<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Policyholders..................................... 1
Asset Allocation Portfolio Performance Results.............. 3
Performance in Perspective................................ 4
Portfolio Management Review............................... 5
Portfolio of Investments.................................. 8
Statement of Assets and Liabilities....................... 14
Statement of Operations................................... 15
Statement of Changes in Net Assets........................ 16
Financial Highlights...................................... 17
Domestic Income Portfolio Performance Results............... 18
Performance in Perspective................................ 19
Portfolio Management Review............................... 20
Portfolio of Investments.................................. 22
Statement of Assets and Liabilities....................... 24
Statement of Operations................................... 25
Statement of Changes in Net Assets........................ 26
Financial Highlights...................................... 27
Emerging Growth Portfolio Performance Results............... 28
Performance in Perspective................................ 29
Portfolio Management Review............................... 30
Portfolio of Investments.................................. 33
Statement of Assets and Liabilities....................... 37
Statement of Operations................................... 38
Statement of Changes in Net Assets........................ 39
Financial Highlights...................................... 40
Enterprise Portfolio Performance Results.................... 41
Performance in Perspective................................ 42
Portfolio Management Review............................... 43
Portfolio of Investments.................................. 46
Statement of Assets and Liabilities....................... 49
Statement of Operations................................... 50
Statement of Changes in Net Assets........................ 51
Financial Highlights...................................... 52
Global Equity Portfolio Performance Results................. 53
Performance in Perspective................................ 54
Portfolio Management Review............................... 55
Portfolio of Investments.................................. 57
Statement of Assets and Liabilities....................... 62
Statement of Operations................................... 63
Statement of Changes in Net Assets........................ 64
Financial Highlights...................................... 65
Government Portfolio Performance Results.................... 66
Performance in Perspective................................ 67
Portfolio Management Review............................... 68
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 Performance Results............. 76
Performance in Perspective................................ 77
Portfolio Management Review............................... 78
Portfolio of Investments.................................. 80
Statement of Assets and Liabilities....................... 83
Statement of Operations................................... 84
Statement of Changes in Net Assets........................ 85
Financial Highlights...................................... 86
Money Market Portfolio Portfolio Management Review.......... 87
Portfolio of Investments.................................. 89
Statement of Assets and Liabilities....................... 90
Statement of Operations................................... 91
Statement of Changes in Net Assets........................ 92
Financial Highlights...................................... 93
Morgan Stanley Real Estate Portfolio Performance Results.... 94
Performance in Perspective................................ 95
Portfolio Management Review............................... 96
Portfolio of Investments.................................. 98
Statement of Assets and Liabilities....................... 100
Statement of Operations................................... 101
Statement of Changes in Net Assets........................ 102
Financial Highlights...................................... 103
Strategic Stock Portfolio Performance Results............... 104
Performance in Perspective................................ 105
Portfolio Management Review............................... 106
Portfolio of Investments.................................. 108
Statement of Assets and Liabilities....................... 110
Statement of Operations................................... 111
Statement of Changes in Net Assets........................ 112
Financial Highlights...................................... 113
Notes to Financial Statements............................... 114
Report of Independent Accountants........................... 124
</TABLE>
LIT ANR 2/99
<PAGE> 2
LETTER TO POLICYHOLDERS
January 20, 1999
Dear Policyholder,
The past decade has been a remarkable time for investors. Together, we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has
joined Van Kampen as Chairman and Chief Executive Officer. He comes to us from
our parent company, Morgan Stanley Dean Witter & Co., where he served as
Executive Vice President and Director of Marketing. He brings 27 years of
experience in the financial services industry, including an extensive background
in product management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will
remain active in the industry and the community. Mr. Powell plans to continue
his service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your portfolio.
ECONOMIC OVERVIEW
Despite a stormy year in the global economy, the United States ended 1998
with only a moderate slowdown in growth. The nation's gross domestic product, a
measure of economic health, grew 3.9 percent during the year, matching 1997's
growth rate and indicating that our nation's economy remains strong. A
continuation of low inflation--only a 1.6 percent increase in the consumer price
index over the last 12 months--also helped sustain the domestic economy and kept
inflation-adjusted interest rates attractive.
Although the year ended on a positive note, the economic environment was
quite unsettled in the third quarter, with the Asian financial crisis
contributing to slowing corporate profits in the United States. Given the
uncertainty surrounding emerging market nations and the near-collapse of a major
U.S. hedge fund, the stock and bond markets experienced significant volatility
during this period. With instability as a backdrop, American and foreign
investors alike pursued a flight to quality--seeking the relative safety of
large-company stocks and government bonds.
In the last few months of the year the global financial situation
improved in conjunction with the Federal Reserve's interest rate decreases. In
response to declining corporate profits and mounting international concerns, the
Fed lowered interest rates three times, with 0.25 percent cuts in September,
October, and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to keep the economy growing.
Dozens of foreign central banks also reduced interest rates in an effort to
stimulate their economies. These actions gave a boost to investor confidence and
encouraged a return to a more diversified range of investments in the last few
months of the year.
MARKET REVIEW
Despite bouts of volatility, the U.S. stock market experienced impressive
returns during 1998. Large-company stocks were responsible for much of this as
investors favored the perceived stability of established, high-quality
companies. The Dow Jones Industrial Average rose more than 16 percent during the
year and hit a record high of 9374 in November before falling back to more
moderate levels. However, small-company stocks
Continued on page 2
1
<PAGE> 3
significantly underperformed the rest of the market, with the Russell 2000 Stock
Index actually losing 3.45 percent during the 12-month period. The performance
of international stocks varied widely based on regional conditions. Stock
indexes in most European countries turned in solid gains for the year, while
many Latin American, Asian, and eastern European stock indexes registered
significant losses.
The domestic bond market continued to rally as interest rates fell during
the year, with U.S. Treasury securities outpacing corporate and municipal bonds
in price appreciation. Investors' desire for relatively safer investments amid
the global economic storm led to strong demand for high-quality bonds. However,
higher-yielding bonds suffered as investors' demand for quality increased.
Corporate bond prices, particularly lower-rated issues, fell in conjunction with
concerns about declining corporate profits. As a result of interest rate cuts by
a number of foreign central banks, international government securities performed
well.
OUTLOOK
Our outlook for the domestic economy is positive, and we anticipate
continued low inflation and healthy economic growth. However, the aftereffects
of the global economic slowdown may continue to put pressure on corporate
earnings in the first half of the year. Internationally, we anticipate that low
interest rates and declining inflation will lead to improvements in troubled
areas such as Asia and Latin America. With the successful launch of the euro,
the new European transnational currency, we believe that many foreign markets
will become increasingly attractive in 1999.
In the long term, we are optimistic that the stock market will continue
its record growth, although we could experience additional volatility in the
months ahead if concerns about high stock valuations and increasing earnings
pressure become more pronounced. Combined with growing questions about corporate
and government reactions to the Year 2000 computer problem, we could see an
increasingly cautious market by mid-year.
Additional details about your portfolio, including a question-and-answer
section with your portfolio management team, are provided in this report. As
always, we are pleased to have the opportunity to share with you the progress of
your investment.
Sincerely,
/s/ Richard F. Powers III /s/ Dennis J. McDonnell
- -------------------------------- --------------------------------
Richard F. Powers III Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
ASSET ALLOCATION PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 15.67%
Five-year average annual total return based on NAV(1)....... 15.22%
Ten-year average annual total return based on NAV(1)........ 13.60%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 12.17%
Commencement date........................................... 06/30/87
</TABLE>
(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.
See the Prior Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Portfolio shares may decline.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. Portfolio shares,
when redeemed, may be worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
ASSET ALLOCATION PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Standard & Poor's 500-Stock Index, the Lipper Balanced Fund Index,* and the
Lipper Flexible Portfolio Fund Index over time. These indexes are broad-based,
statistical composites that do not include any commissions that would be paid by
an investor purchasing the securities they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Asset Allocation Portfolio vs. the
Standard & Poor's 500-Stock Index, the Lipper Balanced Fund Index,* and the
Lipper Flexible Portfolio Fund Index (December 31, 1988 through December 31,
1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LIT-ASSET STANDARD & POOR'S 500- LIPPER BALANCED FUND LIPPER FLEXIBLE
ALLOCATION PORTFOLIO STOCK INDEX INDEX* PORTFOLIO FUND INDEX
-------------------- ---------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Dec 1988 10000 10000 10000 10000
10383 10711 10414 10315
10300 10401 10276 10219
10362 10708 10404 10373
10706 11244 10746 10637
10893 11639 11084 10923
11048 11651 11141 10955
11503 12680 11727 11385
11514 12877 11815 11487
11503 12896 11798 11558
11493 12572 11687 11429
11669 12780 11839 11585
Dec 1989 11782 13159 11970 11724
11290 12253 11454 11308
11410 12358 11536 11403
11563 12761 11689 11527
11246 12418 11477 11293
12034 13560 12178 11880
12045 13560 12229 11923
12177 13489 12222 11936
11443 12217 11544 11340
11147 11705 11240 11092
11125 11627 11243 11084
11651 12324 11766 11561
Dec 1990 12005 12749 12048 11834
12189 13278 12471 12261
12753 14172 13046 12844
13029 14594 13302 13090
12983 14599 13353 13140
13421 15162 13777 13524
12983 14562 13338 13102
13409 15216 13795 13526
13801 15515 14140 13883
13870 15340 14181 13917
14101 15522 14411 14140
13790 14840 14094 13835
Dec 1991 15252 16617 15160 15023
14962 16286 15032 14942
15189 16442 15213 15106
14823 16199 14981 14784
14801 16651 15143 14816
15028 16667 15340 14996
14814 16507 15221 14840
15357 17157 15668 15284
15117 16745 15522 15136
15446 17027 15701 15315
15635 17063 15702 15316
16128 17580 16061 15653
Dec 1992 16364 17881 16291 15874
16542 18007 16509 16140
16693 18196 16712 16179
17009 18659 17057 16519
16570 18185 16927 16350
16971 18598 17224 16681
17068 18748 17406 16809
17068 18648 17476 16872
17565 19290 18005 17447
17731 19230 18043 17512
17662 19603 18229 17766
17123 19350 17937 17520
Dec 1993 17624 19675 18238 17895
18192 20314 18716 18382
17699 19704 18348 17980
16967 18935 17681 17260
17102 19153 17721 17328
16982 19391 17857 17389
16698 19016 17547 17023
17132 19615 17943 17428
17475 20353 18392 17922
16967 19946 18061 17610
17012 20362 18117 17737
16743 19558 17695 17311
Dec 1994 16979 19942 17865 17416
17455 20426 18087 17553
18033 21163 18614 18064
18407 21878 18943 18446
18769 22490 19298 18792
19619 23306 19916 19389
19960 23959 20269 19787
20470 24721 20697 20302
20640 24713 20859 20474
21202 25858 21357 20848
21066 25729 21303 20695
21866 26785 21965 21299
Dec 1995 22304 27409 22311 21526
22860 28303 22713 21942
22706 28500 22724 22056
22974 28879 22810 22213
23220 29267 22961 22547
23278 29936 23196 22833
23435 30172 23273 22798
22887 28791 22674 22090
23161 29333 23032 22471
23865 31097 23886 23323
24314 31910 24392 23744
25526 34251 25528 24894
Dec 1996 25398 33686 25223 24561
25756 35752 26003 25270
25846 35964 26099 25234
25192 34595 25340 24472
25694 36616 26102 25114
26815 38761 27171 26181
27432 40622 28072 26952
29101 43795 29671 28468
28666 41279 28730 27574
29924 43660 29875 28741
29558 42154 29331 28137
30244 44034 29870 28646
Dec 1997 30938 44909 30342 29042
31302 45365 30480 29344
32341 48560 31690 30763
33380 51160 32660 31799
33541 51624 32887 31996
33273 50652 32638 31550
33594 52844 33231 32153
32899 52230 32851 31819
30599 44615 30021 28694
32230 47598 31317 29836
33487 51419 32488 31250
34798 54460 33677 32534
Dec 1998 35788 57717 34920 33839
</TABLE>
The above chart reflects the performance of Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Portfolio's performance found in the following pages.
*The Lipper Balanced Fund Index reflects the average performance of the 30
largest balanced funds and was initially selected as a narrow-based benchmark
comparison for the Portfolio's performance. Based upon the Portfolio's asset
composition, we believe the Lipper Flexible Portfolio Fund Index provides a more
accurate benchmark for the Portfolio. Therefore, the Lipper Balanced Fund Index
will not be shown in future reports.
4
<PAGE> 6
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 previously
consisted of B. Robert Baker Jr. and Walter W. Stabell III, portfolio
comanagers. As of July 1998, the Portfolio has been managed by John M. Cunniff
and Walter W. Stabell III, portfolio comanagers, and Stephen L. Boyd, chief
investment officer for equity investments.
Q
HOW DID THE STOCK AND BOND MARKETS PERFORM DURING THE 12-MONTH REPORTING
PERIOD?
A
The stock market began the reporting period on a high note, but trouble
was on the horizon, as investors began to fear that Asian economic trouble
would spread throughout the world and hurt U.S. corporate profits. By
August 31 the Dow had fallen 19 percent from its high six weeks earlier.
Beginning in September, investor confidence began to improve. Inflation remained
tame, enabling the Federal Reserve Board to lower interest rates in September
and then again in October and November. Companies began to report
better-than-expected third-quarter earnings, reminding investors that the U.S.
economy, though slowing, was still fundamentally solid. The volatile stock
market began to rise again, with the Dow briefly setting a new record in
November before declining somewhat from its high.
Controlled economic growth, low inflation, and a "flight to quality"
supported the bond market during the reporting period. In October, yields on the
30-year Treasury bond hit an all-time low. Because bond prices move inversely
with bond yields, low yields corresponded to higher prices for bonds.
Q
GIVEN THIS ENVIRONMENT, WHAT WAS YOUR STRATEGY IN SEEKING TO MEET THE
PORTFOLIO'S OBJECTIVE?
A
The Portfolio seeks to provide high total return through investments in
stocks, bonds, and money market securities. To achieve this goal, we first
decide on overall asset allocations based on expectations for total
returns for stocks, bonds, and cash. After deciding the asset allocations, we
invest the stock portion of the Portfolio in large, well-established companies
with above-average growth rates. In selecting stocks, we evaluate them one by
one and make purchases wherever we find good opportunities. To help maintain
diversification, enhance liquidity, and attempt to reduce risk, we allocate the
Portfolio's fixed-income assets across a variety of industries within the
investment-grade corporate bond sector.
After the stock market sell-off in September, we increased our allocation in
stocks to 65 percent from 60 percent at mid-year. Based on our research, we
believed that the market had overreacted to global economic turmoil and that
stocks were poised for a rebound. By year-end, the Portfolio was composed of
approximately 60 percent stocks, 30 percent bonds, and 10 percent cash. We
reduced our stock allocation back to 60 percent because we believed that stocks
were fully valued by the end of the reporting period.
Q
WHAT CHANGES DID YOU MAKE AMONG THE PORTFOLIO'S STOCK HOLDINGS?
A
The Fund's largest purchases during the reporting period were stocks of
blue-chip companies, which generally performed extremely well amid
considerable market volatility during the second half of the year. These
purchases included
- Exxon and Mobil--We believed these stocks were attractively priced and
that their impending merger would save them money.
- General Electric--The company continues to deliver strong earnings growth
and is supported by effective management.
- Microsoft and Intel--Expected increases in computer sales should be
beneficial to these companies.
- Warner-Lambert--The success of its popular diabetes and cholesterol drugs
has been favorable for the stock, as has the company's past ability to
deliver consistently above-average earnings growth.
5
<PAGE> 7
Tobacco stocks, such as Philip Morris, performed well in the second half of
1998, largely because the industry settled a number of lawsuits. We saw the high
stock prices as an opportunity to reduce our position in Philip Morris and
eliminate our position in rival RJR Nabisco.
In the wake of a difficult third quarter, we reduced our holding in the
financial services company Conseco because we questioned whether the firm, in
the face of declining stock prices, would be able to continue its strategy of
acquiring other businesses. Gold stocks performed extremely well during the
September and October market sell-off, and we took that success as an
opportunity to reduce our long-term position in Newmont Mining. Given the
slowing global economic environment, we don't expect gold or other commodities
to rise in price.
Q
WHICH STOCKS SUPPORTED THE PORTFOLIO'S PERFORMANCE?
A
The Portfolio's holding in Microsoft proved very beneficial. During the
reporting period, investors rewarded the company for its sound
fundamentals and their belief that Microsoft would withstand the
Department of Justice's accusations of monopolization.
As mentioned earlier, Philip Morris, the Portfolio's largest holding for
much of 1998, was another excellent performer, thanks largely to the tobacco
industry's settlement of impending litigation. Philip Morris stock gained 21
percent during the year and 36 percent since June 30.
Keep in mind that not all of the stocks in the Portfolio performed as
favorably, nor is there any guarantee that any of these stocks will perform as
well in the future.
Q
WHAT FACTORS HURT THE PORTFOLIO?
A
Like Philip Morris, RJR Nabisco benefited from the tobacco industry's
legal settlement. RJR's stock price, however, lagged Philip Morris's and
hurt the Portfolio. CMAC Investment, a company that provides private
mortgage insurance to residential mortgage lenders, did not weather the
September and October market sell-off well, and its stock fell 26 percent for
the year. Washington Mutual, the nation's largest savings institution, also
underperformed in 1998. Much of this underperformance could be attributed to the
company's poorly received announcement that it would acquire H. F. Ahmanson &
Company.
Q
HOW DID YOU MANAGE THE BOND PORTION OF THE PORTFOLIO?
A
The strength of the bond market, especially among high-quality securities,
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 8.7 years.
Duration is a measurement used to quantify the sensitivity of a bond's price to
changes 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 longer than our
benchmark, reflecting our belief that interest rates could decline.
Q
HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A
The Portfolio achieved a 12-month total return of 15.67 percent(1) as of
December 31, 1998. By comparison, the Standard & Poor's 500-Stock Index
returned 28.52 percent, the Lipper Balanced Fund Index returned 15.09
percent, and the Lipper Flexible Portfolio Fund Index, which most closely
resembles the Portfolio, returned 16.52 percent. The S&P 500-Stock Index is a
broad-based, unmanaged index that reflects the general performance of the stock
market, the Lipper Balanced Fund Index reflects the average performance of the
30 largest balanced funds, and the Lipper Flexible Portfolio Fund Index reflects
the average performance of the 30 largest flexible portfolio 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 3
for additional Portfolio performance results.
6
<PAGE> 8
Q
WHAT DO YOU SEE AHEAD FOR THE MARKETS AND THE PORTFOLIO IN THE NEXT SIX
MONTHS?
A
Although we are optimistic about the stock markets in the long term, we
are anticipating continued volatility as we head into 1999. With solid
fundamentals and low inflation, the U.S. economy is still growing, albeit
more slowly than in recent years. At the same time, economies around the
world face many more difficulties ahead, which could have a negative impact on
next year's U.S. corporate earnings. Finally, we believe the market is already
fairly valued, which can translate into a higher risk for investors, because
expensive securities generally have farther to fall in a market downturn than
low-priced stocks.
