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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 16, 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 Enterprise Portfolio and
the Strategic Stock Portfolio (the "Portfolios"), two of the Trust's ten
portfolios, are described herein and offered by this Prospectus. The investment
objectives of the two portfolios are as follows:
ENTERPRISE PORTFOLIO (formerly known as the Common Stock Fund) seeks
capital appreciation through investments believed by the Adviser to have
above average potential for capital appreciation.
STRATEGIC STOCK PORTFOLIO seeks to provide investors with an above average
total return through a combination of potential capital appreciation and
dividend income, consistent with the preservation of invested capital, by
investing primarily in a portfolio of dividend paying equity securities
included in the Dow Jones Industrial Average (the "DJIA") or in the Morgan
Stanley Capital International USA Index (the "MSCI Index"). Subject to the
Portfolio's other investment policies and restrictions, the Portfolio
attempts to achieve its investment objective by investing primarily in a
portfolio of actively traded equity securities comprised of (i) high
dividend yield stocks periodically selected from the companies included in
the DJIA and (ii) high dividend yield stocks periodically selected from a
pre-screened subset of the companies included in the MSCI Index. A
security's dividend yield is a primary factor in the security selection
process. The MSCI Index is the property of Morgan Stanley Capital
International ("MSCI"). MSCI has granted a license for use by the Trust of
the MSCI Index and related trademarks and tradenames. The DJIA is the
property of Dow Jones & Company, Inc. Dow Jones & Company, Inc. has not
granted to the Strategic Stock Portfolio a license to use the DJIA. Neither
MSCI nor Dow Jones & Company, Inc. has participated in any way in the
creation of the Strategic Stock Portfolio or in the selection of the stocks
included in such Portfolio and neither has approved any information herein
relating thereto. Shares of the Strategic Stock Portfolio are not designed
so that their prices will parallel or correlate with any movements in the
DJIA or the MSCI Index, and it is expected that their prices will not
parallel or correlate with such movements.
There is no assurance that any Portfolio will achieve its investment
objectives.
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This Prospectus tells Contract Owners briefly the information they should
know before allocating premiums or cash value to a 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 Portfolios 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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<S> <C>
CUSTODIAN: State Street Bank and Trust
Company
225 Franklin Street
Boston, Massachusetts 02110
SHAREHOLDER ACCESS Investor Services, Inc.
SERVICE AGENT: P.O. Box 418256
Kansas City, Missouri 64141-9256
DISTRIBUTOR: Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
INVESTMENT Van Kampen American Capital
ADVISER: Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
</TABLE>
TABLE OF CONTENTS
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Prospectus Summary....................... 3
Financial Highlights..................... 6
Introduction............................. 7
Investment Objectives and Policies....... 7
Enterprise Portfolio................... 7
Strategic Stock Portfolio.............. 8
Investment Practices..................... 11
The Trust and Its Management............. 15
</TABLE>
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Purchase of Shares....................... 17
Determination of Net Asset Value......... 17
Redemption of Shares..................... 18
Dividends, Distributions and Taxes....... 18
Portfolio Performance.................... 19
Description of Shares of the Trust....... 20
Additional Information................... 21
</TABLE>
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust, the Adviser or the Distributor. This
Prospectus does not constitute an offer by the Trust or by the Distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful for the Trust to make
such an offer in such jurisdiction.
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PROSPECTUS SUMMARY
Shares Offered..........Shares of Beneficial Interest in two Portfolios: the
Enterprise Portfolio and the Strategic Stock Portfolio
(collectively, the "Portfolios"), separate portfolios of
the Van Kampen American Capital Life Investment Trust
(the "Trust").
Type of Company.........Diversified, open-end management investment company.
Investment Objectives...The Enterprise Portfolio seeks capital appreciation
through investments in securities believed by the
Adviser (defined below) to have above average potential
for capital appreciation. The Strategic Stock Portfolio
seeks above average total return through a combination
of potential capital appreciation and dividend income,
consistent with the preservation of invested capital, by
investing primarily in a portfolio of dividend paying
equity securities included in the DJIA or in the MSCI
Index. A security's dividend yield is a primary factor
in the security selection process. There can be no
assurance that any Portfolio will achieve its investment
objective.
