfolio may engage in transactions
in options, futures contracts and related options, segregate or deposit
assets to cover or secure options written, and make margin deposits and
payments for futures contracts and related options.

4. Invest in securities issued by other investment companies, except part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.

5. Invest in real estate, commodities or commodities contracts, except
that the Portfolio may engage in transactions in futures contracts and
related options.

6. Invest in securities of a company for the purpose of exercising
management or control, although the Portfolio retains the right to vote
securities held by it, except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.

7. Engage in the underwriting of securities of other issuers, except that
the Portfolio may sell an investment position even though it may be
deemed to be an underwriter as that term is defined under the
Securities Act of 1933.

8. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Portfolio's assets would be invested in such
securities, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.

9. Invest more than 25% of its total net asset value in any one industry,
except that the Portfolio may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.

10. Make loans except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investment in repurchase agreements, provided
that the Portfolio will not make any investment in repurchase
agreements maturing in more than seven days if such investments,
together with any illiquid securities held by the Portfolio, would
exceed 10% of the value of its net assets.

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Comstock Portfolio is subject to the following
policies which may be amended by the Trustees. The Portfolio shall not:

1. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 15% of the value of the Portfolio's total assets
would be invested in securities of foreign issuers.

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2. Invest more than 5% of its net assets in warrants or rights valued at
the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the
New York Stock Exchange or American Stock Exchange. Warrants or rights
acquired in units or attached to other securities are not subject to
the foregoing limitations.

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

4. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation and in securities not having readily available market
quotations, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.

5. Purchase or retain securities of any issuer if those officers and
trustees of the Portfolio or its investment adviser who own
individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such issuer.

6. Invest more than 5% of its assets in the securities of any one issuer
other than the United States government, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.

7. Pledge, mortgage or hypothecate its portfolio securities to the extent
that at any time the percentage of pledged securities plus the sales
load will exceed 10% of the offering price of the Fund's shares.
Notwithstanding the foregoing, the Fund may engage in transactions in
options, futures contracts and related options, segregate or deposit
assets to cover or secure options written, and make margin deposits or
payments for futures contracts and related options.

8. Invest more than 10% of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements that have
a maturity of longer than seven days.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE EMERGING GROWTH PORTFOLIO:

The Emerging Growth Portfolio shall not:

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

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

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

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

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

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<PAGE> 106

other open-end investment companies owned by the Portfolio but includes
the Portfolio's pro rata portion of the securities and other assets
owned by any such investment company;

6. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

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

8. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, it agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

9. Invest in warrants in excess of 5% of its net assets (including, but not
to exceed 2% in warrants which are not listed on the New York or
American Stock Exchanges);

10. Purchase securities of issuers which have a record of less than three
years continuous operation if such purchase would cause more than 5% of
the Portfolio's total assets to be invested in securities of such
issuers except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act;

11. Invest more than 15% of its net assets in illiquid securities,
including securities that are not readily marketable, restricted
securities and repurchase agreements that have a maturity of more than
seven days except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act;

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

13. Pledge, mortgage or hypothecate its portfolio securities or other
assets to the extent that the percentage of pledged assets plus the
sales load exceeds 10% of the offering price of the Portfolio's shares.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE GLOBAL EQUITY PORTFOLIO:

The Global Equity Portfolio shall not:

1. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby); provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company;

2. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer, except that the Portfolio may
purchase securities of other investment

B-27
<PAGE> 107

companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act;

3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than 10% of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds 5% of its net assets. Margin deposits or payments in
connection with the writing of options or in connection with the
purchase or sale of forward contracts, futures, foreign currency futures
and related options are not deemed to be a pledge or other encumbrance;

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

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

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

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

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

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

10. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except (a)
through purchase in the open market in a transaction involving no
commission or profit to a sponsor or dealer (other than the customary
broker's commission) or as part of a merger, consolidation or other
acquisition; or (b) to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act;

11. Invest more than 5% of its net assets in warrants or rights valued at
the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the
New York or American Stock Exchanges. Warrants or rights acquired in
units or attached to other securities are not subject to the foregoing
limitation;
B-28
<PAGE> 108

12. Invest in interests in oil, gas, or other mineral exploration or
development programs or invest in oil, gas, or mineral leases, except
that the Portfolio may acquire securities of public companies which
themselves are engaged in such activities;

13. Invest more than 5% of its total assets in securities of unseasoned
issuers which have been in operation directly or through predecessors
for less than three years, except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act;

14. Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets (taken at current value) would be invested in
securities that are illiquid by virtue of the absence of a readily
available market. This policy includes repurchase agreements maturing
in more than seven days and over-the-counter options held by the
Portfolio and that portion of assets used to cover such options. This
policy does not apply to restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 which the
Trustees or the Adviser under Board approved guidelines, may determine
are liquid nor does it apply to other securities, for which,
notwithstanding legal or contractual restrictions on resale, a liquid
market exists. Notwithstanding the foregoing, this limitation excludes
shares of other open-end investment companies owned by the Portfolio
but includes the Portfolio's pro rata portion of the securities and
other assets owned by any such investment company.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE GOVERNMENT
PORTFOLIO:

The Government Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

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

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

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Fund may purchase securities of other investment companies to
the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other relief
from the provisions of the 1940 Act;

B-29
<PAGE> 109

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

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

9. Purchase securities on margin, except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Portfolio of
initial or maintenance margin in connection with interest rate futures
contracts or related options transactions is not considered the purchase
of a security on margin;

11. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of options, or in connection with the purchase or sale
of futures contracts and related options are not deemed to be a pledge
or other encumbrance; or

12. Write, purchase or sell puts, calls or combinations thereof, except
that the Portfolio may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or
offsetting purchase transactions with respect to such options, (b)
purchase options to the extent that the premiums paid for all such
options owned at any time do not exceed 10% of its total assets, and
enter into closing or offsetting transactions with respect to such
options, and (c) engage in transactions in interest rate futures
contracts and related options provided that such transactions are
entered into for bona fide hedging purposes (or that the underlying
commodity value of the Portfolio's long positions do not exceed the sum
of certain identified liquid investments as specified in CFTC
regulations), provided further that the aggregate initial margin and
premiums do not exceed 5% of the fair market value of the Portfolio's
total assets, and provided further that the Portfolio may not purchase
futures contracts or related options if more than 30% of the
Portfolio's total assets would be so invested.

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

The Growth and Income Portfolio shall not:

1. Borrow money, except from a bank and then only as a temporary measure
for extraordinary or emergency purposes but not for making additional
investments and not in excess of 5% of the total net assets of the
Portfolio taken at cost. In connection with any borrowing the Portfolio
may pledge

B-30
<PAGE> 110

up to 15% of its total assets taken at cost. Notwithstanding the
foregoing, the Portfolio may engage in transactions in options, futures
contracts and related options, segregate or deposit assets to cover or
secure options written, and make margin deposits or payments for futures
contracts and related options.

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

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

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

5. Invest more than 25% of its total net asset value in any one industry
provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Portfolio but includes the
Portfolio's pro rata portion of the securities and other assets owned by
any such company.

6. Invest more than 5% of the market value of its total assets at the time
of purchase in the securities (except U.S. Government securities) of any
one issuer or purchase more than 10% of the outstanding voting
securities of such issuer except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Growth and Income Portfolio is subject to the
following policies which may be amended by the Trustees.

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

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

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

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

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

6. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 15%
of the value of the Portfolio's net assets would be invested in such
securities except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and
B-31
<PAGE> 111

regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.

7. Invest more than 5% of the market value of its total assets in companies
having a record together with predecessors of less than three years
continuous operation and in securities not having readily available
market quotations except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.

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

The Money Market Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act;

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

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

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Fund may purchase securities of other investment companies to
the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other relief
from the provisions of the 1940 Act;

6. Lend money, except that the Portfolio may invest in repurchase
agreements in accordance with applicable requirements set forth in the
Prospectus and may acquire debt securities which the Portfolio's
investment policies permit. The Portfolio will not invest in repurchase
agreements maturing in more than seven days (unless subject to a demand
feature) if any such investment, together with any illiquid securities
(including securities which are subject to legal or contractual
restrictions on resale) held by the Portfolio, exceeds 10% of the market
or other fair value of its total net assets. See "Repurchase Agreements"
in the Prospectus;

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

B-32
<PAGE> 112

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

10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act;

11. Write put or call options;

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

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE MORGAN STANLEY REAL ESTATE
SECURITIES PORTFOLIO.

The Morgan Stanley Real Estate Securities Portfolio shall not:

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

2. With respect to 75% of its total assets, invest more than 5% of its
assets in the securities of any one issuer (except the U.S. Government,
its agencies and instrumentalities and repurchase agreements secured
thereby) or purchase more than 10% of the outstanding voting securities
of any one issuer, except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than 10% of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds 5% of its net assets. Margin deposits or payments in
connection with the writing of options, or in connection with the
purchase or sale of forward contracts, futures, foreign currency futures
and related options, are not deemed to be a pledge or other encumbrance;

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

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

B-33
<PAGE> 113

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

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

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

9. Write, purchase or sell puts, calls or combinations thereof, except that
the Portfolio may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or offsetting
purchase transactions with respect to such options, (b) purchase and
sell options to the extent that the premiums paid for all such options
owned at any time do not exceed 10% of its total assets and (c) engage
in transactions in futures contracts and related options transactions
provided that such transactions are entered into for bona fide hedging
purposes (or meet certain conditions as specified in CFTC regulations),
and provided further that the aggregate initial margin and premiums do
not exceed 5% of the fair market value of the Portfolio's total assets;
or

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

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

1. The Portfolio may not make investments for the purpose of exercising
control or management although the Portfolio retains the right to vote
securities held by it except that the Portfolio may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940
Act;

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

3. The Portfolio may not invest in the securities of other open-end
investment companies, or invest in the securities of closed-end
investment companies except through purchase in the open market in a
transaction involving no commission or profit to a sponsor or dealer
(other than the customary broker's commission) or as part of a merger,
consolidation or other acquisition except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC

B-34
<PAGE> 114

under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act;

4. The Portfolio may not invest more than 5% of its net assets in warrants
or rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis) which are not
listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation;

5. The Portfolio may not invest in securities of any company if any officer
or trustee of the Portfolio or of the Adviser owns more than 1/2 of 1%
of the outstanding securities of such company, and such officers and
trustees who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer;

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

7. The Portfolio may not invest more than 5% of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years, except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act; or

8. The Portfolio may not purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Trustees or the Adviser under approved
guidelines, may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual restrictions
on resale, a liquid market exists.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE STRATEGIC STOCK PORTFOLIO.

The Strategic Stock Portfolio shall not:

2. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its instrumentalities), if, as a
result, more than 5% of the Portfolio's total assets (taken at current
value) would then be invested in securities of a single issuer or, if as
a result, such Portfolio would hold more than 10% of the outstanding
voting securities of an issuer, except that up to 25% of the Portfolio's
total assets may be invested without regard to such limitations. Neither
limitation shall apply to the acquisition of shares of other open-end
investment companies to the extent permitted by rule or order of the SEC
exempting the Portfolio from the limitations imposed by Section 12(d)(1)
of the 1940 Act.

3. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end
investment companies owned by the Portfolio but includes the Portfolio's
pro rata portion of the securities and other assets owned by any such
company. (Neither the U.S. Government nor any of its agencies or
instrumentalities will be considered an industry for purposes of this
restriction.)

4. Buy or sell real estate including real estate limited partnerships,
provided that the foregoing prohibition does not apply to a purchase and
sale of (i) securities which are secured by real estate,
B-35
<PAGE> 115

(ii) securities representing interests in real estate, and (iii)
securities of companies operating in the real estate industry, including
real estate investment trusts. The Portfolio may hold and sell real
estate acquired as a result of the ownership of its securities;

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

6. Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3%
of the Portfolio's total assets (after giving effect to any such
borrowing); which amount does not include borrowings and reverse
repurchase agreements with any entity where such borrowings and reverse
repurchase agreements are in an amount not exceeding 5% of its total
assets and for temporary purposes only. The Portfolio will not mortgage,
pledge or hypothecate any assets other than in connection with issuances
of senior securities, borrowings, delayed delivery, and when issued
transactions, options, futures contracts, options on futures contracts,
forward contracts, forward commitments and other investment strategies
and instruments;

7. Make loans of money or property to any person, except (i) to the extent
the securities in which the Portfolio may invest are considered to be
loans, (ii) through the loan of portfolio securities, and (iii) to the
extent that the Portfolio may lend money or property in connection with
maintenance of the value of, or the Portfolio's interest with respect
to, the securities owned by the Portfolio.

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

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

2. The Portfolio may not make investments for the purpose of exercising
control or management although the Portfolio retains the right to vote
securities held by it except that the Portfolio may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940
Act;

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

4. The Portfolio may not invest in the securities of other open-end
investment companies, or invest in the securities of closed-end
investment companies except as part of a merger, consolidation or other
acquisition and except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

5. The Portfolio may not invest more than 5% of its net assets in warrants
or rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis) which are not
listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation;

B-36
<PAGE> 116

6. The Portfolio may not invest in securities of any company if any officer
or trustee of the Portfolio or of the Adviser owns more than 1/2 of 1%
of the outstanding securities of such company, and such officers and
trustees who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer;

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

8. The Portfolio may not invest more than 5% of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years, except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act; or

9. The Portfolio may not purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Trustees or the Adviser under approved
guidelines, may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual restrictions
on resale, a liquid market exists.

B-37
<PAGE> 117

TRUSTEES AND OFFICERS

The business and affairs of the Portfolios are managed under the direction
of the Portfolios' Board of Trustees and the Portfolios' officers appointed by
the Board of Trustees. The tables below list the trustees and officers of the
Portfolios and executive officers of the Portfolios' investment adviser and
their principal occupations for the last five years and their affiliations, if
any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen
Investment Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc.
("Asset Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen
Management Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of
Illinois Inc., Van Kampen Insurance Agency of Texas Inc., Van Kampen System
Inc., Van Kampen Recordkeeping Services Inc., American Capital Contractual
Services, Inc., Van Kampen Trust Company, Van Kampen Exchange Corp. and Van
Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset
Management sometimes are referred to herein collectively as the "Advisers". For
purposes hereof, the term "Fund Complex" includes each of the open-end
investment companies advised by the Advisers (excluding Van Kampen Exchange
Fund).

TRUSTEES

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August
1632 Morning Mountain Road 1996, Chairman, Chief Executive Officer and President,
Raleigh, NC 27614 MDT Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical
and scientific equipment. Trustee/Director of each of
the funds in the Fund Complex.
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of International
Two World Trade Center Private Client Group, a division of Morgan Stanley
66th Floor Dean Witter & Co. Director of Dean Witter Reynolds
New York, NY 10048 Inc. Chairman and Director of Dean Witter Capital
Date of Birth: 10/12/52 Corporation. Chairman, Chief Executive Officer,
President and Director of Dean Witter Alliance Capital
Corporation. Director of the National Healthcare
Resources, Inc., Dean Witter Realty Inc., Dean Witter
Reynolds Venture Equities Inc., DW Window Covering
Holding, Inc. and is a member of the Morgan Stanley
Dean Witter Management Committee. Prior to March of
1999, Director of Morgan Stanley Dean Witter
Distributors, Inc. Prior to January 1999, Chairman of
Dean Witter Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to December
1998, Mr. DeMartini was President and Chief Operating
Officer of Morgan Stanley Dean Witter Individual Asset
Management and Director of Morgan Stanley Dean Witter
Trust FSB. Formerly Vice Chairman of the Board of the
National Association of Securities Dealers, Inc. and
Chairman of the Board of the Nasdaq Stock Market, Inc.
Trustee of the TCW/DW Funds, Director of the Morgan
Stanley Dean Witter Funds and Trustee/Director of each
of the funds in the Fund Complex.
</TABLE>

B-38
<PAGE> 118

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management
Suite 7000 consulting firm. Formerly, Executive Vice President of
Chicago, IL 60606 ABN AMRO, N.A., a Dutch bank holding company. Prior to
Date of Birth: 06/03/48 1992, Executive Vice President of La Salle National
Bank. Trustee on the University of Chicago Hospitals
Board, Vice Chair of the Board of The YMCA of
Metropolitan Chicago and a member of the Women's Board
of the University of Chicago. Prior to 1996, Trustee
of The International House Board. Trustee/Director of
each of the funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief
Date of Birth: 02/29/52 Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation, a
private foundation. Trustee/Director of each of the
funds in the Fund Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc.,
423 Country Club Drive a financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services
Date of Birth: 02/13/36 Inc., a member of the National Association of
Securities Dealers, Inc. and Securities Investors
Protection Corp. ("SIPC"). Trustee/ Director of each
of the funds in the Fund Complex.
Don G. Powell*............................ Currently a member of the board of governors and
2800 Post Oak Blvd. executive committee for the Investment Company
Houston, TX 77056 Institute, and a member of the Board of Trustees of
Date of Birth: 10/19/39 the Houston Museum of Natural Science. Prior to
January 1999, Chairman of the Investment Company
Institute and Chairman and Director of Van Kampen
Investments, the Advisers, the Distributor, Investor
Services, Van Kampen Advisors Inc., Van Kampen
Recordkeeping Services, Inc., American Capital
Contractual Services, Inc., Van Kampen Merritt Equity
Advisors Corp., Van Kampen Insurance Agency of
Illinois Inc., Van Kampen System Inc., Van Kampen
Trust Company, Van Kampen Services Inc. and Van Kampen
Exchange Corp. Prior to July 1998, Director and
Chairman of VK/AC Holding, Inc. Prior to 1997,
Chairman, President and Director of American Capital
Shareholders Corporation. Prior to April 1997,
Chairman, President and Director of Van Kampen Merritt
Equity Holdings Corp. Prior to November 1996,
President, Chief Executive Officer and Director of
VK/AC Holding, Inc. Prior to September 1996, Chairman
and Director of McCarthy, Crisanti & Maffei, Inc. and
McCarthy, Crisanti & Maffei Acquisition Corporation.
Prior to July 1996, Chairman and Director of VSM Inc.
and VCJ Inc. Trustee/Director of each of the funds in
the Fund Complex and Trustee of other funds advised by
the Advisers or Van Kampen Management Inc.
</TABLE>

B-39
<PAGE> 119

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster
One ServiceMaster Way Company, a business and consumer services company.
Downers Grove, IL 60515 Director of Illinois Tool Works, Inc., a manufacturing
Date of Birth: 07/08/44 company, and the Urban Shopping Centers Inc., a retail
mall management company. Trustee, University of Notre
Dame. Prior to 1998, Director of Stone Smurfit
Container Corp., a paper manufacturing company.
Formerly, President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc., an
environmental services company. Trustee/Director of
each of the funds in the Fund Complex.

Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.

Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate,
333 West Wacker Drive Meagher & Flom (Illinois), legal counsel to the funds
Chicago, IL 60606 in the Fund Complex, and other open-end and closed-end
Date of Birth: 08/22/39 funds advised by the Advisers or Van Kampen Management
Inc. Trustee/Director of each of the funds in the Fund
Complex, and Trustee/Managing General Partner of other
open-end and closed-end funds advised by the Advisers
or Van Kampen Management Inc.

Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com
233 South Wacker Drive Corporation, APAC Customer Services, Inc. and COMARCO,
Suite 9700 Inc. Trustee/Director of each of the Funds in the Fund
Chicago, IL 60606 Complex.
Date of Birth: 10/29/53
</TABLE>

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

* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Portfolio by
reason of his firm currently acting as legal counsel to the Portfolio. Messrs.
DeMartini and Powell are interested persons of the Portfolio and the Advisers
by reason of their current or former positions with Morgan Stanley Dean Witter
& Co. or its affiliates.

B-40
<PAGE> 120

OFFICERS

Messrs. McDonnell, Hegel, Sullivan, Wood, Dalmaso, Martin, Wetherell and
Hill are located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555. The Fund's other officers are located at 2800 Post Oak Blvd.,
Houston, TX 77056.

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>

Dennis J. McDonnell.................. Executive Vice President and Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and a
President Director of the Advisers, Van Kampen Advisors Inc., and
Van Kampen Management Inc. Prior to July 1998, Director
and Executive Vice President of VK/AC Holding, Inc. Prior
to April 1998, President and Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April 1997, Mr.
McDonnell was Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September 1996, Mr. McDonnell was
Chief Executive Officer and Director of MCM Group, Inc.
and McCarthy, Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company, Limited and MCM
(Europe) Limited. Prior to July 1996, Mr. McDonnell was
President, Chief Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds in the Fund
Complex. President, Chairman of the Board and
Trustee/Managing General Partner of other investment
companies advised by the Advisers or Van Kampen Management
Inc.

Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Prior to
Vice President September 1996, a Director of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Mr. Hegel was Director of VSM
Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.

John L. Sullivan..................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the Advisers
or their affiliates.

Curtis W. Morell..................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
</TABLE>

B-41
<PAGE> 121

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of the Advisers and
Vice President the Distributor. President and Director of Investor
Services. President, Chief Operating Officer and Director
of Van Kampen Recordkeeping Services Inc. President, Chief
Executive Officer and Director of Van Kampen Trust
Company. Prior to July 1998, Director and Executive Vice
President of VK/AC Holding, Inc. Vice President of each of
the funds in the Fund Complex and certain other investment
companies advised by the Advisers or their affiliates.

Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.

Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or
their affiliates.

Nicholas Dalmaso..................... Vice President, Associate General Counsel and Assistant
Date of Birth: 03/01/65 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies advised
by the Advisers or their affiliates.

Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments, the
Assistant Secretary Advisers, the Distributor, Investor Services, American
Capital Contractual Services, Inc., Van Kampen Management
Inc., Van Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July 1998, Senior Vice President, Deputy General
Counsel and Assistant Secretary of VK/AC Holding, Inc.
Prior to April 1998, Senior Vice President, Deputy General
Counsel and Secretary of Van Kampen Merritt Equity
Advisors Corp. Prior to April 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van Kampen
American Capital Services, Inc. and Van Kampen Merritt
Holdings Corp. Prior to September 1996, Deputy General
Counsel and Secretary of McCarthy, Crisanti & Maffei, Inc.
Prior to July 1996, Senior Vice President, Deputy General
Counsel and Secretary of VSM Inc. and VCJ Inc. Assistant
Secretary of each of the funds in the Fund Complex and
other investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-42
<PAGE> 122

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Assistant Secretary of each of the funds in
the Fund Complex and other investment companies advised by
the Advisers or their affiliates.

Steven M. Hill....................... Vice President of Van Kampen Investments, Van Kampen
Date of Birth: 10/16/64 Management Inc. and the Advisers. Assistant Treasurer of
Assistant Treasurer each of the funds in the Fund Complex and other investment
companies advised by the Advisers or their affiliates.

Michael Robert Sullivan.............. Assistant Vice President of Van Kampen Investments, the
Date of Birth: 03/30/33 Advisers and Van Kampen Management Inc. Assistant
Assistant Controller Controller of each of the funds in the Fund Complex and
other investment companies advised by the Advisers or
their affiliates.
</TABLE>

Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 63 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex (except the money market series of the Van Kampen Series Fund Inc.)
provides a deferred compensation plan to its Non-Affiliated Trustees that allows
trustees/directors to defer receipt of their compensation and earn a return on
such deferred amounts. Deferring compensation has the economic effect as if the
Non-Affiliated Trustee reinvested his or her compensation into the funds. Each
fund in the Fund Complex (except the money market series of the Van Kampen
Series Fund Inc.) provides a retirement plan to its Non-Affiliated Trustees that
provides Non-Affiliated Trustees with compensation after retirement, provided
that certain eligibility requirements are met as more fully described below.

The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex (except the money
market series of the Van Kampen Series Fund Inc.) on the basis of the relative
net assets of each fund as of the last business day of the preceding calendar
quarter. The compensation of each Non-Affiliated Trustee includes a per meeting
fee from each fund in the Fund Complex (except the money market series of the
Van Kampen Series Fund Inc.) in the amount of $200 per quarterly or special
meeting attended by the Non-Affiliated Trustee, due on the date of the meeting,
plus reasonable expenses incurred by the Non-Affiliated Trustee in connection
with his or her services as a trustee, provided that no compensation will be
paid in connection with certain telephonic special meetings.

Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.

B-43
<PAGE> 123

Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Compensation Benefits Benefits from before
before Accrued as the Fund Deferral from
Deferral from Part of Upon Fund
Name the Trust(2) Expenses(3) Retirement(4) Complex(5)
---- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
J. Miles Branagan $12,888 $35,691 $60,000 $125,200
Linda Hutton Heagy 10,888 3,861 60,000 112,800
R. Craig Kennedy 12,888 2,652 60,000 125,200
Jack E. Nelson 12,888 18,385 60,000 125,200
Phillip B. Rooney 12,888 6,002 60,000 125,200
Dr. Fernando Sisto 12,888 68,615 60,000 125,200
Wayne W. Whalen 12,888 12,658 60,000 125,200
Paul G. Yovovich (1) 2,213 0 60,000 25,300
</TABLE>

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

(1) Mr. Yovovich joined the Board of Trustees on October 22, 1998 and therefore
does not have a complete fiscal year of information to report in this table.
Trustees not eligible for compensation are not included in the Compensation
Table.

(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral from all series of the Trust with respect to the Trust's fiscal
year ended December 31, 1998. As of December 31, 1998 the Comstock Portfolio
had not commenced investment operations and, accordingly, no trustees
received compensation related to its operation. The details of aggregate
compensation before deferral for each series are shown in Table A below.
Certain trustees deferred compensation from the Trust during the fiscal year
ended December 31, 1998; the aggregate compensation deferred from all ten
series of the Trust is as follows: Mr. Branagan, $12,888; Ms. Heagy,
$10,888; Mr. Kennedy, $6,447; Mr. Nelson, $12,888; Mr. Rooney, $12,888; Dr.
Sisto, $6,447; and Mr. Whalen, $12,888. The details of amounts deferred for
each series are shown in Table B below. Amounts deferred are retained by the
respective Portfolio and earn a rate of return determined by reference to
either the return on the common shares of the Portfolio or other funds in
the Fund Complex as selected by the respective Non-Affiliated Trustee, with
the same economic effect as if such Non-Affiliated Trustee had invested in
one or more funds in the Fund Complex. To the extent permitted by the 1940
Act, each Fund may invest in securities of those funds selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. The cumulative deferred compensation (including interest)
accrued with respect to each trustee from all ten portfolios of the Trust as
of the Trust's fiscal year ended December 31, 1998 is as follows:

B-44
<PAGE> 124

Mr. Branagan, $28,309; Dr. Caruso, $16,457; Mr. Gaughan, $1,829; Ms. Heagy,
$30,996; Mr. Kennedy, $20,221; Mr. Lipshie, $839; Mr. Miller, $12,788; Mr.
Nelson, $41,960; Mr. Rees, $27,136; Mr. Robinson, $23,458; Mr. Rooney,
$19,075; Dr. Sisto, $50,403; Mr. Vernon, $1,546; and Mr. Whalen, $39,242.
The details of cumulative deferred compensation (including interest) for
each Portfolio are shown in Table C. The deferred compensation plan is
described above the Compensation Table.

