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VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(800) 421-5666
November 1, 1997, as supplemented on March 2, 1998
Van Kampen American Capital Life Investment Trust (the "Trust") is a
diversified, open-end management investment company which offers shares in ten
separate portfolios. Shares of the Trust 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. Such allocation rights are further described in
the accompanying prospectus for the Contracts. Only the Emerging Growth
Portfolio, one of the Trust's ten portfolios, is described herein and offered by
this Prospectus.
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The investment objective of the Emerging Growth Portfolio, formerly known
as the Emerging Growth Fund (the "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 Van Kampen American Capital Asset Management, Inc. (the "Adviser") to be
emerging growth companies.
There is no assurance that the Portfolio will achieve its investment
objective.
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This Prospectus tells Contract Owners briefly the information they should
know before allocating premiums or cash value to the Portfolio. Investors should
read and retain this Prospectus for future reference.
A Statement of Additional Information dated November 1, 1997 containing
additional information about the Trust and the Portfolio is hereby incorporated
in its entirety into this Prospectus. A copy of the Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device for the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials of the
Trust at the SEC's internet web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
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CUSTODIAN: State Street Bank and Trust
Company
225 Franklin Street
Boston, Massachusetts 02110
SHAREHOLDER ACCESS Investor Services, Inc.
SERVICE AGENT: P.O. Box 418256
Kansas City, Missouri 64141-9256
DISTRIBUTOR: Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
INVESTMENT Van Kampen American Capital
ADVISER: Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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TABLE OF CONTENTS
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Prospectus Summary....................... 3
Financial Highlights..................... 4
Introduction............................. 5
Investment Objectives and Policies....... 5
Investment Practices..................... 5
The Trust and Its Management............. 9
Purchase of Shares....................... 11
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Determination of Net Asset Value......... 11
Redemption of Shares..................... 11
Dividends, Distributions and Taxes....... 11
Portfolio Performance.................... 12
Description of Shares of the Trust....... 14
Additional Information................... 14
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No dealer, salesperson, or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust, the Adviser or the Distributor. This
Prospectus does not constitute an offer by the Trust or by the Distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful for the Trust to make
such an offer in such jurisdiction.
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PROSPECTUS SUMMARY
Shares Offered..........Shares of Beneficial Interest of the Emerging Growth
Portfolio (the "Portfolio"), a separate portfolio of the
Van Kampen American Capital Life Investment Trust (the
"Trust").
Type of Company.........Diversified, open-end management investment company.
Investment Objective....The Portfolio seeks capital appreciation by investing in
a portfolio of securities consisting principally of
common stock of small and medium sized companies
considered by the Adviser (defined below) to be emerging
growth companies. There can be no assurance that the
Portfolio will achieve its investment objective.
Investment Policies and
Risk Factors..........The Portfolio invests at least 65% of its total assets
in common stocks of small and medium sized companies
(less than $2 billion of market capitalization or annual
sales), both domestic and foreign, considered by the
Adviser to be emerging growth companies. The companies
in which the Portfolio invests may offer greater
opportunities for growth of capital than larger, more
established companies, but investments in such companies
may involve special risks. See "Investment Objectives
and Policies" and "Investment Practices -- Foreign
Securities." The use of options, futures contracts and
related options may include additional risks. See
"Investment Practices -- Using Options, Futures
Contracts and Options on Futures Contracts."
Redemption..............At the net asset value next determined after the
Portfolio receives a redemption request.
Investment Adviser......Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser for the Portfolio.
Distributor.............Van Kampen American Capital Distributors, Inc. (the
"Distributor") distributes the Portfolio's shares.
Dividends and
Distributions.........Dividends and any capital gains are declared and
distributions annually.
The foregoing is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this
Prospectus.
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FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. The most
recent annual report is included in the Statement of Additional Information and
may be obtained by shareholders without charge by calling the telephone number
on the cover of this Prospectus. This information should be read in conjunction
with the related financial statements and notes thereto included in the
Statement of Additional Information.