Investment Policies and
Risk Factors..........The Enterprise Portfolio invests principally in common
stocks of companies which, in the judgment of the
Adviser (defined below), have above average potential
for capital appreciation. 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. Use of options,
futures contracts and options on futures contracts may
include additional risk. See "Investment Practices --
Using Options, Futures Contracts and Options on Futures
Contracts."
The Strategic Stock Portfolio invests primarily in
dividend paying equity securities of companies included
in the DJIA or in the MSCI Index. The Portfolio will
initially invest approximately equally in 20 securities
identified by the Adviser (defined below) in the
following manner (the "Strategic Selection Policies").
The ten highest dividend yielding securities in the DJIA
will be identified for investment. In addition, all
companies having securities in the MSCI Index will be
reviewed by the Adviser and securities of companies in
the financial or utility sectors and of companies having
securities included in the DJIA will be excluded. The
remaining pool of MSCI Index securities will be further
evaluated and securities of companies that do not have
positive one-and three-year sales and earnings growth
rates and two years positive dividend growth will be
excluded. The Adviser also will exclude MSCI Index
securities that are in the bottom 25% of all MSCI Index
securities measured in terms of total annual trading
volume. MSCI Index securities of the remaining companies
will be ranked by dividend yield, and the ten
highest-yielding such MSCI Index securities will be
identified for investment. The 20 securities so
identified (the "Strategic Securities") initially will
represent the Portfolio's initial investments. The
Adviser periodically will employ the same Strategic
Selection Policies to identify
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a new list of 20 Strategic Securities and will review
and adjust a portion or all 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. In this manner, the Adviser expects that
each security in the Portfolio will be reviewed and
potentially adjusted approximately annually. Application
of the Strategic Selection Policies will be subject to
and limited by certain of the Portfolio's other
investment policies and restrictions, including
restrictions and limitations which must be met in order
for the Portfolio to qualify to be treated for U.S.
federal income tax purposes as a "regulated investment
company" under Subchapter M of the Internal Revenue Code
of 1986, as amended, or in order to comply with
requirements of the Investment Company Act of 1940, as
amended (such as investment diversification requirements
and industry concentration limitations). In addition,
the Adviser will try to avoid transacting in odd-lots of
securities in order to minimize transaction costs. These
limitations may, at times, cause the composition of the
Portfolio's investment portfolio to differ significantly
from that which would have resulted had the Strategic
Selection Policies been fully implemented. 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 Adviser expects that the number of securities held
by the Portfolio will over time increase and that the
Portfolio may eventually hold forty or more different
securities. Except to raise cash for operational
purposes, the Portfolio ordinarily will not sell
securities or reevaluate its portfolio investments
except as periodically determined by the Adviser. As a
result, the adverse financial condition of a company
will not result in its elimination from the Portfolio,
except under extraordinary circumstances. 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 (calculated based on the
current stock price and the annualized most recent
dividend payment amount) 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
Adviser generally will not take these considerations
into account in implementing the Strategic Selection
Policies. 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 each Portfolio.
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Distributor.............Van Kampen American Capital Distributors, Inc. (the
"Distributor") distributes each Portfolio's shares.
Dividends and
Distributions.........Dividends and any capital gains are declared and
distributed 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 (which contains financial highlights for the last five
years) 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.