(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the Funds' respective fiscal years ended in
1998. The retirement plan is described above the Compensation Table.

(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table.

(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1998 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1998. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$285,825 during the calendar year ended December 31, 1998.

As of April 6, 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-45
<PAGE> 125

TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH PORTFOLIO

<TABLE>
<CAPTION>
TRUSTEE
--------------------------------------------------------------------------------
PORTFOLIO NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
-------------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation Portfolio................ 1,297 1,097 1,297 1,297 1,297 1,297 1,297 223
LIT Domestic Income Portfolio................. 1,225 1,025 1,225 1,225 1,225 1,225 1,225 206
LIT Emerging Growth Portfolio................. 1,225 1,025 1,225 1,225 1,225 1,225 1,225 209
LIT Enterprise Portfolio...................... 1,364 1,164 1,364 1,364 1,364 1,364 1,364 239
LIT Global Equity Portfolio................... 1,204 1,004 1,204 1,204 1,204 1,204 1,204 201
LIT Government Portfolio...................... 1,283 1,083 1,283 1,283 1,283 1,283 1,283 223
LIT Growth and Income Portfolio............... 1,229 1,029 1,229 1,229 1,229 1,229 1,229 210
LIT Money Market Portfolio.................... 1,233 1,033 1,233 1,233 1,233 1,233 1,233 210
LIT Morgan Stanley Real Estate Securities
Portfolio................................... 1,614 1,414 1,614 1,614 1,614 1,614 1,614 286
LIT Strategic Stock Portfolio................. 1,214 1,014 1,214 1,214 1,214 1,214 1,214 206
------- ------- ------- ------- -------- ------- ------- ------
Life Investment Trust Total................. 12,888 10,888 12,888 12,888 12,888 12,888 12,888 2,213
======= ======= ======= ======= ======== ======= ======= ======
</TABLE>

TABLE B

1998 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH PORTFOLIO

<TABLE>
<CAPTION>
TRUSTEE
---------------------------------------------------------------------------
PORTFOLIO NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
-------------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation Portfolio...................... 1,297 1,097 649 1,297 1,297 649 1,297 0
LIT Domestic Income Portfolio....................... 1,225 1,025 613 1,225 1,225 613 1,225 0
LIT Emerging Growth Portfolio....................... 1,225 1,025 613 1,225 1,225 613 1,225 0
LIT Enterprise Portfolio............................ 1,364 1,164 682 1,364 1,364 682 1,364 0
LIT Global Equity Portfolio......................... 1,204 1,004 602 1,204 1,204 602 1,204 0
LIT Government Portfolio............................ 1,283 1,083 642 1,283 1,283 642 1,283 0
LIT Growth and Income Portfolio..................... 1,229 1,029 615 1,229 1,229 615 1,229 0
LIT Money Market Portfolio.......................... 1,233 1,033 617 1,233 1,233 617 1,233 0
LIT Morgan Stanley Real Estate Securities
Portfolio......................................... 1,614 1,414 807 1,614 1,614 807 1,614 0
LIT Strategic Stock Portfolio....................... 1,214 1,014 607 1,214 1,214 607 1,214 0
------ ------ ------ ------ ------ ------ ------- -------
Life Investment Trust Total:...................... 12,888 10,888 6,447 12,888 12,888 6,447 12,888 0
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH PORTFOLIO

TRUSTEE
-------------------------------------- -------
PORTFOLIO NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH CARUSO
-------------- -------- ----- ------- ------ ------ ----- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation
Portfolio.................. 3,267 3,706 2,423 4,552 2,052 9,681 4,684 0 3,805
LIT Domestic Income
Portfolio.................. 3,120 3,445 2,252 4,855 1,943 8,279 4,469 0 2,677
LIT Emerging Growth
Portfolio.................. 3,038 3,360 2,180 4,646 1,917 1,107 4,279 0 0
LIT Enterprise Portfolio..... 3,355 3,925 2,592 5,287 2,129 11,532 4,870 0 5,123
LIT Global Equity
Portfolio.................. 3,015 3,333 2,168 4,634 1,893 1,096 4,267 0 0
LIT Government Portfolio..... 3,251 3,599 2,328 5,061 2,035 8,510 4,660 0 2,645
LIT Growth and Income
Portfolio.................. 1,359 1,116 706 1,439 1,414 638 1,371 0 0
LIT Money Market Portfolio... 3,076 3,356 2,201 4,824 1,927 7,620 4,441 0 2,207
LIT Morgan Stanley Real
Estate Securities
Portfolio.................. 3,486 4,057 2,674 5,240 2,368 1,309 4,847 0 0
LIT Strategic Stock
Portfolio.................. 1,342 1,099 697 1,422 1,397 631 1,354 0 0
------- ------- ------- ------- ------- ------- ------- ------- -------
Life Investment Trust
Total.................... 28,309 30,996 20,221 41,960 19,075 50,403 39,242 0 16,457
======= ======= ======= ======= ======= ======= ======= ======= =======

<CAPTION>
FORMER TRUSTEES
-------------------------------------
----------------------------------------------------------
PORTFOLIO NAME GAUGHAN LIPSHIE MILLER REES ROBINSON VERNON
-------------- ------- ------- ------ ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation
Portfolio.................. 249 103 1,652 4,632 3,075 259
LIT Domestic Income
Portfolio.................. 185 41 1,585 3,837 2,876 188
LIT Emerging Growth
Portfolio.................. 270 0 1,484 181 2,775 0
LIT Enterprise Portfolio..... 334 224 1,740 5,829 3,293 354
LIT Global Equity
Portfolio.................. 225 0 1,493 178 2,744 0
LIT Government Portfolio..... 190 249 1,647 6,424 2,995 390
LIT Growth and Income
Portfolio.................. 0 0 0 0 0 0
LIT Money Market Portfolio... 167 222 1,598 5,864 2,777 355
LIT Morgan Stanley Real
Estate Securities
Portfolio.................. 209 0 1,589 191 2,923 0
LIT Strategic Stock
Portfolio.................. 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Life Investment Trust
Total.................... 1,829 839 12,788 27,136 23,458 1,546
======= ======= ======= ======= ======= =======
</TABLE>

INVESTMENT ADVISORY AGREEMENTS

The Trust and the Adviser are parties to an investment advisory agreement
(the "Combined Advisory Agreement") pursuant to which the Trust retains the
Adviser to manage the investment of assets and to place orders for the purchase
and sale of portfolio securities for certain portfolios including the Asset
Allocation Portfolio, the Domestic Income Portfolio, the Enterprise Portfolio,
the Government Portfolio and the Money Market Portfolio (collectively, the
"Combined Portfolios"). The Trust and the Adviser are also parties to other
investment advisory agreements pursuant to which the Adviser manages the
investment of assets and places orders for the purchase and sale of portfolio
securities for the remaining Portfolios including six advisory agreements
designated herein as "Comstock Advisory Agreement," "Emerging Growth Advisory
Agreement," "Global Equity Advisory Agreement," "Growth and Income Advisory
Agreement", "Morgan Stanley

B-46
<PAGE> 126

Real Estate Securities Advisory Agreement" and the "Strategic Stock Advisory
Agreement" for the Comstock Portfolio, the Emerging Growth Portfolio, the Global
Equity Portfolio, the Growth and Income Portfolio, the Morgan Stanley Real
Estate Securities Portfolio and the Strategic Stock Portfolio, respectively
(such advisory agreements together with the Combined Advisory Agreement are
referred to herein collectively as the "Advisory Agreements"). Under the
Advisory Agreements, the Adviser is responsible for obtaining and evaluating
economic, statistical, and financial data and for formulating and implementing
investment programs in furtherance of each Portfolio's investment objectives.
The Adviser also furnishes at no cost to the Portfolios (except as noted herein)
the services of sufficient executive and clerical personnel for the Trust as are
necessary to prepare registration statements, prospectuses, shareholder reports,
and notices and proxy solicitation materials. In addition, the Adviser furnishes
at no cost to the Portfolio the services of a President of the Trust, one or
more Vice Presidents as needed, and a Secretary.

Under the Advisory Agreements, the Trust bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of each Portfolio. The costs of such
accounting services include the salaries and overhead expenses of a Treasurer or
other principal financial officer and the personnel operating under his
direction. The services are provided at cost which is allocated among the
investment companies advised by the Adviser. A portion of these amounts are paid
to the Adviser or its parent as reimbursement of personnel, office space,
facilities and equipment costs attributable to the provision of accounting
services to the Trust. The Trust also pays custodian fees, legal and independent
accountant fees, trustee fees (other than those who are affiliated persons of
the Adviser, Distributor or Van Kampen Investments) the costs of reports and
proxies to shareholders and all other ordinary expenses not specifically assumed
by the Adviser. The Advisory Agreements also provide that the Adviser shall not
be liable to the company for any actions or omissions if it acted without
willful misfeasance, bad faith, negligence or reckless disregard of its
obligations.

Under the Advisory Agreements, the Trust pays to the Adviser as
compensation for the services rendered, facilities furnished, and expenses paid
by it, an annual fee payable monthly computed on average daily net assets as
follows:

<TABLE>
<S> <C>
- ------------------------------------------------------------------

Asset Allocation Portfolio, Domestic Income Portfolio,
Enterprise Portfolio, Government Portfolio and Money
Market Portfolio (based upon their combined average daily
net assets)
First $500 million................................... 0.50%
Next $500 million.................................... 0.45%
Over $1 billion...................................... 0.40%
(The resulting fee is prorated to each of these
Portfolios based upon their respective average daily
net assets.)
Comstock Portfolio and Growth and Income Portfolio (based
on each Portfolio's average daily net assets)
First $500 million................................... 0.60%
Over $500 million.................................... 0.55%
Emerging Growth Portfolio................................. 0.70%
Global Equity Portfolio................................... 1.00%
Morgan Stanley Real Estate Securities Portfolio........... 1.00%
Strategic Stock Portfolio
First $500 million................................... 0.50%
Over $500 million.................................... 0.45%
</TABLE>

B-47
<PAGE> 127

For the Global Equity Portfolio and Morgan Stanley Real Estate Securities
Portfolio, the Adviser has entered into subadvisory agreements (the "Subadvisory
Agreement") to assist the Adviser in performing its investment advisory
functions. Under the Subadvisory Agreements, the Subadviser receives on an
annual basis 50% of the net advisory fees received by the Adviser with respect
to such Portfolios.

The Adviser has voluntarily agreed to reimburse the Portfolios for all
expenses as a percent of average daily net assets in excess of the following:

<TABLE>
<S> <C>
- ------------------------------------------------------------------

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

N/A-- As of December 31, 1998, the Comstock Profile had not commenced
investment operations and, accordingly, had no assets nor paid
advisory fees from which an effective rate could be derived.

The Combined Advisory Agreement also provides that, in the event the
ordinary business expenses of any of the Combined Portfolios for any fiscal year
exceed 0.95% of the average daily net assets, the compensation due the Adviser
will be reduced by the amount of such excess and that, if a reduction in and
refund of the advisory fee is insufficient, the Adviser will pay the Combined
Portfolios monthly an amount sufficient to make up the deficiency, subject to
readjustment during the year. Ordinary business expenses do not include (1)
interest and taxes, (2) brokerage commissions, (3) any distribution expenses
which may be incurred in the event the Combined Portfolios' Distribution Plan is
implemented, and (4) certain litigation and indemnification expenses as
described in the Combined Advisory Agreement.

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

B-48
<PAGE> 128

The following table shows expenses paid under the Advisory Agreements
during the periods ended December 31, 1998, 1997 and 1996.

GROWTH
ASSET DOMESTIC EMERGING GLOBAL AND
PERIOD ENDING ALLOCATION COMSTOCK INCOME GROWTH ENTERPRISE EQUITY GOVERNMENT INCOME
DECEMBER 31, 1998: PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ---------- ---------- --------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Advisory fees $308,215 n/a $ 86,159 $131,521 $539,143 $ 32,086 $268,947 $127,069
Accounting Services $ 33,100 n/a $ 23,600 $ 22,900 $ 42,800 $ 38,100 $ 32,700 $ 24,500
Contractual expense
reimbursement $ -0- n/a $ 43,097 $ -0- $ -0- $ -0- $ -0- $ -0-
Voluntary expense
reimbursement $ 74,236 n/a $ 60,335 $ 71,860 $ 40,178 $162,179 $ 70,011 $ 72,329

<CAPTION>
MORGAN
STANLEY
REAL
MONEY ESTATE STRATEGIC
PERIOD ENDING MARKET SECURITIES STOCK
DECEMBER 31, 1998: PORTFOLIO PORTFOLIO PORTFOLIO
------------------ --------- ---------- ---------
<S> <C> <C> <C>
Advisory fees $108,585 $2,511,823 $56,672
Accounting Services $ 25,200 $ 73,500 $17,500
Contractual expense
reimbursement $ 7,952 $ -0- $ -0-
Voluntary expense
reimbursement $ 76,068 $ -0- $68,772
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1997:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees $311,514 n/a $86,700 $48,713 $467,494 $ 31,290 $267,568 $ 30,777
Accounting Services $ 14,290 n/a $ 8,861 $ 9,145 $ 19,566 $ 21,596 $ 13,895 $ 4,410
Contractual expense
reimbursement $ -0- n/a $17,857 $ -0- $ -0- $ -0- $ -0- $ -0-
Voluntary expense
reimbursement $ 68,780 n/a $60,681 $89,683 $ 55,090 $174,632 $ 72,820 $ 45,369

<CAPTION>
PERIOD ENDING
DECEMBER 31, 1997:
------------------
<S> <C> <C> <C>
Advisory fees $106,891 $2,269,511 $ 1,083
Accounting Services $ 10,155 $ 32,983 $ -0-
Contractual expense
reimbursement $ 6,147 $ -0- $ -0-
Voluntary expense
reimbursement $ 74,791 $ -0- $ 4,892
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1996:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees $316,002 n/a $110,243 $28,284 $407,693 $ 28,416 $303,695 $ 74
Accounting Services $ 56,837 n/a $44,328 $41,089 $ 52,282 $ 29,400 $ 55,531 $ -0-
Contractual expense
reimbursement $ -0- n/a $73,932 $ -0- $ -0- $ -0- $ -0- $ -0-
Voluntary expense
reimbursement $113,873 n/a $77,170 $97,987 $123,582 $177,139 $122,474 $ 5,591

<CAPTION>
PERIOD ENDING
DECEMBER 31, 1996:
------------------
<S> <C> <C> <C>
Advisory fees $104,808 $ 428,166 $ -0-
Accounting Services $ 76,975 $ 44,869 $ -0-
Contractual expense
reimbursement $ 70,526 $ -0- $ -0-
Voluntary expense
reimbursement $ 73,366 $ 70,941 $ -0-
</TABLE>

* As of December 31, 1998, the Comstock Portfolio had not commenced investment
operations and, accordingly, no expenses have been paid under the Comstock
Advisory Agreement.

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

DISTRIBUTOR

The Distributor acts as the principal underwriter of the shares of the
Trust pursuant to a written agreement (the "Distribution and Service
Agreement"). The Distributor's obligation is an agency or "best efforts"
arrangement under which the Distributor is not obligated to sell any stated
number of shares. The Distribution and Service Agreement is renewable from year
to year if approved (a) by the Trust's Trustees or by a vote of a majority of
the Trust's outstanding voting securities and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Distribution and Service
Agreement or interested persons of any party, by votes cast in person at a
meeting called for that purpose. The Distribution and Service Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 90 days' written notice.

The Distributor bears the cost of printing (but not typesetting)
prospectuses used in connection with this offering and certain other costs
including the cost of supplemental sales literature and advertising. The Trust

B-49
<PAGE> 129

pays all expenses attributable to the registrations of its shares under federal
law, including registration and filing fees, the cost of preparation of the
prospectuses, related legal and auditing expenses, and the cost of printing
prospectuses for current shareholders.

TRANSFER AGENT

The Fund's transfer agent, shareholder service agent and dividend
disbursing agent is Van Kampen Investor Services Inc., PO Box 418256, Kansas
City, MO 64141-9256. For the fiscal year ended December 31, 1998, Investor
Services, as shareholder service agent and dividend disbursing agent for the
Portfolios received fees in the amount of $14,900 from the Growth and Income
Portfolio, $14,700 from the Enterprise Portfolio, $14,600 from each of the Asset
Allocation, Emerging Growth, Global Equity and Money Market Portfolios, $14,500
from each of the Domestic Income and Real Estate Securities Portfolios, $14,300
from the Government Portfolio and $7,600 from the Strategic Stock Portfolio. For
the fiscal years ended December 31, 1997 and 1996, Investor Services received
fees in the amount of $15,000 from each of the Portfolios of the Trust for such
services, except the Growth and Income Portfolio from which Investor Services
received $6,300 and the Strategic Stock Portfolio from which Investor Services
received no fees. The Comstock Portfolio had not yet commenced investment
operations prior to the date hereof and has no historical information to report.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Board of Trustees of the Trust and are based on competitive market benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for decisions to buy and sell securities for the
Portfolios, the selection of brokers and dealers to effect the transactions and
the negotiation of prices and any brokerage commissions on such transactions.
While the Adviser will be primarily responsible for the placement of the
Portfolios' investments, the policies and practices in this regard will at all
times be subject to review by the Trustees.

Transactions in debt securities generally made by the Fund are principal
transactions at net prices with little or no brokerage costs. Such securities
are normally purchased directly from the issuer or in the over-the-counter
market from an underwriter or market maker for the securities. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers include a spread or markup to the dealer between the bid and asked price.
Sales to dealers are effected at bid prices. The Portfolios may also purchase
certain money market instruments directly from an issuer, in which case no
commissions or discounts are paid, or may purchase and sell listed bonds on a
exchange, which are effected through brokers who charge a commission for their
services.

The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Portfolios and not according to
any formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Portfolios and still must be
analyzed and reviewed by its staff, the receipt of research information is not
expected to reduce its expenses materially. The investment advisory fee

B-50
<PAGE> 130

is not reduced as a result of the Adviser's receipt of such research services.
Services provided may include (a) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or pur-chasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund.

The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Portfolios, the Adviser or the
Distributor and with brokerage firms participating in the distribution of the
Portfolios' shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Portfolios' shares.

The Adviser may place Portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Portfolios and another advisory
account. In some cases, this procedure could have an adverse effect on the price
or the amount of securities available to the Portfolios. In making such
allocations among the Portfolios and other advisory accounts, the main factors
considered by the Adviser are the respective sizes of the Portfolios and other
advisory accounts, the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.

Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the commissions paid to
affiliates of the Portfolios must be reasonable and fair compared to the
commissions, fees or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.

The Portfolios paid the following commissions to these brokers during the
periods shown:

<TABLE>
<CAPTION>
AFFILIATED BROKERS
------------------------------------------------------
MORGAN STANLEY DEAN WITTER
-------------- -----------
<S> <C> <C>
Fiscal year ended 1998..................... -0- -0-
Fiscal year ended 1997..................... -0- -0-
Fiscal year ended 1996..................... $10,732 (Asset Allocation Portfolio) -0-
$18,166 (Enterprise Portfolio) -0-
Fiscal year 1998 Percentages:
Commissions with affiliate to total
commissions........................... -0- -0-
Value of brokerage transactions with
affiliate to total transactions....... -0- -0-
</TABLE>

B-51
<PAGE> 131

The following table summarizes for each portfolio the total brokerage
commissions paid, the amount of commissions paid to brokers selected primarily
on the basis of research services provided to the Adviser and the value of these
specific transactions.

ASSET DOMESTIC EMERGING GLOBAL
ALLOCATION COMSTOCK ENTERPRISE GOVERNMENT INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
- -----------------------------
Total brokerage commissions $ 121,933 N/A $ 195,688 $34,884 -- $ 26,685 $ 118
Commissions for research
services $ 69,166 N/A $ 72,273 -- -- $ 17,365 --
Value of research
transactions $52,524,399 N/A $59,194,331 -- -- $33,681,640 --
1997
- -----------------------------
Total brokerage commissions $ 100,020 N/A $ 140,036 $30,799 -- $ 10,436 $ 13,550
Commissions for research
services $ 27,325 N/A $ 47,085 -- -- $ 5,597 --
Value of research
transactions $17,590,482 N/A $51,189,635 -- -- $ 9,900,077 --
1996
- -----------------------------
Total brokerage commissions $ 160,187 N/A $ 203,035 $49,075 $134 $ 7,373 $ 12,654
Commissions for research
services $ 62,566 N/A $ 118,119 -- -- $ 5,803 --
Value of research
transactions $28,024,814 N/A $68,820,181 -- -- $ 5,170,364 --

<CAPTION>
MORGAN STANLEY
REAL ESTATE GROWTH AND MONEY STRATEGIC
SECURITIES INCOME MARKET STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1998
- -----------------------------
Total brokerage commissions $ 1,216,987 $ 38,200 -- $ 11,412
Commissions for research
services $ 1,168,101 $ 20,979 -- $ 11,412
Value of research
transactions $502,717,341 $27,958,579 -- $19,379,770
1997
- -----------------------------
Total brokerage commissions $ 1,823,718 $ 13,809 -- $ 1,172
Commissions for research
services $ 1,446,147 -- -- $ 1,172
Value of research
transactions $656,816,992 -- -- $ 2,327,597
1996
- -----------------------------
Total brokerage commissions $ 222,173 -- -- --
Commissions for research
services $ 163,059 $ 187 -- --
Value of research
transactions $ 19,899,335 $ 481,917 -- --
</TABLE>

* As of December 31, 1998 the Comstock Portfolio had not commenced investment
operations and, accordingly, no tabular information is included for the
Comstock Portfolio.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of each Portfolio is computed by dividing
the value of all securities held by the Portfolio plus other assets, less
liabilities, by the number of shares outstanding. This computation is determined
for each Portfolio as of the close of business of the New York Stock Exchange
(the "Exchange") (currently 4:00 p.m., New York time) on each business day on
which the Exchange is open.

MONEY MARKET PORTFOLIO NET ASSET VALUATION

The Portfolio's use of the amortized cost method of valuing its portfolio
securities is permitted by a rule adopted by the SEC. Under this rule, the
Portfolio must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of thirteen
months or less and invest only in securities determined by the Adviser to be of
eligible quality with minimal credit risks. The valuation of each Portfolio's
investments is based upon their amortized cost, which does not take into account
unrealized capital gains or losses. Amortized cost valuation involves initially
valuing an instrument at its cost and thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price that
the Portfolio would receive if it sold the instrument.

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

B-52
<PAGE> 132

the extent reasonably practicable. Such steps may include selling portfolio
securities prior to maturity; shortening the average maturity of the portfolio;
withholding or reducing dividends; or utilizing a net asset value per share
determined by using available market quotations.

ASSET ALLOCATION, COMSTOCK, DOMESTIC INCOME, EMERGING GROWTH, ENTERPRISE, GLOBAL
EQUITY, GROWTH AND INCOME, MORGAN STANLEY REAL ESTATE SECURITIES AND STRATEGIC
STOCK PORTFOLIOS NET ASSET VALUATION

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

GOVERNMENT PORTFOLIO NET ASSET VALUATION

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

FAIR VALUE PRICING

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

PURCHASE AND REDEMPTION OF SHARES

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

Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when

B-53
<PAGE> 133

(a) the Exchange is closed for other than customary weekends or holidays; (b)
trading on the Exchange is restricted; (c) an emergency exists as a result of
which disposal by the Portfolio of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Portfolio to fairly
determine the value of its net assets; or (d) the SEC, by order, so permits.

TAX STATUS

The Trust and each of its Portfolios will be treated as separate
corporations for federal income tax purposes. A Portfolio will be subject to tax
if, among other things, it fails to distribute net capital gains, or if its
annual distributions, as a percentage of its income, are less than the
distributions required by tax laws.

B-54
<PAGE> 134

PORTFOLIO PERFORMANCE

The average annual total return and yield, if applicable, for each
Portfolio are shown in the table below. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of each Portfolio's
investment objectives and policies as well as the risks incurred in each
Portfolio's investment practices. All total return figures are for the Trust's
fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
TOTAL RETURN
TOTAL RETURN TOTAL RETURN FOR TEN YEAR CUMULATIVE
FOR ONE YEAR FOR FIVE YEAR PERIOD OR NON-STANDARDIZED
PERIOD PERIOD SINCE INCEPTION TOTAL RETURN
------------ ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Asset Allocation Portfolio
commencement date 06/30/87............. 15.67% 15.22% 13.60% 274.91%
Domestic Income Portfolio
commencement date 11/04/87............. 6.34% 8.07% 7.45% 139.36%
Emerging Growth Portfolio
commencement date 07/03/95............. 37.56% -- 26.31%* 126.28%
Enterprise Portfolio
commencement date 04/07/86............. 25.00% 21.95% 18.35% 408.04%
Global Equity Portfolio
commencement date 07/03/95............. 21.61% -- 16.30%* 69.54%
Government Portfolio
commencement date 04/07/86............. 8.59% 6.32% 8.35% 143.06%
Growth and Income Portfolio
commencement date 12/23/96............. 19.61% -- 21.30%* 47.76%
Money Market Portfolio
commencement date 04/07/86............. 5.02% 4.82% 5.25% 98.82%
Morgan Stanley Real Estate Securities
Portfolio
commencement date 07/03/95............. -11.62% -- 15.09%* 63.46%
Strategic Stock Portfolio
commencement date 11/03/97............. 16.51% -- 16.55%* 19.43%
</TABLE>

* Denotes since inception.

As of December 31, 1998, the Comstock Portfolio had not commenced
investment operations and, accordingly, no performance information is included
for the Comstock Portfolio.

From time to time, the Portfolios, except the Money Market Portfolio, may
advertise their total return for prior periods. Any such advertisement would
include at least average annual total return quotations for one, five and ten
year periods or for the life of the Portfolio. Other total return quotations,
aggregate or average, over other time periods may also be included. Total return
calculations do not take into account expenses at the "wrap" or contractholder
level as explained in the prospectus. Investors should also review total return
calculations that include those expenses.