EMERGING GROWTH PORTFOLIO
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JULY 3, 1995
(COMMENCEMENT OF
YEAR ENDED INVESTMENT OPERATIONS)
DECEMBER 31, THROUGH
1996 DECEMBER 31, 1995
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Net Asset Value, Beginning of the Period.................... $ 11.72 $10.00
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Net Investment Loss....................................... (.016) (.08)
Net Realized and Unrealized
Gain on Securities..................................... 1.956 1.80
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Total from Investment Operations............................ 1.940 1.72
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Net Asset Value, End of the Period.......................... $13.660 $11.72
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Total Return*............................................... 16.55% 17.20%(1)
Net Assets at End of the Period (In millions)............... $ 5.2 $ 2.3
Ratio of Expenses to Average Net Assets*.................... .85% 2.50%
Ratio of Net Investment Loss to Average Net Assets*......... (.17%) (1.45%)
Portfolio Turnover.......................................... 102% 41%(1)
Average Commission Per Equity Share Traded(2)............... $ .0470 --
*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..................... 3.28% 5.40%
Ratio of Net Investment Loss to Average Net Assets.......... (2.60%) (4.35%)
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(1) Non-Annualized
(2) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
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INTRODUCTION
The Trust is a duly organized Delaware business trust with ten separate
portfolios. The Emerging Growth Portfolio (the "Portfolio") is the only
portfolio of the Trust which is described herein and offered pursuant to this
Prospectus. Each portfolio has separate assets and liabilities and a separate
net asset value per share. Shares of each portfolio represent an interest only
in that portfolio. Since market risks are inherent in all securities to varying
degrees, assurance cannot be given that the investment objectives of any
portfolio will be met.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the 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 Adviser to be
emerging growth companies. Any ordinary income received from portfolio
securities is entirely incidental.
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 (less than $2 billion of market capitalization), both domestic
and foreign, in the early stages of their life cycle, that the Adviser believes
have the potential to become major enterprises. Investments in such companies
may offer greater opportunities for growth of capital than larger, more
established companies, but also may involve certain special risks. Emerging
growth companies often have limited product lines, markets, or financial
resources, and they may be dependent upon one or a few key people for
management. The securities of such companies may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. While the Portfolio will invest primarily in
common stocks, to a limited extent it may invest in other securities such as
preferred stocks, convertible securities and warrants.
The Portfolio does not limit its investment to any single group or type of
security. The Portfolio may also invest in special situations involving new
management, special products and techniques, unusual developments, mergers or
liquidations. Investments in unseasoned companies and special situations often
involve much greater risks than are inherent in ordinary investments, because
securities of such companies may be more likely to experience unexpected
fluctuations in price.
The Portfolio's primary approach is to seek what the 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.
The Portfolio may invest up to 20% of its total assets in securities of
foreign issuers. See "Investment Practices -- Foreign Securities." Additionally,
the Portfolio may invest up to 15% of the value of its assets in restricted
securities (i.e., securities which may not be sold without registration under
the Securities Act of 1933) and in other securities not having readily available
market quotations. The Portfolio may enter into repurchase agreements with
domestic banks and broker-dealers which involve certain risks. The Portfolio may
invest in warrants so long as such investments aggregate less than 5% of the
Portfolio's total assets. The risks involved in investing in restricted
securities, warrants and repurchase agreements are described in the Statement of
Additional Information.
INVESTMENT PRACTICES
Repurchase Agreements. The Portfolio may enter into repurchase agreements
with broker-dealers or domestic banks (or a foreign branch or subsidiary
thereof) which are deemed
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creditworthy by the Adviser under guidelines approved by the Trustees. A
repurchase agreement is a short-term investment in which the purchaser (i.e.,
the 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 purchaser's holding period. Repurchase agreements involve
certain risks in the event of a default by the other party. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, the
Portfolio could experience delays and expenses in liquidating the underlying
securities and loss including: (a) possible decline in the value of the
underlying security during the period while the Portfolio seeks to enforce its
rights thereto, (b) possible lack of access to income on the underlying security
during this period, and (c) expenses of enforcing its rights. The Portfolio will
not invest in repurchase agreements maturing in more than seven days if any such
investment, together with any other illiquid securities held by the Portfolio,
exceeds 15% of the value of the Portfolio's net assets.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested and the funds that
contributed to the joint account share pro rata in the net revenue generated.
The Adviser believes that the joint account produces efficiencies and economies
of scale that may contribute to reduced transaction costs, higher returns,
higher quality investments and greater diversity of investments for the
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 the SEC exemptive order authorizing this practice, which conditions are
designed to ensure the fair administration of the joint account and to protect
the amounts in that account.
