VAN KAMPEN LIFE INVESTMENT TRUST, 497, 1999-05-05

VAN KAMPEN LIFE INVESTMENT TRUST
497, 1999-05-05

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<PAGE> 1

[VAN KAMPEN FUNDS LOGO]

VAN KAMPEN
LIFE INVESTMENT TRUST

DOMESTIC INCOME PORTFOLIO
EMERGING GROWTH PORTFOLIO
ENTERPRISE 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.
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summaries:
Domestic Income Portfolio....................... 3
Emerging Growth Portfolio....................... 5
Enterprise Portfolio............................ 7
Government Portfolio............................ 9
Growth and Income Portfolio..................... 12
Money Market Portfolio.......................... 14
Morgan Stanley Real Estate Securities
Portfolio.................................... 15
Strategic Stock Portfolio....................... 17
Life Investment Trust General Information......... 19
Investment Objectives and Policies:
Domestic Income Portfolio....................... 19
Emerging Growth Portfolio....................... 24
Enterprise Portfolio............................ 25
Government Portfolio............................ 26
Growth and Income Portfolio..................... 30
Money Market Portfolio.......................... 31
Morgan Stanley Real Estate Securities
Portfolio.................................... 32
Strategic Stock Portfolio....................... 34
Investment Practices.............................. 37
Investment Advisory Services...................... 41
Purchase of Shares................................ 44
Redemption of Shares.............................. 45
Dividends, Distributions and Taxes................ 45
Financial Highlights.............................. 48
Appendix A -- Description of Securities Ratings... A-1
</TABLE>

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.
<PAGE> 3

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

3
<PAGE> 4

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.

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.

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.

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.

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

4
<PAGE> 5

lower. Remember that the past performance of the Portfolio is not indicative of
its future performance.

<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>

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.

5
<PAGE> 6

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.

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.

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

6
<PAGE> 7

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 16.65
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).

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.

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.

7
<PAGE> 8

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.

ANNUAL PERFORMANCE

8
<PAGE> 9

lower. Remember that the past performance of the Portfolio is not indicative of
its future 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>
Van Kampen
Enterprise
Portfolio 25.00% 21.95% 18.35%
.......................................................
Standard & Poor's
500-Stock Index 28.58% 24.06% 19.21%
.......................................................
</TABLE>

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.

9
<PAGE> 10

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.

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.

Term Maturity Level
- --------------------------------------------------
<S> <C>
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

10
<PAGE> 11

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.

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

11
<PAGE> 12

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>

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.

12
<PAGE> 13

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; and 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.

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).

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

13
<PAGE> 14

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.

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

14
<PAGE> 15

lower. Remember that the past performance of the Portfolio is not indicative of
its future performance.

<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.

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.

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.

15
<PAGE> 16

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.

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.

16
<PAGE> 17

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).

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.

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.

17
<PAGE> 18

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.

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%.

18
<PAGE> 19

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>
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.

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"), eight of which are 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

DOMESTIC INCOME PORTFOLIO

19
<PAGE> 20

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 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.

20
<PAGE> 21

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). 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

21
<PAGE> 22

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. 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.

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<PAGE> 23

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>

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.

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<PAGE> 24

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 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."

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<PAGE> 25

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" 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.

25
<PAGE> 26

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 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."

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."

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

26
<PAGE> 27

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 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

27
<PAGE> 28

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 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.

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<PAGE> 29

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 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.

29
<PAGE> 30

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.

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.

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<PAGE> 31

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 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 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 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.

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<PAGE> 32

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 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.

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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").

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. 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."

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures

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<PAGE> 34

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."

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 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

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<PAGE> 35

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 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.

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<PAGE> 36

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 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

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(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 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

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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
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>
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
..........................................................
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

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<PAGE> 39

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 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.

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.

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>
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
......................................................
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.

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<PAGE> 40

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. 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

40
<PAGE> 41

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 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.

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

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<PAGE> 42

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.

THE INVESTMENT SUBADVISER

Morgan Stanley Dean Witter Investment Management Inc. is the subadviser (the
"Subadviser") for 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 other 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.)
*Not offered pursuant to this prospectus.
Growth and Income Portfolio
First $500 million........... 0.60%
Over $500 million............ 0.55%
Emerging Growth Portfolio......... 0.70%
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>
- -----------------------------------------

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

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

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

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>

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,
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.

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<PAGE> 43

Agreement, the Subadviser receives on an annual basis 50% of the net advisory
fees received by the Adviser with respect to the Portfolio.

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 Morgan Stanley Real Estate Securities Portfolio, each portfolio manager is
an employee of the Adviser.

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 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.

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<PAGE> 44

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. 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

44
<PAGE> 45

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 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.

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<PAGE> 46

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.

DIVIDENDS AND DISTRIBUTIONS OF THE DOMESTIC INCOME PORTFOLIO, THE EMERGING
GROWTH PORTFOLIO, THE ENTERPRISE 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.

46
<PAGE> 47

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.

47
<PAGE> 48

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the periods shown. 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,
DOMESTIC INCOME PORTFOLIO 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
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>

48
<PAGE> 49

<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>
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

<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>

49
<PAGE> 50

<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

50
<PAGE> 51

<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

51
<PAGE> 52

<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

52
<PAGE> 53

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> 54

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> 55

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> 56

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> 57

- -- 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> 58

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 -- Morgan Stanley Real Estate Securities Portfolio 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> 59

[VAN KAMPEN FUNDS LOGO]

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.