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

B-55
<PAGE> 135

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

A Portfolio may, in supplemental sales literature, advertise
non-standardized total return figures representing the cumulative,
non-annualized total return of the Portfolio from a given date to a subsequent
given date. Cumulative non-standardized total return is calculated by measuring
the value of an initial investment in a Portfolio at a given time, determining
the value of all subsequent reinvested distributions, and dividing the net
change in the value of the investment as of the end of the period by the amount
of the initial investment and expressing the result as a percentage.
Non-standardized total return will be calculated separately for each Portfolio.

In addition to total return information, certain Portfolios may also
advertise their current "yield." Yield figures are based on historical earnings
and are not intended to indicate future performance. Yield is determined by
analyzing the Portfolio's net income per share for a 30-day (or one-month)
period (which period will be stated in the advertisement), and dividing by the
maximum offering price per share on the last day of the period. A "bond
equivalent" annualization method is used to reflect a semiannual compounding.
Yield calculations do not take into account expenses at the "wrap" or
contractholder level as expanded in the prospectus. Investors should also review
yield calculations that include those expenses.

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

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

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

The Adviser may, from time to time, waive advisory fees or reimburse a
certain amount of the future ordinary business expenses of a Portfolio. Such
waiver/reimbursement will increase the yield or total return of such Portfolio.
The Adviser may stop waiving fees or reimbursing expenses at any time without
prior notice.

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

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

B-56
<PAGE> 136

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

From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks. A
Portfolio's marketing materials may also show the Portfolio's asset class
diversification, top five sectors, ten largest holdings and other Portfolio
asset structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes a Portfolio compares relative to other Portfolio's of
the Adviser. Materials may also discuss the Dalbar Financial Services study from
1984 to 1994 which studied investor cash flow into and out of all types of
mutual funds. The ten year study found that investors who bought mutual fund
shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless of if shareholders purchased
their funds in direct or sales force distribution channels. The study showed
that investors working with a professional representative have tended over time
to earn higher returns than those who invested directly. The Portfolios will
also be marketed on the internet.

In reports or other communications to shareholders or in advertising
material, a Portfolio may compare its performance with that of other mutual
funds as listed in the ratings or rankings prepared by Lipper Analytical
Services, Inc., CDA, Morningstar Mutual Funds or similar independent services
which monitor the performance of mutual funds, with the Consumer Price Index,
the Dow Jones Industrial Average Index, Standard & Poor's indices, NASDAQ
Composite Index, other appropriate indices of investment securities, or with
investment or savings vehicles. The performance information may also include
evaluations of such Portfolio published by nationally recognized ranking
services and by nationally recognized financial publications. Such comparative
performance information will be stated in the same terms in which the
comparative data or indices are stated. Such advertisements and sales material
may also include a yield quotation as of a current period. In each case, such
total return and yield information, if any, will be calculated pursuant to rules
established by the SEC and will be computed separately for each Portfolio. For
these purposes, the performance of the Portfolios, as well as the performance of
other mutual funds or indices, do not reflect various charges, the inclusion of
which would reduce portfolio performance.

The Portfolios may also utilize performance information in hypothetical
illustrations. For example, the Portfolios may, from time to time: (1)
illustrate the benefits of tax-deferral by comparing taxable investments to
investments made through tax-deferred retirement plans; (2) illustrate in graph
or chart form, or otherwise, the benefits of dollar cost averaging by comparing
investments made pursuant to a systematic investment plan to investments made in
a rising market; (3) illustrate allocations among different types of mutual
funds for investors of different stages of their lives; and (4) in reports or
other communications to shareholders or in advertising material, illustrate the
benefits of compounding at various assumed rates of return.

The Trust's Annual Report and Semiannual Report prior to the date hereof,
contain additional performance information about each of the Trust's portfolios;
however, the Comstock Portfolio had not commenced investment operations and,
accordingly, no information regarding the Comstock Portfolio is contained
therein. A copy of the Annual Report or Semiannual Report may be obtained
without charge by calling or writing the Trust at the telephone number and
address printed on the back cover of the Prospectus.

Performance of Investment Adviser. The Adviser manages the Van Kampen
Comstock Fund (the "Comstock Fund"), which served as the model for the Comstock
Portfolio. The Comstock Portfolio has substantially the same investment
objective, policies and strategies as the Comstock Fund. In addition, the

B-57
<PAGE> 137

Adviser intends the Portfolio to be managed by the same personnel and to
continue to have closely similar investment strategies, techniques and
characteristics as the Comstock Fund. Past investment performance of the
Comstock Fund, as shown in the table below, may be relevant to your
consideration of investment in the Portfolio. The investment performance of the
Comstock Fund is not necessarily indicative of future performance of the
Comstock Portfolio. As of the date of this Statement of Additional Information,
the Comstock Portfolio had not yet commenced investment operations and therefore
had no performance of its own. Also, the operating expenses of the Comstock
Portfolio will be different from the operating expenses of the Comstock Fund.
The investment performance of the Comstock Fund is provided merely to indicate
the experience of the Adviser in managing a similar investment portfolio. The
data does not reflect any fees that may be accessed at the contract level as
explained in the Prospectus. Such fees would reduce the total return figures
shown below.

The data set forth below are adjusted to reflect the Comstock Portfolio's
projected operating expenses and to eliminate the maximum 5.75% initial sales
charge applicable to purchases of Class A shares of the Comstock Fund, which
will not be applicable to purchases of shares of the Comstock Portfolio.

Average Annual Total Return for Van Kampen Comstock Fund's Class A Shares
(A Separate Mutual Fund from the Comstock Portfolio)

For the Periods Ended March 31, 1999

(adjusted to reflect projected operating expenses of the Comstock Portfolio
and the elimination of maximum sales charges of the Comstock Fund)

<TABLE>
<CAPTION>
Total Return Excluding
Sales Charge 1 Year 3 Years 5 Years 10 Years
---------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Comstock Fund Class A Shares......................... 4.39% 20.45% 20.60% 15.70%
</TABLE>

The past performance of the Comstock Fund is no guarantee of the future
performance of the Comstock Fund or the Comstock Portfolio.

MONEY MARKET PORTFOLIO YIELD INFORMATION

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

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

The yield fluctuates daily as the income earned on the investments of the
Portfolio fluctuates. Accordingly, there is no assurance that the yield quoted
on any given occasion will remain in effect for any period of time. It should
also be emphasized that the Portfolio is an open-end investment company and that

B-58
<PAGE> 138

there is no guarantee that the net asset value will remain constant. A
shareholder's investment in the Portfolio is not insured. Investors comparing
results of the Portfolio with investment results and yields from other sources
such as banks or savings and loan associations should understand this
distinction. The yield quotation may be of limited use for comparative purposes
because it does not reflect charges imposed at the Account level which, if
included, would decrease the yield.

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

OTHER INFORMATION

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

SHAREHOLDER REPORTS -- Semiannual statements of the Trust containing information
about each of the Portfolios, are furnished to shareholders, and annually such
statements are audited by the independent accountants whose selection is
ratified annually by shareholders.

INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers LLP, 200 East Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Trust, performs an
annual audit of the Trust's financial statements.

LEGAL COUNSEL -- Skadden, Arps, Slate, Meagher & Flom (Illinois).

B-59
<PAGE> 139

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Trustees of
Van Kampen Life Investment Trust

In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Asset Allocation Portfolio,
Domestic Income Portfolio, Emerging Growth Portfolio, Enterprise Portfolio,
Global Equity Portfolio, Government Portfolio, Growth and Income Portfolio,
Money Market Portfolio, Morgan Stanley Real Estate Securities Portfolio and
Strategic Stock Portfolio (constituting Van Kampen Life Investment Trust,
hereafter referred to as the "Trust") at December 31, 1998, 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
February 8, 1999

F-1
<PAGE> 140

ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 60.8%
CONSUMER DISTRIBUTION 4.0%
Albertsons, Inc............................................. 800 $ 50,950
Cardinal Health, Inc........................................ 1,000 75,875
CompUSA, Inc. (a)........................................... 5,000 65,313
Dayton Hudson Corp.......................................... 4,500 244,125
Family Dollar Stores, Inc................................... 4,000 88,000
Federated Department Stores, Inc. (a)....................... 3,900 169,894
Lowe's Cos., Inc............................................ 5,100 261,056
Payless ShoeSource, Inc. (a)................................ 1,000 47,375
Rite Aid Corp............................................... 1,500 74,344
Safeway, Inc. (a)........................................... 2,700 164,531
Saks, Inc. (a).............................................. 2,000 63,125
Sears Roebuck & Co.......................................... 1,200 51,000
TJX Cos., Inc............................................... 11,000 319,000
Wal-Mart Stores, Inc........................................ 9,400 765,512
-----------
2,440,100
-----------
CONSUMER DURABLES 1.7%
DaimlerChrysler AG.......................................... 1,000 96,063
Dana Corp................................................... 4,400 179,850
Eaton Corp.................................................. 1,100 77,756
Ford Motor Co............................................... 9,100 534,056
General Motors Corp......................................... 2,000 143,125
-----------
1,030,850
-----------
CONSUMER NON-DURABLES 4.9%
Anheuser Busch Cos., Inc.................................... 7,200 472,500
Bestfoods................................................... 1,000 53,250
Coca Cola Co................................................ 3,800 254,125
Colgate - Palmolive Co...................................... 800 74,300
ConAgra, Inc................................................ 5,000 157,500
Dial Corp................................................... 7,100 205,013
H.J. Heinz & Co............................................. 3,600 203,850
Kimberly Clark Corp......................................... 2,300 125,350
Loews Corp.................................................. 1,000 98,250
Philip Morris Cos., Inc..................................... 16,000 856,000
Procter & Gamble Co......................................... 1,300 118,706
Tommy Hilfiger Corp. (a).................................... 2,800 168,000
Unilever NV - ADR (Netherlands)............................. 1,900 157,581
V.F. Corp................................................... 1,600 75,000
-----------
3,019,425
-----------
CONSUMER SERVICES 3.1%
Brinker International, Inc. (a)............................. 5,000 144,375
CBS Corp.................................................... 2,400 78,600
Gannett Co., Inc............................................ 5,000 322,500
Hilton Hotels Corp.......................................... 3,600 68,850
Jacor Communications, Inc., Class A (a)..................... 1,200 77,250
Knight Ridder, Inc.......................................... 1,000 51,125
New York Times Co., Class A................................. 4,200 145,687
Tele-Communications, Inc., Class A (a)...................... 12,600 696,937
Time Warner, Inc............................................ 1,400 86,887
</TABLE>

See Notes to Financial Statements

F-2
<PAGE> 141
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Tribune Co.................................................. 1,800 $ 118,800
Walt Disney Co.............................................. 2,900 87,000
-----------
1,878,011
-----------
ENERGY 4.6%
Amoco Corp.................................................. 6,300 380,363
Ashland, Inc................................................ 1,200 58,050
Atlantic Richfield Co....................................... 800 52,200
British Petroleum Co. Plc. - ADR (United Kingdom)........... 1,400 125,475
Chevron Corp................................................ 1,500 124,406
Coastal Corp................................................ 4,600 160,713
Columbia Energy Group....................................... 800 46,200
El Paso Energy Corp......................................... 2,800 97,475
Enron Corp.................................................. 1,300 74,181
Exxon Corp.................................................. 10,200 745,875
Mobil Corp.................................................. 6,300 548,887
Royal Dutch Petroleum Co. - ADR (Netherlands)............... 3,500 167,562
Texaco, Inc................................................. 1,100 58,163
Total SA - ADR (France)..................................... 956 47,561
USX - Marathon Group........................................ 2,900 87,363
YPF Sociedad Anonima - ADR (Argentina)...................... 1,900 53,081
-----------
2,827,555
-----------
FINANCE 10.7%
A.G. Edwards, Inc........................................... 800 29,800
Aetna, Inc.................................................. 2,000 157,250
Allstate Corp............................................... 7,000 270,375
Ambac Financial Group, Inc.................................. 4,100 246,769
American Bankers Insurance Group, Inc....................... 1,700 82,238
American Express Co......................................... 3,000 306,750
American General Corp....................................... 2,000 156,000
American International Group, Inc........................... 700 67,638
Associates First Capital Corp., Class A..................... 2,500 105,938
Bank One Corp............................................... 5,234 267,261
BankAmerica Corp............................................ 11,081 666,245
BankBoston Corp............................................. 3,200 124,600
Bear Stearns Cos., Inc...................................... 3,538 132,233
Chase Manhattan Corp........................................ 7,400 503,662
CIGNA Corp.................................................. 3,000 231,937
Citigroup, Inc.............................................. 10,050 497,475
CMAC Investment Corp........................................ 3,000 137,812
Conseco, Inc................................................ 3,100 94,744
Countrywide Credit Industries, Inc.......................... 2,700 135,506
Federal Home Loan Mortgage Corp............................. 1,600 103,100
Federal National Mortgage Assn.............................. 8,900 658,600
First Union Corp............................................ 5,200 316,225
Fleet Financial Group, Inc.................................. 3,700 165,344
LandAmerica Financial Group, Inc............................ 1,000 55,813
Liberty Financial Cos., Inc................................. 450 12,150
Marsh & McLennan Cos., Inc.................................. 700 40,906
MBIA, Inc................................................... 900 59,006
Merrill Lynch & Co., Inc.................................... 1,000 66,750
Nationwide Financial Services, Inc., Class A................ 400 20,675
</TABLE>

See Notes to Financial Statements

F-3
<PAGE> 142
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
SunAmerica, Inc............................................. 2,500 $ 202,812
SunTrust Banks, Inc......................................... 2,100 160,650
Torchmark, Inc.............................................. 2,000 70,625
U.S. Bancorp................................................ 2,500 88,750
United Asset Management Corp................................ 2,200 57,200
Washington Mutual, Inc...................................... 4,050 154,659
Wells Fargo & Co............................................ 2,600 103,838
-----------
6,551,336
-----------
HEALTHCARE 9.0%
Abbott Laboratories, Inc.................................... 2,800 137,200
American Home Products Corp................................. 6,000 337,875
Bausch & Lomb, Inc.......................................... 2,600 156,000
Becton, Dickinson & Co...................................... 2,800 119,525
Bristol-Myers Squibb Co..................................... 6,900 923,306
Guidant Corp................................................ 1,400 154,350
HBO & Co.................................................... 2,600 74,588
HEALTHSOUTH Corp. (a)....................................... 6,000 92,625
Johnson & Johnson, Inc...................................... 2,900 243,237
Lincare Holdings, Inc. (a).................................. 3,000 121,688
Merck & Co., Inc............................................ 3,000 443,062
Mylan Laboratories, Inc..................................... 6,700 211,050
PacifiCare Health Systems, Class B (a)...................... 1,700 135,150
Pfizer, Inc................................................. 2,400 301,050
Pharmacia & Upjohn, Inc..................................... 1,100 62,288
Rhone-Poulenc, SA, Class A - ADR (France)................... 3,000 150,750
Schering-Plough Corp........................................ 9,700 535,925
Tenet Healthcare Corp. (a).................................. 10,200 267,750
Universal Health Services, Inc., Class B (a)................ 1,800 93,375
Warner-Lambert Co........................................... 8,400 631,575
Watson Pharmaceuticals, Inc. (a)............................ 2,200 138,325
Wellpoint Health Networks, Inc., Class A (a)................ 2,500 217,500
-----------
5,548,194
-----------
PRODUCER MANUFACTURING 3.3%
AlliedSignal, Inc........................................... 300 13,294
American Power Conversion Corp. (a)......................... 1,700 82,344
Cognex Corp. (a)............................................ 2,800 56,000
General Electric Co......................................... 9,000 918,562
Ingersoll-Rand Co........................................... 3,200 150,200
Johnson Controls, Inc....................................... 900 53,100
Textron, Inc................................................ 2,000 151,875
The St. Joe Co.............................................. 500 11,719
Tyco International Ltd...................................... 2,700 203,681
U.S. Filter Corp. (a)....................................... 2,200 50,325
United Technologies Corp.................................... 2,300 250,125
Waste Management, Inc....................................... 2,200 102,575
-----------
2,043,800
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 0.3%
Bethlehem Steel Corp. (a)................................... 3,100 25,963
Boise Cascade Corp.......................................... 2,500 77,500
</TABLE>

See Notes to Financial Statements

F-4
<PAGE> 143
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
British Steel Plc. - ADR (United Kingdom)................... 2,900 $ 42,412
Goodyear Tire & Rubber Co................................... 1,300 65,569
-----------
211,444
-----------
TECHNOLOGY 11.5%
Avnet, Inc.................................................. 1,100 66,550
BMC Software, Inc. (a)...................................... 2,600 115,863
Cadence Design Systems, Inc. (a)............................ 1,600 47,600
Cisco Systems, Inc. (a)..................................... 7,400 686,812
Compaq Computer Corp........................................ 6,200 260,012
Computer Associates International, Inc...................... 4,000 170,500
Computer Sciences Corp. (a)................................. 1,700 109,544
Compuware Corp. (a)......................................... 4,000 312,500
Dell Computer Corp. (a)..................................... 3,300 241,519
EMC Corp. (a)............................................... 1,900 161,500
Gateway 2000, Inc. (a)...................................... 3,200 163,800
General Dynamics Corp....................................... 2,000 117,250
Harris Corp................................................. 1,500 54,938
Hewlett Packard Co.......................................... 4,100 280,081
Intel Corp.................................................. 6,600 782,512
International Business Machines Corp........................ 1,400 258,650
Keane, Inc. (a)............................................. 1,000 39,938
Lockheed Martin Corp........................................ 4,000 339,000
Lucent Technologies, Inc.................................... 3,100 341,000
Microsoft Corp. (a)......................................... 10,000 1,386,875
Networks Associates, Inc. (a)............................... 1,000 66,250
Nokia Corp. - ADR (Finland) (a)............................. 900 108,394
Northern Telecom Ltd........................................ 2,500 125,312
Oracle Corp. (a)............................................ 2,400 103,500
Peoplesoft, Inc. (a)........................................ 3,200 60,600
Quantum Corp. (a)........................................... 1,800 38,250
Sun Microsystems, Inc. (a).................................. 2,800 239,750
SunGard Data Systems, Inc. (a).............................. 6,400 254,000
Tellabs, Inc. (a)........................................... 500 34,281
Xerox Corp.................................................. 1,000 118,000
-----------
7,084,781
-----------
TRANSPORTATION 0.3%
AMR Corp. (a)............................................... 1,800 106,875
Canadian National Railway Co................................ 1,300 67,438
-----------
174,313
-----------
UTILITIES 7.4%
ALLTEL Corp................................................. 1,000 59,813
Ameritech Corp.............................................. 9,000 570,375
AT&T Corp................................................... 2,000 150,500
Baltimore Gas & Electric Co................................. 1,200 37,050
BEC Energy.................................................. 8,600 354,212
Bell Atlantic Corp.......................................... 5,100 289,744
BellSouth Corp.............................................. 9,100 453,862
CMS Energy Group............................................ 2,600 125,938
DTE Energy Co............................................... 2,600 111,475
Edison International........................................ 2,500 69,688
FPL Group, Inc.............................................. 2,000 123,250
</TABLE>

See Notes to Financial Statements

F-5
<PAGE> 144
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
GPU, Inc.................................................... 3,100 $ 136,981
GTE Corp.................................................... 8,100 546,244
Houston Industries, Inc..................................... 5,700 183,113
Idacorp, Inc................................................ 3,200 115,800
Illinova Corp............................................... 2,200 55,000
Nipsco Industries, Inc...................................... 1,200 36,525
Northern States Power Co.................................... 2,400 66,600
OGE Energy Corp............................................. 4,600 133,400
PacifiCorp.................................................. 1,700 35,806
Pinnacle West Capital Corp.................................. 3,800 161,025
Public Service Co. of New Mexico............................ 4,900 100,144
SBC Communications, Inc..................................... 5,100 273,487
Texas Utilities Co.......................................... 4,300 200,756
U.S. WEST Communications Group.............................. 2,800 180,950
-----------
4,571,738
-----------
TOTAL COMMON STOCKS 60.8%.......................................... 37,381,547
-----------
</TABLE>

See Notes to Financial Statements

F-6
<PAGE> 145
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED INCOME 29.9%
CORPORATE DEBT 17.3%
CONSUMER SERVICES 1.7%
$1,000 Cox Communications, Inc..................................... 6.875% 06/15/05 $ 1,067,930
-----------
ENERGY 3.8%
1,000 Burlington Resources, Inc................................... 9.125 10/01/21 1,274,530
1,000 Enron Corp.................................................. 6.875 10/15/07 1,038,260
-----------
2,312,790
-----------
TECHNOLOGY 3.6%
1,000 Philips Electronics NV (Netherlands)........................ 8.375 09/15/06 1,166,440
1,000 Raytheon Co................................................. 6.750 08/15/07 1,061,540
-----------
2,227,980
-----------
TRANSPORTATION 2.8%
1,000 Norfolk Southern Corp....................................... 7.700 05/15/17 1,151,520
500 Southwest Airlines Co....................................... 7.375 03/01/27 553,970
-----------
1,705,490
-----------
UTILITIES 5.4%
1,000 360 Communications Co....................................... 7.600 04/01/09 1,140,700
1,000 Sprint Capital Corp......................................... 6.125 11/15/08 1,026,650
1,000 Texas Utilities Electric Co................................. 8.250 04/01/04 1,122,990
-----------
3,290,340
-----------
TOTAL CORPORATE DEBT............................................................ 10,604,530
-----------
GOVERNMENT AND AGENCY OBLIGATIONS 1.8%
1,000 Province of Nova Scotia (Canada)............................ 7.250 07/27/13 1,118,780
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 10.8%
2,000 U.S. Treasury Bond.......................................... 7.125 02/15/23 2,465,500
3,000 U.S. Treasury Bond.......................................... 7.250 05/15/16 3,635,190
500 U.S. Treasury Note.......................................... 7.250 08/15/04 562,310
-----------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS...................................... 6,663,000
-----------
TOTAL FIXED INCOME....................................................................... 18,386,310
-----------
TOTAL LONG-TERM INVESTMENTS 90.7%
(Cost $47,039,313)..................................................................... 55,767,857
REPURCHASE AGREEMENT 9.7%
Warburg Dillon Read ($5,925,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be
sold on 01/04/99 at $5,928,127) (Cost $5,925,000)..................................... 5,925,000
-----------
TOTAL INVESTMENTS 100.4%
(Cost $52,964,313)..................................................................... 61,692,857
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%)............................................ (231,593)
-----------
NET ASSETS 100.0%....................................................................... $61,461,264
===========
</TABLE>

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

See Notes to Financial Statements

F-7
<PAGE> 146

ASSET ALLOCATION PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $52,964,313)........................ $61,692,857
Cash........................................................ 680
Receivables:
Investments Sold.......................................... 1,821,124
Interest.................................................. 288,659
Portfolio Shares Sold..................................... 88,946
Dividends................................................. 48,198
Other....................................................... 44,682
-----------
Total Assets.......................................... 63,985,146
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,315,281
Investment Advisory Fee................................... 52,209
Portfolio Shares Repurchased.............................. 16,289
Distributor and Affiliates................................ 6,481
Trustees' Deferred Compensation and Retirement Plans........ 107,702
Accrued Expenses............................................ 25,920
-----------
Total Liabilities..................................... 2,523,882
-----------
NET ASSETS.................................................. $61,461,264
===========
NET ASSETS CONSIST OF:
Capital..................................................... $44,946,853
Net Unrealized Appreciation................................. 8,728,544
Accumulated Net Realized Gain............................... 5,879,972
Accumulated Undistributed Net Investment Income............. 1,905,895
-----------
NET ASSETS.................................................. $61,461,264
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $61,461,264 and 4,591,957 shares
of beneficial interest issued and outstanding)............ $ 13.38
===========
</TABLE>

See Notes to Financial Statements

F-8
<PAGE> 147

ASSET ALLOCATION PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,587,668
Dividends................................................... 736,979
----------
Total Income............................................ 2,324,647
----------
EXPENSES:
Investment Advisory Fee..................................... 308,215
Accounting.................................................. 33,053
Custody..................................................... 21,154
Shareholder Reports......................................... 18,797
Trustees' Fees and Expenses................................. 15,779
Audit....................................................... 15,298
Shareholder Services........................................ 14,865
Legal....................................................... 2,566
Other....................................................... 14,513
----------
Total Expenses.......................................... 444,240
Less Fees Waived........................................ 74,236
----------
Net Expenses............................................ 370,004
----------
NET INVESTMENT INCOME....................................... $1,954,643
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $5,930,830
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 7,613,842
End of the Period:
Investments............................................. 8,728,544
----------
Net Unrealized Appreciation During the Period............... 1,114,702
----------
NET REALIZED AND UNREALIZED GAIN............................ $7,045,532
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $9,000,175
==========
</TABLE>

See Notes to Financial Statements

F-9
<PAGE> 148

ASSET ALLOCATION PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 1,954,643 $ 2,406,933
Net Realized Gain........................................... 5,930,830 7,064,899
Net Unrealized Appreciation During the Period............... 1,114,702 2,697,375
----------- -----------
Change in Net Assets from Operations........................ 9,000,175 12,169,207
----------- -----------
Distributions from Net Investment Income.................... (67,589) (2,436,414)
Distributions from Net Realized Gain........................ (1,826,978) (6,406,916)
----------- -----------
Total Distributions......................................... (1,894,567) (8,843,330)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 7,105,608 3,325,877
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 4,124,365 2,681,711
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 1,894,567 8,843,330
Cost of Shares Repurchased.................................. (14,960,988) (15,502,271)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (8,942,056) (3,977,230)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (1,836,448) (651,353)
NET ASSETS:
Beginning of the Period..................................... 63,297,712 63,949,065
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $1,905,895 and $17,750,
respectively)............................................. $61,461,264 $63,297,712
=========== ===========
</TABLE>