ENTERPRISE PORTFOLIO
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PERIOD ENDED DECEMBER 31
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1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(2)
------- ------ ------ ------ ------ ------ ------ ------ ------ -------
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Net Asset Value, Beginning of the
Period.............................. $14.69 $12.39 $14.57 $14.21 $13.44 $10.09 $11.30 $8.70 $7.97 $9.33
------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Net Investment Income............... .113 .32 .25 .21 .23 .265 .395 .40 .32 .18
Net Realized and Unrealized
Gain/Loss on Securities........... 3.417 4.22 (.7625) 1.0325 .77 3.37 (1.17) 2.57 .765 (1.1975)
------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Total from Investment Operations...... 3.530 4.54 (.5125) 1.2425 1.00 3.635 (.775) 2.97 1.085 (1.0175)
------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Less:
Distributions from Net Investment
Income............................ .109 .3175 .25 .215 .23 .285 .435 .37 .30 .2575
Distributions from Net Realized Gain
on Securities..................... 1.849 1.9225 1.4175 .6675 -0- -0- -0- -0- .055 .085
------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Total Distributions................... 1.958 2.24 1.6675 .8825 .23 .285 .435 .37 .355 .3425
------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Net Asset Value, End of the Period.... $16.262 $14.69 $12.39 $14.57 $14.21 $13.44 $10.09 $11.30 $8.70 $7.97
======= ====== ====== ====== ====== ====== ====== ====== ====== =======
Total Return*......................... 24.80% 36.98% (3.39%) 8.98% 7.48% 36.41% (6.84%) 34.23% 13.61% (11.12%)
Net Assets at End of the Period (in
millions)........................... $84.8 $76.0 $67.5 $72.3 $65.6 $57.8 $27.2 $31.8 $24.0 $31.0
Ratio of Expenses to Average Net
Assets*............................. .60% .60% .60% .60% .60% .60% .60% .60% .60% .60%
Ratio of Net Investment Income to
Average Net Assets*................. .68% 2.06% 1.72% 1.41% 1.78% 2.33% 3.64% 3.74% 3.13% 1.65%
Portfolio Turnover.................... 152% 145% 153% 139% 116% 95% 122% 86% 63% 75%
Average Commission Paid per Equity
Share Traded(1)..................... $.0435 -- -- -- -- -- -- -- -- --
*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.............................. .75% .68% .68% .72% .74% .90% .93% .93% .95% .89%
Ratio of Net Investment Income to
Average Net Assets.................. .53% 1.98% 1.64% 1.29% 1.64% 2.03% 3.31% 3.41% 2.78% 1.36%
</TABLE>
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(1) 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.
(2) Based on average month-end shares outstanding.
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INTRODUCTION
The Trust is a duly organized Delaware business trust with ten separate
portfolios. The Enterprise Portfolio and the Strategic Stock Portfolio are the
only portfolios of the Trust which are 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
Each Portfolio of the Trust has a different investment objective which it
pursues through separate investment policies as described below. See "Investment
Practices" for further discussion of investment techniques and strategies. The
investment objective of each Portfolio described herein is a fundamental policy
and may not be changed without shareholder approval. The differences in
objectives and policies among the Portfolios can be expected to affect the
return of each Portfolio and the degree of market and financial risk to which
each Portfolio is subject.
ENTERPRISE PORTFOLIO
The investment objective of the Enterprise Portfolio is to seek capital
appreciation through investments in securities believed by the Adviser to have
above average potential for capital appreciation. Any income received on such
securities is incidental to the objective of capital appreciation.
The Portfolio invests principally in growth common stocks. Such securities
generally include those of companies with established records of growth in sales
or earnings, and companies with new products, new services, or new processes.
The Portfolio may also invest in companies in cyclical industries during periods
when their securities appear attractive to the Adviser for capital appreciation.
In addition to common stock, the Portfolio may invest in warrants and preferred
stocks, and in investment companies. See "Investment Practices -- Investment in
Investment Companies."
The Portfolio generally holds a portion of its assets in investment grade
short-term debt securities and investment grade corporate or government bonds in
order to provide liquidity. Such investments may be increased to up to 100% of
the Portfolio's assets when deemed appropriate by the Adviser for temporary
defensive purposes. Short-term investments may include repurchase agreements
with banks or broker-dealers. See "Investment Practices -- Repurchase
Agreements."