/s/ John M. Cunniff
- --------------------------
John M. Cunniff
Portfolio Comanager
Asset Allocation Portfolio
/s/ Stephen L. Boyd
- --------------------------
Stephen L. Boyd
Chief Investment Officer
Equity Investments
/s/ Walter W. Stabell III
- --------------------------
Walter W. Stabell III
Portfolio Comanager
Asset Allocation Portfolio
Please see footnotes on page 3
7
<PAGE> 9
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 60.8%
CONSUMER DISTRIBUTION 4.0%
Albertsons, Inc............................................. 800 $ 50,950
Cardinal Health, Inc........................................ 1,000 75,875
CompUSA, Inc. (a)........................................... 5,000 65,313
Dayton Hudson Corp.......................................... 4,500 244,125
Family Dollar Stores, Inc................................... 4,000 88,000
Federated Department Stores, Inc. (a)....................... 3,900 169,894
Lowe's Cos., Inc............................................ 5,100 261,056
Payless ShoeSource, Inc. (a)................................ 1,000 47,375
Rite Aid Corp............................................... 1,500 74,344
Safeway, Inc. (a)........................................... 2,700 164,531
Saks, Inc. (a).............................................. 2,000 63,125
Sears Roebuck & Co.......................................... 1,200 51,000
TJX Cos., Inc............................................... 11,000 319,000
Wal-Mart Stores, Inc........................................ 9,400 765,512
-----------
2,440,100
-----------
CONSUMER DURABLES 1.7%
DaimlerChrysler AG.......................................... 1,000 96,063
Dana Corp................................................... 4,400 179,850
Eaton Corp.................................................. 1,100 77,756
Ford Motor Co............................................... 9,100 534,056
General Motors Corp......................................... 2,000 143,125
-----------
1,030,850
-----------
CONSUMER NON-DURABLES 4.9%
Anheuser Busch Cos., Inc.................................... 7,200 472,500
Bestfoods................................................... 1,000 53,250
Coca Cola Co................................................ 3,800 254,125
Colgate - Palmolive Co...................................... 800 74,300
ConAgra, Inc................................................ 5,000 157,500
Dial Corp................................................... 7,100 205,013
H.J. Heinz & Co............................................. 3,600 203,850
Kimberly Clark Corp......................................... 2,300 125,350
Loews Corp.................................................. 1,000 98,250
Philip Morris Cos., Inc..................................... 16,000 856,000
Procter & Gamble Co......................................... 1,300 118,706
Tommy Hilfiger Corp. (a).................................... 2,800 168,000
Unilever NV - ADR (Netherlands)............................. 1,900 157,581
V.F. Corp................................................... 1,600 75,000
-----------
3,019,425
-----------
CONSUMER SERVICES 3.1%
Brinker International, Inc. (a)............................. 5,000 144,375
CBS Corp.................................................... 2,400 78,600
Gannett Co., Inc............................................ 5,000 322,500
Hilton Hotels Corp.......................................... 3,600 68,850
Jacor Communications, Inc., Class A (a)..................... 1,200 77,250
Knight Ridder, Inc.......................................... 1,000 51,125
New York Times Co., Class A................................. 4,200 145,687
Tele-Communications, Inc., Class A (a)...................... 12,600 696,937
Time Warner, Inc............................................ 1,400 86,887
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Tribune Co.................................................. 1,800 $ 118,800
Walt Disney Co.............................................. 2,900 87,000
-----------
1,878,011
-----------
ENERGY 4.6%
Amoco Corp.................................................. 6,300 380,363
Ashland, Inc................................................ 1,200 58,050
Atlantic Richfield Co....................................... 800 52,200
British Petroleum Co. Plc. - ADR (United Kingdom)........... 1,400 125,475
Chevron Corp................................................ 1,500 124,406
Coastal Corp................................................ 4,600 160,713
Columbia Energy Group....................................... 800 46,200
El Paso Energy Corp......................................... 2,800 97,475
Enron Corp.................................................. 1,300 74,181
Exxon Corp.................................................. 10,200 745,875
Mobil Corp.................................................. 6,300 548,887
Royal Dutch Petroleum Co. - ADR (Netherlands)............... 3,500 167,562
Texaco, Inc................................................. 1,100 58,163
Total SA - ADR (France)..................................... 956 47,561
USX - Marathon Group........................................ 2,900 87,363
YPF Sociedad Anonima - ADR (Argentina)...................... 1,900 53,081
-----------
2,827,555
-----------
FINANCE 10.7%
A.G. Edwards, Inc........................................... 800 29,800
Aetna, Inc.................................................. 2,000 157,250
Allstate Corp............................................... 7,000 270,375
Ambac Financial Group, Inc.................................. 4,100 246,769
American Bankers Insurance Group, Inc....................... 1,700 82,238
American Express Co......................................... 3,000 306,750
American General Corp....................................... 2,000 156,000
American International Group, Inc........................... 700 67,638
Associates First Capital Corp., Class A..................... 2,500 105,938
Bank One Corp............................................... 5,234 267,261
BankAmerica Corp............................................ 11,081 666,245
BankBoston Corp............................................. 3,200 124,600
Bear Stearns Cos., Inc...................................... 3,538 132,233
Chase Manhattan Corp........................................ 7,400 503,662
CIGNA Corp.................................................. 3,000 231,937
Citigroup, Inc.............................................. 10,050 497,475
CMAC Investment Corp........................................ 3,000 137,812
Conseco, Inc................................................ 3,100 94,744
Countrywide Credit Industries, Inc.......................... 2,700 135,506
Federal Home Loan Mortgage Corp............................. 1,600 103,100
Federal National Mortgage Assn.............................. 8,900 658,600
First Union Corp............................................ 5,200 316,225
Fleet Financial Group, Inc.................................. 3,700 165,344
LandAmerica Financial Group, Inc............................ 1,000 55,813
Liberty Financial Cos., Inc................................. 450 12,150
Marsh & McLennan Cos., Inc.................................. 700 40,906
MBIA, Inc................................................... 900 59,006
Merrill Lynch & Co., Inc.................................... 1,000 66,750
Nationwide Financial Services, Inc., Class A................ 400 20,675
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
SunAmerica, Inc............................................. 2,500 $ 202,812
SunTrust Banks, Inc......................................... 2,100 160,650
Torchmark, Inc.............................................. 2,000 70,625
U.S. Bancorp................................................ 2,500 88,750
United Asset Management Corp................................ 2,200 57,200
Washington Mutual, Inc...................................... 4,050 154,659
Wells Fargo & Co............................................ 2,600 103,838
-----------
6,551,336
-----------
HEALTHCARE 9.0%
Abbott Laboratories, Inc.................................... 2,800 137,200
American Home Products Corp................................. 6,000 337,875
Bausch & Lomb, Inc.......................................... 2,600 156,000
Becton, Dickinson & Co...................................... 2,800 119,525
Bristol-Myers Squibb Co..................................... 6,900 923,306
Guidant Corp................................................ 1,400 154,350
HBO & Co.................................................... 2,600 74,588
HEALTHSOUTH Corp. (a)....................................... 6,000 92,625
Johnson & Johnson, Inc...................................... 2,900 243,237
Lincare Holdings, Inc. (a).................................. 3,000 121,688
Merck & Co., Inc............................................ 3,000 443,062
Mylan Laboratories, Inc..................................... 6,700 211,050
PacifiCare Health Systems, Class B (a)...................... 1,700 135,150
Pfizer, Inc................................................. 2,400 301,050
Pharmacia & Upjohn, Inc..................................... 1,100 62,288
Rhone-Poulenc, SA, Class A - ADR (France)................... 3,000 150,750
Schering-Plough Corp........................................ 9,700 535,925
Tenet Healthcare Corp. (a).................................. 10,200 267,750
Universal Health Services, Inc., Class B (a)................ 1,800 93,375
Warner-Lambert Co........................................... 8,400 631,575
Watson Pharmaceuticals, Inc. (a)............................ 2,200 138,325
Wellpoint Health Networks, Inc., Class A (a)................ 2,500 217,500
-----------
5,548,194
-----------
PRODUCER MANUFACTURING 3.3%
AlliedSignal, Inc........................................... 300 13,294
American Power Conversion Corp. (a)......................... 1,700 82,344
Cognex Corp. (a)............................................ 2,800 56,000
General Electric Co......................................... 9,000 918,562
Ingersoll-Rand Co........................................... 3,200 150,200
Johnson Controls, Inc....................................... 900 53,100
Textron, Inc................................................ 2,000 151,875
The St. Joe Co.............................................. 500 11,719
Tyco International Ltd...................................... 2,700 203,681
U.S. Filter Corp. (a)....................................... 2,200 50,325
United Technologies Corp.................................... 2,300 250,125
Waste Management, Inc....................................... 2,200 102,575
-----------
2,043,800
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 0.3%
Bethlehem Steel Corp. (a)................................... 3,100 25,963
Boise Cascade Corp.......................................... 2,500 77,500
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
British Steel Plc. - ADR (United Kingdom)................... 2,900 $ 42,412
Goodyear Tire & Rubber Co................................... 1,300 65,569
-----------
211,444
-----------
TECHNOLOGY 11.5%
Avnet, Inc.................................................. 1,100 66,550
BMC Software, Inc. (a)...................................... 2,600 115,863
Cadence Design Systems, Inc. (a)............................ 1,600 47,600
Cisco Systems, Inc. (a)..................................... 7,400 686,812
Compaq Computer Corp........................................ 6,200 260,012
Computer Associates International, Inc...................... 4,000 170,500
Computer Sciences Corp. (a)................................. 1,700 109,544
Compuware Corp. (a)......................................... 4,000 312,500
Dell Computer Corp. (a)..................................... 3,300 241,519
EMC Corp. (a)............................................... 1,900 161,500
Gateway 2000, Inc. (a)...................................... 3,200 163,800
General Dynamics Corp....................................... 2,000 117,250
Harris Corp................................................. 1,500 54,938
Hewlett Packard Co.......................................... 4,100 280,081
Intel Corp.................................................. 6,600 782,512
International Business Machines Corp........................ 1,400 258,650
Keane, Inc. (a)............................................. 1,000 39,938
Lockheed Martin Corp........................................ 4,000 339,000
Lucent Technologies, Inc.................................... 3,100 341,000
Microsoft Corp. (a)......................................... 10,000 1,386,875
Networks Associates, Inc. (a)............................... 1,000 66,250
Nokia Corp. - ADR (Finland) (a)............................. 900 108,394
Northern Telecom Ltd........................................ 2,500 125,312
Oracle Corp. (a)............................................ 2,400 103,500
Peoplesoft, Inc. (a)........................................ 3,200 60,600
Quantum Corp. (a)........................................... 1,800 38,250
Sun Microsystems, Inc. (a).................................. 2,800 239,750
SunGard Data Systems, Inc. (a).............................. 6,400 254,000
Tellabs, Inc. (a)........................................... 500 34,281
Xerox Corp.................................................. 1,000 118,000
-----------
7,084,781
-----------
TRANSPORTATION 0.3%
AMR Corp. (a)............................................... 1,800 106,875
Canadian National Railway Co................................ 1,300 67,438
-----------
174,313
-----------
UTILITIES 7.4%
ALLTEL Corp................................................. 1,000 59,813
Ameritech Corp.............................................. 9,000 570,375
AT&T Corp................................................... 2,000 150,500
Baltimore Gas & Electric Co................................. 1,200 37,050
BEC Energy.................................................. 8,600 354,212
Bell Atlantic Corp.......................................... 5,100 289,744
BellSouth Corp.............................................. 9,100 453,862
CMS Energy Group............................................ 2,600 125,938
DTE Energy Co............................................... 2,600 111,475
Edison International........................................ 2,500 69,688
FPL Group, Inc.............................................. 2,000 123,250
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
GPU, Inc.................................................... 3,100 $ 136,981
GTE Corp.................................................... 8,100 546,244
Houston Industries, Inc..................................... 5,700 183,113
Idacorp, Inc................................................ 3,200 115,800
Illinova Corp............................................... 2,200 55,000
Nipsco Industries, Inc...................................... 1,200 36,525
Northern States Power Co.................................... 2,400 66,600
OGE Energy Corp............................................. 4,600 133,400
PacifiCorp.................................................. 1,700 35,806
Pinnacle West Capital Corp.................................. 3,800 161,025
Public Service Co. of New Mexico............................ 4,900 100,144
SBC Communications, Inc..................................... 5,100 273,487
Texas Utilities Co.......................................... 4,300 200,756
U.S. WEST Communications Group.............................. 2,800 180,950
-----------
4,571,738
-----------
TOTAL COMMON STOCKS 60.8%.......................................... 37,381,547
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED INCOME 29.9%
CORPORATE DEBT 17.3%
CONSUMER SERVICES 1.7%
$1,000 Cox Communications, Inc..................................... 6.875% 06/15/05 $ 1,067,930
-----------
ENERGY 3.8%
1,000 Burlington Resources, Inc................................... 9.125 10/01/21 1,274,530
1,000 Enron Corp.................................................. 6.875 10/15/07 1,038,260
-----------
2,312,790
-----------
TECHNOLOGY 3.6%
1,000 Philips Electronics NV (Netherlands)........................ 8.375 09/15/06 1,166,440
1,000 Raytheon Co................................................. 6.750 08/15/07 1,061,540
-----------
2,227,980
-----------
TRANSPORTATION 2.8%
1,000 Norfolk Southern Corp....................................... 7.700 05/15/17 1,151,520
500 Southwest Airlines Co....................................... 7.375 03/01/27 553,970
-----------
1,705,490
-----------
UTILITIES 5.4%
1,000 360 Communications Co....................................... 7.600 04/01/09 1,140,700
1,000 Sprint Capital Corp......................................... 6.125 11/15/08 1,026,650
1,000 Texas Utilities Electric Co................................. 8.250 04/01/04 1,122,990
-----------
3,290,340
-----------
TOTAL CORPORATE DEBT............................................................ 10,604,530
-----------
GOVERNMENT AND AGENCY OBLIGATIONS 1.8%
1,000 Province of Nova Scotia (Canada)............................ 7.250 07/27/13 1,118,780
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 10.8%
2,000 U.S. Treasury Bond.......................................... 7.125 02/15/23 2,465,500
3,000 U.S. Treasury Bond.......................................... 7.250 05/15/16 3,635,190
500 U.S. Treasury Note.......................................... 7.250 08/15/04 562,310
-----------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS...................................... 6,663,000
-----------
TOTAL FIXED INCOME....................................................................... 18,386,310
-----------
TOTAL LONG-TERM INVESTMENTS 90.7%
(Cost $47,039,313)..................................................................... 55,767,857
REPURCHASE AGREEMENT 9.7%
Warburg Dillon Read ($5,925,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be
sold on 01/04/99 at $5,928,127) (Cost $5,925,000)..................................... 5,925,000
-----------
TOTAL INVESTMENTS 100.4%
(Cost $52,964,313)..................................................................... 61,692,857
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%)............................................ (231,593)
-----------
NET ASSETS 100.0%....................................................................... $61,461,264
===========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
See Notes to Financial Statements
13
<PAGE> 15
ASSET ALLOCATION PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $52,964,313)........................ $61,692,857
Cash........................................................ 680
Receivables:
Investments Sold.......................................... 1,821,124
Interest.................................................. 288,659
Portfolio Shares Sold..................................... 88,946
Dividends................................................. 48,198
Other....................................................... 44,682
-----------
Total Assets.......................................... 63,985,146
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,315,281
Investment Advisory Fee................................... 52,209
Portfolio Shares Repurchased.............................. 16,289
Distributor and Affiliates................................ 6,481
Trustees' Deferred Compensation and Retirement Plans........ 107,702
Accrued Expenses............................................ 25,920
-----------
Total Liabilities..................................... 2,523,882
-----------
NET ASSETS.................................................. $61,461,264
===========
NET ASSETS CONSIST OF:
Capital..................................................... $44,946,853
Net Unrealized Appreciation................................. 8,728,544
Accumulated Net Realized Gain............................... 5,879,972
Accumulated Undistributed Net Investment Income............. 1,905,895
-----------
NET ASSETS.................................................. $61,461,264
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $61,461,264 and 4,591,957 shares
of beneficial interest issued and outstanding)............ $ 13.38
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
ASSET ALLOCATION PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,587,668
Dividends................................................... 736,979
----------
Total Income............................................ 2,324,647
----------
EXPENSES:
Investment Advisory Fee..................................... 308,215
Accounting.................................................. 33,053
Custody..................................................... 21,154
Shareholder Reports......................................... 18,797
Trustees' Fees and Expenses................................. 15,779
Audit....................................................... 15,298
Shareholder Services........................................ 14,865
Legal....................................................... 2,566
Other....................................................... 14,513
----------
Total Expenses.......................................... 444,240
Less Fees Waived........................................ 74,236
----------
Net Expenses............................................ 370,004
----------
NET INVESTMENT INCOME....................................... $1,954,643
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $5,930,830
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 7,613,842
End of the Period:
Investments............................................. 8,728,544
----------
Net Unrealized Appreciation During the Period............... 1,114,702
----------
NET REALIZED AND UNREALIZED GAIN............................ $7,045,532
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $9,000,175
==========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
ASSET ALLOCATION PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 1,954,643 $ 2,406,933
Net Realized Gain........................................... 5,930,830 7,064,899
Net Unrealized Appreciation During the Period............... 1,114,702 2,697,375
----------- -----------
Change in Net Assets from Operations........................ 9,000,175 12,169,207
----------- -----------
Distributions from Net Investment Income.................... (67,589) (2,436,414)
Distributions from Net Realized Gain........................ (1,826,978) (6,406,916)
----------- -----------
Total Distributions......................................... (1,894,567) (8,843,330)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 7,105,608 3,325,877
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 4,124,365 2,681,711
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 1,894,567 8,843,330
Cost of Shares Repurchased.................................. (14,960,988) (15,502,271)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (8,942,056) (3,977,230)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (1,836,448) (651,353)
NET ASSETS:
Beginning of the Period..................................... 63,297,712 63,949,065
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $1,905,895 and $17,750,
respectively)............................................. $61,461,264 $63,297,712
=========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
ASSET ALLOCATION PORTFOLIO FINANCIAL HIGHLIGHTS
The following presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $11.910 $11.352 $ 11.64 $ 9.99 $11.80
------- ------- ------- ------- ------
Net Investment Income..................................... .425 .513 .482 .48 .45
Net Realized and Unrealized Gain/Loss..................... 1.416 1.897 1.083 2.6425 (.89)
------- ------- ------- ------- ------
Total from Investment Operations............................ 1.841 2.410 1.565 3.1225 (.44)
------- ------- ------- ------- ------
Less:
Distributions from Net Investment Income.................. .013 .518 .478 .4775 .45
Distributions from Net Realized Gain...................... .354 1.334 1.375 .995 .90
Distributions in Excess of Net Realized Gain.............. -0- -0- -0- -0- .02
------- ------- ------- ------- ------
Total Distributions......................................... .367 1.852 1.853 1.4725 1.37
------- ------- ------- ------- ------
Net Asset Value, End of the Period.......................... $13.384 $11.910 $11.352 $ 11.64 $ 9.99
======= ======= ======= ======= ======
Total Return*............................................... 15.67% 21.81% 13.87% 31.36% (3.66%)
Net Assets at End of the Period (In millions)............... $ 61.5 $ 63.3 $ 63.9 $ 63.0 $ 56.6
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 3.17% 3.86% 3.78% 3.85% 3.70%
Portfolio Turnover.......................................... 93% 58% 118% 124% 163%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .72% .71% .81% .74% .72%
Ratio of Net Investment Income to Average Net Assets........ 3.05% 3.75% 3.57% 3.71% 3.58%
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
DOMESTIC INCOME PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 6.34%
Five-year average annual total return based on NAV(1)....... 8.07%
Ten-year average annual total return based on NAV(1)........ 7.45%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 8.13%
Commencement date........................................... 11/04/87
YIELD
SEC Yield(2)................................................ 6.71%
</TABLE>
(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)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 December 31, 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. Portfolio shares, when redeemed, may be worth
more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
18
<PAGE> 20
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
DOMESTIC INCOME PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Lehman Brothers Corporate Bond Index* and the Lehman Brothers Index of BBB
Corporate Bonds over time. These indexes are broad-based, statistical composites
that do not include any commissions that would be paid by an investor purchasing
the securities they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Domestic Income Portfolio vs. the Lehman
Brothers Corporate Bond Index* and the Lehman Brothers Index of BBB
Corporate Bonds (December 31, 1988 through December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LIT DOMESTIC LEHMAN BROTHERS CORPORATE LEHMAN BROTHERS INDEX OF
INCOME PORTFOLIO BOND INDEX(*) BBB CORPORATE BONDS
----------------------- ------------------------- ------------------------
<S> <C> <C> <C>
Dec 1988 10000.00 10000.00 10000.00
10219.00 10148.00 10156.00
10283.00 10091.20 10119.40
10210.00 10121.40 10145.80
10178.00 10326.90 10324.30
10379.00 10608.80 10585.50
10690.00 10922.90 10888.30
10690.00 11134.80 11088.60
10653.00 11014.50 11004.30
10315.00 11065.20 11053.90
9766.00 11319.70 11300.40
9583.00 11397.80 11376.10
Dec 1989 9456.00 11410.30 11368.10
9051.00 11267.70 11270.30
8800.00 11300.40 11305.30
8931.00 11310.50 11324.50
9000.00 11192.90 11212.40
9164.00 11554.40 11601.50
9361.00 11752.00 11776.60
9482.00 11884.80 11662.40
9175.00 11695.80 11457.10
8802.00 11749.60 11460.60
8671.00 11802.50 11393.00
8737.00 12045.60 11551.30
Dec 1990 8772.00 12215.50 11738.50
8885.00 12370.60 11818.30
9137.00 12582.20 12129.10
9263.00 12736.90 12320.70
9376.00 12902.50 12519.10
9477.00 12991.50 12638.00
9540.00 12990.20 12636.80
9666.00 13177.30 12816.20
9931.00 13475.70 13095.60
10064.00 13752.70 13344.40
10265.00 13883.30 13457.90
10358.00 14019.40 13596.50
Dec 1991 10634.00 14477.80 14005.70
10730.00 14296.50 13900.70
10895.00 14434.10 14070.60
11046.00 14372.00 14037.50
10998.00 14443.90 14103.70
11259.00 14766.00 14412.70
11342.00 14996.40 14638.30
11603.00 15396.80 15023.10
11741.00 15516.90 15133.00
11864.00 15704.60 15312.60
11631.00 15425.10 15012.00
11741.00 15449.70 15054.40
Dec 1992 11963.00 15735.60 15322.80
12247.00 16102.20 15690.50
12546.00 16472.50 16064.00
12711.00 16530.20 16138.60
12808.00 16657.50 16280.10
12928.00 16677.50 16321.70
13318.00 17082.70 16741.80
13437.00 17205.70 16874.80
13782.00 17634.20 17275.60
13797.00 17676.50 17285.00
13962.00 17764.90 17396.80
13827.00 17546.30 17204.40
Dec 1993 13915.00 17649.90 17304.20
14224.00 17992.30 17710.40
13964.00 17567.70 17290.80
13526.00 17028.30 16749.90
13311.00 16864.90 16562.20
13246.00 16802.50 16483.20
13246.00 16760.50 16461.60
13457.00 17184.50 16930.30
13506.00 17203.40 16964.20
13328.00 16883.40 16646.80
13230.00 16844.60 16624.00
13198.00 16817.60 16607.10
Dec 1994 13313.00 16957.20 16751.30
13530.00 17316.70 17127.40
13928.00 17815.40 17630.90
14110.00 17961.50 17793.90
14395.00 18265.10 18101.60
15048.00 19125.40 18970.90
15120.00 19297.50 19156.90
15120.00 19212.60 19101.80
15356.00 19521.90 19416.50
15537.00 19752.30 19658.70
15719.00 20009.00 19839.00
15954.00 20391.20 20213.70
Dec 1995 16157.00 20727.70 20557.00
16334.00 20862.40 20673.60
16039.00 20365.90 20200.40
15901.00 20192.80 20045.50
15808.00 20025.20 19876.60
15847.00 19989.10 19869.80
16044.00 20283.00 20169.00
16123.00 20321.50 20221.70
16123.00 20258.50 20165.30
16478.00 20688.00 20607.80
16911.00 21252.80 21194.60
17266.00 21707.60 21678.00
Dec 1996 17236.00 21408.00 21382.70
17344.00 21438.00 21437.60
17494.00 21528.00 21556.60
17225.00 21192.20 21220.30
17484.00 21514.30 21540.10
17700.00 21757.40 21801.90
18024.00 22066.40 22129.50
18779.00 22874.00 22972.60
18455.00 22535.50 22628.80
18822.00 22929.80 23044.50
18952.00 23221.00 23347.40
19146.00 23351.10 23471.80
Dec 1997 19288.00 23598.60 23755.50
19522.00 23879.40 23978.20
19592.00 23872.20 23966.60
19620.00 23960.60 24046.50
19784.00 24111.50 24206.80
20018.00 24398.50 24493.50
20112.00 24579.00 24639.00
20136.00 24556.90 24604.50
19667.00 24672.30 24549.10
20253.00 25471.70 25296.90
20136.00 25079.40 24802.00
20651.00 25550.90 25312.60
Dec 1998 20510.00 25625.00 25381.60
</TABLE>
The above chart reflects the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Portfolio's performance found in the following pages.
*The Lehman Brothers Corporate Bond Index, which reflects the general
performance of publicly issued, dollar-denominated, SEC-registered,
investment-grade corporate debt, was initially selected as a broad-based
benchmark comparison for the Portfolio's performance. Based on the Portfolio's
asset composition, we believe the Lehman Brothers Index of BBB Corporate Bonds
provides a more accurate benchmark for the Portfolio. This broad-based,
unmanaged index reflects the performance of BBB-rated bonds only, whereas the
previous index included bonds rated BBB and higher. As a result, the Lehman
Brothers Corporate Bond Index will no longer be shown in future reports.
19
<PAGE> 21
PORTFOLIO MANAGEMENT REVIEW
DOMESTIC INCOME PORTFOLIO
The following is an interview with the management team of the Van Kampen Life
Investment Trust--Domestic Income Portfolio. The team is led by Walter W.
Stabell, 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 YEAR?
A
The yield for the benchmark 30-year Treasury bond began the year at 5.92
percent. Spurred by continued low inflation and a growing federal budget
surplus that reduced U.S. borrowing needs, interest rates declined even
further during the first quarter. In the second quarter, we witnessed a classic
flight to quality due 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 Treasury bond yield fell
to 5.62 percent at the end of June.
The biggest boost for the bond market came late in the third quarter and
early in the fourth quarter, when the market was inspired by a string of
interest rate cuts by the Federal Reserve Board. By year end, the yield for the
30-year Treasury bond which, like all bond yields, moves in the opposite
direction of its price--had fallen to 5.09 percent, close to the record low
level for long-term Treasuries set in the mid-1960s. For the first time since
1990, the returns for high-quality, low-risk bonds soundly exceeded those for
higher-risk bonds.
A record level of issuance was a predominant theme for the corporate bond
market during 1998. New issuance of investment-grade corporate bonds totaled
$362 billion during the year, up 33 percent from 1997. Liquidity was also a
concern during 1998, as worries about a global recession spurred investors to
shun risk-sensitive securities in favor of higher-quality investments.
Q
HOW DID YOU MANAGE THE PORTFOLIO DURING THE REPORTING PERIOD?
A
To maintain diversification, enhance liquidity, 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 December 31, 1998,
approximately 68 percent of the Portfolio's assets were invested in
investment-grade bonds, with 28 percent invested in high-yield bonds. The
remaining 4 percent was invested in U.S. government and agency bonds and in
money market-type instruments.
Given the market's volatility during 1998, managing 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 most 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 6.5 years, equivalent to that of the benchmark index.
20
<PAGE> 22
Q
HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A
For the 12 months ended December 31, 1998, the Portfolio achieved a total
return of 6.34 percent(1). By comparison, the Lehman Brothers Index of BBB
Corporate Bonds produced a total return of 6.85 percent for the same
period. 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.
Dividends paid and reinvested by the Portfolio during the period totaled
$0.022 per share. Please note that the majority of dividends paid by the
Portfolio, normally distributed in December, will be distributed in March 1999.
Please refer to the chart on page 18 for additional performance results.
Q
WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A
We expect that the U.S. economy will slow in 1999 due to a combination of
factors, including difficulties in many foreign economies, a slowdown in
consumer spending, dwindling corporate profits, and the Year 2000 computer
problem. We also expect inflation to remain low--in the 2.0 percent range.
However, a full-fledged recession seems unlikely at this time. Finally, the
fundamentals underpinning the U.S. bond market are as healthy as at any time in
recent memory. We expect the market to remain strong in the months ahead.
