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VAN KAMPEN
LIFE INVESTMENT TRUST
Semi-Annual Report
June 30, 1998
[ARTWORK APPEARS HERE]
Van Kampen
FUNDS
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Table of Contents
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Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Management Review...................... 5
Asset Allocation Portfolio
Portfolio of Investments........................ 25
Statement of Assets and Liabilities............. 31
Statement of Operations......................... 32
Statement of Changes in Net Assets.............. 33
Financial Highlights............................ 34
Domestic Income Portfolio
Portfolio of Investments........................ 35
Statement of Assets and Liabilities............. 37
Statement of Operations......................... 38
Statement of Changes in Net Assets.............. 39
Financial Highlights............................ 40
Emerging Growth Portfolio
Portfolio of Investments........................ 41
Statement of Assets and Liabilities............. 47
Statement of Operations......................... 48
Statement of Changes in Net Assets.............. 49
Financial Highlights............................ 50
Enterprise Portfolio
Portfolio of Investments........................ 51
Statement of Assets and Liabilities............. 56
Statement of Operations......................... 57
Statement of Changes in Net Assets.............. 58
Financial Highlights............................ 59
Global Equity Portfolio
Portfolio of Investments........................ 60
Statement of Assets and Liabilities............. 66
Statement of Operations......................... 67
Statement of Changes in Net Assets.............. 68
Financial Highlights............................ 69
Government Portfolio
Portfolio of Investments........................ 70
Statement of Assets and Liabilities............. 72
Statement of Operations......................... 73
Statement of Changes in Net Assets.............. 74
Financial Highlights............................ 75
Growth and Income Portfolio
Portfolio of Investments........................ 76
Statement of Assets and Liabilities............. 80
Statement of Operations......................... 81
Statement of Changes in Net Assets.............. 82
Financial Highlights............................ 83
Money Market Portfolio
Portfolio of Investments........................ 84
Statement of Assets and Liabilities............. 85
Statement of Operations......................... 86
Statement of Changes in Net Assets.............. 87
Financial Highlights............................ 88
Morgan Stanley Real Estate Securities Portfolio
Portfolio of Investments........................ 89
Statement of Assets and Liabilities............. 92
Statement of Operations......................... 93
Statement of Changes in Net Assets.............. 94
Financial Highlights............................ 95
Strategic Stock Portfolio
Portfolio of Investments........................ 96
Statement of Assets and Liabilities............. 98
Statement of Operations......................... 99
Statement of Changes in Net Assets.............. 100
Financial Highlights............................ 101
Notes to Financial Statements.................... 102
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LIT SAR 8/98
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Letter to Shareholders
July 16, 1998 [PHOTO APPEARS HERE]
Dear Shareholder, Dennis J. McDonnell and Don G. Powell
As you may know, Van Kampen American Capital is consolidating all of the
retail mutual funds that we distribute under the single name of Van Kampen
Funds. This move accompanies the change in our legal name to Van Kampen Funds
Inc. You can be assured that the change in your fund's name will not affect its
management or daily operations. You will begin seeing the application of this
change with this report.
Economic Review
The economic crisis in Asia deepened late in the reporting period while
growth continued at a robust pace in the United States and Europe. After last
fall's currency crisis, signs of recovery began to appear in Asia early in 1998
as equity markets rebounded and currency values stabilized. But a steep decline
in the Japanese yen beginning in February undermined investor confidence in the
region and ignited fears of yet another round of currency devaluations. At the
heart of the problem was a sudden worsening of economic conditions in Japan and
the perceived inability of Japanese leaders to rescue the country's ailing
banking system.
Despite the drag from Asia, the U.S. economy continued to expand at a
healthy rate. The nation's inflation-adjusted output of goods and services ran
at 5.4 percent during the first quarter, an annualized rate considered by many
economists to be virtually unsustainable without leading to inflation. As the
reporting period ended, however, there were indications that the Asian financial
crisis was finally having a moderating impact on domestic economic growth. Also,
the Conference Board's index of leading indicators points toward a slowdown in
economic growth for later this year.
In Europe, economic growth accelerated as the region looked forward to
monetary union, set to begin in January 1999. At that time, a common currency
(the euro) will begin to replace the currencies of the 11 participant nations.
The elimination of foreign-exchange risk and widespread financial reforms has
led to a wave of mergers and acquisitions across the region.
Market Review
The wide variation of returns from global financial markets during the
reporting period reflected the vastly different circumstances in the three major
economic blocks of the United States, Europe, and Asia. In Europe, where
companies have relatively little exposure to Asia, stocks posted impressive
gains. During the six months ended in June, the Dow Jones Europe/Africa Index
climbed 24.48 percent in U.S. dollar terms. The rally was broad based, with
markets in Finland, France, Germany, Greece, Ireland, Italy, Portugal, and Spain
each climbing more than 30 percent. European bonds also benefited from stable
monetary policy and low inflation. The average European bond market gained 5.77
percent in U.S. dollar terms during the six months of 1998.
Stock prices in the United States continued to move higher during the
period, but the Asian financial crisis had an uneven impact on corporate
profits. The Wilshire 5000 Index consisting of all publicly traded U.S.
companies gained 14.68 percent during the first six months of 1998. Companies
with heavy exposure to domestic consumers benefited from
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Continued on page two
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strength in the American economy, while commodity-related issues lagged. U.S.
bonds benefited from a global flight to quality and from a growing perception
that domestic economic growth was slowing. The yield on the Treasury's 30-year
benchmark bond declined from 5.92 percent on December 31, 1997 to 5.63 percent
by the end of the period.
In Asia, renewed currency concerns caused major declines in nearly all
equity markets. Despite a solid rally in January, the Dow Jones Asia/Pacific
Index (excluding Japan) fell 48.77 percent during the 12 months through June and
by 18.69 percent during the first half of 1998. The worst-performing Asian
market was Indonesia, where the average stock lost nearly two-thirds of its
value amid a deepening recession, political turmoil, and social unrest. For the
12 months through June, the Dow Jones Indonesia Index declined by 87.66 percent
in U.S. dollar terms.
Outlook
We remain optimistic about the prospects for European equity markets, based
on the region's accelerating growth rate and the introduction of a common
currency next year. As interest rates decline, liquidity is also increasing as
more European investors leave the sanctuary of money-market funds in favor of
equities.
Our outlook for Asia is guarded. As the reporting ended, the Japanese
government announced a bank bailout package that ignited a rally in Asian
financial markets. While we view the latest reforms in a positive light, we are
concerned that investor reaction to the news may have been overly euphoric.
In the United States, economic growth is likely to slow in coming months as
the impact of the Asian crisis becomes more evident. With equities already
trading at record-high valuations, we are cautious about the ability of U.S.
stocks to rally significantly from current levels. On a longer-term basis,
however, the environment for domestic equities remains highly positive.
Additional details about your Portfolios, including question-and-answer
sections with your portfolio management teams, are provided in this report. As
always, we are pleased to have the opportunity to serve you and your family
through our diverse menu of quality investments.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
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Performance Results for the Period Ended June 30, 1998
Van Kampen Life Investment Trust
Asset Allocation Portfolio
Total Returns
Six-month total return based on NAV/1/............................... 8.58%
One-year total return based on NAV/1/................................ 22.46%
Five-year average annual total return based on NAV/1/................ 14.50%
Ten-year average annual total return based on NAV/1/................. 13.12%
Life-of-Portfolio average annual total return based on NAV/1/........ 12.12%
Commencement date.................................................... 06/30/87
Domestic Income Portfolio
Total Returns
Six-month total return based on NAV/1/............................... 4.27%
One-year total return based on NAV/1/................................ 11.59%
Five-year average annual total return based on NAV/1/................ 8.59%
Ten-year average annual total return based on NAV/1/................. 7.77%
Life-of-Portfolio average annual total return based on NAV/1/........ 8.33%
Commencement date.................................................... 11/04/87
Yield
SEC Yield/3/......................................................... 6.47%
Emerging Growth Portfolio
Total Returns
Six-month total return based on NAV/1/............................... 22.17%
One-year total return based on NAV/1/................................ 35.34%
Life-of-Portfolio average annual total return based on NAV/1/........ 26.20%
Commencement date.................................................... 07/03/95
Enterprise Portfolio
Total Returns
Six-month total return based on NAV/1/............................... 17.62%
One-year total return based on NAV/1/................................ 31.00%
Five-year average annual total return based on NAV/1/................ 21.91%
Ten-year average annual total return based on NAV/1/................. 18.18%
Life-of-Portfolio average annual total return based on NAV/1/........ 13.65%
Commencement date.................................................... 04/07/86
Global Equity Portfolio
Total Returns
Six-month total return based on NAV/1/............................... 16.92%
One-year total return based on NAV/1/................................ 15.36%
Life-of-Portfolio average annual total return based on NAV/1/........ 17.69%
Commencement date.................................................... 07/03/95
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Performance Results for the Period Ended June 30, 1998 (Continued)
Van Kampen Life Investment Trust
Government Portfolio
Total Returns
Six-month total return based on NAV/1/........................... 4.24%
One-year total return based on NAV/1/............................ 10.95%
Five-year average annual total return based on NAV/1/............ 5.79%
Ten-year average annual total return based on NAV/1/............. 8.14%
Life-of-Portfolio average annual total return based on NAV/1/.... 7.17%
Commencement date................................................ 04/07/86
Distribution Rate and Yield
Distribution rate/2/............................................. 5.90%
SEC Yield/3/..................................................... 5.99%
Growth and Income Portfolio
Total Returns
Six-month total return based on NAV/1/........................... 15.40%
One-year total return based on NAV/1/............................ 23.26%
Life-of-Portfolio cumulative total return based on NAV/1/........ 26.27%
Commencement date................................................ 12/23/96
Morgan Stanley Real Estate Securities Portfolio
Total Returns
Six-month total return based on NAV/1/........................... (4.88%)
One-year total return based on NAV/1/............................ 8.49%
Life-of-Portfolio average annual total return based on NAV/1/.... 20.72%
Commencement date................................................ 07/03/95
Strategic Stock Portfolio
Total Returns
Six-month total return based on NAV/1/........................... 9.87%
Life-of-Portfolio cumulative total return based on NAV/1/........ 19.73%
Commencement date................................................ 11/03/97
/1/Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for
the period, and sale of all shares at the end of the period, all at NAV.
/2/Distribution rate (based on net asset value) represents the annualized
distributions of the Portfolio at the end of the period and not the
earnings of the Portfolio.
/3/SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending June 30, 1998.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. This performance was achieved during generally
rising stock prices. Portfolio shares, when redeemed, may be worth more or less
than their original cost.
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Portfolio Management Review
Asset Allocation Portfolio
The following is an interview with the portfolio management team of the Van
Kampen Life Investment Trust--Asset Allocation Portfolio. The team is led by B.
Robert Baker, Jr. and Walter W. Stabell III, portfolio comanagers, and Dennis J.
McDonnell, president of the adviser.
Q How did the stock and bond markets perform during the past six months?
A The stock market was influenced by two opposing factors. On the home front,
steady economic growth and low inflation provided a very favorable climate for
stocks. However, the aftermath of the currency collapse in Southeast Asia
threatened to slow the economies of countries around the world. Fortunately for
equity investors, positive economic conditions in the United States had a
greater influence on the stock market than overseas turmoil did. The Dow Jones
Industrial Average set record highs throughout the reporting period and has
fluctuated around the 9000 mark since April. Investors continued to favor large,
well-established companies during the reporting period because of their
uncertainty about how the Asian situation would affect the U.S. markets. As a
result, large-capitalization companies generally made greater gains than small-
cap firms did.
Once again, controlled economic growth and low inflation supported the bond
market during the reporting period. Yields on the 30-year Treasury bond
generally remained between 5.60 percent and 6.00 percent, among their lowest
levels in nearly five years. Bond prices move inversely with bond yields, so low
yields meant higher bond values for investors.
Q Given this environment, what was your equity strategy in seeking to meet the
Portfolio's objective?
A The Portfolio seeks to provide a high total return through investments in
stocks, bonds, and money market securities. In the equity portion of the
Portfolio, we seek to identify undervalued stocks that have the potential for
future price appreciation. To do this, we look for companies that are
temporarily out of favor in the marketplace, because their stock prices are
usually lower than what we believe these companies are actually worth. Then, we
look for factors that might move the stock from being undervalued to being
fairly valued. This catalyst could come from within the company in the form of
new management, operational enhancements, restructuring, or reorganization. Or,
it could be an external factor, such as an improvement in industry conditions or
a regulatory change. When we find a stock that is undervalued and has an
identifiable catalyst, we consider adding that stock to the portfolio.
As of June 30, 1998, the Portfolio was comprised of approximately 60 percent
stocks, 37 percent bonds, and 3 percent short-term investments. The Portfolio's
increase in stocks and decrease in short-term investments during the reporting
period reflected our belief that the stock market offered favorable value
opportunities for the Portfolio.
Q What changes did you make among the Portfolio's stock holdings, and which
stocks made the greatest contributions to positive performance?
A The most notable changes occurred in the consumer nondurables and the
utilities sectors. The Portfolio's weighting in consumer nondurables increased
during the period, primarily because we added to our holdings in Philip Morris,
RJR Nabisco, and Kimberly Clark. Also, we decreased the Portfolio's allocation
in electric utility stocks, which lagged the market this year, and took some of
the profits we earned when this sector outperformed at the end of 1997. We
believe that electric utility stocks are still inexpensive and have not achieved
their fair value, so we maintained a substantial holding in this area.
One of our biggest winners for the period was Tommy Hilfiger, an upscale
casual clothing manufacturer. The company intentionally built up a large
inventory toward the end of 1997, but the market perceived this situation
negatively and the stock became very cheap. Then, the company enjoyed a
tremendous holiday season, cleared out its inventory, and exceeded year-end
sales estimates. The stock reacted with a huge rally in early 1998, soaring
almost 70 percent this year. We recently sold some of our position to take
advantage of these gains.
Because we used a bottom-up selection process, Portfolio performance was
driven by individual stock selection, and our best performers represented a
broad range of industries. For example, Waste Management had been a longtime
holding for the Portfolio, and a recent announcement that the company would be
merging with U.S.A. Waste contributed to a price increase of 26 percent for the
reporting period. Other standouts included American Bankers Insurance, Mylan
Laboratories, and American Home Products, all of which appreciated at least 30
percent during the past six months. Of course, not all stocks in the Portfolio
performed as favorably, and there is no guarantee that any of these stocks will
perform as well in the future.
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Q How did you manage the bond portion of the Portfolio?
A The strength of the bond market supported the performance of the Portfolio.
We continued to focus on investment-grade securities rated A or better with 10-
to 20-year maturities, and we maintained the duration at approximately 8.5
years. Duration is a measurement used to quantify the sensitivity of a bond's
price to changes in interest rates. Each year of duration represents an expected
one-percent change in the price of a bond for every one-percent change in
interest rates. Typically, funds with short durations perform better when
interest rates are rising, while funds with long durations perform better when
rates are declining. Currently, the Portfolio's duration is slightly longer than
our benchmark, reflecting our belief that interest rates could decline.
Q What factors worked against the Portfolio?
A Our large holdings in Philip Morris and RJR Nabisco impeded the Portfolio's
performance. These stocks weakened this spring amid uncertainty surrounding the
outcome of a number of legal and legislative issues. We added to the stocks when
they became extremely cheap, reaching historically low valuations, and we
believe there are several factors that could drive the stocks upward. The most
significant and likely catalyst would be a more favorable resolution to the
tobacco legislation than the proposals recently debated in Washington. Although
the outcome is unknown, we think the stocks adequately reflect the associated
risks.
The Portfolio's gold stocks were a mixed bag during the reporting period. As
we mentioned in the last report, gold prices were at a historic low at the end
of 1997. We used that opportunity to invest, believing that nearly any change in
the market environment would send gold prices higher. Gold has been very
volatile this year, helping the Portfolio during the first quarter of 1998 but
hindering it during the second quarter. As of June 30, gold prices were quite
low, so we held on to our position.
Q How did the Portfolio perform during the past six months?
A The Portfolio achieved a six-month total return of 8.58 percent1, as of June
30, 1998. By comparison, the Standard & Poor's 500-Stock Index returned 17.67
percent, and the Lipper Balanced Fund Index, which more closely resembles the
Portfolio, returned 9.79 percent. The S&P 500-Stock Index is a broad-based,
unmanaged index that reflects the general performance of the stock market, and
the Lipper Balanced Fund Index reflects the average performance of the 30
largest balanced funds.
These indices are statistical composites that do not include any commissions
or sales charges that would be paid by an investor purchasing the securities or
investments represented by these indices. Please refer to the chart on page
three for additional performance results.
Q What is your outlook for the Portfolio for the remainder of the year?
A At the time of your last report, the effects of the Asian economic crisis on
the U.S. stock market were unclear but ominous. Today, its effects are still
uncertain, but the domestic outlook is more positive: the crisis has had a
severe impact on a few segments of the U.S. market but otherwise has been fairly
contained. The stock market reached new highs during the reporting period, and
we expect that controlled growth and low inflation will continue to support
stock prices during the remainder of the year.
In managing the Portfolio, we continue to look for undervalued large-cap
stocks with limited exposure to Asia. The stock market is still highly valued,
with many stocks at record prices. Inflated stock prices translate into high
risk for investors, because expensive securities generally have farther to fall
in a market downturn than low-priced stocks. The Asset Allocation Portfolio,
which invests in undervalued securities and maintains a portion of its assets in
bonds, may help shareholders to alleviate a portion of the risk associated with
a highly valued stock market.
/s/ B. Robert Baker, Jr. /s/ Walter W. Stabell III /s/ Dennis J. McDonnell
B. Robert Baker, Jr. Walter W. Stabell III Dennis J. McDonnell
Portfolio Comanager Portfolio Comanager President
Asset Allocation Portfolio Asset Allocation Portfolio Van Kampen Asset
Management Inc.
Please see footnotes on page three
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Portfolio Management Review
Domestic Income Portfolio
The following is an interview with the portfolio management team of the Van
Kampen Life Investment Trust--Domestic Income Portfolio. The team is led by
Walter W. Stabell III, portfolio manager, and Peter W. Hegel, chief investment
officer for fixed-income investments.
Q What were the market conditions in which the Portfolio operated during the
past six months?
A The yield for the benchmark 30-year Treasury bond started the year at 5.92
percent, near the then-historic low of 5.79 percent that was set in October
1993. Two significant interest rates declines during the first quarter--a
January drop to 5.71 percent, and a February drop to 5.79 percent--took the long
bond to its lowest yields in two decades, and triggered a wave of corporate bond
financings. By the end of the first quarter, rates spiked back up to 5.93
percent.
In the second quarter, we witnessed a classic flight to quality, thanks to
continuing economic weakness in Asia, the strike at General Motors, and fears
that U.S. corporate profits would begin to slow. Investors from around the globe
fled stocks and lower-quality bonds in favor of high-quality bond investments.
As a result, the 30-year bond yield fell to 5.62 percent at quarter end,
establishing a new historic low. Record corporate bond issuance continued to be
the predominant theme in the second quarter, just as it had been in the first.
Investment-grade corporate new issuance totaled $202 billion for the first half
of 1998, up 52 percent from the same period in 1997. Year-to-date high-yield
corporate issuance totaled approximately $100 billion as of June 30, 1998.
Economic growth is expected to slow from its torrid 5.4 percent first-quarter
pace to as low as 2.0 percent in the second half of 1998. We believe this is an
ideal growth rate that minimizes the probability of a Federal Reserve Board rate
hike and simultaneously supports sustained healthy growth and solid economic and
credit fundamentals going forward.
Q How did you position the Portfolio in response to these conditions?
A To maintain diversification and seek to reduce risk, we continued to
allocate the Portfolio's assets across a variety of sectors within the fixed-
income market. As of June 30, 1998, approximately 46 percent of the Portfolio's
long-term investments were invested in investment-grade corporate bonds, with 37
percent invested in high-yield corporate bonds, 13 percent in securities of
governments or government agencies, and 4 percent in preferred stock. We
increased the Portfolio's high-yield component, comprised primarily of high-
quality, or "crossover" BBB/BB-rated bonds to bolster the Portfolio's income
return.
With interest rates historically low and investment-grade and high-yield
corporate yield spreads relatively narrow, managing the duration continued to be
an important tactic during the reporting period. Duration, which is expressed in
years, is a measurement of a bond's price sensitivity to changes in interest
rates. The longer the fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in a rising rate environment, while funds with longer durations
have performed better when rates are declining. For the first few months of the
year, the Portfolio's duration was held equivalent to or slightly longer than
that of its benchmark, the Lehman Brothers Index of BBB Corporate Bonds. At
present, the Portfolio's duration is 6.1 years, approximately three months
shorter than that of the benchmark index.
Over the long term and during periods of declining interest rates, the
Portfolio has performed quite well in comparison to its peer group, due in large
part to its overweighting of long-term, non-callable, investment-grade corporate
bonds, and to high-yield corporate components. The Portfolio has been recognized
by Lipper Analytical Services, Inc. with eight Lipper awards for performance in
the Corporate Debt Funds BBB-Rated Group during the past seven years. For the
trailing 12-month period ended June 30, 1998, the Domestic Income Portfolio was
ranked eighth of 32 like funds. Additionally, the Portfolio was ranked third of
30 funds for the two-year period, third of 27 funds for the three-year period,
fourth of 25 funds for the five-year period, and eighteenth of 18 funds for the
ten-year period. Lipper Analytical Services, Inc. calculations are based upon
changes in net asset value with dividends reinvested. Lipper calculations do not
include sales charges; if they had, results may have been less favorable when
compared to those of the portfolio. Past performance is no guarantee of future
results.
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Q How did the portfolio perform during the reporting period?
A For the six months ended June 30, 1998, the Portfolio achieved a total
return of 4.27 percent/1/. By comparison, the Lehman Brothers Index of BBB
Corporate Bonds produced a total return of 3.72 percent for the same period.
Keep in mind that this index is a broad-based, unmanaged index that reflects the
general performance of investment-grade corporate bonds. This return does not
reflect any commissions or fees that would be paid by an investor purchasing the
securities it represents, unlike the Portfolio's return, which does reflect such
fees and commissions.
Dividends paid and reinvested by the Portfolio during the period totaled
$0.022 per share. Recall that the majority of dividends paid by the Portfolio
are distributed annually in December. Please refer to the chart on page three
for additional performance results.
Q What is your outlook for the fixed-income market and the Portfolio in the
months ahead?
A The fundamentals underpinning the U.S. bond market are as healthy as at any
time in recent memory. Thus we expect that the market is likely to remain strong
in the months ahead. Inflation is low and should stay that way. Economic growth,
after surging at a 5.4 percent annual rate during the first quarter, appears to
be slowing to a pace that is less likely to ignite inflation--a bond investor's
worst enemy. With this perspective, the Fed is unlikely to raise interest rates
in the forseeable future. The growing federal budget surplus is decreasing the
need for government borrowing and thus shrinking the supply of government bonds.
The combination of these conditions creates a very attractive environment for
fixed-income investors as well as bond buyers. In the past, such trends have
prompted investors to sink large amounts of savings into bonds, creating higher
demand and further increases in price.
Therefore, we are bullish on bonds moving forward, and expect the market, as
defined by the 30-year Treasury yield, to trade within a range of 5.50 to 6.00
percent.
/s/ Peter W. Hegel /s/ Walter W. Stabell III
Peter W. Hegel Walter W. Stabell III
Chief Investment Officer Portfolio Manager
Fixed Income Investments Domestic Income Portfolio
Please see footnotes on page three
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Portfolio Management Review
Emerging Growth Portfolio
The following is an interview with the portfolio management team of the Van
Kampen Life Investment Trust--Emerging Growth Portfolio. The team is led by Gary
M. Lewis, portfolio manager, and Dennis J. McDonnell, president of the adviser.
Q What factors influenced the market during the past six months?
A The stock market was influenced by two opposing factors. On the home front,
steady economic growth and low inflation provided a very favorable climate for
stocks. However, the aftermath of the currency collapse in Southeast Asia
threatened to slow the economies of countries around the world. Fortunately for
equity investors, positive economic conditions in the United States had a
greater influence on the stock market than overseas turmoil did. The Dow Jones
Industrial Average set record highs throughout the reporting period and has
fluctuated around the 9000 mark since April. Investors continued to favor large,
well-established companies during the reporting period because of their
uncertainty about how the Asian situation would affect the U.S. markets. As a
result, large-capitalization companies generally made greater gains than small-
cap firms did.
Q Given these events, what was your strategy in managing the Portfolio to
meet its objective?
A Our fundamental investment strategy for the Portfolio remains consistent:
we look for stocks with rising earnings expectations and rising valuations. We
select stocks based on what we believe is a company's potential to outperform
earnings expectations--to produce a positive earnings surprise. Conversely, we
sell stocks if their earnings estimates or valuations are declining. Securities
are evaluated one by one and purchased if they represent a good opportunity. We
don't specify what percentage of the Portfolio's assets should be in any given
industry--we simply pick the stocks that best meet our criteria. Finally, we
normally keep the Portfolio fully invested in equity investments, rather than
holding a large percentage of assets in cash.
Q Which areas of the market had a significant impact on the Portfolio?
A Although the technology sector was particularly erratic during the
reporting period, prudent stock selection within this area contributed to strong
Portfolio performance. Earlier this year, an oversupply of personal computers
overwhelmed many areas of the technology industry, as the events in Asia put a
cap on demand. Manufacturers that sell computers to retailers and wholesalers
had to reduce production of new computers until inventory supply and consumer
demand regained balance. We decreased our holdings in personal computers but
maintained a large position in Dell Computer, which gained almost 115 percent
during the reporting period. Instead, we focused on areas of technology that
were minimally affected by events in Asia, such as service (Yahoo!, America
Online) and software (BMC Software, Compuware).
We had a substantial weighting in consumer services that included a number
of radio stocks. Deregulation of the broadcasting industry has allowed
individual companies to own an unrestricted number of radio and television
stations. Consequently, a small number of broadcasting companies are dominating
the advertising dollars in a given region and commanding higher advertising
prices as they control a larger share of their markets. Many radio companies are
thriving in this era of deregulation, and we were pleased with our holdings in
Clear Channel Communications and Chancellor Media. Of course, not all stocks in
the Portfolio performed as favorably, and there is no guarantee that any of
these stocks will perform as well in the future.
Other favorable securities represented a range of sectors and reflect the
Portfolio's diversity. These included Lucent (telecommunications equipment),
Capital One Financial (credit card services), and America West Airlines. The
retail segment of the consumer distribution sector benefited from its limited
exposure to Asia, as well as low unemployment, rising disposable income, and the
flourishing housing market. Best Buy, Gap, and TJX Companies were standouts
among our retail holdings.
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Q What factors hindered the Portfolio's performance?