The Portfolio's primary approach is to seek what the Adviser believes to be
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 also
invest in debt securities of foreign issuers, including non-U.S. dollar
denominated debt securities, Eurodollar securities and securities issued,
assumed or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. The Portfolio will limit its investment in foreign
securities to 10% of its total assets, taken at market value at the time of each
investment. See "Investment Practices -- Foreign Securities." The Portfolio may
engage in portfolio management strategies and techniques involving options,
futures contracts and options on futures. Options, futures contracts and options
on futures contracts are described in "Investment Practices -- Using Options,
Futures Contracts and Options on Futures Contracts."
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STRATEGIC STOCK PORTFOLIO
General. The investment objective of the Strategic Stock Portfolio is to
seek an above average total return through a combination of potential capital
appreciation and dividend income, consistent with the preservation of invested
capital.
The Strategic Stock Portfolio invests primarily in dividend paying equity
securities of companies included in the DJIA or in the MSCI 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 Index consists of approximately 370 large
domestic companies in the United States and has existed since January 1, 1970.
In selecting securities for the Fund, the Adviser intends to follow the
following policies (the "Strategic Selection Policies").
The ten highest dividend yielding securities in the DJIA will be identified
for investment. In addition, all companies having securities in the MSCI Index
will be reviewed by the Adviser and securities of companies in the financial or
utility sectors and of companies having securities included in the DJIA will be
excluded. The remaining pool of MSCI Index securities will be further evaluated
and securities of companies that do not have positive one- and three-year sales
and earnings growth rates and two years positive dividend growth will be
excluded. The Adviser also will exclude MSCI Index securities that are in the
bottom 25% of all MSCI Index securities measured in terms of total annual
trading volume. MSCI Index securities of the remaining companies will be ranked
by dividend yield, and the ten highest-yielding such MSCI Index securities will
be identified for investment. In the event that this process results in less
than 10 remaining MSCI 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 Adviser will be added back until the number of
MSCI 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.
The 20 securities so identified (the "Strategic Securities") initially will
represent the Portfolio's initial investments. The Adviser periodically will
employ the same Strategic Selection Policies to identify a new list of 20
Strategic Securities and will review and adjust a portion or all 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. In this
manner, the Adviser expects that beginning with the reevaluation in month
thirteen each security in the Portfolio will be reviewed and potentially
adjusted approximately annually, although reviews and adjustments may be made
more frequently. For a more detailed discussion of the Portfolio's investment
policies, including the frequency of security reevaluations and the portion of
the Portfolio's assets that the Adviser presently expects to reevaluate at the
end of each period, see the Statement of Additional Information.
The Adviser generally will seek 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 the portfolio investments approximately proportionately
among the current list of Strategic Securities in the Portfolio. To the extent
that the Strategic Stock 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 Adviser generally intends to sell
approximately proportionate amounts of securities from all securities in the
Portfolio.
Application of the foregoing Strategic Selection Policies will be subject
to and limited by certain of the Portfolio's other investment policies and
restrictions, including restrictions and limitations which must be met in order
for the Portfolio to qualify to be treated for U.S. federal income tax purposes
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended, or in order to comply with requirements of the
Investment Company Act of
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1940, as amended. The Portfolio is subject to investment diversification
requirements that generally provide that the Portfolio may not with respect to
75% of its assets, invest more than 5% of its assets in the securities of any
one issuer or purchase more than 10% of the outstanding voting securities of any
one issuer. Further, the Portfolio generally may not invest more than 25% of the
value of its total assets in securities of issuers in any particular industry.
The Portfolio's satisfaction of these requirements will take precedent over the
Strategic Investment Policies. In addition, the Adviser will try to avoid
transacting in odd-lots of securities in order to minimize transaction costs.
These limitations may, at times, cause the composition of the Portfolio's
investment portfolio to differ significantly from that which would have resulted
had the Strategic Selection Policies been fully implemented. In selecting
securities for investment or disposition at times that the Portfolio's
investment policies and restrictions do not permit full implementation of the
Strategic Selection Policies, the 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 Adviser expects that the number of securities
held by the Portfolio will over time increase and that the Portfolio may
eventually hold forty or more different securities.