See Notes to Financial Statements

F-10
<PAGE> 149

ASSET ALLOCATION PORTFOLIO FINANCIAL HIGHLIGHTS

The following presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $11.910 $11.352 $ 11.64 $ 9.99 $11.80
------- ------- ------- ------- ------
Net Investment Income..................................... .425 .513 .482 .48 .45
Net Realized and Unrealized Gain/Loss..................... 1.416 1.897 1.083 2.6425 (.89)
------- ------- ------- ------- ------
Total from Investment Operations............................ 1.841 2.410 1.565 3.1225 (.44)
------- ------- ------- ------- ------
Less:
Distributions from Net Investment Income.................. .013 .518 .478 .4775 .45
Distributions from Net Realized Gain...................... .354 1.334 1.375 .995 .90
Distributions in Excess of Net Realized Gain.............. -0- -0- -0- -0- .02
------- ------- ------- ------- ------
Total Distributions......................................... .367 1.852 1.853 1.4725 1.37
------- ------- ------- ------- ------
Net Asset Value, End of the Period.......................... $13.384 $11.910 $11.352 $ 11.64 $ 9.99
======= ======= ======= ======= ======
Total Return*............................................... 15.67% 21.81% 13.87% 31.36% (3.66%)
Net Assets at End of the Period (In millions)............... $ 61.5 $ 63.3 $ 63.9 $ 63.0 $ 56.6
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 3.17% 3.86% 3.78% 3.85% 3.70%
Portfolio Turnover.......................................... 93% 58% 118% 124% 163%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .72% .71% .81% .74% .72%
Ratio of Net Investment Income to Average Net Assets........ 3.05% 3.75% 3.57% 3.71% 3.58%
</TABLE>

See Notes to Financial Statements

F-11
<PAGE> 150

DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE DEBT 87.7%
CONSUMER DISTRIBUTION 10.8%
$500 Borden, Inc................................................. 7.875% 02/15/23 $ 458,750
500 Gruma SA De CV, 144A - Private Placement (Mexico) (a)....... 7.625 10/15/07 446,350
500 Nabisco, Inc................................................ 7.550 06/15/15 513,170
500 Safeway, Inc. .............................................. 6.050 11/15/03 506,300
-----------
1,924,570
-----------
CONSUMER NON-DURABLES 5.6%
500 Bausch & Lomb, Inc.......................................... 7.125 08/01/28 499,435
500 Westpoint Stevens, Inc...................................... 7.875 06/15/05 510,625
-----------
1,010,060
-----------
CONSUMER SERVICES 18.2%
500 Cox Communications, Inc..................................... 6.800 08/01/28 529,500
500 CSC Holdings, Inc. ......................................... 7.875 12/15/07 528,750
500 News America Holdings, Inc.................................. 10.125 10/15/12 586,595
500 Royal Caribbean Cruises Ltd................................. 7.500 10/15/27 498,500
500 Valassis Communications, Inc................................ 9.550 12/01/03 572,500
500 Viacom, Inc................................................. 7.625 01/15/16 552,500
-----------
3,268,345
-----------
ENERGY 5.9%
500 Occidental Petroleum Corp................................... 10.125 11/15/01 546,685
500 PDV America, Inc............................................ 7.875 08/01/03 505,860
-----------
1,052,545
-----------
HEALTHCARE 8.7%
500 Beckman Coulter, Inc........................................ 7.450 03/04/08 515,000
500 Manor Care, Inc............................................. 7.500 06/15/06 527,825
500 Tenet Healthcare Corp., 144A - Private Placement (a)........ 8.125 12/01/08 517,500
-----------
1,560,325
-----------
PRODUCER MANUFACTURING 2.8%
500 Idex Corp................................................... 6.875 02/15/08 502,780
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 8.5%
500 Georgia-Pacific Corp........................................ 9.950 06/15/02 553,230
500 Owens Illinois, Inc. ....................................... 7.150 05/15/05 505,000
300 Vicap SA De CV (Mexico)..................................... 11.250 05/15/02 282,000
200 Vicap SA De CV (Mexico)..................................... 11.375 05/15/07 178,500
-----------
1,518,730
-----------
TECHNOLOGY 2.9%
500 Raytheon Co. ............................................... 6.150 11/01/08 513,900
-----------
TRANSPORTATION 8.0%
500 Delta Airlines, Inc......................................... 9.750 05/15/21 622,370
500 Norfolk Southern Corp. ..................................... 7.700 05/15/17 575,760
200 United Airlines, Inc........................................ 10.020 03/22/14 240,880
-----------
1,439,010
-----------
UTILITIES 16.3%
500 360 Communications Co. ..................................... 7.600 04/01/09 570,350
500 MCI Worldcom, Inc........................................... 6.950 08/15/28 541,215
350 Monongahela Power Co........................................ 8.375 07/01/22 384,405
500 Niagara Mohawk Power Corp. ................................. 7.625 10/01/05 521,875
</TABLE>

See Notes to Financial Statements

F-12
<PAGE> 151
DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
$350 Public Service Co. of Colorado.............................. 8.750% 03/01/22 $ 386,120
500 Sprint Capital Corp......................................... 6.125 11/15/08 513,325
-----------
2,917,290
-----------
TOTAL CORPORATE DEBT 87.7%..................................................... 15,707,555
-----------
GOVERNMENT OBLIGATIONS 10.3%
416 Federal National Mortgage Association Pool (U.S.)........... 10.000 04/01/21 452,615
500 Republic of Argentina (Argentina)........................... 11.000 10/09/06 495,000
500 Republic of South Africa (South Africa)..................... 8.500 06/23/17 392,000
500 United Mexican States (Mexico).............................. 11.375 09/15/16 520,000
-----------
TOTAL GOVERNMENT OBLIGATIONS.................................................... 1,859,615
-----------
TOTAL LONG-TERM INVESTMENTS 98.0%
(Cost $16,873,000)..................................................................... 17,567,170

REPURCHASE AGREEMENT 0.9%
DLJ ($160,000 par collateralized by U.S. Government obligations in a pooled cash
account, dated 12/31/98, to be sold on 01/04/99 at $160,080)
(Cost $160,000)................................................................. 160,000
-----------
TOTAL INVESTMENTS 98.9%
(Cost $17,033,000)..................................................................... 17,727,170

OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%.............................................. 194,029
-----------
NET ASSETS 100.0%....................................................................... $17,921,199
===========
</TABLE>

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

See Notes to Financial Statements

F-13
<PAGE> 152

DOMESTIC INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $17,033,000)........................ $17,727,170
Cash........................................................ 3,761
Receivables:
Interest.................................................. 287,852
Portfolio Shares Sold..................................... 13
Other....................................................... 45,244
-----------
Total Assets.......................................... 18,064,040
-----------
LIABILITIES:
Payables:
Shareholder Reports....................................... 9,452
Investment Advisory Fee................................... 6,639
Distributor and Affiliates................................ 5,540
Portfolio Shares Repurchased.............................. 5,339
Trustees' Deferred Compensation and Retirement Plans........ 103,417
Accrued Expenses............................................ 12,454
-----------
Total Liabilities..................................... 142,841
-----------
NET ASSETS.................................................. $17,921,199
===========
NET ASSETS CONSIST OF:
Capital..................................................... $17,202,927
Accumulated Undistributed Net Investment Income............. 1,198,922
Net Unrealized Appreciation................................. 694,170
Accumulated Net Realized Loss............................... (1,174,820)
-----------
NET ASSETS.................................................. $17,921,199
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $17,921,199 and 2,048,609 shares
of beneficial interest issued and outstanding)............ $ 8.75
===========
</TABLE>

See Notes to Financial Statements

F-14

<PAGE> 153

DOMESTIC INCOME PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31,1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,325,815
Dividends................................................... 30,443
Other....................................................... 4,480
----------
Total Income............................................ 1,360,738
----------
EXPENSES:
Investment Advisory Fee..................................... 86,159
Accounting.................................................. 23,601
Shareholder Services........................................ 15,311
Audit....................................................... 14,617
Trustees' Fees and Expenses................................. 13,634
Shareholder Reports......................................... 12,685
Trustees' Retirement Plan................................... 10,832
Custody..................................................... 8,744
Legal....................................................... 1,152
Other....................................................... 1,792
----------
Total Expenses.......................................... 188,527
Less Fees Waived........................................ 85,095
----------
Net Expenses............................................ 103,432
----------
NET INVESTMENT INCOME....................................... $1,257,306
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (54,296)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 850,053
End of the Period:
Investments............................................. 694,170
----------
Net Unrealized Depreciation During the Period............... (155,883)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (210,179)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,047,127
==========
</TABLE>

See Notes to Financial Statements

F-15
<PAGE> 154

DOMESTIC INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

NET ASSETS:
Beginning of the Period..................................... 17,198,793 19,797,297
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $1,198,922 and $11,345, respectively) $17,921,199 $17,198,793
=========== ===========
</TABLE>

See Notes to Financial Statements

F-16
<PAGE> 155

DOMESTIC INCOME PORTFOLIO FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $8.252 $8.008 $ 8.21 $ 7.35 $ 8.58
------ ------ ------ ------- --------
Net Investment Income..................................... .614 .704 .755 .71 .85
Net Realized and Unrealized Gain/Loss..................... (.096) .252 (.212) .8525 (1.2275)
------ ------ ------ ------- --------
Total from Investment Operations............................ .518 .956 .543 1.5625 (.3775)
Less Distributions from Net Investment Income............... .022 .712 .745 .7025 .8525
------ ------ ------ ------- --------
Net Asset Value, End of the Period.......................... $8.748 $8.252 $8.008 $ 8.21 $ 7.35
====== ====== ====== ======= ========
Total Return*............................................... 6.34% 11.90% 6.68% 21.37% (4.33%)
Net Assets at End of the Period (In millions)............... $ 17.9 $ 17.2 $ 19.8 $ 26.6 $ 21.3
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 7.29% 7.74% 7.97% 8.11% 8.35%
Portfolio Turnover.......................................... 46% 78% 77% 54% 94%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.09% 1.05% 1.29% .93% .95%
Ratio of Net Investment Income to Average Net Assets........ 6.80% 7.29% 7.28% 7.78% 8.00%
</TABLE>

See Notes to Financial Statements

F-17
<PAGE> 156

EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.0%
CONSUMER DISTRIBUTION 15.4%
American Eagle Outfitters (a)............................... 500 $ 33,313
AnnTaylor Stores Corp. (a).................................. 3,200 126,200
Bed Bath & Beyond, Inc. (a)................................. 4,000 136,500
Best Buy Co., Inc. (a)...................................... 11,250 690,468
Cardinal Health, Inc. ...................................... 1,500 113,813
CDW Computer Centers, Inc. (a).............................. 1,750 167,891
Costco Cos., Inc. (a)....................................... 1,400 101,063
CVS Corp. .................................................. 3,700 203,500
Dollar Tree Stores, Inc. (a)................................ 2,800 122,325
Earthgrains Co. ............................................ 2,400 74,250
Express Scripts, Inc., Class A (a).......................... 1,500 100,688
Family Dollar Stores, Inc. ................................. 8,500 187,000
Gap, Inc. .................................................. 5,000 281,250
Hollywood Entertainment Corp. (a)........................... 2,250 61,312
Home Depot, Inc. ........................................... 7,550 461,964
Insight Enterprises, Inc. (a)............................... 1,500 76,312
Lason Holdings, Inc. (a).................................... 900 52,369
Lexmark International Group, Inc., Class A (a).............. 4,500 452,250
Lowe's Cos., Inc. .......................................... 5,600 286,650
Micro Warehouse, Inc. (a)................................... 900 30,431
Safeway, Inc. (a)........................................... 5,500 335,156
Staples, Inc. (a)........................................... 9,000 393,188
TJX Cos. Inc. .............................................. 10,800 313,200
Trans World Entertainment Corp. (a)......................... 1,800 34,313
Tricon Global Restaurants, Inc. (a)......................... 1,800 90,225
U.S. Foodservice (a)........................................ 1,600 78,400
Williams Sonoma, Inc. (a)................................... 3,500 141,094
-----------
5,145,125
-----------
CONSUMER DURABLES 0.6%
Gentex Corp. (a)............................................ 1,000 20,000
Kaufman & Broad Home Corp. ................................. 1,200 34,500
Pulte Corp. ................................................ 1,700 47,281
Shaw Industries, Inc. ...................................... 3,500 84,873
-----------
186,654
-----------
CONSUMER NON-DURABLES 2.2%
Abercrombie & Fitch Co., Class A (a)........................ 5,000 353,750
Adolph Coors Co. ........................................... 1,450 81,832
Linens 'n Things, Inc. (a).................................. 5,200 206,050
Smithfield Foods, Inc. (a).................................. 1,000 33,875
Westpoint Stevens, Inc. (a)................................. 1,800 56,813
-----------
732,320
-----------
CONSUMER SERVICES 9.7%
Brinker International, Inc. (a)............................. 3,200 92,400
Cablevision Systems Corp., Class A (a)...................... 4,250 213,295
Chancellor Media Corp., Class A (a)......................... 10,600 507,475
Clear Channel Communications, Inc. (a)...................... 6,500 354,250
Consolidated Graphics, Inc. (a)............................. 1,400 94,589
Earthlink Network, Inc. (a)................................. 2,400 136,800
Education Management Corp. (a).............................. 1,500 35,438
International Network Services (a).......................... 2,650 176,225
</TABLE>

See Notes to Financial Statements

F-18
<PAGE> 157
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Interpublic Group of Cos., Inc. ............................ 2,750 $ 219,313
Jacor Communications, Inc., Class A (a)..................... 4,100 263,938
Meredith Corp. ............................................. 3,100 117,414
Metris Cos., Inc. .......................................... 400 20,125
Metzler Group, Inc. (a)..................................... 2,250 109,547
Omnicom Group, Inc. ........................................ 4,000 232,000
Outdoor Systems, Inc. (a)................................... 5,000 150,000
Robert Half International, Inc. (a)......................... 2,250 100,547
Snyder Communications, Inc. (a)............................. 1,600 54,000
Tele-Communications Inc., Class A (a)....................... 4,900 225,706
Valassis Communications, Inc. (a)........................... 2,500 129,063
-----------
3,232,125
-----------
ENERGY 0.1%
Marine Drilling Cos., Inc. (a).............................. 3,000 23,062
National Oilwell, Inc. (a).................................. 1,300 14,544
-----------
37,606
-----------
FINANCE 5.8%
AmSouth Bancorp. ........................................... 1,300 59,313
Capital One Financial Corp. ................................ 2,600 299,000
Dime Bancorp, Inc. ......................................... 1,700 44,944
Fidelity National Financial, Inc. .......................... 550 16,775
Fifth Third Bancorp. ....................................... 1,250 89,141
Finova Group, Inc. ......................................... 1,800 97,088
Firstar Corp. .............................................. 1,800 167,850
National Commerce Bancorp. ................................. 750 14,109
Northern Trust Corp. ....................................... 1,800 157,161
Old Kent Financial Corp. ................................... 2,100 97,650
Progressive Corp. .......................................... 450 76,219
Protective Life Corp. ...................................... 1,500 59,719
Providian Financial Corp. .................................. 9,000 675,000
Zions Bancorp. ............................................. 1,300 81,087
-----------
1,935,056
-----------
HEALTHCARE 11.2%
Allegiance Corp. ........................................... 7,400 345,025
Allergan, Inc. ............................................. 2,200 142,450
Amgen, Inc. (a)............................................. 1,100 115,019
Biogen, Inc. (a)............................................ 7,900 655,700
Biomatrix, Inc. (a)......................................... 1,200 69,900
Biomet, Inc. ............................................... 3,000 120,750
Cree Research, Inc. (a)..................................... 800 38,300
Genzyme Corp. (a)........................................... 3,400 169,150
Guidant Corp. .............................................. 3,150 347,287
Henry Schein, Inc. ......................................... 1,400 62,650
Immunex Corp. (a)........................................... 1,700 213,881
Medicis Pharmaceutical Corp., Class A (a)................... 1,250 74,531
Medimmune, Inc. (a)......................................... 1,500 149,156
Medquist, Inc. (a).......................................... 1,200 47,400
Medtronic, Inc. ............................................ 2,000 148,500
MiniMed, Inc. (a)........................................... 1,800 188,550
Omnicare, Inc. ............................................. 4,400 152,900
Pathogensis Corp. (a)....................................... 600 34,800
</TABLE>

See Notes to Financial Statements

F-19
<PAGE> 158
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Patterson Dental Co. (a).................................... 1,100 $ 47,850
PSS World Med, Inc. (a)..................................... 900 20,700
Quintiles Transnational Corp. (a)........................... 3,800 202,825
VISX, Inc. (a).............................................. 200 17,488
Watson Pharmaceuticals, Inc. (a)............................ 4,600 289,225
Wellpoint Health Networks, Inc., Class A (a)................ 900 78,300
-----------
3,732,337
-----------
PRODUCER MANUFACTURING 4.2%
Allied Waste Industries, Inc. (a)........................... 8,092 191,174
American Power Conversion Corp. (a)......................... 5,750 278,516
Danaher Corp. .............................................. 3,000 162,939
Federal Mogul Corp. ........................................ 2,750 163,625
Metromedia Fiber Network, Inc., Class A (a)................. 7,000 234,500
Tyco International Ltd. .................................... 5,100 384,730
-----------
1,415,484
-----------
TECHNOLOGY 45.7%
Advanced Micro Devices, Inc. (a)............................ 3,000 86,813
Affiliated Computer Services, Inc., Class A (a)............. 1,400 63,000
Altera Corp. (a)............................................ 3,500 213,063
America Online, Inc. (a).................................... 14,000 2,026,500
American Management Systems (a)............................. 2,500 100,000
Apple Computer, Inc. (a).................................... 2,300 94,156
Applied Micro Circuits Corp. (a)............................ 1,200 40,763
BMC Software, Inc. (a)...................................... 6,700 298,569
Ciber, Inc. (a)............................................. 3,100 86,606
Cisco Systems, Inc. (a)..................................... 4,200 389,813
Citrix Systems, Inc. (a).................................... 4,500 436,781
Compuware Corp. (a)......................................... 16,300 1,273,436
Comverse Technology, Inc. (a)............................... 2,300 163,300
Concord Communications, Inc. (a)............................ 1,200 68,100
Concord EFS, Inc. (a)....................................... 4,300 182,213
CSG Systems International, Inc. (a)......................... 3,100 244,900
Dell Computer Corp. (a)..................................... 19,500 1,427,154
Echostar Communications Corp., Class A (a).................. 2,000 96,750
Electronics for Imaging, Inc. (a)........................... 2,000 80,375
EMC Corp. (a)............................................... 14,700 1,249,500
Fiserv, Inc. (a)............................................ 2,250 115,734
Flextronics International Corp. (a)......................... 2,200 188,375
Gemstar International Group Ltd. (a)........................ 4,400 251,900
General Instrument Corp. (a)................................ 3,750 127,266
Geotel Communications Corp. (a)............................. 1,500 55,875
Gilat Satellite Networks Ltd. (a)........................... 1,500 82,688
Global Crossing Ltd. (a).................................... 1,500 67,688
Gulfstream Aerospace Corp. (a).............................. 4,500 239,625
IMR Global Corp. (a)........................................ 2,300 67,706
Intel Corp. ................................................ 2,000 237,125
Jabil Circuit, Inc. (a)..................................... 3,200 238,800
Keane, Inc. (a)............................................. 3,000 119,813
Legato Systems, Inc. (a).................................... 6,250 412,109
Macromedia, Inc. (a)........................................ 4,400 148,225
Mastech Corp. (a)........................................... 1,700 48,663
</TABLE>

See Notes to Financial Statements

F-20
<PAGE> 159
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Mercury Interactive Corp. (a)............................... 1,800 $ 113,850
Microsoft Corp. (a)......................................... 1,150 159,491
Mindspring Enterprises, Inc. (a)............................ 2,250 137,391
Network Appliance, Inc. (a)................................. 8,000 360,000
Network Solutions, Inc., Class A (a)........................ 800 104,700
Networks Associates, Inc. (a)............................... 2,750 182,189
New Era of Networks, Inc. (a)............................... 2,250 99,000
Nokia Corp. - ADR (Finland) (a)............................. 2,100 252,919
Paychex, Inc. .............................................. 2,750 141,453
Peregrine Systems, Inc. (a)................................. 500 23,188
QLogic Corp. (a)............................................ 700 91,613
Rational Software Corp. (a)................................. 4,500 119,250
Sanmina Corp. (a)........................................... 900 56,250
SEI Investments Co. ........................................ 800 79,500
Solectron Corp. (a)......................................... 2,000 185,875
Sterling Software, Inc. (a)................................. 2,600 70,362
SunGard Data Systems, Inc. (a).............................. 4,500 178,594
Sykes Enterprises, Inc. (a)................................. 1,500 45,750
Symbol Technologies, Inc. .................................. 2,700 172,631
Tekelec, Inc. (a)........................................... 3,200 53,000
Texas Instruments, Inc. .................................... 1,000 85,563
Verisign, Inc. (a).......................................... 850 50,256
Veritas DGC, Inc. (a)....................................... 1,300 16,900
Veritas Software Corp. (a).................................. 4,500 269,719
Vitesse Semiconductor Corp. (a)............................. 5,500 250,938
Waters Corp. (a)............................................ 2,350 205,035
Wind River Systems, Inc. (a)................................ 1,400 65,800
Xircom, Inc. (a)............................................ 2,200 74,800
Yahoo!, Inc. (a)............................................ 2,550 604,191
-----------
15,273,592
-----------
TRANSPORTATION 0.5%
Comair Holdings, Inc. ...................................... 2,300 77,625
Southwest Airlines Co. ..................................... 4,800 107,700
-----------
185,325
-----------
UTILITIES 0.6%
Century Telephone Enterprises, Inc. ........................ 3,000 202,500
-----------
TOTAL LONG-TERM INVESTMENTS 96.0%
(Cost $21,971,112).............................................. 32,078,124

REPURCHASE AGREEMENT 6.8%
SBC Warburg ($2,265,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold 2,265,000
on 1/4/99 at $2,266,195) (Cost $2,265,000)........................
-----------
TOTAL INVESTMENTS 102.8%
(Cost $24,236,112).............................................. 34,343,124

LIABILITIES IN EXCESS OF OTHER ASSETS (2.8%)....................... (923,084)
-----------
NET ASSETS 100.0%.................................................. $33,420,040
-----------
</TABLE>

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

See Notes to Financial Statements

F-21
<PAGE> 160

EMERGING GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $24,236,112)........................ $34,343,124
Cash........................................................ 7,467
Receivables:
Portfolio Shares Sold..................................... 216,346
Investments Sold.......................................... 95,974
Dividends................................................. 3,987
Unamortized Organizational Costs............................ 2,046
-----------
Total Assets.......................................... 34,668,944
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,165,750
Investment Advisory Fee................................... 13,272
Distributor and Affiliates................................ 5,602
Portfolio Shares Repurchased.............................. 1,703
Accrued Expenses............................................ 34,820
Trustees' Deferred Compensation and Retirement Plans........ 27,757
-----------
Total Liabilities..................................... 1,248,904
-----------
NET ASSETS.................................................. $33,420,040
===========
NET ASSETS CONSIST OF:
Capital..................................................... $25,032,872
Net Unrealized Appreciation................................. 10,107,012
Accumulated Net Investment Loss............................. (27,756)
Accumulated Net Realized Loss............................... (1,692,088)
-----------
NET ASSETS.................................................. $33,420,040
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $33,420,040 and 1,477,759 shares
of beneficial interest issued and outstanding)............ $ 22.62
===========
</TABLE>

See Notes to Financial Statements

F-22
<PAGE> 161

EMERGING GROWTH PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 83,873
Dividends................................................... 33,807
-----------
Total Income............................................ 117,680
-----------
EXPENSES:
Investment Advisory Fee..................................... 131,521
Accounting.................................................. 22,855
Audit....................................................... 20,354
Shareholder Reports......................................... 18,565
Shareholder Services........................................ 15,704
Trustees' Fees and Expenses................................. 9,915
Custody..................................................... 7,948
Legal....................................................... 192
Other....................................................... 5,255
-----------
Total Expenses.......................................... 232,309
Less Fees Waived........................................ 71,860
-----------
Net Expenses............................................ 160,449
-----------
NET INVESTMENT LOSS......................................... $ (42,769)
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(1,437,065)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,941,096
End of the Period......................................... 10,107,012
-----------
Net Unrealized Appreciation During the Period............... 8,165,916
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 6,728,851
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,686,082
===========
</TABLE>

See Notes to Financial Statements

F-23
<PAGE> 162

EMERGING GROWTH PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

NET ASSETS:
Beginning of the Period..................................... 10,491,854 5,178,187
----------- -----------
End of the Period (Including accumulated net investment loss
of $27,756 and $12,701, respectively)..................... $33,420,040 $10,491,854
=========== ===========
</TABLE>

See Notes to Financial Statements

F-24
<PAGE> 163

EMERGING GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year Ended December 31, of Investment
----------------------------- Operations) to
1998 1997 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $16.450 $13.660 $11.72 $ 10.00
------- ------- ------- -------
Net Investment Loss....................................... (.014) (.007) (.016) (.08)
Net Realized and Unrealized Gain.......................... 6.186 2.797 1.956 1.80
------- ------- ------- -------
Total from Investment Operations............................ 6.172 2.790 1.940 1.72
Less Distributions in Excess of Net Investment Income....... .007 -0- -0- -0-
------- ------- ------- -------
Net Asset Value, End of the Period.......................... $22.615 $16.450 $13.660 $ 11.72
======= ======= ======= =======
Total Return................................................ 37.56% 20.42% 16.55% 17.20%**
Net Assets at End of the Period (In millions)............... $33.4 $10.5 $5.2 $ 2.3
Ratio of Expenses to Average Net Assets*.................... .85% .85% .85% 2.50%
Ratio of Net Investment Loss to Average Net Assets*......... (.23%) (.11%) (.17%) (1.45%)
Portfolio Turnover.......................................... 91% 116% 102% 41%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.23% 2.14% 3.28% 5.40%
Ratio of Net Investment Loss to Average Net Assets.......... (.61%) (1.40%) (2.60%) (4.35%)
</TABLE>