/s/ Walter W. Stabell
- -------------------------
Walter W. Stabell
Portfolio Manager
Domestic Income Portfolio
/s/ Peter W. Hegel
- -------------------------
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 18
21
<PAGE> 23
DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE DEBT 87.7%
CONSUMER DISTRIBUTION 10.8%
$500 Borden, Inc................................................. 7.875% 02/15/23 $ 458,750
500 Gruma SA De CV, 144A - Private Placement (Mexico) (a)....... 7.625 10/15/07 446,350
500 Nabisco, Inc................................................ 7.550 06/15/15 513,170
500 Safeway, Inc. .............................................. 6.050 11/15/03 506,300
-----------
1,924,570
-----------
CONSUMER NON-DURABLES 5.6%
500 Bausch & Lomb, Inc.......................................... 7.125 08/01/28 499,435
500 Westpoint Stevens, Inc...................................... 7.875 06/15/05 510,625
-----------
1,010,060
-----------
CONSUMER SERVICES 18.2%
500 Cox Communications, Inc..................................... 6.800 08/01/28 529,500
500 CSC Holdings, Inc. ......................................... 7.875 12/15/07 528,750
500 News America Holdings, Inc.................................. 10.125 10/15/12 586,595
500 Royal Caribbean Cruises Ltd................................. 7.500 10/15/27 498,500
500 Valassis Communications, Inc................................ 9.550 12/01/03 572,500
500 Viacom, Inc................................................. 7.625 01/15/16 552,500
-----------
3,268,345
-----------
ENERGY 5.9%
500 Occidental Petroleum Corp................................... 10.125 11/15/01 546,685
500 PDV America, Inc............................................ 7.875 08/01/03 505,860
-----------
1,052,545
-----------
HEALTHCARE 8.7%
500 Beckman Coulter, Inc........................................ 7.450 03/04/08 515,000
500 Manor Care, Inc............................................. 7.500 06/15/06 527,825
500 Tenet Healthcare Corp., 144A - Private Placement (a)........ 8.125 12/01/08 517,500
-----------
1,560,325
-----------
PRODUCER MANUFACTURING 2.8%
500 Idex Corp................................................... 6.875 02/15/08 502,780
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 8.5%
500 Georgia-Pacific Corp........................................ 9.950 06/15/02 553,230
500 Owens Illinois, Inc. ....................................... 7.150 05/15/05 505,000
300 Vicap SA De CV (Mexico)..................................... 11.250 05/15/02 282,000
200 Vicap SA De CV (Mexico)..................................... 11.375 05/15/07 178,500
-----------
1,518,730
-----------
TECHNOLOGY 2.9%
500 Raytheon Co. ............................................... 6.150 11/01/08 513,900
-----------
TRANSPORTATION 8.0%
500 Delta Airlines, Inc......................................... 9.750 05/15/21 622,370
500 Norfolk Southern Corp. ..................................... 7.700 05/15/17 575,760
200 United Airlines, Inc........................................ 10.020 03/22/14 240,880
-----------
1,439,010
-----------
UTILITIES 16.3%
500 360 Communications Co. ..................................... 7.600 04/01/09 570,350
500 MCI Worldcom, Inc........................................... 6.950 08/15/28 541,215
350 Monongahela Power Co........................................ 8.375 07/01/22 384,405
500 Niagara Mohawk Power Corp. ................................. 7.625 10/01/05 521,875
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
$350 Public Service Co. of Colorado.............................. 8.750% 03/01/22 $ 386,120
500 Sprint Capital Corp......................................... 6.125 11/15/08 513,325
-----------
2,917,290
-----------
TOTAL CORPORATE DEBT 87.7%..................................................... 15,707,555
-----------
GOVERNMENT OBLIGATIONS 10.3%
416 Federal National Mortgage Association Pool (U.S.)........... 10.000 04/01/21 452,615
500 Republic of Argentina (Argentina)........................... 11.000 10/09/06 495,000
500 Republic of South Africa (South Africa)..................... 8.500 06/23/17 392,000
500 United Mexican States (Mexico).............................. 11.375 09/15/16 520,000
-----------
TOTAL GOVERNMENT OBLIGATIONS.................................................... 1,859,615
-----------
TOTAL LONG-TERM INVESTMENTS 98.0%
(Cost $16,873,000)..................................................................... 17,567,170
REPURCHASE AGREEMENT 0.9%
DLJ ($160,000 par collateralized by U.S. Government obligations in a pooled cash
account, dated 12/31/98, to be sold on 01/04/99 at $160,080)
(Cost $160,000)................................................................. 160,000
-----------
TOTAL INVESTMENTS 98.9%
(Cost $17,033,000)..................................................................... 17,727,170
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%.............................................. 194,029
-----------
NET ASSETS 100.0%....................................................................... $17,921,199
===========
</TABLE>
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
23
<PAGE> 25
DOMESTIC INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $17,033,000)........................ $17,727,170
Cash........................................................ 3,761
Receivables:
Interest.................................................. 287,852
Portfolio Shares Sold..................................... 13
Other....................................................... 45,244
-----------
Total Assets.......................................... 18,064,040
-----------
LIABILITIES:
Payables:
Shareholder Reports....................................... 9,452
Investment Advisory Fee................................... 6,639
Distributor and Affiliates................................ 5,540
Portfolio Shares Repurchased.............................. 5,339
Trustees' Deferred Compensation and Retirement Plans........ 103,417
Accrued Expenses............................................ 12,454
-----------
Total Liabilities..................................... 142,841
-----------
NET ASSETS.................................................. $17,921,199
===========
NET ASSETS CONSIST OF:
Capital..................................................... $17,202,927
Accumulated Undistributed Net Investment Income............. 1,198,922
Net Unrealized Appreciation................................. 694,170
Accumulated Net Realized Loss............................... (1,174,820)
-----------
NET ASSETS.................................................. $17,921,199
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $17,921,199 and 2,048,609 shares
of beneficial interest issued and outstanding)............ $ 8.75
===========
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
DOMESTIC INCOME PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31,1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,325,815
Dividends................................................... 30,443
Other....................................................... 4,480
----------
Total Income............................................ 1,360,738
----------
EXPENSES:
Investment Advisory Fee..................................... 86,159
Accounting.................................................. 23,601
Shareholder Services........................................ 15,311
Audit....................................................... 14,617
Trustees' Fees and Expenses................................. 13,634
Shareholder Reports......................................... 12,685
Trustees' Retirement Plan................................... 10,832
Custody..................................................... 8,744
Legal....................................................... 1,152
Other....................................................... 1,792
----------
Total Expenses.......................................... 188,527
Less Fees Waived........................................ 85,095
----------
Net Expenses............................................ 103,432
----------
NET INVESTMENT INCOME....................................... $1,257,306
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (54,296)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 850,053
End of the Period:
Investments............................................. 694,170
----------
Net Unrealized Depreciation During the Period............... (155,883)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (210,179)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,047,127
==========
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
DOMESTIC INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 1,257,306 $ 1,342,453
Net Realized Gain/Loss...................................... (54,296) 366,896
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (155,883) 186,254
----------- -----------
Change in Net Assets from Operations........................ 1,047,127 1,895,603
Distributions from Net Investment Income.................... (44,123) (1,365,434)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 1,003,004 530,169
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 6,157,023 5,508,385
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 44,123 1,365,434
Cost of Shares Repurchased.................................. (6,481,744) (10,002,492)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (280,598) (3,128,673)
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 722,406 (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 $1,198,922 and $11,345, respectively) $17,921,199 $17,198,793
=========== ===========
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
DOMESTIC INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $8.252 $8.008 $ 8.21 $ 7.35 $ 8.58
------ ------ ------ ------- --------
Net Investment Income..................................... .614 .704 .755 .71 .85
Net Realized and Unrealized Gain/Loss..................... (.096) .252 (.212) .8525 (1.2275)
------ ------ ------ ------- --------
Total from Investment Operations............................ .518 .956 .543 1.5625 (.3775)
Less Distributions from Net Investment Income............... .022 .712 .745 .7025 .8525
------ ------ ------ ------- --------
Net Asset Value, End of the Period.......................... $8.748 $8.252 $8.008 $ 8.21 $ 7.35
====== ====== ====== ======= ========
Total Return*............................................... 6.34% 11.90% 6.68% 21.37% (4.33%)
Net Assets at End of the Period (In millions)............... $ 17.9 $ 17.2 $ 19.8 $ 26.6 $ 21.3
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 7.29% 7.74% 7.97% 8.11% 8.35%
Portfolio Turnover.......................................... 46% 78% 77% 54% 94%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.09% 1.05% 1.29% .93% .95%
Ratio of Net Investment Income to Average Net Assets........ 6.80% 7.29% 7.28% 7.78% 8.00%
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 37.56%
Three-year average annual total return based on NAV(1)...... 24.56%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 26.31%
Commencement date........................................... 07/03/95
</TABLE>
(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.
See the Prior Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Portfolio shares may decline.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. Portfolio shares,
when redeemed, may be worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
28
<PAGE> 30
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
EMERGING GROWTH PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Russell 2000 Stock Index over time. This index is a broad-based, statistical
composite that does not include any commissions that would be paid by an
investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Emerging Growth Portfolio vs. the Russell
2000 Stock Index (July 3, 1995 through December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LIT-EMERGING GROWTH
PORTFOLIO RUSSELL 2000 STOCK INDEX
------------------------------ ------------------------
<S> <C> <C>
Jul 1995 10000 10000
10860 11125
11000 11355
11270 11558
11110 11041
11460 11505
Dec 1995 11710 11808
11550 11795
12140 12163
12540 12411
13500 13074
14040 13589
Jun 1996 13690 13031
12350 11893
13000 12584
14180 13076
13700 12874
13950 13404
Dec 1996 13660 13756
14480 14031
13250 13690
12550 13044
13040 13081
14250 14536
Jun 1997 14850 15159
16360 15864
16160 16227
17450 17415
16330 16650
16110 16542
Dec 1997 16450 16832
16260 16566
18020 17791
19037 18525
19287 18628
18477 17624
Jun 1998 20097 17661
19537 16232
15946 13080
17676 14103
17967 14679
19437 15448
Dec 1998 22628 16404
</TABLE>
The above chart reflects the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
29
<PAGE> 31
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; Dudley Brickhouse, Janet Luby, and David Walker,
portfolio comanagers; and Stephen L. Boyd, chief investment officer for equity
investments.
Q
THE STOCK MARKET WAS UP, DOWN, AND UP AGAIN IN 1998. CAN YOU DESCRIBE SOME
OF THE MARKET FACTORS THAT AFFECTED THE PORTFOLIO DURING THE REPORTING
PERIOD?
A
For the year overall, the market benefited from low inflation and new cash
flows into stocks. The stock market performed extremely well through
mid-July, when the Dow Jones Industrial Average set a then-record high.
Trouble was on the horizon, however, as the markets feared that many U.S.
companies would announce earnings declines resulting from exposure to lagging
international economies. Investors became increasingly concerned after severe
economic problems in Russia and the near-failure of a large hedge fund
threatened financial stability. By August 31 the Dow had fallen 19 percent from
its high.
Beginning in October conditions began to improve. Inflation remained tame,
enabling the Federal Reserve Board to lower interest rates in September and then
again in October and November. By October, companies began to report
better-than-expected third-quarter earnings, reminding investors that the U.S.
economy, though slowing, was still fundamentally solid. The volatile stock
market began to rise again, with the Dow setting a new record in November before
declining modestly from its high by year-end.
Q
IN LIGHT OF THIS MARKET VOLATILITY, HOW DID YOU MANAGE THE PORTFOLIO?
A
We have confidence in our investment strategy, so we continued to rely
upon it throughout last year's highs and lows. As always, we looked for
stocks with rising earnings expectations and rising valuations, and we
invested in those companies we believed had the potential to outperform earnings
expectations. Conversely, we sold stocks if their underlying companies' earnings
estimates or valuations were declining. We consistently manage the Portfolio
from the "bottom up," meaning that we evaluate each company individually before
deciding to invest.
That said, 1998--particularly the third quarter--was a challenge because
fewer stocks met our requirements. When the market was at its most volatile, few
companies had rising valuations, so we looked for the stocks whose valuations
were declining the least. Fortunately, the situation stabilized in the fourth
quarter, and we found it easier to identify companies that satisfied our
criteria.
Q
WHAT STOCKS HAD THE GREATEST POSITIVE IMPACT ON THE PORTFOLIO?
A
The Portfolio was supported primarily by its substantial weighting in
technology stocks. Tech companies, especially those whose businesses are
Internet-related, generally enjoyed the greatest success during the
reporting period. America Online, the nation's leading Internet service provider
and the Portfolio's largest holding at year-end, was among 1998's biggest
winners, as its stock rose 572 percent. Yahoo!, which provides a well-known
Internet directory, was equally impressive; its stock price increased by 585
percent in 1998. Other technology stocks that helped the Portfolio's performance
during the year were Dell Computer, a pioneer in direct computer sales, and EMC,
which makes data storage systems.
Despite a difficult third quarter, retail companies also performed well and
benefited the Portfolio during the reporting period. Best Buy, a leading
consumer electronics and appliance retailer, experienced a successful year, and
its stock price rose correspondingly. Another successful investment was our
purchase of AnnTaylor Stores, a women's apparel retailer. On the pharmaceutical
front, drug manufacturer Biogen also proved to be a successful acquisition.
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.
30
<PAGE> 32
Q
WHICH STOCKS HURT THE PORTFOLIO'S PERFORMANCE?
A
One of the Portfolio's worst performers was HBO & Co., a company that
provides software solutions to the health care industry. The stock
underperformed primarily because of investor concerns about HBO's proposed
merger with McKesson Corp. and the perception that the merger was not consistent
with the company's traditional strategic direction. HBO had been a sizeable
holding in the Portfolio for some time. Through the end of November, by which
time we completely eliminated our position in this stock, the holding had made
just modest gains since the beginning of the year.
As mentioned in past reports, the Portfolio has a relatively high weighting
in broadcast companies, such as Chancellor Media, Clear Channel Communications,
and Jacor Communications. Although these stocks performed well in the first half
of the year, they lagged in the second half. These companies were hurt by
investors' concerns that the Federal Communications Commission would reshape
television broadcast guidelines, which would hamper these companies' ability to
grow. Although these fears appeared to have subsided later in the reporting
period, the companies' stock prices remained low relative to the market through
the end of 1998.
Also suppressing the broadcasting stock prices was a belief among investors
that the pace of industry consolidation, which fueled these stocks in 1997, had
slowed by mid-year. Despite the underperformance of broadcast stocks in the
second half of last year, we think the fundamentals for these companies are
still solid, and we continue to own them because we believe they are poised for
a rebound.
Q
HOW DID THE PORTFOLIO PERFORM DURING 1998?
A
The Portfolio performed extremely well, achieving a 12-month total return
of 37.56 percent,(1) as of December 31, 1998. By comparison, the Standard
& Poor's 500-Stock Index returned 28.52 percent, and the Russell 2000
Index, which more closely resembles the Portfolio, returned -2.55 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 small-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 28 for
additional performance results.
Q
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO FOR THE UPCOMING SIX MONTHS?
A
Historically speaking, stock valuations are still relatively high, which
makes the market vulnerable to a sharp drop if bad news rattles investors.
At the same time, central banks around the world, including the Fed, have
been implementing policies designed to bolster lagging economies. We anticipate
that these actions may benefit stocks and help limit the potential for negative
corporate earnings surprises. Finally, we continue to monitor the "Year 2000"
computer problem, because the companies in which the Portfolio primarily
invests--small- and mid-cap stocks--are the ones that are the most likely to be
affected.
31
<PAGE> 33
As we've mentioned before, valuations for small-cap stocks continue to be at
historic and relative lows, suggesting a potentially bright future for the
Portfolio. Indeed, in the final quarter of 1998 we saw the first signs of a
narrowing of the valuation gap between large- and small-cap stocks. This gap
should eventually close further, but we believe it is likely to remain wide as
long as investors continue their "flight to quality," or preference for
large-cap, blue-chip investments. If small- and mid-cap stocks begin to
consistently outperform, however, the Emerging Growth Portfolio should be
well-positioned.
/s/ Gary M. Lewis
- -----------------------
Gary M. Lewis
Portfolio Manager
Emerging Growth Portfolio
/s/ David Walker
- -----------------------
David Walker
Portfolio Comanager
Emerging Growth Portfolio
/s/ Dudley Brickhouse
- -----------------------
Dudley Brickhouse
Portfolio Comanager
Emerging Growth Portfolio
/s/ Stephen L. Boyd
- -----------------------
Stephen L. Boyd
Chief Investment Officer
Equity Investments
/s/ Janet Luby
- -----------------------
Janet Luby
Portfolio Comanager
Emerging Growth Portfolio
Please see footnotes on page 28
32
<PAGE> 34
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.0%
CONSUMER DISTRIBUTION 15.4%
American Eagle Outfitters (a)............................... 500 $ 33,313
AnnTaylor Stores Corp. (a).................................. 3,200 126,200
Bed Bath & Beyond, Inc. (a)................................. 4,000 136,500
Best Buy Co., Inc. (a)...................................... 11,250 690,468
Cardinal Health, Inc. ...................................... 1,500 113,813
CDW Computer Centers, Inc. (a).............................. 1,750 167,891
Costco Cos., Inc. (a)....................................... 1,400 101,063
CVS Corp. .................................................. 3,700 203,500
Dollar Tree Stores, Inc. (a)................................ 2,800 122,325
Earthgrains Co. ............................................ 2,400 74,250
Express Scripts, Inc., Class A (a).......................... 1,500 100,688
Family Dollar Stores, Inc. ................................. 8,500 187,000
Gap, Inc. .................................................. 5,000 281,250
Hollywood Entertainment Corp. (a)........................... 2,250 61,312
Home Depot, Inc. ........................................... 7,550 461,964
Insight Enterprises, Inc. (a)............................... 1,500 76,312
Lason Holdings, Inc. (a).................................... 900 52,369
Lexmark International Group, Inc., Class A (a).............. 4,500 452,250
Lowe's Cos., Inc. .......................................... 5,600 286,650
Micro Warehouse, Inc. (a)................................... 900 30,431
Safeway, Inc. (a)........................................... 5,500 335,156
Staples, Inc. (a)........................................... 9,000 393,188
TJX Cos. Inc. .............................................. 10,800 313,200
Trans World Entertainment Corp. (a)......................... 1,800 34,313
Tricon Global Restaurants, Inc. (a)......................... 1,800 90,225
U.S. Foodservice (a)........................................ 1,600 78,400
Williams Sonoma, Inc. (a)................................... 3,500 141,094
-----------
5,145,125
-----------
CONSUMER DURABLES 0.6%
Gentex Corp. (a)............................................ 1,000 20,000
Kaufman & Broad Home Corp. ................................. 1,200 34,500
Pulte Corp. ................................................ 1,700 47,281
Shaw Industries, Inc. ...................................... 3,500 84,873
-----------
186,654
-----------
CONSUMER NON-DURABLES 2.2%
Abercrombie & Fitch Co., Class A (a)........................ 5,000 353,750
Adolph Coors Co. ........................................... 1,450 81,832
Linens 'n Things, Inc. (a).................................. 5,200 206,050
Smithfield Foods, Inc. (a).................................. 1,000 33,875
Westpoint Stevens, Inc. (a)................................. 1,800 56,813
-----------
732,320
-----------
CONSUMER SERVICES 9.7%
Brinker International, Inc. (a)............................. 3,200 92,400
Cablevision Systems Corp., Class A (a)...................... 4,250 213,295
Chancellor Media Corp., Class A (a)......................... 10,600 507,475
Clear Channel Communications, Inc. (a)...................... 6,500 354,250
Consolidated Graphics, Inc. (a)............................. 1,400 94,589
Earthlink Network, Inc. (a)................................. 2,400 136,800
Education Management Corp. (a).............................. 1,500 35,438
International Network Services (a).......................... 2,650 176,225
</TABLE>
See Notes to Financial Statements
33
<PAGE> 35
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Interpublic Group of Cos., Inc. ............................ 2,750 $ 219,313
Jacor Communications, Inc., Class A (a)..................... 4,100 263,938
Meredith Corp. ............................................. 3,100 117,414
Metris Cos., Inc. .......................................... 400 20,125
Metzler Group, Inc. (a)..................................... 2,250 109,547
Omnicom Group, Inc. ........................................ 4,000 232,000
Outdoor Systems, Inc. (a)................................... 5,000 150,000
Robert Half International, Inc. (a)......................... 2,250 100,547
Snyder Communications, Inc. (a)............................. 1,600 54,000
Tele-Communications Inc., Class A (a)....................... 4,900 225,706
Valassis Communications, Inc. (a)........................... 2,500 129,063
-----------
3,232,125
-----------
ENERGY 0.1%
Marine Drilling Cos., Inc. (a).............................. 3,000 23,062
National Oilwell, Inc. (a).................................. 1,300 14,544
-----------
37,606
-----------
FINANCE 5.8%
AmSouth Bancorp. ........................................... 1,300 59,313
Capital One Financial Corp. ................................ 2,600 299,000
Dime Bancorp, Inc. ......................................... 1,700 44,944
Fidelity National Financial, Inc. .......................... 550 16,775
Fifth Third Bancorp. ....................................... 1,250 89,141
Finova Group, Inc. ......................................... 1,800 97,088
Firstar Corp. .............................................. 1,800 167,850
National Commerce Bancorp. ................................. 750 14,109
Northern Trust Corp. ....................................... 1,800 157,161
Old Kent Financial Corp. ................................... 2,100 97,650
Progressive Corp. .......................................... 450 76,219
Protective Life Corp. ...................................... 1,500 59,719
Providian Financial Corp. .................................. 9,000 675,000
Zions Bancorp. ............................................. 1,300 81,087
-----------
1,935,056
-----------
HEALTHCARE 11.2%
Allegiance Corp. ........................................... 7,400 345,025
Allergan, Inc. ............................................. 2,200 142,450
Amgen, Inc. (a)............................................. 1,100 115,019
Biogen, Inc. (a)............................................ 7,900 655,700
Biomatrix, Inc. (a)......................................... 1,200 69,900
Biomet, Inc. ............................................... 3,000 120,750
Cree Research, Inc. (a)..................................... 800 38,300
Genzyme Corp. (a)........................................... 3,400 169,150
Guidant Corp. .............................................. 3,150 347,287
Henry Schein, Inc. ......................................... 1,400 62,650
Immunex Corp. (a)........................................... 1,700 213,881
Medicis Pharmaceutical Corp., Class A (a)................... 1,250 74,531
Medimmune, Inc. (a)......................................... 1,500 149,156
Medquist, Inc. (a).......................................... 1,200 47,400
Medtronic, Inc. ............................................ 2,000 148,500
MiniMed, Inc. (a)........................................... 1,800 188,550
Omnicare, Inc. ............................................. 4,400 152,900
Pathogensis Corp. (a)....................................... 600 34,800
</TABLE>
See Notes to Financial Statements
34
<PAGE> 36
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Patterson Dental Co. (a).................................... 1,100 $ 47,850
PSS World Med, Inc. (a)..................................... 900 20,700
Quintiles Transnational Corp. (a)........................... 3,800 202,825
VISX, Inc. (a).............................................. 200 17,488
Watson Pharmaceuticals, Inc. (a)............................ 4,600 289,225
Wellpoint Health Networks, Inc., Class A (a)................ 900 78,300
-----------
3,732,337
-----------
PRODUCER MANUFACTURING 4.2%
Allied Waste Industries, Inc. (a)........................... 8,092 191,174
American Power Conversion Corp. (a)......................... 5,750 278,516
Danaher Corp. .............................................. 3,000 162,939
Federal Mogul Corp. ........................................ 2,750 163,625
Metromedia Fiber Network, Inc., Class A (a)................. 7,000 234,500
Tyco International Ltd. .................................... 5,100 384,730
-----------
1,415,484
-----------
TECHNOLOGY 45.7%
Advanced Micro Devices, Inc. (a)............................ 3,000 86,813
Affiliated Computer Services, Inc., Class A (a)............. 1,400 63,000
Altera Corp. (a)............................................ 3,500 213,063
America Online, Inc. (a).................................... 14,000 2,026,500
American Management Systems (a)............................. 2,500 100,000
Apple Computer, Inc. (a).................................... 2,300 94,156
Applied Micro Circuits Corp. (a)............................ 1,200 40,763
BMC Software, Inc. (a)...................................... 6,700 298,569
Ciber, Inc. (a)............................................. 3,100 86,606
Cisco Systems, Inc. (a)..................................... 4,200 389,813
Citrix Systems, Inc. (a).................................... 4,500 436,781
Compuware Corp. (a)......................................... 16,300 1,273,436
Comverse Technology, Inc. (a)............................... 2,300 163,300
Concord Communications, Inc. (a)............................ 1,200 68,100
Concord EFS, Inc. (a)....................................... 4,300 182,213
CSG Systems International, Inc. (a)......................... 3,100 244,900
Dell Computer Corp. (a)..................................... 19,500 1,427,154
Echostar Communications Corp., Class A (a).................. 2,000 96,750
Electronics for Imaging, Inc. (a)........................... 2,000 80,375
EMC Corp. (a)............................................... 14,700 1,249,500
Fiserv, Inc. (a)............................................ 2,250 115,734
Flextronics International Corp. (a)......................... 2,200 188,375
Gemstar International Group Ltd. (a)........................ 4,400 251,900
General Instrument Corp. (a)................................ 3,750 127,266
Geotel Communications Corp. (a)............................. 1,500 55,875
Gilat Satellite Networks Ltd. (a)........................... 1,500 82,688
Global Crossing Ltd. (a).................................... 1,500 67,688
Gulfstream Aerospace Corp. (a).............................. 4,500 239,625
IMR Global Corp. (a)........................................ 2,300 67,706
Intel Corp. ................................................ 2,000 237,125
Jabil Circuit, Inc. (a)..................................... 3,200 238,800
Keane, Inc. (a)............................................. 3,000 119,813
Legato Systems, Inc. (a).................................... 6,250 412,109
Macromedia, Inc. (a)........................................ 4,400 148,225
Mastech Corp. (a)........................................... 1,700 48,663
</TABLE>
See Notes to Financial Statements
35
<PAGE> 37
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Mercury Interactive Corp. (a)............................... 1,800 $ 113,850
Microsoft Corp. (a)......................................... 1,150 159,491
Mindspring Enterprises, Inc. (a)............................ 2,250 137,391
Network Appliance, Inc. (a)................................. 8,000 360,000
Network Solutions, Inc., Class A (a)........................ 800 104,700
Networks Associates, Inc. (a)............................... 2,750 182,189
New Era of Networks, Inc. (a)............................... 2,250 99,000
Nokia Corp. - ADR (Finland) (a)............................. 2,100 252,919
Paychex, Inc. .............................................. 2,750 141,453
Peregrine Systems, Inc. (a)................................. 500 23,188
QLogic Corp. (a)............................................ 700 91,613
Rational Software Corp. (a)................................. 4,500 119,250
Sanmina Corp. (a)........................................... 900 56,250
SEI Investments Co. ........................................ 800 79,500
Solectron Corp. (a)......................................... 2,000 185,875
Sterling Software, Inc. (a)................................. 2,600 70,362
SunGard Data Systems, Inc. (a).............................. 4,500 178,594
Sykes Enterprises, Inc. (a)................................. 1,500 45,750
Symbol Technologies, Inc. .................................. 2,700 172,631
Tekelec, Inc. (a)........................................... 3,200 53,000
Texas Instruments, Inc. .................................... 1,000 85,563
Verisign, Inc. (a).......................................... 850 50,256
Veritas DGC, Inc. (a)....................................... 1,300 16,900
Veritas Software Corp. (a).................................. 4,500 269,719
Vitesse Semiconductor Corp. (a)............................. 5,500 250,938
Waters Corp. (a)............................................ 2,350 205,035
Wind River Systems, Inc. (a)................................ 1,400 65,800
Xircom, Inc. (a)............................................ 2,200 74,800
Yahoo!, Inc. (a)............................................ 2,550 604,191
-----------
15,273,592
-----------
TRANSPORTATION 0.5%
Comair Holdings, Inc. ...................................... 2,300 77,625
Southwest Airlines Co. ..................................... 4,800 107,700
-----------
185,325
-----------
UTILITIES 0.6%
Century Telephone Enterprises, Inc. ........................ 3,000 202,500
-----------
TOTAL LONG-TERM INVESTMENTS 96.0%
(Cost $21,971,112).............................................. 32,078,124
REPURCHASE AGREEMENT 6.8%
SBC Warburg ($2,265,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold 2,265,000
on 1/4/99 at $2,266,195) (Cost $2,265,000)........................