The Strategic Stock 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 Strategic Stock 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 Adviser expects that the portfolio turnover rate for the
Strategic Stock Portfolio will not exceed 100%. A high rate of portfolio
turnover may result in increased brokerage and other transaction expenses.
The DJIA is the property of Dow Jones & Company, Inc. Dow Jones & Company,
Inc. has not granted to the Strategic Stock Portfolio a license to use the DJIA.
Dow Jones & Company, Inc. has not participated in any way in the creation of the
Strategic Stock Portfolio or in the selection of the stocks included in such
Portfolio and has not approved any information herein relating thereto. Shares
of the Strategic Stock 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 Strategic Stock Portfolio is not sponsored, endorsed, sold or promoted
by 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 Strategic Stock Portfolio particularly or the ability of the MSCI 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 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 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
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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 INDEXES FROM SOURCES WHICH MORGAN STANLEY
CONSIDERS RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE
ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES 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 INDEXES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR ANY OTHER
PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MORGAN STANLEY HEREBY
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR ANY
OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
Risk Factors. There is no guarantee that the investment objective of the
Portfolio will be achieved because it is subject to the continuing ability of
the respective issuers of equities in which the Portfolio invests to declare and
pay dividends and because the market value of such equities 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 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 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 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 reevaluate its portfolio investments
except as periodically determined by the 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 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.
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INVESTMENT PRACTICES
Repurchase Agreements. Each Portfolio may enter into repurchase agreements
with broker-dealers or domestic banks (or a foreign branch or subsidiary
thereof) which are deemed creditworthy by the Adviser under guidelines approved
by the Trustees. A repurchase agreement is a short-term investment in which the
purchaser (i.e., a 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, a 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 a 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. 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,
exceeds in the case of the Strategic Stock Portfolio, 15% of the value of such
Portfolio's net assets and, in the case of the Enterprise Portfolio, 10% of the
value of such 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
Portfolios than would be available to the Portfolios 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. Each 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 that Portfolio's assets and (b) any
securities loan is collateralized in accordance with applicable regulatory
requirements. See Statement of Additional Information.
Foreign Securities. The Enterprise Portfolio may invest up to 10% 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 Enterprise 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
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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.
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 Enterprise 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 Enterprise 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 Enterprise 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 Enterprise 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 Enterprise 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
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if the prices of such securities decline. Furthermore, such hedging transactions
reduce or preclude the opportunity for gain if the value of the hedged currency
should move in the direction opposite to the hedged position. The Enterprise
Portfolio will not speculate in foreign currency forward or futures contracts or
through the purchase and sale of foreign currencies.
The Enterprise 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 Portfolios offered in this Prospectus may each
invest up to 5% of their net assets in restricted securities and other illiquid
assets. As used herein, restricted securities are those that have been sold in
the United States without registration under the Securities Act of 1933 and are
thus subject to restrictions on resale. Excluded from the limitation, however,
are any restricted securities which are eligible for resale pursuant to Rule
144A under the Securities Act of 1933 and which have been determined to be
liquid by the Trustees or by the Adviser pursuant to Board-approved guidelines.
The determination of liquidity is based on the volume of reported trading in the
institutional secondary market for each security. Since it is not possible to
predict with assurance how the markets for restricted securities sold and
offered under Rule 144A will develop, the Trustees will monitor a 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 a 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 a 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 a Portfolio impossible. Since market
quotations are not readily available for restricted securities, such securities
will be valued by a method that a Portfolio's Trustees believe accurately
reflects fair value.