Loans of Portfolio Securities. The Portfolio may lend portfolio securities
to unaffiliated brokers, dealers and financial institutions provided that (a)
immediately after any such loan, the value of the securities loaned does not
exceed 10% of the total value of the Portfolio's assets and (b) any securities
loan is collateralized in accordance with applicable regulatory requirements.
See the Statement of Additional Information.
Foreign Securities. The Portfolio may invest up to 20% of the value of its
total assets in securities issued by foreign issuers. Investments in securities
of foreign entities and securities denominated in foreign currencies involve
risks not typically involved in domestic investment, including fluctuations in
foreign exchange rates, future foreign political and economic developments, and
the possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments. Since the
Portfolio may invest in securities denominated or quoted in currencies other
than the United States dollar, changes in foreign currency exchange rates may
affect the value of investments in the portfolio and the accrued income and
unrealized appreciation or depreciation of investments. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Portfolio's assets denominated in that currency and the Portfolio's
yield on such assets.
The Portfolio may also purchase foreign securities in the form of ADRs and
EDRs or other securities representing underlying shares of foreign companies.
ADRs are publicly traded on exchanges or over-the-counter in the United States
and are issued through "sponsored" or "unsponsored" arrangements. In a sponsored
ADR arrangement, the foreign issuer assumes the obligation to pay some or all of
the depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Portfolio may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.
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With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition, certain foreign
investments made by the Portfolio may be subject to foreign withholding taxes,
which would reduce the Portfolio's total return on such investments and the
amounts available for distributions by the Portfolio to its shareholders. See
"Dividends, Distributions and Taxes." Foreign financial markets, while growing
in volume, have, for the most part, substantially less volume than United States
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic companies. The
foreign markets also have different clearance and settlement procedures and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
assets of the Portfolio are not invested and no return is earned thereon. The
inability of the Portfolio to make intended security purchases due to settlement
problems could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Portfolio due to subsequent declines in value of
the portfolio security or, if the Portfolio has entered into a contract to sell
the security, could result in possible liability to the purchaser. Costs
associated with transactions in foreign securities, including custodial costs
and foreign brokerage commissions, are generally higher than with transactions
in United States securities. In addition, the Portfolio will incur costs in
connection with conversions between various currencies. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States.
Foreign Currency Transactions. The value of the Portfolio's portfolio
securities that are traded in foreign markets may be affected by changes in
currency exchange rates and exchange control regulations. In addition, the
Portfolio will incur costs in connection with conversions between various
currencies. The Portfolio's foreign currency exchange transactions generally
will be conducted on a spot basis (that is, cash basis) at the spot rate for
purchasing or selling currency prevailing in the foreign currency exchange
market. The Portfolio purchases and sells foreign currency on a spot basis in
connection with the settlement of transactions in securities traded in such
foreign currency. The Portfolio does not purchase and sell foreign currencies as
an investment.
The Portfolio also may enter into contracts with banks or other foreign
currency brokers and dealers to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts to hedge against changes in foreign currency exchange rates. A foreign
currency forward contract is a negotiated agreement between the contracting
parties to exchange a specified amount of currency at a specified future time at
a specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
The Portfolio may attempt to hedge against changes in the value of the
United States dollar in relation to a foreign currency by entering into a
forward contract for the purchase or sale of the amount of foreign currency
invested or to be invested, or by buying or selling a foreign currency futures
contract for such amount. Such hedging strategies may be employed before the
Portfolio purchases a foreign security traded in the hedged currency which the
Portfolio anticipates acquiring or between the date the foreign security is
purchased or sold and the date on which payment 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
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the hedged position. The Portfolio will not speculate in foreign currency
forward or futures contracts or through the purchase and sale of foreign
currencies.