-----------
TOTAL INVESTMENTS 102.8%
(Cost $24,236,112).............................................. 34,343,124
LIABILITIES IN EXCESS OF OTHER ASSETS (2.8%)....................... (923,084)
-----------
NET ASSETS 100.0%.................................................. $33,420,040
-----------
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
See Notes to Financial Statements
36
<PAGE> 38
EMERGING GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $24,236,112)........................ $34,343,124
Cash........................................................ 7,467
Receivables:
Portfolio Shares Sold..................................... 216,346
Investments Sold.......................................... 95,974
Dividends................................................. 3,987
Unamortized Organizational Costs............................ 2,046
-----------
Total Assets.......................................... 34,668,944
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,165,750
Investment Advisory Fee................................... 13,272
Distributor and Affiliates................................ 5,602
Portfolio Shares Repurchased.............................. 1,703
Accrued Expenses............................................ 34,820
Trustees' Deferred Compensation and Retirement Plans........ 27,757
-----------
Total Liabilities..................................... 1,248,904
-----------
NET ASSETS.................................................. $33,420,040
===========
NET ASSETS CONSIST OF:
Capital..................................................... $25,032,872
Net Unrealized Appreciation................................. 10,107,012
Accumulated Net Investment Loss............................. (27,756)
Accumulated Net Realized Loss............................... (1,692,088)
-----------
NET ASSETS.................................................. $33,420,040
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $33,420,040 and 1,477,759 shares
of beneficial interest issued and outstanding)............ $ 22.62
===========
</TABLE>
See Notes to Financial Statements
37
<PAGE> 39
EMERGING GROWTH PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 83,873
Dividends................................................... 33,807
-----------
Total Income............................................ 117,680
-----------
EXPENSES:
Investment Advisory Fee..................................... 131,521
Accounting.................................................. 22,855
Audit....................................................... 20,354
Shareholder Reports......................................... 18,565
Shareholder Services........................................ 15,704
Trustees' Fees and Expenses................................. 9,915
Custody..................................................... 7,948
Legal....................................................... 192
Other....................................................... 5,255
-----------
Total Expenses.......................................... 232,309
Less Fees Waived........................................ 71,860
-----------
Net Expenses............................................ 160,449
-----------
NET INVESTMENT LOSS......................................... $ (42,769)
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(1,437,065)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,941,096
End of the Period......................................... 10,107,012
-----------
Net Unrealized Appreciation During the Period............... 8,165,916
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 6,728,851
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,686,082
===========
</TABLE>
See Notes to Financial Statements
38
<PAGE> 40
EMERGING GROWTH PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss......................................... $ (42,769) $ (7,775)
Net Realized Gain/Loss...................................... (1,437,065) 156,164
Net Unrealized Appreciation During the Period............... 8,165,916 997,037
----------- -----------
Change in Net Assets from Operations........................ 6,686,082 1,145,426
Distributions in Excess of Net Investment Income............ (4,851) -0-
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 6,681,231 1,145,426
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 25,418,092 8,526,700
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 4,851 -0-
Cost of Shares Repurchased.................................. (9,175,988) (4,358,459)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 16,246,955 4,168,241
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 22,928,186 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 $27,756 and $12,701, respectively)..................... $33,420,040 $10,491,854
=========== ===========
</TABLE>
See Notes to Financial Statements
39
<PAGE> 41
EMERGING GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year Ended December 31, of Investment
----------------------------- Operations) to
1998 1997 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $16.450 $13.660 $11.72 $ 10.00
------- ------- ------- -------
Net Investment Loss....................................... (.014) (.007) (.016) (.08)
Net Realized and Unrealized Gain.......................... 6.186 2.797 1.956 1.80
------- ------- ------- -------
Total from Investment Operations............................ 6.172 2.790 1.940 1.72
Less Distributions in Excess of Net Investment Income....... .007 -0- -0- -0-
------- ------- ------- -------
Net Asset Value, End of the Period.......................... $22.615 $16.450 $13.660 $ 11.72
======= ======= ======= =======
Total Return................................................ 37.56% 20.42% 16.55% 17.20%**
Net Assets at End of the Period (In millions)............... $33.4 $10.5 $5.2 $ 2.3
Ratio of Expenses to Average Net Assets*.................... .85% .85% .85% 2.50%
Ratio of Net Investment Loss to Average Net Assets*......... (.23%) (.11%) (.17%) (1.45%)
Portfolio Turnover.......................................... 91% 116% 102% 41%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.23% 2.14% 3.28% 5.40%
Ratio of Net Investment Loss to Average Net Assets.......... (.61%) (1.40%) (2.60%) (4.35%)
</TABLE>
** Non-Annualized
See Notes to Financial Statements
40
<PAGE> 42
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
ENTERPRISE PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 25.00%
Five-year average annual total return based on NAV(1)....... 21.95%
Ten-year average annual total return based on NAV(1)........ 18.35%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 13.61%
Commencement date........................................... 04/07/86
</TABLE>
(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.
See the Prior Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Portfolio shares may decline.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. Portfolio shares,
when redeemed, may be worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
41
<PAGE> 43
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
ENTERPRISE PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the general market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Standard & Poor's 500-Stock Index over time. This index is a broad-based,
statistical composite that does not include any commissions that would be paid
by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Enterprise Portfolio vs. the Standard &
Poor's 500-Stock Index (December 31, 1988 through December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN
LIT-ENTERPRISE STANDARD & POOR'S
PORTFOLIO 500-STOCK INDEX
-------------- -----------------
<S> <C> <C>
Dec 1988 10000 10000
10701 10711
10632 10401
11000 10708
11552 11244
12034 11639
11885 11651
12885 12680
13000 12877
13023 12896
12586 12572
13011 12780
Dec 1989 13423 13159
12366 12253
12687 12358
12960 12761
12572 12418
13766 13560
13730 13560
13396 13489
12106 12217
11462 11705
11354 11627
12106 12324
Dec 1990 12505 12749
12976 13278
13807 14172
14216 14594
14166 14599
14925 15162
14141 14562
14813 15216
15310 15515
15181 15340
15573 15522
15067 14840
Dec 1991 17058 16617
16779 16286
17045 16442
16588 16199
16610 16651
16763 16667
16344 16507
16966 17157
16636 16745
17055 17027
17424 17063
18110 17580
Dec 1992 18333 17881
18462 18007
18579 18196
19004 18659
18417 18185
18895 18598
18830 18748
18778 18648
19334 19290
19721 19230
19605 19603
19088 19350
Dec 1993 19980 19675
20652 20314
20405 19704
19363 18935
19637 19153
19609 19391
19099 19016
19664 19615
20354 20353
19664 19946
19885 20362
19113 19558
Dec 1994 19303 19942
19942 20426
20752 21163
21360 21878
21879 22490
22746 23306
23219 23959
24181 24721
24275 24713
25142 25858
24654 25729
25899 26785
Dec 1995 26442 27409
27450 28303
28368 28500
28602 28879
29644 29267
30612 29936
29849 30172
28099 28791
29160 29333
31450 31097
31879 31910
33945 34251
Dec 1996 32998 33686
35433 35752
35210 35964
33098 34595
34702 36616
37191 38761
38713 40622
42457 43795
41387 41279
44061 43660
41984 42154
42807 44034
Dec 1997 43114 44909
43042 45365
47066 48560
49726 51160
50496 51624
48571 50652
50713 52844
49582 52230
40676 44615
43131 47598
45996 51419
48739 54460
Dec 1998 53890 57717
</TABLE>
The above charts reflect the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Portfolio's performance found in the following pages.
42
<PAGE> 44
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 includes Jeff D.
New, portfolio manager; Michael Davis and Mary Jayne Maly, portfolio comanagers;
and Stephen L. Boyd, chief investment officer for equity investments.
Q
THE STOCK MARKET WAS UP, DOWN, AND UP AGAIN IN 1998. CAN YOU DESCRIBE SOME
OF THE FACTORS THAT AFFECTED THE MARKET DURING THE REPORTING PERIOD?
A
For the year overall, the market benefited from low inflation and new cash
flows into stocks. The stock market performed extremely well through
mid-July, when the Dow Jones Industrial Average set a then-record high.
Trouble was on the horizon, however, as the markets feared that many U.S.
companies would announce earnings problems resulting from exposure to lagging
international economies. Investors became increasingly concerned after severe
economic problems in Russia and the near-failure of a large hedge fund
threatened financial stability. By August 31 the Dow had fallen 19 percent from
its high.
Beginning in October conditions began to improve. Inflation remained tame,
enabling the Federal Reserve Board to lower interest rates in September and then
again in October and November. By October, companies began to report
better-than-expected third-quarter earnings, reminding investors that the U.S.
economy, though slowing, was still fundamentally solid. The volatile stock
market began to rise again, with the Dow setting a new record in November before
declining modestly from its high by year-end.
Q
DID MARKET VOLATILITY LEAD YOU TO CHANGE YOUR MANAGEMENT STRATEGY FOR THE
PORTFOLIO?
A
No. If anything, we were more disciplined in applying our strategy because
slowing economic conditions meant that fewer companies met our criteria of
promising future fundamentals and attractive current prices. By our
definition, promising 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 from the "bottom up" -- in other words, on a
company-by-company basis. Because our investment approach has served the
Portfolio well through a broad range of economic conditions, we weren't tempted
to change our strategy during the past 12 months.
Q
WHAT ARE SOME OF THE COMPANIES THAT MET YOUR CRITERIA?
A
Technology stocks performed very well in 1998, and we focused on a number
of tech stocks that are key players in their industries. Cisco Systems,
which specializes in computer networking and is a key beneficiary of the
Internet's increased popularity, was a significant holding in the Portfolio, as
was Compuware, a major software and services company. In August we added a
sizeable position in America Online, the dominant Internet service provider.
Other technology companies that met our investment discipline were EMC Corp.,
which creates data storage products, and Oracle, the market leader in database
software. All of these firms were extremely successful holdings for the
Portfolio during the reporting period.
We had a higher-than-usual exposure to retail stocks, which generally helped
the Portfolio in 1998. Retail companies have tended to do well in periods of low
unemployment and high consumer spending. Although these companies were hit hard
during the third quarter, their excellent performance in the first two quarters
was accompanied by a healthy rebound in the fourth. Retailers such as Safeway
(supermarket), Lowe's Companies (building supply), Dayton Hudson (general
merchandise retailer), and Wal-Mart (discount retailer) were among the
Portfolio's biggest successes during the past 12 months.
43
<PAGE> 45
Stocks within the telecommunications, cable, and entertainment industries
have typically performed well in a volatile stock market because they generally
produce consistent earnings and attractive growth rates. As such, companies such
as SBC Communications, US West, and Time Warner handily outperformed the market
and helped the Portfolio in 1998.
Of course, not all of the stocks in the Portfolio performed as favorably,
nor is there any guarantee that any of these stocks will perform as well in the
future.
Q
SIX MONTHS AGO, YOU MENTIONED THAT PHILIP MORRIS HAD HURT THE PORTFOLIO'S
PERFORMANCE. HOW HAS IT FARED SINCE THEN?
A
By year's end, the markets rewarded our patience with Philip Morris.
Despite struggling in the first half of the year, Philip Morris stock rose
36 percent compared to 9 percent for the Standard & Poor's 500-Stock Index
in the last six months of 1998. The stock's strong second-half performance
resulted from investors' favorable reaction to the settlement of numerous
lawsuits by state governments against the company and other tobacco
manufacturers.
Q
WHICH STOCKS HURT THE PORTFOLIO'S PERFORMANCE?
A
Some health care stocks, such as large pharmaceutical and generic-drug
manufacturers, performed well in 1998. However, companies in the health
care-service area--including hospitals and rehabilitation companies -- had
a particularly negative impact on the Portfolio. In general, companies in these
industries have encountered rising costs but have been unable to pass them along
to insurers and consumers. Also, a number of health care-service companies were
scrutinized over questionable billing practices. Even though only a few
companies have been demonstrably involved in wrongdoing, stock prices for many
similar companies fell considerably, as investors worried that more negative
news would be forthcoming.
Some of the companies whose stock declines most hurt the Portfolio's
performance were Tenet Health Care, Universal Health Services, and HealthSouth
Corporation. We continue to own each of these stocks but in smaller percentages
than at the start of the reporting period.
In the wake of economic troubles in the third quarter of 1998, financial
stocks--especially bank stocks--performed poorly. Although the Portfolio's
position in bank stocks was not large, companies such as BankAmerica and newly
merged Citigroup had a negative impact on the Portfolio. Conseco, a provider of
life insurance and other financial services, was also a disappointing performer.
Q
HOW DID THE PORTFOLIO PERFORM OVERALL?
A
The Portfolio achieved a 12-month total return of 25.00 percent(1) as of
December 31, 1998. By comparison, the Standard & Poor's 500-Stock Index
returned 28.52 percent, and the Lipper Growth Fund Index, which more
closely resembles the Portfolio, returned 25.69 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 41 for
additional Portfolio performance results.
44
<PAGE> 46
Q
WHAT DO YOU SEE AHEAD FOR THE MARKETS AND THE PORTFOLIO IN THE NEXT SIX
MONTHS?
A
Historically speaking, stock valuations are still relatively high, which
makes the market vulnerable to a sharp drop if bad news rattles investors.
At the same time, central banks around the world, including the Fed, have
been implementing policies designed to bolster lagging economies. We anticipate
that these actions should benefit stocks and help limit the potential for
negative corporate earnings surprises.
As always, the markets are going to experience periods of high volatility.
We are confident, however, that our best response to volatile markets is to stay
committed to our stock-selection discipline and continue to invest in those
companies we believe provide above-average growth rates at reasonable prices.
/s/ Jeff D. New
- -------------------------
Jeff D. New
Portfolio Manager
Enterprise Portfolio
/s/ Mary Jayne Maly
- -------------------------
Mary Jayne Maly
Portfolio Comanager
Enterprise Portfolio
/s/ Michael Davis
- -------------------------
Michael Davis
Portfolio Comanager
Enterprise Portfolio
/s/ Stephen L. Boyd
- -------------------------
Stephen L. Boyd
Chief Investment Officer
Enterprise Portfolio
Please see footnotes on page 41
45
<PAGE> 47
ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 99.2%
CONSUMER DISTRIBUTION 18.6%
AnnTaylor Stores Corp. (a).................................. 20,000 $ 788,750
Brightpoint, Inc. (a)....................................... 21,300 292,875
Cardinal Health, Inc........................................ 8,000 607,000
Costco Cos., Inc. (a)....................................... 12,400 895,125
CVS Corp.................................................... 13,800 759,000
Dayton Hudson Corp.......................................... 27,500 1,491,875
Diebold, Inc................................................ 16,000 571,000
Earthgrains Co.............................................. 18,900 584,719
Family Dollar Stores, Inc................................... 36,700 807,400
Hollywood Entertainment Corp. (a)........................... 13,000 354,250
Home Depot, Inc............................................. 11,000 673,062
Kroger Co. (a).............................................. 22,000 1,331,000
Lexmark International Group, Inc., Class A (a).............. 17,000 1,708,500
Lowe's Cos., Inc............................................ 23,300 1,192,669
McKesson Corp............................................... 8,300 656,219
Rite Aid Corp............................................... 13,200 654,225
Ross Stores, Inc............................................ 24,600 968,625
Safeway, Inc. (a)........................................... 43,600 2,656,875
Sysco Corp.................................................. 20,000 548,750
TJX Cos., Inc............................................... 58,200 1,687,800
Tricon Global Restaurants, Inc. (a)......................... 35,000 1,754,375
U.S. Foodservice (a)........................................ 14,000 686,000
Wal-Mart Stores, Inc........................................ 16,600 1,351,862
------------
23,021,956
------------
CONSUMER DURABLES 2.1%
Ford Motor Co............................................... 12,900 757,069
Harley Davidson, Inc........................................ 7,000 331,625
Maytag Corp................................................. 12,100 753,225
Shaw Industries, Inc........................................ 31,000 751,750
------------
2,593,669
------------
CONSUMER NON-DURABLES 4.3%
Abercrombie & Fitch Co., Class A (a)........................ 10,000 707,500
Anheuser-Busch Cos., Inc.................................... 14,000 918,750
Philip Morris Cos., Inc..................................... 55,800 2,985,300
Tommy Hilfiger Corp. (a).................................... 11,000 660,000
------------
5,271,550
------------
CONSUMER SERVICES 10.8%
Brinker International, Inc. (a)............................. 67,800 1,957,725
CBS Corp.................................................... 36,600 1,198,650
Cendant Corp. (a)........................................... 37,425 713,414
Chancellor Media Corp., Class A (a)......................... 26,600 1,273,475
Comcast Corp., Class A...................................... 11,000 645,563
Fox Entertainment Group, Inc., Class A (a).................. 23,000 579,312
Jacor Communications, Inc., Class A (a)..................... 14,900 959,188
McGraw-Hill, Inc............................................ 6,000 611,250
Metamor Worldwide, Inc. (a)................................. 19,100 477,500
Omnicom Group, Inc.......................................... 25,500 1,479,000
Tele Communications, Inc., Class A (a)...................... 12,000 663,750
Time Warner, Inc............................................ 20,600 1,278,487
</TABLE>
See Notes to Financial Statements
46
<PAGE> 48
ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Tribune Co.................................................. 13,100 $ 864,600
Univision Communications, Inc., Class A (a)................. 18,000 651,375
------------
13,353,289
------------
ENERGY 1.5%
El Paso Energy Corp......................................... 31,800 1,107,038
Enron Corp.................................................. 13,100 747,519
------------
1,854,557
------------
FINANCE 12.2%
Ambac Financial Group, Inc.................................. 19,100 1,149,581
Associates First Capital Corp., Class A..................... 21,274 901,484
BB&T Corp................................................... 15,000 604,688
Chase Manhattan Corp........................................ 16,000 1,089,000
Citigroup, Inc.............................................. 23,250 1,150,875
CMAC Investment Corp........................................ 18,800 863,624
Enhance Financial Services Group, Inc....................... 19,000 570,000
Equitable Cos., Inc......................................... 21,000 1,215,375
Federal National Mortgage Assn.............................. 17,400 1,287,600
Fifth Third Bancorp......................................... 16,000 1,141,000
Firstar Corp................................................ 15,000 1,398,750
Fleet Financial Group, Inc.................................. 27,000 1,206,565
Nationwide Financial Services, Inc., Class A................ 8,500 439,344
UNUM Corp................................................... 10,000 583,750
Wells Fargo & Co............................................ 37,000 1,477,687
------------
15,079,323
------------
HEALTHCARE 13.8%
Abbott Laboratories, Inc.................................... 14,900 730,100
Amgen, Inc. (a)............................................. 12,000 1,254,750
Baxter International, Inc................................... 10,100 649,556
Becton, Dickinson & Co...................................... 16,200 691,538
Bristol Myers Squibb Co..................................... 18,200 2,435,388
Guidant Corp................................................ 10,900 1,201,725
HEALTHSOUTH Corp. (a)....................................... 49,900 770,331
Lincare Holdings, Inc. (a).................................. 25,200 1,022,175
Mylan Laboratories, Inc..................................... 22,800 718,200
Pfizer, Inc................................................. 4,200 526,837
Schering-Plough Corp........................................ 35,000 1,933,750
Tenet Healthcare Corp. (a).................................. 14,000 367,500
Total Renal Care Holdings, Inc. (a)......................... 33,691 995,990
Universal Health Services, Inc., Class B (a)................ 10,500 544,688
Warner-Lambert Co........................................... 13,000 977,438
Watson Pharmaceuticals, Inc. (a)............................ 20,400 1,282,650
Wellpoint Health Networks, Inc., Class A (a)................ 11,100 965,700
------------
17,068,316
------------
PRODUCER MANUFACTURING 6.1%
Republic Services, Inc., Class A (a)........................ 30,500 562,344
Textron, Inc................................................ 14,400 1,093,500
Tyco International Ltd...................................... 30,100 2,270,666
United Technologies Corp.................................... 11,900 1,294,125
Waste Management, Inc....................................... 49,800 2,321,925
------------
7,542,560
------------
</TABLE>
See Notes to Financial Statements
47
<PAGE> 49
ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 1.0%
Boise Cascade Corp.......................................... 20,000 $ 620,000
Georgia Pacific Corp........................................ 11,000 644,188
------------
1,264,188
------------
TECHNOLOGY 22.8%
3Com Corp. (a).............................................. 22,000 985,875
America Online, Inc. (a).................................... 18,000 2,605,500
Ascend Communications, Inc. (a)............................. 15,500 1,019,125
BMC Software, Inc. (a)...................................... 35,100 1,564,144
Cisco Systems, Inc. (a)..................................... 18,525 1,719,352
Citrix Systems, Inc. (a).................................... 10,950 1,062,834
Compaq Computer Corp........................................ 16,000 671,000
Compuware Corp. (a)......................................... 20,500 1,601,563
Comverse Technology, Inc. (a)............................... 9,400 667,400
Dell Computer Corp. (a)..................................... 9,000 658,688
EMC Corp. (a)............................................... 36,100 3,068,500
Intel Corp.................................................. 13,000 1,541,314
International Business Machines Corp........................ 12,800 2,364,800
Lucent Technologies, Inc.................................... 3,000 330,000
Microsoft Corp. (a)......................................... 9,100 1,262,056
Networks Associates, Inc. (a)............................... 25,950 1,719,187
Nokia Corp. -- ADR (Finland) (a)............................ 11,800 1,421,163
Oracle Corp. (a)............................................ 39,000 1,681,873
Sanmina Corp. (a)........................................... 13,000 812,500
Sterling Software, Inc. (a)................................. 28,600 773,988
Sun Microsystems, Inc. (a).................................. 4,000 342,500
Waters Corp. (a)............................................ 4,000 349,000
------------
28,222,362
------------
TRANSPORTATION 0.6%
Kansas City Southern Industries, Inc........................ 14,000 688,625
------------
UTILITIES 5.4%
AirTouch Communications, Inc. (a)........................... 19,000 1,370,375
ALLTEL Corp................................................. 32,000 1,914,000
PECO Energy Co.............................................. 13,000 541,125
SBC Communications, Inc..................................... 22,800 1,222,650
U.S. West, Inc.............................................. 13,000 840,125
Unicom Corp................................................. 19,000 732,687
------------
6,620,962
------------
TOTAL LONG-TERM INVESTMENTS 99.2%
(Cost $78,865,412).............................................. 122,581,357
REPURCHASE AGREEMENT 0.3%
SBC Warburg ($430,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold
on 01/04/99 at $430,227) (Cost $430,000).......................... 430,000
------------
TOTAL INVESTMENTS 99.5%
(Cost $79,295,412).............................................. 123,011,357
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%......................... 557,866
------------
NET ASSETS 100.0%.................................................. $123,569,223
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
See Notes to Financial Statements
48
<PAGE> 50
ENTERPRISE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $79,295,412)........................ $123,011,357
Cash........................................................ 4,115
Receivables:
Investments Sold.......................................... 1,125,654
Dividends................................................. 93,067
Portfolio Shares Sold..................................... 29,638
Other....................................................... 47,870
------------
Total Assets.......................................... 124,311,701
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 362,456
Portfolio Shares Repurchased.............................. 175,206
Investment Advisory Fee................................... 51,248
Distributor and Affiliates................................ 8,040
Trustees' Deferred Compensation and Retirement Plans........ 114,612
Accrued Expenses............................................ 30,916
------------
Total Liabilities..................................... 742,478
------------
NET ASSETS.................................................. $123,569,223
============
NET ASSETS CONSIST OF:
Capital..................................................... $ 70,347,091
Net Unrealized Appreciation................................. 43,715,945
Accumulated Net Realized Gain............................... 9,181,578
Accumulated Undistributed Net Investment Income............. 324,609
------------
NET ASSETS.................................................. $123,569,223
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $123,569,223 and 5,518,824 shares
of beneficial interest issued and outstanding)............ $ 22.39
============
</TABLE>
See Notes to Financial Statements
49
<PAGE> 51
ENTERPRISE PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 891,547
Interest.................................................... 135,781
-----------
Total Income............................................ 1,027,328
-----------
EXPENSES:
Investment Advisory Fee..................................... 539,143
Accounting.................................................. 42,834
Trustees' Fees and Expenses................................. 16,681
Custody..................................................... 15,780
Legal....................................................... 1,768
Other....................................................... 71,771
-----------
Total Expenses.......................................... 687,977
Less Fees Waived........................................ 40,178
-----------
Net Expenses............................................ 647,799
-----------
NET INVESTMENT INCOME....................................... $ 379,529
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 9,559,452
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 29,318,035
End of the Period......................................... 43,715,945
-----------
Net Unrealized Appreciation During the Period............... 14,397,910
-----------
NET REALIZED AND UNREALIZED GAIN............................ $23,957,362
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $24,336,891
===========
</TABLE>
See Notes to Financial Statements
50
<PAGE> 52
ENTERPRISE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 379,529 $ 435,176
Net Realized Gain........................................... 9,559,452 13,400,141
Net Unrealized Appreciation During the Period............... 14,397,910 10,261,053
------------ -----------
Change in Net Assets from Operations........................ 24,336,891 24,096,370
------------ -----------
Distributions from Net Investment Income.................... (92,265) (457,271)
Distributions from Net Realized Gain........................ (1,126,323) (13,668,548)
------------ -----------
Total Distributions......................................... (1,218,588) (14,125,819)
------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 23,118,303 9,970,551
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 23,512,376 16,421,893
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 1,218,588 14,125,818
Cost of Shares Repurchased.................................. (22,994,120) (26,609,356)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 1,736,844 3,938,355
------------ -----------
TOTAL INCREASE IN NET ASSETS................................ 24,855,147 13,908,906
NET ASSETS:
Beginning of the Period..................................... 98,714,076 84,805,170
------------ -----------
End of the Period (Including accumulated undistributed net
investment income of $324,609 and $37,345,
respectively)............................................. $123,569,223 $98,714,076
============ ===========
</TABLE>
See Notes to Financial Statements
51
<PAGE> 53
ENTERPRISE PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the
Portfolio
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $18.106 $16.262 $ 14.69 $ 12.39 $ 14.57
------- ------- ------- ------- -------
Net Investment Income..................................... .069 .091 .113 .32 .25
Net Realized and Unrealized Gain/Loss..................... 4.441 4.734 3.417 4.22 (.7625)
------- ------- ------- ------- -------
Total from Investment Operations............................ 4.510 4.825 3.530 4.54 (.5125)
------- ------- ------- ------- -------
Less:
Distributions from Net Investment Income.................. .017 .096 .109 .3175 .25
Distributions from Net Realized Gain...................... .209 2.885 1.849 1.9225 1.4175
------- ------- ------- ------- -------
Total Distributions......................................... .226 2.981 1.958 2.24 1.6675
------- ------- ------- ------- -------
Net Asset Value, End of the Period.......................... $22.390 $18.106 $16.262 $ 14.69 $ 12.39
======= ======= ======= ======= =======
Total Return*............................................... 25.00% 30.66% 24.80% 36.98% (3.39%)
Net Assets at End of the Period (In millions)............... $123.6 $98.7 $84.8 $76.0 $67.5
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... .35% .47% .68% 2.06% 1.72%
Portfolio Turnover.......................................... 82% 82% 152% 145% 153%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .64% .66% .75% .68% .68%
Ratio of Net Investment Income to Average Net Assets........ .31% .41% .53% 1.98% 1.64%
</TABLE>
See Notes to Financial Statements
52
<PAGE> 54
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
GLOBAL EQUITY PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 21.61%
Three-year average annual total return based on NAV(1)...... 18.03%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 16.30%
Commencement date........................................... 07/03/95
</TABLE>
(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.