** Non-Annualized

See Notes to Financial Statements

F-25
<PAGE> 164

ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 99.2%
CONSUMER DISTRIBUTION 18.6%
AnnTaylor Stores Corp. (a).................................. 20,000 $ 788,750
Brightpoint, Inc. (a)....................................... 21,300 292,875
Cardinal Health, Inc........................................ 8,000 607,000
Costco Cos., Inc. (a)....................................... 12,400 895,125
CVS Corp.................................................... 13,800 759,000
Dayton Hudson Corp.......................................... 27,500 1,491,875
Diebold, Inc................................................ 16,000 571,000
Earthgrains Co.............................................. 18,900 584,719
Family Dollar Stores, Inc................................... 36,700 807,400
Hollywood Entertainment Corp. (a)........................... 13,000 354,250
Home Depot, Inc............................................. 11,000 673,062
Kroger Co. (a).............................................. 22,000 1,331,000
Lexmark International Group, Inc., Class A (a).............. 17,000 1,708,500
Lowe's Cos., Inc............................................ 23,300 1,192,669
McKesson Corp............................................... 8,300 656,219
Rite Aid Corp............................................... 13,200 654,225
Ross Stores, Inc............................................ 24,600 968,625
Safeway, Inc. (a)........................................... 43,600 2,656,875
Sysco Corp.................................................. 20,000 548,750
TJX Cos., Inc............................................... 58,200 1,687,800
Tricon Global Restaurants, Inc. (a)......................... 35,000 1,754,375
U.S. Foodservice (a)........................................ 14,000 686,000
Wal-Mart Stores, Inc........................................ 16,600 1,351,862
------------
23,021,956
------------
CONSUMER DURABLES 2.1%
Ford Motor Co............................................... 12,900 757,069
Harley Davidson, Inc........................................ 7,000 331,625
Maytag Corp................................................. 12,100 753,225
Shaw Industries, Inc........................................ 31,000 751,750
------------
2,593,669
------------
CONSUMER NON-DURABLES 4.3%
Abercrombie & Fitch Co., Class A (a)........................ 10,000 707,500
Anheuser-Busch Cos., Inc.................................... 14,000 918,750
Philip Morris Cos., Inc..................................... 55,800 2,985,300
Tommy Hilfiger Corp. (a).................................... 11,000 660,000
------------
5,271,550
------------
CONSUMER SERVICES 10.8%
Brinker International, Inc. (a)............................. 67,800 1,957,725
CBS Corp.................................................... 36,600 1,198,650
Cendant Corp. (a)........................................... 37,425 713,414
Chancellor Media Corp., Class A (a)......................... 26,600 1,273,475
Comcast Corp., Class A...................................... 11,000 645,563
Fox Entertainment Group, Inc., Class A (a).................. 23,000 579,312
Jacor Communications, Inc., Class A (a)..................... 14,900 959,188
McGraw-Hill, Inc............................................ 6,000 611,250
Metamor Worldwide, Inc. (a)................................. 19,100 477,500
Omnicom Group, Inc.......................................... 25,500 1,479,000
Tele Communications, Inc., Class A (a)...................... 12,000 663,750
Time Warner, Inc............................................ 20,600 1,278,487
</TABLE>

See Notes to Financial Statements

F-26
<PAGE> 165
ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Tribune Co.................................................. 13,100 $ 864,600
Univision Communications, Inc., Class A (a)................. 18,000 651,375
------------
13,353,289
------------
ENERGY 1.5%
El Paso Energy Corp......................................... 31,800 1,107,038
Enron Corp.................................................. 13,100 747,519
------------
1,854,557
------------
FINANCE 12.2%
Ambac Financial Group, Inc.................................. 19,100 1,149,581
Associates First Capital Corp., Class A..................... 21,274 901,484
BB&T Corp................................................... 15,000 604,688
Chase Manhattan Corp........................................ 16,000 1,089,000
Citigroup, Inc.............................................. 23,250 1,150,875
CMAC Investment Corp........................................ 18,800 863,624
Enhance Financial Services Group, Inc....................... 19,000 570,000
Equitable Cos., Inc......................................... 21,000 1,215,375
Federal National Mortgage Assn.............................. 17,400 1,287,600
Fifth Third Bancorp......................................... 16,000 1,141,000
Firstar Corp................................................ 15,000 1,398,750
Fleet Financial Group, Inc.................................. 27,000 1,206,565
Nationwide Financial Services, Inc., Class A................ 8,500 439,344
UNUM Corp................................................... 10,000 583,750
Wells Fargo & Co............................................ 37,000 1,477,687
------------
15,079,323
------------
HEALTHCARE 13.8%
Abbott Laboratories, Inc.................................... 14,900 730,100
Amgen, Inc. (a)............................................. 12,000 1,254,750
Baxter International, Inc................................... 10,100 649,556
Becton, Dickinson & Co...................................... 16,200 691,538
Bristol Myers Squibb Co..................................... 18,200 2,435,388
Guidant Corp................................................ 10,900 1,201,725
HEALTHSOUTH Corp. (a)....................................... 49,900 770,331
Lincare Holdings, Inc. (a).................................. 25,200 1,022,175
Mylan Laboratories, Inc..................................... 22,800 718,200
Pfizer, Inc................................................. 4,200 526,837
Schering-Plough Corp........................................ 35,000 1,933,750
Tenet Healthcare Corp. (a).................................. 14,000 367,500
Total Renal Care Holdings, Inc. (a)......................... 33,691 995,990
Universal Health Services, Inc., Class B (a)................ 10,500 544,688
Warner-Lambert Co........................................... 13,000 977,438
Watson Pharmaceuticals, Inc. (a)............................ 20,400 1,282,650
Wellpoint Health Networks, Inc., Class A (a)................ 11,100 965,700
------------
17,068,316
------------
PRODUCER MANUFACTURING 6.1%
Republic Services, Inc., Class A (a)........................ 30,500 562,344
Textron, Inc................................................ 14,400 1,093,500
Tyco International Ltd...................................... 30,100 2,270,666
United Technologies Corp.................................... 11,900 1,294,125
Waste Management, Inc....................................... 49,800 2,321,925
------------
7,542,560
------------
</TABLE>

See Notes to Financial Statements

F-27
<PAGE> 166
ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 1.0%
Boise Cascade Corp.......................................... 20,000 $ 620,000
Georgia Pacific Corp........................................ 11,000 644,188
------------
1,264,188
------------
TECHNOLOGY 22.8%
3Com Corp. (a).............................................. 22,000 985,875
America Online, Inc. (a).................................... 18,000 2,605,500
Ascend Communications, Inc. (a)............................. 15,500 1,019,125
BMC Software, Inc. (a)...................................... 35,100 1,564,144
Cisco Systems, Inc. (a)..................................... 18,525 1,719,352
Citrix Systems, Inc. (a).................................... 10,950 1,062,834
Compaq Computer Corp........................................ 16,000 671,000
Compuware Corp. (a)......................................... 20,500 1,601,563
Comverse Technology, Inc. (a)............................... 9,400 667,400
Dell Computer Corp. (a)..................................... 9,000 658,688
EMC Corp. (a)............................................... 36,100 3,068,500
Intel Corp.................................................. 13,000 1,541,314
International Business Machines Corp........................ 12,800 2,364,800
Lucent Technologies, Inc.................................... 3,000 330,000
Microsoft Corp. (a)......................................... 9,100 1,262,056
Networks Associates, Inc. (a)............................... 25,950 1,719,187
Nokia Corp. -- ADR (Finland) (a)............................ 11,800 1,421,163
Oracle Corp. (a)............................................ 39,000 1,681,873
Sanmina Corp. (a)........................................... 13,000 812,500
Sterling Software, Inc. (a)................................. 28,600 773,988
Sun Microsystems, Inc. (a).................................. 4,000 342,500
Waters Corp. (a)............................................ 4,000 349,000
------------
28,222,362
------------
TRANSPORTATION 0.6%
Kansas City Southern Industries, Inc........................ 14,000 688,625
------------
UTILITIES 5.4%
AirTouch Communications, Inc. (a)........................... 19,000 1,370,375
ALLTEL Corp................................................. 32,000 1,914,000
PECO Energy Co.............................................. 13,000 541,125
SBC Communications, Inc..................................... 22,800 1,222,650
U.S. West, Inc.............................................. 13,000 840,125
Unicom Corp................................................. 19,000 732,687
------------
6,620,962
------------
TOTAL LONG-TERM INVESTMENTS 99.2%
(Cost $78,865,412).............................................. 122,581,357
REPURCHASE AGREEMENT 0.3%
SBC Warburg ($430,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold
on 01/04/99 at $430,227) (Cost $430,000).......................... 430,000
------------
TOTAL INVESTMENTS 99.5%
(Cost $79,295,412).............................................. 123,011,357
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%......................... 557,866
------------
NET ASSETS 100.0%.................................................. $123,569,223
============
</TABLE>

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

See Notes to Financial Statements

F-28
<PAGE> 167

ENTERPRISE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $79,295,412)........................ $123,011,357
Cash........................................................ 4,115
Receivables:
Investments Sold.......................................... 1,125,654
Dividends................................................. 93,067
Portfolio Shares Sold..................................... 29,638
Other....................................................... 47,870
------------
Total Assets.......................................... 124,311,701
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 362,456
Portfolio Shares Repurchased.............................. 175,206
Investment Advisory Fee................................... 51,248
Distributor and Affiliates................................ 8,040
Trustees' Deferred Compensation and Retirement Plans........ 114,612
Accrued Expenses............................................ 30,916
------------
Total Liabilities..................................... 742,478
------------
NET ASSETS.................................................. $123,569,223
============
NET ASSETS CONSIST OF:
Capital..................................................... $ 70,347,091
Net Unrealized Appreciation................................. 43,715,945
Accumulated Net Realized Gain............................... 9,181,578
Accumulated Undistributed Net Investment Income............. 324,609
------------
NET ASSETS.................................................. $123,569,223
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $123,569,223 and 5,518,824 shares
of beneficial interest issued and outstanding)............ $ 22.39
============
</TABLE>

See Notes to Financial Statements

F-29
<PAGE> 168

ENTERPRISE PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 891,547
Interest.................................................... 135,781
-----------
Total Income............................................ 1,027,328
-----------
EXPENSES:
Investment Advisory Fee..................................... 539,143
Accounting.................................................. 42,834
Trustees' Fees and Expenses................................. 16,681
Custody..................................................... 15,780
Legal....................................................... 1,768
Other....................................................... 71,771
-----------
Total Expenses.......................................... 687,977
Less Fees Waived........................................ 40,178
-----------
Net Expenses............................................ 647,799
-----------
NET INVESTMENT INCOME....................................... $ 379,529
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 9,559,452
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 29,318,035
End of the Period......................................... 43,715,945
-----------
Net Unrealized Appreciation During the Period............... 14,397,910
-----------
NET REALIZED AND UNREALIZED GAIN............................ $23,957,362
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $24,336,891
===========
</TABLE>

See Notes to Financial Statements

F-30
<PAGE> 169

ENTERPRISE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 379,529 $ 435,176
Net Realized Gain........................................... 9,559,452 13,400,141
Net Unrealized Appreciation During the Period............... 14,397,910 10,261,053
------------ -----------
Change in Net Assets from Operations........................ 24,336,891 24,096,370
------------ -----------
Distributions from Net Investment Income.................... (92,265) (457,271)
Distributions from Net Realized Gain........................ (1,126,323) (13,668,548)
------------ -----------
Total Distributions......................................... (1,218,588) (14,125,819)
------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 23,118,303 9,970,551
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 23,512,376 16,421,893
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 1,218,588 14,125,818
Cost of Shares Repurchased.................................. (22,994,120) (26,609,356)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 1,736,844 3,938,355
------------ -----------
TOTAL INCREASE IN NET ASSETS................................ 24,855,147 13,908,906
NET ASSETS:
Beginning of the Period..................................... 98,714,076 84,805,170
------------ -----------
End of the Period (Including accumulated undistributed net
investment income of $324,609 and $37,345,
respectively)............................................. $123,569,223 $98,714,076
============ ===========
</TABLE>

See Notes to Financial Statements

F-31
<PAGE> 170

ENTERPRISE PORTFOLIO FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $18.106 $16.262 $ 14.69 $ 12.39 $ 14.57
------- ------- ------- ------- -------
Net Investment Income..................................... .069 .091 .113 .32 .25
Net Realized and Unrealized Gain/Loss..................... 4.441 4.734 3.417 4.22 (.7625)
------- ------- ------- ------- -------
Total from Investment Operations............................ 4.510 4.825 3.530 4.54 (.5125)
------- ------- ------- ------- -------
Less:
Distributions from Net Investment Income.................. .017 .096 .109 .3175 .25
Distributions from Net Realized Gain...................... .209 2.885 1.849 1.9225 1.4175
------- ------- ------- ------- -------
Total Distributions......................................... .226 2.981 1.958 2.24 1.6675
------- ------- ------- ------- -------
Net Asset Value, End of the Period.......................... $22.390 $18.106 $16.262 $ 14.69 $ 12.39
======= ======= ======= ======= =======
Total Return*............................................... 25.00% 30.66% 24.80% 36.98% (3.39%)
Net Assets at End of the Period (In millions)............... $123.6 $98.7 $84.8 $76.0 $67.5
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... .35% .47% .68% 2.06% 1.72%
Portfolio Turnover.......................................... 82% 82% 152% 145% 153%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .64% .66% .75% .68% .68%
Ratio of Net Investment Income to Average Net Assets........ .31% .41% .53% 1.98% 1.64%
</TABLE>

See Notes to Financial Statements

F-32
<PAGE> 171

GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.0%
AUSTRALIA 1.6%
Orica Ltd................................................... 2,001 $ 10,410
Pacific Dunlop Ltd.......................................... 8,200 13,266
Rio Tinto Ltd............................................... 2,600 30,837
----------
54,513
----------
AUSTRIA (C) 0.6%
OMV, AG..................................................... 200 18,849
----------
BELGIUM (C) 3.5%
Almanij..................................................... 1,414 118,617
Almanij Na-Strip............................................ 14 1
----------
118,618
----------
BRAZIL 0.1%
Centrais Eletricas Brasileiras SA Electrobras - ADR......... 340 2,894
Centrais Geradoras Do Sul Do Brasil, SA - ADR (a)........... 34 222
----------
3,116
----------
CANADA 2.7%
Barrick Gold Corp........................................... 100 1,950
Enbridge, Inc............................................... 1,500 69,185
Northern Telecom Ltd........................................ 400 20,046
Placer Dome, Inc............................................ 100 1,148
----------
92,329
----------
DENMARK 0.4%
Novo Nordisk A/S, Ser B..................................... 100 13,199
----------
FRANCE (C) 3.5%
Alcatel Alsthom (Cie Gen El)................................ 165 20,186
Axa-UAP..................................................... 230 33,321
Compagnie de Saint Gobain................................... 148 20,886
Elf Aquitaine............................................... 150 17,331
LVMH (Moet Hennessy Louis Vuitton).......................... 55 10,880
Total, Class B.............................................. 135 13,667
----------
116,271
----------
GERMANY (C) 5.4%
Allianz, AG................................................. 102 37,395
BASF, AG.................................................... 250 9,540
Bayer, AG................................................... 200 8,346
DaimlerChrysler AG (a)...................................... 251 24,775
Degussa, AG................................................. 50 2,747
Deutsche Bank, AG........................................... 400 23,533
Deutsche Telekom, AG........................................ 550 18,085
Linde....................................................... 50 30,751
Siemens, AG................................................. 200 12,901
VEBA, AG.................................................... 200 11,964
----------
180,037
----------
ITALY (C) 2.5%
Ente Nazionale Idrocarburi, SpA............................. 2,000 13,064
Fiat, SpA................................................... 4,000 13,886
Instituto Nazionale delle Assicurazioni (INA)............... 12,000 31,679
Telecom Italia.............................................. 2,500 18,446
Telecom Italia Spa.......................................... 2 17
Unione Immobiliare (a)...................................... 12,000 6,256
----------
83,348
----------
</TABLE>

See Notes to Financial Statements

F-33
<PAGE> 172
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
JAPAN 8.1%
Acom Co., Ltd............................................... 200 $ 12,844
Bank of Tokyo............................................... 600 6,210
Daiwa Securities............................................ 1,000 3,414
East Japan Railway.......................................... 1 5,582
Hitachi..................................................... 1,000 6,192
Honda Motor Co.............................................. 1,000 32,817
Japan Air Lines Co.......................................... 1,000 2,636
Japan Energy Corp........................................... 3,000 2,839
Kao Corp.................................................... 1,000 22,556
Kawasaki Heavy Industries................................... 1,000 2,344
Kawasaki Steel Corp......................................... 2,000 2,990
Komatsu..................................................... 1,000 5,245
Kyocera Corp................................................ 100 5,281
Matsushita Electric Industries.............................. 1,000 17,682
Mitsubishi Electric Corp.................................... 2,000 6,280
Mitsubishi Estate........................................... 1,000 8,961
Nagoya Railroad Co.......................................... 3,000 10,880
NEC Corp.................................................... 1,000 9,200
Nippon Steel Corp........................................... 1,000 1,813
Nippon Telegraph & Telephone Corp........................... 3 23,140
Nippon Yusen Kabushiki Kaisha............................... 2,000 6,316
Nissan Motor Co............................................. 1,000 3,061
NSK Ltd..................................................... 1,000 3,733
Oji Paper Co................................................ 1,000 5,192
Sekisui House............................................... 1,000 10,571
Sharp Corp.................................................. 1,000 9,014
Teijin...................................................... 1,000 3,680
Tobu Railway Co............................................. 1,000 2,919
Toppan Printing Co.......................................... 1,000 12,207
Toyota Motor Corp........................................... 1,000 27,156
----------
272,755
----------
MALAYSIA 0.1%
RHB Capital Berhard......................................... 9,000 3,514
----------
MEXICO 1.3%
Telefonos De Mexico SA, Ser L............................... 18,000 44,332
----------
NETHERLANDS (C) 2.5%
ABN Amro Holdings........................................... 643 13,519
Akzo Nobel.................................................. 400 18,204
Elsevier.................................................... 700 9,800
Koninklijke Ahold NV........................................ 532 19,652
Wolters Kluwer.............................................. 102 21,815
----------
82,990
----------
REPUBLIC OF KOREA 0.3%
Korea Electric Power Corp. - ADR............................ 307 4,816
Pohang Iron & Steel Co., Ltd. - ADR......................... 317 5,349
----------
10,165
----------
SINGAPORE 1.1%
Singapore Telecommunications................................ 24,000 36,632
----------
</TABLE>

See Notes to Financial Statements

F-34
<PAGE> 173
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA 0.3%
De Beers Cons Mines Ltd. - ADR.............................. 500 $ 6,375
Sasol Ltd. - ADR............................................ 1,126 4,504
----------
10,879
----------
SPAIN (C) 2.0%
Endesa, SA.................................................. 300 7,937
Repsol, SA.................................................. 400 21,306
Telefonica De Espana........................................ 872 38,716
Telefonica SA, Common Rights Callable Through 01/30/99...... 872 773
----------
68,732
----------
SWEDEN 0.7%
Astra, AB, Ser A............................................ 200 4,074
Ericsson Telefon LM, Ser B.................................. 800 19,003
----------
23,077
----------
SWITZERLAND 3.5%
Credit Suisse Group......................................... 200 31,303
Nestle, SA.................................................. 10 21,766
Novartis, AG................................................ 20 39,310
Roche Holdings Genusscheine, AG............................. 2 24,401
----------
116,780
----------
UNITED KINGDOM 10.2%
Allied Zurich (a)........................................... 850 12,773
Barclays.................................................... 1,000 21,681
Bass........................................................ 1,160 16,786
British America Tobacco..................................... 850 7,485
British Petroleum........................................... 1,153 17,164
British Telecommunications.................................. 2,400 36,325
BTR......................................................... 2,356 4,834
Burmah Castrol.............................................. 700 10,002
Carlton Communications...................................... 2,500 23,010
Glaxo Wellcome.............................................. 1,000 34,424
HSBC Holdings............................................... 400 11,018
HSBC Holdings - ADR......................................... 700 17,736
Lloyds TSB Group............................................ 2,100 29,900
Marks & Spencer............................................. 1,200 8,254
Rank Group.................................................. 2,486 9,502
Scot & Newcastle............................................ 2,100 24,423
Smithkline Beecham.......................................... 2,000 27,719
Smiths Industries........................................... 1,000 14,338
Zeneca Group................................................ 300 13,069
----------
340,443
----------
UNITED STATES 45.6%
Abbott Laboratories, Inc. (b)............................... 600 29,400
Aluminum Co. of America..................................... 200 14,913
American Express Co......................................... 200 20,450
American Home Products Corp................................. 600 33,787
American International Group, Inc........................... 300 28,987
Amoco Corp.................................................. 400 23,600
AT&T Corp. (b).............................................. 500 37,625
BankAmerica Corp............................................ 300 18,038
BellSouth Corp., Common Rights Callable Through 12/11/99.... 800 39,900
Boeing Co................................................... 100 3,263
</TABLE>

See Notes to Financial Statements

F-35
<PAGE> 174
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Bristol-Myers Squibb Co. (b)................................ 300 $ 40,144
Chevron Corp................................................ 300 24,881
Cisco Systems, Inc. (a)..................................... 450 41,766
Citigroup, Inc.............................................. 500 24,750
Coca Cola Co. (b)........................................... 700 46,812
Columbia / HCA Healthcare Corp.............................. 300 7,425
Dominion Resources, Inc..................................... 700 32,725
Dow Chemical Co............................................. 200 18,188
Du Pont (E. I.) de Nemours & Co............................. 200 10,613
Eastman Kodak Co............................................ 200 14,400
Federal National Mortgage Assn.............................. 300 22,200
First Data Corp............................................. 400 12,675
FPL Group, Inc.............................................. 400 24,650
General Electric Co......................................... 300 30,619
General Motors Corp......................................... 300 21,469
Gillette Co................................................. 400 19,325
Hewlett Packard Co.......................................... 300 20,494
Home Depot, Inc............................................. 500 30,594
Illinois Tool Works, Inc.................................... 200 11,600
Intel Corp.................................................. 200 23,712
International Business Machines Corp........................ 200 36,950
International Paper Co...................................... 300 13,444
J.C. Penney, Inc............................................ 300 14,063
Johnson & Johnson, Inc...................................... 300 25,162
JP Morgan & Co., Inc. (b)................................... 300 31,519
Kimberly Clark Corp......................................... 300 16,350
Lilly Eli & Co.............................................. 300 26,662
Lucent Technologies, Inc. (b)............................... 600 66,000
McDonald's Corp. (b)........................................ 400 30,650
MCI Worldcom, Inc. (a)...................................... 700 50,225
Meritor Automotive, Inc..................................... 100 2,119
Microsoft Corp. (a) (b)..................................... 600 83,212
Minnesota Mining & Manufacturing Co......................... 300 21,337
Mobil Corp.................................................. 200 17,425
Motorola, Inc............................................... 200 12,213
Oracle Corp. (a)............................................ 250 10,781
PacifiCorp.................................................. 1,000 21,063
Pfizer, Inc................................................. 200 25,087
Procter & Gamble Co. (b).................................... 300 27,394
Raytheon Co., Class A....................................... 25 1,292
Rockwell International Corp................................. 300 14,569
SBC Communications, Inc. (b)................................ 800 42,900
Schering-Plough Corp........................................ 400 22,100
Sears Roebuck & Co.......................................... 300 12,750
Time Warner, Inc............................................ 600 37,237
Warner-Lambert Co........................................... 600 45,112
</TABLE>

See Notes to Financial Statements

F-36
<PAGE> 175
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

PREFERRED STOCK 2.2%
FINLAND 2.2%
Nokia (Ab) Oy, Ser A - ADR (a).............................. 600 72,956
----------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $2,409,431)................................................. 3,290,737

REPURCHASE AGREEMENT 3.5%
State Street Bank & Trust Co. ($117,000 par, collateralized by
U.S. Government obligations in a pooled cash account, dated
12/31/98, to be sold on 01/04/99 at $117,052)
(Cost $117,000)................................................... 117,000
----------
TOTAL INVESTMENTS 101.7%
(Cost $2,526,431)................................................. 3,407,737

LIABILITIES IN EXCESS OF OTHER ASSETS (1.7%)....................... (56,858)
----------
NET ASSETS 100.0%.................................................. $3,350,879
==========
</TABLE>

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

(b) Assets segregated for open forward currency contracts.

(c) European assets as of December 31, 1998 were valued based on
country-specific currencies. On January 1, 1999, the currencies of countries
participating in the European economic and monetary union converted to the
euro.