A The biggest disappointment was the energy sector, which had driven
Portfolio performance upward through much of 1997. As we entered 1998, however,
declining oil prices threatened the profitability of these stocks. The
Portfolio's holdings were concentrated in oil service providers, and as oil
prices dropped, the economics became less favorable for them to launch
exploration projects. We decreased our weighting in this area due to declining
valuations, and earnings estimates for many service companies were eventually
cut.
A few stocks did not meet our expectations during the reporting period,
despite the fact that they didn't suffer any earnings problems. These stocks
included ESC Medical Systems (medical device manufacturer), General Nutrition
Centers (health food stores), and Herman Miller (office furniture manufacturer).
Each of these companies supported the Portfolio's performance at one time, but
declining valuations prompted us to trim our positions during the period.
Q How did the Portfolio perform during the reporting period?
A The Portfolio performed very well, achieving a six-month total return of
22.17 percent/1/, as of June 30, 1998. By comparison, the Standard & Poor's
500-Stock Index returned 17.67 percent, and the Russell 2000 Index, which more
closely resembles the Portfolio, returned 4.93 percent. The S&P 500-Stock Index
is a broad-based, unmanaged index that reflects the general performance of the
stock market, and the Russell 2000 Index reflects the general performance of
smaller-cap stocks.
These indices are statistical composites that do not include any
commissions that would be paid by an investor purchasing the securities or
investments represented by these indices. Please refer to the chart on page
three for additional performance results.
Q What is your outlook for the Portfolio for the remainder of the year?
A We continue to view emerging growth stocks as a promising area of the
market. As we stated in your last report, small-cap stock valuations are at
historically low levels, which could precipitate a number of favorable
scenarios. First, low valuations have typically preceded a rebound in stock
prices among small-cap stocks. Second, when small-cap valuations are
comparatively low, these stocks have the potential to realize earnings growth,
while richly priced large caps may find it more difficult to achieve growth of
the same magnitude. In fact, earnings estimates are in the double digits for
small- and mid-cap stocks but single digits among large caps. Finally, if
investors begin taking their money out of richly valued large stocks and putting
their assets into lower-valued small caps, we could see a rebound in small-cap
prices. With several factors in place that could fuel small-cap prices, we
believe the Emerging Growth Portfolio is well positioned in this market.
/s/ Gary M. Lewis /s/ Dennis J. McDonnell
Gary M. Lewis Dennis J. McDonnell
Portfolio Manager President
Emerging Growth Portfolio Van Kampen Asset Management Inc.
Please see footnotes on page three
10
<PAGE>
Portfolio Management Review
Enterprise Portfolio
The following is an interview with the portfolio management team of the Van
Kampen Life Investment Trust--Enterprise Portfolio. The team is led by Jeff D.
New, portfolio manager; Michael Davis, portfolio comanager; and Dennis J.
McDonnell, president of the adviser.
Q Can you describe the stock market environment for the Portfolio during the
past six months?
A The stock market was influenced by two opposing factors. On the home front,
steady economic growth and low inflation provided a very favorable climate for
stocks. However, the aftermath of the currency collapse in Southeast Asia
threatened to slow the economies of countries around the world. Fortunately for
equity investors, positive economic conditions in the United States had a
greater influence on the stock market than overseas turmoil did. The Dow Jones
Industrial Average set record highs throughout the reporting period and has
fluctuated around the 9000 mark since April. Investors continued to favor large,
well-established companies during the reporting period because of their
uncertainty about how the Asian situation would affect the U.S. markets. As a
result, large-capitalization companies generally made greater gains than small-
cap firms did.
Q Given this environment, how did you seek to meet the Portfolio's objective?
A We maintain a consistent strategy of identifying companies that we believe
have a combination of positive future fundamentals at attractive current prices.
By our definition, positive future fundamentals include at least one of the
following traits: consistent earnings growth; accelerating earnings growth;
better-than-expected fundamentals; or an underlying change in a company,
industry, or regulatory environment. We evaluate stocks one by one according to
these criteria and make purchases wherever we find good opportunities. This
approach to stock selection has served the Portfolio well through a broad range
of economic conditions, so we work hard to maintain this strategy during each
reporting period.
Q Which stocks supported the Portfolio's performance during the reporting
period?
A Many of the Portfolio's best-performing stocks came from the retail segment
of the consumer distribution sector. We owned a number of retail stocks at the
end of last year, which put us in a good position when the Asian crisis flared
up in October. Most U.S. retail companies depend on domestic sales to generate
revenues, so their stock prices were largely insulated from overseas turmoil.
The combination of low unemployment, rising disposable income, and a flourishing
housing market has recently contributed to healthy retail sales. The Portfolio
included substantial positions in Safeway, Dayton Hudson, and TJX Companies, all
of which performed well during the reporting period. We believe that a
continuation of slow but steady economic growth will support the fundamentals
for these stocks.
The technology sector continued to be volatile, performing very well during
most of the reporting period but struggling toward the end. Earlier this year,
an oversupply of personal computers overwhelmed many areas of the technology
industry. Manufacturers such as Compaq Computer and IBM, which sell computers to
retailers and wholesalers for distribution, had to reduce production of new
computers until inventory supply and demand regained its balance. We decreased
our holdings in this area during that time, although the situation appears to be
on its way to resolution.
The majority of our technology assets were invested in computer software, data
storage, and telecommunications equipment. Software has been an outstanding
industry, because businesses have viewed software investments as necessary
productivity tools to remain competitive. BMC Software and Compuware have been
impressive holdings in this field. Data storage, the centralized storage system
that saves a company's computer files, has been a high-growth area as well. In
the age of e-mails and databases, companies need sophisticated storage systems
to access an increasing volume of information more frequently and efficiently. A
leader in data storage is EMC, which saw its stock price rise 63 percent during
the reporting period. Finally, telecom industries have seen explosive growth
from the demand for cellular phones, computer networking, and remote access
functions. Cisco Systems and Nokia performed well during the period.
Health-care stocks continued to make up a large portion of the Portfolio.
Among this group, Wellpoint Health Network, a health maintenance organization,
was a notable holding. In late 1997, HMOs were caught between accelerating costs
and an inabil-
11
<PAGE>
ity to raise prices, and many of them, including Wellpoint, saw a decline in
stock prices. Recently, however, many HMOs have been able to implement rate
increases that offset the rising cost of medical care, and the result has been
an upward trend in earnings. We purchased Wellpoint last year because it is a
high-quality company with good fundamentals, and we stuck with it during the
volatility of 1997. Our perseverance was rewarded, as the stock price has
appreciated 75 percent this year. Of course, not all stocks in the Portfolio
performed as favorably, and there is no guarantee that any of these stocks will
perform as well in the future.
Q What factors worked against the Portfolio?
A Two stocks, in particular, were disappointments during the reporting period.
The first was Cendant, a marketer and provider of consumer and business
services. In April, Cendant disclosed accounting irregularities that caused the
stock price to plummet 46 percent in one day. This stock had been a sizable
holding in the portfolio, and we continue to own it because we believe the
company has a strong market position and an attractive price.
A more substantial drag on the Portfolio has been Philip Morris, our largest
holding at the end of the reporting period. Philip Morris and the rest of the
tobacco industry have been trying to settle a number of lawsuits. We increased
our position in the stock last year when a settlement that would have given
tobacco firms immunity to most future lawsuits appeared imminent. No deal could
be reached, however, and the settlement process has lingered into 1998. Amid
these factors, the stock price dropped 13 percent in the past six months.
Despite this price decline, we held on to Philip Morris for a number of
reasons. First, the stock fits our criteria of strong fundamentals at an
attractive price. Tobacco firms have typically been high-growth companies, and
Philip Morris is very inexpensive right now compared to its historical values.
Second, tobacco stocks have routinely suffered bouts of negative sentiment, but
these periods have usually been followed by outperformance in the stock price.
Based on these factors, we've maintained a sizable weighting in the stock.
Q How did the Portfolio perform during the past six months?
A The Portfolio achieved a six-month total return of 17.62 percent/1/, as of
June 30, 1998. By comparison, the Standard & Poor's 500-Stock Index returned
17.67 percent, and the Lipper Growth Fund Index, which more closely resembles
the Portfolio, returned 15.59 percent. The S&P 500-Stock Index is a broad-based,
unmanaged index that reflects the general performance of the stock market, and
the Lipper Growth Fund Index reflects the average performance of the 30 largest
growth funds.
These indices are statistical composites that do not include any commissions
or sales charges that would be paid by an investor purchasing the securities
represented by these indices. Please refer to the chart on page three for
additional Portfolio performance results.
Q What is your outlook for the Portfolio through the rest of the year?
A In the near term, we see little to disrupt the present state of affairs--
favorable inflation and solid, controlled economic growth should continue to
support the stock market. One important change, however, is that corporate
earnings estimates are beginning to slow down. In the last several years, many
companies implemented strategies to streamline their businesses and increase
profitability, and they've run out of easy ways to enhance their profits. While
we expect most companies to continue to show solid growth, the majority will not
be able to achieve the remarkable growth rates they enjoyed during the past
several years. We believe the few companies that are able to demonstrate such
growth levels will be the big winners in the long term.
The investment style of the Enterprise Portfolio is well suited for these
conditions, as we target those companies that we believe can demonstrate above-
average growth rates at reasonable prices. In this type of environment, where
superior earnings growth is harder to achieve, we feel the Enterprise Portfolio
may be able to add value to shareholders through disciplined stock selection.
<TABLE>
<CAPTION>
/s/ Jeff D. New /s/ Michael Davis /s/ Dennis J. McDonnell
<S> <C> <C>
Jeff D. New Michael Davis Dennis J. McDonnell
Portfolio Manager Portfolio Comanager President
Enterprise Portfolio Enterprise Portfolio Van Kampen Asset Management Inc.
</TABLE>
Please see footnotes on page three
12
<PAGE>
Portfolio Management Review
Global Equity Portfolio
The following is an interview with the management team of the Van Kampen Life
Investment Trust--Global Equity Portfolio. The Portfolio is managed by portfolio
managers Barton M. Biggs and Ann D. Thivierge, Morgan Stanley Asset Management
Inc.
Q How would you characterize the market conditions in which the Portfolio
operated during the six-month period ended June 30, 1998?
A During the period, there were several prevailing trends in the global
marketplace:
. Asian stocks remained weak in the aftermath of the severe financial
crises that shook the region last year. After rebounding early in
1998, most Asian markets fell back toward 12-month lows as social and
political turmoil underscored the deepening recession in Asia. At the
same time, chronic economic weakness in Japan has compounded the
difficulties for its Asian trading partners.
. European stock soared on strengthening economic growth, falling
interest rates, and low inflation. In May the European Monetary Union
(EMU), set to begin in January 1999, officially named its 11
participant nations. We believe that monetary union has begun to
enhance Europe's growth prospects and ability to restructure its
markets and economics. We further expect to see continued crossborder
mergers and acquisitions, especially in the financial sector.
. In the United States, stocks continued a more than seven-year bull
market, powered by robust economic growth and exceptionally low
inflation. As the reporting period ended, however, there was tentative
evidence that drag from Asia was beginning to have a negative impact
on earnings.
Q What significant investment strategies and techniques did you use to pursue
the Portfolio's investment objective?
A As of the end of the reporting period, the Portfolio had the following
regional allocations relative to six months earlier:
<TABLE>
<CAPTION>
Change in
June 30, 1998* December 30, 1997* Percentage
-------------- ------------------ ----------
<S> <C> <C> <C>
North America........................................... 47.70% ......... 47.36% ......... 0.34%
Europe.................................................. 33.95% ......... 33.19% ......... 0.76%
Far East................................................ 14.55% ......... 13.19% ......... 1.36%
Other................................................... 3.80% ......... 6.26% ......... -2.46%
</TABLE>
*As a percentage of long-term investments.
. We increased weightings in Europe, based on our view that the economic
environment there is both improving and supports earnings growth.
. We significantly underweighted the Portfolio's exposure to Asia and
Japan in the wake of that region's ongoing economic turbulence.
. We remained underweight in the United States because of concerns about
stock valuations and a looming deceleration in corporate profit growth.
. We kept cash levels high, reflecting our preference to maintain
liquidity in order to capitalize on attractive buying opportunities in
the future.
Q How has the Portfolio performed during the reporting period?
A The portfolio's total return during the six months ended June 30, 1998 was
16.92 percent/1/ (Class A shares at net asset value). During the same period,
the Morgan Stanley Capital International (MSCI) World Index returned 15.92
percent. The MSCI World Index is a broad-based index used as a benchmark for
general global equity funds. It does not reflect any commissions or sales
charges that would be paid by an investor purchasing the securities it
represents. Please refer to the chart on page three for additional Portfolio
performance results.
13
<PAGE>
Top Five Countries Represented
in the Portfolio
as of June 30, 1998
United States
United Kingdom
Japan
Germany
France
Q What is your outlook for the months ahead?
A We believe that a meaningful recovery in Asia is not yet in sight. Before
global confidence can be restored, significant political and economic reform
must take place. To date, such reform has generally been too little and too
late. While we do not expect the turmoil in Asia to cause a devaluation of the
Chinese currency, we nonetheless believe that it is too early to commit funds to
the region. We remain positive on Europe. Although stock valuations are not
particularly compelling, they are well supported by double-digit earnings growth
and the accelerating pace of economic activity. We also expect that monetary
union will encourage important corporate and government restructuring, as well
as further liberalization of markets and economies. Prior to monetary union, for
example, real or inflation-adjusted interest rates were typically high
throughout Europe, encouraging investors to park cash in money market funds. The
general decline of short-term rates throughout the Continent, however, is
motivating investors to increase their exposure to stocks. We are more cautious
about near-term prospects for stocks in the United States, where high valuations
and slow growth in profits could limit the equity market's upside potential over
the near term.
/s/ Barton M. Biggs /s/ Ann D. Thivierge
Barton M. Biggs Ann D. Thivierge
Portfolio Manager Portfolio Manager
Morgan Stanley Asset Management Inc. Morgan Stanley Asset Management Inc.
Please see footnotes on page three
14
<PAGE>
Portfolio Management Review
Government Portfolio
The following is an interview with the management team of the Van Kampen Life
Investment Trust--Government Portfolio. The team is led by John R. Reynoldson,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
Q How would you describe the market in which the Portfolio operated during
this period?
A For the first six months of the year, the benchmark 10-year Treasury was
predominately restricted to a narrow yield range. At the same time, the market
continued to operate under a cloud of suspicion regarding the Asian currency
crisis. When renewed rumblings of international problems emerged in the second
quarter, the 10-year Treasury dropped below 5.50 percent.
The impact from Asia also tempered fears of inflation in the United States in
spite of continued strong economic growth. Consequently, Federal Reserve Board
meetings during the period resulted in no change to the federal funds rate.
Chairman Alan Greenspan's sentiments supported the theory that the problems in
Asia will likely continue to affect the U.S. economy for some time, decreasing
the need for a more restrictive monetary policy.
In addition to the fact that this period was marked by low volatility and
relatively few changes to the fixed-income market, the yield curve between long-
term and short-term securities continued to flatten, with rates for long-term
securities decreasing more than rates for short-term securities. As a result,
investors were more willing to purchase higher-yielding securities in spite of
the additional risk these securities represent.
Q How did these conditions affect your management of the Portfolio?
A In this low-volatility, low-yield environment, we maintained the Portfolio's
position in mortgage-backed securities with an increased focus on reducing the
portfolio's exposure to prepayment risk. Securities with high coupon--generally
at or above eight percent--were especially at risk in the first few months of
the year. Consequently, we allocated a portion of the Portfolio's assets to FNMA
15-year mortgage bonds with six to seven percent coupons.
We finished the period with approximately 60 percent of long-term investments
in mortgage-backed investments and the remainder invested in Treasury
securities. This profile represents an overweighting in more conservative 15-
and 30-year bonds with an average 6.5 and 7.0 percent coupon and a bias toward
GNMAs, which tend to have less exposure to prepayment risks than FNMAs and
FHLMCs. Because of the flattening yield curve, the majority of the portfolio's
Treasury securities were invested in the long end of the curve. Following the
bond rally in January, we reduced the Portfolio's duration to more neutral
levels, but extended it somewhat in mid-April. At the end of the period, the
duration was 5.5 years.
Q How did the Portfolio perform during the reporting period?
A For the six-month period ended June 30, 1998, the Portfolio generated a
total return of 4.24 percent/1/. By comparison, the Lehman Brothers Mutual Fund
U.S. Government/Mortgage Index posted a total return of 3.88 percent for the
same period. This broad-based, unmanaged index reflects the general performance
of U.S. government and mortgage-backed securities. This index does not reflect
any commissions or fees that would be paid by an investor purchasing the
securities it represents. For additional performance results, please refer to
the chart on page four.
15
<PAGE>
Q What is your outlook for the months ahead?
A By the end of the second quarter, economic growth was showing signs of
slowing down. We look for this trend to continue, particularly in light of a
buildup in manufacturing inventories resulting from decreased demand for exports
from Asia. With this in mind, we expect to operate the Portfolio in a very
constructive market. As such, we will continue to judiciously monitor the
portfolio's exposure to mortgage-backed securities with an eye toward the risk
of increased prepayments. In addition to generally maintaining an average to
somewhat long duration, we will also continue to preserve the Portfolio's makeup
of lower coupon holdings with a focus on GNMA and 15-year paper, and longer-term
Treasuries.
/s/ Peter W. Hegel /s/ John R. Reynoldson
Peter W. Hegel John R. Reynoldson
Chief Investment Officer Portfolio Manager
Fixed Income Investments Government Portfolio
Please see footnotes on page four
16
<PAGE>
Portfolio Management Review
Growth and Income Portfolio
The following is an interview with the portfolio management team of Van Kampen
Life Investment Trust-Growth and Income Portfolio. The team is led by James A.
Gilligan, portfolio manager, Scott Carroll, associate portfolio manager, and
Dennis J. McDonnell, president of the adviser.
Q How would you describe the market environment in which the Portfolio
operated during this six-month period?
A We've witnessed a continuation of the conditions that dominated the market
in late 1997. The currency crisis in Asia continued to capture investors'
attention: fears about its impact on the U.S. market eased in the final months
of last year, but were reactivated by cautionary comments from Federal Reserve
Board Chairman Alan Greenspan in the second quarter of 1998. Despite
distractions from across the ocean, the Dow Jones industrial average maintained
its climb, reaching new highs and wowing investors. By mid-April, the Dow crept
over the coveted 9,000-point mark but fluctuated within a 200-point range above
and below this record high in the final weeks of the reporting period.
Overall, the market has been healthy and inflation continues to be nominal,
but earnings growth has slowed somewhat and reports of earnings disappointments
have increased, particularly in those companies with exposure to Asia. The
majority of companies reporting disappointing earnings were small-capitalization
companies in the technology industry.
Q How was your management of the Portfolio affected by these market
conditions?
A An increase in the level of large-scale, high-visibility merger and
acquisition activity--encompassing banking, telephone, automotive, and airline
industries--has further fueled the rise in market prices that we discussed in
your last report. Speaking broadly, it's a much more expensive market than a
year ago, which makes for a challenging environment for a value-oriented
portfolio like this one. Our concern that valuations are overextended is
certainly reflected in how we manage the Portfolio. When searching for new
portfolio holdings, we want to identify stocks with a limited potential for
downward movement that exhibit the potential for significant appreciation. On
the flip side of the coin, we continually review the Portfolio's existing
holdings, replacing overvalued stocks with stocks that we believe have better
value characteristics. We consult any number of sources before we decide that a
position should be reduced or eliminated, including discussions with the
company's management, key vendors and competitors, and research based on
anecdotal evidence.
Q Tell us about some of the major sectors and specific holdings represented in
the Portfolio.
A The Portfolio's largest sector weighting is in finance, an industry that was
dominated by merger and acquisition activity during the period. Our most
significant positions were Chase Manhattan, NationsBank, First Union, and
Equitable Companies; we increased our holding in the latter position due to
vastly improved results in the company's earnings. Both First Union and
NationsBank announced major acquisitions during the period and turned in
slightly disappointing returns as a result. We believe that, in the long run,
investors will again reward these companies with higher share prices as their
successes with consolidation are borne out in their earnings.
Among the largest sector in the Portfolio is health care, which continues to
be an exciting industry. Our largest holding, PacifiCare Health Systems, boasted
a terrific return after a disappointing 1997, thanks to rate increases
instituted in 1998 and the alleviation of cost pressures. American Home
Products, another dominant holding, was also a good performer following the
recall of its weight loss drug Redux. This sector has produced very few
disappointments in the Fund's portfolio because of the underlying growth of the
health-care industry, but we did reduce some positions due to high valuations.
Unlike the previous two sectors, the technology industry was the source of
more disappointments than successes, largely because of the upheaval in Asia.
We've been particularly displeased with stocks in the semiconductor sector,
which included VLSI, a mid-size position in the portfolio, and networking stocks
such as 3Com and Cabletron Systems. However, the news wasn't all bad in
technology: our largest stock, IBM continued to hold its ground. As a large,
established company focusing on growth in its services business, it was somewhat
shielded from the big disappointments that plagued smaller hardware-oriented
companies. This was also the case for Xerox, which continued to meet growth
objectives during the period. Another large technology holding, Alcatel,
performed very well as investors took notice of the positive changes ushered in
by new management.
17
<PAGE>
We continue to be pleased with developments in the utility industry, which is
the second-largest sector represented in the Portfolio. Telephone stocks in
general turned in strong performances, partially buoyed by increased merger and
acquisition activity. Electric stocks presented something of a mixed bag; one
success was Northeast Utilities, which appreciated in anticipation of restarting
one of the company's nuclear plants.
Finally, we maintained a small but successful percentage of the Portfolio in
retail stocks. Our best-performing stock in this sector, and perhaps in the
Portfolio, was Tommy Hilfiger, which was added to the Portfolio in late 1997.
Overall, retail stocks performed very well during the period, buoyed by
increases in consumer spending.
Q How did the Portfolio perform during the reporting period?
A The Portfolio achieved a total return of 15.40 percent/1/ for the six-month
period ended June 30, 1998. By comparison, the Standard & Poor's 500-Stock Index
returned 17.67 percent for the same period. The S&P 500-Stock Index is a broad-
based index that reflects the general performance of the stock market; this
statistical composite does not reflect any commissions or sales charges that
would be paid by an investor purchasing the securities it represents. Please
refer to the chart on page four for additional Portfolio performance results.
Q What do you see happening in the market over the coming months?
A We expect the market to be challenging through the end of 1998. Although the
Dow has continued to set new record highs, estimates for 1998 corporate profits
have been reduced. However, even though the turmoil in Asia is causing a
slowdown in global economic growth, the economy at home is still relatively
healthy. The job market is exceptionally tight, and while this has not had a
significant impact in the reported wage inflation data, it is a reason for
concern if continuing low unemployment gives rise to wage inflation. Meanwhile,
the Fed has also expressed some concern about the level of appreciation in
financial assets, particularly in the stock market.
Although we monitor economic and market conditions carefully to gauge how they
may affect the Portfolio, our focus remains unaltered: to continue to meet the
Portfolio's objective of providing income and long-term growth of capital to its
shareholders. We will continue to stay as fully invested as possible and manage
the Portfolio with an eye toward value and growth.
/s/ James A. Gilligan /s/ Dennis J. McDonnell
James A. Gilligan Dennis J. McDonnell
Portfolio Manager President
Growth and Income Portfolio Van Kampen Asset Management Inc.
Please see footnotes on page four
18
<PAGE>
Portfolio Management Review
Money Market Portfolio
The following is an interview with the management team of the Van Kampen Life
Investment Trust--Money Market Portfolio. The team is led by Reid J. Hill,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
Q How would you describe the investment environment in which the Portfolio has
operated during the past six months?
A During the period inflation remained mild despite strong economic growth,
the dollar rose against major foreign currencies, and U.S. interest rates
continued to decline to near-record lows. This strength in the U.S. economy and
turmoil in the Asian markets highlighted the past six months.
Although it was difficult to find a consensus on how the Asian crisis might
affect U.S. markets in the long term, some of the immediate effects were the
decrease in demand for U.S. goods from Asia and an increase in corporate
earnings disappointments, particularly from technology companies. As a result of
these factors, Federal Reserve Board meetings conducted throughout the year
concluded with no change in the federal funds interest rate.
Interest rates remained within a tight trading range, with the 30-year U.S.
Treasury yield trading in a 50 basis point (0.5 percent) range during the
period.
Q How did you manage the Portfolio under these conditions?
A We continued to pursue the Portfolio's investment objectives of capital
protection and high current income in a cautious fashion. At the end of the
period, 49.5 percent of the Portfolio was invested in high-grade corporate
bonds, 31.8 percent in repurchase agreements, and the balance in government
agency obligations.
During the period, we decreased the Portfolio's weighting in government
obligations in favor of new commercial paper. The Portfolio's weightings in
repurchase agreements also help to provide enhanced yield opportunities.
The commercial paper held in the Portfolio is composed of high-rated, short-
term corporate securities with ratings of at least A-1/P-1 from Moody's and
Standard & Poor's. These corporate securities provide income without assuming
excessive risk. Due to a flat yield curve, the majority of commercial paper held
in the Portfolio matures in 90 days or less. In the current interest-rate
environment, there is little benefit in extending the Portfolio's risk by
investing in longer-term paper that provides only a slightly higher return. This
stance also provides a defensive measure in case of a possible interest rate
hike from the Fed in light of the economy's continuing strength.
Q How did the Portfolio perform during the six-month reporting period?
A The Portfolio continued to provide shareholders with relative stability,
daily liquidity at $1.00 per share, and a competitive level of current income.
Through the six-month period ended June 30, 1998, the Portfolio produced a total
return of 2.50 percent at net asset value. As of June 30, the Portfolio
generated a seven-day average yield of 5.1 percent and a 30-day effective yield
of 5.0 percent. The yield quotation more closely reflects the current earnings
of the Portfolio than the total return quotation. The Portfolio's net asset
value remained unchanged at $1.00 per share throughout the reporting period.
Q What is your economic outlook for the months ahead?
A Although the effects of the Asian crisis have prevented the Fed from
instituting a rate hike, a tightening seems to be a realistic possibility by the
end of the year. The current "Goldilocks" economy of strong growth and low
inflation does not seem sustainable, as suggested by conditions such as record-
low unemployment, normally a trigger for inflation.
19
<PAGE>
With this perspective, we will continue to hold short-term securities that
help reduce the Portfolio's exposure to risks while still contributing to its
return. If the Fed takes action or if there are significant changes in
inflationary pressures, we may adjust the average maturity accordingly.
Based on the overall market's volatility caused by turmoil in Asia and the
emerging markets, we believe the Portfolio, with its conservative holdings and
principal stability, continues to be an appropriate vehicle for investors to
diversify their portfolios.