See the Prior Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Portfolio shares may decline.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. Portfolio shares,
when redeemed, may be worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
53
<PAGE> 55
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
GLOBAL EQUITY PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Morgan Stanley Capital International (MSCI) World Index + Dividends over time.
This index is a broad-based, statistical composite that does not include any
commissions that would be paid by an investor purchasing the securities it
represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Global Equity Portfolio vs. the Morgan
Stanley Capital International (MSCI) World Index + Dividends (July 3, 1995
through December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LIT-GLOBAL EQUITY
PORTFOLIO MSCI WORLD INDEX + DIVIDENDS
---------------------------- ----------------------------
<S> <C> <C>
Jul 1995 10000 10000
10230 10502
10140 10270
10280 10571
9950 10407
10160 10770
Dec 1995 10310 11087
10470 11290
10720 11360
10930 11552
11420 11825
11560 11838
Jun 1996 11520 11900
11030 11481
11350 11615
11610 12072
11590 12159
12060 12842
Dec 1996 12034 12639
12488 12793
12674 12943
12501 12689
12741 13106
13492 13917
Jun 1997 14129 14614
14724 15289
13555 14268
14244 15046
13419 14256
13691 14511
Dec 1997 13941 14690
14360 15101
15108 16125
15914 16809
16107 16976
15966 16765
Jun 1998 16299 17166
16441 17141
14233 14857
14503 15123
15414 16492
16274 17476
Dec 1998 16954 18332
</TABLE>
The above chart reflects the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
54
<PAGE> 56
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, MSDW Investment Management.
Q
HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE PORTFOLIO
OPERATED DURING THE 12-MONTH PERIOD ENDED DECEMBER 31, 1998?
A
The first six months of the reporting period were characterized by strong
growth, falling interest rates, and low inflation in Europe and the United
States. As a result, stock markets in both regions generated impressive
first half gains. In contrast, Asia was plagued by economic, social, and
political turmoil, which pushed its stocks toward 12-month lows.
During the third quarter continued economic weakness in Asia and in the
Japanese banking system, spread to Russia and Latin America, and there were
warning signs that Asia's problems were beginning to affect Europe and the
United States. With turmoil in the emerging markets and a crisis of confidence
in U.S. and European markets, many investors moved out of stocks into
high-quality, government bonds, primarily those issued by the United States and
Germany.
Paced by the Federal Reserve Board and the approaching European economic and
monetary union, banks worldwide lowered interest rates during the fourth
quarter. The interest rate cuts renewed investor confidence and helped revive
stock markets in Europe and the United States, and some Asian markets began to
rebound.
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 12 months earlier:
<TABLE>
<CAPTION>
CHANGE IN
DECEMBER 31, 1998* DECEMBER 31, 1997* PERCENTAGE
------------------ ------------------ ----------
<S> <C> <C> <C>
North America ............ 50.6% ...... 47.4% ...... 3.2%
Europe ................... 37.5% ...... 33.2% ...... 4.3%
Far East ................. 9.8% ...... 13.2% ...... -3.4%
Other .................... 2.1% ...... 6.2% ...... -4.1%
</TABLE>
* As a percentage of long-term investments.
During the first half of the period, we increased our exposure to Europe in
anticipation of monetary union with its long-term benefits, including improved
fiscal discipline, and the prospect for higher business growth, and consumer
confidence. In July, we saw signs of economic slowdown, particularly in Germany,
and we significantly reduced our positions in Europe in favor of cash. We held a
substantial cash position throughout the summer, which benefited the Portfolio
as global markets stumbled mainly due to troubles in Asia and Russia.
Our positions in Italy, Spain, and Portugal helped the Portfolio's
performance as stock market liquidity improved when short-term interest rates in
those countries fell from more than five percent to three percent. At the same
time, interest rates remained high in most countries not participating in the
monetary union.
In the United States, we remained underweight to our benchmark because of
concerns about overpriced stock valuations and potential deceleration in
corporate profit growth. Despite a mid-year slump, however, the U.S. market
rallied strongly in the fourth quarter to a record high.
Through September, the Portfolio was significantly underweight in Asia and
Japan because of the economic malaise of that region. In October, we felt that
Asia's economic, stock market, and sentiment cycles had reached the opposite end
of the spectrum compared to the euphoria and strength of the United States. As a
result, we increased our exposure to Japan, Hong Kong, and Singapore.
55
<PAGE> 57
Q
HOW HAS THE PORTFOLIO PERFORMED DURING THE REPORTING PERIOD?
A
The Portfolio's total return during the 12 months ended December 31, 1998
was 21.61 percent(1). During the same period, the Morgan Stanley Capital
International (MSCI) World Index + Dividends returned 24.80 percent. The
MSCI World Index + Dividends 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 53 for additional Portfolio
performance results.
Q
WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A
Going forward, we are apprehensive about the current valuation levels of
global equity markets, particularly in the United States and Europe. We
believe consensus double-digit earnings expectations for 1999 in these
regions are too optimistic, and we are concerned that actual earnings will be
unable to support such lofty valuations.
Although the European market fell off sharply during the second half of the
period, we are not convinced there is value in Europe especially with optimistic
double-digit earnings forecasts. We do, however, believe in the long-term
positive effects of corporate restructuring and focus on shareholder value. We
continue to monitor economic data, such as unemployment, manufacturing
production, and export figures.
In Asia, we will look for signs that the economic crisis has ended. We have
begun to see currencies strengthen, interest rates fall, and corporate
cost-cutting accelerate. If this is the case, we expect the stock market and
corporate earnings to lead this recovery.
/s/ Barton M. Biggs
- -------------------------
Barton M. Biggs
Portfolio Manager
Global Equity Portfolio
/s/ Ann D. Thivierge
- -------------------------
Ann D. Thivierge
Portfolio Manager
Global Equity Portfolio
Please see footnotes on page 53
56
<PAGE> 58
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.0%
AUSTRALIA 1.6%
Orica Ltd................................................... 2,001 $ 10,410
Pacific Dunlop Ltd.......................................... 8,200 13,266
Rio Tinto Ltd............................................... 2,600 30,837
----------
54,513
----------
AUSTRIA (C) 0.6%
OMV, AG..................................................... 200 18,849
----------
BELGIUM (C) 3.5%
Almanij..................................................... 1,414 118,617
Almanij Na-Strip............................................ 14 1
----------
118,618
----------
BRAZIL 0.1%
Centrais Eletricas Brasileiras SA Electrobras - ADR......... 340 2,894
Centrais Geradoras Do Sul Do Brasil, SA - ADR (a)........... 34 222
----------
3,116
----------
CANADA 2.7%
Barrick Gold Corp........................................... 100 1,950
Enbridge, Inc............................................... 1,500 69,185
Northern Telecom Ltd........................................ 400 20,046
Placer Dome, Inc............................................ 100 1,148
----------
92,329
----------
DENMARK 0.4%
Novo Nordisk A/S, Ser B..................................... 100 13,199
----------
FRANCE (C) 3.5%
Alcatel Alsthom (Cie Gen El)................................ 165 20,186
Axa-UAP..................................................... 230 33,321
Compagnie de Saint Gobain................................... 148 20,886
Elf Aquitaine............................................... 150 17,331
LVMH (Moet Hennessy Louis Vuitton).......................... 55 10,880
Total, Class B.............................................. 135 13,667
----------
116,271
----------
GERMANY (C) 5.4%
Allianz, AG................................................. 102 37,395
BASF, AG.................................................... 250 9,540
Bayer, AG................................................... 200 8,346
DaimlerChrysler AG (a)...................................... 251 24,775
Degussa, AG................................................. 50 2,747
Deutsche Bank, AG........................................... 400 23,533
Deutsche Telekom, AG........................................ 550 18,085
Linde....................................................... 50 30,751
Siemens, AG................................................. 200 12,901
VEBA, AG.................................................... 200 11,964
----------
180,037
----------
ITALY (C) 2.5%
Ente Nazionale Idrocarburi, SpA............................. 2,000 13,064
Fiat, SpA................................................... 4,000 13,886
Instituto Nazionale delle Assicurazioni (INA)............... 12,000 31,679
Telecom Italia.............................................. 2,500 18,446
Telecom Italia Spa.......................................... 2 17
Unione Immobiliare (a)...................................... 12,000 6,256
----------
83,348
----------
</TABLE>
See Notes to Financial Statements
57
<PAGE> 59
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
JAPAN 8.1%
Acom Co., Ltd............................................... 200 $ 12,844
Bank of Tokyo............................................... 600 6,210
Daiwa Securities............................................ 1,000 3,414
East Japan Railway.......................................... 1 5,582
Hitachi..................................................... 1,000 6,192
Honda Motor Co.............................................. 1,000 32,817
Japan Air Lines Co.......................................... 1,000 2,636
Japan Energy Corp........................................... 3,000 2,839
Kao Corp.................................................... 1,000 22,556
Kawasaki Heavy Industries................................... 1,000 2,344
Kawasaki Steel Corp......................................... 2,000 2,990
Komatsu..................................................... 1,000 5,245
Kyocera Corp................................................ 100 5,281
Matsushita Electric Industries.............................. 1,000 17,682
Mitsubishi Electric Corp.................................... 2,000 6,280
Mitsubishi Estate........................................... 1,000 8,961
Nagoya Railroad Co.......................................... 3,000 10,880
NEC Corp.................................................... 1,000 9,200
Nippon Steel Corp........................................... 1,000 1,813
Nippon Telegraph & Telephone Corp........................... 3 23,140
Nippon Yusen Kabushiki Kaisha............................... 2,000 6,316
Nissan Motor Co............................................. 1,000 3,061
NSK Ltd..................................................... 1,000 3,733
Oji Paper Co................................................ 1,000 5,192
Sekisui House............................................... 1,000 10,571
Sharp Corp.................................................. 1,000 9,014
Teijin...................................................... 1,000 3,680
Tobu Railway Co............................................. 1,000 2,919
Toppan Printing Co.......................................... 1,000 12,207
Toyota Motor Corp........................................... 1,000 27,156
----------
272,755
----------
MALAYSIA 0.1%
RHB Capital Berhard......................................... 9,000 3,514
----------
MEXICO 1.3%
Telefonos De Mexico SA, Ser L............................... 18,000 44,332
----------
NETHERLANDS (C) 2.5%
ABN Amro Holdings........................................... 643 13,519
Akzo Nobel.................................................. 400 18,204
Elsevier.................................................... 700 9,800
Koninklijke Ahold NV........................................ 532 19,652
Wolters Kluwer.............................................. 102 21,815
----------
82,990
----------
REPUBLIC OF KOREA 0.3%
Korea Electric Power Corp. - ADR............................ 307 4,816
Pohang Iron & Steel Co., Ltd. - ADR......................... 317 5,349
----------
10,165
----------
SINGAPORE 1.1%
Singapore Telecommunications................................ 24,000 36,632
----------
</TABLE>
See Notes to Financial Statements
58
<PAGE> 60
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA 0.3%
De Beers Cons Mines Ltd. - ADR.............................. 500 $ 6,375
Sasol Ltd. - ADR............................................ 1,126 4,504
----------
10,879
----------
SPAIN (C) 2.0%
Endesa, SA.................................................. 300 7,937
Repsol, SA.................................................. 400 21,306
Telefonica De Espana........................................ 872 38,716
Telefonica SA, Common Rights Callable Through 01/30/99...... 872 773
----------
68,732
----------
SWEDEN 0.7%
Astra, AB, Ser A............................................ 200 4,074
Ericsson Telefon LM, Ser B.................................. 800 19,003
----------
23,077
----------
SWITZERLAND 3.5%
Credit Suisse Group......................................... 200 31,303
Nestle, SA.................................................. 10 21,766
Novartis, AG................................................ 20 39,310
Roche Holdings Genusscheine, AG............................. 2 24,401
----------
116,780
----------
UNITED KINGDOM 10.2%
Allied Zurich (a)........................................... 850 12,773
Barclays.................................................... 1,000 21,681
Bass........................................................ 1,160 16,786
British America Tobacco..................................... 850 7,485
British Petroleum........................................... 1,153 17,164
British Telecommunications.................................. 2,400 36,325
BTR......................................................... 2,356 4,834
Burmah Castrol.............................................. 700 10,002
Carlton Communications...................................... 2,500 23,010
Glaxo Wellcome.............................................. 1,000 34,424
HSBC Holdings............................................... 400 11,018
HSBC Holdings - ADR......................................... 700 17,736
Lloyds TSB Group............................................ 2,100 29,900
Marks & Spencer............................................. 1,200 8,254
Rank Group.................................................. 2,486 9,502
Scot & Newcastle............................................ 2,100 24,423
Smithkline Beecham.......................................... 2,000 27,719
Smiths Industries........................................... 1,000 14,338
Zeneca Group................................................ 300 13,069
----------
340,443
----------
UNITED STATES 45.6%
Abbott Laboratories, Inc. (b)............................... 600 29,400
Aluminum Co. of America..................................... 200 14,913
American Express Co......................................... 200 20,450
American Home Products Corp................................. 600 33,787
American International Group, Inc........................... 300 28,987
Amoco Corp.................................................. 400 23,600
AT&T Corp. (b).............................................. 500 37,625
BankAmerica Corp............................................ 300 18,038
BellSouth Corp., Common Rights Callable Through 12/11/99.... 800 39,900
Boeing Co................................................... 100 3,263
</TABLE>
See Notes to Financial Statements
59
<PAGE> 61
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Bristol-Myers Squibb Co. (b)................................ 300 $ 40,144
Chevron Corp................................................ 300 24,881
Cisco Systems, Inc. (a)..................................... 450 41,766
Citigroup, Inc.............................................. 500 24,750
Coca Cola Co. (b)........................................... 700 46,812
Columbia / HCA Healthcare Corp.............................. 300 7,425
Dominion Resources, Inc..................................... 700 32,725
Dow Chemical Co............................................. 200 18,188
Du Pont (E. I.) de Nemours & Co............................. 200 10,613
Eastman Kodak Co............................................ 200 14,400
Federal National Mortgage Assn.............................. 300 22,200
First Data Corp............................................. 400 12,675
FPL Group, Inc.............................................. 400 24,650
General Electric Co......................................... 300 30,619
General Motors Corp......................................... 300 21,469
Gillette Co................................................. 400 19,325
Hewlett Packard Co.......................................... 300 20,494
Home Depot, Inc............................................. 500 30,594
Illinois Tool Works, Inc.................................... 200 11,600
Intel Corp.................................................. 200 23,712
International Business Machines Corp........................ 200 36,950
International Paper Co...................................... 300 13,444
J.C. Penney, Inc............................................ 300 14,063
Johnson & Johnson, Inc...................................... 300 25,162
JP Morgan & Co., Inc. (b)................................... 300 31,519
Kimberly Clark Corp......................................... 300 16,350
Lilly Eli & Co.............................................. 300 26,662
Lucent Technologies, Inc. (b)............................... 600 66,000
McDonald's Corp. (b)........................................ 400 30,650
MCI Worldcom, Inc. (a)...................................... 700 50,225
Meritor Automotive, Inc..................................... 100 2,119
Microsoft Corp. (a) (b)..................................... 600 83,212
Minnesota Mining & Manufacturing Co......................... 300 21,337
Mobil Corp.................................................. 200 17,425
Motorola, Inc............................................... 200 12,213
Oracle Corp. (a)............................................ 250 10,781
PacifiCorp.................................................. 1,000 21,063
Pfizer, Inc................................................. 200 25,087
Procter & Gamble Co. (b).................................... 300 27,394
Raytheon Co., Class A....................................... 25 1,292
Rockwell International Corp................................. 300 14,569
SBC Communications, Inc. (b)................................ 800 42,900
Schering-Plough Corp........................................ 400 22,100
Sears Roebuck & Co.......................................... 300 12,750
Time Warner, Inc............................................ 600 37,237
Warner-Lambert Co........................................... 600 45,112
</TABLE>
See Notes to Financial Statements
60
<PAGE> 62
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Wells Fargo & Co. (a) (b)................................... 1,000 $ 39,937
Weyerhaeuser Co............................................. 300 15,244
Xerox Corp. (b)............................................. 300 35,400
----------
1,527,202
----------
TOTAL COMMON STOCKS 96.0%.......................................... 3,217,781
PREFERRED STOCK 2.2%
FINLAND 2.2%
Nokia (Ab) Oy, Ser A - ADR (a).............................. 600 72,956
----------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $2,409,431)................................................. 3,290,737
REPURCHASE AGREEMENT 3.5%
State Street Bank & Trust Co. ($117,000 par, collateralized by
U.S. Government obligations in a pooled cash account, dated
12/31/98, to be sold on 01/04/99 at $117,052)
(Cost $117,000)................................................... 117,000
----------
TOTAL INVESTMENTS 101.7%
(Cost $2,526,431)................................................. 3,407,737
LIABILITIES IN EXCESS OF OTHER ASSETS (1.7%)....................... (56,858)
----------
NET ASSETS 100.0%.................................................. $3,350,879
==========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated for open forward currency contracts.
(c) European assets as of December 31, 1998 were valued based on
country-specific currencies. On January 1, 1999, the currencies of countries
participating in the European economic and monetary union converted to the
euro.