See Notes to Financial Statements

B-37
<PAGE> 176

GLOBAL EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,526,431)......................... $ 3,407,737
Cash........................................................ 369
Foreign Currency (Cost $117)................................ 117
Receivables:
Portfolio Shares Sold..................................... 8,313
Expense Reimbursement by Adviser.......................... 8,264
Dividends................................................. 5,912
Interest.................................................. 13
Unamortized Organizational Costs............................ 2,039
-----------
Total Assets.......................................... 3,432,764
-----------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 6,213
Portfolio Shares Repurchased.............................. 767
Forward Currency Contracts.................................. 1,176
Accrued Expenses............................................ 46,152
Trustees' Deferred Compensation and Retirement Plans........ 27,577
-----------
Total Liabilities....................................... 81,885
-----------
NET ASSETS.................................................. $ 3,350,879
===========
NET ASSETS CONSIST OF:
Capital..................................................... $ 2,502,119
Net Unrealized Appreciation................................. 880,273
Accumulated Distributions in Excess of Net Realized Gain.... (6,919)
Accumulated Distributions in Excess of Net Investment
Income.................................................... (24,594)
-----------
NET ASSETS.................................................. $ 3,350,879
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $3,350,879 and 253,694 shares of
beneficial interest issued and outstanding)............... $ 13.21
===========
</TABLE>

See Notes to Financial Statements

F-38
<PAGE> 177

GLOBAL EQUITY PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $4,666)...... $ 54,889
Interest.................................................... 8,136
Other....................................................... 493
--------
Total Income............................................ 63,518
--------
EXPENSES:
Custody..................................................... 62,330
Accounting.................................................. 38,069
Investment Advisory Fee..................................... 32,086
Audit....................................................... 19,365
Shareholder Reports......................................... 17,155
Shareholder Services........................................ 14,743
Trustees' Fees and Expenses................................. 11,883
Amortization of Organizational Costs........................ 1,365
Other....................................................... 3,561
--------
Total Expenses.......................................... 200,557
Less Fees Waived and Expenses Reimbursed ($32,086 and
$130,093, respectively)................................ 162,179
--------
Net Expenses............................................ 38,378
--------
NET INVESTMENT INCOME....................................... $ 25,140
========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain/Loss:
Investments............................................... $ 14,465
Forward Currency Contracts................................ 2,778
--------
Net Realized Gain........................................... 17,243
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 307,950
--------
End of the Period:
Investments............................................. 881,306
Forward Currency Contracts.............................. (1,176)
Foreign Currency Translation............................ 143
--------
880,273
--------
Net Unrealized Appreciation During the Period............... 572,323
--------
NET REALIZED AND UNREALIZED GAIN............................ $589,566
========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $614,706
========
</TABLE>

See Notes to Financial Statements

F-39
<PAGE> 178

GLOBAL EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 25,140 $ 23,933
Net Realized Gain........................................... 17,243 508,690
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 572,323 (88,784)
----------- -----------
Change in Net Assets from Operations........................ 614,706 443,839
----------- -----------
Distributions from Net Investment Income.................... (25,140) (23,933)
Distributions in Excess of Net Investment Income............ (12,870) (1,351)
----------- -----------
Distributions from and in Excess of Net Investment Income... (38,010) (25,284)
----------- -----------
Distributions from Net Realized Gain........................ -0- (536,409)
Distributions in Excess of Net Realized Gain................ -0- (24,805)
----------- -----------
Distributions from and in Excess of Net Realized Gain....... -0- (561,214)
----------- -----------
Total Distributions......................................... (38,010) (586,498)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 576,696 (142,659)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 782,393 1,501,991
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 24,409 352,262
Cost of Shares Repurchased.................................. (1,006,628) (1,254,609)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (199,826) 599,644
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 376,870 456,985
NET ASSETS:
Beginning of the Period..................................... 2,974,009 2,517,024
----------- -----------
End of the Period (Including accumulated distributions in
excess of net investment income of $24,594 and $14,504,
respectively)............................................. $ 3,350,879 $ 2,974,009
=========== ===========
</TABLE>

See Notes to Financial Statements

F-40
<PAGE> 179

GLOBAL EQUITY PORTFOLIO FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year Ended December 31, of Investment
--------------------------- Operations) to
1998 1997 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $11.004 $11.658 $10.30 $ 10.00
------- ------- ------- -------
Net Investment Income/Loss................................ .089 .110 .035 (.16)
Net Realized and Unrealized Gain.......................... 2.258 1.696 1.687 .46
------- ------- ------- -------
Total from Investment Operations............................ 2.347 1.806 1.722 .30
------- ------- ------- -------
Less:
Distributions from and in Excess of Net Investment
Income.................................................. .143 .106 .188 -0-
Distributions from and in Excess of Net Realized Gain..... -0- 2.354 .176 -0-
------- ------- ------- -------
Total Distributions......................................... .143 2.460 .364 -0-
------- ------- ------- -------
Net Asset Value, End of the Period.......................... $13.208 $11.004 $11.658 $ 10.30
======= ======= ======= =======
Total Return*............................................... 21.61% 15.85% 16.72% 3.00%**
Net Assets at End of the Period (In millions)............... $3.4 $3.0 $2.5 $ 2.4
Ratio of Expenses to Average Net Assets*.................... 1.20% 1.20% 1.20% 4.35%
Ratio of Net Investment Income/Loss to Average Net
Assets*................................................... 0.79% .76% .27% (2.76%)
Portfolio Turnover.......................................... 3% 132% 94% 42%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 6.27% 6.78% 7.43% 8.27%
Ratio of Net Investment Loss to Average Net Assets.......... (4.28%) (4.82%) (5.96%) (6.68%)
</TABLE>

** Non-Annualized

See Notes to Financial Statements

F-41
<PAGE> 180

GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATED GOVERNMENT AGENCY OBLIGATIONS 55.7%
$2,000 Federal Farm Credit Bank Medium Term Note (a)............... 6.520% 09/24/07 $ 2,166,220
1,215 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 7.000 05/01/24 to 07/01/24 1,240,417
180 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 7.500 10/01/24 184,877
219 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 8.000 09/01/24 to 10/01/24 226,610
1,230 Federal Home Loan Mortgage Corp. CMO Floater (a)............ 5.838 09/15/27 1,232,551
1,108 Federal Home Loan Mortgage Corp. CMO Floater (a)............ 5.844 09/15/23 1,105,461
125 Federal Home Loan Mortgage Corp. CMO Floater................ 6.088 11/15/18 124,648
1,440 Federal National Mortgage Association 15 Year Dwarf Pools... 6.500 06/01/09 to 04/01/11 1,460,765
1,406 Federal National Mortgage Association 15 Year Dwarf Pools... 7.000 07/01/10 to 12/01/11 1,436,391
1,953 Federal National Mortgage Association 30 Year Pools......... 6.000 03/01/28 to 04/01/28 1,928,312
1,005 Federal National Mortgage Association Pools................. 6.000 09/01/28 to 10/01/28 992,979
4,690 Federal National Mortgage Association Pools (a)............. 6.500 03/01/26 to 06/01/28 4,722,913
1,257 Federal National Mortgage Association Pools................. 7.000 12/01/23 to 06/01/24 1,283,207
292 Federal National Mortgage Association Pools................. 7.500 05/01/24 to 10/01/24 300,497
341 Federal National Mortgage Association Pools................. 8.000 06/01/24 to 10/01/24 353,759
638 Federal National Mortgage Association Pools................. 11.000 11/01/20 719,022
1,993 Government National Mortgage Association Pools (a).......... 6.500 02/15/26 to 06/15/28 2,013,063
7,416 Government National Mortgage Association Pools (a).......... 7.000 04/15/23 to 9/15/28 7,585,320
1,282 Government National Mortgage Association Pools.............. 7.500 04/15/22 to 06/15/24 1,322,951
304 Government National Mortgage Association Pools.............. 8.000 5/15/17 to 01/15/23 316,637
297 Government National Mortgage Association Pools.............. 8.500 04/15/17 to 07/15/17 317,628
601 Government National Mortgage Association Pools.............. 9.500 06/15/09 to 10/15/09 650,306
76 Government National Mortgage Association Pools.............. 11.000 09/15/10 to 08/15/20 86,076
------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS........................................... 31,770,610
------------
UNITED STATES TREASURY OBLIGATIONS 39.7%
2,000 United States Treasury Bonds (a)............................ 6.000 02/15/26 2,182,120
2,000 United States Treasury Notes (a)............................ 5.375 06/30/03 2,058,780
1,000 United States Treasury Notes (a)............................ 5.500 02/15/08 1,059,290
4,500 United States Treasury Notes (a)............................ 5.625 02/15/06 4,748,081
7,000 United States Treasury Notes (a)............................ 5.750 10/31/00 to 08/15/03 7,191,210
1,000 United States Treasury Notes (a)............................ 6.250 02/28/02 1,046,330
4,000 United States Treasury Notes (a)............................ 7.500 05/15/02 4,348,880
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS.................................................... 22,634,691
------------
</TABLE>

See Notes to Financial Statements

F-42
<PAGE> 181
GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FORWARD PURCHASE COMMITMENTS 24.9%
$2,000 Federal National Mortgage Association, February Forward..... 6.000% TBA $ 1,971,570
2,000 Federal National Mortgage Association, February Forward..... 6.500 TBA 2,011,090
4,000 Federal National Mortgage Association, February Forward..... 7.000 TBA 4,078,460
3,000 Government National Mortgage Association, February
Forward..................................................... 6.500 TBA 3,028,125
3,000 United States Treasury Notes, January Forward............... 6.250 02/28/02 3,135,360
------------
TOTAL FORWARD PURCHASE COMMITMENTS.......................................................... 14,224,605
------------
TOTAL LONG TERM INVESTMENTS 120.3%
(Cost $66,813,576)................................................................................. 68,629,906
REPURCHASE AGREEMENT 3.9%
SBC Warburg ($2,250,000 par collateralized by U.S. Government obligations in a pooled cash account,
dated 12/31/98, to be sold on 01/04/99 at $2,251,188) (a)
(Cost $2,250,000).................................................................................. 2,250,000
------------
TOTAL INVESTMENTS 124.2%
(Cost $69,063,576)................................................................................. 70,879,906
LIABILITIES IN EXCESS OF OTHER ASSETS (24.2%)....................................................... (13,820,294)
------------
NET ASSETS 100.0%.................................................................................... $ 57,059,612
------------
</TABLE>

(a) Assets segregated as collateral for open forward 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.

See Notes to Financial Statements

F-43
<PAGE> 182

GOVERNMENT PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $69,063,576)........................ $70,879,906
Cash........................................................ 4,973
Interest Receivable......................................... 588,683
Forward Commitments......................................... 625
Other....................................................... 47,585
-----------
Total Assets.......................................... 71,521,772
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 14,276,373
Investment Advisory Fee................................... 23,553
Portfolio Shares Repurchased.............................. 17,351
Distributor and Affiliates................................ 6,960
Variation Margin on Futures............................... 4,937
Trustees' Deferred Compensation and Retirement Plans........ 109,549
Accrued Expenses............................................ 23,437
-----------
Total Liabilities..................................... 14,462,160
-----------
NET ASSETS.................................................. $57,059,612
===========
NET ASSETS CONSIST OF:
Capital..................................................... $60,130,308
Net Unrealized Appreciation................................. 1,842,793
Accumulated Undistributed Net Investment Income............. 2,681,124
Accumulated Net Realized Loss............................... (7,594,613)
-----------
NET ASSETS.................................................. $57,059,612
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $57,059,612 and 5,947,274 shares
of beneficial interest issued and outstanding)............ $ 9.59
===========
</TABLE>

See Notes to Financial Statements

F-44
<PAGE> 183

GOVERNMENT PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $3,411,568
----------
EXPENSES:
Investment Advisory Fee..................................... 268,947
Accounting.................................................. 32,746
Custody..................................................... 14,795
Trustees' Fees and Expenses................................. 13,644
Legal....................................................... 3,062
Other....................................................... 59,667
----------
Total Expenses.......................................... 392,861
Less Fees Waived........................................ 70,011
----------
Net Expenses............................................ 322,850
----------
NET INVESTMENT INCOME....................................... $3,088,718
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 598,202
Futures................................................... 244,167
Forward Commitments....................................... 130,833
----------
Net Realized Gain........................................... 973,202
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,515,218
----------
End of the Period:
Investments............................................. 1,816,330
Futures................................................. 25,838
Forward Commitments..................................... 625
----------
1,842,793
----------
Net Unrealized Appreciation During the Period............... 327,575
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,300,777
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $4,389,495
==========
</TABLE>

See Notes to Financial Statements

F-45
<PAGE> 184

GOVERNMENT PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 3,088,718 $ 3,483,743
Net Realized Gain........................................... 973,202 257,350
Net Unrealized Appreciation During the Period............... 327,575 1,068,496
------------ ------------
Change in Net Assets from Operations........................ 4,389,495 4,809,589
Distributions from Net Investment Income.................... (529,309) (3,344,474)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 3,860,186 1,465,115
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 11,164,705 2,642,182
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 529,309 3,344,475
Cost of Shares Repurchased.................................. (11,052,927) (12,147,815)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 641,087 (6,161,158)
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 4,501,273 (4,696,043)
NET ASSETS:
Beginning of the Period..................................... 52,558,339 57,254,382
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $2,681,124 and $105,149,
respectively)............................................. $ 57,059,612 $ 52,558,339
============ ============
</TABLE>

See Notes to Financial Statements

F-46
<PAGE> 185

GOVERNMENT PORTFOLIO FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $ 8.920 $ 8.666 $ 9.06 $ 8.28 $ 9.26
------- ------- ------- ------- -------
Net Investment Income................................... .520 .566 .569 .60 .56
Net Realized and Unrealized Gain/Loss................... .244 .231 (.388) .78 (.985)
------- ------- ------- ------- -------
Total from Investment Operations.......................... .764 .797 .181 1.38 (.425)
Less Distributions from and in Excess of Net Investment
Income.................................................. .090 .543 .575 .60 .555
------- ------- ------- ------- -------
Net Asset Value, End of the Period........................ $ 9.594 $ 8.920 $ 8.666 $ 9.06 $ 8.28
======= ======= ======= ======= =======
Total Return*............................................. 8.59% 9.61% 2.12% 17.17% (4.63%)
Net Assets at End of the Period (In millions)............. $ 57.1 $ 52.6 $ 57.3 $ 67.0 $ 65.5
Ratio of Expenses to Average Net Assets*.................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*..... 5.74% 6.51% 6.56% 6.89% 6.71%
Portfolio Turnover........................................ 107% 119% 143% 164% 192%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets................... .73% .74% .80% .72% .70%
Ratio of Net Investment Income to Average Net Assets...... 5.61% 6.37% 6.36% 6.77% 6.61%
</TABLE>

See Notes to Financial Statements

F-47
<PAGE> 186

GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 91.3%
CONSUMER DISTRIBUTION 2.3%
Federated Department Stores, Inc. (a)....................... 6,520 $ 284,028
Gap, Inc. .................................................. 5,690 320,062
SYSCO Corp. ................................................ 5,080 139,383
-----------
743,473
-----------
CONSUMER DURABLES 0.4%
Black & Decker Corp. ....................................... 2,000 112,125
-----------
CONSUMER NON-DURABLES 11.3%
Anheuser-Busch Cos., Inc. .................................. 4,480 294,000
Benckiser NV, Class B - ADR (Netherlands) (a)............... 2,960 189,070
Colgate - Palmolive Co. .................................... 5,360 497,810
Hershey Foods Corp. ........................................ 4,550 282,953
Philip Morris Cos., Inc. ................................... 19,630 1,050,205
Ralston Purina Group........................................ 16,020 518,647
Tommy Hilfiger Corp. (a).................................... 4,500 270,000
Unilever NV - ADR (Netherlands)............................. 3,720 308,528
Whitman Corp. .............................................. 9,280 235,480
-----------
3,646,693
-----------
CONSUMER SERVICES 1.0%
H & R Block, Inc. .......................................... 7,280 327,600
-----------
ENERGY 8.6%
Atlantic Richfield Co. ..................................... 8,400 548,100
Coastal Corp. .............................................. 11,770 411,214
El Paso Energy Corp. ....................................... 12,190 424,364
Mobil Corp. ................................................ 4,700 409,488
Texaco, Inc. ............................................... 9,090 480,634
Valero Energy Corp. ........................................ 6,250 132,813
YPF Sociedad Anonima, Class D - ADR (Argentina)............. 12,570 351,174
-----------
2,757,787
-----------
FINANCE 13.7%
Aetna, Inc. ................................................ 3,670 288,554
Allstate Corp. ............................................. 1,800 69,525
American General Corp. ..................................... 7,650 596,700
Arden Realty, Inc. ......................................... 8,360 193,848
Bank of Tokyo - Mitsubishi - ADR (Japan).................... 23,610 247,905
Chase Manhattan Corp. ...................................... 8,550 581,934
Citigroup, Inc. ............................................ 5,910 292,545
Equitable Cos., Inc. ....................................... 8,900 515,087
Exel Ltd., Class A.......................................... 3,190 239,250
First Union Corp. .......................................... 5,500 334,469
Fleet Financial Group, Inc. ................................ 9,740 435,256
PNC Bank Corp. ............................................. 7,370 398,901
Washington Mutual, Inc. .................................... 6,006 229,354
-----------
4,423,328
-----------
HEALTHCARE 16.8%
Alza Corp. (a).............................................. 8,200 428,450
American Home Products Corp. ............................... 10,510 591,844
Beckman Coulter, Inc. ...................................... 6,120 332,010
Columbia/HCA Healthcare Corp. .............................. 8,010 198,248
IMS Health, Inc. ........................................... 5,140 387,749
Merck & Co., Inc. .......................................... 3,040 448,970
Mylan Laboratories, Inc. ................................... 13,500 425,250
</TABLE>

See Notes to Financial Statements

F-48
<PAGE> 187
GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Pharmacia & Upjohn, Inc. ................................... 11,520 $ 652,320
Rhodia, SA - ADR (France)................................... 8,930 133,950
Rhone-Poulenc, SA - ADR (France) Warrants (expiring
11/05/01)................................................. 2,079 7,796
Rhone-Poulenc, SA, Class A - ADR (France)................... 13,359 671,290
St. Jude Medical, Inc. (a).................................. 7,520 208,210
Teva Pharmaceutical Industries Ltd. - ADR (Israel).......... 5,870 238,836
United HealthCare Corp. (a)................................. 10,690 460,338
Watson Pharmaceuticals, Inc. (a)............................ 3,660 230,122
-----------
5,415,383
-----------
PRODUCER MANUFACTURING 3.6%
AlliedSignal, Inc. ......................................... 1,620 71,786
Ingersoll-Rand Co. ......................................... 10,260 481,579
Philips Electronics NV - ADR (Netherlands).................. 2,400 162,450
Waste Management, Inc. ..................................... 9,514 443,590
-----------
1,159,405
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 4.1%
Boise Cascade Corp. ........................................ 5,940 184,140
Crown Cork & Seal Co., Inc. ................................ 9,800 301,963
Fort James Corp. ........................................... 2,100 84,000
Imperial Chemical Industries PLC - ADR (United Kingdom)..... 6,540 228,491
Monsanto Co. ............................................... 2,940 139,650
Raychem Corp. .............................................. 12,100 390,981
-----------
1,329,225
-----------
TECHNOLOGY 14.7%
Adobe Systems, Inc. ........................................ 8,260 386,155
BMC Software, Inc. (a)...................................... 5,600 249,550
Compaq Computer Corp. ...................................... 4,000 167,750
Electronic Data Systems Corp. .............................. 5,700 286,425
First Data Corp. ........................................... 5,540 175,549
International Business Machines Corp. ...................... 6,470 1,195,332
Micron Technology, Inc. (a)................................. 4,400 222,475
Motorola, Inc. ............................................. 5,640 344,393
Oracle Corp. (a)............................................ 7,400 319,125
Quantum Corp. (a)........................................... 12,780 271,575
Texas Instruments, Inc. .................................... 4,320 369,630
Xerox Corp. ................................................ 3,890 459,020
Xilinx, Inc. (a)............................................ 4,520 294,365
-----------
4,741,344
-----------
UTILITIES 14.8%
BEC Energy.................................................. 9,210 371,100
BellSouth Corp. ............................................ 10,100 503,737
Consolidated Edison, Inc. .................................. 8,580 453,667
DQE, Inc. .................................................. 100 4,394
Edison International........................................ 12,370 344,814
GPU, Inc. .................................................. 7,400 326,988
GTE Corp. .................................................. 8,410 567,149
Illinova Corp. ............................................. 4,920 123,000
Niagara Mohawk Power Corp. (a).............................. 23,710 382,324
Northeast Utilities......................................... 29,440 471,040
PECO Energy Co. ............................................ 3,410 141,941
SBC Communications, Inc. ................................... 3,600 193,050
</TABLE>

See Notes to Financial Statements

F-49
<PAGE> 188
GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
Sprint Corp. ............................................. 4,020 $ 338,183
U.S. West, Inc. .......................................... 8,630 557,713
-----------
4,779,100
-----------
TOTAL COMMON STOCKS 91.3%........................................ 29,435,463
-----------
CORPORATE BOND 0.2%
Hewlett Packard Co., LYON, 144A - Private Placement ($125,000 par, 69,531
yielding 3.125%, 10/14/17 maturity) (c).........................
-----------
TOTAL LONG-TERM INVESTMENTS 91.5%
(Cost $25,251,792)............................................ 29,504,994
-----------
SHORT-TERM INVESTMENTS 8.5%
REPURCHASE AGREEMENT 5.4%
SBC Warburg ($1,740,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold
on 01/04/99 at $1,740,928)
(Cost $1,740,000)............................................... 1,740,000
U.S. GOVERNMENT AGENCY OBLIGATIONS 3.1%
Federal National Mortgage Association Discount Note ($1,000,000 par,
yielding 5.150%, 01/15/99 maturity)
(Cost $998,044) (b)........................................... 998,044
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $2,738,044)............................................. 2,738,044
-----------
TOTAL INVESTMENTS 100.0%
(Cost $27,989,836)............................................ 32,243,038
LIABILITIES IN EXCESS OF OTHER ASSETS 0.0%....................... (12,471)
-----------
NET ASSETS 100.0%................................................ $32,230,567
-----------
</TABLE>

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

(b) Assets segregated for open futures transactions.

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

LYON - Liquid yield option note

See Notes to Financial Statements

F-50
<PAGE> 189

GROWTH AND INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $27,989,836)........................ $32,243,038
Cash........................................................ 3,253
Receivables:
Dividends................................................. 31,982
Portfolio Shares Sold..................................... 12,442
Variation Margin on Futures............................... 4,250
Expense Reimbursement by Adviser.......................... 4,000
Other....................................................... 1,936
-----------
Total Assets.......................................... 32,300,901
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 20,559
Distributor and Affiliates................................ 5,676
Portfolio Shares Repurchased.............................. 691
Accrued Expenses............................................ 32,250
Trustees' Deferred Compensation and Retirement Plans........ 11,158
-----------
Total Liabilities..................................... 70,334
-----------
NET ASSETS.................................................. $32,230,567
===========
NET ASSETS CONSIST OF:
Capital..................................................... $28,125,068
Net Unrealized Appreciation................................. 4,305,619
Accumulated Undistributed Net Investment Income............. 265,142
Accumulated Net Realized Loss............................... (465,262)
-----------
NET ASSETS.................................................. $32,230,567
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $32,230,567 and 2,225,645 shares
of beneficial interest issued and outstanding).......... $ 14.48
===========
</TABLE>

See Notes to Financial Statements

F-51
<PAGE> 190

GROWTH AND INCOME PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 299,073
Interest.................................................... 129,562
----------
Total Income............................................ 428,635
----------
EXPENSES:
Investment Advisory Fee..................................... 127,069
Accounting.................................................. 24,544
Shareholder Reports......................................... 23,995
Audit....................................................... 16,632
Shareholder Services........................................ 16,598
Custody..................................................... 14,073
Trustees' Fees and Expenses................................. 6,347
Legal....................................................... 566
Other....................................................... 2,006
----------
Total Expenses.......................................... 231,830
Less Fees Waived........................................ 72,329
----------
Net Expenses............................................ 159,501
----------
NET INVESTMENT INCOME....................................... $ 269,134
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss
Investments............................................... $ (536,965)
Futures................................................... 114,581
----------
Net Realized Loss........................................... (422,384)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 539,536
----------
End of the Period:
Investments............................................. 4,253,202
Futures................................................. 52,417
----------
4,305,619
----------
Net Unrealized Appreciation During the Period............... 3,766,083
----------
NET REALIZED AND UNREALIZED GAIN............................ $3,343,699
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $3,612,833
==========
</TABLE>

See Notes to Financial Statements

F-52
<PAGE> 191

GROWTH AND INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 269,134 $ 61,347
Net Realized Gain/Loss...................................... (422,384) 105,366
Net Unrealized Appreciation During the Period............... 3,766,083 541,506
----------- -----------
Change in Net Assets from Operations........................ 3,612,833 708,219
----------- -----------
Distributions from Net Investment Income.................... (18,683) (44,226)
----------- -----------
Distributions from Net Realized Gain........................ -0- (105,285)
Distributions in Excess of Net Realized Gain................ -0- (45,861)
----------- -----------
Distributions from and in Excess of Net Realized Gain....... -0- (151,146)
----------- -----------
Total Distributions......................................... (18,683) (195,372)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 3,594,150 512,847
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 18,319,408 10,524,876
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 18,683 195,372
Cost of Shares Repurchased.................................. (1,415,264) (18,007)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 16,922,827 10,702,241
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 20,516,977 11,215,088

NET ASSETS:
Beginning of the Period..................................... 11,713,590 498,502
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $265,142 and $14,691, respectively).. $32,230,567 $11,713,590
=========== ===========
</TABLE>

See Notes to Financial Statements

F-53
<PAGE> 192

GROWTH AND INCOME PORTFOLIO FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
December 23, 1996
Year Ended December 31 (Commencement of
---------------------- Investment Operations)
1998 1997 to December 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $12.123 $ 9.970 $10.000
------- ------- -------
Net Investment Income..................................... .120 .072 .011
Net Realized and Unrealized Gain/Loss..................... 2.254 2.309 (.041)
------- ------- -------
Total from Investment Operations............................ 2.374 2.381 (.030)
------- ------- -------
Less:
Distributions from Net Investment Income.................. .016 .065 -0-
Distributions from and in Excess of Net Realized Gain..... -0- .163 -0-
------- ------- -------
Total Distributions......................................... .016 .228 -0-
------- ------- -------
Net Asset Value, End of the Period.......................... $14.481 $12.123 $ 9.970
======= ======= =======
Total Return*............................................... 19.61% 23.90% (.30%)**
Net Assets at End of the Period (In millions)............... $ 32.2 $ 11.7 $ 0.5
Ratio of Expenses to Average Net Assets*.................... .75% .75% .75%
Ratio of Net Investment Income to Average Net Assets*....... 1.27% 1.19% 4.47%
Portfolio Turnover.......................................... 70% 96% 0%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.09% 1.63% 45.97%
Ratio of Net Investment Income/Loss to Average Net Assets... .93% .31% (40.74%)
</TABLE>

** Non-Annualized

See Notes to Financial Statements

F-54
<PAGE> 193

MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Description Date Purchase Cost
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS 35.8%
$ 800 Federal Home Loan Mortgage Corp. Discount Note.............. 01/04/99 5.115% $ 799,663
2,000 Federal Home Loan Mortgage Corp. Discount Note.............. 03/05/99 5.054 1,982,533
1,000 Federal Home Loan Mortgage Corp. Discount Note.............. 03/15/99 5.033 989,922
1,355 Federal Home Loan Mortgage Corp. Discount Note.............. 04/09/99 4.956 1,337,000
1,000 Federal National Mortgage Association Discount Note......... 01/08/99 5.115 999,018
1,500 Federal National Mortgage Association Discount Note......... 02/02/99 4.863 1,493,600
1,000 Federal National Mortgage Association Discount Note......... 02/05/99 5.085 995,119
1,000 Federal National Mortgage Association Discount Note......... 06/24/99 4.837 977,187
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.......................................... 9,574,042
-----------
CERTIFICATES OF DEPOSIT 9.0%
800 Bank of Nova Scotia......................................... 01/22/99 5.100 800,020
800 UBS Ag Stamford............................................. 01/05/99 5.290 799,995
800 Westdeutsche Landesbank..................................... 01/21/99 5.110 800,020
-----------
TOTAL CERTIFICATES OF DEPOSIT..................................................... 2,400,035
-----------
COMMERCIAL PAPER 27.2%
800 American General Finance Corp............................... 01/12/99 5.211 798,744
800 Associates Corp. of North America........................... 03/08/99 5.150 792,579
900 Coca-Cola Co................................................ 02/08/99 5.149 895,155
800 Commercial Credit Corp...................................... 01/19/99 5.231 797,924
800 Ford Motor Credit Co........................................ 02/18/99 5.198 794,528
800 General Electric Capital Corp............................... 02/12/99 5.301 795,119
800 LaSalle National Bank....................................... 03/16/99 5.210 800,000
800 Norwest Financial, Inc...................................... 03/02/99 5.205 793,133
800 Prudential Funding Corp..................................... 02/19/99 5.251 794,360
-----------
TOTAL COMMERCIAL PAPER............................................................ 7,261,542
-----------
TIME DEPOSIT 3.0%
800 FCC National Bank........................................... 01/25/99 5.090 800,000
-----------
REPURCHASE AGREEMENTS 24.5%
BankAmerica Securities ($2,530,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold on 01/04/99 at
$2,531,377)....................................................................... 2,530,000
DLJ ($2,000,000 par collateralized by U.S. Government obligations in a pooled cash
account, dated 12/31/98, to be sold on 01/04/99 at $2,001,000).................... 2,000,000
Warburg Dillion Read ($2,000,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 12/31/98, to be sold on 01/04/99 at $2,001,056)... 2,000,000
-----------
TOTAL REPURCHASE AGREEMENTS....................................................... 6,530,000
-----------
TOTAL INVESTMENTS 99.5%................................................................... 26,565,619
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................................................ 144,058
-----------
NET ASSETS 100.0%......................................................................... $26,709,677
===========
</TABLE>