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 entered into with respect to
position hedges and cross-hedges. 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
being hedged 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.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
Restricted Securities. The Portfolio may invest up to 15% of its net
assets in restricted securities and other illiquid assets. As used herein,
restricted securities are those that have been sold in the United States without
registration under the Securities Act of 1933 and are thus subject to
restrictions on resale. Excluded from the limitation, however, are any
restricted securities which are eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and which have been determined to be liquid by the
Trustees or by the Adviser pursuant to Board-approved guidelines. The
determination of liquidity is based on the volume of reported trading in the
institutional secondary market for each security. Since it is not possible to
predict with assurance how the markets for restricted securities sold and
offered under Rule 144A will develop, the Trustees will monitor the Portfolio's
investment in these securities focusing on such factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Portfolio to
the extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. These difficulties and delays could
result in the Portfolio's inability to realize a favorable price upon
disposition of restricted securities, and in some cases might make disposition
of such securities at the time desired by the Portfolio impossible. Since market
quotations are not readily available for restricted securities, such securities
will be valued by a method that the Portfolio's Trustees believe accurately
reflects fair value.
Portfolio Turnover. The Portfolio may purchase or sell securities without
regard to the length of time the security has been held and thus may experience
a high rate of portfolio turnover. A 100% turnover rate would occur, for
example, if all the securities in the portfolio were replaced in a period of one
year. Securities with maturities of less than one year are excluded in the
computation of the portfolio turnover rate. The portfolio turnover rate is not a
limiting factor when the Adviser deems it desirable to purchase or sell
securities or to engage in transactions in options, futures contracts and
options on futures contracts on behalf of the Portfolio. The annual portfolio
turnover of the Portfolio is shown in the "Financial Highlights." Higher
portfolio turnover involves correspondingly greater transaction costs, including
any brokerage commissions, which are borne directly by the Portfolio. In
addition, higher portfolio turnover may increase the recognition of short-term,
rather than long-term, capital gains. See "Dividends, Distributions and Taxes."
Using Options, Futures Contracts and Options on Futures Contracts. The
Portfolio may purchase or sell options, futures contracts or options on futures
contracts. The Portfolio expects to utilize options, futures contracts and
options thereon in several different ways, depending upon the status of the
Portfolio's portfolio securities and the Adviser's expectations concerning the
securities markets. See the Statement of Additional Information for a discussion
of options, futures contracts and options on futures contracts.
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Potential Risks of Options, Futures Contracts and Options on Futures
Contracts. The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities. While
utilization of options, futures contracts and similar instruments may be
advantageous to the Portfolio, if the Adviser is not successful in employing
such instruments in managing the Portfolio's investments, the Portfolio's
performance will be worse than if the Portfolio did not make such investments.
In addition, the Portfolio would pay commissions and other costs in connection
with such investments, which may increase the Portfolio's expenses and reduce
its return. The Portfolio is authorized to purchase and sell over-the-counter
options ("OTC Options"). OTC Options are purchased from or sold to securities
dealers, financial institutions of other parties ("Counterparties") through
direct bilateral agreement with the Counterparty. The Portfolio will sell only
OTC Options (other than over-the-counter currency options) that are subject to a
buy-back provision permitting the Portfolio to require to the Counterparty to
sell the option back to the Portfolio at a formula price within seven days. The
staff of the SEC currently takes the position that, in general, OTC Options on
securities other than U.S. Government securities purchased by the Portfolio, and
portfolio securities covering OTC Options sold by the Portfolio, are illiquid
securities subject to the Portfolio limitation on illiquid securities described
below. The Portfolio will not enter into a futures contract or option (except
for closing transactions) for other than for bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options would exceed 5% of the Portfolio's total
assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. Certain state securities laws to
which the Portfolio may be subject may further restrict the Portfolio's ability
to engage in transactions in futures contracts and related options.
In order to prevent leverage in connection with the purchase of futures
contracts thereon by the Portfolio, an amount of cash or liquid securities equal
to the market value of the obligation under the futures contracts (less any
related margin deposits) will be maintained in a segregated account with the
Custodian. The Portfolio may not invest more than 15% of its net assets in
illiquid securities and repurchase agreements which have a maturity of longer
than seven days. A more complete discussion of the potential risks involved in
transactions in options, futures contracts and options on futures contracts is
contained in the Statement of Additional Information.