See Notes to Financial Statements
61
<PAGE> 63
GLOBAL EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,526,431)......................... $ 3,407,737
Cash........................................................ 369
Foreign Currency (Cost $117)................................ 117
Receivables:
Portfolio Shares Sold..................................... 8,313
Expense Reimbursement by Adviser.......................... 8,264
Dividends................................................. 5,912
Interest.................................................. 13
Unamortized Organizational Costs............................ 2,039
-----------
Total Assets.......................................... 3,432,764
-----------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 6,213
Portfolio Shares Repurchased.............................. 767
Forward Currency Contracts.................................. 1,176
Accrued Expenses............................................ 46,152
Trustees' Deferred Compensation and Retirement Plans........ 27,577
-----------
Total Liabilities....................................... 81,885
-----------
NET ASSETS.................................................. $ 3,350,879
===========
NET ASSETS CONSIST OF:
Capital..................................................... $ 2,502,119
Net Unrealized Appreciation................................. 880,273
Accumulated Distributions in Excess of Net Realized Gain.... (6,919)
Accumulated Distributions in Excess of Net Investment
Income.................................................... (24,594)
-----------
NET ASSETS.................................................. $ 3,350,879
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $3,350,879 and 253,694 shares of
beneficial interest issued and outstanding)............... $ 13.21
===========
</TABLE>
See Notes to Financial Statements
62
<PAGE> 64
GLOBAL EQUITY PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $4,666)...... $ 54,889
Interest.................................................... 8,136
Other....................................................... 493
--------
Total Income............................................ 63,518
--------
EXPENSES:
Custody..................................................... 62,330
Accounting.................................................. 38,069
Investment Advisory Fee..................................... 32,086
Audit....................................................... 19,365
Shareholder Reports......................................... 17,155
Shareholder Services........................................ 14,743
Trustees' Fees and Expenses................................. 11,883
Amortization of Organizational Costs........................ 1,365
Other....................................................... 3,561
--------
Total Expenses.......................................... 200,557
Less Fees Waived and Expenses Reimbursed ($32,086 and
$130,093, respectively)................................ 162,179
--------
Net Expenses............................................ 38,378
--------
NET INVESTMENT INCOME....................................... $ 25,140
========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain/Loss:
Investments............................................... $ 14,465
Forward Currency Contracts................................ 2,778
--------
Net Realized Gain........................................... 17,243
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 307,950
--------
End of the Period:
Investments............................................. 881,306
Forward Currency Contracts.............................. (1,176)
Foreign Currency Translation............................ 143
--------
880,273
--------
Net Unrealized Appreciation During the Period............... 572,323
--------
NET REALIZED AND UNREALIZED GAIN............................ $589,566
========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $614,706
========
</TABLE>
See Notes to Financial Statements
63
<PAGE> 65
GLOBAL EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 25,140 $ 23,933
Net Realized Gain........................................... 17,243 508,690
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 572,323 (88,784)
----------- -----------
Change in Net Assets from Operations........................ 614,706 443,839
----------- -----------
Distributions from Net Investment Income.................... (25,140) (23,933)
Distributions in Excess of Net Investment Income............ (12,870) (1,351)
----------- -----------
Distributions from and in Excess of Net Investment Income... (38,010) (25,284)
----------- -----------
Distributions from Net Realized Gain........................ -0- (536,409)
Distributions in Excess of Net Realized Gain................ -0- (24,805)
----------- -----------
Distributions from and in Excess of Net Realized Gain....... -0- (561,214)
----------- -----------
Total Distributions......................................... (38,010) (586,498)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 576,696 (142,659)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 782,393 1,501,991
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 24,409 352,262
Cost of Shares Repurchased.................................. (1,006,628) (1,254,609)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (199,826) 599,644
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 376,870 456,985
NET ASSETS:
Beginning of the Period..................................... 2,974,009 2,517,024
----------- -----------
End of the Period (Including accumulated distributions in
excess of net investment income of $24,594 and $14,504,
respectively)............................................. $ 3,350,879 $ 2,974,009
=========== ===========
</TABLE>
See Notes to Financial Statements
64
<PAGE> 66
GLOBAL EQUITY PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year Ended December 31, of Investment
--------------------------- Operations) to
1998 1997 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $11.004 $11.658 $10.30 $ 10.00
------- ------- ------- -------
Net Investment Income/Loss................................ .089 .110 .035 (.16)
Net Realized and Unrealized Gain.......................... 2.258 1.696 1.687 .46
------- ------- ------- -------
Total from Investment Operations............................ 2.347 1.806 1.722 .30
------- ------- ------- -------
Less:
Distributions from and in Excess of Net Investment
Income.................................................. .143 .106 .188 -0-
Distributions from and in Excess of Net Realized Gain..... -0- 2.354 .176 -0-
------- ------- ------- -------
Total Distributions......................................... .143 2.460 .364 -0-
------- ------- ------- -------
Net Asset Value, End of the Period.......................... $13.208 $11.004 $11.658 $ 10.30
======= ======= ======= =======
Total Return*............................................... 21.61% 15.85% 16.72% 3.00%**
Net Assets at End of the Period (In millions)............... $3.4 $3.0 $2.5 $ 2.4
Ratio of Expenses to Average Net Assets*.................... 1.20% 1.20% 1.20% 4.35%
Ratio of Net Investment Income/Loss to Average Net
Assets*................................................... 0.79% .76% .27% (2.76%)
Portfolio Turnover.......................................... 3% 132% 94% 42%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 6.27% 6.78% 7.43% 8.27%
Ratio of Net Investment Loss to Average Net Assets.......... (4.28%) (4.82%) (5.96%) (6.68%)
</TABLE>
** Non-Annualized
See Notes to Financial Statements
65
<PAGE> 67
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
GOVERNMENT PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 8.59%
Five-year average annual total return based on NAV(1)....... 6.32%
Ten-year average annual total return based on NAV(1)........ 8.35%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 7.22%
Commencement date........................................... 04/07/86
YIELD
SEC Yield(2)................................................ 5.37%
</TABLE>
(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)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 December 31, 1998.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. U.S. Government securities are backed by the
full faith and credit of the U.S. Government, its agencies or instrumentalities.
The government backing applies only to the timely payment of principal and
interest when due, on specific securities in the Portfolio, not to shares of the
Portfolio. Portfolio shares when redeemed, may be worth more or less than their
original cost. The value of debt securities will fluctuate with changes in
market conditions and interest rates, which will effect the value of Portfolio
shares. Securities which are issued by private issuers involve greater risk than
those issued directly by the U.S. Government.
Market forecasts provided in this report may not necessarily come to pass.
66
<PAGE> 68
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
GOVERNMENT PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
the opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Lehman Brothers Mutual Fund Government/Mortgage Index over time. This index is a
broad-based, statistical composite that does not include any commissions that
would be paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Government Portfolio vs. the Lehman
Brothers Mutual Fund Government/ Mortgage Index (December 31, 1988 through
December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LIT-GOVERNMENT LEHMAN BROTHERS MUTUAL FUND
PORTFOLIO GOVERNMENT/MORTGAGE INDEX
------------------------- ---------------------------
<S> <C> <C>
Dec 1988 10000 10000
10124 10142.2
10047 10065.7
10112 10111.8
10324 10324.2
10585 10593
10934 10916.2
11212 11151.8
10957 10978.5
11001 11035.8
11310 11310.4
11418 11424.5
Dec 1989 11431 11460
11216 11326
11236 11363.9
11243 11372.2
11130 11271.4
11444 11598.1
11600 11781.3
11770 11951
11667 11798.8
11757 11906.2
11903 12079.3
12176 12342.3
Dec 1990 12381 12539.1
12559 12693
12652 12777.3
12717 12850.1
12841 12983.2
12936 13056.4
12925 13048.9
13122 13227.3
13392 13510.4
13663 13783
13864 13942.8
13941 14068.1
Dec 1991 14391 14477.4
14147 14272.4
14264 14356.9
14197 14270.3
14260 14378.2
14523 14641.2
14682 14837.5
14863 15123.6
15029 15284.6
15131 15465.8
14976 15274.3
15017 15274.3
Dec 1992 15216 15510
15449 15794
15684 16053.8
15743 16123.1
15878 16232.4
15895 16254
16148 16529.2
16200 16617.8
16390 16885
16391 16932.3
16451 16990.9
16328 16858.3
Dec 1993 16412 16948.4
16629 17158.2
16295 16878.7
15759 16478.3
15601 16351.6
15579 16360.6
15533 16323.6
15803 16633
15812 16653.2
15595 16417.9
15553 16406.8
15497 16369.2
Dec 1994 15652 16479.7
15974 16802.4
16387 17187.3
16430 17285.6
16661 17518.3
17184 18170.8
17242 18297.9
17217 18264.4
17404 18470
17558 18642.5
17782 18885.6
18077 19153.1
Dec 1995 18339 19413.3
18445 19542.1
18094 19226.5
17930 19098.2
17781 19000.8
17719 18960.5
17943 19211.2
17969 19266.9
17921 19239.5
18212 19559.9
18611 19973.2
18970 20298.1
Dec 1996 18728 20128
18766 20196.7
18798 20238.9
18569 20033.5
18843 20333.6
19031 20517.6
19286 20751.1
19833 21266.5
19620 21115.3
19925 21414.1
20231 21734.9
20310 21831.2
Dec 1997 20528 22048.2
20862 22337
20781 22316.9
20827 22392.8
20897 22502.5
21106 22702.8
21292 22902.6
21339 22966.7
21827 23412.2
22478 23906.2
22292 23844.1
22268 23896.5
Dec 1998 22292 23968.2
</TABLE>
The above chart reflects the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
67
<PAGE> 69
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
THE REPORTING PERIOD?
A
A lingering cloud of global volatility was the primary background for the
domestic fixed-income market. Economic weakness in Asia spilled into other
economies, including Russia and South America, during the third quarter.
This environment further fueled the flight to quality that emerged in the first
half of the year. As investors flocked to the relative safety of U.S. Treasury
securities, the yield for the benchmark 10-year Treasury dropped below its
second-quarter trading range of 5.50 percent.
The biggest boost for the bond market came late in the third quarter and
early in the fourth quarter, when the market was inspired by a string of
interest rate cuts by the Federal Reserve Board. By year end, the yield for the
10-year Treasury bond--which, like all bond yields, moves in the opposite
direction of its price--had fallen to 4.65 percent, near a record low.
The Treasury bond rally worked to the disadvantage of mortgage-backed and
credit-sensitive securities, including corporate bonds and high-yield
securities. In contrast to the first half of 1998, investors largely steered
clear of this group despite the lure of higher yields. In addition, the falling
interest-rate environment made mortgage-backed securities especially vulnerable
to rising prepayment rates. As investor skepticism about mortgage-backed
securities mounted, the yield spread between Treasury securities and
mortgage-backed securities widened dramatically.
Q
HOW DID THESE CONDITIONS AFFECT YOUR MANAGEMENT OF THE PORTFOLIO?
A
Given the relatively high prices of mortgage-backed securities compared to
Treasuries, we reduced our exposure to mortgage-backed securities at the
beginning of the third quarter. We shifted the proceeds into long-term
Treasury securities, which performed very well. Throughout much of the fourth
quarter, we held the portfolio steady until we decided to purchase additional
mortgage-backed securities at what we believed to be very attractive prices. Of
these, our purchases were primarily GNMAs with 6.5 and 7 percent coupon rates.
These securities tend to have a decreased prepayment risk in a low interest rate
environment such as this one. At the end of the reporting period, approximately
60 percent of the portfolio was invested in mortgage-backed investments, with
the remainder in Treasury securities.
Although we reduced the portfolio's duration to more neutral levels during
the third quarter, our renewed focus on mortgage-backed securities near the end
of the reporting period caused the duration to rise once again. As of December
31, 1998, the duration was 4.5 years, which reflects our slightly bullish
perspective on the direction of interest rates and the Treasury market.
Q
HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A
For the 12-month period ended December 31, 1998, the Government Portfolio
generated a total return of 8.59 percent.(1) By comparison, the Lehman
Brothers Mutual Fund U.S. Government/Mortgage Index posted a total return
of 8.72 percent for the same period. This broad-based, unmanaged index reflects
the general performance of U.S. government and mortgage-backed securities.
Please keep in mind that 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 66.
68
<PAGE> 70
Q
WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A
We expect that the U.S. economy will slow in 1999 due to a combination of
factors, including difficulties in many foreign economies, slowing
consumer spending and corporate profits, and the Year 2000 computer
problem. We also expect inflation to remain low--in the 2.0 percent range.
However, a full-fledged recession seems unlikely at this time. The fundamentals
underpinning the U.S. bond market are as healthy as at any time in recent
memory, and we expect the market to remain strong in the months ahead.
With this in mind, we expect to operate the Portfolio in a market that's
conducive for mortgage-backed securities. As such, we will judiciously monitor
the portfolio's exposure to mortgage-backed securities with an eye toward the
risk of increased prepayments. In addition to maintaining an average to somewhat
long duration, we intend to also continue to hold longer-term Treasury
securities and lower coupon holdings with a focus on 15-year paper and GNMAs.
/s/ John R. Reynoldson
- ------------------------
John R. Reynoldson
Portfolio Manager
Government Portfolio
/s/ Peter W. Hegel
- ------------------------
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 66
69
<PAGE> 71
GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATED GOVERNMENT AGENCY OBLIGATIONS 55.7%
$2,000 Federal Farm Credit Bank Medium Term Note (a)............... 6.520% 09/24/07 $ 2,166,220
1,215 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 7.000 05/01/24 to 07/01/24 1,240,417
180 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 7.500 10/01/24 184,877
219 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 8.000 09/01/24 to 10/01/24 226,610
1,230 Federal Home Loan Mortgage Corp. CMO Floater (a)............ 5.838 09/15/27 1,232,551
1,108 Federal Home Loan Mortgage Corp. CMO Floater (a)............ 5.844 09/15/23 1,105,461
125 Federal Home Loan Mortgage Corp. CMO Floater................ 6.088 11/15/18 124,648
1,440 Federal National Mortgage Association 15 Year Dwarf Pools... 6.500 06/01/09 to 04/01/11 1,460,765
1,406 Federal National Mortgage Association 15 Year Dwarf Pools... 7.000 07/01/10 to 12/01/11 1,436,391
1,953 Federal National Mortgage Association 30 Year Pools......... 6.000 03/01/28 to 04/01/28 1,928,312
1,005 Federal National Mortgage Association Pools................. 6.000 09/01/28 to 10/01/28 992,979
4,690 Federal National Mortgage Association Pools (a)............. 6.500 03/01/26 to 06/01/28 4,722,913
1,257 Federal National Mortgage Association Pools................. 7.000 12/01/23 to 06/01/24 1,283,207
292 Federal National Mortgage Association Pools................. 7.500 05/01/24 to 10/01/24 300,497
341 Federal National Mortgage Association Pools................. 8.000 06/01/24 to 10/01/24 353,759
638 Federal National Mortgage Association Pools................. 11.000 11/01/20 719,022
1,993 Government National Mortgage Association Pools (a).......... 6.500 02/15/26 to 06/15/28 2,013,063
7,416 Government National Mortgage Association Pools (a).......... 7.000 04/15/23 to 9/15/28 7,585,320
1,282 Government National Mortgage Association Pools.............. 7.500 04/15/22 to 06/15/24 1,322,951
304 Government National Mortgage Association Pools.............. 8.000 5/15/17 to 01/15/23 316,637
297 Government National Mortgage Association Pools.............. 8.500 04/15/17 to 07/15/17 317,628
601 Government National Mortgage Association Pools.............. 9.500 06/15/09 to 10/15/09 650,306
76 Government National Mortgage Association Pools.............. 11.000 09/15/10 to 08/15/20 86,076
------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS........................................... 31,770,610
------------
UNITED STATES TREASURY OBLIGATIONS 39.7%
2,000 United States Treasury Bonds (a)............................ 6.000 02/15/26 2,182,120
2,000 United States Treasury Notes (a)............................ 5.375 06/30/03 2,058,780
1,000 United States Treasury Notes (a)............................ 5.500 02/15/08 1,059,290
4,500 United States Treasury Notes (a)............................ 5.625 02/15/06 4,748,081
7,000 United States Treasury Notes (a)............................ 5.750 10/31/00 to 08/15/03 7,191,210
1,000 United States Treasury Notes (a)............................ 6.250 02/28/02 1,046,330
4,000 United States Treasury Notes (a)............................ 7.500 05/15/02 4,348,880
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS.................................................... 22,634,691
------------
</TABLE>
See Notes to Financial Statements
70
<PAGE> 72
GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FORWARD PURCHASE COMMITMENTS 24.9%
$2,000 Federal National Mortgage Association, February Forward..... 6.000% TBA $ 1,971,570
2,000 Federal National Mortgage Association, February Forward..... 6.500 TBA 2,011,090
4,000 Federal National Mortgage Association, February Forward..... 7.000 TBA 4,078,460
3,000 Government National Mortgage Association, February
Forward..................................................... 6.500 TBA 3,028,125
3,000 United States Treasury Notes, January Forward............... 6.250 02/28/02 3,135,360
------------
TOTAL FORWARD PURCHASE COMMITMENTS.......................................................... 14,224,605
------------
TOTAL LONG TERM INVESTMENTS 120.3%
(Cost $66,813,576)................................................................................. 68,629,906
REPURCHASE AGREEMENT 3.9%
SBC Warburg ($2,250,000 par collateralized by U.S. Government obligations in a pooled cash account,
dated 12/31/98, to be sold on 01/04/99 at $2,251,188) (a)
(Cost $2,250,000).................................................................................. 2,250,000
------------
TOTAL INVESTMENTS 124.2%
(Cost $69,063,576)................................................................................. 70,879,906
LIABILITIES IN EXCESS OF OTHER ASSETS (24.2%)....................................................... (13,820,294)
------------
NET ASSETS 100.0%.................................................................................... $ 57,059,612
------------
</TABLE>
(a) Assets segregated as collateral for open forward and open futures
transactions.
TBA--To be announced, maturity date has not yet been established. Upon
settlement and delivery of the mortgage pools, maturity dates will be assigned.
See Notes to Financial Statements
71
<PAGE> 73
GOVERNMENT PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $69,063,576)........................ $70,879,906
Cash........................................................ 4,973
Interest Receivable......................................... 588,683
Forward Commitments......................................... 625
Other....................................................... 47,585
-----------
Total Assets.......................................... 71,521,772
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 14,276,373
Investment Advisory Fee................................... 23,553
Portfolio Shares Repurchased.............................. 17,351
Distributor and Affiliates................................ 6,960
Variation Margin on Futures............................... 4,937
Trustees' Deferred Compensation and Retirement Plans........ 109,549
Accrued Expenses............................................ 23,437
-----------
Total Liabilities..................................... 14,462,160
-----------
NET ASSETS.................................................. $57,059,612
===========
NET ASSETS CONSIST OF:
Capital..................................................... $60,130,308
Net Unrealized Appreciation................................. 1,842,793
Accumulated Undistributed Net Investment Income............. 2,681,124
Accumulated Net Realized Loss............................... (7,594,613)
-----------
NET ASSETS.................................................. $57,059,612
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $57,059,612 and 5,947,274 shares
of beneficial interest issued and outstanding)............ $ 9.59
===========
</TABLE>
See Notes to Financial Statements
72
<PAGE> 74
GOVERNMENT PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $3,411,568
----------
EXPENSES:
Investment Advisory Fee..................................... 268,947
Accounting.................................................. 32,746
Custody..................................................... 14,795
Trustees' Fees and Expenses................................. 13,644
Legal....................................................... 3,062
Other....................................................... 59,667
----------
Total Expenses.......................................... 392,861
Less Fees Waived........................................ 70,011
----------
Net Expenses............................................ 322,850
----------
NET INVESTMENT INCOME....................................... $3,088,718
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 598,202
Futures................................................... 244,167
Forward Commitments....................................... 130,833
----------
Net Realized Gain........................................... 973,202
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,515,218
----------
End of the Period:
Investments............................................. 1,816,330
Futures................................................. 25,838
Forward Commitments..................................... 625
----------
1,842,793
----------
Net Unrealized Appreciation During the Period............... 327,575
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,300,777
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $4,389,495
==========
</TABLE>
See Notes to Financial Statements
73
<PAGE> 75
GOVERNMENT PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 3,088,718 $ 3,483,743
Net Realized Gain........................................... 973,202 257,350
Net Unrealized Appreciation During the Period............... 327,575 1,068,496
------------ ------------
Change in Net Assets from Operations........................ 4,389,495 4,809,589
Distributions from Net Investment Income.................... (529,309) (3,344,474)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 3,860,186 1,465,115
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 11,164,705 2,642,182
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 529,309 3,344,475
Cost of Shares Repurchased.................................. (11,052,927) (12,147,815)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 641,087 (6,161,158)
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 4,501,273 (4,696,043)
NET ASSETS:
Beginning of the Period..................................... 52,558,339 57,254,382
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $2,681,124 and $105,149,
respectively)............................................. $ 57,059,612 $ 52,558,339
============ ============
</TABLE>
See Notes to Financial Statements
74
<PAGE> 76
GOVERNMENT PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $ 8.920 $ 8.666 $ 9.06 $ 8.28 $ 9.26
------- ------- ------- ------- -------
Net Investment Income................................... .520 .566 .569 .60 .56
Net Realized and Unrealized Gain/Loss................... .244 .231 (.388) .78 (.985)
------- ------- ------- ------- -------
Total from Investment Operations.......................... .764 .797 .181 1.38 (.425)
Less Distributions from and in Excess of Net Investment
Income.................................................. .090 .543 .575 .60 .555
------- ------- ------- ------- -------
Net Asset Value, End of the Period........................ $ 9.594 $ 8.920 $ 8.666 $ 9.06 $ 8.28
======= ======= ======= ======= =======
Total Return*............................................. 8.59% 9.61% 2.12% 17.17% (4.63%)
Net Assets at End of the Period (In millions)............. $ 57.1 $ 52.6 $ 57.3 $ 67.0 $ 65.5
Ratio of Expenses to Average Net Assets*.................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*..... 5.74% 6.51% 6.56% 6.89% 6.71%
Portfolio Turnover........................................ 107% 119% 143% 164% 192%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets................... .73% .74% .80% .72% .70%
Ratio of Net Investment Income to Average Net Assets...... 5.61% 6.37% 6.36% 6.77% 6.61%
</TABLE>
See Notes to Financial Statements
75
<PAGE> 77
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
GROWTH AND INCOME PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 19.61%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 21.30%
Commencement date........................................... 12/23/96
</TABLE>
(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.
See the Prior Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Portfolio shares may decline.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. Portfolio shares,
when redeemed, may be worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
76
<PAGE> 78
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
GROWTH AND INCOME PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Standard & Poor's 500-Stock Index and the Lipper Growth and Income Fund Index
over time. These indexes are broad-based, statistical composites that do not
include any commissions that would be paid by an investor purchasing the
securities it represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Growth and Income Portfolio vs. the
Standard & Poor's 500-Stock Index and the Lipper Growth and Income Fund
Index (December 23, 1996 through December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LIT-GROWTH AND STANDARD & POOR'S 500- LIPPER GROWTH AND INCOME
INCOME PORTFOLIO STOCK INDEX FUND INDEX
------------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Dec 1996 10000 10000 10000
10390 10579 10446
10480 10642 10535
Mar 1997 10124 10237 10168
10474 10835 10544
11155 11470 11157
Jun 1997 11565 12020 11595
12467 12959 12427
11856 12215 11961
Sep 1997 12477 12919 12565
11976 12474 12148
12216 13030 12487
Dec 1997 12353 13289 12688
12465 13424 12721
13270 14369 13519
Mar 1998 14021 15139 14145
14143 15276 14221
14041 14988 13993
Jun 1998 14255 15637 14161
13970 15455 13814
12276 13202 11863
Sep 1998 12755 14085 12396
13623 15215 13296
14327 16115 13937
Dec 1998 14776 17079 14411
</TABLE>
The above chart reflects the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
77
<PAGE> 79
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, portfolio comanager; and Stephen L.
Boyd, chief investment officer for equity investments.
Q
HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE PORTFOLIO
OPERATED DURING THE REPORTING PERIOD?
A
The majority of the period was dominated by global instability.
Domino-effect currency devaluations in Asia, Eastern Europe, Russia, and
Latin America precipitated several months of market volatility during the
third quarter as investors fled risk-sensitive securities and embraced the
relative safety of U.S. Treasuries. The Dow Jones Industrial Average plummeted
approximately 1000 points in the third quarter of 1998 as investor confidence in
the global economy was shaken.
In September, the Federal Reserve Board implemented its first rate cut in
two years. Investors, recognizing that the U.S. economy remained fundamentally
sound despite global uncertainty, returned to the stock market with enthusiasm.
Two more rate cuts by the Fed and ongoing rate decreases in Europe enabled the
Dow to rebound close to the highs it reached in July as 1998 drew to a close.
Q
AGAINST THIS BACKDROP, WHAT TYPE OF COMPANIES PERFORMED ESPECIALLY WELL?
A
As has been true for the past several years, large-capitalization stocks
generally outperformed mid- and small-capitalization stocks during the
year. This trend reflected investors' preference for established companies
with more stable earnings prospects. However, mid- and small-cap stocks
waged a comeback at the end of the period, as blue-chip companies such as
Coca-Cola and Gillette posted earnings disappointments. In certain sectors such
as technology and health care, small-cap companies won the performance race
against their larger cousins, but this wasn't enough for small caps to catch up
across the broad market.