/s/ Peter W. Hegel /s/ Reid J. Hill
Peter W. Hegel Reid J. Hill
Chief Investment Officer Portfolio Manager
Fixed Income Investments Money Market Portfolio
An investment in the Portfolio is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
20
<PAGE>
Portfolio Management Review
Morgan Stanley Real Estate Securities Portfolio
The following is an interview with the portfolio management team of Van Kampen
Life Investment Trust--Morgan Stanley Real Estate Securities Portfolio*. The
team is led by portfolio managers Russell C. Platt and Theodore R. Bigman.
Q What were the market conditions in which the Portfolio operated during the
reporting period?
A The past six months presented a difficult environment for REIT investors. In
the first quarter, continued strength in the U.S. equity market led non-
dedicated real estate investors, or general growth and income investors, to move
funds to the broad market from the REIT sector. The second quarter provided very
little to cheer REIT investors as the continuation of price weakness led to a
greater focus on real estate fundamentals in the near term. The NAREIT (National
Association of Real Estate Investment Trusts) Equity Index declined -5.95
percent for the quarter and was down -7.60 percent as of June 30, 1998.
As the U.S. real estate market cycle continued to move into equilibrium, the
level of new construction began to raise concerns that supply would soon surpass
demand. Although this did not occur during the period, we expect the price to
earnings ratios to contract in anticipation of deteriorating fundamentals. The
multifamily and industrial markets already achieved equilibrium with limited
pockets of current supply problems.
Despite a rapidly accelerating pace of new office development, the potential
for occupancy pressure does not appear on the horizon until 1999. New
development is only in the early stages in a number of central business
locations. In the hotel sector, although recent concerns focused on the limited
service segment of the market, the cautionary yellow flag is now being waved for
each of the categories. Potential oversupply in the hotel sector creates greater
concern than other sectors because the typical lease in a hotel is only one
night and, as a result, the economic picture can deteriorate rapidly. In light
of the strong economy, retail sales were buoyant, resulting in strong results
for retailers and greater demand to open new stores. We expect new development
to meet this demand.
Q How did you position the portfolio during this time?
A We continued to shape the portfolio with companies that we feel offered
attractive fundamental valuations relative to their underlying real estate
value. As a result, we added a number of large-capitalization companies that
faced the largest price compression. From a top-down perspective, we
significantly added to the office companies sector as a result of price
decreases. We had attempted to overweight the office sector previously due to
favorable fundamentals, but the lofty prices caused us to temper that decision.
These high prices were the result of external growth expectations, which are in
the process of being reevaluated. Despite the price pressure in the hotel
sector, we modestly decreased our exposure due to the concern discussed above.
In order to pay for the addition to the portfolio's office holdings, we
decreased our exposure to both the multi-family and health-care sectors. These
sectors did not suffer the same declines in share price.
Q What was the Portfolio's performance at the end of the six-month period?
A The Portfolio achieved a total return of -4.88 percent/1/ for the six-month
period ended June 30, 1998. This performance compares favorably to the total
return of the NAREIT Equity REIT Index of -7.60 percent over the same period.
The NAREIT Index is an unmanaged index that reflects the performance of a broad
range of equity REITs of all property types. By comparison, the Standard &
Poor's 500-Stock Index registered a total return of 17.67 percent in the six
months ended June 30, 1998. The S&P 500-Stock Index is a broad-based, unmanaged
index that reflects the general performance of the stock market. These indices
are unmanaged statistical composites that do not reflect any commissions, fees,
or sales charges that would be incurred by an investor purchasing the securities
they represent. Please refer to the chart on page four for additional Portfolio
performance results.
* On April 23, 1998, the Board of Trustees approved a subadvisory agreement with
Morgan Stanley Asset Management Inc. (the "Subadviser") to provide advisory
services to the Fund and Van Kampen Asset Management Inc. (the "Adviser") with
respect to the Fund's investments. The Adviser will pay 50 percent of its
advisory fee to the Subadviser. This subadvisory agreement will become
effective October 1, 1998.
21
<PAGE>
Q What is your outlook for the real estate market and for the Portfolio?
A After three years of strong performance, the sector is faced with the
competing rally cries of REIT bulls and bears. Bullish analysts point to the
large disparity between the relative average multiple of the S&P versus REITs.
These analysts also applaud REITs for their defensive characteristics and for
providing portfolio diversification. Bears indicate the cyclical nature of the
real estate asset class and argue that multiples have begun to contract in
anticipation of a slowdown in the rate of return in U.S. commercial real estate
and an eventual downturn in capital values. Other criticisms from the bears
include the notion that REITs' reliance on raising equity capital for growth
provides a ceiling on share prices, and that the supply-and-demand imbalance for
REIT shares may continue. This opinion reflects the idea that current non-
dedicated investors will continue to exit the sector; in addition, it is not
clear how much demand will be provided by value-oriented investors or those
investors searching for defensive vehicles.
It is not surprising that the equity offering calendar was very light in the
second quarter, and the few deals that were completed were priced at far lower
levels than were desired by issuers. We expect that, given current valuations, a
number of planned IPOs will be postponed until the market can recover. In
addition, a number of companies that have completed acquisitions and had
expected to complete equity follow-on offerings need to study their alternatives
carefully. Clearly, if current pricing levels are to persist, the rapid pace of
equity securitization will slow as companies will be reluctant (or unable) to
raise equity capital to finance their growth. This should apply to both
acquisitions financed by cash as well as the trend of trading property for
shares with institutional investors and private companies. Finally, we expect
that the merger environment may heat up as some companies are trading at and
below valuation levels that approximate their private real estate value.
<TABLE>
<S> <C>
/s/ Russell C. Platt /s/ Theodore R. Bigman
Russell C. Platt Theodore R. Bigman
Portfolio Manager Portfolio Manager
Morgan Stanley Real Estate Securities Portfolio Morgan Stanley Real Estate Securities Portfolio
</TABLE>
Please see footnotes on page four
22
<PAGE>
Portfolio Management Review
Strategic Stock Portfolio
The following is an interview with the portfolio management team of the Van
Kampen Life Investment Trust--Strategic Stock Portfolio. The team is led by John
M. Cunniff, portfolio manager, and Dennis J. McDonnell, president of the
adviser.
Q Can you describe the stock market environment for the Portfolio during the
past six months?
A The stock market was influenced by two opposing factors. On the home front,
steady economic growth and low inflation provided a very favorable climate for
stocks. However, the aftermath of the currency collapse in Southeast Asia
threatened to slow the economies of countries around the world. Fortunately for
equity investors, positive economic conditions in the United States had a
greater influence on the stock market than overseas turmoil did. The Dow Jones
Industrial Average set record highs throughout the reporting period and has
fluctuated around the 9000 mark since April. Investors continued to favor large,
well-established companies during the reporting period because of their
uncertainty about how the Asian situation would affect the U.S. markets. As a
result, large-capitalization companies generally made greater gains than small-
cap firms did.
Q How did you seek to meet the Portfolio's objective?
A We use a disciplined strategy to select undervalued stocks of high-quality
companies. First, we analyze the Dow, which is composed of 30 blue-chip stocks.
Each month, we invest half of the Portfolio's new assets into equal amounts of
the 10 Dow stocks with the highest dividend yields. Investors often refer to
this as a "Dogs of the Dow" strategy.
Next, we review nearly 370 large-company, domestic stocks that comprise the
Morgan Stanley Capital International-USA Index. We exclude the 30 stocks of the
Dow and all utility and financial stocks, and the remaining securities are
screened for factors such as sales growth, earnings growth, dividend
performance, and trading volume. Of the securities that pass our screen, we
select the 10 stocks with the highest dividend yields, and the other half of the
Portfolio's new assets go into these stocks.
By limiting our investments to these two indices, we're selecting from a pool
of high-quality U.S. companies. And because stocks with high dividend yields
tend to be undervalued, our strategy pinpoints those companies that could
potentially rebound in price.
Q How does this strategy work over time?
A Every month, we purchase 20 stocks--10 from each index--until there are 12
separate "baskets" of stocks. Each basket is sold after 12 months, and a new
basket is purchased to replace it. It is important to understand that
shareholders of the Portfolio don't own just one basket of stocks. They own
shares of the whole Portfolio, which contains multiple baskets.
Through this selection process, the Portfolio is rotated every month to
purchase stocks that may be undervalued in the market place and sell stocks that
have had a full 12 months to potentially rebound to their fair value. It has
been our experience that solid, well-established companies don't often languish
at reduced valuations. Their true worth is usually recognized quickly by the
market. Our strategy gives each stock a 12-month window to achieve its
appreciation potential.
Q What stocks had the greatest effect on the Portfolio?
A The Portfolio's largest holdings are stocks that showed up in our screens
month after month and therefore were purchased several times during the
reporting period. These stocks include familiar names such as Eastman Kodak,
Exxon, Chevron, Minnesota Mining & Manufacturing (3M), and AT&T.
Some of the Portfolio's strongest stocks came from the auto and pharmaceutical
industries. Many auto companies led the stock market, because their sales
exceeded expectations. Our holdings included Chrysler, which appreciated 60
percent during the past six months. The stock received a boost when Daimler Benz
announced it would buy out Chrysler later this year at a significant premium.
Another favorable stock was American Home Products, a pharmaceutical company
whose stock price increased almost 35 percent during the reporting period.
Investors have typically favored pharmaceutical stocks during periods of market
uncertainty, due to their history of steady earnings growth. Of course, not all
stocks in the Portfolio performed as favorably, and there is no guarantee that
any of these stocks will perform as well in the future.
23
<PAGE>
Oil company stocks, including Chevron, Mobil, Exxon, and Amoco, showed up
consistently in our screens. These companies struggled this year as oil
commodity prices fell drastically. The decrease in demand among Asian nations
contributed to an excess supply and, consequently, lower prices. Another stock
that didn't perform well was Philip Morris. Tobacco stocks in general took a
downturn when the Clinton administration began negotiating an industry liability
settlement earlier in the year.
Q How did the Portfolio perform in the past six months?
A The Portfolio achieved a six-month total return of 9.87 percent/1/, as of
June 30, 1998. By comparison, the Standard & Poor's 500-Stock Index returned
17.67 percent, the Dow Jones Industrial Average returned 14.13 percent, and the
MSCI-USA Index returned 17.14 for the same period.
The S&P 500-Stock Index is a broad-based, unmanaged index that reflects the
general performance of the stock market. The DJIA consists of 30 actively traded
stocks of well-established, blue chip companies, and the MSCI-USA Index achieves
a 60 percent representation of U.S. market capitalization, as well as 60 percent
of the capitalization of each industry group. These indices are statistical
composites that do not include any commissions that would be paid by an investor
purchasing the securities represented by these indices. Please refer to the
chart on page four for additional performance results.
Q What is your outlook for the remainder of the year?
A At the time of your last report, the effects of the Asian economic crisis on
the U.S. stock market were unclear but ominous. Today, its effects are still
uncertain, but the domestic outlook is more positive: the crisis has had a
severe impact on a few segments of the U.S. market but otherwise has been fairly
contained. The stock market reached a succession of new highs during the
reporting period, and we expect that controlled growth and low inflation will
continue to support stock prices during the remainder of the year. The stock
market is still highly valued, however, and many stocks are at record prices.
Inflated stock prices translate into high risk for investors, because expensive
securities have farther to fall in a market downturn than low-priced stocks. As
we stated in your last report, we believe that investments such as the Strategic
Stock Portfolio, which owns undervalued securities, may be well suited for this
environment.
/s/ John M. Cunniff /s/ Dennis J. McDonnell
John M. Cunniff Dennis J. McDonnell
Portfolio Manager President
Strategic Stock Portfolio Van Kampen Asset Management Inc.
Please see footnotes on page four
24
<PAGE>
Asset Allocation Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
=========================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks 59.9%
Consumer Distribution 2.4%
CompUSA, Inc. (a)............................... 19,600 $ 354,025
Federated Department Stores, Inc. (a)........... 10,700 575,794
Proffitt's, Inc. (a)............................ 6,700 270,513
Sears Roebuck & Co.............................. 5,300 323,631
-----------
1,523,963
-----------
Consumer Non-Durables 7.9%
Dial Corp....................................... 37,400 970,063
First Brands Corp............................... 7,000 179,375
Kimberly Clark Corp............................. 16,600 761,525
Philip Morris Cos., Inc......................... 31,300 1,232,437
RJR Nabisco Holdings Corp....................... 38,600 916,750
Tommy Hilfiger Corp. (a)........................ 13,900 868,750
-----------
4,928,900
-----------
Consumer Services 0.5%
Hilton Hotels Corp.............................. 8,000 228,000
News Corp., Ltd. - ADR (Australia).............. 3,300 93,225
-----------
321,225
-----------
Energy 3.5%
Amoco Corp...................................... 7,800 324,675
Atlantic Richfield Co........................... 2,200 171,875
British Petroleum Co. Plc. - ADR (United Kingdom) 2,100 185,325
Chevron Corp.................................... 4,000 332,250
ENI, SpA - ADR (Italy).......................... 4,800 312,000
Rowan Cos., Inc. (a)............................ 5,000 97,188
Texaco, Inc..................................... 3,000 179,063
Total SA - ADR (France)......................... 3,956 258,623
USX - Marathon Group............................ 2,900 99,506
YPF Sociedad Anonima - ADR (Argentina).......... 8,400 252,525
-----------
2,213,030
-----------
Finance 9.3%
Aetna, Inc...................................... 1,900 144,637
Ambac Financial Group, Inc...................... 11,600 678,600
American Bankers Insurance Group, Inc........... 8,700 523,087
Banc One Corp................................... 3,650 203,716
BankAmerica Corp................................ 3,700 319,819
Bear Stearns Cos., Inc.......................... 5,738 326,349
Chase Manhattan Corp............................ 7,200 543,600
</TABLE>
See Notes to Financial Statements
25
<PAGE>
Asset Allocation Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Finance (Continued)
CMAC Investment Corp.................................. 9,800 $ 602,700
Conseco, Inc.......................................... 8,200 383,350
Everest Reinsurance Holdings, Inc..................... 5,600 215,250
First Union Corp...................................... 3,800 221,350
LandAmerica Financial Group, Inc...................... 4,100 234,725
Liberty Financial Cos., Inc........................... 3,350 115,575
MBIA, Inc............................................. 3,400 254,575
Nationwide Financial Services, Inc., Class A.......... 400 20,400
Norwest Corp.......................................... 6,300 235,462
United Asset Management Corp.......................... 7,900 205,894
Washington Mutual, Inc................................ 13,650 592,922
------------
5,822,011
------------
Healthcare 7.3%
American Home Products Corp........................... 17,000 879,750
Bausch & Lomb, Inc.................................... 10,100 506,263
Mylan Laboratories, Inc............................... 20,200 607,262
PacifiCare Health Systems, Class B (a)................ 8,700 768,862
Pharmacia & Upjohn, Inc............................... 7,100 327,488
Rhodia, SA - ADR (France) (a)......................... 3,500 95,375
Rhone-Poulenc, SA, Class A - ADR (France)............. 11,600 651,775
Tenet Healthcare Corp. (a)............................ 23,000 718,750
------------
4,555,525
------------
Producer Manufacturing 4.9%
Alstom SA - ADR (France) (a).......................... 11,500 374,469
American Power Conversion Corp. (a)................... 14,900 447,000
Bouygues Offshore SA - ADR (France)................... 7,300 154,213
Cognex Corp. (a)...................................... 14,600 270,100
LucasVarity Plc - ADR (United Kingdom)................ 5,200 207,025
Navistar International Corp. (a)...................... 6,300 181,912
The St. Joe Co........................................ 7,200 197,100
U.S. Filter Corp. (a)................................. 7,800 218,887
Waste Management, Inc................................. 28,000 980,000
------------
3,030,706
------------
Raw Materials/Processing Industries 4.9%
Barrick Gold Corp..................................... 16,600 318,512
Bethlehem Steel Corp. (a)............................. 7,600 94,525
Boise Cascade Corp.................................... 7,700 252,175
British Steel Plc - ADR (United Kingdom).............. 21,600 491,400
</TABLE>
See Notes to Financial Statements
26
<PAGE>
Asset Allocation Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw Materials/Processing Industries (Continued)
Champion International Corp.............................. 1,600 $ 78,700
Freeport-McMoRan Copper & Gold, Inc., Class B............ 11,000 167,063
Homestake Mining Co...................................... 41,800 433,675
Imperial Chemical Industries Plc - ADR (United Kingdom).. 2,700 174,150
Louisiana-Pacific Corp................................... 19,900 363,175
Newmont Mining Corp...................................... 14,600 344,925
Placer Dome, Inc......................................... 22,600 265,550
Stone Container Corp. (a)................................ 7,000 109,375
------------
3,093,225
------------
Technology 4.1%
Amkor Technology, Inc. (a)............................... 21,400 199,956
Avnet, Inc............................................... 3,100 169,531
Cypress Semiconductor Corp. (a).......................... 1,100 9,144
Electronics for Imaging, Inc. (a)........................ 9,400 198,575
Etec Systems, Inc. (a)................................... 4,000 140,750
Micron Technology, Inc. (a).............................. 11,700 290,306
Nokia Corp. Preferred Shares - ADR (Finland)............. 2,600 188,663
Quantum Corp. (a)........................................ 20,500 425,375
SunGard Data Systems, Inc. (a)........................... 20,400 782,850
VLSI Technology, Inc. (a)................................ 10,100 169,491
------------
2,574,641
------------
Transportation 0.7%
Canadian National Railway Co............................. 8,000 425,000
------------
Utilities 14.4%
Ameritech Corp........................................... 11,600 520,550
Baltimore Gas & Electric Co.............................. 2,200 68,338
BEC Energy............................................... 8,600 356,900
Bell Atlantic Corp....................................... 8,600 392,375
BellSouth Corp........................................... 3,300 221,513
CMS Energy Group......................................... 3,800 167,200
DTE Energy Co............................................ 6,900 278,587
Edison International..................................... 2,500 73,906
Endesa SA - ADR (Spain).................................. 11,100 240,037
FPL Group, Inc........................................... 1,700 107,100
GPU, Inc................................................. 11,100 419,719
Houston Industries, Inc.................................. 32,400 1,000,350
Idaho Power Co........................................... 12,900 446,662
Illinova Corp............................................ 9,000 270,000
</TABLE>
See Notes to Financial Statements
27
<PAGE>
Asset Allocation Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Utilities (Continued)
New Century Energies, Inc........................ 3,205 $ 145,627
Niagara Mohawk Power Corp. (a)................... 3,000 44,813
Nipsco Industries, Inc........................... 4,000 112,000
Northeast Utilities (a).......................... 10,300 174,456
Northern States Power Co......................... 8,200 234,725
OGE Energy Corp.................................. 14,600 394,200
PacifiCorp....................................... 23,200 524,900
Pinnacle West Capital Corp....................... 11,500 517,500
Public Service Co. of New Mexico................. 14,400 326,700
SBC Communications, Inc.......................... 8,800 352,000
Sierra Pacific Resources......................... 1,000 36,313
Texas Utilities Co............................... 24,300 1,011,487
U.S. WEST Communications Group................... 12,000 564,000
------------
9,001,958
------------
Total Common and Preferred Stocks 59.9%....................... 37,490,184
-----------
</TABLE>
See Notes to Financial Statements
28
<PAGE>
Asset Allocation Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Debt 21.6%
Consumer Distribution 1.6%
$ 1,000 Sears Roebuck Acceptance Corp............. 6.750% 09/15/05 $ 1,031,400
------------
Consumer Non-Durables 1.6%
1,000 Anheuser Busch Co., Inc................... 7.000 09/01/05 1,032,510
------------
Consumer Services 1.7%
1,000 Cox Communications, Inc................... 6.875 06/15/05 1,034,700
------------
Energy 3.7%
1,000 Burlington Resources, Inc................. 9.125 10/01/21 1,286,300
1,000 Enron Corp................................ 6.875 10/15/07 1,025,700
------------
2,312,000
------------
Technology 5.2%
1,000 Boeing, Inc............................... 8.100 11/15/06 1,129,300
1,000 Philips Electronics NV (Netherlands)...... 8.375 09/15/06 1,124,000
1,000 Raytheon Co............................... 6.750 08/15/07 1,028,600
------------
3,281,900
------------
Transportation 2.7%
1,000 Norfolk Southern Corp..................... 7.700 05/15/17 1,125,700
500 Southwest Airlines Co..................... 7.375 03/01/27 547,450
------------
1,673,150
------------
Utilities 5.1%
1,000 Baltimore Gas & Electric Co............... 7.500 01/15/07 1,092,500
1,000 GTE Southwest, Inc........................ 6.230 01/01/07 998,700
1,000 Texas Utilities Electric Co............... 8.250 04/01/04 1,098,750
------------
3,189,950
------------
Total Corporate Debt 21.6%................................ 13,555,610
------------
Government and Agency Obligations 1.7%
1,000 Province of Nova Scotia (Canada).......... 7.250 07/27/13 1,091,500
------------
United States Government Obligations 13.7%
3,800 U.S. Treasury Bond........................ 7.125 02/15/23 4,497,186
3,000 U.S. Treasury Bond........................ 7.250 05/15/16 3,516,090
500 U.S. Treasury Note........................ 7.250 08/15/04 544,360
-----------
Total United States Government Obligations.................. 8,557,636
------------
Total Long-Term Investments 96.9% (Cost $51,307,689)....... 60,694,930
------------
</TABLE>
See Notes to Financial Statements
29
<PAGE>
Asset Allocation Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Market Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Repurchase Agreement 2.4%
Swiss Bank Corp. ($1,505,000 par collateralized by U.S. Government obligations in a pooled cash
account, dated 06/30/98, to be sold on 07/01/98 at $1,505,242)
(Cost $1,505,000).............................................................................. $ 1,505,000
-------------
Total Investments 99.3%
(Cost $52,812,689)............................................................................. 62,199,930
Other Assets in Excess of Liabilities 0.7%...................................................... 419,660
-------------
Net Assets 100.0%............................................................................... $62,619,590
=============
(a) Non-income producing security as this stock currently does not declare dividends.