Portfolio Turnover. Each 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 a portfolio were replaced in a period of one
year. Securities with maturities of less than one year are excluded in the
computation of the portfolio turnover rate. The portfolio turnover rate is not a
limiting factor when the Adviser deems it desirable to purchase or sell
securities or to engage in transactions in options, futures contracts and
options on futures contracts on behalf of the Portfolios. The annual turnover
rates of each Portfolio is shown under "Financial Highlights." Higher portfolio
turnover involves correspondingly greater transaction costs, including any
brokerage commissions, which are borne directly by a 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
Portfolios may purchase or sell options, futures contracts or options on futures
contracts. The Portfolios expect to utilize options, futures contracts and
options thereon in several different ways, depending upon the status of a
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 a Portfolio, if the Adviser is not successful in employing such
instruments in managing a Portfolio's investments, a Portfolio's performance
will be worse than if a Portfolio did not make such investments. In addition, a
Portfolio would pay commissions and other costs in connection with such
investments, which may increase a Portfolio's expenses and reduce its return.
Each 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. A Portfolio will sell only OTC
Options (other than over-the-counter currency options) that are subject to a
buy-back provision permitting a Portfolio to require the Counterparty to sell
the option back to a 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 a Portfolio, and
portfolio securities covering OTC Options sold by a Portfolio, are illiquid
securities subject to a Portfolio limitation on illiquid securities described
below. A Portfolio will not enter into a futures contract or option (except for
closing transactions) for other than for bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options would exceed 5% of the Portfolio's total
assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. Certain state securities laws to
which 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 a Portfolio, an amount of cash or liquid securities equal
to the market value of the obligation under the futures contracts (less any
related margin deposits) will be maintained in a segregated account with the
Custodian. Each Portfolio may not invest more than 5% 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.
Investment in Investment Companies. The Enterprise Portfolio may invest in
one or more investment companies advised by the Adviser and its affiliates,
including Van Kampen American Capital Small Capitalization Fund ("Small Cap
Fund") and Van Kampen American Capital Foreign Securities Fund ("Foreign
Securities Fund"). The shares of the Small Cap Fund and Foreign Securities Fund
are available for investment only by certain Van Kampen American Capital funds.
The Adviser believes that the use of the Small Cap Fund and Foreign Securities
Fund may, from time to time, provide such Portfolio the most effective exposure
to the performance of the small capitalization sector of the stock market and to
foreign securities while at the same time minimizing costs. The advisers charge
no advisory fees for managing the Small Cap Fund or Foreign Securities Fund, nor
are there any sales load or other charges associated with distribution of its
shares. Other expenses incurred by the Small Cap Fund and Foreign Securities
Fund are borne by them, and thus indirectly by the Van Kampen American Capital
funds that invest in them. With respect to such other expenses, the Adviser
anticipates that the efficiencies resulting from use of the Small Cap Fund or
the Foreign Securities Fund will result in cost savings for the Enterprise
Portfolio and other Van Kampen American Capital funds. In large part, these
savings are attributable to the fact that administrative actions that would have
to be performed multiple times if each Van Kampen American Capital fund held its
own portfolio of small capitalization or foreign securities will need to be
performed only once. The Adviser expects that the Small Cap Fund and Foreign
Securities Fund will experience trading costs that will be substantially less
than the trading costs that would be incurred if small capitalization or foreign
securities were purchased separately by the Portfolio and other Van Kampen
American Capital funds. The Enterprise Portfolio's investment in the Small Cap
Fund and
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the Foreign Securities Fund is subject to the terms and conditions set forth in
the SEC exemptive orders authorizing such investments.
The securities of small and medium sized companies that the Small Cap Fund
may invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies. The securities of foreign issuers
that the Foreign Securities Fund may invest in are subject to certain risks as
described under "Investment Practices -- Foreign Securities."
The Enterprise Portfolio will be deemed to own a pro rata portion of each
investment of the Small Cap Fund and Foreign Securities Fund. For example, if
such Portfolio's investment in the Small Cap Fund were $10 million, and the
Small Cap Fund had 5% of its assets invested in the electronics industry, the
Portfolio would be considered to have an investment of $500,000 in the
electronics industry.