Investment Company Act File No. 811-4424. LIT
AG GEN 4/99
<PAGE> 60

[VAN KAMPEN FUNDS LOGO]

VAN KAMPEN
LIFE INVESTMENT TRUST

ASSET ALLOCATION PORTFOLIO
DOMESTIC INCOME PORTFOLIO
ENTERPRISE PORTFOLIO
GOVERNMENT PORTFOLIO
MONEY MARKET 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.
<PAGE> 61

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summaries:

Asset Allocation Portfolio...................... 3

Domestic Income Portfolio....................... 5

Enterprise Portfolio............................ 7

Government Portfolio............................ 9

Money Market Portfolio.......................... 11

Life Investment Trust General Information......... 13

Investment Objectives and Policies:

Asset Allocation Portfolio...................... 13

Domestic Income Portfolio....................... 15

Enterprise Portfolio............................ 19

Government Portfolio............................ 20

Money Market Portfolio.......................... 24

Investment Practices.............................. 25

Investment Advisory Services...................... 29

Purchase of Shares................................ 31

Redemption of Shares.............................. 32

Dividends, Distributions and Taxes................ 32

Financial Highlights.............................. 34

Appendix A -- Description of Securities Ratings... A-1
</TABLE>
<PAGE> 62

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.

3
<PAGE> 63

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.

ANNUAL PERFORMANCE

<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> 64

DOMESTIC INCOME
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVES

INVESTMENT STRATEGIES

UNDERSTANDING
QUALITY RATINGS

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.

5
<PAGE> 65

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.

6
<PAGE> 66

ANNUAL PERFORMANCE

<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>

COMPARATIVE PERFORMANCE

ENTERPRISE PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

INVESTMENT STRATEGIES

INVESTMENT RISKS

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

7
<PAGE> 67

affected by changes in the stock markets, which fluctuate substantially over
time, sometimes suddenly and sharply. The Portfolio emphasizes a "growth" style
of investing. The market values of "growth" common stocks may be more volatile
than other types of investments. The returns on "growth" securities may or may
not move in tandem with the returns on other styles of investing or the overall
stock markets. During an overall stock market decline, stock prices of small- or
medium-sized companies (in which the Portfolio may invest) often fluctuate more
than prices of larger companies.

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.

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>

8
<PAGE> 68

COMPARATIVE 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
Enterprise
Portfolio 25.00% 21.95% 18.35%
.......................................................
Standard & Poor's
500-Stock Index 28.58% 24.06% 19.21%
.......................................................
</TABLE>

GOVERNMENT PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

INVESTMENT STRATEGIES

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.

9
<PAGE> 69

interest payments. Therefore, the Portfolio may be subject to greater market
risk than a portfolio that does not own these types of securities.

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

UNDERSTANDING
DURATION

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.

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.

10
<PAGE> 70

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.
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 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>

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>

MONEY MARKET
PORTFOLIO
RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

11
<PAGE> 71

INVESTMENT STRATEGIES

INVESTMENT RISKS

An investment in the Portfolio is subject to investment risks.

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

<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>

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

12
<PAGE> 72

COMPARATIVE PERFORMANCE

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"), five of which are 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 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"). 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

13
<PAGE> 73

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 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

14
<PAGE> 74

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

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.

15
<PAGE> 75

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.

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

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

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

16
<PAGE> 76

tence of adequate assets, or other unusual circumstances.

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

17
<PAGE> 77

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.

18
<PAGE> 78

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.

ENTERPRISE PORTFOLIO

19
<PAGE> 79

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

GOVERNMENT PORTFOLIO

20
<PAGE> 80

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 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."

21
<PAGE> 81

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 Portfolio may invest in private mortgage-related securities ("Private
Pass-Throughs") as opposed to mortgage-related securities issued or guaranteed
by

22
<PAGE> 82

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.

23
<PAGE> 83

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.

MONEY MARKET PORTFOLIO

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

24
<PAGE> 84

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.

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

INVESTMENT PRACTICES

REPURCHASE AGREEMENTS

25
<PAGE> 85

tion of the joint account and to protect the amounts in that account.

FOREIGN SECURITIES

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

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

26
<PAGE> 86

purchases and sells foreign currency on a spot basis in 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.

ILLIQUID SECURITIES

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

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

27
<PAGE> 87

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.

OTHER INVESTMENT PRACTICES AND RISK FACTORS

28
<PAGE> 88

YEAR 2000 RISKS

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.

ADVISORY AGREEMENT

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") the Trust pays the Adviser a
monthly fee computed based upon an

29
<PAGE> 89

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.)
</TABLE>

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

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

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

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

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

Money Market Portfolio............ 0.11%
</TABLE>

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 and the Adviser have adopted Codes of Ethics designed to recognize the
fiduciary relationship among the Trust and the Adviser 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 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 Enterprise Portfolio is managed by a management team headed by Jeff New,
Senior

30
<PAGE> 90

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 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.

PURCHASE OF SHARES

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

The Money Market Portfolio's assets are valued on the basis of amortized cost,
which involves valuing a

31
<PAGE> 91

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.

REDEMPTION OF SHARES

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.

DIVIDENDS AND DISTRIBUTIONS OF THE ASSET ALLOCATION PORTFOLIO, THE DOMESTIC
INCOME PORTFOLIO, THE ENTERPRISE PORTFOLIO AND THE GOVERNMENT 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.

32
<PAGE> 92

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.

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.

33
<PAGE> 93

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the past five years. 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> <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>

34
<PAGE> 94

<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
====== ====== ====== ====== =======

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

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

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

35
<PAGE> 95