Q
TELL US ABOUT SOME OF THE MAJOR SECTORS AND SPECIFIC HOLDINGS REPRESENTED
IN THE PORTFOLIO.
A
The Portfolio's largest sector position during the period was health
care--which, happily, was one of the better-performing sectors in the
Portfolio. In a market that was battered by volatility, health-care stocks
boasted relatively predictable earnings and were largely isolated from
events in emerging markets. We increased the Portfolio's exposure to HMOs by
adding Aetna and United HealthCare to the Portfolio. We believe that, after a
long period of underperformance, HMO stocks should outperform the market as
customer rate increases outweigh projected cost increases. At the same time, we
eliminated PacifiCare Health Systems from the Portfolio. Although it is also an
HMO, this company is primarily a Medicare service provider, and it did not
experience the same level of rate increases because of government-mandated
pricing.
We maintained our positions in large pharmaceutical stocks, which continued
to perform very well during the period. In particular, Pharmacia & Upjohn
benefited after receiving approval for and distributing a new urinary
incontinence product.
In addition to health care, we favored the technology sector during the
period. As we discussed in your last report, this sector had been one of the
Portfolio's most troubled performers earlier in the year due to lingering
problems in Asia and supply-and-demand imbalances. However, technology stocks
soared during the second half of the year. Our patience was rewarded as several
stocks--such as Micron Technology, Texas Instruments, and Xilinx--doubled their
returns from the lows they reached in the third quarter. One of our largest
holdings, International Business Machines (IBM), which started the year at
nearly $100 per share, continued to turn in outstanding performance and finished
the year above $180 per share.
78
<PAGE> 80
We continue to be pleased with developments in the utility industry.
Telephone stocks in general turned in strong performances, 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.
Q
WERE THERE ANY DISAPPOINTMENTS IN THE PORTFOLIO?
A
We reduced the Portfolio's exposure to the financial sector during the
period because we became concerned about the ability of emerging markets
to satisfy their debt obligations to U.S. lenders. As a result, we
eliminated positions in NationsBank, Bank of Boston, and Dresdner Bank. On
the buy side, we added regional banks such as PNC to the Portfolio. Although PNC
underperformed the sector during the past few years, it began to show signs of
improving its return on assets after selling credit card portfolios that had
provided low returns.
In your last report, we mentioned some of the factors that negatively
affected Philip Morris for much of the year. During this period, the company
reported a positive return and an improved outlook in light of a $206 billion
settlement of state lawsuits, which was unveiled in November. Of course, past
performance is no guarantee of comparable future results.
Q
SO, HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A
The Portfolio achieved a total return of 19.61 percent(1) for the 12-month
period ended December 31, 1998. By comparison, the Standard & Poor's
500-Stock Index returned 28.52 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
that would be paid by an investor purchasing the securities it represents.
Please refer to the chart on page 76 for additional Portfolio performance
results.
Q
WHAT DO YOU SEE HAPPENING IN THE MARKET OVER THE COMING MONTHS?
A
Although the U.S. economy is still growing and experiencing low inflation,
we don't believe the full impact of global economic difficulties has been
felt yet on U.S. companies. As the new year rolls on, we expect to see
more evidence that companies have been negatively affected by economic weakness
abroad. In the near term, this will likely result in continued volatility for
the stock market. Over the long term, we believe that investors will continue to
seek companies with strong fundamentals, consistent track records, promising
growth prospects, and attractive valuations. We feel that the Growth and Income
Portfolio, with its emphasis on such companies, should be well positioned in
this environment.
/s/ James A. Gilligan
- ---------------------------
James A. Gilligan
Portfolio Manager
Growth and Income Portfolio
/s/ Scott Carroll
- ---------------------------
Scott Carroll
Portfolio Comanager
Growth and Income Portfolio
/s/ Stephen L. Boyd
- ---------------------------
Stephen L. Boyd
Chief Investment Officer
Equity Investments
Please see footnotes on page 76
79
<PAGE> 81
GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 91.3%
CONSUMER DISTRIBUTION 2.3%
Federated Department Stores, Inc. (a)....................... 6,520 $ 284,028
Gap, Inc. .................................................. 5,690 320,062
SYSCO Corp. ................................................ 5,080 139,383
-----------
743,473
-----------
CONSUMER DURABLES 0.4%
Black & Decker Corp. ....................................... 2,000 112,125
-----------
CONSUMER NON-DURABLES 11.3%
Anheuser-Busch Cos., Inc. .................................. 4,480 294,000
Benckiser NV, Class B - ADR (Netherlands) (a)............... 2,960 189,070
Colgate - Palmolive Co. .................................... 5,360 497,810
Hershey Foods Corp. ........................................ 4,550 282,953
Philip Morris Cos., Inc. ................................... 19,630 1,050,205
Ralston Purina Group........................................ 16,020 518,647
Tommy Hilfiger Corp. (a).................................... 4,500 270,000
Unilever NV - ADR (Netherlands)............................. 3,720 308,528
Whitman Corp. .............................................. 9,280 235,480
-----------
3,646,693
-----------
CONSUMER SERVICES 1.0%
H & R Block, Inc. .......................................... 7,280 327,600
-----------
ENERGY 8.6%
Atlantic Richfield Co. ..................................... 8,400 548,100
Coastal Corp. .............................................. 11,770 411,214
El Paso Energy Corp. ....................................... 12,190 424,364
Mobil Corp. ................................................ 4,700 409,488
Texaco, Inc. ............................................... 9,090 480,634
Valero Energy Corp. ........................................ 6,250 132,813
YPF Sociedad Anonima, Class D - ADR (Argentina)............. 12,570 351,174
-----------
2,757,787
-----------
FINANCE 13.7%
Aetna, Inc. ................................................ 3,670 288,554
Allstate Corp. ............................................. 1,800 69,525
American General Corp. ..................................... 7,650 596,700
Arden Realty, Inc. ......................................... 8,360 193,848
Bank of Tokyo - Mitsubishi - ADR (Japan).................... 23,610 247,905
Chase Manhattan Corp. ...................................... 8,550 581,934
Citigroup, Inc. ............................................ 5,910 292,545
Equitable Cos., Inc. ....................................... 8,900 515,087
Exel Ltd., Class A.......................................... 3,190 239,250
First Union Corp. .......................................... 5,500 334,469
Fleet Financial Group, Inc. ................................ 9,740 435,256
PNC Bank Corp. ............................................. 7,370 398,901
Washington Mutual, Inc. .................................... 6,006 229,354
-----------
4,423,328
-----------
HEALTHCARE 16.8%
Alza Corp. (a).............................................. 8,200 428,450
American Home Products Corp. ............................... 10,510 591,844
Beckman Coulter, Inc. ...................................... 6,120 332,010
Columbia/HCA Healthcare Corp. .............................. 8,010 198,248
IMS Health, Inc. ........................................... 5,140 387,749
Merck & Co., Inc. .......................................... 3,040 448,970
Mylan Laboratories, Inc. ................................... 13,500 425,250
</TABLE>
See Notes to Financial Statements
80
<PAGE> 82
GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Pharmacia & Upjohn, Inc. ................................... 11,520 $ 652,320
Rhodia, SA - ADR (France)................................... 8,930 133,950
Rhone-Poulenc, SA - ADR (France) Warrants (expiring
11/05/01)................................................. 2,079 7,796
Rhone-Poulenc, SA, Class A - ADR (France)................... 13,359 671,290
St. Jude Medical, Inc. (a).................................. 7,520 208,210
Teva Pharmaceutical Industries Ltd. - ADR (Israel).......... 5,870 238,836
United HealthCare Corp. (a)................................. 10,690 460,338
Watson Pharmaceuticals, Inc. (a)............................ 3,660 230,122
-----------
5,415,383
-----------
PRODUCER MANUFACTURING 3.6%
AlliedSignal, Inc. ......................................... 1,620 71,786
Ingersoll-Rand Co. ......................................... 10,260 481,579
Philips Electronics NV - ADR (Netherlands).................. 2,400 162,450
Waste Management, Inc. ..................................... 9,514 443,590
-----------
1,159,405
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 4.1%
Boise Cascade Corp. ........................................ 5,940 184,140
Crown Cork & Seal Co., Inc. ................................ 9,800 301,963
Fort James Corp. ........................................... 2,100 84,000
Imperial Chemical Industries PLC - ADR (United Kingdom)..... 6,540 228,491
Monsanto Co. ............................................... 2,940 139,650
Raychem Corp. .............................................. 12,100 390,981
-----------
1,329,225
-----------
TECHNOLOGY 14.7%
Adobe Systems, Inc. ........................................ 8,260 386,155
BMC Software, Inc. (a)...................................... 5,600 249,550
Compaq Computer Corp. ...................................... 4,000 167,750
Electronic Data Systems Corp. .............................. 5,700 286,425
First Data Corp. ........................................... 5,540 175,549
International Business Machines Corp. ...................... 6,470 1,195,332
Micron Technology, Inc. (a)................................. 4,400 222,475
Motorola, Inc. ............................................. 5,640 344,393
Oracle Corp. (a)............................................ 7,400 319,125
Quantum Corp. (a)........................................... 12,780 271,575
Texas Instruments, Inc. .................................... 4,320 369,630
Xerox Corp. ................................................ 3,890 459,020
Xilinx, Inc. (a)............................................ 4,520 294,365
-----------
4,741,344
-----------
UTILITIES 14.8%
BEC Energy.................................................. 9,210 371,100
BellSouth Corp. ............................................ 10,100 503,737
Consolidated Edison, Inc. .................................. 8,580 453,667
DQE, Inc. .................................................. 100 4,394
Edison International........................................ 12,370 344,814
GPU, Inc. .................................................. 7,400 326,988
GTE Corp. .................................................. 8,410 567,149
Illinova Corp. ............................................. 4,920 123,000
Niagara Mohawk Power Corp. (a).............................. 23,710 382,324
Northeast Utilities......................................... 29,440 471,040
PECO Energy Co. ............................................ 3,410 141,941
SBC Communications, Inc. ................................... 3,600 193,050
</TABLE>
See Notes to Financial Statements
81
<PAGE> 83
GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
Sprint Corp. ............................................. 4,020 $ 338,183
U.S. West, Inc. .......................................... 8,630 557,713
-----------
4,779,100
-----------
TOTAL COMMON STOCKS 91.3%........................................ 29,435,463
-----------
CORPORATE BOND 0.2%
Hewlett Packard Co., LYON, 144A - Private Placement ($125,000 par, 69,531
yielding 3.125%, 10/14/17 maturity) (c).........................
-----------
TOTAL LONG-TERM INVESTMENTS 91.5%
(Cost $25,251,792)............................................ 29,504,994
-----------
SHORT-TERM INVESTMENTS 8.5%
REPURCHASE AGREEMENT 5.4%
SBC Warburg ($1,740,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold
on 01/04/99 at $1,740,928)
(Cost $1,740,000)............................................... 1,740,000
U.S. GOVERNMENT AGENCY OBLIGATIONS 3.1%
Federal National Mortgage Association Discount Note ($1,000,000 par,
yielding 5.150%, 01/15/99 maturity)
(Cost $998,044) (b)........................................... 998,044
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $2,738,044)............................................. 2,738,044
-----------
TOTAL INVESTMENTS 100.0%
(Cost $27,989,836)............................................ 32,243,038
LIABILITIES IN EXCESS OF OTHER ASSETS 0.0%....................... (12,471)
-----------
NET ASSETS 100.0%................................................ $32,230,567
-----------
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated for open futures transactions.
(c) 144A Securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
LYON - Liquid yield option note
See Notes to Financial Statements
82
<PAGE> 84
GROWTH AND INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $27,989,836)........................ $32,243,038
Cash........................................................ 3,253
Receivables:
Dividends................................................. 31,982
Portfolio Shares Sold..................................... 12,442
Variation Margin on Futures............................... 4,250
Expense Reimbursement by Adviser.......................... 4,000
Other....................................................... 1,936
-----------
Total Assets.......................................... 32,300,901
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 20,559
Distributor and Affiliates................................ 5,676
Portfolio Shares Repurchased.............................. 691
Accrued Expenses............................................ 32,250
Trustees' Deferred Compensation and Retirement Plans........ 11,158
-----------
Total Liabilities..................................... 70,334
-----------
NET ASSETS.................................................. $32,230,567
===========
NET ASSETS CONSIST OF:
Capital..................................................... $28,125,068
Net Unrealized Appreciation................................. 4,305,619
Accumulated Undistributed Net Investment Income............. 265,142
Accumulated Net Realized Loss............................... (465,262)
-----------
NET ASSETS.................................................. $32,230,567
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $32,230,567 and 2,225,645 shares
of beneficial interest issued and outstanding).......... $ 14.48
===========
</TABLE>
See Notes to Financial Statements
83
<PAGE> 85
GROWTH AND INCOME PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 299,073
Interest.................................................... 129,562
----------
Total Income............................................ 428,635
----------
EXPENSES:
Investment Advisory Fee..................................... 127,069
Accounting.................................................. 24,544
Shareholder Reports......................................... 23,995
Audit....................................................... 16,632
Shareholder Services........................................ 16,598
Custody..................................................... 14,073
Trustees' Fees and Expenses................................. 6,347
Legal....................................................... 566
Other....................................................... 2,006
----------
Total Expenses.......................................... 231,830
Less Fees Waived........................................ 72,329
----------
Net Expenses............................................ 159,501
----------
NET INVESTMENT INCOME....................................... $ 269,134
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss
Investments............................................... $ (536,965)
Futures................................................... 114,581
----------
Net Realized Loss........................................... (422,384)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 539,536
----------
End of the Period:
Investments............................................. 4,253,202
Futures................................................. 52,417
----------
4,305,619
----------
Net Unrealized Appreciation During the Period............... 3,766,083
----------
NET REALIZED AND UNREALIZED GAIN............................ $3,343,699
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $3,612,833
==========
</TABLE>
See Notes to Financial Statements
84
<PAGE> 86
GROWTH AND INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 269,134 $ 61,347
Net Realized Gain/Loss...................................... (422,384) 105,366
Net Unrealized Appreciation During the Period............... 3,766,083 541,506
----------- -----------
Change in Net Assets from Operations........................ 3,612,833 708,219
----------- -----------
Distributions from Net Investment Income.................... (18,683) (44,226)
----------- -----------
Distributions from Net Realized Gain........................ -0- (105,285)
Distributions in Excess of Net Realized Gain................ -0- (45,861)
----------- -----------
Distributions from and in Excess of Net Realized Gain....... -0- (151,146)
----------- -----------
Total Distributions......................................... (18,683) (195,372)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 3,594,150 512,847
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 18,319,408 10,524,876
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 18,683 195,372
Cost of Shares Repurchased.................................. (1,415,264) (18,007)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 16,922,827 10,702,241
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 20,516,977 11,215,088
NET ASSETS:
Beginning of the Period..................................... 11,713,590 498,502
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $265,142 and $14,691, respectively).. $32,230,567 $11,713,590
=========== ===========
</TABLE>
See Notes to Financial Statements
85
<PAGE> 87
GROWTH AND INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 23, 1996
Year Ended December 31 (Commencement of
---------------------- Investment Operations)
1998 1997 to December 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $12.123 $ 9.970 $10.000
------- ------- -------
Net Investment Income..................................... .120 .072 .011
Net Realized and Unrealized Gain/Loss..................... 2.254 2.309 (.041)
------- ------- -------
Total from Investment Operations............................ 2.374 2.381 (.030)
------- ------- -------
Less:
Distributions from Net Investment Income.................. .016 .065 -0-
Distributions from and in Excess of Net Realized Gain..... -0- .163 -0-
------- ------- -------
Total Distributions......................................... .016 .228 -0-
------- ------- -------
Net Asset Value, End of the Period.......................... $14.481 $12.123 $ 9.970
======= ======= =======
Total Return*............................................... 19.61% 23.90% (.30%)**
Net Assets at End of the Period (In millions)............... $ 32.2 $ 11.7 $ 0.5
Ratio of Expenses to Average Net Assets*.................... .75% .75% .75%
Ratio of Net Investment Income to Average Net Assets*....... 1.27% 1.19% 4.47%
Portfolio Turnover.......................................... 70% 96% 0%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.09% 1.63% 45.97%
Ratio of Net Investment Income/Loss to Average Net Assets... .93% .31% (40.74%)
</TABLE>
** Non-Annualized
See Notes to Financial Statements
86
<PAGE> 88
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 CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE PORTFOLIO
HAS OPERATED DURING THE PAST 12 MONTHS?
A
Global instability--highlighted by economic crises in Asia, Russia, and
Latin America--led investors to seek shelter in high-quality investments
and embrace the relative safety of U.S. Treasuries. The Dow Jones
Industrial Average, which reached a record high in July, fell
approximately 1,000 points in the third quarter as investors suffered a crisis
of confidence in response to market uncertainty.
In September, however, investors returned to the stock market as the Federal
Reserve Board implemented its first rate cut in two years. The 25 basis-point
reduction helped the Dow recover much of its earlier losses, as investor
confidence returned. During the remainder of the period, two additional interest
rate cuts by the Fed helped stem a slowdown in the U.S. economy and provided
liquidity to the global markets.
Q
HOW DID YOU MANAGE THE PORTFOLIO IN LIGHT OF 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, as a percentage of total investments, 27.3 percent of the
Portfolio was invested in commercial paper, 24.6 percent in repurchase
agreements ("repos"), 12.0 percent in bank notes and CDs, and the balance in
government agency obligations. CDs offer a guaranteed return of principal over a
stated period of time, a fixed rate of interest, and are typically issued by
institutions whose deposits are insured.
We began to see increased value in the bank notes sector. As a result, we
reduced the Portfolio's weighting in commercial paper, including corporate
bonds, and instead focused on increasing our allocation to bank notes and CDs.
We also reduced the Portfolio's exposure to agency notes, which we considered to
be expensive on a relative basis. At the end of the period, the Portfolio
reflected a slight decrease in highly liquid repos as well. Ultimately, we're
leaning toward an ideal portfolio with half of its assets invested in commercial
paper, a third of its assets in bank notes and CDs, and the remainder
distributed among agency notes and repos.
As the primary sector, the commercial paper held by 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 has an average maturity of 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, because it
provides only a minimally higher return.
Q
HOW DID THE PORTFOLIO PERFORM DURING THE 12-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 12-month period ended December 31, 1998, the Portfolio
produced a total return of 5.02 percent at net asset value. As of December 31,
the Portfolio generated a seven-day average yield of 4.50 percent and a 30-day
effective yield of 4.50 percent. The Portfolio's net asset value remained
unchanged at $1.00 per share throughout the reporting period. The yield
quotation more closely reflects the current earnings of the portfolio than the
total return quotation.
87
<PAGE> 89
Q
WHAT IS YOUR ECONOMIC OUTLOOK FOR THE MONTHS AHEAD?
A
After three consecutive rate cuts by the Fed, we will monitor trends in
various sectors, including credit sensitive and mortgage-backed
securities, for clues to its actions in early 1999. In addition, we'll
watch the economic environment for signs of a slowdown in the domestic
economy. We expect the economy to continue to grow at a slow and steady pace,
unlike the robust rate we've seen during the past year.
We are pleased with the current asset allocation featured in the Portfolio
and plan to maintain a similar profile in light of our current economic
snapshot. As we monitor changing economic developments, we will continue to seek
to achieve the Portfolio's objectives and will look to add value through careful
security selection.
/s/ Reid J. Hill
- -----------------------
Reid J. Hill
Portfolio Manager
Money Market Portfolio
/s/ Peter W. Hegel
- -----------------------
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
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.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Portfolio shares, when
redeemed, may be worth more or less than their original cost.
88
<PAGE> 90
MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Description Date Purchase Cost
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS 35.8%
$ 800 Federal Home Loan Mortgage Corp. Discount Note.............. 01/04/99 5.115% $ 799,663
2,000 Federal Home Loan Mortgage Corp. Discount Note.............. 03/05/99 5.054 1,982,533
1,000 Federal Home Loan Mortgage Corp. Discount Note.............. 03/15/99 5.033 989,922
1,355 Federal Home Loan Mortgage Corp. Discount Note.............. 04/09/99 4.956 1,337,000
1,000 Federal National Mortgage Association Discount Note......... 01/08/99 5.115 999,018
1,500 Federal National Mortgage Association Discount Note......... 02/02/99 4.863 1,493,600
1,000 Federal National Mortgage Association Discount Note......... 02/05/99 5.085 995,119
1,000 Federal National Mortgage Association Discount Note......... 06/24/99 4.837 977,187
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.......................................... 9,574,042
-----------
CERTIFICATES OF DEPOSIT 9.0%
800 Bank of Nova Scotia......................................... 01/22/99 5.100 800,020
800 UBS Ag Stamford............................................. 01/05/99 5.290 799,995
800 Westdeutsche Landesbank..................................... 01/21/99 5.110 800,020
-----------
TOTAL CERTIFICATES OF DEPOSIT..................................................... 2,400,035
-----------
COMMERCIAL PAPER 27.2%
800 American General Finance Corp............................... 01/12/99 5.211 798,744
800 Associates Corp. of North America........................... 03/08/99 5.150 792,579
900 Coca-Cola Co................................................ 02/08/99 5.149 895,155
800 Commercial Credit Corp...................................... 01/19/99 5.231 797,924
800 Ford Motor Credit Co........................................ 02/18/99 5.198 794,528
800 General Electric Capital Corp............................... 02/12/99 5.301 795,119
800 LaSalle National Bank....................................... 03/16/99 5.210 800,000
800 Norwest Financial, Inc...................................... 03/02/99 5.205 793,133
800 Prudential Funding Corp..................................... 02/19/99 5.251 794,360
-----------
TOTAL COMMERCIAL PAPER............................................................ 7,261,542
-----------
TIME DEPOSIT 3.0%
800 FCC National Bank........................................... 01/25/99 5.090 800,000
-----------
REPURCHASE AGREEMENTS 24.5%
BankAmerica Securities ($2,530,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold on 01/04/99 at
$2,531,377)....................................................................... 2,530,000
DLJ ($2,000,000 par collateralized by U.S. Government obligations in a pooled cash
account, dated 12/31/98, to be sold on 01/04/99 at $2,001,000).................... 2,000,000
Warburg Dillion Read ($2,000,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 12/31/98, to be sold on 01/04/99 at $2,001,056)... 2,000,000
-----------
TOTAL REPURCHASE AGREEMENTS....................................................... 6,530,000
-----------
TOTAL INVESTMENTS 99.5%................................................................... 26,565,619
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................................................ 144,058
-----------
NET ASSETS 100.0%......................................................................... $26,709,677
===========
</TABLE>
See Notes to Financial Statements
89
<PAGE> 91
MONEY MARKET PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at amortized cost which approximates market,
including repurchase agreements of $6,530,000............. $26,565,619
Cash........................................................ 4,908
Receivables:
Portfolio Shares Sold..................................... 190,862
Interest.................................................. 40,818
Other....................................................... 47,222
-----------
Total Assets............................................ 26,849,429
-----------
LIABILITIES:
Payables:
Audit..................................................... 10,500
Investment Advisory Fee................................... 8,485
Distributor and Affiliates................................ 5,508
Portfolio Shares Repurchased.............................. 618
Trustees' Deferred Compensation and Retirement Plans........ 106,443
Accrued Expenses............................................ 8,198
-----------
Total Liabilities....................................... 139,752
-----------
NET ASSETS.................................................. $26,709,677
===========
NET ASSETS CONSIST OF:
Capital..................................................... $26,709,716
Accumulated Distributions in Excess of Net Investment
Income.................................................... (39)
-----------
NET ASSETS (Equivalent to $1.00 per share for 26,709,716
shares outstanding)....................................... $26,709,677
===========
</TABLE>
See Notes to Financial Statements
90
<PAGE> 92
MONEY MARKET PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,192,023
----------
EXPENSES:
Investment Advisory Fee..................................... 108,585
Shareholder Services........................................ 15,297
Audit....................................................... 14,646
Accounting.................................................. 13,678
Shareholder Reports......................................... 13,249
Custody..................................................... 12,074
Trustees' Fees and Expenses................................. 11,757
Distributor and Affiliates.................................. 11,536
Trustees' Deferred Compensation and Retirement Plans........ 11,115
Legal....................................................... 917
Other....................................................... 1,586
----------
Total Expenses.......................................... 214,440
Less Fees Waived........................................ 84,020
----------
Net Expenses............................................ 130,420
----------
NET INVESTMENT INCOME....................................... $1,061,603
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,061,603
==========
</TABLE>
See Notes to Financial Statements
91
<PAGE> 93
MONEY MARKET PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 1,061,603 $ 1,057,585
----------- -----------
Distributions from Net Investment Income.................... (1,061,807) (1,057,591)
Distributions in Excess of Net Investment Income............ (39) -0-
----------- -----------
Distributions from and in Excess of Net Investment Income... (1,061,846) (1,057,591)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (243) (6)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 31,396,945 22,688,459
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 1,061,846 1,057,591
Cost of Shares Repurchased.................................. (25,489,643) (23,571,207)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 6,969,148 174,843
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 6,968,905 174,837
NET ASSETS:
Beginning of the Period..................................... 19,740,772 19,565,935
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $(39) and $204, respectively)........ $26,709,677 $19,740,772
=========== ===========
</TABLE>
See Notes to Financial Statements
92
<PAGE> 94
MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the
Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net Investment Income....................................... .049 .049 .048 .0533 .0365
Less Distributions from Net Investment Income............... .049 .049 .048 .0533 .0365
------ ------ ------ ------ ------
Net Asset Value, End of the Period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Return*............................................... 5.02% 5.06% 4.89% 5.46% 3.71%
Net Assets at End of the Period (In millions)............... $ 26.7 $ 19.7 $ 19.6 $ 21.6 $ 28.5
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 4.88% 4.95% 4.78% 5.33% 3.63%
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .99% .98% 1.29% .93% .87%
Ratio of Net Investment Income to Average Net Assets........ 4.49% 4.57% 4.10% 5.00% 3.37%
</TABLE>
See Notes to Financial Statements
93
<PAGE> 95
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... (11.62%)
Three-year average annual total return based on NAV(1)...... 14.69%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 15.09%
Commencement date........................................... 07/03/95
</TABLE>
(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.