Brokerage Practices. The Adviser is responsible for the placement of orders
for the purchase and sale of portfolio securities for a 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 a 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 management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $60 billion under management or supervision. Van
Kampen American Capital's 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 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,
acquisi-
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tion, 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 AGREEMENTS. The Trust and the Adviser are parties to an investment
advisory agreement (the "Combined Advisory Agreement"), pursuant to which the
Trust retains the Adviser to manage the investment of assets and to place orders
for the purchase and sale of portfolio securities for certain portfolios of the
Trust (the "Combined Portfolios"), including the Enterprise Portfolio. The Trust
and the Adviser are also parties to additional investment advisory agreements
for its remaining portfolios, including an investment advisory agreement
designated herein as the "Strategic Stock Advisory Agreement", pursuant to which
the Trust retains the Adviser to manage the investment of assets and placement
orders for the purchase and sale of portfolio securities for the Strategic Stock
Portfolio. The Combined Advisory Agreement and the Strategic Stock Advisory
Agreement are referred to herein collectively as the "Advisory Agreements".
Under the Advisory Agreements, the Trust bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of each 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 Combined 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 the combined average daily net assets of
the Combined Portfolios at an annual rate of 0.50% of the first $500 million of
such Portfolios' aggregate average net assets; 0.45% of the next $500 million of
such Portfolios' aggregate average net assets, and 0.40% of such Portfolios'
aggregate average net assets in excess of $1 billion. The Enterprise Portfolio
pays its pro rata share of the fee based upon its average daily net assets. The
Combined Advisory Agreement provides that in the event the ordinary business
expenses of the Enterprise Portfolio for any fiscal year exceed 0.95% of the
average daily net assets, the compensation due the Adviser will be reduced by
the amount of such excess and that, if a reduction in and refund of the advisory
fee is insufficient, the Adviser will pay the Portfolio monthly an amount
sufficient to make up the deficiency, subject to readjustment during the year.
Expenses subject to such limitation do not include (1) interest and taxes, (2)
brokerage commissions, (3) certain litigation and indemnification expenses as
described in the Combined Advisory Agreement, and (4) any distribution expenses
which may be incurred by the Enterprise Portfolio in the event a Distribution
Plan is adopted. In addition to the contractual expense limitation, the Adviser
also voluntarily has elected to reimburse the Enterprise Portfolio for all
ordinary business expenses in excess of 0.60% of the average daily net assets.
For the fiscal year ended December 31, 1996, advisory fees plus the cost of
accounting services payable by the Trust, before expense reimbursements
described above, equaled 0.57% of the Enterprise Portfolio's average daily net
assets.
Under the Strategic Stock 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
Strategic Stock Portfolio at an annual rate of 0.50% of the first $500 million
of the Strategic Stock Portfolio's average net assets and 0.45% of such
Portfolio's average net assets in excess of $500 million. The Adviser has also
voluntarily elected to reimburse the Strategic Stock Portfolio for all ordinary
business expenses in excess of 0.65% of the
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average daily net assets by reducing the advisory fee and/or bearing other
expenses of the Strategic Stock Portfolio in excess of such limitation.
From time to time the Adviser may agree to waive its investment advisory
fees or any portion thereof or elect to reimburse any 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. The Portfolios have different portfolio managers.
Each portfolio manager is an employee of the Adviser.
Jeff New is the manager of the Enterprise Portfolio and is primarily
responsible for the day-to-day management of the Portfolio's investment
portfolio. Mr. New has been primarily responsible for managing the Portfolio's
investment portfolio since March 1996. Mr. New has been a portfolio manager with
the Adviser since 1994. Since 1991, Mr. New was an associate portfolio manager
with the Adviser.
John Cunniff is primarily responsible for the day-to-day management of the
Strategic Stock Portfolio's investment portfolio. Mr. Cunniff is a Vice
President of the Adviser and Van Kampen American Capital Advisory Corp, an
affiliate of the Adviser, and has been employed by the Adviser since October
1995. Prior to that time, Mr. Cunniff was Vice President, Portfolio Manager at
Templeton Quantitative Advisors.