Brokerage Practices. The Adviser is responsible for the placement of orders
for the purchase and sale of portfolio securities for the Portfolio and the
negotiation of brokerage commissions on such transactions. Brokerage firms are
selected on the basis of their professional capability for the type of
transaction and the value and quality of execution services rendered on a
continuing basis. The Adviser is authorized to place portfolio transactions, to
the extent permitted by law, with brokerage firms affiliated with the Trust and
with brokerage firms participating in the distribution of shares of the
Portfolio and other Van Kampen American Capital mutual funds if it reasonably
believes that the quality of the execution and the commission are comparable to
that available from other qualified brokerage firms. The Adviser is authorized
to pay higher commissions to brokerage firms that provide it with investment and
research information than to firms which do not provide such services if the
Adviser determines that such commissions are reasonable in relation to the
overall services provided. The information received may be used by the Adviser
in managing the assets of other advisory accounts as well as in the management
of the assets of the Portfolio.
THE TRUST AND ITS MANAGEMENT
The Trust is an open-end, diversified management investment company,
commonly known as a mutual fund. A mutual fund provides, for those who have
similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.
THE ADVISER. The Adviser is a wholly owned subsidiary of Van Kampen
American Capital, Inc. ("Van Kampen American Capital"). Van Kampen American
Capital is a diversified asset manage-
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ment company with more than two million retail investor accounts, extensive
capabilities for managing institutional portfolios, and more than $57 billion
under management or supervision. Van Kampen American Capital's more than 40
open-end and 38 closed-end funds and more than 2,500 unit investment trusts are
professionally distributed by leading financial advisers nationwide. Van Kampen
American Capital Distributors, Inc. (the "Distributor"), the distributor of the
Trust and the sponsor of the funds mentioned above, is also a wholly-owned
subsidiary of Van Kampen American Capital. Van Kampen American Capital is an
indirect wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
The Adviser's principal office is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.
Morgan Stanley, Dean Witter, Discover & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley & Co. Incorporated, a
registered broker-dealer and investment adviser, and Morgan Stanley
International are engaged in a wide range of financial services. Their principal
businesses include securities underwriting, distribution and trading; merger,
acquisition, restructuring and other corporate finance advisory activities;
merchant banking; stock brokerage and research services; credit services; asset
management; trading of futures, options, foreign exchange, commodities and swaps
(involving foreign exchange, commodities, indices and interest rates); real
estate advice, financing and investing; and global custody, securities clearance
services and securities lending.
ADVISORY AGREEMENT. The Trust and the Adviser are parties to an investment
advisory agreement (the "Advisory Agreement") pursuant to which the Trust
retains the Adviser to manage the investment of assets and to place orders for
the purchase and sale of portfolio securities for the Portfolio. Under the
Advisory Agreement, the Trust bears the cost of its accounting services, which
includes maintaining its financial books and records and calculating the daily
net asset value of the Portfolio. The costs of such accounting services include
the salaries and overhead expenses of a Treasurer or other principal financial
officer and the personnel operating under his direction. The services are
provided at cost which is allocated among the investment companies advised by
the Adviser. The Trust also pays shareholder service agency fees, custodian
fees, legal and auditing fees, trustees' fees (other than those who are
affiliated persons, as defined in the Investment Company Act of 1940 as amended
(the "1940 Act"), of the Adviser, the Distributor or Van Kampen American
Capital), the costs of registration of its shares and reports and proxies to
shareholders and all other ordinary expenses not specifically assumed by the
Adviser or the Distributor.
Under the Advisory Agreement, the Trust pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Portfolio at an
annual rate of 0.70%. For the fiscal year ended December 31, 1996, advisory fees
plus the cost of accounting services payable by the Trust on behalf of the
Portfolio was 1.72% before a voluntary waiver.
From time to time the Adviser may agree to waive its investment advisory
fees or any portion thereof or elect to reimburse the Portfolio for ordinary
business expenses in excess of an agreed upon amount.
PERSONAL INVESTING POLICIES. The Trust and the Adviser have adopted Codes
of Ethics designed to recognize the fiduciary relationship between the Trust and
the Adviser and its employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. Gary M. Lewis is primarily responsible for the
day-to-day management of the Emerging Growth Portfolio's investment portfolio.
Mr. Lewis is Vice President of the Adviser. Mr. Lewis has been responsible for
managing the Portfolio's investment portfolio since its inception.