</TABLE>
See Notes to Financial Statements
30
<PAGE>
Asset Allocation Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $52,812,689)........................................... $62,199,930
Cash........................................................................... 2,478
Receivables:
Interest...................................................................... 425,936
Dividends..................................................................... 118,278
Investments Sold.............................................................. 14,779
Other.......................................................................... 36,293
-----------
Total Assets............................................................... 62,797,694
-----------
Liabilities:
Payables:
Portfolio Shares Repurchased.................................................. 36,495
Investment Advisory Fee....................................................... 20,173
Distributor and Affiliates.................................................... 7,346
Trustees' Deferred Compensation and Retirement Plans........................... 92,549
Accrued Expenses............................................................... 21,541
-----------
Total Liabilities.......................................................... 178,104
-----------
Net Assets..................................................................... $62,619,590
===========
Net Assets Consist of:
Capital........................................................................ $49,829,793
Net Unrealized Appreciation.................................................... 9,387,241
Accumulated Net Realized Gain.................................................. 2,331,960
Accumulated Undistributed Net Investment Income................................ 1,070,596
-----------
Net Assets..................................................................... $62,619,590
===========
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $62,619,590 and 4,987,502 shares of beneficial interest
issued and outstanding)........................................................ $ 12.56
===========
</TABLE>
See Notes to Financial Statements
31
<PAGE>
Asset Allocation Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
================================================================================
<S> <C>
Investment Income:
Interest.......................................................... $ 908,947
Dividends......................................................... 401,968
----------
Total Income.................................................. 1,310,915
----------
Expenses:
Investment Advisory Fee........................................... 158,673
Audit............................................................. 12,298
Shareholder Reports............................................... 11,397
Custody........................................................... 10,366
Trustees' Fees and Expenses....................................... 10,331
Accounting........................................................ 8,738
Shareholder Services.............................................. 7,548
Legal............................................................. 1,810
Other............................................................. 13,583
----------
Total Expenses................................................ 234,744
Less Fees Deferred............................................ 44,264
----------
Net Expenses.................................................. 190,480
----------
Net Investment Income............................................. $1,120,435
==========
Realized and Unrealized Gain/Loss:
Net Realized Gain................................................. $2,381,727
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period......................................... 7,613,842
End of the Period:
Investments.................................................... 9,387,241
----------
Net Unrealized Appreciation During the Period..................... 1,773,399
----------
Net Realized and Unrealized Gain.................................. $4,155,126
==========
Net Increase in Net Assets From Operations........................ $5,275,561
==========
</TABLE>
See Notes to Financial Statements
32
<PAGE>
Asset Allocation Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.................................................... $ 1,120,435 $ 2,406,933
Net Realized Gain........................................................ 2,381,727 7,064,899
Net Unrealized Appreciation During the Period............................ 1,773,399 2,697,375
---------------- -----------------
Change in Net Assets from Operations..................................... 5,275,561 12,169,207
---------------- -----------------
Distributions from Net Investment Income................................. (67,589) (2,436,414)
Distributions from Net Realized Gain..................................... (1,826,978) (6,406,916)
---------------- -----------------
Total Distributions...................................................... (1,894,567) (8,843,330)
---------------- -----------------
Net Change in Net Assets from Investment Activities...................... 3,380,994 3,325,877
---------------- -----------------
From Capital Transactions:
Proceeds from Shares Sold................................................ 1,922,045 2,681,711
Net Asset Value of Shares Issued Through Dividend Reinvestment........... 1,894,567 8,843,330
Cost of Shares Repurchased............................................... (7,875,728) (15,502,271)
---------------- -----------------
Net Change in Net Assets from Capital Transactions....................... (4,059,116) (3,977,230)
---------------- -----------------
Total Decrease in Net Assets............................................. (678,122) (651,353)
Net Assets:
Beginning of the Period.................................................. 63,297,712 63,949,065
---------------- -----------------
End of the Period (Including accumulated undistributed net
investment income of $1,070,596 and $17,750, respectively)............. $ 62,619,590 $ 63,297,712
================ =================
</TABLE>
See Notes to Financial Statements
33
<PAGE>
Asset Allocation Portfolio Financial Highlights
The following presents financial highlights for one share of the Portfolio
outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -----------------------------------
June 30,1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..................... $ 11.910 $11.352 $ 11.64 $ 9.99 $11.80
-------- ------- ------- ------- ------
Net Investment Income...................................... .224 .513 .482 .48 .45
Net Realized and Unrealized Gain/Loss...................... .788 1.897 1.083 2.6425 (.89)
-------- ------- ------- ------- ------
Total from Investment Operations............................. 1.012 2.410 1.565 3.1225 (.44)
-------- ------- ------- ------- ------
Less:
Distributions from Net Investment Income................... .013 .518 .478 .4775 .45
Distributions from Net Realized Gain....................... .354 1.334 1.375 .995 .90
Distributions in Excess of Net Realized Gain............... -0- -0- -0- -0- .02
-------- ------- ------- ------- ------
Total Distributions.......................................... .367 1.852 1.853 1.4725 1.37
-------- ------- ------- ------- ------
Net Asset Value, End of the Period........................... $ 12.555 $11.910 $11.352 $ 11.64 $ 9.99
======== ======= ======= ======= ======
Total Return*................................................ 8.58%** 21.81% 13.87% 31.36% (3.66%)
Net Assets at End of the Period (In millions)................ $ 62.6 $ 63.3 $ 63.9 $ 63.0 $ 56.6
Ratio of Expenses to Average Net Assets*..................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*........ 3.53% 3.86% 3.78% 3.85% 3.70%
Portfolio Turnover........................................... 25%** 58% 118% 124% 163%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets...................... .74% .71% .81% .74% .72%
Ratio of Net Investment Income to Average Net Assets......... 3.39% 3.75% 3.57% 3.71% 3.58%
** Non-Annualized
</TABLE>
See Notes to Financial Statements
34
<PAGE>
Domestic Income Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
============================================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Debt 80.0%
Consumer Distribution 8.7%
$ 500 Borden, Inc............................................... 7.875% 02/15/23 $ 490,000
500 Gruma SA De CV, 144A - Private Placement (Mexico) (a)..... 7.625 10/15/07 479,300
500 Nabisco, Inc.............................................. 7.550 06/15/15 515,500
------------
1,484,800
------------
Consumer Non-Durables 3.0%
500 Westpoint Stevens, Inc., 144A - Private Placement (a)..... 7.875 06/15/05 505,000
------------
Consumer Services 16.1%
500 CSC Holdings, Inc......................................... 7.875 12/15/07 528,750
500 News America Holdings, Inc................................ 10.125 10/15/12 583,225
500 Royal Caribbean Cruises Ltd............................... 7.500 10/15/27 528,200
500 Valassis Communications, Inc.............................. 9.550 12/01/03 562,500
500 Viacom, Inc............................................... 7.625 01/15/16 542,500
------------
2,745,175
------------
Energy 6.3%
500 Occidental Petroleum Corp................................. 10.125 11/15/01 559,870
500 PDV America, Inc.......................................... 7.875 08/01/03 520,650
------------
1,080,520
------------
Finance 5.1%
385 First PV Funding Corp., Series 1986 A..................... 10.300 01/15/14 410,025
500 Macsaver Financial Services, Inc.......................... 7.600 08/01/07 468,450
------------
878,475
------------
Healthcare 8.9%
500 Beckman Coulter, Inc., 144A - Private Placement (a)....... 7.450 03/04/08 512,500
500 Manor Care, Inc........................................... 7.500 06/15/06 508,650
500 Tenet Healthcare Corp., 144A - Private Placement (a)...... 8.125 12/01/08 505,000
------------
1,526,150
------------
Producer Manufacturing 2.9%
500 Idex Corp................................................. 6.875 02/15/08 496,875
------------
Raw Materials/Processing Industries 9.3%
500 Georgia-Pacific Corp...................................... 9.950 06/15/02 559,600
500 Owens Illinois Inc........................................ 7.150 05/15/05 502,500
500 Viacap SA De CV, 144A - Private Placement (Mexico) (a).... 11.375 05/15/07 520,000
------------
1,582,100
------------
</TABLE>
See Notes to Financial Statements
35
<PAGE>
Domestic Income Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
===========================================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation 8.8%
$ 500 Delta Airlines, Inc....................................... 9.750% 05/15/21 $ 670,150
500 Norfolk Southern Corp..................................... 7.700 05/15/17 565,350
200 United Airlines, Inc......................................10.020 03/22/14 258,880
-------------
1,494,380
-------------
Utilities 10.9%
500 360 Communications Co..................................... 7.600 04/01/09 543,250
350 Monongahela Power Co...................................... 8.375 07/01/22 401,625
500 Niagara Mohawk Power Corp................................. 7.625 10/01/05 512,500
350 Public Service Co. of Colorado............................ 8.750 03/01/22 407,155
-------------
1,864,530
-------------
Total Corporate Debt 80.0%................................................... 13,658,005
-------------
Government Obligations 12.2%
466 Federal National Mortgage Association Pool (U.S.).........10.000 04/01/21 509,858
500 Republic of Argentina (Argentina).........................11.000 10/09/06 531,250
500 Republic of South Africa (South Africa)................... 8.500 06/23/17 481,000
500 United Mexican States (Mexico)............................11.375 09/15/16 557,500
-------------
Total Government Obligations.................................................. 2,079,608
-------------
Preferred Stock 3.9%
594 Time Warner, Inc., 594 Series M preferred shares,
dividend rate of $10.25, 144A - Private Placement (a)......................... 663,795
-------------
Total Long-Term Investments 96.1% (Cost $15,542,441)..................................... 16,401,408
-------------
Repurchase Agreement 3.0%
Swiss Bank Corp. ($515,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 06/30/98, to be sold on
07/01/98 at $515,083 (Cost $515,000).......................................... 515,000
-------------
Total Investments 99.1% (Cost $16,057,441)............................................... 16,916,408
Other Assets in Excess of Liabilities 0.9%............................................... 146,067
-------------
Net Assets 100.0%....................................................................... $17,062,475
=============
</TABLE>
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
36
<PAGE>
Domestic Income Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
==============================================================================================
Assets:
<S> <C>
Total Investments (Cost $16,057,441).............................................. $16,916,408
Cash.............................................................................. 4,274
Receivables:
Interest........................................................................ 254,690
Investments Sold................................................................ 10,000
Portfolio Shares Sold........................................................... 7,020
Expense Reimbursement by Adviser................................................ 6,636
Other............................................................................. 42,338
-----------
Total Assets.................................................................... 17,241,366
-----------
Liabilities:
Payables:
Portfolio Shares Repurchased.................................................... 65,502
Distributor and Affiliates...................................................... 3,980
Trustees' Deferred Compensation and Retirement Plans.............................. 88,888
Accrued Expenses.................................................................. 20,521
-----------
Total Liabilities............................................................... 178,891
-----------
Net Assets........................................................................ $17,062,475
===========
Net Assets Consist of:
Capital........................................................................... $16,853,911
Net Unrealized Appreciation....................................................... 858,967
Accumulated Undistributed Net Investment Income................................... 605,382
Accumulated Net Realized Loss..................................................... (1,255,785)
-----------
Net Assets........................................................................ $17,062,475
===========
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $17,062,475 and 1,989,028 shares of beneficial interest
issued and outstanding)......................................................... $ 8.58
===========
</TABLE>
See Notes to Financial Statements
37
<PAGE>
Domestic Income Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
=============================================================================================
<S> <C>
Investment Income:
Interest........................................................................ $ 640,279
Dividends....................................................................... 32,798
-----------
Total Income.................................................................. 673,077
-----------
Expenses:
Investment Advisory Fee......................................................... 42,106
Accounting...................................................................... 12,919
Shareholder Reports............................................................. 10,860
Audit........................................................................... 9,955
Trustees' Fees and Expenses..................................................... 8,011
Shareholder Services............................................................ 7,498
Custody......................................................................... 3,719
Legal........................................................................... 162
Other........................................................................... 3,823
-----------
Total Expenses................................................................ 99,053
Less Fees Deferred and Expenses Reimbursed ($42,106 and $6,421, respectively). 48,527
-----------
Net Expenses.................................................................. 50,526
-----------
Net Investment Income........................................................... $ 622,551
===========
Realized and Unrealized Gain/Loss:
Net Realized Gain............................................................... $ 66,719
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period....................................................... 850,053
End of the Period:
Investments................................................................. 858,967
-----------
Net Unrealized Appreciation During the Period................................... 8,914
-----------
Net Realized and Unrealized Gain................................................ $ 75,633
===========
Net Increase in Net Assets From Operations...................................... $ 698,184
===========
</TABLE>
See Notes to Financial Statements
38
<PAGE>
Domestic Income Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
========================================================================================================
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.......................................... $ 622,551 $ 1,342,453
Net Realized Gain.............................................. 66,719 366,896
Net Unrealized Appreciation During the Period.................. 8,914 186,254
---------------- ----------------
Change in Net Assets from Operations........................... 698,184 1,895,603
Distributions from Net Investment Income....................... (44,123) (1,365,434)
---------------- ----------------
Net Change in Net Assets from Investment Activities............ 654,061 530,169
---------------- ----------------
From Capital Transactions:
Proceeds from Shares Sold...................................... 1,816,207 5,508,385
Net Asset Value of Shares Issued Through Dividend Reinvestment. 44,123 1,365,434
Cost of Shares Repurchased..................................... (2,650,709) (10,002,492)
---------------- ----------------
Net Change in Net Assets from Capital Transactions............. (790,379) (3,128,673)
---------------- ----------------
Total Decrease in Net Assets................................... (136,318) (2,598,504)
Net Assets:
Beginning of the Period........................................ 17,198,793 19,797,297
---------------- ----------------
End of the Period (Including accumulated undistributed net
investment income of $605,382 and $26,954, respectively)....... $ 17,062,475 $ 17,198,793
================ ================
</TABLE>
See Notes to Financial Statements
39
<PAGE>
Domestic Income Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
===============================================================================================================================
Year Ended December 31,
Six Months Ended ----------------------------------------------
June 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................. $ 8.252 $8.008 $ 8.21 $ 7.35 $ 8.58
-------- ------ ------ ------- --------
Net Investment Income.................................. .313 .704 .755 .71 .85
Net Realized and Unrealized Gain/Loss.................. .035 .252 (.212) .8525 (1.2275)
-------- ------ ------ ------- --------
Total from Investment Operations......................... .348 .956 .543 1.5625 (.3775)
Less Distributions from Net Investment Income............ .022 .712 .745 .7025 .8525
-------- ------ ------ ------- --------
Net Asset Value, End of the Period....................... $ 8.578 $8.252 $8.008 $ 8.21 $ 7.35
======== ====== ====== ======= ========
Total Return*............................................ 4.27%** 11.90% 6.68% 21.37% (4.33%)
Net Assets at End of the Period (In millions)............ $ 17.1 $ 17.2 $ 19.8 $ 26.6 $ 21.3
Ratio of Expenses to Average Net Assets*................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*.... 7.39% 7.74% 7.97% 8.11% 8.35%
Portfolio Turnover....................................... 27%** 78% 77% 54% 94%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets.................. 1.18% 1.05% 1.29% .93% .95%
Ratio of Net Investment Income to Average Net Assets..... 6.82% 7.29% 7.28% 7.78% 8.00%
** Non-annualized
</TABLE>
See Notes to Financial Statements
40
<PAGE>
Emerging Growth Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
================================================================================
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 91.9%
Consumer Distribution 16.9%
Bally Total Fitness Holding Corp. (a).................. 600 $ 21,600
Barnes & Noble, Inc. (a)............................... 1,800 67,387
Bed Bath & Beyond, Inc. (a)............................ 1,200 62,175
Best Buy Co., Inc. (a)................................. 6,300 227,587
Costco Cos., Inc. (a).................................. 4,200 264,862
CVS Corp............................................... 2,150 83,716
Dayton Hudson Corp..................................... 4,000 194,000
Dollar General Corp.................................... 1,100 43,519
Dollar Tree Stores, Inc. (a)........................... 1,500 60,937
Family Dollar Stores, Inc.............................. 6,200 114,700
Fred Meyer, Inc. (a)................................... 3,100 131,750
Gap, Inc............................................... 1,800 110,925
General Nutrition Cos., Inc. (a)....................... 2,000 62,250
Goody's Family Clothing, Inc. (a)...................... 800 43,900
Herman Miller, Inc..................................... 2,600 63,212
Home Depot, Inc........................................ 1,600 132,900
Interface, Inc., Class A............................... 2,200 44,412
Just For Feet, Inc. (a)................................ 1,600 45,600
Kmart Corp. (a)........................................ 2,600 50,050
Kohl's Corp. (a)....................................... 2,800 145,250
Lexmark International Group, Inc., Class A (a)......... 1,300 79,300
Lowe's Cos., Inc....................................... 5,900 239,319
McKesson Corp.......................................... 1,400 113,750
Pacific Sunwear of California, Inc. (a)................ 1,900 66,500
Proffitt's, Inc. (a)................................... 3,100 125,163
Ross Stores, Inc....................................... 1,150 49,450
Safeway, Inc. (a)...................................... 3,600 146,475
Stage Stores, Inc. (a)................................. 1,100 49,775
Staples, Inc. (a)...................................... 4,500 130,219
The Finish Line, Inc., Class A (a)..................... 1,300 36,563
TJX Cos., Inc.......................................... 7,400 178,525
Whole Foods Market, Inc. (a)........................... 2,300 139,150
Williams Sonoma, Inc. (a).............................. 2,200 69,987
------------
3,394,908
------------
Consumer Durables 0.6%
Gentex Corp. (a)....................................... 2,400 43,500
Maytag Corp............................................ 1,600 79,000
------------
122,500
------------
</TABLE>
See Notes to Financial Statements
41
<PAGE>
Emerging Growth Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Consumer Non-Durables 3.1%
Abercrombie & Fitch Co., Class A (a)................ 2,300 $ 101,200
Borders Group, Inc. (a)............................. 2,100 77,700
Canandaigua Brands, Inc., Class A (a)............... 700 34,431
Jones Apparel Group, Inc. (a)....................... 2,600 95,063
Linens 'n Things, Inc. (a).......................... 3,750 114,609
Tommy Hilfiger Corp. (a)............................ 850 53,125
Twinlab Corp. (a)................................... 1,100 48,056
Warnaco Group, Inc., Class A........................ 400 16,975
Westpoint Stevens, Inc. (a)......................... 1,750 57,750
Wolverine World Wide, Inc........................... 1,550 33,616
------------
632,525
------------
Consumer Services 10.8%
American Disposal Services, Inc. (a)................ 850 39,844
Apollo Group, Inc., Class A (a)..................... 2,000 66,125
Cablevision Systems Corp., Class A (a).............. 1,250 104,375
Capstar Broadcasting Corp., Class A (a)............. 2,000 50,250
Carnival Corp....................................... 1,600 63,400
Chancellor Media Corp., Class A (a)................. 8,300 412,147
Clear Channel Communications, Inc. (a).............. 2,450 267,356
Consolidated Graphics, Inc. (a)..................... 1,100 64,900
Interpublic Group of Cos., Inc...................... 1,700 103,169
Jacor Communications, Inc., Class A (a)............. 1,750 103,250
Mail-Well, Inc. (a)................................. 700 15,181
Meredith Corp....................................... 2,600 122,037
New York Times Co., Class A......................... 1,200 95,100
Omnicom Group, Inc.................................. 2,650 132,169
Outdoor Systems, Inc. (a)........................... 3,200 89,600
Robert Half International, Inc. (a)................. 1,800 100,575
SFX Entertainment, Inc., Class A (a)................ 900 41,287
Snyder Communications, Inc. (a)..................... 1,100 48,400
Tele-Communications, Inc., Class A (a).............. 3,600 139,725
Univision Communications, Inc., Class A (a)......... 700 26,075
Viacom, Inc., Class B (a)........................... 1,600 93,200
------------
2,178,165
------------
Energy 1.8%
Coflexip SA - ADR (France) (a)...................... 850 51,956
Cooper Cameron Corp. (a)............................ 1,300 66,300
Marine Drilling Cos., Inc. (a)...................... 3,000 48,000
National Oilwell, Inc. (a).......................... 1,300 34,856
</TABLE>
See Notes to Financial Statements
42
<PAGE>
Emerging Growth Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
================================================================================
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Energy (Continued)
Rowan Cos., Inc. (a)................................... 1,550 $ 30,128
Stolt Comex Seaway S.A. (a)............................ 1,000 19,375
Stolt Comex Seaway S.A. - ADR (United Kingdom) (a)... 500 8,750
Varco International, Inc. (a).......................... 5,300 105,006
------------
364,371
------------
Finance 9.4%
AmeriCredit Corp. (a).................................. 400 14,275
AmSouth Bancorp........................................ 825 32,433
Annuity and Life Re Holdings, Ltd. (a)................. 200 4,425
Associates First Capital Corp., Class A................ 600 46,125
Bank United Corp., Class A............................. 300 14,363
Capital One Financial Corp............................. 2,350 291,841
CMAC Investment Corp................................... 700 43,050
Comdisco, Inc.......................................... 1,100 20,900
Dime Bancorp, Inc...................................... 1,500 44,906
Equitable Cos., Inc.................................... 500 37,469
Everest Reinsurance Holdings, Inc...................... 500 19,219
Federal Home Loan Mortgage Corp........................ 1,200 56,475
Fifth Third Bancorp.................................... 500 31,500
Finova Group, Inc...................................... 2,800 158,550
Fleet Financial Group, Inc............................. 900 75,150
HealthCare Financial Partners, Inc. (a)................ 1,100 67,444
Lehman Brothers Holdings, Inc.......................... 1,300 100,831
Marsh & McLennan Cos., Inc............................. 1,463 88,360
Mercury General Corp................................... 900 57,994
National Commerce Bancorp.............................. 375 15,703
North Fork Bancorp, Inc................................ 1,975 48,264
Northern Trust Corp.................................... 1,300 99,125
Protective Life Corp................................... 900 33,019
Providian Financial Corp............................... 2,600 204,262
Silicon Valley Bancshares (a).......................... 350 12,458
SouthTrust Corp........................................ 700 30,450
Star Banc Corp......................................... 950 60,681
State Street Corp...................................... 850 59,075
SunAmerica, Inc........................................ 1,300 74,669
Transatlantic Holdings, Inc............................ 200 15,462
Zions Bancorp.......................................... 650 34,531
------------
1,893,009
------------
</TABLE>
See Notes to Financial Statements
43
<PAGE>
Emerging Growth Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
================================================================================
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Healthcare 10.3%
Allegiance Corp........................................ 1,000 $ 51,250
Arterial Vascular Engineering, Inc. (a)................ 800 28,600
Boston Scientific Corp. (a)............................ 600 42,975
ESC Medical Systems Ltd. (a)........................... 1,400 47,250
Guidant Corp........................................... 600 42,787
HBO & Co............................................... 20,000 705,000
Health Management Assn., Inc., Class A (a)............. 3,900 130,406
Medicis Pharmaceutical Corp., Class A (a).............. 650 23,725
MiniMed, Inc. (a)...................................... 700 36,663
Mylan Laboratories, Inc................................ 2,600 78,162
NBTY, Inc. (a)......................................... 4,100 75,338
Omnicare, Inc.......................................... 3,500 133,437
Quintiles Transnational Corp. (a)...................... 2,500 122,969
Rexall Sundown, Inc. (a)............................... 2,700 95,175
Steris Corp. (a)....................................... 1,300 82,672
Sybron International Corp. (a)......................... 1,200 30,300
Total Renal Care Holdings, Inc. (a).................... 2,800 96,600
Universal Health Services, Inc., Class B (a)........... 950 55,456
Warner-Lambert Co...................................... 1,600 111,000
Watson Pharmaceuticals, Inc. (a)....................... 1,600 74,700
------------
2,064,465
------------
Producer Manufacturing 3.5%
Allied Waste Industries, Inc. (a)...................... 3,700 88,800
Danaher Corp........................................... 1,800 66,037
Federal Mogul Corp..................................... 900 60,750
Global Industries, Inc. (a)............................ 1,400 23,625
Kuhlman Corp........................................... 600 23,738
Mueller Industries, Inc. (a)........................... 800 29,700
Newpark Resources, Inc. (a)............................ 2,300 25,587
Republic Services, Inc................................. 1,500 36,000
Southdown, Inc......................................... 600 42,825
Tyco International Ltd................................. 3,600 226,800
USA Waste Services, Inc. (a)........................... 1,400 69,125
------------
692,987
------------
Raw Materials/Processing Industries 1.0%
Safeskin Corp. (a)..................................... 4,700 193,287
Solutia, Inc........................................... 500 14,344
------------
207,631
------------
</TABLE>
See Notes to Financial Statements
44
<PAGE>
Emerging Growth Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
===========================================================================================
Description Shares Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 29.9%
Advanced Fibre Communication, Inc. (a)........................... 2,200 $ 88,137
Affiliated Computer Services, Inc., Class A (a).................. 1,000 38,500
America Online, Inc. (a)......................................... 4,900 519,400
Aspect Development, Inc. (a)..................................... 500 37,812
Aspen Technology, Inc. (a)....................................... 700 35,350
BMC Software, Inc. (a)........................................... 7,300 379,144
Cambridge Technology Partners, Inc. (a).......................... 2,800 152,950
CBT Group Public Ltd. Co. - ADR (Ireland) (a).................... 4,300 230,050
Ciber, Inc. (a).................................................. 2,400 91,200
Cisco Systems, Inc. (a).......................................... 1,400 128,888
Citrix Systems, Inc. (a)......................................... 1,700 116,237
Compuware Corp. (a).............................................. 9,000 460,125
Concord EFS, Inc. (a)............................................ 750 19,594
Dell Computer Corp. (a).......................................... 9,000 835,313
Documentum, Inc. (a)............................................. 400 19,200
EMC Corp. (a).................................................... 6,000 268,875
Engineering Animation, Inc. (a).................................. 650 39,650
Envoy Corp. (a).................................................. 1,400 66,325
Gemstar International Group Ltd. (a)............................. 450 16,847
General Instrument Corp. (a)..................................... 1,000 27,188
Gulfstream Aerospace Corp. (a)................................... 1,750 81,375
IDT Corp. (a).................................................... 600 18,038
Information Management Resources, Inc. (a)....................... 2,150 72,697
JDA Software Group, Inc. (a)..................................... 300 13,125
Keane, Inc. (a).................................................. 2,600 145,600
Legato Systems, Inc. (a)......................................... 3,400 132,600
Lernout & Hauspie Speech Products N.V. - ADR (Netherlands) (a)... 1,900 113,406
Lucent Technologies, Inc......................................... 3,900 324,431
Mastech Corp. (a)................................................ 1,300 36,562
Mercury Interactive Corp. (a).................................... 700 31,238
Paychex, Inc..................................................... 1,600 65,100
Peoplesoft, Inc. (a)............................................. 2,200 103,400
Saville Systems PLC - ADR (Ireland) (a).......................... 1,750 87,719
Siebel Systems, Inc. (a)......................................... 2,200 70,950
STAR Telecommunications, Inc. (a)................................ 800 17,900
Sterling Software, Inc. (a)...................................... 2,000 59,125
Storage Technology Corp. (a)..................................... 1,000 43,375
Sundstrand Corp.................................................. 1,000 57,250
</TABLE>
See Notes to Financial Statements
45
<PAGE>
Emerging Growth Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
===============================================================================================================
Description Shares Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology (Continued)
SunGard Data Systems, Inc. (a)........................................................... 2,900 $ 111,288
Synopsys, Inc. (a)....................................................................... 1,200 54,900
Tekelec, Inc. (a)........................................................................ 1,100 49,225
Tellabs, Inc. (a)........................................................................ 1,600 114,600
Uniphase Corp. (a)....................................................................... 1,200 75,338
Veritas DGC, Inc. (a).................................................................... 1,300 64,919
VERITAS Software Corp. (a)............................................................... 2,500 103,438
Visio Corp. (a).......................................................................... 1,800 85,950
Vitesse Semiconductor Corp. (a).......................................................... 2,700 83,363
Xylan Corp. (a).......................................................................... 1,700 50,681
Yahoo!, Inc. (a)......................................................................... 1,150 181,125
-----------
6,019,503
-----------
Transportation 3.0%
Alaska Air Group, Inc. (a)............................................................... 1,700 92,756
America West Holdings Corp., Class B (a)................................................. 1,800 51,412
ASA Holdings, Inc........................................................................ 900 44,663
COMAIR Holdings, Inc..................................................................... 1,000 30,875
Continental Airlines, Inc., Class B (a).................................................. 1,750 106,531
Royal Caribbean Cruises Ltd.............................................................. 1,600 127,200
U.S. Airways Group, Inc. (a)............................................................. 1,800 142,650
-----------
596,087
-----------
Utilities 1.6%
AES Corp. (a)............................................................................ 1,900 99,869
AirTouch Communications, Inc. (a)........................................................ 3,700 216,219
-----------
316,088
-----------
Total Long-Term Investments 91.9%
(Cost $13,844,073).............................................................................. 18,482,239
Repurchase Agreement 10.9%
SBC Warburg, ($2,200,000 par collateralized by U.S. Government obligations in a pooled
cash account, dated 06/30/98, to be sold on 07/01/98 at $2,200,354) (Cost $2,200,000)........... 2,200,000
-----------
Total Investments 102.8%
(Cost $16,044,073).............................................................................. 20,682,239
Liabilities in Excess of Other Assets (2.8%).................................................... (560,770)
-----------
Net Assets 100.0%............................................................................... $20,121,469
===========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
46 See Notes to Financial Statements
<PAGE>
Emerging Growth Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================
<S> <C>
Assets:
Total Investments, including a repurchase agreement of $2,200,000 (Cost $16,044,073).... $20,682,239
Cash.................................................................................... 11,830
Receivables:
Investments Sold...................................................................... 97,026
Portfolio Shares Sold................................................................. 38,718
Dividends............................................................................. 4,179
Unamortized Organizational Costs........................................................ 2,735
-----------
Total Assets........................................................................ 20,836,727
-----------
Liabilities:
Payables:
Investments Purchased................................................................. 637,181
Portfolio Shares Repurchased.......................................................... 25,991
Investment Advisory Fee............................................................... 6,655
Distributor and Affiliates............................................................ 4,500