See Notes to Financial Statements

F-55
<PAGE> 194

MONEY MARKET PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at amortized cost which approximates market,
including repurchase agreements of $6,530,000............. $26,565,619
Cash........................................................ 4,908
Receivables:
Portfolio Shares Sold..................................... 190,862
Interest.................................................. 40,818
Other....................................................... 47,222
-----------
Total Assets............................................ 26,849,429
-----------
LIABILITIES:
Payables:
Audit..................................................... 10,500
Investment Advisory Fee................................... 8,485
Distributor and Affiliates................................ 5,508
Portfolio Shares Repurchased.............................. 618
Trustees' Deferred Compensation and Retirement Plans........ 106,443
Accrued Expenses............................................ 8,198
-----------
Total Liabilities....................................... 139,752
-----------
NET ASSETS.................................................. $26,709,677
===========
NET ASSETS CONSIST OF:
Capital..................................................... $26,709,716
Accumulated Distributions in Excess of Net Investment
Income.................................................... (39)
-----------
NET ASSETS (Equivalent to $1.00 per share for 26,709,716
shares outstanding)....................................... $26,709,677
===========
</TABLE>

See Notes to Financial Statements

F-56
<PAGE> 195

MONEY MARKET PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,192,023
----------
EXPENSES:
Investment Advisory Fee..................................... 108,585
Shareholder Services........................................ 15,297
Audit....................................................... 14,646
Accounting.................................................. 13,678
Shareholder Reports......................................... 13,249
Custody..................................................... 12,074
Trustees' Fees and Expenses................................. 11,757
Distributor and Affiliates.................................. 11,536
Trustees' Deferred Compensation and Retirement Plans........ 11,115
Legal....................................................... 917
Other....................................................... 1,586
----------
Total Expenses.......................................... 214,440
Less Fees Waived........................................ 84,020
----------
Net Expenses............................................ 130,420
----------
NET INVESTMENT INCOME....................................... $1,061,603
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,061,603
==========
</TABLE>

See Notes to Financial Statements

F-57
<PAGE> 196

MONEY MARKET PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

NET ASSETS:
Beginning of the Period..................................... 19,740,772 19,565,935
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $(39) and $204, respectively)........ $26,709,677 $19,740,772
=========== ===========
</TABLE>

See Notes to Financial Statements

F-58
<PAGE> 197

MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS

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

See Notes to Financial Statements

F-59
<PAGE> 198

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 96.9%
APARTMENTS 23.5%
Amli Residential Properties Trust........................... 52,500 $ 1,168,125
Apartment Investment & Management Co., Class A.............. 83,800 3,116,313
Archstone Communities Trust................................. 340,446 6,894,031
Avalonbay Communities, Inc.................................. 281,800 9,651,650
Equity Residential Properties Trust......................... 145,554 5,885,840
Essex Property Trust, Inc................................... 252,000 7,497,000
Irvine Apartment Communities, Inc........................... 161,500 5,147,812
Pennsylvania Real Estate Investment......................... 185,900 3,613,431
Smith (Charles E.) Residential Realty, Inc.................. 159,100 5,111,088
Summit Properties, Inc...................................... 57,800 997,050
------------
49,082,340
------------
DEVELOPMENT 3.7%
Atlantic Gulf Communities Corp. (a)......................... 426,124 319,593
Atlantic Gulf Communities Corp. - Preferred Ser B
(Convertible into 96,770 common shares) (a)............... 55,647 278,235
Atlantic Gulf Communities Corp. - Preferred Shares, 144A -
Private Placement (a) (b)................................. 79,420 397,100
Atlantic Gulf Communities Corp. Warrants, 37,098 shares
Class A, B and C, expiring 06/23/04 (a)................... 111,294 41,735
Atlantic Gulf Communities Corp. Warrants, 74,352 shares
Class A, B and C, expiring 06/24/01, 144A - Private
Placement (a) (b)........................................... 223,056 83,646
Brookfield Properties Corp. (a)............................. 530,800 6,518,224
Merry Land Properties, Inc. (a)............................. 17,090 61,951
------------
7,700,484
------------
HEALTHCARE FACILITIES 0.8%
Meditrust Corp.............................................. 98,400 1,488,300

Omega Healthcare Investors, Inc............................. 7,600 229,425
------------
1,717,725
------------
HOTEL & LODGING 4.5%
Candlewood Hotel Co., Inc. (a).............................. 81,400 427,350
Crestline Capital Corp. (a)................................. 17,370 254,036
Host Marriott Corp. (a)..................................... 173,700 2,399,232
Patriot American Hospitality, Inc........................... 322,700 1,936,200
Starwood Hotels and Resorts................................. 188,531 4,277,297
------------
9,294,115
------------
MANUFACTURED HOME COMMUNITIES 8.0%
Chateau Communities, Inc. .................................. 428,438 12,558,589
Manufactured Home Communities, Inc. ........................ 48,800 1,223,050
Sun Communities, Inc. ...................................... 87,000 3,028,687
------------
16,810,326
------------
OFFICE/INDUSTRIAL 31.0%
Arden Realty, Inc. ......................................... 450,000 10,434,375
Beacon Capital Partners Inc., 144A - Private Placement (a)
(b)......................................................... 271,300 5,426,000
Bedford Property Investors, Inc. ........................... 70,400 1,188,000
Boston Properties, Inc. .................................... 8,800 268,400
Brandywine Realty Trust..................................... 389,300 6,958,737
CarrAmerica Realty Corp. ................................... 211,300 5,071,200
Cornerstone Properties, Inc. ............................... 2,000 31,250
Crescent Real Estate Equities Trust......................... 199,700 4,593,100
Equity Office Properties Trust.............................. 232,611 5,582,664
Great Lakes REIT, Inc. ..................................... 391,600 6,143,225
Mack California Realty Corp................................. 24,100 744,088
Pacific Gulf Properties, Inc. .............................. 335,500 6,730,969
Prime Group Realty Trust.................................... 323,600 4,894,450
</TABLE>

See Notes to Financial Statements

F-60
<PAGE> 199

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS
(CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OFFICE/INDUSTRIAL (CONTINUED)
ProLogis Trust.............................................. 8,100 $ 168,075
SL Green Realty Corp........................................ 45,000 973,125
Spieker Properties, Inc. ................................... 29,400 1,017,975
Wellsford Real Properties, Inc., 144A - Private Placement
(a) (b)..................................................... 447,242 4,612,183
------------
64,837,816
------------
RESEARCH & MANAGEMENT 0.5%
Security Capital Group, Inc., Class B (a)................... 79,300 1,075,507
------------
SELF-STORAGE 6.3%
PS Business Parks Inc. ..................................... 181,120 4,324,240
Public Storage, Inc. ....................................... 154,500 4,181,156
Shurgard Storage Centers, Inc., Class A..................... 106,600 2,751,613
Storage Trust Realty........................................ 76,800 1,795,200
------------
13,052,209
------------
SHOPPING CENTERS 11.4%
Acadia Reality Trust (a).................................... 24,300 127,575
Burnham Pacific Properties, Inc. ........................... 629,400 7,592,137
Federal Realty Investment Trust............................. 322,200 7,611,975
First Washington Reality Trust, Inc. ....................... 34,400 814,850
First Washington Realty Trust, Inc. - Preferred Ser A
(Convertible into 74,484 common shares)..................... 58,100 1,724,844
Pan Pacific Retail Properties, Inc. ........................ 144,400 2,878,975
Philips International Realty Corp. ......................... 5,300 81,488
Ramco-Gershenson Properties Trust........................... 2,000 29,000
Regency Realty Corp. ....................................... 60,600 1,348,350
Vornado Realty Trust........................................ 48,700 1,643,625
------------
23,852,819
------------
SHOPPING MALLS 7.2%
Simon Property Group, Inc................................... 72,200 2,057,700
Taubman Centers, Inc........................................ 691,500 9,508,125
Urban Shopping Centers, Inc................................. 105,100 3,442,025
------------
15,007,850
------------
TOTAL COMMON AND PREFERRED STOCKS 96.9%............................... 202,431,191
CONVERTIBLE CORPORATE OBLIGATIONS 1.0%
Brookfield Properties Corp. - Installment Receipts Representing
Subordinated Debenture ($2,262,000 par,
6.00% coupon, 02/14/07 maturity)....................................... 2,001,304
------------
TOTAL LONG-TERM INVESTMENTS 97.9%
(Cost $211,957,641).................................................... 204,432,495
REPURCHASE AGREEMENT 0.6%
Warburg Dillon Read ($1,250,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98,
to be sold on 01/04/99 at $1,250,660)
(Cost $1,250,000)...................................................... 1,250,000
------------
TOTAL INVESTMENTS 98.5%
(Cost $213,207,641).................................................... 205,682,495
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%............................ 3,148,219
------------
NET ASSETS 100.0%..................................................... $208,830,714
============
</TABLE>

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

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

See Notes to Financial Statements

F-61
<PAGE> 200

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF ASSETS AND
LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $213,207,641)....................... $205,682,495
Cash........................................................ 2,759
Receivables:
Dividends................................................. 1,971,297
Investments Sold.......................................... 1,482,599
Portfolio Shares Sold..................................... 295,486
Interest.................................................. 45,737
Unamortized Organizational Costs............................ 2,050
------------
Total Assets.......................................... 209,482,423
------------
LIABILITIES:
Payables:
Portfolio Shares Repurchased.............................. 382,872
Investment Advisory Fee................................... 178,005
Distributor and Affiliates................................ 13,097
Trustees' Deferred Compensation and Retirement Plans........ 30,797
Accrued Expenses............................................ 46,938
------------
Total Liabilities..................................... 651,709
------------
NET ASSETS.................................................. $208,830,714
============
NET ASSETS CONSIST OF:
Capital..................................................... $211,310,668
Accumulated Undistributed Net Investment Income............. 11,817,690
Accumulated Net Realized Loss............................... (6,772,498)
Net Unrealized Depreciation................................. (7,525,146)
------------
NET ASSETS.................................................. $208,830,714
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $208,830,714 and 15,178,156 shares
of beneficial interest issued and outstanding).......... $ 13.76
============
</TABLE>

See Notes to Financial Statements

F-62
<PAGE> 201

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 14,073,807
Interest.................................................... 470,774
------------
Total Income.......................................... 14,544,581
------------
EXPENSES:
Investment Advisory Fee..................................... 2,511,823
Accounting.................................................. 73,548
Trustees' Fees and Expenses................................. 16,900
Shareholder Services........................................ 16,390
Custody..................................................... 14,176
Legal....................................................... 9,430
Amortization of Organizational Costs........................ 1,365
Other....................................................... 64,785
------------
Total Expenses........................................ 2,708,417
------------
NET INVESTMENT INCOME....................................... $ 11,836,164
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (6,375,125)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 31,073,264
End of the Period:
Investments............................................. (7,525,146)
------------
Net Unrealized Depreciation During the Period............... (38,598,410)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(44,973,535)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(33,137,371)
============
</TABLE>

See Notes to Financial Statements

F-63
<PAGE> 202

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF CHANGES IN NET
ASSETS

For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 11,836,164 $ 7,766,948
Net Realized Gain/Loss...................................... (6,375,125) 28,792,309
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (38,598,410) 9,027,199
------------ ------------
Change in Net Assets from Operations........................ (33,137,371) 45,586,456
------------ ------------
Distributions from Net Investment Income.................... (453,855) (7,660,430)
Distributions from Net Realized Gain........................ (4,452,811) (25,295,317)
------------ ------------
Total Distributions......................................... (4,906,666) (32,955,747)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (38,044,037) 12,630,709
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 88,276,432 275,023,739
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 4,906,666 32,953,898
Cost of Shares Repurchased.................................. (145,715,375) (188,685,072)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (52,532,277) 119,292,565
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... (90,576,314) 131,923,274
NET ASSETS:
Beginning of the Period..................................... 299,407,028 167,483,754
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $11,817,690
and $435,381, respectively)............................... $208,830,714 $299,407,028
============ ============
</TABLE>

See Notes to Financial Statements

F-64
<PAGE> 203

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year Ended December 31, of Investment
----------------------------------- Operations) to
1998 1997 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $15.846 $14.784 $ 10.74 $ 10.00
------- ------- ------- -------
Net Investment Income.................................... .781 .464 .217 .20
Net Realized and Unrealized Gain/Loss.................... (2.597) 2.617 4.117 .6325
------- ------- ------- -------
Total from Investment Operations........................... (1.816) 3.081 4.334 .8325
------- ------- ------- -------
Less:
Distributions from Net Investment Income................. .025 .470 .199 .0925
Distributions from Net Realized Gain..................... .246 1.549 .091 -0-
------- ------- ------- -------
Total Distributions........................................ .271 2.019 .290 .0925
------- ------- ------- -------
Net Asset Value, End of the Period......................... $13.759 $15.846 $14.784 $ 10.74
======= ======= ======= =======
Total Return*.............................................. (11.62%) 21.47% 40.53% 8.35%**
Net Assets at End of the Period (In millions).............. $ 208.8 $ 299.4 $ 167.5 $ 8.6
Ratio of Expenses to Average Net Assets*................... 1.08% 1.07% 1.10% 2.50%
Ratio of Net Investment Income to Average Net Assets*...... 4.72% 3.42% 5.06% 3.75%
Portfolio Turnover......................................... 110% 177% 84% 85%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets.................... N/A N/A 1.27% 2.90%
Ratio of Net Investment Income to Average Net Assets....... N/A N/A 4.89% 3.36%
</TABLE>

** Non-Annualized

N/A = Not Applicable

See Notes to Financial Statements

F-65
<PAGE> 204

STRATEGIC STOCK PORTFOLIO PORTFOLIO OF INVESTMENTS

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 98.1%
CONSUMER DISTRIBUTION 6.9%
Limited, Inc................................................ 13,490 $ 392,896
May Department Stores Co.................................... 10,620 641,183
SUPERVALU, Inc.............................................. 4,410 123,480
SYSCO Corp.................................................. 11,810 324,037
-----------
1,481,596
-----------
CONSUMER DURABLES 18.2%
DaimlerChrysler, AG......................................... 3,491 335,354
Eastman Kodak Co............................................ 12,770 919,440
General Motors Corp......................................... 14,740 1,054,832
Genuine Parts Co............................................ 25,820 863,356
Goodyear Tire & Rubber Co................................... 2,010 101,379
Maytag Corp................................................. 2,950 183,638
Newell Co................................................... 10,530 434,363
-----------
3,892,362
-----------
CONSUMER NON-DURABLES 13.9%
AMP, Inc.................................................... 12,690 660,672
Anheuser-Busch Cos., Inc.................................... 5,660 371,437
Avon Products, Inc.......................................... 5,610 248,243
Campbell Soup Co............................................ 3,690 202,950
Clorox Co................................................... 1,460 170,546
H. J. Heinz Co.............................................. 2,300 130,238
Philip Morris Cos., Inc..................................... 22,290 1,192,515
-----------
2,976,601
-----------
ENERGY 11.9%
Amoco Corp.................................................. 3,100 187,162
Chevron Corp................................................ 12,070 1,001,056
Exxon Corp.................................................. 13,980 1,022,288
Mobil Corp.................................................. 1,910 166,409
Tidewater, Inc.............................................. 1,610 37,332
USX -- Marathon Group....................................... 4,640 139,780
-----------
2,554,027
-----------
FINANCE 4.3%
JP Morgan & Co., Inc........................................ 8,780 922,449
-----------
HEALTHCARE 5.8%
Abbott Laboratories, Inc.................................... 11,150 546,349
American Home Products Corp................................. 12,410 698,837
-----------
1,245,186
-----------
PRODUCER MANUFACTURING 13.6%
Caterpillar, Inc............................................ 13,960 642,160
Deere & Co.................................................. 10,570 350,131
Fluor Corp.................................................. 7,190 306,024
Milacron, Inc............................................... 5,980 115,115
Minnesota Mining & Manufacturing Co......................... 12,010 854,211
Parker-Hannifin Corp........................................ 8,990 294,423
Textron, Inc................................................ 4,560 346,275
-----------
2,908,339
-----------
</TABLE>

See Notes to Financial Statements

F-66
<PAGE> 205

STRATEGIC STOCK PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 11.0%
Air Products & Chemicals, Inc............................... 11,140 $ 445,599
E. I. Du Pont de Nemours & Co............................... 11,060 586,871
International Paper Co...................................... 18,280 819,173
PPG Industries, Inc......................................... 1,180 68,735
Sherwin-Williams Co......................................... 11,620 341,338
Union Carbide Corp.......................................... 1,910 81,175
-----------
2,342,891
-----------
TECHNOLOGY 3.3%
General Dynamics Corp....................................... 5,800 340,025
Harris Corp................................................. 10,130 371,011
-----------
711,036
-----------
TRANSPORTATION 0.6%
Norfolk Southern Corp....................................... 4,340 137,524
-----------
UTILITIES 8.6%
AT&T Corp................................................... 10,990 826,997
Bell Atlantic Corp.......................................... 2,690 152,826
BellSouth Corp.............................................. 4,220 210,473
SBC Communications, Inc..................................... 11,980 642,428
-----------
1,832,724
-----------
TOTAL LONG-TERM INVESTMENTS 98.1%
(Cost $19,786,130).............................................. 21,004,735
REPURCHASE AGREEMENT 2.6%
Warburg Dillon Read ($550,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold on
01/04/99 at $550,290)
(Cost $550,000)................................................... 550,000
-----------
TOTAL INVESTMENTS 100.7%
(Cost $20,336,130)................................................ 21,554,735
LIABILITIES IN EXCESS OF OTHER ASSETS (0.7%)....................... (145,879)
-----------
NET ASSETS 100.0%.................................................. $21,408,856
-----------
</TABLE>

See Notes to Financial Statements

F-67
<PAGE> 206

STRATEGIC STOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES

December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $20,336,130)........................ $21,554,735
Cash........................................................ 3,690
Receivables:
Dividends................................................. 40,726
Portfolio Shares Sold..................................... 8,083
Expense Reimbursement by Adviser.......................... 6,697
Unamortized Organizational Costs............................ 30,750
-----------
Total Assets.......................................... 21,644,681
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 201,124
Distributor and Affiliates................................ 6,723
Portfolio Shares Repurchased.............................. 71
Accrued Expenses............................................ 21,226
Trustees' Deferred Compensation and Retirement Plans........ 6,681
-----------
Total Liabilities..................................... 235,825
-----------
NET ASSETS.................................................. $21,408,856
===========
NET ASSETS CONSIST OF:
Capital..................................................... $19,933,653
Net Unrealized Appreciation................................. 1,218,605
Accumulated Undistributed Net Investment Income............. 228,802
Accumulated Net Realized Gain............................... 27,796
-----------
NET ASSETS.................................................. $21,408,856
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $21,408,856 and 1,794,237 shares
of beneficial interest issued and outstanding).......... $ 11.93
===========
</TABLE>

See Notes to Financial Statements

F-68
<PAGE> 207

STRATEGIC STOCK PORTFOLIO STATEMENT OF OPERATIONS

For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 278,342
Interest.................................................... 24,590
----------
Total Income............................................ 302,932
----------
EXPENSES:
Investment Advisory Fee..................................... 56,672
Accounting.................................................. 17,468
Audit....................................................... 16,890
Reports to Shareholders..................................... 13,816
Trustees' Fees and Expenses................................. 9,485
Amortization of Organizational Costs........................ 9,250
Custody..................................................... 8,535
Shareholder Services........................................ 8,495
Legal....................................................... 1,239
Other....................................................... 1,011
----------
Total Expenses.......................................... 142,861
Less Fees Waived and Expenses Reimbursed ($56,672 and
$12,100, respectively)................................. 68,772
----------
Net Expenses............................................ 74,089
----------
NET INVESTMENT INCOME....................................... $ 228,843
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 27,796
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 6,835
End of the Period:
Investments............................................. 1,218,605
----------
Net Unrealized Appreciation During the Period............... 1,211,770
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,239,566
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,468,409
==========
</TABLE>

See Notes to Financial Statements

F-69
<PAGE> 208

STRATEGIC STOCK PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS

For the Year Ended December 31, 1998 and the Period November 3, 1997
(Commencement of Investment Operations) to December 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 228,843 $ 6,576
Net Realized Gain........................................... 27,796 -0-
Net Unrealized Appreciation During the Period............... 1,211,770 6,835
----------- -----------
Change in Net Assets from Operations........................ 1,468,409 13,411
Distributions from Net Investment Income.................... (6,617) -0-
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 1,461,792 13,411
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 19,135,086 2,312,791
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 6,375 -0-
Cost of Shares Purchased.................................... (1,720,599) -0-
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 17,420,862 2,312,791
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 18,882,654 2,326,202
NET ASSETS:
Beginning of the Period..................................... 2,526,202 200,000
----------- -----------
End of Period (Including accumulated undistributed net
investment income of $228,802 and $6,576, respectively)... $21,408,856 $ 2,526,202
=========== ===========
</TABLE>

See Notes to Financial Statements

F-70
<PAGE> 209

STRATEGIC STOCK PORTFOLIO FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
November 3, 1997
(Commencement
of Investment
Year Ended Operations) to
December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period.................... $10.245 $10.000
------- -------
Net Investment Income..................................... .113 .027
Net Realized and Unrealized Gain.......................... 1.586 .218
------- -------
Total from Investment Operations............................ 1.699 .245
Less Distributions from Net Investment Income............... .012 -0-
------- -------
Net Asset Value, End of the Period.......................... $11.932 $10.245
======= =======
Total Return*............................................... 16.51% 2.45%**
Net Assets at End of the Period (In millions)............... $ 21.4 $ 2.5
Ratio of Expenses to Average Net Assets*.................... .65% .61%
Ratio of Net Investment Income to Average Net Assets*....... 2.01% 2.67%
Portfolio Turnover.......................................... 10% 0%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.25% 2.59%
Ratio of Net Investment Income to Average Net Assets........ 1.41% .68%
</TABLE>

** Non-Annualized

See Notes to Financial Statements

F-71
<PAGE> 210

NOTES TO FINANCIAL STATEMENTS

December 31, 1998
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen 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 ten Portfolios: Asset Allocation Portfolio
("Asset Allocation"), Domestic Income Portfolio ("Domestic"), Emerging Growth
Portfolio ("Emerging Growth"), Enterprise Portfolio ("Enterprise"), Global
Equity Portfolio ("Global Equity"), Government Portfolio ("Government"), Growth
and Income Portfolio ("Growth and Income"), Money Market Portfolio ("Money
Market"), Morgan Stanley Real Estate Securities Portfolio ("Real Estate") and
Strategic Stock Portfolio ("Strategic Stock") (collectively the "Portfolios").
Each Portfolio is accounted for as a separate entity.

The goals of the Portfolios are as follows: Asset Allocation seeks a high
total investment return consistent with prudent risk; Domestic seeks income as
its primary 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 investing 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 return 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; Real Estate seeks long-term
growth of capital by investing principally in securities of companies operating
in the real estate industry; and Strategic Stock seeks an above average total
return consistent with the preservation of invested capital, by investing
primarily in a portfolio of dividend paying equity securities included in the
Dow Jones Industrial Average or the Morgan Stanley Capital International USA
Index.

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 or
indications of value obtained from an independent pricing service. For those
securities where prices or quotations are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. The security valuation methodology, for fixed income investments
and unlisted securities and listed securities for which the last sales price is
not available, was changed in 1998 from bid side pricing to the mean of the bid
and asked prices. The impact of the change, which was not considered material,
is included as a component of the change in unrealized appreciation/depreciation
for the year ended December 31, 1998. Short-term securities 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
conditions than other investment grade holdings. These securities are often
subordinated to the prior claims of other senior lenders and uncertainties exist
as to an issuer's ability to meet principal and interest payments. Debt
securities rated below investment grade and comparable unrated securities
represented approximately 28% of Domestic's net assets at December 31, 1998.

F-72
<PAGE> 211
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Portfolios 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
Portfolios will maintain, in a segregated account with its custodian, assets
having an aggregate value at least equal to the amount of the when issued or
delayed delivery purchase commitments until payment is made.

The Portfolios may invest in repurchase agreements which are short-term
investments in which the Portfolios acquire ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Portfolios may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen 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 Portfolios 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 Portfolios.

C. INCOME AND EXPENSES--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Discounts on debt securities
purchased are amortized over the expected life of each applicable security.
Premiums on debt securities are not amortized.

D. ORGANIZATIONAL COSTS--Emerging Growth, Global Equity and Real Estate have
reimbursed Van Kampen Funds Inc. or its affiliates (collectively "Van Kampen")
for costs incurred in connection with each Portfolio's organization in the
amount of $6,828 per Portfolio. 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 Portfolios originally
purchased by Van Kampen are redeemed during the amortization period, the
Portfolios will be reimbursed for any unamortized organizational costs in the
same proportion 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 Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.

Each Portfolio intends to utilize provisions of the federal income tax
laws which allow each Portfolio to carry a realized capital loss forward for
eight years following the year of the loss and offset such losses against any
future realized capital gains. The following table presents the capital loss
carryforward at December 31, 1998 along with its expiration dates. The table
also presents the identified cost of investments, including foreign currencies,
at December 31, 1998 for federal income tax purposes with the associated gross
unrealized

F-73
<PAGE> 212

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

appreciation, gross unrealized depreciation and net unrealized appreciation/
depreciation on investments and foreign currency.