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PURCHASE OF SHARES
The Trust is offering its shares only to Accounts of various insurance
companies to fund the benefits of variable annuity or variable life insurance
contracts. The Trust does not foresee any disadvantage to holders of Contracts
arising out of the fact that the interests of the holders may differ from the
interests of holders of life insurance policies and that holders of one
insurance policy may differ from holders of other insurance policies.
Nevertheless, the Trust's Trustees intend to monitor events in order to identify
any material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken. The Contracts are described in the
separate prospectuses issued by the Participating Insurance Companies. The Trust
continuously offers shares of the Portfolio to the Accounts at prices equal to
the per share net asset value of the Portfolio. The Distributor, located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, acts as the distributor of the
shares. Net asset value is determined in the manner set forth below under
"Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the 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 the 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 most recent bid price. U.S.
Government and agency obligations are valued at the last reported bid price.
Listed options are valued at the last reported sale price in the exchange on
which such option is traded or, if no sales are reported, at the mean between
the last reported bid and asked prices. Options for which market quotations are
not readily available are valued at a fair value calculated under a method
approved by the Trustees. Short-term investments for the Portfolio are valued as
described in the notes to financial statements in the Statement of Additional
Information.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value next determined after the receipt of a request in proper form.
The market value of the securities in the Portfolio is subject to daily
fluctuations and the net asset value of the 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 the Portfolio are
automatically reinvested by the Account in additional shares of the Portfolio.
Dividends and Distributions. Dividends from stocks and interest earned from
other investments are the main source of income for the Portfolio. Substantially
all of this income, less expenses, is distributed on an annual basis. When the
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 realized capital gains
represent the total profit from sales of securities minus total losses from
sales of securities including any losses carried forward
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from prior years. The Portfolio distributes any net realized capital gains to
the Account no less frequently than annually.
Tax Status of the Portfolio. The Portfolio has elected to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). By maintaining its qualification as a "regulated
investment company," the Portfolio will not incur any liability for federal
income taxes to the extent its taxable ordinary income and any net capital gains
are distributed in accordance with Subchapter M of the Code. By qualifying as a
regulated investment company, the Portfolio is not subject to federal income
taxes to the extent it distributes its taxable net investment income and taxable
net realized capital gains. If for any taxable year the Portfolio does not
qualify for the special tax treatment afforded regulated investment companies,
all of its taxable income, including any net realized capital gains, would be
subject to tax at regular corporate rates (without any deduction for
distributions to shareholders).
Tax Treatment to Insurance Company as Shareholder. Dividends paid by the
Portfolio from its ordinary income and distributions of the Portfolio's net
realized short-term capital gains are includable in the insurance company's
gross income. The tax treatment of such dividends and distributions depends on
the insurance company's tax status. To the extent that income of the 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 Account 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 the
Portfolio's net realized long-term capital gains are taxable to the insurance
company as long-term capital gains. Such distributions of long-term capital
gains will be designated as a capital gains distribution in a written notice to
the Account which accompanies the distribution payment. Long-term capital gains
distributions are not eligible for the dividends received deduction. Dividends
and capital gain distributions to the insurance company may also be subject to
state and local taxes.
Some of the Portfolio's investment practices are 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 recognized by the
Portfolio. These provisions may also require the Portfolio to recognize income
or gain without receiving cash with which to make distributions.
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.
PORTFOLIO PERFORMANCE
From time to time the Portfolio may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one, five and ten year periods or for the life of the
Portfolio. Other total return quotations, aggregate or average, over other time
periods may also be included. Total return calculations do not take into account
expenses at the "wrap" or Contract Owner level. Investors should also review
total return calculations that include those expenses.
The total return of the Portfolio for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the
Portfolio from the beginning to the end of the period. Total return is
calculated by subtracting the value of the initial investment from the ending
value and showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the maximum public
offering price and that all income dividends or capital gains distributions
during the period are reinvested in Portfolio shares at net asset value. Total
return is based on historical earnings and asset value fluctuations and is not
intended to indicate
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future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Portfolio.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
In addition to total return information, the Portfolio may also advertise
its current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Portfolio's net income per share for a 30-day (or one-month) period (which
period will be stated in the advertisement), and dividing by the maximum
offering price per share on the last day of the period. A "bond equivalent"
annualization method is used to reflect a semiannual compounding. Yield
calculations do not take into account expenses at the "wrap" or contractholder
level. Investors should also review yield calculations that include those
expenses.