Trustees' Deferred Compensation and Retirement Plans.................................... 22,524
Accrued Expenses........................................................................ 18,407
-----------
Total Liabilities................................................................... 715,258
-----------
Net Assets.............................................................................. $20,121,469
===========
Net Assets Consist of:
Capital................................................................................. $15,657,164
Net Unrealized Appreciation............................................................. 4,638,166
Accumulated Net Investment Loss......................................................... (29,796)
Accumulated Net Realized Loss........................................................... (144,065)
-----------
Net Assets.............................................................................. $20,121,469
===========
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $20,121,469 and 1,001,712 shares of beneficial interest
issued and outstanding)............................................................... $ 20.09
===========
</TABLE>
See Notes to Financial Statements
47
<PAGE>
Emerging Growth Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
================================================================================
<S> <C>
Investment Income:
Interest........................................................... $ 31,679
Dividends.......................................................... 15,992
----------
Total Income.................................................... 47,671
----------
Expenses:
Investment Advisory Fee............................................ 49,119
Accounting......................................................... 13,059
Audit.............................................................. 8,835
Shareholder Services............................................... 7,880
Trustees' Fees and Expenses........................................ 5,826
Shareholder Reports................................................ 5,189
Custody............................................................ 805
Legal.............................................................. 298
Other.............................................................. 1,924
----------
Total Expenses.................................................. 92,935
Less Fees Deferred.............................................. 33,020
----------
Net Expenses.................................................... 59,915
----------
Net Investment Loss................................................ $ (12,244)
==========
Realized and Unrealized Gain/Loss:
Net Realized Gain.................................................. $ 110,958
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period........................................... 1,941,096
End of the Period:
Investments..................................................... 4,638,166
----------
Net Unrealized Appreciation During the Period...................... 2,697,070
----------
Net Realized and Unrealized Gain................................... $2,808,028
==========
Net Increase in Net Assets From Operations......................... $2,795,784
==========
</TABLE>
See Notes to Financial Statements
48
<PAGE>
Emerging Growth Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
=======================================================================================================
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Loss.................................................. $ (12,244) $ (7,775)
Net Realized Gain.................................................... 110,958 156,164
Net Unrealized Appreciation During the Period........................ 2,697,070 997,037
----------- -----------
Change in Net Assets from Operations................................. 2,795,784 1,145,426
Distributions in Excess of Net Investment Income..................... (4,851) -0-
----------- -----------
Net Change in Net Assets from Investment Activities.................. 2,790,933 1,145,426
----------- -----------
From Capital Transactions:
Proceeds from Shares Sold............................................ 9,798,731 8,526,700
Net Asset Value of Shares Issued Through Dividend Reinvestment....... 4,851 -0-
Cost of Shares Repurchased........................................... (2,964,900) (4,358,459)
----------- -----------
Net Change in Net Assets from Capital Transactions................... 6,838,682 4,168,241
----------- -----------
Total Increase in Net Assets......................................... 9,629,615 5,313,667
Net Assets:
Beginning of the Period.............................................. 10,491,854 5,178,187
----------- -----------
End of the Period (Including accumulated net investment loss
of $29,796 and $12,701, respectively).............................. $20,121,469 $10,491,854
=========== ===========
</TABLE>
See Notes to Financial Statements
49
<PAGE>
Emerging Growth Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
of Investment
Six Months Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................................. $ 16.450 $ 13.660 $ 11.72 $ 10.00
---------------- ------------ ------------ --------------
Net Investment Loss........................ (.003) (.007) (.016) (.08)
Net Realized and
Unrealized Gain............................ 3.647 2.797 1.956 1.80
---------------- ------------ ------------ --------------
Total from Investment
Operations................................. 3.644 2.790 1.940 1.72
Less Distributions in Excess
of Net Investment Income................... .007 -0- -0- -0-
---------------- ------------ ------------ --------------
Net Asset Value, End of
the Period................................. $ 20.087 $ 16.450 $ 13.660 $ 11.72
================ ============ ============ ==============
Total Return*................................ 22.17%** 20.42% 16.55% 17.20%**
Net Assets at End of the Period
(In millions).............................. $ 20.1 $ 10.5 $ 5.2 $ 2.3
Ratio of Expenses to Average
Net Assets*................................ .85% .85% .85% 2.50%
Ratio of Net Investment Loss to
Average Net Assets*........................ (.17%) (.11%) (.17%) (1.45%)
Portfolio Turnover........................... 43%** 116% 102% 41%**
* If certain expenses had not been assumed
by Van Kampen, Total Return would have
been lower and the ratios would have been
as follows:
Ratio of Expenses to Average
Net Assets................................. 1.32% 2.14% 3.28% 5.40%
Ratio of Net Investment Loss to
Average Net Assets......................... (.64%) (1.40%) (2.60%) (4.35%)
</TABLE>
**Non-Annualized
See Notes to Financial Statements
50
<PAGE>
Enterprise Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
================================================================================
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 95.1%
Consumer Distribution 11.9%
Brightpoint, Inc. (a)..................................... 20,100 $ 291,450
Costco Cos., Inc. (a)..................................... 14,500 914,406
CVS Corp.................................................. 13,000 506,187
Dayton Hudson Corp........................................ 31,600 1,532,600
Family Dollar Stores, Inc................................. 34,600 640,100
Federated Department Stores, Inc. (a)..................... 10,300 554,269
Kroger Co. (a)............................................ 23,600 1,011,850
Lear Corp. (a)............................................ 10,000 513,125
Lowe's Cos., Inc.......................................... 22,000 892,375
McKesson Corp............................................. 11,600 942,500
Proffitt's, Inc. (a)...................................... 15,600 629,850
Rite Aid Corp............................................. 20,400 766,275
Ross Stores, Inc.......................................... 23,200 997,600
Safeway, Inc. (a)......................................... 46,800 1,904,175
TJX Cos., Inc............................................. 59,600 1,437,850
-----------
13,534,612
-----------
Consumer Durables 2.1%
Dana Corp................................................. 19,800 1,059,300
Ford Motor Co............................................. 12,200 719,800
Maytag Corp............................................... 11,400 562,875
-----------
2,341,975
-----------
Consumer Non-Durables 6.2%
Borders Group, Inc. (a)................................... 17,000 629,000
Colgate - Palmolive Co.................................... 10,000 880,000
Dial Corp................................................. 36,600 949,312
Jones Apparel Group, Inc. (a)............................. 4,600 168,188
Liz Claiborne, Inc........................................ 11,600 606,100
Philip Morris Cos., Inc................................... 83,300 3,279,937
Tommy Hilfiger Corp. (a).................................. 10,000 625,000
-----------
7,137,537
-----------
Consumer Services 12.2%
AccuStaff, Inc. (a)....................................... 28,724 897,625
Brinker International, Inc. (a)........................... 40,400 777,700
CBS Corp.................................................. 38,300 1,216,025
Cendant Corp. (a)......................................... 35,325 737,409
Chancellor Media Corp., Class A (a)....................... 32,600 1,618,794
CKE Restaurants, Inc...................................... 14,900 614,625
</TABLE>
51 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Consumer Services (Continued)
Clear Channel Communications, Inc. (a)................ 3,350 $ 365,569
FIRSTPLUS Financial Group, Inc. (a)................... 19,800 712,800
Foodmaker, Inc. (a)................................... 25,400 428,625
Gannett Co., Inc...................................... 11,200 795,900
Jacor Communications, Inc., Class A (a)............... 11,200 660,800
Metamor Worldwide, Inc. (a)........................... 18,000 633,375
New York Times Co., Class A........................... 12,900 1,022,325
Omnicom Group, Inc. .................................. 24,100 1,201,987
Promus Hotel Corp. (a)................................ 9,500 365,750
Time Warner, Inc. .................................... 12,500 1,067,969
Tribune Co. .......................................... 12,400 853,275
-----------
13,970,553
-----------
Energy 3.9%
British Petroleum Co. PLC - ADR (United Kingdom)..... 5,300 467,725
Coastal Corp. ........................................ 11,300 788,881
Cooper Cameron Corp. (a).............................. 9,400 479,400
El Paso Natural Gas Co. .............................. 30,000 1,147,500
Enron Corp. .......................................... 12,400 670,375
EVI Weatherford, Inc. (a)............................. 12,445 462,021
YPF Sociedad Anonima, Class D - ADR (Argentina)....... 13,800 414,863
-----------
4,430,765
-----------
Finance 15.1%
Allstate Corp. ....................................... 9,000 824,062
Ambac Financial Group, Inc. .......................... 10,500 614,250
Associates First Capital Corp., Class A............... 6,237 479,469
BankAmerica Corp. .................................... 6,900 596,419
BankBoston Corp. ..................................... 20,200 1,123,625
Bear Stearns Cos., Inc. .............................. 12,300 699,563
Chase Manhattan Corp. ................................ 26,600 2,008,300
CMAC Investment Corp. ................................ 14,900 916,350
Conseco, Inc. ........................................ 49,500 2,314,125
Federal National Mortgage Assn. ...................... 16,400 996,300
First Union Corp. .................................... 13,515 787,249
Household International, Inc. ........................ 9,900 492,525
Merrill Lynch & Co., Inc. ............................ 6,000 553,500
MGIC Investment Corp. ................................ 5,600 319,550
SunAmerica, Inc. ..................................... 17,250 990,797
Torchmark, Inc. ...................................... 18,200 832,650
</TABLE>
52 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------
<S> <C> <C>
Finance (Continued)
Travelers Group, Inc. ............................... 25,000 $ 1,515,625
U.S. Bancorp......................................... 15,900 683,700
Washington Mutual, Inc. ............................. 12,150 527,766
-----------
17,275,825
-----------
Healthcare 15.4%
Abbott Laboratories, Inc. ........................... 11,400 465,975
Becton, Dickinson & Co. ............................. 7,600 589,950
Bristol Myers Squibb Co. ............................ 20,000 2,298,750
ESC Medical Systems Ltd. (a)......................... 21,200 715,500
Guidant Corp......................................... 10,300 734,519
Health Care & Retirement Corp. (a)................... 17,900 705,931
Health Management Assn., Inc., Class A (a)........... 24,300 812,531
Healthsouth Corp. (a)................................ 39,500 1,054,156
Lincare Holdings, Inc. (a)........................... 23,800 1,001,088
Merck & Co., Inc..................................... 4,200 561,750
Mylan Laboratories, Inc. ............................ 21,500 646,344
Pfizer, Inc. ........................................ 4,000 434,750
Schering-Plough Corp. ............................... 18,900 1,731,712
Tenet Healthcare Corp. (a)........................... 19,800 618,750
Total Renal Care Holdings, Inc. (a).................. 31,791 1,096,789
United HealthCare Corp. ............................. 8,800 558,800
Universal Health Services, Inc., Class B (a)......... 16,500 963,188
Watson Pharmaceuticals, Inc. (a)..................... 24,000 1,120,500
Wellpoint Health Networks, Inc., Class A (a)......... 19,800 1,465,200
-----------
17,576,183
-----------
Producer Manufacturing 6.2%
Aeroquip Vickers, Inc. .............................. 6,600 385,275
Illinois Tool Works, Inc. ........................... 8,900 593,519
Republic Services, Inc. (a).......................... 12,600 302,400
Textron, Inc. ....................................... 13,600 974,950
Tyco International Ltd. ............................. 21,800 1,373,400
United Technologies Corp. ........................... 13,100 1,211,750
USA Waste Services, Inc. (a)......................... 46,000 2,271,250
-----------
7,112,544
-----------
Raw Materials/Processing Industries 1.5%
Crompton & Knowles Corp. ............................ 23,000 579,313
Cytec Industries, Inc. (a)........................... 10,500 464,625
E.I. du Pont de Nemours & Co. ....................... 8,400 626,850
-----------
1,670,788
-----------
</TABLE>
53 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Technology 16.4%
Ascend Communications, Inc. (a).................... 14,600 $ 723,613
BMC Software, Inc. (a)............................. 31,200 1,620,450
Cadence Design Systems, Inc. (a)................... 21,500 671,875
Cisco Systems, Inc. (a)............................ 9,750 897,609
Citrix Systems, Inc. (a)........................... 10,350 707,681
Computer Associates Intl., Inc. ................... 15,850 880,666
Computer Sciences Corp. (a)........................ 16,800 1,075,200
Compuware Corp. (a)................................ 19,300 986,712
Comverse Technology, Inc. (a)...................... 8,900 461,688
EMC Corp. (a)...................................... 34,100 1,528,106
Hexcel Corp. (a)................................... 13,300 300,913
International Business Machines Corp. ............. 5,500 631,469
Linear Technology Corp. ........................... 6,800 410,125
Lucent Technologies, Inc. ......................... 7,200 598,950
Maxim Integrated Products, Inc. (a)................ 14,900 472,144
Microsoft Corp. (a)................................ 8,600 932,025
Networks Associates, Inc. (a)...................... 24,450 1,170,544
Nokia Corp. - ADR (Finland)........................ 13,000 943,312
Sanmina Corp. (a).................................. 8,600 373,025
SCI Systems, Inc. (a).............................. 20,400 767,550
Sterling Software, Inc. (a)........................ 27,000 798,187
Storage Technology Corp. (a)....................... 13,600 589,900
Tellabs, Inc. (a).................................. 11,100 795,037
Xilinx, Inc. (a)................................... 10,500 357,000
-----------
18,693,781
-----------
Transportation 1.5%
AMR Corp. (a)...................................... 9,800 815,850
Continental Airlines, Inc., Class B (a)............ 14,200 864,425
-----------
1,680,275
-----------
Utilities 2.7%
Ameritech Corp. ................................... 17,400 780,825
Bell Atlantic Corp. ............................... 18,400 839,500
CMS Energy Group................................... 8,200 360,800
SBC Communications, Inc. .......................... 14,000 560,000
U.S. West, Inc. ................................... 12,300 578,100
-----------
3,119,225
-----------
</TABLE>
54 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Total Long-Term Investments 95.1% (Cost $68,198,870)............................................ $108,544,063
Repurchase Agreement 5.2%
SBC Warburg ($5,970,000 par collateralized by U.S. Government obligations in a pooled cash
account, dated 06/30/98, to be sold on 07/01/98 at $5,970,962) (Cost $5,970,000).............. 5,970,000
------------
Total Investments 100.3% (Cost $74,168,870)..................................................... 114,514,063
Liabilities in Excess of Other Assets (0.3)%.................................................... (329,285)
------------
Net Assets 100.0%............................................................................... $114,184,778
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
55 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $74,168,870)....................................... $114,514,063
Cash....................................................................... 2,568
Receivables:
Dividends................................................................ 91,079
Portfolio Shares Sold.................................................... 47,234
Other...................................................................... 46,385
------------
Total Assets........................................................... 114,701,329
------------
Liabilities:
Payables:
Investments Purchased.................................................... 302,400
Portfolio Shares Repurchased............................................. 50,379
Investment Advisory Fee.................................................. 38,821
Distributor and Affiliates............................................... 8,550
Trustees' Deferred Compensation and Retirement Plans....................... 100,187
Accrued Expenses........................................................... 16,214
------------
Total Liabilities...................................................... 516,551
------------
Net Assets................................................................. $114,184,778
============
Net Assets Consist of:
Capital.................................................................... $ 68,049,834
Net Unrealized Appreciation................................................ 40,345,193
Accumulated Net Realized Gain.............................................. 5,671,992
Accumulated Undistributed Net Investment Income............................ 117,759
------------
Net Assets................................................................. $114,184,778
============
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $114,184,778 and 5,418,123 shares of beneficial
interest issued and outstanding)...................................... $ 21.07
============
</TABLE>
56 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends....................................................... $ 453,283
Interest........................................................ 39,768
-----------
Total Income................................................ 493,051
-----------
Expenses:
Investment Advisory Fee......................................... 266,962
Accounting...................................................... 23,842
Trustees' Fees and Expenses..................................... 11,130
Custody......................................................... 5,973
Legal........................................................... 2,843
Other........................................................... 27,430
-----------
Total Expenses.............................................. 338,180
Less Fees Deferred.......................................... 17,410
-----------
Net Expenses................................................ 320,770
-----------
Net Investment Income........................................... $ 172,281
===========
Realized and Unrealized Gain/Loss:
Net Realized Gain............................................... $ 6,050,264
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period....................................... 29,318,035
End of the Period:
Investments................................................. 40,345,193
-----------
Net Unrealized Appreciation During the Period................... 11,027,158
-----------
Net Realized and Unrealized Gain................................ $17,077,422
===========
Net Increase in Net Assets From Operations...................... $17,249,703
===========
</TABLE>
57 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.............................................. $ 172,281 $ 435,176
Net Realized Gain.................................................. 6,050,264 13,400,141
Net Unrealized Appreciation During the Period...................... 11,027,158 10,261,053
------------ ------------
Change in Net Assets from Operations............................... 17,249,703 24,096,370
------------ ------------
Distributions from Net Investment Income........................... (91,867) (457,271)
Distributions from Net Realized Gain............................... (1,126,721) (13,668,548)
------------ ------------
Total Distributions................................................ (1,218,588) (14,125,819)
------------ ------------
Net Change in Net Assets From Investment Activities................ 16,031,115 9,970,551
------------ ------------
From Capital Transactions:
Proceeds from Shares Sold.......................................... 9,680,588 16,421,893
Net Asset Value of Shares Issued Through Dividend Reinvestment..... 1,218,588 14,125,818
Cost of Shares Repurchased......................................... (11,459,589) (26,609,356)
------------ ------------
Net Change in Net Assets from Capital Transactions................. (560,413) 3,938,355
------------ ------------
Total Increase in Net Assets....................................... 15,470,702 13,908,906
Net Assets:
Beginning of the Period............................................ 98,714,076 84,805,170
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $117,759 and $37,345, respectively).......... $114,184,778 $ 98,714,076
============ ============
</TABLE>
58 See Notes to Financial Statements
<PAGE>
Enterprise Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, ---------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................................... $ 18.106 $16.262 $ 14.69 $ 12.39 $ 14.57
--------- ------- ------- ------- -------
Net Investment Income..................................................... .032 .091 .113 .32 .25
Net Realized and Unrealized Gain/Loss..................................... 3.162 4.734 3.417 4.22 (.7625)
--------- ------- ------- ------- -------
Total from Investment Operations............................................ 3.194 4.825 3.530 4.54 (.5125)
--------- ------- ------- ------- -------
Less:
Distributions from Net Investment Income.................................. .017 .096 .109 .3175 .25
Distributions from Net Realized Gain...................................... .209 2.885 1.849 1.9225 1.4175
--------- ------- ------- ------- -------
Total Distributions......................................................... .226 2.981 1.958 2.24 1.6675
--------- ------- ------- ------- -------
Net Asset Value, End of the Period.......................................... $ 21.074 $18.106 $16.262 $ 14.69 $ 12.39
========= ======= ======= ======= =======
Total Return*............................................................... 17.62%** 30.66% 24.80% 36.98% (3.39%)
Net Assets at End of the Period (In millions)............................... $ 114.2 $ 98.7 $ 84.8 $ 76.0 $ 67.5
Ratio of Expenses to Average Net Assets*.................................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....................... .32% .47% .68% 2.06% 1.72%
Portfolio Turnover.......................................................... 24%** 82% 152% 145% 153%
* If certain expenses had not been assumed by Van Kampen, Total Return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets..................................... .63% .66% .75% .68% .68%
Ratio of Net Investment Income to Average Net Assets........................ .29% .41% .53% 1.98% 1.64%
</TABLE>
** Non-Annualized
59 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 90.2%
Australia 1.6%
Orica Ltd.................................................. 1,938 $ 11,489
Pacific Dunlop Ltd......................................... 8,200 13,285
Rio Tinto Ltd.............................................. 2,600 30,988
------------
55,762
------------
Austria 0.8%
OMV, AG.................................................... 200 26,814
------------
Belgium 3.7%
Almanij.................................................... 1,400 128,368
------------
Brazil 0.5%
Centrais Eletricas Brasileiras SA Electrobras - ADR........ 340 4,672
Centrais Geradoras Do Sul Do Brasil, SA - ADR (a).......... 34 242
Telecomunicacoes Brasileiras - ADR......................... 100 10,919
------------
15,833
------------
Canada 2.7%
Barrick Gold Corp.......................................... 100 1,903
IPL Energy, Inc............................................ 1,500 67,531
Northern Telecom Ltd....................................... 400 22,670
Placer Dome, Inc........................................... 100 1,162
------------
93,266
------------
Denmark 0.4%
Novo Nordisk A/S, Ser B.................................... 100 13,800
------------
France 4.0%
Alcatel Alsthom (Cie Gen El)............................... 165 33,597
Axa-UAP.................................................... 230 25,870
Compagnie de Saint Gobain.................................. 148 27,442
Elf Aquitaine.............................................. 150 21,089
LVMH (Moet Hennessy Louis Vuitton)......................... 55 11,008
Total, Class B............................................. 135 17,551
------------
136,557
------------
Germany 4.6%
Allianz, AG................................................ 100 33,353
Allianz, AG (a)............................................ 2 661
BASF, AG................................................... 250 11,887
Bayer, AG.................................................. 200 10,358
Daimler-Benz, AG........................................... 250 24,606
Daimler-Benz, AG........................................... 250 277
</TABLE>
See Notes to Financial Statements
60
<PAGE>
Global Equity Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Germany (Continued)
Degussa, AG............................................. 50 $ 3,202
Deutsche Telekom, AG.................................... 550 15,066
Linde................................................... 50 34,379
Siemens, AG............................................. 200 12,215
VEBA, AG................................................ 200 13,457
--------
159,461
--------
Italy 2.3%
Ente Nazionale Idrocarburi, SpA......................... 2,000 13,114
Fiat, SpA............................................... 4,000 17,515
Instituto Nazionale delle Assicurazioni (INA)........... 12,000 34,107
Telecom Italia.......................................... 2,500 15,295
Telecom Italia SpA...................................... 2 15
--------
80,046
--------
Japan 7.4%
Acom Co., Ltd........................................... 200 9,532
Bank of Tokyo........................................... 600 6,375
Daiwa Securities........................................ 1,000 4,318
East Japan Railway...................................... 1 4,715
Hitachi................................................. 1,000 6,545
Honda Motor Co.......................................... 1,000 35,727
Japan Air Lines Co. (a) ................................ 1,000 2,792
Japan Energy Corp....................................... 3,000 3,189
Kao Corp................................................ 1,000 15,477
Kawasaki Heavy Industries............................... 1,000 2,025
Kawasaki Steel Corp..................................... 2,000 3,616
Komatsu................................................. 1,000 4,875
Kyocera Corp............................................ 100 4,903
Matsushita Electric Industries.......................... 1,000 16,128
Mitsubishi Electric Corp................................ 2,000 4,614
Mitsubishi Estate....................................... 1,000 8,823
Nagoya Railroad Co...................................... 3,000 9,113
NEC Corp................................................ 1,000 9,351
Nippon Steel Corp....................................... 1,000 1,765
Nippon Telegraph & Telephone Corp....................... 3 24,951
Nippon Yusen Kabushiki Kaisha........................... 2,000 6,798
Nissan Motor Co......................................... 1,000 3,160
NSK Ltd................................................. 1,000 4,086
Oji Paper Co............................................ 1,000 4,368
</TABLE>
61 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan (Continued)
Sekisui House............................................. 1,000 $ 7,775
Sharp Corp................................................ 1,000 8,129
Teijin.................................................... 1,000 3,038
Tobu Railway Co........................................... 1,000 2,654
Toppan Printing Co........................................ 1,000 10,733
Toyota Motor Corp......................................... 1,000 25,964
--------
255,539
--------
Malaysia 0.1%
DCB Holdings Berhard...................................... 9,000 3,665
--------
Mexico 1.3%
Telefonos De Mexico SA, Ser L............................. 18,000 43,169
--------
Netherlands 2.3%
ABN Amro Holdings......................................... 627 14,682
Akzo Nobel................................................ 100 22,246
Elsevier.................................................. 700 10,572
Koninklijke Ahold......................................... 517 16,608
Wolters Kluwer............................................ 101 13,872
--------
77,980
--------
New Zealand 1.0%
Deutsche Bank, AG......................................... 400 33,846
--------
Republic of Korea 0.2%
Korea Electric Power Corp. - ADR.......................... 307 2,187
Pohang Iron & Steel Co., Ltd. - ADR....................... 317 3,804
--------
5,991
--------
Singapore 1.0%
Singapore Telecommunications.............................. 24,000 34,184
--------
South Africa 0.4%
De Beers Cons Mines Ltd. - ADR............................ 500 8,750
Sasol Ltd. - ADR.......................................... 1,126 6,686
--------
15,436
--------
Spain 1.9%
EMP Nac Electricid........................................ 300 6,564
Repsol, SA................................................ 400 22,041
Telefonica De Espana...................................... 800 36,987
--------
65,592
--------
</TABLE>
62 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Sweden 0.8%
Astra, AB, Ser A.......................................... 200 $ 4,087
Ericsson Telefon LM, Ser B................................ 800 23,370
--------
27,457
--------
Switzerland 3.5%
Credit Suisse Group....................................... 200 44,575
Nestle, AG................................................ 10 21,436
Novartis, AG.............................................. 20 33,336
Roche Holdings Genusscheine, AG........................... 2 19,672
--------
119,019
--------
United Kingdom 10.1%
B.A.T. Industries......................................... 1,700 17,031
Barclays.................................................. 1,000 28,852
Bass...................................................... 1,160 21,751
British Petroleum......................................... 1,134 16,549
British Telecommunications................................ 2,400 29,654
BTR (a)................................................... 2,900 1,598
BTR....................................................... 2,356 6,688
Burmah Castrol............................................ 700 12,483
Carlton Communications.................................... 2,500 22,332
Glaxo Wellcome............................................ 1,000 30,038
HSBC Holdings............................................. 400 10,158
HSBC Holdings - ADR....................................... 700 16,971
Lloyds TSB Group.......................................... 2,100 29,401
Marks & Spencer........................................... 1,200 10,930
Rank Group................................................ 2,486 13,656
Scot & Newcastle.......................................... 2,100 29,734
Smithkline Beecham........................................ 2,000 24,428
Smiths Industries......................................... 1,000 13,859
Zeneca Group.............................................. 300 12,883
--------
348,996
--------
United States 39.6%
Abbott Laboratories, Inc. (b)............................. 600 24,525
Aluminum Co. of America................................... 200 13,188
American Express Co....................................... 200 22,800
American Home Products Corp............................... 600 31,050
American International Group, Inc......................... 200 29,200
Amoco Corp................................................ 400 16,650
AT&T Corp. (b)............................................ 500 28,562
</TABLE>
See Notes to Financial Statements
63
<PAGE>
Global Equity Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
United States (Continued)
BellSouth Corp., Common Rights Callable Through 12/11/99.... 400 $26,850
Boeing Co................................................... 100 4,456
Bristol-Myers Squibb Co. (b)................................ 300 34,481
Chevron Corp., Common Rights Callable Through 11/22/98...... 300 24,919
Cisco Systems, Inc. (a)..................................... 300 27,619
Citicorp.................................................... 200 29,850
Coca Cola Co. (b)........................................... 700 59,850
Columbia / HCA Healthcare Corp.............................. 300 8,738
Dominion Resources, Inc..................................... 700 28,525
Dow Chemical Co............................................. 200 19,337
Du Pont (E.I.) de Nemours & Co.............................. 200 14,925
Eastman Kodak Co............................................ 200 14,612
Federal National Mortgage Assn.............................. 300 18,225
First Data Corp............................................. 400 13,325
FPL Group, Inc.............................................. 400 25,200
General Electric Co......................................... 300 27,300
General Motors Corp......................................... 300 20,044
Gillette Co................................................. 400 22,675
Hewlett Packard Co.......................................... 300 17,962
Home Depot, Inc............................................. 250 20,766
Illinois Tool Works, Inc.................................... 200 13,338
Intel Corp.................................................. 200 14,825
International Business Machines Corp........................ 200 22,962
International Paper Co...................................... 300 12,900
J.C. Penney, Inc............................................ 300 21,694
Johnson & Johnson, Inc...................................... 300 22,125
JP Morgan & Co., Inc. (b)................................... 300 35,137
Kimberly Clark Corp......................................... 300 13,763
Lilly Eli & Co., Common Rights Callable Through 07/28/98.... 300 19,819
Lucent Technologies, Inc. (b)............................... 600 49,912
McDonald's Corp. (b)........................................ 400 27,600
Meritor Automotive Inc...................................... 100 2,400
Microsoft Corp. (a) (b)..................................... 600 65,025
Minnesota Mining & Manufacturing Co......................... 300 24,656
Mobil Corp.................................................. 200 15,325
Motorola, Inc............................................... 200 10,513
NationsBank Corp............................................ 300 22,950
Oracle Systems Corp. (a).................................... 250 6,141
PacifiCorp.................................................. 1,000 22,625
</TABLE>
64 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States (Continued)
Pfizer, Inc............................................................................... 200 $21,737
Procter & Gamble Co. (b).................................................................. 300 27,319
Raytheon Co., Class A..................................................................... 25 1,441
Rockwell International Corp............................................................... 300 14,419
SBC Communications, Inc. (b).............................................................. 800 32,000
Schering-Plough Corp...................................................................... 200 18,325
Sears Roebuck & Co........................................................................ 300 18,319
Time Warner, Inc.......................................................................... 300 25,631
Warner-Lambert Co., Common Rights Callable Through 07/08/98............................... 600 41,625
Wells Fargo & Co. (b)..................................................................... 100 36,900
Weyerhaeuser Co........................................................................... 300 13,856
Worldcom, Inc. (a)........................................................................ 700 33,906
Xerox Corp. (b)........................................................................... 300 30,487
----------
1,365,309
----------
Total Common Stocks 90.2%........................................................................ 3,106,090
Preferred Stock 1.3%
Finland 1.3%
Nokia (Ab) Oy, Ser A - ADR................................................................ 600 44,170
----------
Total Long-Term Investments 91.5%
(Cost $2,418,617)............................................................................... 3,150,260
Repurchase Agreement 8.2%
State Street Bank & Trust Co. ($283,000 par, collateralized by U.S. Government obligations
in a pooled cash account, dated 06/30/98, to be sold on 07/01/98 at $283,039)
(Cost $ 283,000) (b)............................................................................ 283,000
----------
Total Investments 99.7%
(Cost $2,701,617)............................................................................... 3,433,260
Other Assets in Excess of Liabilities 0.3%....................................................... 11,963
----------
Net Assets 100.0%................................................................................ $3,445,223
==========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated for open forward currency contracts.