PURCHASE OF SHARES
The Trust is offering its shares only to Accounts of various insurance
companies to fund the benefits of variable annuity or variable life insurance
contracts. The Trust does not foresee any disadvantage to holders of Contracts
arising out of the fact that the interests of the holders may differ from the
interests of holders of life insurance policies and that holders of one
insurance policy may differ from holders of other insurance policies.
Nevertheless, the Trust's Trustees intend to monitor events in order to identify
any material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken. The Contracts are described in the
separate prospectuses issued by the Participating Insurance Companies. The Trust
continuously offers shares in each of the Portfolios to the Accounts at prices
equal to the respective 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 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.
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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 Portfolios 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 each Portfolio is subject to daily
fluctuations and the net asset value 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.
Dividends and Distributions. Dividends from stocks and interest earned from
other investments are the main source of income for the Portfolios.
Substantially all of this income, less expenses, is distributed 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 realized capital
gains represent the total profit from sales of securities minus total losses
from sales of securities including any losses carried forward from prior years.
Each of the Portfolios distributes any net realized capital gains to the Account
no less frequently than annually.
Tax Status of the Portfolios. Each 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," a 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, a 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 a 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 each
Portfolio from its ordinary income and distributions of each 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 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 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 a
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
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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 Portfolios' 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 Portfolios may advertise their total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one, five and ten year periods or for the life of the
Portfolio. Other total return quotations, aggregate or average, over other time
periods may also be included. Total return calculations do not take into account
expenses at the "wrap" or Contract Owner level. Investors should also review
total return calculations that include those expenses.
The total return of a Portfolio for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the
Portfolio from the beginning to the end of the period. Total return is
calculated by subtracting the value of the initial investment from the ending
value and showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the maximum public
offering price and that all income dividends or capital gains distributions
during the period are reinvested in Portfolio shares at net asset value. Total
return is based on historical earnings and asset value fluctuations and is not
intended to indicate future performance. 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 Portfolios may also advertise
their current "yield." Yield figures are based on historical earnings and are
not intended to indicate future performance. Yield is determined by analyzing
the Portfolio's net income per share for a 30-day (or one-month) period (which
period will be stated in the advertisement), and dividing by the maximum
offering price per share on the last day of the period. A "bond equivalent"
annualization method is used to reflect a semiannual compounding. Yield
calculations do not take into account expenses at the "wrap" or contractholder
level. Investors should also review yield calculations that include those
expenses.
From time to time, the Portfolios may include in their sales literature and
shareholder reports a quotation of the current "distribution rate" for shares of
each 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.
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For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by a Portfolio in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
lesser than a Portfolio's then current dividend rate.
A Portfolio's yield is not fixed and will fluctuate in response to
prevailing interest rates and the market value of portfolio securities, and as a
function of the type of securities owned by a Portfolio, portfolio maturity and
a Portfolio's expenses.
Yield quotations should be considered relative to changes in the net asset
value of a Portfolio's shares, a Portfolio's investment policies, and the risks
of investing in shares of a Portfolio. The investment return and principal value
of an investment in a Portfolio will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The Adviser, for an indefinite period has agreed to absorb a certain amount
of the ordinary business expenses of the Enterprise Portfolio and the Strategic
Stock Portfolio.
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 a
portfolio, portfolio maturity, operating expenses and market conditions.
In reports or other communications to shareholders or in advertising
material, a Portfolio may compare its performance with that of other mutual
funds as listed in the ratings or rankings prepared by Lipper Analytical
Services, Inc., CDA, Morningstar Mutual Funds or similar independent services
which monitor the performance of mutual funds, with the Consumer Price Index,
the Dow Jones Industrial Average Index, the MSCI Index, Standard & Poor's,
NASDAQ, other appropriate indices of investment securities, or with investment
or savings vehicles. The performance information may also include evaluations of
the 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 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 and Semi-Annual Report contains additional performance
information. A copy of the Annual and Semi-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
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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 each 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 16, 1998
- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
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