<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Realized capital loss
carryforward................ -- $ 1,171,850 $ 1,676,588 -- $ 5,428
Expiration dates of
capital loss
carryforward................ -- 1999-2006 2004-2006 -- 2006
Amount expiring on
12/31/99.................... -- $ 409,491 -- -- --
Identified cost............... $53,021,192 $17,035,970 $24,251,612 $79,388,485 $ 2,532,710
Gross unrealized
appreciation................ 9,195,173 958,568 10,403,408 44,478,452 1,058,770
Gross unrealized
depreciation................ 523,508 267,368 311,896 855,580 183,626
Net unrealized
appreciation/depreciation... 8,671,665 691,200 10,091,512 43,622,872 875,144
</TABLE>

<TABLE>
<CAPTION>
GROWTH
AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Realized capital loss
carryforward................ $ 7,323,324 $ 289,636 $ 1,725 $ 3,603,556 --
Expiration dates of
capital loss
carryforward................ 2000-2004 2006 2003-2006 2006 --
Amount expiring on
12/31/99.................... -- -- -- -- --
Identified cost............... $69,076,232 $28,113,046 $26,565,619 $215,307,454 $20,369,570
Gross unrealized
appreciation................ 1,892,183 4,867,800 -- 7,976,805 2,089,399
Gross unrealized
depreciation................ 88,509 737,808 -- 17,601,764 904,234
Net unrealized
appreciation/depreciation... 1,803,674 4,129,992 -- (9,624,959) 1,185,165
</TABLE>

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

F. DISTRIBUTION OF INCOME AND GAINS--Money Market declares dividends from net
investment income and net realized gain/loss on each business day. Asset
Allocation, Domestic, Emerging Growth, Enterprise, Global Equity, Government,
Growth and Income, Real Estate and Strategic Stock declare dividends from net
investment income and 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.

F-74
<PAGE> 213

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

For federal income tax purposes, the following information is furnished
with respect to the distributions paid by the Portfolio during its taxable year
ended December 31, 1998.

<TABLE>
<CAPTION>
20% RATE GAIN
PORTFOLIO DISTRIBUTION
----------------------------------------------------------------
<S> <C>
Asset Allocation.................................. $1,045,830
Enterprise........................................ 778,167
Real Estate....................................... 1,553,350
</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
1998 fiscal year have been identified and appropriately reclassified.

<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH EQUITY GOVERNMENT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accumulated Undistributed Net Investment
Income................................. $1,091 (b) $(25,606)(b) $ 32,565 (d) $ 2,780 (a) $ 16,566(b)
Accumulated Net Realized Gain/Loss....... (1,091)(b) 186,371 (b)(c) -- (2,780)(a) 1,598,775(b)(c)
Capital.................................. -- (160,765)(c) (32,565)(d) -- (1,615,341)(c)
</TABLE>

(a) 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 for financial reporting
purposes and have been reclassified from accumulated net realized gain/loss
to accumulated undistributed net investment income.

(b) 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
to accumulated undistributed net investment income.

(c) At December 31, 1998, 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 to capital.

(d) A permanent difference related to a net operating loss has been reclassified
from accumulated undistributed net investment income to capital.

G. FOREIGN CURRENCY TRANSLATION--The market values of foreign securities,
forward 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
prevailing 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 exchange rates and amounts arising from changes
in the market prices of securities. 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.

F-75
<PAGE> 214
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

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 payable
monthly based upon the average daily net assets as follows:

<TABLE>
<S> <C>
- ----------------------------------------------------------------
Asset Allocation, Domestic, Enterprise, Government
and Money Market (based upon their combined net assets)
First $500 million................................. .50%
Next $500 million.................................. .45%
Over $1 billion.................................... .40%
(The resulting fee is prorated to each of these
Portfolios based upon
their respective average daily net assets.)
Emerging Growth......................................... .70%
Global Equity........................................... 1.00%
Growth and Income
First $500 million................................. .60%
Over $500 million.................................. .55%
Real Estate............................................. 1.00%
Strategic Stock......................................... .50%
</TABLE>

In relation to Global Equity and Real Estate, the Adviser has entered
into subadvisory agreements, dated April 1, 1997 and October 1, 1998,
respectively, with Morgan Stanley Dean Witter Investment Management Inc. (the
"Subadviser") to provide advisory services to these Portfolios and the Adviser
with respect to these Portfolios' investments. For these services, the Adviser
pays 50% of its advisory fees to the Subadviser.

Under the terms of the advisory agreement, if the total ordinary business
expenses, exclusive of taxes, distribution fees and interest, exceed .95% of the
average daily net assets of Asset Allocation, Domestic, Enterprise, Government
or Money Market, the Adviser will reimburse the Portfolio for the amount of the
excess. Additionally, the Adviser has voluntarily agreed to reimburse the
Portfolios for all expenses as a percent of average daily net assets in excess
of the following:

<TABLE>
<S> <C>
- ----------------------------------------------------------------
Asset Allocation, Domestic, Enterprise, Government and
Money Market............................................ .60%
Emerging Growth......................................... .85%
Global Equity........................................... 1.20%
Growth and Income....................................... .75%
Real Estate............................................. 1.10%
Strategic Stock......................................... .65%
</TABLE>

F-76
<PAGE> 215
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

Other transactions with affiliates during the year ended December 31,
1998 were as follows:

<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounting....................... $33,100 $23,600 $22,900 $42,800 $38,100
Shareholder servicing agent's
fees........................... 14,600 14,500 14,600 14,700 14,600
Legal (Skadden Arps)............. 2,600 1,200 200 1,800 100
</TABLE>

<TABLE>
<CAPTION>
GROWTH
AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounting....................... $32,700 $24,500 $25,200 $73,500 $17,500
Shareholder servicing agent's
fees........................... 14,300 14,900 14,600 14,500 7,600
Legal (Skadden Arps)............. 3,100 600 900 9,400 1,200
</TABLE>

Accounting services are provided by Van Kampen at cost. Van Kampen
Investor Services Inc. ("VKIS"), an affiliate of the Adviser, serves as the
shareholder servicing agent for the Portfolios. Beginning in 1998, the transfer
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive benchmarks. Legal services are provided by
Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Portfolios, of
which a trustee of the Portfolios is an affiliated person.

Certain officers and trustees of the Portfolios are also officers and
directors of Van Kampen. The Portfolios do not compensate their officers or
trustees who are officers of Van Kampen.

The Portfolios provide deferred compensation and retirement plans for
their trustees who are not officers of Van Kampen. Under the deferred
compensation plan, trustees may elect to defer all or a portion of their
compensation to a later date. Benefits under the retirement plan are payable for
a ten-year period and are based upon each trustee's years of service to the
Trust. The maximum annual benefit per trustee under the plan is $2,500 per
portfolio.

At December 31, 1998, Van Kampen owned 10 shares of Emerging Growth,
95,241 shares of Global Equity, 51,021 shares of Growth and Income, 10 shares of
Real Estate, and 20,000 shares of Strategic Stock.

3. CAPITAL TRANSACTIONS

The Portfolios have outstanding shares of beneficial interest with a par value
of $.01 per share. There are an unlimited number of shares authorized.

F-77
<PAGE> 216
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

For the year ended December 31, 1998, share transactions were as follows:

<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares.......... 5,314,563 2,084,276 637,815 5,452,063 270,266
Sales..................... 330,901 719,808 1,341,978 1,178,203 64,891
Dividend Reinvestment..... 153,034 5,259 260 59,530 2,004
Repurchases............... (1,206,541) (760,734) (502,294) (1,170,972) (83,467)
----------- ----------- ----------- ----------- ----------
Ending Shares............. 4,591,957 2,048,609 1,477,759 5,518,824 253,694
=========== =========== =========== =========== ==========
Capital at 12/31/98....... $44,946,853 $17,202,927 $25,032,872 $70,347,091 $2,502,119
=========== =========== =========== =========== ==========
</TABLE>

<TABLE>
<CAPTION>
GROWTH AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares......... 5,892,077 966,202 19,740,568 18,894,267 246,576
Sales.................... 1,196,357 1,366,787 31,396,945 6,057,194 1,699,551
Dividend Reinvestment.... 58,944 1,387 1,061,846 326,458 557
Repurchases.............. (1,200,104) (108,731) (25,489,643) (10,099,763) (152,447)
---------- ---------- ----------- ------------ -----------
Ending Shares............ 5,947,274 2,225,645 26,709,716 15,178,156 1,794,237
========== ========== =========== ============ ===========
Capital at 12/31/98...... 60,130,308 28,125,068 $26,709,716 $211,310,668 $19,933,653
========== ========== =========== ============ ===========
</TABLE>

At December 31, 1998, with the exception of Van Kampen's ownership of
shares of certain portfolios, two insurance companies or their separate accounts
were record owners of all but a de minimus number of the shares of each
Portfolio.

For the year ended December 31, 1997, share transactions were as follows:

<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares.......... 5,633,242 2,472,121 379,065 5,214,950 215,901
Sales..................... 223,088 659,893 559,402 869,947 116,532
Dividend Reinvestment..... 754,688 165,298 -0- 810,210 32,495
Repurchases............... (1,296,455) (1,213,036) (300,652) (1,443,044) (94,662)
----------- ----------- ----------- ------------ ----------
Ending Shares............. 5,314,563 2,084,276 637,815 5,452,063 270,266
=========== =========== =========== ============ ==========
Capital at 12/31/97.......$53,888,909 $17,644,290 $ 8,818,482 $ 68,610,247 $2,701,945
=========== =========== =========== ============ ==========
</TABLE>

<TABLE>
<CAPTION>
GROWTH AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares.......... 6,606,459 50,000 19,565,725 11,328,283 20,000
Sales..................... 302,118 901,291 22,688,459 17,318,837 226,576
Dividend Reinvestment..... 384,650 16,456 1,057,591 2,157,294 -0-
Repurchases............... (1,401,150) (1,545) (23,571,207) (11,910,147) -0-
----------- ----------- ------------ ------------ ----------
Ending Shares............. 5,892,077 966,202 19,740,568 18,894,267 246,576
=========== =========== ============ ============ ==========
Capital at 12/31/97....... $61,104,562 $11,202,241 $ 19,740,568 $263,842,945 $2,512,791
=========== =========== ============ ============ ==========
</TABLE>

F-78
<PAGE> 217
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
including principal paydowns and excluding forward commitment transactions and
short-term investments, were:
<TABLE>
<CAPTION>
GROWTH
ASSET EMERGING GLOBAL AND REAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY GOVERNMENT INCOME ESTATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............ $52,264,021 $8,694,540 $31,735,818 $86,162,741 $ 86,783 $57,453,273 $28,694,756 $267,958,559
Sales................ 60,256,549 7,610,889 16,053,406 86,566,763 308,616 55,194,280 13,416,283 299,334,436

STRATEGIC
STOCK
- --------------------- -----------
<S> <C>
Purchases............ $18,505,816
Sales................ 1,075,078
</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 Portfolios have a variety of reasons to use derivative instruments,
such as to attempt to protect the Portfolios against possible changes in the
market value of its portfolio, manage the Portfolio's effective yield, foreign
currency exposure, maturity and duration or to generate potential gain. All of
the Portfolios' holdings, including derivative instruments, are marked to market
each day with the change in value reflected in unrealized appreciation/
depreciation. Upon disposition, a realized gain or loss is recognized
accordingly, except when taking delivery of a security underlying a futures or
forward 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 Portfolios.

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
fixed income Portfolios generally invest in futures on U.S. Treasury Bonds and
Notes. The equity Portfolios generally invest in S&P 500 Index Futures. Upon
entering into futures contracts, the Portfolios 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 contract (the variation margin). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.

Transactions in futures contracts for the year ended December 31, 1998,
were as follows:

<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
-------------------------------
GOVERNMENT GROWTH AND INCOME
- -------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997..................... 98 -0-
Futures Opened....................................... 1,912 14
Futures Closed....................................... (1,856) (9)
------ ------
Outstanding at December 31, 1998..................... 154 5
====== ======
</TABLE>

F-79
<PAGE> 218
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

The futures contracts outstanding at December 31, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT
LONG CONTRACTS
U.S. Treasury Bonds--March 1999
(Current notional value of $127,781 per contract).... 60 $(8,871)
SHORT CONTRACTS
5-year U.S. Treasury Notes--March 1999
(Current notional value of $113,344 per contract).... 24 8,241
10-year U.S. Treasury Notes--March 1999
(Current notional value of $119,156 per contract).... 70 26,468
--- -------
154 $25,838
=== =======
GROWTH AND INCOME
LONG CONTRACTS
S&P 500 Index Futures -- March 1999
(Current notional value of $311,375 per contract).... 5 $52,417
=== =======
</TABLE>

B. FORWARD COMMITMENTS--Domestic, Global Equity, Government and Real Estate may
trade certain securities under the terms of forward commitments, whereby the
settlement for payment and delivery occurs at a specified future date. Forward
commitments are privately negotiated transactions between the Portfolio and
dealers. Upon executing a forward commitment and during the period of
obligation, the Portfolio maintains collateral of cash or securities in a
segregated account with its custodian in an amount sufficient to relieve the
obligation. If the intent of the Portfolio is to accept delivery of a security
traded under a forward bond purchase commitment, the commitment is recorded as a
long-term purchase. For forward bond purchase commitments for which security
settlement is not intended by the Portfolio, changes in the value of the
commitment are recognized by marking the commitment to market on a daily basis
with changes in value reflected as a component of unrealized
appreciation/depreciation. 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 recognized
and is included as a component of realized gain/loss on forwards. Purchasing
securities on a forward commitment involves a risk that the market value at the
time of delivery may be lower than the agreed upon purchase price resulting in
an unrealized loss. Selling securities on a forward commitment involves
different risks and can result in losses more significant than those arising
from the purchase of such securities. During the term of the commitment, the
Portfolio 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 Portfolio may occasionally close such forward commitments prior to delivery.
Risks may arise as a result of the potential liability of the counterparties to
meet the terms of their contracts. The Portfolio's market exposure from these
positions is equal to the Current Value noted below.

F-80
<PAGE> 219

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1998
- --------------------------------------------------------------------------------

The forward bond commitments outstanding as of December 31, 1998 for
which settlement is not intended, and the description and unrealized
appreciation are as follows:

<TABLE>
<CAPTION>
PAR AMOUNT CURRENT UNREALIZED
(000) DESCRIPTION VALUE APPRECIATION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT
LONG CONTRACTS
$2,000 FNMA 15 Yr Jan Dwarf Forward, 6.000%, 05/01/08
maturity.............................................. $2,005,000 $ 625
===========
</TABLE>

The forward currency contracts outstanding as of December 31, 1998 are as
follows:

<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- -------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL EQUITY
LONG CONTRACTS
Japanese Yen, 3,590,501 expiring 01/11/99................. $ 31,807 $ 577
Japanese Yen, 3,017,000 expiring 01/19/99................. 26,755 677
Japanese Yen, 3,565,000 expiring 02/04/99................. 31,681 793
Japanese Yen, 924,400 expiring 02/08/99................... 8,219 208
Japanese Yen, 2,029,885 expiring 02/26/99................. 18,092 500
Singapore Dollar, 33,000 expiring 03/08/99................ 20,108 (61)
-------- ------
$136,662 2,694
======== ------
SHORT CONTRACTS
Japanese Yen, 3,590,500 expiring 01/11/99................. $ 31,807 (1,807)
Japanese Yen, 3,017,000 expiring 01/19/99................. 26,755 (701)
Japanese Yen, 3,565,000 expiring 02/04/99................. 31,681 (178)
Japanese Yen, 924,400 expiring 02/08/99................... 8,219 (219)
Japanese Yen, 2,029,885 expiring 02/26/99................. 18,092 (1,102)
Singapore Dollar, 33,000 expiring 03/08/99................ 20,108 137
-------- ------
$136,662 (3,870)
======== ------
$(1,176)
======
</TABLE>

F-81
<PAGE> 220

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS.

<TABLE>
<C> <S> <C>
(a) (1) First Amended and Restated Agreement and Declaration of
Trust(1)
(2) Certificate of Amendment(1)
(3) Second Certificate of Amendment(8)
(4) Second Amended and Restated Certificate of Designation of
Enterprise Portfolio(6)
(5) Second Amended and Restated Certificate of Designation of
Domestic Income Portfolio(6)
(6) Amended and Restated Certificate of Designation of Emerging
Growth Portfolio(6)
(7) Amended and Restated Certificate of Designation of Global
Equity Portfolio(6)
(8) Amended and Restated Certificate of Designation of
Government Portfolio(6)
(9) Amended and Restated Certificate of Designation of Money
Market Portfolio(6)
(10) Second Amended and Restated Certificate of Designation of
Asset Allocation Portfolio(6)
(11) Second Amended and Restated Certificate of Designation of
Morgan Stanley Real Estate Securities Portfolio(6)
(12) Amended and Restated Certificate of Designation of Growth
and Income Portfolio(6)
(13) Certificate of Designation of Strategic Stock Portfolio(6)
(14) Certificate of Designation of Comstock Portfolio(7)
(b) Amended and Restated Bylaws(1)
(c) Not applicable
(d) (1) Investment Advisory Agreement for Asset Allocation
Portfolio, Domestic Income Portfolio, Enterprise Portfolio,
Government Portfolio and Money Market Portfolio(6)
(2) Investment Advisory Agreement for Emerging Growth
Portfolio(6)
(3) Investment Advisory Agreement for Global Equity Portfolio(6)
(4) Investment Sub-Advisory Agreement for Global Equity
Portfolio(6)
(5) Investment Advisory Agreement for Morgan Stanley Real Estate
Securities Portfolio(6)
(6) Investment Advisory Agreement for Growth and Income
Portfolio(6)
(7) Investment Advisory Agreement for Strategic Stock
Portfolio(6)
(8) Investment Advisory Agreement for Comstock Portfolio(7)
(e) Distribution and Service Agreement(6)
(f) (1) Form of Trustee Deferred Compensation Plan(9)
(2) Form of Trustee Retirement Plan(9)
(g) (1) Custodian Contract(4)
(2) Transfer Agency and Service Agreement(7)
(h) (1) Data Access Services Agreement(3)
(2) Fund Accounting Agreement(7)
(i) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(7)
(j) Consent of Independent Accountants+
(k) Not applicable
(l) (1) Investment Letter dated April 4, 1986 for the Government
Portfolio and Common Stock Portfolio and Money Market
Portfolio+
(2) Investment Letter dated July 3, 1995 for the Emerging Growth
Portfolio, Global Equity Portfolio and Morgan Stanley Real
Estate Securities Portfolio(2)
(m) Not applicable
(n) Financial Data Schedules+
(o) Not applicable
(p) Power of Attorney(8)
</TABLE>

C-1
<PAGE> 221

<TABLE>
<C> <S> <C>
(z) (1) List of certain investment companies in response to Item
27(a)(9)
(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)(9)
</TABLE>

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

(1) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
December 22, 1995.

(2) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
March 6, 1996.

(3) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
April 30, 1997.

(4) Incorporated herein by reference to Post-Effective Amendment No. 75 to the
Registration Statement on Form N-1A of Van Kampen American Capital Growth
and Income Fund, File Number 2-21657, filed March 27, 1998.

(5) Incorporated herein by reference to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A of Van Kampen American Capital Comstock
Fund, File Number 2-7778, filed April 27, 1998.

(6) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
April 30, 1998.

(7) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
May 18, 1998.

(8) Incorporated herein by reference to Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
March 1, 1999.

(9) Incorporated herein by reference to Post-Effective Amendment No. 81 to the
Registration Statement on Form N-1A of Van Kampen Harbor Fund, File Number
2-12685, filed April 29, 1999.

+ Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

See the prospectus and statement of additional information.

ITEM 25. INDEMNIFICATION.

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

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

The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or

C-2
<PAGE> 222

trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
their office.

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

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

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

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

ITEM 27. PRINCIPAL UNDERWRITERS.

(a) The sole principal underwriter is Van Kampen Fund Inc. (the
"Distributor"), which acts as principal underwriter for certain investment
companies and unit investment trusts. See Exhibit (z)(1).

(b) Van Kampen Funds Inc., which is an affiliated person of an affiliated
person of Registrant, is the sole principal underwriter for Registrant. The
name, principal business address and positions and offices with the Distributor
of each of the directors and officers are disclosed in Exhibit (z)(2)
incorporated herein by reference. Except as disclosed under the heading,
"Trustees and Executive Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 1 Parkway Plaza, PO Box
5555 Oakbrook Terrace, Illinois 60181-5555, Van Kampen Investor Services Inc.,
7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at the State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by
the Adviser, will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555 Oakbrook Terrace, Illinois 60181-5555; and (iii) by the Distributor,
the principal underwriter, will be maintained at its offices located at 1
Parkview Plaza, PO Box 5555 Oakbrook Terrace, Illinois 60181-5555.

C-3
<PAGE> 223

ITEM 29. MANAGEMENT SERVICES.

Not applicable.

ITEM 30. UNDERTAKINGS.

Not applicable

C-4
<PAGE> 224

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN LIFE INVESTMENT
TRUST, certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Oakbrook Terrace and State of Illinois, on the 30th day of April,
1999.

VAN KAMPEN LIFE INVESTMENT TRUST

By /s/ DENNIS J. MCDONNELL

----------------------------------------
Dennis J. McDonnell,
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on April 30, 1999 by the following
persons in the capacities indicated:

Principal Executive Officer:

/s/ DENNIS J. MCDONNELL President
- -----------------------------------------------------
Dennis J. McDonnell

Principal Financial Officer:

/s/ JOHN L. SULLIVAN* Vice President, Chief
- ----------------------------------------------------- Financial Officer, and Treasurer
John L. Sullivan

Trustees:

/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan

/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini

/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy

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

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

/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell

/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney

/s/ FERNANDO SISTO, SC.D.* Trustee
- -----------------------------------------------------
Fernando Sisto, Sc.D.

/s/ WAYNE W. WHALEN* Trustee and Chairman
- -----------------------------------------------------
Wayne W. Whalen

/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich

* Signed by Dennis J. McDonnell pursuant to a
power of attorney.

/s/ DENNIS J. MCDONNELL
- -----------------------------------------------------
Dennis J. McDonnell
Attorney-in-Fact
April 30, 1999
</TABLE>

<PAGE> 225

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT NO. 27 FORM N-1A

AS SUBMITTED TO THE
SECURITIES AND EXCHANGE COMMISSION

ON APRIL 30, 1999

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S> <C>
(j) Consent of Independent Accountants
(l) (1) Investment Letter dated April 4, 1986 for the Government
Portfolio, Common Stock Portfolio and Money Market Portfolio
(n) Financial Data Schedules
</TABLE>

<PAGE> 1

EXHIBIT (j)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 27 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 8, 1999, relating to the financial statements and financial highlights
of Van Kampen Life Investment Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Prospectus and to the reference to us under
the heading "Independent Accountants" in such Statement of Additional
Information.

/s/ PRICEWATERHOUSECOOPERS LLP

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
April 26, 1999

<PAGE> 1

[NATIONWIDE LIFE INSURANCE LOGO]

April 4, 1986

EXHIBIT (l)(1)

American Capital Life Investment Trust
2800 Post Oak Boulevard
Houston, Texas 77056

Re: Investment Letter

Gentlemen:

We are purchasing 100,000 shares each of beneficial interest in your
Government Portfolio and Common Stock Portfolio, both at $0.01 par value and a
price of $10.00 per share, and 1,000,000 shares of beneficial interest in your
Money Market Portfolio at $0.01 par value and a price of $1.00 per share (the
"shares"), upon the terms and conditions set forth below.

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

We hereby represent and warrant that we are acquiring the Shares solely for
our Nationwide VLI Separate Account to form the basis for policyholder reserves
under certain variable life insurance policies and not with a view to the
resale, redemption or disposition of all or any part thereof and that we have no
present plan or intention to sell, redeem or otherwise dispose of the Shares or
any part thereof. We also represent that the shares will not be resold except
through redemption or repurchase.

We understand that your organizational expenses will be capitalized and
charged to operations over a period of five years from the date of commencement
of operations. In the event that we redeem any of the initial Shares, referred
to the first paragraph above, within such five-year amortization period, we
understand that the proceeds payable to us will be reduced by the pro rata share
(based upon the proportion of the Shares redeemed to the total number of the
remaining Shares purchased by us) of the then unamortized deferred
organizational expenses as of the
<PAGE> 2
American Capital Life Investment Trust
Page 2
April 4, 1986

date of any such redemption. We further understand that in the event you
liquidate before the deferred organizational expenses are fully amortized, then
the Shares shall bear their pro rata share (as described above) of such
unamortized deferred organizational expenses.

Very truly yours,

NATIONWIDE LIFE INSURANCE COMPANY

By JOHN L. MARAKAS
-----------------------
John L. Marakas
President

<ARTICLE> 6
<SERIES>
<NUMBER> 51
<NAME> LIT ASSET ALLOCATION
<MULTIPLIER> 1

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<INVESTMENTS-AT-VALUE> 61,692,857
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</TABLE>

<ARTICLE> 6
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<NUMBER> 21
<NAME> LIT DOMESTIC INCOME
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<S> <C>
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<DIVIDEND-INCOME> 30,443
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<PER-SHARE-NII> 0.614
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</TABLE>

<ARTICLE> 6
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<NAME> LIT EMG CLASS A
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<S> <C>
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<NUMBER-OF-SHARES-SOLD> 1,341,978
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<SHARES-REINVESTED> 260
<NET-CHANGE-IN-ASSETS> 22,928,186
<ACCUMULATED-NII-PRIOR> (12,701)
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 232,309
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<PER-SHARE-NII> (0.014)
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> LIT ENTP CLASS A
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<EXPENSES-NET> (647,799)
<NET-INVESTMENT-INCOME> 379,529
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<SHARES-REINVESTED> 59,530
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<ACCUMULATED-GAINS-PRIOR> 748,449
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 687,977
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<PER-SHARE-NII> 0.069
<PER-SHARE-GAIN-APPREC> 4.441
<PER-SHARE-DIVIDEND> (0.017)
<PER-SHARE-DISTRIBUTIONS> (0.209)
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<PER-SHARE-NAV-END> 22.390
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 71
<NAME> LIT GLOBAL EQUITY
<MULTIPLIER> 1

<S> <C>
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 31
<NAME> LIT GOVERNMENT
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<EXPENSES-NET> (322,850)
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<GROSS-EXPENSE> 392,861
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<PER-SHARE-NAV-BEGIN> 8.920
<PER-SHARE-NII> 0.520
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<PER-SHARE-DIVIDEND> (0.090)
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<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 91
<NAME> LIT GROWTH & INC
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
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<GROSS-EXPENSE> 231,830
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<PER-SHARE-NAV-BEGIN> 12.123
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 41
<NAME> LIT MONEY MARKET
<MULTIPLIER> 1

<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
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<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.049
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> LIT REAL ESTATE
<MULTIPLIER> 1

<S> <C>
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<NAME> LIT STRATEGIC STOCK
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