65 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $2,701,617).......................................... $3,433,260
Cash......................................................................... 346
Foreign Currency (Cost $42,880).............................................. 42,633
Receivables:
Expense Reimbursement by Adviser........................................... 10,843
Dividends.................................................................. 8,900
Forward Currency Contracts................................................... 5,817
Unamortized Organizational Costs............................................. 2,728
Other........................................................................ 36
----------
Total Assets............................................................. 3,504,563
----------
Liabilities:
Payables:
Distributer and Affiliates................................................. 5,690
Portfolio Shares Repurchased............................................... 534
Investments Purchased...................................................... 248
Accrued Expenses............................................................. 36,745
Trustees' Deferred Compensation and Retirement Plans......................... 16,123
----------
Total Liabilities........................................................ 59,340
----------
Net Assets................................................................... $3,445,223
==========
Net Assets Consist of:
Capital...................................................................... $2,718,787
Net Unrealized Appreciation.................................................. 737,014
Accumulated Net Realized Gain................................................ 22,563
Accumulated Distributions in Excess of Net Investment Income................. (33,141)
----------
Net Assets................................................................... $3,445,223
==========
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $3,445,223 and 271,347 shares of beneficial interest
issued and outstanding).................................................... $ 12.70
==========
</TABLE>
66 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends (Net of foreign withholding taxes of $3,095)......................................... $ 34,129
Interest....................................................................................... 4,439
Other.......................................................................................... 157
--------
Total Income............................................................................... 38,725
--------
Expenses:
Custody........................................................................................ 37,467
Investment Advisory Fee........................................................................ 16,231
Audit.......................................................................................... 13,575
Accounting..................................................................................... 10,636
Shareholder Reports............................................................................ 8,507
Shareholder Services........................................................................... 7,714
Trustees' Fees and Expenses.................................................................... 3,475
Legal.......................................................................................... 2,769
Amortization of Organizational Costs........................................................... 677
Other.......................................................................................... 795
--------
Total Expenses............................................................................. 101,846
Less Fees Deferred and Expenses Reimbursed ($16,231 and $66,263, respectively)............. 82,494
--------
Net Expenses............................................................................... 19,352
--------
Net Investment Income.......................................................................... $ 19,373
========
Realized and Unrealized Gain/Loss:
Net Realized Gain/Loss:
Investments................................................................................ $ 16,774
Forward Currency Contracts................................................................. 27,171
--------
Net Realized Gain.............................................................................. 43,945
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period...................................................................... 307,950
--------
End of the Period:
Investments................................................................................ 731,643
Forward Currency Contracts................................................................. 5,817
Forward Currency Translation............................................................... (446)
--------
737,014
--------
Net Unrealized Appreciation During the Period.................................................. 429,064
--------
Net Realized and Unrealized Gain............................................................... $473,009
========
Net Increase in Net Assets From Operations..................................................... $492,382
========
</TABLE>
67 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income................................................. $ 19,373 $ 23,933
Net Realized Gain..................................................... 43,945 508,690
Net Unrealized Appreciation/Depreciation During the Period............ 429,064 (88,784)
---------- -----------
Change in Net Assets from Operations.................................. 492,382 443,839
---------- -----------
Distributions from Net Investment Income.............................. (19,373) (23,933)
Distributions in Excess of Net Investment Income...................... (18,637) (1,351)
---------- -----------
Distributions from and in Excess of Net Investment Income............. (38,010) (25,284)
---------- -----------
Distributions from Net Realized Gain.................................. -0- (536,409)
Distributions in Excess of Net Realized Gain.......................... -0- (24,805)
---------- -----------
Distributions from and in Excess of Net Realized Gain................. -0- (561,214)
---------- -----------
Total Distributions................................................... (38,010) (586,498)
---------- -----------
Net Change in Net Assets from Investment Activities................... 454,372 (142,659)
---------- -----------
From Capital Transactions:
Proceeds from Shares Sold............................................. 354,203 1,501,991
Net Asset Value of Shares Issued Through Dividend Reinvestment........ 24,409 352,262
Cost of Shares Repurchased............................................ (361,770) (1,254,609)
---------- -----------
Net Change in Net Assets from Capital Transactions.................... 16,842 599,644
---------- -----------
Total Increase in Net Assets.......................................... 471,214 456,985
Net Assets:
Beginning of the Period............................................... 2,974,009 2,517,024
---------- -----------
End of the Period (Including accumulated distributions in excess of
net investment income of $33,141 and $14,504, respectively)......... $3,445,223 $ 2,974,009
========== ===========
</TABLE>
68 See Notes to Financial Statements
<PAGE>
Global Equity Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
of Investment
Six Months Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................. $ 11.004 $11.658 $ 10.30 $ 10.00
--------- ------- ------- --------
Net Investment Income/Loss............................. .074 .110 .035 (.16)
Net Realized and Unrealized Gain....................... 1.762 1.696 1.687 .46
--------- ------- ------- --------
Total from Investment Operations......................... 1.836 1.806 1.722 .30
--------- ------- ------- --------
Less:
Distributions from and in Excess of
Net Investment Income................................ .143 .106 .188 -0-
Distributions from and in Excess of
Net Realized Gain.................................... -0- 2.354 .176 -0-
--------- ------- ------- --------
Total Distributions...................................... .143 2.460 .364 -0-
--------- ------- ------- --------
Net Asset Value, End of the Period....................... $ 12.697 $11.004 $11.658 $ 10.30
========= ======= ======= ========
Total Return*............................................ 16.92%** 15.85% 16.72% 3.00%**
Net Assets at End of the Period (In millions)............ $ 3.4 $ 3.0 $ 2.5 $ 2.4
Ratio of Expenses to Average Net Assets*................. 1.20% 1.20% 1.20% 4.35%
Ratio of Net Investment Income/Loss to
Average Net Assets*.................................... 1.20% .76% .27% (2.76%)
Portfolio Turnover....................................... 1%** 132% 94% 42%**
* If certain expenses had not been assumed by Van Kampen, Total Return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.................. 6.32% 6.78% 7.43% 8.27%
Ratio of Net Investment Loss to Average Net Assets....... (3.91%) (4.82%) (5.96%) (6.68%)
</TABLE>
**Non-Annualized
69 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Government Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
==============================================================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
United States Government Agency Obligations 54.1%
$2,000 Federal Farm Credit Bank Medium Term Note................................. 6.520% 09/24/07 $ 2,099,300
1,331 Federal Home Loan Mortgage Corp. Gold 30 Year Pools....................... 7.000 05/01/24 to 07/01/24 1,351,155
316 Federal Home Loan Mortgage Corp. Gold 30 Year Pools....................... 7.500 10/01/24 324,312
305 Federal Home Loan Mortgage Corp. Gold 30 Year Pools....................... 8.000 09/01/24 to 10/01/24 315,506
2,578 Federal Home Loan Mortgage Corp. CMO Floater.............................. 6.088 11/15/18 to 09/15/27 2,574,538
1,797 Federal Home Loan Mortgage Corp. CMO Floater.............................. 6.188 09/15/23 1,796,177
1,633 Federal National Mortgage Association 15 Year Dwarf Pools................. 6.500 06/01/09 to 04/01/11 1,643,422
1,626 Federal National Mortgage Association 15 Year Dwarf Pools................. 7.000 07/01/10 to 12/01/11 1,657,462
2,001 Federal National Mortgage Association 30 Year Pools....................... 6.000 03/01/28 to 04/01/28 1,947,179
4,850 Federal National Mortgage Association Pools............................... 6.500 03/01/26 to 06/01/28 4,830,731
1,453 Federal National Mortgage Association Pools............................... 7.000 12/01/23 to 06/01/24 1,474,744
387 Federal National Mortgage Association Pools............................... 7.500 05/01/24 to 10/01/24 396,658
465 Federal National Mortgage Association Pools............................... 8.000 06/01/24 to 10/01/24 481,715
735 Federal National Mortgage Association Pools............................... 11.000 11/01/20 832,536
2,746 Government National Mortgage Association Pools............................ 7.000 04/15/23 to 10/15/24 2,790,267
1,652 Government National Mortgage Association Pools............................ 7.500 04/15/22 to 06/15/24 1,699,496
378 Government National Mortgage Association Pools............................ 8.000 05/15/17 to 01/15/23 393,925
323 Government National Mortgage Association Pools............................ 8.500 04/15/17 to 07/15/17 343,266
758 Government National Mortgage Association Pools............................ 9.500 06/15/09 to 10/15/09 829,438
83 Government National Mortgage Association Pools............................ 11.000 09/15/10 to 08/15/20 94,036
-----------
Total United States Government Agency Obligations...................................................... 27,875,863
-----------
United States Treasury Obligations 37.0%
3,000 United States Treasury Bonds (a).......................................... 6.000 02/15/26 3,123,420
1,000 United States Treasury Notes (a).......................................... 5.250 01/31/01 993,910
2,000 United States Treasury Notes (a).......................................... 5.500 03/31/00 to 02/15/08 2,000,110
4,500 United States Treasury Notes (a).......................................... 5.625 02/15/06 4,519,485
3,000 United States Treasury Notes (a).......................................... 5.875 02/15/04 3,056,880
5,000 United States Treasury Notes (a).......................................... 7.500 05/15/02 5,334,500
-----------
Total United States Treasury Obligations............................................................... 19,028,305
-----------
</TABLE>
See Notes to Financial Statements
70
<PAGE>
Government Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
Par
Amount
(000) Description Coupon Market Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Forward Purchase Commitment 2.0%
$1,000 Government National Mortgage Association 15 Year, July Forward 7.000% $1,022,815
-----------
Total Long-Term Investments 93.1%
(Cost $46,564,839)........................................................................... 47,926,983
Repurchase Agreement 8.2%
SBC Warburg ($4,240,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 06/30/98, to be sold on 07/01/98 at $4,240,683)
(Cost $4,240,000)........................................................................... 4,240,000
----------
Total Investments 101.3%
(Cost $50,804,839).......................................................................... 52,166,983
Liabilities in Excess of Other Assets (1.3%)........................................................ (655,353)
------------
Net Assets 100.0%................................................................................... $51,511,630
============
</TABLE>
(a) Assets segregated as collateral for open forward and open futures
transactions.
See Notes to Financial Statements
71
<PAGE>
<TABLE>
<CAPTION>
Government Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
==============================================================================================
<S> <C>
Assets:
Total Investments (Cost $50,804,839).............................................. $52,166,983
Cash.............................................................................. 2,289
Receivables:
Interest........................................................................ 509,570
Portfolio Shares Sold........................................................... 112,756
Variation Margin on Futures..................................................... 17,063
Forward Commitments............................................................... 1,560
Other............................................................................. 45,217
-----------
Total Assets.................................................................. 52,855,438
-----------
Liabilities:
Payables:
Investments Purchased........................................................... 1,022,188
Portfolio Shares Repurchased.................................................... 191,846
Investment Advisory Fee......................................................... 6,799
Distributor and Affiliates...................................................... 6,256
Trustees' Deferred Compensation and Retirement Plans.............................. 95,568
Accrued Expenses.................................................................. 21,151
-----------
Total Liabilities............................................................. 1,343,808
-----------
Net Assets........................................................................ $51,511,630
===========
Net Assets Consist of:
Capital........................................................................... $58,672,353
Net Unrealized Appreciation....................................................... 1,476,793
Accumulated Undistributed Net Investment Income................................... 1,110,967
Accumulated Net Realized Loss..................................................... (9,748,483)
-----------
Net Assets........................................................................ $51,511,630
===========
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $51,511,630 and 5,622,907 shares of beneficial interest
issued and outstanding)......................................................... $ 9.16
===========
</TABLE>
72 See Notes to Financial Statements
<PAGE>
Government Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
=================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest...................................... $1,691,182
----------
Expenses:
Investment Advisory Fee....................... 130,024
Accounting.................................... 17,663
Shareholder Reports........................... 12,358
Audit......................................... 9,166
Custody....................................... 8,846
Trustees' Fees and Expenses................... 7,576
Legal......................................... 1,519
Other......................................... 12,269
----------
Total Expenses.............................. 199,421
Less Fees Deferred.......................... 43,366
----------
Net Expenses................................ 156,055
----------
Net Investment Income......................... $1,535,127
==========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments.................................. $ 247,420
Futures...................................... 107,328
Forward Commitments.......................... 63,359
----------
Net Realized Gain............................. 418,107
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period...................... 1,515,218
----------
End of the Period:
Investments................................. 1,362,144
Futures..................................... 113,089
Forward Commitments......................... 1,560
----------
1,476,793
----------
Net Unrealized Depreciation During the Period. (38,425)
----------
Net Realized and Unrealized Gain.............. $ 379,682
==========
Net Increase in Net Assets From Operations.... $1,914,809
==========
</TABLE>
See Notes to Financial Statements
73
<PAGE>
<TABLE>
<CAPTION>
Government Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997 (Unaudited)
=======================================================================================================
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income................................................ $ 1,535,127 $ 3,483,743
Net Realized Gain.................................................... 418,107 257,350
Net Unrealized Appreciation/Depreciation During the Period........... (38,425) 1,068,496
----------- ------------
Change in Net Assets from Operations................................. 1,914,809 4,809,589
Distributions from Net Investment Income............................. (529,309) (3,344,474)
----------- ------------
Net Change in Net Assets from Investment Activities.................. 1,385,500 1,465,115
----------- ------------
From Capital Transactions:
Proceeds from Shares Sold............................................ 2,858,409 2,642,182
Net Asset Value of Shares Issued Through Dividend Reinvestment....... 529,309 3,344,475
Cost of Shares Repurchased........................................... (5,819,927) (12,147,815)
----------- ------------
Net Change in Net Assets from Capital Transactions................... (2,432,209) (6,161,158)
----------- ------------
Total Decrease in Net Assets......................................... (1,046,709) (4,696,043)
Net Assets:
Beginning of the Period.............................................. 52,558,339 57,254,382
----------- ------------
End of the Period (Including accumulated undistributed net
investment income of $1,110,967 and $105,149, respectively)......... $51,511,630 $ 52,558,339
=========== ============
</TABLE>
See Notes to Financial Statements
74
<PAGE>
Government Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
==========================================================================================================
Year Ended December 31,
Six-months Ended -------------------------------------
June 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............... $8.920 $8.666 $ 9.06 $ 8.28 $ 9.26
------ ------ ------ ------ ------
Net Investment Income................................ .270 .566 .569 .60 .56
Net Realized and Unrealized Gain/Loss................ .061 .231 (.388) .78 (.985)
------ ------ ------ ------ ------
Total from Investment Operations....................... .331 .797 .181 1.38 (.425)
Less Distributions from and in Excess
of Net Investment Income.............................. .090 .543 .575 .60 .555
------ ------ ------ ------ ------
Net Asset Value, End of the Period..................... $9.161 $8.920 $8.666 $ 9.06 $ 8.28
====== ====== ====== ====== ======
Total Return*.......................................... 4.24%** 9.61% 2.12% 17.17% (4.63%)
Net Assets at End of the Period (In millions).......... $ 51.5 $ 52.6 $ 57.3 $ 67.0 $ 65.5
Ratio of Expenses to Average Net Assets*............... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average
Net Assets*........................................... 5.90% 6.51% 6.56% 6.89% 6.71%
Portfolio Turnover..................................... 64%** 119% 143% 164% 192%
* If certain expenses had not been assumed by
Van Kampen, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average Net Assets................ .77% .74% .80% .72% .70%
Ratio of Net Investment Income to Average
Net Assets........................................... 5.74% 6.37% 6.36% 6.77% 6.61%
</TABLE>
**Non-Annualized
See Notes to Financial Statements
75
<PAGE>
Growth and Income Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 91.6%
Consumer Distribution 4.0%
Dole Food, Inc............................................ 3,320 $ 164,963
Federated Department Stores, Inc. (a)..................... 7,000 376,687
Gap, Inc.................................................. 5,290 325,996
Gymboree Corp. (a)........................................ 1,370 20,764
------------
888,410
------------
Consumer Durables 0.8%
Black & Decker Corp....................................... 2,950 179,950
------------
Consumer Non-Durables 8.4%
Adidas - ADR (Germany).................................... 500 42,813
Benckiser NV, Class B - ADR (Netherlands) (a)............. 3,580 220,841
Colgate - Palmolive Co.................................... 4,000 352,000
Philip Morris Cos., Inc................................... 12,800 504,000
Ralston Purina Group...................................... 3,080 359,782
Tommy Hilfiger Corp. (a).................................. 3,990 249,375
Unilever NV - ADR (Netherlands)........................... 1,760 138,930
------------
1,867,741
------------
Consumer Services 3.2%
Capstar Broadcasting Corp., Class A (a)................... 4,190 105,274
Cognizant Corp............................................ 4,740 298,620
H & R Block, Inc.......................................... 4,500 189,562
Hilton Hotels Corp........................................ 4,100 116,850
------------
710,306
------------
Energy 7.6%
Coastal Corp.............................................. 5,730 400,026
El Paso Natural Gas Co.................................... 7,830 299,498
Exxon Corp................................................ 2,710 193,257
Mobil Corp................................................ 2,600 199,225
Texaco, Inc............................................... 5,570 332,459
Valero Energy Corp........................................ 2,520 83,790
YPF Sociedad Anonima, Class D - ADR (Argentina)........... 6,340 190,596
------------
1,698,851
------------
Finance 16.4%
Allstate Corp............................................. 1,370 125,441
American General Corp..................................... 4,500 320,344
Arden Realty, Inc......................................... 4,950 128,081
Avis Rent A Car, Inc...................................... 8,950 221,512
</TABLE>
See Notes to Financial Statements
76
<PAGE>
Growth and Income Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
Finance (Continued)
BankBoston Corp................................................. 4,400 $ 244,750
Chase Manhattan Corp............................................ 9,760 736,880
Conseco, Inc.................................................... 1,810 84,617
Dresdner Bank AG - ADR (Germany) (a)............................ 2,200 116,875
Equitable Cos., Inc............................................. 4,180 313,239
Everest Reinsurance Holdings, Inc............................... 1,190 45,741
Exel Ltd........................................................ 2,010 156,403
First Union Corp................................................ 3,710 216,107
Fleet Financial Group, Inc...................................... 1,850 154,475
NationsBank Corp................................................ 4,900 374,850
Provident Cos., Inc............................................. 1,950 67,275
Travelers Group, Inc............................................ 2,800 169,750
Washington Mutual, Inc.......................................... 4,006 174,011
---------
3,650,351
---------
Healthcare 14.5%
Alza Corp. (a).................................................. 4,920 212,790
American Home Products Corp..................................... 9,060 468,855
Beckman Coulter, Inc............................................ 3,160 184,070
Columbia / HCA Healthcare Corp.................................. 3,910 113,879
Merck & Co., Inc................................................ 2,060 275,525
Mylan Laboratories, Inc......................................... 8,090 243,206
PacifiCare Health Systems, Class B (a).......................... 5,340 471,922
Pharmacia & Upjohn, Inc......................................... 6,520 300,735
Rhodia, SA - ADR (France)....................................... 1,200 32,700
Rhone-Poulenc, SA - ADR (France), Class A....................... 6,489 364,601
Rhone-Poulenc, SA - ADR (France) Warrants (expiring 11/05/01)... 2,079 13,254
SmithKline Beecham PLC - ADR (United Kingdom)................... 3,050 184,525
St. Jude Medical, Inc. (a)...................................... 4,240 156,085
Watson Pharmaceuticals, Inc. (a)................................ 4,050 189,084
----------
3,211,231
----------
Producer Manufacturing 6.8%
AGCO Corp....................................................... 2,460 50,584
AlliedSignal, Inc............................................... 5,890 261,369
Flowserve Corp.................................................. 1,860 45,802
Fluor Corp...................................................... 750 38,250
Ingersoll-Rand Co............................................... 7,030 309,759
Philips Electronics NV - ADR (Netherlands)...................... 4,390 373,150
USA Waste Services, Inc. (a).................................... 5,090 251,319
</TABLE>
See Notes to Financial Statements
77
<PAGE>
Growth and Income Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Producer Manufacturing (Continued)
Waste Management, Inc. ................................. 4,930 $ 172,550
----------
1,502,783
----------
Raw Materials/Processing Industries 3.6%
Airgas, Inc. (a)........................................ 1,850 26,594
BetzDearborn, Inc. ..................................... 1,600 66,200
Boise Cascade Corp. .................................... 1,940 63,535
Crown Cork & Seal Co., Inc. ............................ 3,930 186,675
Fort James Corp. ....................................... 2,580 114,810
Imperial Chemical Industries PLC-ADR (United Kingdom)... 2,790 179,955
Raychem Corp. .......................................... 4,060 120,024
Stone Container Corp. (a)............................... 2,400 37,500
----------
795,293
----------
Technology 11.8%
Alcatel Alsthom CGE - ADR (France)...................... 11,780 479,299
BMC Software, Inc. (a).................................. 6,330 328,764
Computer Associates Intl., Inc. ........................ 2,165 120,293
First Data Corp. ....................................... 4,940 164,564
International Business Machines Corp. .................. 5,370 616,543
International Rectifier Corp. (a)....................... 2,050 17,425
Micron Technology, Inc. (a)............................. 2,400 59,550
Motorola, Inc. ......................................... 1,190 62,549
Quantum Corp. (a)....................................... 5,010 103,957
Texas Instruments, Inc. ................................ 3,250 189,516
VLSI Technology, Inc. (a)............................... 9,630 161,603
Xerox Corp. ............................................ 2,270 230,689
Xilinx, Inc. (a) (b).................................... 2,800 95,200
----------
2,629,952
----------
Transportation 1.5%
Canadian National Railway Co. .......................... 6,050 321,406
----------
Utilities 13.0%
AirTouch Communications, Inc. (a)....................... 910 53,178
BEC Energy.............................................. 5,540 229,910
BellSouth Corp. ........................................ 3,320 222,855
Cincinnati Bell, Inc. .................................. 6,910 197,799
Consolidated Edison, Inc. .............................. 5,350 246,434
Edison International.................................... 6,460 190,974
Entergy Corp. .......................................... 300 8,625
</TABLE>
78 See Notes to Financial Statements
<PAGE>
Growth and Income Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities (Continued)
FPL Group, Inc............................................................................... 2,870 $ 180,810
GPU, Inc..................................................................................... 4,530 171,291
GTE Corp..................................................................................... 4,620 256,988
Niagara Mohawk Power Corp. (a)............................................................... 15,340 229,141
Northeast Utilities.......................................................................... 18,970 321,304
PG&E Corp.................................................................................... 2,740 86,481
SBC Communications, Inc...................................................................... 2,290 91,600
Sprint Corp.................................................................................. 2,390 168,495
U.S. West, Inc............................................................................... 4,920 231,240
-----------
2,887,125
-----------
Total Common Stocks 91.6%............................................................................ 20,343,399
Corporate Bond 0.3%
Hewlett Packard Co., LYON, 144A - Private Placement
($125,000 par, yielding 3.125%, 10/14/17 maturity) (c).............................................. 66,719
-----------
Total Long-Term Investments 91.9%
(Cost $17,950,217).................................................................................. 20,410,118
-----------
Short-Term Investments 10.3%
Repurchase Agreement 9.0%
Swiss Bank Corp. ($2,005,000 par, collateralized by U.S. Government obligations in a pooled
cash account, dated 06/30/98, to be sold on 07/01/98 at $2,005,323) (b)............................. 2,005,000
U.S. Government Agency Obligations 1.3%
Federal Home Loan Bank Consolidated Discount Note ($300,000 par, yielding 5.443%,
10/07/98 maturity).................................................................................. 295,560
-----------
Total Short-Term Investments
(Cost $2,300,594)................................................................................... 2,300,560
-----------
Total Investments 102.2%
(Cost $20,250,811).................................................................................. 22,710,678
Liabilities in Excess of Other Assets (2.2%)......................................................... (490,575)
-----------
Net Assets 100.0%.................................................................................... $22,220,103
===========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated for open futures transactions.