From time to time, the Portfolio may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for shares of
the Portfolio. Distribution rate is a measure of the level of income and
short-term capital gain dividends, if any, distributed for a specified period.
Distribution rate differs from yield, which is a measure of the income actually
earned by the Portfolio's investments, and from total return, which is a measure
of the income actually earned by, plus the effect of any realized and unrealized
appreciation or depreciation of, such investments during a stated period.
Distribution rate is, therefore, not intended to be a complete measure of the
Portfolio's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Portfolio.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Portfolio in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
lesser than the Portfolio's then current dividend rate.
The Portfolio's yield is not fixed and will fluctuate in response to
prevailing interest rates and the market value of portfolio securities, and as a
function of the type of securities owned by the Portfolio, portfolio maturity
and the Portfolio's expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Portfolio's shares, the Portfolio's investment policies, and the
risks of investing in shares of the Portfolio. The investment return and
principal value of an investment in the Portfolio will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The Adviser may, from time to time, absorb a certain amount of the future
ordinary business expenses. Absorption of a portion of the expenses will
increase the yield or total return of a Portfolio. The Adviser may stop
absorbing these expenses at any time without prior notice.
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Portfolio's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instrument held in the
portfolio, portfolio maturity, operating expenses and market conditions.
In reports or other communications to shareholders or in advertising
material, the Portfolio may compare its performance with that of other mutual
funds as listed in the ratings or rankings prepared by Lipper Analytical
Services, Inc., CDA, Morningstar Mutual Funds or similar independent services
which monitor the performance of mutual funds, with the Consumer Price Index,
the Dow Jones Industrial Average Index, the MSCI Index, Standard & Poor's,
NASDAQ, other appropriate indices of
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investment securities, or with investment or savings vehicles. The performance
information may also include evaluations of the Portfolio published by
nationally recognized ranking services and by nationally recognized financial
publications. Such comparative performance information will be stated in the
same terms in which the comparative data or indices are stated. Such
advertisements and sales material may also include a yield quotation as of a
current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Portfolio's shares. For these purposes, the
performance of the Portfolio, as well as the performance of other mutual funds
or indices, do not reflect various charges, the inclusion of which would reduce
the Portfolio performance.
The Portfolio may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
The Trust's Annual Report contains additional performance information. A
copy of the Annual Report may be obtained without charge by calling or writing
the Trust at the telephone number and address printed on the cover page of this
Prospectus.
DESCRIPTION OF SHARES OF THE TRUST
The Trust was originally organized as a Massachusetts business trust on
June 3, 1985. The Trust was reorganized as a business trust under the laws of
Delaware on September 16, 1995 and adopted its current name at that time. The
authorized capitalization of the Trust consists of an unlimited number of shares
of beneficial interest of $0.01 par value. Shares issued by the Trust are fully
paid, non-assessable and have no preemptive or conversion rights.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Trust will assist such holders in
communicating with other shareholders of the Trust to the extent required by the
1940 Act. More detailed information concerning the Trust is set forth in the
Statement of Additional Information.
The Trust's Declaration of Trust provides that no Trustee, officer or
shareholder of the Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Trust but the assets of the Trust only shall be liable.
ADDITIONAL INFORMATION
This Prospectus and the Statement of Additional Information do not contain
all the information set forth in the Registration Statement filed by the Trust
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.
The fiscal year end of the Trust is December 31. The Trust sends to its
shareholders at least semi-annually reports showing the Portfolio's portfolio
and other information. An annual report, containing financial statements audited
by the Trust's independent accountants, is sent to shareholders each year. After
the end of each year, shareholders will receive federal income tax information
regarding dividends and capital gains distributions.
Shareholder inquiries should be directed to the Van Kampen American Capital
Life Investment Trust, One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attn: Correspondence or by calling (800) 421-5666. For inquiries through
Telecommunications Device for the Deaf (TDD) dial (800) 421-2833.
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EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE PORTFOLIO'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833
VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Life Investment Trust Portfolios
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
Life Investment Trust Portfolios
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 East Randolph Drive
Chicago, IL 60601
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LIFE INVESTMENT TRUST
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P R O S P E C T U S
NOVEMBER 1, 1997, AS SUPPLEMENTED ON
MARCH 2, 1998
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
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