(c) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
79 See Notes to Financial Statements
<PAGE>
Growth and Income Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $20,250,811)....................................................... $22,710,678
Cash....................................................................................... 8,003
Receivables:
Investments Sold......................................................................... 161,393
Dividends................................................................................ 26,071
Fund Shares Sold......................................................................... 21,317
Expense Reimbursement by Adviser......................................................... 5,635
-----------
Total Assets........................................................................... 22,933,097
-----------
Liabilities:
Payables:
Investments Purchased.................................................................... 682,182
Distributor and Affiliates............................................................... 4,960
Variation Margin on Futures.............................................................. 4,250
Accrued Expenses........................................................................... 16,330
Trustees' Deferred Compensation and Retirement Plans....................................... 5,272
-----------
Total Liabilities...................................................................... 712,994
-----------
Net Assets................................................................................. $22,220,103
===========
Net Assets Consist of:
Capital.................................................................................... $19,557,789
Net Unrealized Appreciation................................................................ 2,467,791
Accumulated Undistributed Net Investment Income............................................ 95,020
Accumulated Net Realized Gain.............................................................. 99,503
-----------
Net Assets................................................................................. $22,220,103
===========
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $22,220,103 and 1,590,426 shares of beneficial interest
issued and outstanding).................................................................. $ 13.97
===========
</TABLE>
80 See Notes to Financial Statements
<PAGE>
Growth and Income Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends................................................. $ 120,562
Interest.................................................. 40,278
----------
Total Income.......................................... 160,840
----------
Expenses:
Investment Advisory Fee................................... 49,206
Accounting................................................ 14,024
Shareholder Reports....................................... 11,393
Audit..................................................... 10,131
Shareholder Services...................................... 8,966
Trustees' Fees and Expenses............................... 2,003
Custody................................................... 1,540
Legal..................................................... 77
Other..................................................... 1,069
----------
Total Expenses........................................ 98,409
Less Fees Deferred.................................... 36,581
----------
Net Expenses.......................................... 61,828
----------
Net Investment Income..................................... $ 99,012
==========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss
Investment.............................................. $ 111,686
Futures................................................. 30,695
----------
Net Realized Gain......................................... 142,381
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 539,536
End of the Period:
Investments........................................... 2,459,867
Futures............................................... 7,924
----------
2,467,791
----------
Net Unrealized Appreciation During the Period............. 1,928,255
----------
Net Realized and Unrealized Gain.......................... $2,070,636
==========
Net Increase in Net Assets From Operations................ $2,169,648
==========
</TABLE>
81 See Notes to Financial Statements
<PAGE>
Growth and Income Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................... $ 99,012 $ 61,347
Net Realized Gain................................................... 142,381 105,366
Net Unrealized Appreciation During the Period....................... 1,928,255 541,506
----------- -----------
Change in Net Assets from Operations................................ 2,169,648 708,219
----------- -----------
Distributions from Net Investment Income............................ (18,683) (44,226)
----------- -----------
Distributions from Net Realized Gain................................ -0- (105,285)
Distributions in Excess of Net Realized Gain........................ -0- (45,861)
----------- -----------
Distributions from and in Excess of Net Realized Gain............... -0- (151,146)
----------- -----------
Total Distributions................................................. (18,683) (195,372)
----------- -----------
Net Change in Net Assets from Investment Activities................. 2,150,965 512,847
----------- -----------
From Capital Transactions:
Proceeds from Shares Sold........................................... 8,771,528 10,524,876
Net Asset Value of Shares Issued Through Dividend Reinvestment...... 18,683 195,372
Cost of Shares Repurchased.......................................... (434,663) (18,007)
----------- -----------
Net Change in Net Assets from Capital Transactions.................. 8,355,548 10,702,241
----------- -----------
Total Increase in Net Assets........................................ 10,506,513 11,215,088
Net Assets:
Beginning of the Period............................................. 11,713,590 498,502
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $95,020 and $14,691, respectively)........... $22,220,103 $11,713,590
=========== ===========
</TABLE>
82 See Notes to Financial Statements
<PAGE>
Growth and Income Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
December 23, 1996
Six-Months (Commencement of
Ended Year Ended Investment Operations
June 30, 1998 December 31, 1997 to December 31, 1996)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period..................... $12.123 $ 9.970 $10.000
------- ------- -------
Net Investment Income...................................... .060 .072 .011
Net Realized and Unrealized Gain/Loss...................... 1.804 2.309 (.041)
------- ------- -------
Total from Investment Operations............................. 1.864 2.381 (.030)
------- ------- -------
Less:
Distributions from Net Investment Income..................... .016 .065 -0-
Distributions from and in Excess of Net Realized Gain........ -0- .163 -0-
------- ------- -------
Total Distributions.......................................... .016 .228 -0-
------- ------- -------
Net Asset Value, End of the Period........................... $13.971 $12.123 $ 9.970
======= ======= =======
Total Return*................................................ 15.40%** 23.90% (.30%)**
Net Assets at End of the Period (In millions)................ $ 22.2 $ 11.7 $ 0.5
Ratio of Expenses to Average Net Assets*..................... .75% .75% .75%
Ratio of Net Investment Income to Average Net Assets*........ 1.20% 1.19% 4.47%
Portfolio Turnover........................................... 37%** 96% 0%**
* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets...................... 1.19% 1.63% 45.97%
Ratio of Net Investment Income/Loss to Average Net Assets.... .76% .31% (40.74%)
</TABLE>
**Non-Annualized
83 See Notes to Financial Statements
<PAGE>
Money Market Portfolio Portfolio of Investments
<TABLE>
<CAPTION>
June 30, 1998 (Unaudited)
===========================================================================================================
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Description Date Purchase Cost
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations 19.0%
$2,000 Federal Home Loan Mortgage Corp. Discount Note.................. 08/28/98 5.507% $ 1,982,169
1,980 Federal National Mortgage Association Discount Note............. 07/08/98 5.361 1,977,701
-----------
Total U.S. Government Agency Obligations........................ 3,959,870
-----------
Commercial Paper 49.5%
800 American Express Credit Corp.................................... 08/07/98 5.551 795,354
800 American General Finance Corp................................... 07/06/98 5.578 799,264
800 Associates Corp. of North America............................... 07/09/98 5.545 798,902
800 Chevron Oil Finance Corp........................................ 07/17/98 5.554 797,911
800 CIT Group Holdings, Inc......................................... 08/24/98 5.553 793,278
800 Commercial Credit Corp.......................................... 08/19/98 5.552 793,889
800 Ford Motor Credit Co............................................ 07/13/98 5.547 798,420
800 General Electric Capital Corp................................... 09/03/98 5.587 792,041
800 IBM Credit Corp................................................. 07/22/98 5.535 797,306
800 John Deere Capital Corp......................................... 07/27/98 5.551 796,700
800 Merrill Lynch & Co., Inc........................................ 08/21/98 5.588 793,633
800 Norwest Financial Inc........................................... 07/21/98 5.551 797,429
800 Prudential Funding Corp......................................... 07/20/98 5.552 797,556
-----------
Total Commercial Paper............................................................... 10,351,683
-----------
Repurchase Agreements 31.8%
BA Securities($3,645,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 06/30/98, to be
sold on 07/01/98 at $3,645,613)...................................................... 3,645,000
Swiss Bank Corp.($3,000,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 06/30/98, to be
sold on 07/01/98 at $3,000,483)...................................................... 3,000,000
-----------
Total Repurchase Agreements.......................................................... 6,645,000
-----------
Total Investments 100.3% (a)................................................................. 20,956,553
Liabilities in Excess of Other Assets (0.3%)................................................. (53,906)
-----------
Net Assets 100.0%............................................................................ $20,902,647
===========
</TABLE>
(a) At June 30, 1998, cost is identical for both book and federal income tax
purposes.
See Notes to Financial Statements
84
<PAGE>
Money Market Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at amortized cost which approximates market,
including repurchase agreements of $6,645,000.................... $20,956,553
Cash............................................................... 554
Portfolio Shares Sold.............................................. 14,929
Other.............................................................. 50,327
-----------
Total Assets................................................... 21,022,363
-----------
Liabilities:
Payables:
Portfolio Shares Repurchased..................................... 7,506
Distributor and Affiliates....................................... 3,841
Trustees' Deferred Compensation and Retirement Plans............... 93,519
Accrued Expenses................................................... 14,850
-----------
Total Liabilities.............................................. 119,716
-----------
Net Assets......................................................... $20,902,647
===========
Net Assets Consist of:
Capital............................................................ $20,902,624
Accumulated Undistributed Net Investment Income.................... 23
-----------
Net Assets (Equivalent to $1.00 per share for
20,902,624 shares outstanding)................................... $20,902,647
===========
</TABLE>
See Notes to Financial Statements
85
<PAGE>
Money Market Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest.............................................................. $528,053
--------
Expenses:
Investment Advisory Fee............................................... 47,204
Audit................................................................. 8,205
Shareholder Services.................................................. 7,552
Shareholder Reports................................................... 7,281
Trustees' Fees and Expenses........................................... 5,866
Accounting............................................................ 5,171
Custody............................................................... 4,399
Legal................................................................. 1,535
Other................................................................. 10,566
--------
Total Expenses.................................................... 97,779
Less Fees Deferred................................................ 41,112
--------
Net Expenses...................................................... 56,667
--------
Net Investment Income................................................. $471,386
========
Net Increase in Net Assets From Operations............................ $471,386
========
</TABLE>
See Notes to Financial Statements
86
<PAGE>
Money Market Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
==============================================================================================================
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.................................................. $ 471,386 $ 1,057,585
Distributions from Net Investment Income............................... (471,567) (1,057,591)
------------ ------------
Net Change in Net Assets from Investment Activities.................... (181) (6)
------------ ------------
From Capital Transactions:
Proceeds from Shares Sold.............................................. 10,827,054 22,688,459
Net Asset Value of Shares Issued Through Dividend Reinvestment......... 471,567 1,057,591
Cost of Shares Repurchased............................................. (10,136,565) (23,571,207)
------------ ------------
Net Change in Net Assets from Capital Transactions..................... 1,162,056 174,843
------------ ------------
Total Increase in Net Assets........................................... 1,161,875 174,837
Net Assets:
Beginning of the Period................................................ 19,740,772 19,565,935
------------ ------------
End of the Period (Including accumulated undistributed net investment
income of $23 and $204, respectively)................................ $ 20,902,647 $ 19,740,772
============ ============
</TABLE>
See Notes to Financial Statements
87
<PAGE>
Money Market Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
==================================================================================================================================
Year Ended December 31,
Six Months Ended -----------------------------------------
June 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.............................. $ 1.00 $1.00 $1.00 $ 1.00 $ 1.00
-------- ----- ----- ------ ------
Net Investment Income................................................. .025 .049 .048 .0533 .0365
Less Distributions from Net Investment Income......................... .025 .049 .048 .0533 .0365
-------- ----- ----- ------ ------
Net Asset Value, End of the Period.................................... $ 1.00 $1.00 $1.00 $ 1.00 $ 1.00
======== ===== ===== ====== ======
Total Return*......................................................... 2.50%** 5.06% 4.89% 5.46% 3.71%
Net Assets at End of the Period (In millions)......................... $ 20.9 $19.7 $19.6 $ 21.6 $ 28.5
Ratio of Expenses to Average Net Assets*.............................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*................. 4.99% 4.95% 4.78% 5.33% 3.63%
* If certain expenses had not been assumed by Van Kampen, Total Return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets............................... 1.04% .98% 1.29% .93% .87%
Ratio of Net Investment Income to Average Net Assets.................. 4.56% 4.57% 4.10% 5.00% 3.37%
</TABLE>
** Non-annualized
88 See Notes to Financial Statements
<PAGE>
Morgan Stanley Real Estate Securities Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks 94.5%
Apartments 14.9%
Avalon Bay Community Inc.............................................................. 276,500 $10,507,000
Equity Residential Properties Trust................................................... 65,800 3,121,388
Essex Property Trust, Inc............................................................. 291,100 9,024,100
Irvine Apartment Communities, Inc..................................................... 141,000 4,080,187
Pennsylvania Real Estate Investment................................................... 181,300 4,022,594
Security Capital Atlantic, Inc........................................................ 350,946 7,830,482
Security Capital Pacific Trust........................................................ 14,800 333,000
Smith (Charles E.) Residential Realty................................................. 7,200 230,400
-----------
39,149,151
-----------
Automobile 0.3%
Capital Automotive.................................................................... 50,900 722,144
-----------
Casino Operators 0.5%
Station Casinos Inc................................................................... 94,300 1,385,031
-----------
Development 4.2%
Atlantic Gulf Communities Corp. (a)................................................... 426,124 878,881
Atlantic Gulf Communities Corp. - Preferred Ser B
(Convertible into 96,770 common shares) (a)........................................... 55,647 375,617
Atlantic Gulf Communities Corp. - Preferred Shares, 144A - Private Placement (a) (b).. 79,420 536,085
Atlantic Gulf Communities Corp. Warrants, 37,098 shares
Class A, B and C, expiring 06/23/04 (a)............................................... 111,294 55,647
Atlantic Gulf Communities Corp. Warrants, 74,352 shares Class A, B and C,
expiring 06/24/01, 144A - Private Placement (a) (b)................................... 223,056 111,528
Brookfield Properties Corp............................................................ 654,100 9,033,415
-----------
10,991,173
-----------
Hotel & Lodging 7.6%
Capstar Hotel Co. (a)................................................................. 135,300 3,788,400
Host Marriott Corp. (a)............................................................... 244,100 4,348,031
Starwood Hotels and Resorts........................................................... 247,331 11,949,179
-----------
20,085,610
-----------
Manufactured Home Communities 5.7%
Chateau Properties, Inc............................................................... 436,717 12,555,614
Manufactured Home Communities, Inc.................................................... 24,900 600,712
Sun Communities, Inc.................................................................. 56,900 1,884,813
-----------
15,041,139
-----------
</TABLE>
89 See Notes to Financial Statements
<PAGE>
Morgan Stanley Real Estate Securities Portfolio Portfolio of Investments
(Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Office/Industrial 38.2%
Arden Realty Group, Inc................................................ 510,500 $ 13,209,188
Beacon Capital Partners Inc., 144A - Private Placement (b)............. 271,300 5,426,000
Bedford Property Investors, Inc........................................ 70,800 1,292,100
Brandywine Realty Trust................................................ 442,300 9,896,462
CarrAmerica Realty Corp................................................ 456,200 12,944,675
Crescent Real Estate Equities Trust.................................... 9,900 332,887
Equity Office Properties Trust......................................... 315,911 8,963,975
Great Lakes REIT, Inc.................................................. 344,800 6,012,450
Kilroy Realty Corp..................................................... 116,200 2,905,000
Mack California Realty Corp............................................ 117,400 4,035,625
Meridan Industrial Trust, Inc.......................................... 62,700 1,442,100
Pacific Gulf Properties, Inc........................................... 298,800 6,461,550
Prime Group Realty Trust............................................... 321,600 5,507,400
Reckson Associates Realty Corp......................................... 134,100 3,168,113
Reckson Service Inds Inc. (a).......................................... 21,456 71,073
SL Green Realty Corp................................................... 213,200 4,797,000
Spieker Properties, Inc................................................ 96,000 3,720,000
Trizec Hahn Corp....................................................... 174,200 3,734,413
Wellsford Real Properties, Inc., 144A - Private Placement (a) (b)...... 447,242 6,317,293
------------
100,237,304
------------
Self-Storage 4.4%
PS Business Parks Inc. California...................................... 270,820 6,364,270
Public Storage, Inc.................................................... 78,500 2,198,000
Shurgard Storage Centers, Inc., Class A................................ 106,900 2,966,475
------------
11,528,745
------------
Shopping Centers 11.8%
Burnham Pacific Properties, Inc........................................ 587,700 8,337,993
Federal Realty Investment Trust........................................ 443,200 10,664,500
First Washington Realty Trust, Inc. - Preferred Ser A
(Convertible into 74,484 common shares)................................ 58,100 1,674,006
Pan Pacific Retail Properties, Inc..................................... 161,200 3,123,250
Ramco Gershenson Properties Trust...................................... 1,900 36,100
Regency Realty Corp.................................................... 156,900 3,942,113
Vornado Realty Trust................................................... 82,800 3,286,125
------------
31,064,087
------------
</TABLE>
90 See Notes to Financial Statements
<PAGE>
Morgan Stanley Real Estate Securities Portfolio Portfolio of Investments
(Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shopping Malls 6.9%
CBL & Associates Properties, Inc............................................................ 121,400 $ 2,943,950
Taubman Centers, Inc........................................................................ 745,000 10,616,250
Urban Shopping Centers, Inc................................................................. 140,900 4,438,350
------------
17,998,550
------------
Total Common and Preferred Stock 94.5%................................................................ 248,202,934
------------
Convertible Corporate Obligations 0.9%
Brookfield Properties Corp. - Installment Receipts Representing Subordinated Debenture
($2,262,000 par, 6.00% Coupon, 02/14/07 Maturity, Convertible into
150,800 Brookfield Properties Corp. common shares).................................................. 2,235,987
------------
Total Long-Term Investments 95.4%
(Cost $245,017,660)................................................................................. 250,438,921
------------
Repurchase Agreement 1.9%
Swiss Bank Corp. ($5,110,000 par collateralized by U.S. Government obligations in a pooled
cash account, dated 6/30/98, to be sold on 7/01/98 at $5,110,823)
(Cost $5,110,000)................................................................................... 5,110,000
------------
Total Investments 97.3%
(Cost $250,127,660)................................................................................. 255,548,921
Other Assets in Excess of Liabilities 2.7%............................................................ 7,090,727
------------
Net Assets 100.0%..................................................................................... $262,639,648
============
</TABLE>
(a) Non-income producing security as this stock does not declare dividends.
(b) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
91 See Notes to Financial Statements
<PAGE>
Morgan Stanley Real Estate Securities Portfolio Statement of Assets and
Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $250,127,660).............................................................. $255,548,921
Cash............................................................................................... 3,059
Receivables:
Investments Sold................................................................................. 7,049,425
Dividends........................................................................................ 2,155,885
Fund Shares Sold................................................................................. 174,507
Interest......................................................................................... 45,240
Unamortized Organizational Costs................................................................... 2,738
Other.............................................................................................. 2,937
------------
Total Assets................................................................................... 264,982,712
------------
Liabilities:
Payables:
Investments Purchased............................................................................ 1,608,035
Portfolio Shares Repurchased..................................................................... 463,030
Investment Advisory Fee.......................................................................... 214,177
Distributor and Affiliates....................................................................... 8,869
Trustees' Deferred Compensation and Retirement Plans............................................... 25,852
Accrued Expenses................................................................................... 23,101
------------
Total Liabilities.............................................................................. 2,343,064
------------
Net Assets......................................................................................... $262,639,648
============
Net Assets Consist of:
Capital............................................................................................ $246,064,910
Accumulated Undistributed Net Investment Income.................................................... 6,328,612
Net Unrealized Appreciation........................................................................ 5,421,261
Accumulated Net Realized Gain...................................................................... 4,824,865
------------
Net Assets......................................................................................... $262,639,648
============
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $262,639,648 and 17,739,727 shares of beneficial interest
issued and outstanding).......................................................................... $14.81
============
</TABLE>
92 See Notes to Financial Statements
<PAGE>
Morgan Stanley Real Estate Securities Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends........................................................ $ 7,523,210
Interest......................................................... 310,557
------------
Total Income................................................. 7,833,767
------------
Expenses:
Investment Advisory Fee.......................................... 1,395,754
Accounting....................................................... 16,866
Trustees' Fees and Expenses...................................... 12,364
Shareholder Services............................................. 8,055
Legal............................................................ 3,982
Amortization of Organizational Costs............................. 677
Other............................................................ 49,833
------------
Total Expenses............................................... 1,487,531
------------
Net Investment Income............................................ $ 6,346,236
============
Realized and Unrealized Gain/Loss:
Net Realized Gain................................................ $ 5,223,088
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period........................................ 31,073,264
End of the Period:
Investments.................................................. 5,421,261
------------
Net Unrealized Depreciation During the Period.................... (25,652,003)
------------
Net Realized and Unrealized Loss................................. $(20,428,915)
============
Net Decrease in Net Assets From Operations....................... $(14,082,679)
============
</TABLE>
93 See Notes to Financial Statements
<PAGE>
Morgan Stanley Real Estate Securities Portfolio
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Year Ended December 31, 1997
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.................................................. $ 6,346,236 $ 7,766,948
Net Realized Gain...................................................... 5,223,088 28,792,309
Net Unrealized Appreciation/Depreciation During the Period............. (25,652,003) 9,027,199
------------ -------------
Change in Net Assets from Operations................................... (14,082,679) 45,586,456
------------ -------------
Distributions from Net Investment Income............................... (453,005) (7,660,430)
Distributions from Net Realized Gain................................... (4,453,661) (25,295,317)
------------ -------------
Total Distributions.................................................... (4,906,666) (32,955,747)
------------ -------------
Net Change in Net Assets from Investment Activities.................... (18,989,345) 12,630,709
------------ -------------
From Capital Transactions:
Proceeds from Shares Sold.............................................. 46,456,859 275,023,739
Net Asset Value of Shares Issued Through Dividend Reinvestment......... 4,906,663 32,953,898
Cost of Shares Repurchased............................................. (69,141,557) (188,685,072)
------------ -------------
Net Change in Net Assets from Capital Transactions..................... (17,778,035) 119,292,565
------------ -------------
Total Increase/Decrease in Net Assets.................................. (36,767,380) 131,923,274
Net Assets:
Beginning of the Period................................................ 299,407,028 167,483,754
------------ -------------
End of the Period (Including accumulated undistributed net investment
income of $6,328,612 and $435,381, respectively)..................... $262,639,648 $ 299,407,028
============ =============
</TABLE>
94 See Notes to Financial Statements
<PAGE>
Morgan Stanley Real Estate Securities Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
July 3, 1995
Six Months Year Ended December 31, (Commencement of
Ended June 30, --------------------------- Investment Operations)
1998 1997 1996 to December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............. $ 15.846 $14.784 $ 10.74 $ 10.00
---------- ------- ------- --------
Net Investment Income.............................. .359 .464 .217 .20
Net Realized and Unrealized Gain/Loss.............. (1.129) 2.617 4.117 .6325
---------- ------- ------- --------
Total from Investment Operations..................... (.770) 3.081 4.334 .8325
---------- ------- ------- --------
Less:
Distributions from Net
Investment Income................................ .025 .470 .199 .0925
Distributions from Net Realized Gain............... .246 1.549 .091 -0-
---------- ------- ------- --------
Total Distributions.................................. .271 2.019 .290 .0925
---------- ------- ------- --------
Net Asset Value, End of the Period................... $ 14.805 $15.846 $14.784 $ 10.74
========== ======= ======= ========
Total Return*........................................ (4.88%)** 21.47% 40.53% 8.35%**
Net Assets at End of the Period
(In millions)...................................... $ 262.6 $ 299.4 $ 167.5 $ 8.6
Ratio of Expenses to Average Net Assets*............. 1.07% 1.07% 1.10% 2.50%
Ratio of Net Investment Income to
Average Net Assets*................................ 4.55% 3.42% 5.06% 3.75%
Portfolio Turnover................................... 68%** 177% 84% 85%**
* If certain expenses had not been assumed by
Van Kampen, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.............. N/A N/A 1.27% 2.90%
Ratio of Net Investment Income to Average
Net Assets....................................... N/A N/A 4.89% 3.36%
</TABLE>
**Non-Annualized
N/A = Not Applicable
95 See Notes to Financial Statements
<PAGE>
Strategic Stock Portfolio Portfolio of Investments
June 30, 1998 (Unaudited)
===============================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------------
<S> <C> <C>
Common Stock 94.1%
Consumer Distribution 4.0%
May Department Stores Co............. 4,970 $ 325,535
Sysco Corp........................... 5,820 149,138
----------
474,673
----------
Consumer Durables 17.1%
Chrysler Corp........................ 5,310 299,351
Eastman Kodak Co..................... 8,050 588,153
General Motors Corp.................. 7,950 531,159
Genuine Parts Co..................... 9,970 344,588
Newell Co............................ 4,740 236,111
----------
1,999,362
----------
Consumer Non-Durables 14.6%
AMP, Inc............................. 9,060 311,438
Anheuser Busch Cos., Inc............. 2,730 128,822
Avon Products, Inc................... 2,880 223,200
Campbell Soup Co..................... 3,790 201,344
Clorox Co............................ 1,500 143,063
H.J. Heinz & Co...................... 3,310 185,774
Philip Morris Cos., Inc.............. 13,300 523,688
----------
1,717,329
----------
Energy 13.4%
Amoco Corp........................... 4,280 178,155
Chevron Corp......................... 6,760 561,502
Exxon Corp........................... 8,050 574,065
Mobil Corp........................... 2,580 197,693
Tidewater, Inc....................... 1,650 54,450
----------
1,565,865
----------
Finance 4.4%
J.P. Morgan & Co., Inc............... 4,370 511,836
----------
Healthcare 7.1%
Abbott Laboratories, Inc............. 8,470 346,211
American Home Products Corp.......... 9,450 489,038
----------
835,249
----------
Producer Manufacturing 9.7%
Caterpillar, Inc..................... 3,100 163,913
Deere &Co............................ 3,700 195,638
Flour Corp........................... 1,560 79,560
Minnesota Mining & Manufacturing Co.. 5,900 484,906
Textron, Inc......................... 2,970 212,912
----------
1,136,929
----------
</TABLE>
See Notes to Financial Statements
96
<PAGE>
Strategic Stock Portfolio Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw Materials/Processing Industries 9.0%
E. I. du Pont de Nemours & Co......................................................... 5,790 $ 432,079
International Paper Co................................................................. 11,190 481,170
PPG Industries, Inc.................................................................... 2,040 141,907
-----------
1,055,156
-----------
Technology 4.1%
General Dynamis Corp................................................................... 3,200 148,800
Harris Corp. Delaware.................................................................. 7,390 330,241
-----------
479,041
-----------
Transportation 1.5%
Norfolk Southern Corp.................................................................. 5,910 176,190
-----------
Utilities 9.2%
AT&T Corp.............................................................................. 8,790 502,129
Bell Atlantic Corp..................................................................... 3,860 176,113
BellSouth Corp......................................................................... 3,090 207,416
SBC Communications, Inc................................................................ 4,760 190,400
-----------
1,076,058
-----------
TOTAL LONG-TERM INVESTMENTS 94.1%
(COST $10,760,174).................................................................... 11,027,688
-----------
Repurchase Agreement 5.1%
Swiss Bank Corp. ($600,000 par collateralized by U.S. Government obligations in a
pooled cash account, dated 06/30/98, to be sold on 07/01/98 at $600,097)
(Cost $600,000)....................................................................... 600,000
-----------
Total Investments 99.2%
(Cost $11,360,174).................................................................... 11,627,688
Other Assets in Excess of Liabilities 0.8%............................................ 88,686
----------
Net Assets 100.0%..................................................................... $11,716,374
===========
</TABLE>
See Notes to Financial Statements
97
<PAGE>
Strategic Stock Portfolio Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $11,360,174).............................. $11,627,688
Cash.............................................................. 1,268
Receivables:
Portfolio Shares Sold........................................... 272,016
Dividends....................................................... 22,014
Expense Reimbursement by Adviser................................ 7,955
-----------
Total Assets.................................................. 11,930,941
-----------
Liabilities:
Payables:
Investments Purchased........................................... 199,891
Distributor and Affiliates...................................... 4,659
Trustees' Deferred Compensation and Retirement Plans.............. 3,716
Accrued Expenses.................................................. 6,301
-----------
Total Liabilities............................................. 214,567
-----------
Net Assets........................................................ $11,716,374
===========
Net Assets Consist of:
Capital........................................................... $11,374,918
Net Unrealized Appreciation....................................... 267,514
Accumulated Undistributed Net Investment Income................... 74,802
Accumulated Net Realized Loss..................................... (860)
-----------
Net Assets........................................................ $11,716,374
===========
Net Asset Value, Offering Price and Redemption Price Per Share
(Based on net assets of $11,716,374 and 1,041,658 shares of
beneficial interest issued and outstanding)..................... $ 11.25
===========
</TABLE>
See Notes to Financial Statements
98
<PAGE>
Strategic Stock Portfolio Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends............................................................ $ 85,918
Interest............................................................. 11,184
--------
Total Income..................................................... 97,102
--------
Expenses:
Investment Advisory Fee.............................................. 17,049
Accounting........................................................... 10,025
Audit................................................................ 9,135
Trustees' Fees and Expenses.......................................... 4,407
Shareholder Services................................................. 2,812
Reports to Shareholders.............................................. 2,573
Legal................................................................ 604
Other................................................................ 1,273
--------
Total Expenses................................................... 47,878
Less Fees Deferred and Expenses Reimbursed ($17,049 and
$8,570, respectively).......................................... 25,619
--------
Net Expenses..................................................... 22,259
--------
Net Investment Income................................................ $ 74,843
========
Realized and Unrealized Gain/Loss:
Net Realized Loss.................................................... $ (860)
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................................ 6,835
End of the Period:
Investments...................................................... 267,514
--------
Net Unrealized Appreciation During the Period........................ 260,679
--------
Net Realized and Unrealized Gain..................................... $259,819
========
Net Increase in Net Assets From Operations........................... $334,662
========
</TABLE>
See Notes to Financial Statements
99
<PAGE>
Strategic Stock Portfolio Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and the Period November 3, 1997
(Commencement of Investment Operations) to December 31, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Period Ended
June 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................. $ 74,843 $ 6,576
Net Realized Loss................................................. (860) -0-
Net Unrealized Appreciation During the Period..................... 260,679 6,835
----------- ----------
Change in Net Assets from Operations.............................. 334,662 13,411
Distributions from Net Investment Income.......................... (6,617) -0-
----------- ----------
Net Change in Net Assets from Investment Activities............... 328,045 13,411
----------- ----------
From Capital Transactions:
Proceeds from Shares Sold......................................... 8,937,749 2,312,791
Net Asset Value of Shares Issued Through Dividend Reinvestment.... 6,375 -0-
Cost of Shares Purchased.......................................... (81,997) -0-
----------- ----------
Net Change in Net Assets from Capital Transactions................ 8,862,127 2,312,791
----------- ----------
Total Increase in Net Assets...................................... 9,190,172 2,326,202
Net Assets:
Beginning of the Period........................................... 2,526,202 200,000
----------- ----------
End of Period (Including accumulated undistributed net
investment income of $74,802 and $6,576, respectively).......... $11,716,374 $2,526,202
=========== ==========
</TABLE>
100 See Notes to Financial Statements
<PAGE>
Strategic Stock Portfolio Financial Highlights
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the period indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
November 3, 1997
Six Months (Commencement of
Ended Investment Operations)
June 30, 1998 to December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period..................................... $ 10.245 $ 10.000
-------- --------
Net Investment Income...................................................... .572 .027
Net Realized and Unrealized Gain........................................... .443 .218
-------- --------
Total from Investment Operations............................................. 1.015 .245
Less Distributions from Net Investment Income................................ .012 -0-
-------- --------
Net Asset Value, End of the Period........................................... $ 11.248 $ 10.245
======== ========
Total Return*................................................................ 9.87%** 2.45%**
Net Assets at End of the Period (In millions)................................ $ 11.7 $ 2.5
Ratio of Expenses to Average Net Assets*..................................... .65% .61%
Ratio of Net Investment Income to Average Net Assets*........................ 2.19% 2.67%
Portfolio Turnover........................................................... 0%** 0%**
* If certain expenses had not been assumed by Van Kampen, Total Return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets...................................... 1.40% 2.59%
Ratio of Net Investment Income to Average Net Assets......................... 1.44% .68%
</TABLE>
** Non-Annualized
101 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
June 30, 1998 (Unaudited)
================================================================================
1. Significant Accounting Policies
Van Kampen Life Investment Trust, formerly known as Van Kampen American Capital
Life Investment Trust, (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment company
comprised of ten Portfolios: Asset Allocation Portfolio ("Asset Allocation"),
Domestic Income Portfolio ("Domestic"), Emerging Growth Portfolio ("Emerging
Growth"), Enterprise Portfolio ("Enterprise"), Global Equity Portfolio ("Global
Equity"), Government Portfolio ("Government"), Growth and Income Portfolio
("Growth and Income"), Money Market Portfolio ("Money Market"), Morgan Stanley
Real Estate Securities Portfolio ("Real Estate") and Strategic Stock Portfolio
("Strategic Stock") (collectively the "Portfolios"). Each Portfolio is accounted
for as a separate entity.
The goals of the Portfolios are as follows: Asset Allocation seeks a high
total investment return consistent with prudent risk; Domestic seeks income as
its primary objective and capital appreciation as a secondary objective;
Emerging Growth seeks capital appreciation by investing principally in common
stocks of small and medium sized companies; Enterprise seeks capital
appreciation by investing principally in common stocks; Global Equity seeks
long-term growth of capital through an internationally diversified portfolio of
equity securities of any nation, including the United States; Government seeks
high current return consistent with preservation of capital; Growth and Income
seeks long-term growth of capital and income by investing primarily in income-
producing equity securities including common stocks and convertible securities;
Money Market seeks protection of capital and high current income by investing in
short-term money market instruments; Real Estate seeks long-term growth of
capital by investing principally in securities of companies operating in the
real estate industry; and Strategic Stock seeks an above average total return
consistent with the preservation of invested capital, by investing primarily in
a portfolio of dividend paying equity securities included in the Dow Jones
Industrial Average or the Morgan Stanley Capital International USA Index.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation-Investments in securities listed on a securities exchange
are valued at their sales price as of the close of such securities exchange.
Fixed income investments are stated at value using market quotations. Unlisted
securities and listed securities for which the last sales price is not available
are valued at the last bid price. For those securities where prices or
quotations are not available, valuations are determined in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost. For Money Market, all investments are valued at amortized cost.
Domestic's investments include lower rated and unrated debt securities
which may be more susceptible to a decline in value due to adverse economic
conditions than other investment grade holdings. These securities are often
subordinated to the prior claims of other senior lenders and uncertainties exist
as to an issuer's ability to meet principal and interest payments. Debt
securities rated below investment grade and comparable unrated securities
represented approximately 42% of Domestic's net assets at June 30, 1998.
B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Portfolios may purchase and sell securities on a "when issued" or "delayed
delivery" basis, with settlement to occur at a later date. The value of the
security so purchased is subject to market fluctuations during this period. The
Portfolios will maintain, in a segregated account with its custodian, assets
having an aggregate value at least equal to the amount of the when issued or
delayed delivery purchase commitments until payment is made.
102
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
The Portfolios may invest in repurchase agreements which are short-term
investments in which the Portfolios acquire ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Portfolios may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Portfolios will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of the custodian bank. The
seller is required to maintain the value of the underlying security at not less
than the repurchase proceeds due the Portfolios.
C. Income and Expenses-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discounts on
debt securities purchased are amortized over the expected life of each
applicable security. Premiums on debt securities are not amortized.
D. Organizational Costs-Emerging Growth, Global Equity and Real Estate have
reimbursed Van Kampen Funds Inc. or its affiliates (collectively "Van Kampen")
for costs incurred in connection with each Portfolio's organization in the
amount of $6,828 per Portfolio. These costs are being amortized on a straight
line basis over the 60 month period ending July 2, 2000. The Adviser has agreed
that in the event any of the initial shares of the Portfolios originally
purchased by Van Kampen are redeemed during the amortization period, the
Portfolios will be reimbursed for any unamortized organizational costs in the
same proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. Federal Income Taxes-It is each Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
Each Portfolio intends to utilize provisions of the federal income tax laws
which allow each Portfolio to carry a realized capital loss forward for eight
years following the year of the loss and offset such losses against any future
realized capital gains. The following table presents the capital loss
carryforward at December 31, 1997 along with its expiration dates. The table
also presents the identified cost of investments, including foreign currencies,
at June 30, 1998 for federal income tax purposes with the associated gross
unrealized appreciation, gross unrealized depreciation and net unrealized
appreciation/ depreciation on investments, futures, forward currency contracts,
forward commitments, and foreign currency.
<TABLE>
<CAPTION>
Asset Emerging Global
Allocation Domestic Growth Enterprise Equity
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Realized capital loss carryforward............... -- $ 1,289,534 $ 81,975 -- --
Expiration dates of capital loss carryforward.... -- 1998-2002 2004 -- --
Amount expiring on 12/31/98...................... -- 160,765 -- -- --
Identified cost..................................$52,841,191 $16,060,411 $16,051,259 $74,199,840 $2,753,892
Gross unrealized appreciation.................... 10,394,942 962,053 4,837,080 41,468,462 819,884
Gross unrealized depreciation.................... 1,036,203 106,056 206,100 1,154,239 92,066
Net unrealized appreciation...................... 9,358,739 855,997 4,630,980 40,314,223 727,818
</TABLE>
103
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Growth
and Money Real Strategic
Government Income Market Estate Stock
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Realized capital loss carryforward................................. $10,001,012 -- $ 1,707 -- --
Expiration dates of capital loss carryforward...................... 1998-2004 -- 2003-2005 -- --
Amount expiring on 12/31/98........................................ $ 2,677,688 -- -- -- --
Identified cost.................................................... $50,804,839 $20,261,791 $20,956,553 $250,388,301 $11,360,174
Gross unrealized appreciation...................................... 1,523,990 2,943,540 -- 12,739,774 655,005
Gross unrealized depreciation...................................... 47,197 486,729 -- 7,579,154 387,491
Net unrealized appreciation........................................ 1,476,793 2,456,811 -- 5,160,620 267,514
</TABLE>
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
the deferral of losses for tax purposes resulting from wash sales.
F. Distribution of Income and Gains-Money Market declares dividends from net
investment income on each business day. Asset Allocation, Domestic, Emerging
Growth, Enterprise, Global Equity, Government, Growth and Income, Real Estate
and Strategic Stock declare dividends from net investment income annually.
Government declares distributions from short-term capital gains, if any, monthly
and from long-term capital gains, if any, annually. Asset Allocation, Domestic,
Emerging Growth, Enterprise, Global Equity, Growth and Income, Money Market,
Real Estate and Strategic Stock distribute net realized gains, if any, annually.
Distributions from net realized gains for book purposes may include short-term
capital gains and gains on option and futures transactions. All short-term
capital gains and a portion of option and futures gains are included in ordinary
income for tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and for
federal income tax purposes, the amount of distributable net investment income
may differ between book and federal income tax purposes for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
G. Foreign Currency Translation-The market values of foreign securities, forward
currency exchange contracts and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars based on quoted exchange rates
as of noon Eastern Standard Time. The cost of securities is determined using
historical exchange rates. Income and expenses are translated at prevailing
exchange rates when accrued or incurred. Gains and losses on the sale of
securities are not segregated for financial reporting purposes between amounts
arising from changes in exchange rates and amounts arising from changes in the
market prices of securities. Realized gain and loss on foreign currency includes
the net realized amount from the sale of currency and the amount realized
between trade date and settlement date on security transactions.
104
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly based on the combined average daily net assets of Asset Allocation,
Domestic, Enterprise, Government and Money Market as follows:
<TABLE>
<CAPTION>
Average Net Assets % Per Annum
================================================================================
<S> <C>
First $500 million.................................................. .50 of 1%
Next $500 million................................................... .45 of 1%
Over $1 billion..................................................... .40 of 1%
</TABLE>
The resulting fee is prorated to Asset Allocation, Domestic, Enterprise,
Government and Money Market based on their respective average daily net assets.
Under the terms of the advisory agreement, if the total ordinary business
expenses, exclusive of taxes, distribution fees and interest, exceed .95% of
average daily net assets, the Adviser will reimburse Asset Allocation, Domestic,
Enterprise, Government, and Money Market for the amount of the excess. For the
period, the Adviser has volunteered to reimburse all expenses in excess of .60%
of average daily net assets. The expense reimbursement shall be made monthly.
For Emerging Growth, the Adviser will provide investment advice and
facilities to the Portfolio for an annual fee payable monthly of .70% of the
average daily net assets of the Portfolio.
For Global Equity, on April 1, 1997, the Adviser entered into a subadvisory
agreement with Morgan Stanley Asset Management Inc. (the "Subadviser") to
provide advisory services to the Portfolio and the Adviser with respect to the
Portfolio's investments. Advisory fees are calculated monthly, based on average
daily net assets of the Portfolio at the annual rate of 1.00%. The Adviser pays
50% of its advisory fees to the Subadviser.
For Growth and Income, the Adviser will provide investment advice and
facilities to the Portfolio for an annual fee payable monthly, based on the
average daily net assets of the Portfolio, of .60% for the first $500 million
and .55% for the amount in excess of $500 million.
For Real Estate, the Adviser will provide investment advice and facilities
to the Portfolio for an annual fee equal to 1.00% of the average net assets of
the Portfolio. This fee is payable monthly. On April 23, 1998, the Board of
Trustees approved a subadvisory agreement with the Subadviser to provide
advisory services to the Portfolio and the Adviser with respect to the
Portfolio's investments. The Advisor will pay 50% of its advisory fee to the
Subadviser. This subadvisory agreement will become effective October 1, 1998.
For Strategic Stock, the Adviser will provide investment advice and
facilities to the Portfolio for an annual fee payable monthly of .50% of the
average daily net assets of the Portfolio.
For the period, the Adviser has volunteered to reimburse all expenses in
excess of .85% for Emerging Growth, 1.20% for Global Equity, .75% for Growth and
Income, 1.10% for Real Estate, and .65% for Strategic Stock of each of the
Portfolios' average daily net assets.
105
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
Other transactions with affiliates during the six months ended June 30,
1998 were as follows:
<TABLE>
<CAPTION>
Asset Emerging Global
Allocation Domestic Growth Enterprise Equity
===========================================================================================
<S> <C> <C> <C> <C> <C>
Accounting............................ $18,100 $12,900 $13,100 $23,800 $10,600
Shareholder servicing agent's fees.... 7,500 7,500 7,500 7,500 7,400
Legal (Skadden)....................... 1,800 200 300 2,800 2,800
Growth
and Money Real Strategic
Government Income Market Estate Stock
===========================================================================================
Accounting............................ $17,700 $ 5,200 $13,800 $33,800 $10,000
Shareholder servicing agent's fees.... 7,300 7,500 7,400 7,400 2,500
Legal (Skadden)....................... 1,500 100 1,325 4,000 600
</TABLE>
Accounting services are provided by Van Kampen at cost. Van Kampen Investor
Services Inc. ("VKIS"), an affiliate of the Adviser, serves as the shareholder
servicing agent for the Portfolios. Beginning in 1998, the transfer agency fees
are determined through negotiations with the Fund's Board of Trustees and are
based on competitive benchmarks. Legal services are provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Portfolios, of which a trustee
of the Portfolios is an affiliated person.
Certain officers and trustees of the Portfolios are also officers and
directors of Van Kampen. The Portfolios do not compensate their officers or
trustees who are officers of Van Kampen.
The Portfolios provide deferred compensation and retirement plans for their
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500 per portfolio.
At June 30, 1998, Van Kampen owned 10 shares of Emerging Growth, 95,241
shares of Global Equity, 50,108 shares of Growth and Income, 10 shares of Real
Estate, and 20,000 shares of Strategic Stock.
3. Capital Transactions
The Portfolios have outstanding shares of beneficial interest with a par value
of $.01 per share. There are an unlimited number of shares authorized.
For the six months ended June 30, 1998, share transactions were as follows:
<TABLE>
<CAPTION>
Asset Emerging Global
Allocation Domestic Growth Enterprise Equity
===============================================================================================
<S> <C> <C> <C> <C> <C>
Beginning Shares...................... 5,314,563 2,084,276 637,815 5,452,063 270,266
Sales................................. 154,603 214,926 527,332 480,005 29,611
Dividend Reinvestment................. 153,034 5,259 260 59,530 2,004
Repurchases........................... (634,698) (315,433) (163,695) (573,475) (30,534)
--------- --------- --------- --------- -------
Ending Shares......................... 4,987,502 1,989,028 1,001,712 5,418,123 271,347
========= ========= ========= ========= =======
</TABLE>
106
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Growth and Money Real Strategic
Government Income Market Estate Stock
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Beginning Shares............... 5,892,077 966,202 19,740,568 18,894,267 246,576
Sales.......................... 316,932 655,693 10,827,054 3,023,060 801,876
Dividend Reinvestment.......... 58,944 1,387 471,567 326,458 557
Repurchases.................... (645,046) (32,856) (10,136,565) (4,504,058) (7,351)
--------- --------- ----------- ---------- ---------
Ending Shares.................. 5,622,907 1,590,426 20,902,624 17,739,727 1,041,658
========= ========= =========== ========== =========
</TABLE>
At June 30, 1998, with the exception of Van Kampen's ownership of shares of
certain portfolios, two insurance companies or their separate accounts were
record owners of all but a de minimus number of the shares of each portfolio.
For the year ended December 31, 1997, share transactions were as follows:
<TABLE>
<CAPTION>
Asset Emerging Global
Allocation Domestic Growth Enterprise Equity
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Beginning Shares............... 5,633,242 2,472,121 379,065 5,214,950 215,901
Sales.......................... 223,088 659,893 559,402 869,947 116,532
Dividend Reinvestment.......... 754,688 165,298 -0- 810,210 32,495
Repurchases.................... (1,296,455) (1,213,036) (300,652) (1,443,044) (94,662)
----------- ----------- ---------- ----------- ----------
Ending Shares.................. 5,314,563 2,084,276 637,815 5,452,063 270,266
=========== =========== ========== =========== ==========
Capital at 12/31/97............ $53,888,909 $17,644,290 $8,818,482 $68,610,247 $2,701,945
=========== =========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Growth and Money Real Strategic
Government Income Market Estate Stock
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Beginning Shares............... 6,606,459 50,000 19,565,725 11,328,283 20,000
Sales.......................... 302,118 901,291 22,688,459 17,318,837 226,576
Dividend Reinvestment.......... 384,650 16,456 1,057,591 2,157,294 -0-
Repurchases.................... (1,401,150) (1,545) (23,571,207) (11,910,147) -0-
----------- ----------- ------------ ------------ ----------
Ending Shares.................. 5,892,077 966,202 19,740,568 18,894,267 246,576
=========== =========== ============ ============ ==========
Capital at 12/31/97............ $61,104,562 $11,202,241 $ 19,740,568 $263,842,945 $2,512,791
=========== =========== ============ ============ ==========
</TABLE>
107
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
including principal paydowns and excluding forward commitment transactions and
short-term investments, were:
<TABLE>
<CAPTION>
Growth
Asset Emerging Global and Real Strategic
Allocation Domestic Growth Enterprise Equity Government Income Estate Stock
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $14,825,053 $4,485,050 $11,722,803 $25,753,409 $ 36,024 $31,817,745 $12,945,396 $184,465,895 $8,440,258
Sales 15,003,061 4,849,627 5,715,459 33,320,505 251,083 36,264,443 5,616,061 193,255,083 6,821
</TABLE>
5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Portfolios have a variety of reasons to use derivative instruments,
such as to attempt to protect the Portfolios against possible changes in the
market value of its portfolio, manage the Portfolio's effective yield, foreign
currency exposure, maturity and duration or generate potential gain. All of the
Portfolios' holdings, including derivative instruments, are marked to market
each day with the change in value reflected in unrealized appreciation/
depreciation. Upon disposition, a realized gain or loss is recognized
accordingly, except when taking delivery of a security underlying a futures or
forward contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures or forward
contract.
Summarized below are the specific types of derivative financial instruments
used by the Portfolios.
A. Futures Contracts--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Portfolios generally invest in futures on U.S. Treasury Bonds and Notes. Upon
entering into futures contracts, the Portfolios maintain, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
Transactions in futures contracts for the six months ended June 30, 1998,
for Government, were as follows:
<TABLE>
<CAPTION>
Contracts
=======================================================
<S> <C>
Outstanding at December 31, 1997............ 98
Futures Opened.............................. 642
Futures Closed.............................. (621)
----
Outstanding at June 30, 1998................ 119
====
</TABLE>
Transactions in futures contracts for the six months ended June 30, 1998,
for Growth and Income, were as follows:
<TABLE>
<CAPTION>
Contracts
=======================================================
<S> <C>
Outstanding at December 31, 1997............ 0
Futures Opened.............................. 5
Futures Closed.............................. (3)
----
Outstanding at June 30, 1998................ 2
====
</TABLE>
108
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
The futures contracts outstanding at June 30, 1998, and the descriptions
and unrealized appreciation/depreciation for Government are as follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
===========================================================================================
<S> <C> <C>
Long Contracts
U.S. Treasury Bonds - September 1998
(Current notional value of $123,594 per contract).............. 77 $137,914
5-year U.S. Treasury Notes - September 1998
(Current notional value of $109,688 per contract).............. 10 (2,640)
Short Contracts
10-year U.S. Treasury Notes - September 1998
(Current notional value of $113,844 per contract).............. 32 (22,185)
--- --------
119 $113,089
=== ========
</TABLE>
The futures contracts outstanding at June 30, 1998, and the description and
unrealized appreciation for Growth and Income are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
==========================================================================================
<S> <C> <C>
Long Contracts
S&P 500 Futures - September 1998
(Current notional value of $285,750 per contract).............. 2 $ 7,924
=== ========
</TABLE>
109
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
B. Forward Commitments--Domestic, Global Equity, Government and Real Estate may
trade certain securities under the terms of forward commitments, whereby the
settlement for payment and delivery occurs at a specified future date. Forward
commitments are privately negotiated transactions between the Portfolio and
dealers. Upon executing a forward commitment and during the period of
obligation, the Portfolio maintains collateral of cash or securities in a
segregated account with its custodian in an amount sufficient to relieve the
obligation. If the intent of the Portfolio is to accept delivery of a security
traded under a forward purchase commitment, the commitment is recorded as a
long-term purchase. For forward purchase commitments for which security
settlement is not intended by the Portfolio, changes in the value of the
commitment are recognized by marking the commitment to market on a daily basis
with changes in value reflected as a component of unrealized appreciation/
depreciation. Purchasing securities on a forward commitment involves a risk that
the market value at the time of delivery may be lower than the agreed upon
purchase price resulting in an unrealized loss. Selling securities on a forward
commitment involves different risks and can result in losses more significant
than those arising from the purchase of such securities. During the term of the
commitment, the Portfolio may sell the forward commitment and enter into a new
forward commitment, the effect of which is to extend the settlement date. In
addition, the Portfolio may occasionally close such forward commitments prior
to delivery.
The forward commitments outstanding in Government as of June 30, 1998 for
which settlement is not intended, and the descriptions and unrealized
appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Par Amount Current Appreciation/
(000) Description Expiration Value Depreciation
==========================================================================================================
<S> <C> <C> <C> <C>
Long Contracts
$2,000 FNMA 15 Yr, 6.000%, 12/31/23 maturity.......... 07-20-98 $1,978,750 $1,875
Short Contracts
1,000 GNMA 15 Yr, 7.000%, 12/31/23 maturity.......... 07-20-98 1,022,815 (315)
------
$1,560
======
</TABLE>
110
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
===============================================================================
C. Forward Currency Contracts--A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Upon the settlement of the contract, a realized gain or loss is recognized
and is included as a component of realized gain/loss on forwards.
The following forward currency contracts were outstanding in Global Equity
as of June 30, 1998:
<TABLE>
<CAPTION>
Unrealized
Current Appreciation/
Description Value Depreciation
=========================================================================================================================
<S> <C> <C>
Long Contracts
Deutsche Mark, 14,627 expiring 07/09/98..................................................... $ 8,115 $ (201)
Italian Lira, 37,783,200 expiring 07/15/98.................................................. 21,270 (68)
Japanese Yen, 757,758 expiring 07/29/98..................................................... 5,504 (1)
Japanese Yen, 4,375,000 expiring 08/19/98................................................... 31,872 (1,460)
Japanese Yen, 8,102,000 expiring 09/10/98................................................... 59,209 (147)
Singapore Dollar, 73,547 expiring 07/07/98.................................................. 43,634 1,224
-------- ---------
$169,604 (653)
======== ---------
Short Contracts
Deutsche Mark, 14,627 expiring 07/09/98..................................................... $ 8,115 (115)
Deutsche Mark, 68,024 expiring 09/18/98..................................................... 37,897 103
Deutsche Mark, 67,961 expiring 10/02/98..................................................... 37,892 108
Deutsche Mark, 67,558 expiring 10/16/98..................................................... 37,697 303
French Franc, 60,650 expiring 08/04/98...................................................... 10,053 84
French Franc, 58,888 expiring 08/17/98...................................................... 9,769 251
French Franc, 59,000 expiring 09/16/98...................................................... 9,804 (3)
Italian Lira, 37,783,200 expiring 07/15/98.................................................. 21,270 (270)
Japanese Yen, 8,491,872 expiring 07/29/98................................................... 61,682 4,454
Japanese Yen, 11,215,000 expiring 08/19/98.................................................. 81,702 4,115
Japanese Yen, 2,812,868 expiring 08/26/98................................................... 20,512 532
Japanese Yen, 9,186,750 expiring 09/21/98................................................... 67,243 256
Japanese Yen, 7,825,750 expiring 09/21/98................................................... 57,281 218
Japanese Yen, 6,112,800 expiring 09/28/98................................................... 44,789 211
Japanese Yen, 6,523,030 expiring 10/19/98................................................... 47,943 (1,943)
Singapore Dollar, 73,547 expiring 07/07/98.................................................. 43,634 (1,834)
-------- ---------
$597,283 6,470
======== ---------
$ 5,817
=========
</TABLE>
111
<PAGE>
Van Kampen Funds
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International /Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation and
Senior Loan Funds
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
. visit our web site at www.van-kampen.com -- to view prospectuses, select
Investors' Place, then Download a Prospectus
. call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
. e-mail us by visiting www.van-kampen.com and selecting Investors' Place
112
<PAGE>
Van Kampen Life Investment Trust
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Don G. Powell*
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen*--Chairman
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Investment Subadviser
(Global Equity Portfolio)
(Morgan Stanley Real Estate Securities Portfolio)
Morgan Stanley Asset Management Inc.
1585 Broadway
New York, NY 10036
Distributor
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
Van Kampen Investor Services Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
PricewaterhouseCoopers LLP
200 E. Randolph Drive
Chicago, IL 60601
* "Interested" persons of the Portfolio, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1998. All rights reserved.
/SM/ denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Trust
which contains additional information on how to purchase shares and other
pertinent data.
113
<PAGE>
Bulk Rate
U.S. Postage
PAID
VAN KAMPEN
FUNDS
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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<NAME> LIT MONEY MARKET PORTFOLIO
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<NAME> LIT REAL ESTATE
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NUMBER> 101
<NAME> LIT STRATEGIC STOCK PORTFOLIO
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<S> <C>
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