See the Prior Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Portfolio shares may decline.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. Portfolio shares,
when redeemed, may be worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
Investing in REITs involves unique risks in addition to those risks associated
with investing in the real estate industry in general. Equity REITs may be
affected by changes in the value of the underlying property owned by the REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified and are subject
to the risks of financing projects. REITs are subject to heavy cash flow
dependency, default by borrowers, self-liquidation and the possibilities of
failing to qualify for tax-exempt status under the Internal Revenue Code of
1986, as amended. REITs, especially mortgage REITs, are also subject to some
interest rate risk (e.g., as interest rates rise, the value of REITs may
decline).
94
<PAGE> 96
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your Portfolio is being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the
Standard & Poor's 500-Stock Index and the NAREIT (National Association of Real
Estate Investment Trusts) Equity Index over time. These indexes are broad-based,
statistical composites that do not include any commissions that would be paid by
an investor purchasing the securities they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Morgan Stanley Real Estate Securities
Portfolio vs. the Standard & Poor's 500-Stock Index and the NAREIT Equity
Index (July 3, 1995 through December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LIT-MORGAN NAREIT EQUITY REIT INDEX
STANLEY REAL ESTATE STANDARD & POOR'S 500- ------------------------
SECURITIES PORTFOLIO STOCK INDEX
--------------------- ----------------------
<S> <C> <C> <C>
July 1995 10000 10000 10000
10200 10274 10078
10290 10270 10127
10490 10746 10266
10190 10693 9960
10310 11132 9980
Dec 1995 10835 11391 10484
11006 11763 10620
11168 11844 10686
11117 12002 10602
11135 12163 10559
11489 12441 10756
Jun 1996 11751 12539 10864
11822 11965 10849
12337 12190 11195
12700 12924 11364
13053 13261 11618
13710 14234 12049
Dec 1996 15226 14000 13522
15278 14858 13312
15494 14946 13204
15296 14377 13139
14758 15217 12635
15306 16108 12991
Jun 1997 16217 16882 13573
16900 18201 13908
16807 17155 13798
18194 18144 14988
17718 17519 14490
17997 18300 14721
Dec 1997 18496 18663 15007
17971 18853 14845
18192 20181 14522
18318 21261 14744
18045 21454 14164
17831 21050 13989
Jun 1998 17594 21961 13867
16703 21706 12889
15123 18542 11601
15954 19781 12203
15824 21369 11907
16168 22633 12124
Dec 1998 16346 23986 11770
</TABLE>
The above chart reflects the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
95
<PAGE> 97
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 manager Theodore R. Bigman.
Q
WHAT WERE THE MARKET CONDITIONS IN WHICH THE PORTFOLIO OPERATED DURING THE
REPORTING PERIOD?
A
In your June report, we explained that the first six months of 1998
presented a series of challenges to REIT investors. A strong U.S. equity
market and continued price weakness in the REIT market siphoned attention
away from real estate investments, as was reflected in the declining NAREIT
(National Association of Real Estate Investment Trusts) Equity Index.
Unfortunately, there was little good news to be found in the third quarter of
the year, as real estate securities submitted their worst three-month return in
almost a decade. The fourth quarter was tame by comparison as the NAREIT Equity
Index posted a loss of 3.55 percent. However, real estate investors had
difficulty enjoying this relative calm, as the dramatic gains in the broad
equity markets during the quarter underscored the REIT market's
underperformance.
For the year, the NAREIT Equity Index declined 21.57 percent, marking the
worst year for real estate securities in recent history. By comparison, the
Russell 2000 Stock Index of small-capitalization stocks ended the year down
approximately 9 percent, while the Standard & Poor's 500-Stock Index reached new
highs and returned more than 20 percent for an unprecedented fourth consecutive
year. As a result of the REIT market's underperformance, we remain in a
valuation cycle in which it is cheaper for investors to buy real estate assets
on Wall Street (through the ownership of securities) than on Main Street
(through the direct ownership of assets).
Q
HOW DID YOU POSITION THE PORTFOLIO DURING THIS TIME?
A
We continued to shape the Portfolio with companies that offer attractive
fundamental valuations relative to their underlying real estate value.
Given the expected deterioration in real estate property prices and the
potential slowdown in the demand for real estate, we shifted the Portfolio
to be modestly more defensive in the third quarter. We increased our weighting
in less volatile sectors, such as residential housing (both apartments and
manufactured home communities), and maintained an underweighting to more
volatile sectors, such as hotels (which feature daily re-pricing of rents).
Following this relatively dramatic defensive shift in the third quarter, we
moved toward a more opportunistic approach in the fourth quarter. This was
evidenced in the purchase of a number of large-capitalization companies that had
fallen into disfavor with investors as a result of negative announcements. We
once again took advantage of a weak market and price declines to add a number of
what we believe are the most talented companies in the REIT universe to the
Portfolio, including Simon Property Group and Apartment Investment & Management
Co.
Q
YOU MENTIONED INVESTING IN SOME LARGE-CAP COMPANIES THAT WERE OUT OF FAVOR.
CAN YOU EXPLAIN WHAT WAS HAPPENING IN THE INDUSTRY AND WHAT THIS MEANT TO
THE PORTFOLIO?
A
In the REIT market, perhaps the most troubling aspect of 1998's second
half was the constant stream of highly publicized, negative news from some
of the most prominent REITs. The media spotlighted two large REITs that
announced restructurings following unsuccessful growth plans. First, Patriot
American announced the sale of non-strategic hotel assets, the hiring of
financial advisors to explore all strategic alternatives, and, by year-end, the
issuance of convertible preferred stock. The stock fell from a 52-week high of
$32 to $7 per share at the end of the reporting period. In addition, Patriot
decided to suspend their dividend payment for the quarter. Then, Meditrust
announced a restructuring that included selling non-core assets and splitting
the company into two separate units. The firm subsequently elected to reduce its
dividend payment.
96
<PAGE> 98
Another high-flying real estate stock badly damaged in the fourth quarter
was Security Capital Group, which declined from a high of $32 to $13 per share.
Although this company is not structured as a REIT, it is a large real estate
company that was heavily marketed to pension funds and non-dedicated or general
real estate investors. We believe these announcements served to deter
non-dedicated investors from real estate securities.
As we have discussed in the past, our portfolio management style is
value-oriented and opportunistic. As a result, we took the opportunity of price
declines in each of these stocks to add them to the Portfolio.
Q
WHAT WAS THE PORTFOLIO'S PERFORMANCE FOR THE 12-MONTH PERIOD?
A
The Portfolio achieved a total return of -11.62 percent(1) for the
12-month period ended December 31, 1998. This performance compares
favorably to the total return of the NAREIT Equity Index of-21.57 percent
over the same period. The NAREIT Equity 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 28.52 percent in the 12 months ended December 31, 1998. The S&P 500-Stock
Index is a broad-based, unmanaged index that reflects the general performance of
the stock market. Keep in mind that these indices are unmanaged statistical
composites that do not reflect any commissions or sales charges that would be
incurred by an investor purchasing the securities they represent. Please refer
to the chart on page 94 for additional Portfolio performance results.
Q
WHAT IS YOUR OUTLOOK FOR THE REAL ESTATE MARKET AND FOR THE PORTFOLIO?
A
After monitoring third-quarter earnings reported for the REITs, it is our
observation that the property market continues to perform well and that
internal growth is coming in better than expected, offsetting the slower
pace of external earnings growth. As a result, most companies are meeting
analysts' expectations. However, analysts may have to reduce earnings estimates
for 1999 due to the potential slowing of internal growth and the continued
decline in external acquisition-oriented sources. Even with reduced estimates,
earnings growth for 1999 is estimated at 10 percent.
The demand side of the equation, which takes its cue from the direction of
the economy, has become the most debated topic in the real estate market.
Although there is no current evidence of a slowdown in absorption, demand for
real estate space will obviously be affected by GDP growth and business and
consumer confidence. The difficulties in the capital markets, by comparison,
create quite favorable news from the supply side of the equation. Developers
should complete existing developments but may not be able to arrange financing
for new developments. If the current market environment persists, when the
supply pipeline is complete and as long as demand is positive, we should
continue to have favorable real estate fundamentals.
/s/ Theodore R. Bigman
- ----------------------
Theodore R. Bigman
Portfolio Manager
Morgan Stanley Real Estate Securities Portfolio
Please see footnotes on page 94
97
<PAGE> 99
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 96.9%
APARTMENTS 23.5%
Amli Residential Properties Trust........................... 52,500 $ 1,168,125
Apartment Investment & Management Co., Class A.............. 83,800 3,116,313
Archstone Communities Trust................................. 340,446 6,894,031
Avalonbay Communities, Inc.................................. 281,800 9,651,650
Equity Residential Properties Trust......................... 145,554 5,885,840
Essex Property Trust, Inc................................... 252,000 7,497,000
Irvine Apartment Communities, Inc........................... 161,500 5,147,812
Pennsylvania Real Estate Investment......................... 185,900 3,613,431
Smith (Charles E.) Residential Realty, Inc.................. 159,100 5,111,088
Summit Properties, Inc...................................... 57,800 997,050
------------
49,082,340
------------
DEVELOPMENT 3.7%
Atlantic Gulf Communities Corp. (a)......................... 426,124 319,593
Atlantic Gulf Communities Corp. - Preferred Ser B
(Convertible into 96,770 common shares) (a)............... 55,647 278,235
Atlantic Gulf Communities Corp. - Preferred Shares, 144A -
Private Placement (a) (b)................................. 79,420 397,100
Atlantic Gulf Communities Corp. Warrants, 37,098 shares
Class A, B and C, expiring 06/23/04 (a)................... 111,294 41,735
Atlantic Gulf Communities Corp. Warrants, 74,352 shares
Class A, B and C, expiring 06/24/01, 144A - Private
Placement (a) (b)........................................... 223,056 83,646
Brookfield Properties Corp. (a)............................. 530,800 6,518,224
Merry Land Properties, Inc. (a)............................. 17,090 61,951
------------
7,700,484
------------
HEALTHCARE FACILITIES 0.8%
Meditrust Corp.............................................. 98,400 1,488,300
Omega Healthcare Investors, Inc............................. 7,600 229,425
------------
1,717,725
------------
HOTEL & LODGING 4.5%
Candlewood Hotel Co., Inc. (a).............................. 81,400 427,350
Crestline Capital Corp. (a)................................. 17,370 254,036
Host Marriott Corp. (a)..................................... 173,700 2,399,232
Patriot American Hospitality, Inc........................... 322,700 1,936,200
Starwood Hotels and Resorts................................. 188,531 4,277,297
------------
9,294,115
------------
MANUFACTURED HOME COMMUNITIES 8.0%
Chateau Communities, Inc. .................................. 428,438 12,558,589
Manufactured Home Communities, Inc. ........................ 48,800 1,223,050
Sun Communities, Inc. ...................................... 87,000 3,028,687
------------
16,810,326
------------
OFFICE/INDUSTRIAL 31.0%
Arden Realty, Inc. ......................................... 450,000 10,434,375
Beacon Capital Partners Inc., 144A - Private Placement (a)
(b)......................................................... 271,300 5,426,000
Bedford Property Investors, Inc. ........................... 70,400 1,188,000
Boston Properties, Inc. .................................... 8,800 268,400
Brandywine Realty Trust..................................... 389,300 6,958,737
CarrAmerica Realty Corp. ................................... 211,300 5,071,200
Cornerstone Properties, Inc. ............................... 2,000 31,250
Crescent Real Estate Equities Trust......................... 199,700 4,593,100
Equity Office Properties Trust.............................. 232,611 5,582,664
Great Lakes REIT, Inc. ..................................... 391,600 6,143,225
Mack California Realty Corp................................. 24,100 744,088
Pacific Gulf Properties, Inc. .............................. 335,500 6,730,969
Prime Group Realty Trust.................................... 323,600 4,894,450
</TABLE>
See Notes to Financial Statements
98
<PAGE> 100
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS
(CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OFFICE/INDUSTRIAL (CONTINUED)
ProLogis Trust.............................................. 8,100 $ 168,075
SL Green Realty Corp........................................ 45,000 973,125
Spieker Properties, Inc. ................................... 29,400 1,017,975
Wellsford Real Properties, Inc., 144A - Private Placement
(a) (b)..................................................... 447,242 4,612,183
------------
64,837,816
------------
RESEARCH & MANAGEMENT 0.5%
Security Capital Group, Inc., Class B (a)................... 79,300 1,075,507
------------
SELF-STORAGE 6.3%
PS Business Parks Inc. ..................................... 181,120 4,324,240
Public Storage, Inc. ....................................... 154,500 4,181,156
Shurgard Storage Centers, Inc., Class A..................... 106,600 2,751,613
Storage Trust Realty........................................ 76,800 1,795,200
------------
13,052,209
------------
SHOPPING CENTERS 11.4%
Acadia Reality Trust (a).................................... 24,300 127,575
Burnham Pacific Properties, Inc. ........................... 629,400 7,592,137
Federal Realty Investment Trust............................. 322,200 7,611,975
First Washington Reality Trust, Inc. ....................... 34,400 814,850
First Washington Realty Trust, Inc. - Preferred Ser A
(Convertible into 74,484 common shares)..................... 58,100 1,724,844
Pan Pacific Retail Properties, Inc. ........................ 144,400 2,878,975
Philips International Realty Corp. ......................... 5,300 81,488
Ramco-Gershenson Properties Trust........................... 2,000 29,000
Regency Realty Corp. ....................................... 60,600 1,348,350
Vornado Realty Trust........................................ 48,700 1,643,625
------------
23,852,819
------------
SHOPPING MALLS 7.2%
Simon Property Group, Inc................................... 72,200 2,057,700
Taubman Centers, Inc........................................ 691,500 9,508,125
Urban Shopping Centers, Inc................................. 105,100 3,442,025
------------
15,007,850
------------
TOTAL COMMON AND PREFERRED STOCKS 96.9%............................... 202,431,191
CONVERTIBLE CORPORATE OBLIGATIONS 1.0%
Brookfield Properties Corp. - Installment Receipts Representing
Subordinated Debenture ($2,262,000 par,
6.00% coupon, 02/14/07 maturity)....................................... 2,001,304
------------
TOTAL LONG-TERM INVESTMENTS 97.9%
(Cost $211,957,641).................................................... 204,432,495
REPURCHASE AGREEMENT 0.6%
Warburg Dillon Read ($1,250,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98,
to be sold on 01/04/99 at $1,250,660)
(Cost $1,250,000)...................................................... 1,250,000
------------
TOTAL INVESTMENTS 98.5%
(Cost $213,207,641).................................................... 205,682,495
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%............................ 3,148,219
------------
NET ASSETS 100.0%..................................................... $208,830,714
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
99
<PAGE> 101
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF ASSETS AND
LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $213,207,641)....................... $205,682,495
Cash........................................................ 2,759
Receivables:
Dividends................................................. 1,971,297
Investments Sold.......................................... 1,482,599
Portfolio Shares Sold..................................... 295,486
Interest.................................................. 45,737
Unamortized Organizational Costs............................ 2,050
------------
Total Assets.......................................... 209,482,423
------------
LIABILITIES:
Payables:
Portfolio Shares Repurchased.............................. 382,872
Investment Advisory Fee................................... 178,005
Distributor and Affiliates................................ 13,097
Trustees' Deferred Compensation and Retirement Plans........ 30,797
Accrued Expenses............................................ 46,938
------------
Total Liabilities..................................... 651,709
------------
NET ASSETS.................................................. $208,830,714
============
NET ASSETS CONSIST OF:
Capital..................................................... $211,310,668
Accumulated Undistributed Net Investment Income............. 11,817,690
Accumulated Net Realized Loss............................... (6,772,498)
Net Unrealized Depreciation................................. (7,525,146)
------------
NET ASSETS.................................................. $208,830,714
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $208,830,714 and 15,178,156 shares
of beneficial interest issued and outstanding).......... $ 13.76
============
</TABLE>
See Notes to Financial Statements
100
<PAGE> 102
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 14,073,807
Interest.................................................... 470,774
------------
Total Income.......................................... 14,544,581
------------
EXPENSES:
Investment Advisory Fee..................................... 2,511,823
Accounting.................................................. 73,548
Trustees' Fees and Expenses................................. 16,900
Shareholder Services........................................ 16,390
Custody..................................................... 14,176
Legal....................................................... 9,430
Amortization of Organizational Costs........................ 1,365
Other....................................................... 64,785
------------
Total Expenses........................................ 2,708,417
------------
NET INVESTMENT INCOME....................................... $ 11,836,164
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (6,375,125)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 31,073,264
End of the Period:
Investments............................................. (7,525,146)
------------
Net Unrealized Depreciation During the Period............... (38,598,410)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(44,973,535)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(33,137,371)
============
</TABLE>
See Notes to Financial Statements
101
<PAGE> 103
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF CHANGES IN NET
ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 11,836,164 $ 7,766,948
Net Realized Gain/Loss...................................... (6,375,125) 28,792,309
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (38,598,410) 9,027,199
------------ ------------
Change in Net Assets from Operations........................ (33,137,371) 45,586,456
------------ ------------
Distributions from Net Investment Income.................... (453,855) (7,660,430)
Distributions from Net Realized Gain........................ (4,452,811) (25,295,317)
------------ ------------
Total Distributions......................................... (4,906,666) (32,955,747)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (38,044,037) 12,630,709
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 88,276,432 275,023,739
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 4,906,666 32,953,898
Cost of Shares Repurchased.................................. (145,715,375) (188,685,072)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (52,532,277) 119,292,565
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... (90,576,314) 131,923,274
NET ASSETS:
Beginning of the Period..................................... 299,407,028 167,483,754
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $11,817,690
and $435,381, respectively)............................... $208,830,714 $299,407,028
============ ============
</TABLE>
See Notes to Financial Statements
102
<PAGE> 104
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year Ended December 31, of Investment
----------------------------------- Operations) to
1998 1997 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $15.846 $14.784 $ 10.74 $ 10.00
------- ------- ------- -------
Net Investment Income.................................... .781 .464 .217 .20
Net Realized and Unrealized Gain/Loss.................... (2.597) 2.617 4.117 .6325
------- ------- ------- -------
Total from Investment Operations........................... (1.816) 3.081 4.334 .8325
------- ------- ------- -------
Less:
Distributions from Net Investment Income................. .025 .470 .199 .0925
Distributions from Net Realized Gain..................... .246 1.549 .091 -0-
------- ------- ------- -------
Total Distributions........................................ .271 2.019 .290 .0925
------- ------- ------- -------
Net Asset Value, End of the Period......................... $13.759 $15.846 $14.784 $ 10.74
======= ======= ======= =======
Total Return*.............................................. (11.62%) 21.47% 40.53% 8.35%**
Net Assets at End of the Period (In millions).............. $ 208.8 $ 299.4 $ 167.5 $ 8.6
Ratio of Expenses to Average Net Assets*................... 1.08% 1.07% 1.10% 2.50%
Ratio of Net Investment Income to Average Net Assets*...... 4.72% 3.42% 5.06% 3.75%
Portfolio Turnover......................................... 110% 177% 84% 85%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets.................... N/A N/A 1.27% 2.90%
Ratio of Net Investment Income to Average Net Assets....... N/A N/A 4.89% 3.36%
</TABLE>
** Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
103
<PAGE> 105
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN LIFE INVESTMENT TRUST
STRATEGIC STOCK PORTFOLIO
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 16.51%
Life-of-Portfolio average annual total return based on
NAV(1).................................................... 16.55%
Commencement date........................................... 11/03/97
</TABLE>
(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.
See the Prior Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Portfolio shares may decline.
Past performance does not guarantee future results. Investment return and net
asset value will fluctuate with market conditions. Market volatility may have
adversely affected fund performance since December 31, 1998. Portfolio shares,
when redeemed, may be worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Portfolio will vary upon the Portfolio's investment
performance. Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign countries,
and the potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
104
<PAGE> 106
PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE
STRATEGIC STOCK PORTFOLIO
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A comparison of your Portfolio's performance to an applicable benchmark can:
- Illustrate the market environment in which your investments are being
managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Portfolio's management team has responded to
opportunities and challenges.
The following graph compares your Portfolio's performance to that of the Dow
Jones Industrial Average and the Morgan Stanley Capital International (MSCI)
U.S.A. Index over time. These indexes are broad-based, statistical composites
that do not include any commissions that would be paid by an investor purchasing
the securities they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Life Investment Trust--Strategic Stock Portfolio vs. the Dow
Jones Industrial Average and the Morgan Stanley Capital International (MSCI)
U.S.A. Index (November 3, 1997 through December 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN LITSTRATEGIC DOW JONES INDUSTRIAL
STOCK PORTFOLIO AVERAGE MSCI U.S.A. INDEX
----------------------- -------------------- -----------------
<S> <C> <C> <C>
Nov 1997 10000 10000 10000
10290 10194 10472
Dec 1998 10250 10351 10614
10320 10348 10739
10940 11185 11479
Mar 1998 11442 11565 12062
11382 11911 12191
11362 11697 11933
Jun 1998 11262 11814 12433
11282 11723 12297
10161 9949 10572
Sep 1998 10641 10401 11254
11372 11395 12112
11893 12090 12921
Dec 1998 11943 12228 13670
</TABLE>
The above chart reflects the performance of the Portfolio. The Portfolio's
performance assumes reinvestment of all distributions and is shown at net asset
value.
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Portfolio's performance found in the following pages.
105
<PAGE> 107
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 Stephen L. Boyd, chief investment officer for
equity investments.
Q
CAN YOU DESCRIBE THE STOCK MARKET ENVIRONMENT FOR THE PORTFOLIO DURING THE
PAST 12 MONTHS?
A
For the year overall, the market benefited from low inflation and new cash
flows into stocks. The stock market performed extremely well through
mid-July, when the Dow Jones Industrial Average set a then-record high.
Trouble was on the horizon, however, as the markets feared that many U.S.
companies would announce earnings problems resulting from exposure to lagging
international economies. Investors became increasingly concerned after severe
economic problems in Russia and the near-failure of a large hedge fund
threatened financial stability. By August 31 the Dow had fallen 19 percent from
its high.
Beginning in September conditions began to improve. Inflation remained tame,
enabling the Federal Reserve Board to lower interest rates in September and then
again in October and November. By October, companies began to report
better-than-expected third-quarter earnings, reminding investors that the U.S.
economy, though slowing, was still fundamentally solid. The volatile stock
market began to rise again, with the Dow setting a new record in November before
declining modestly from its high by year end.
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 the nearly 370 large-company stocks that comprise the Morgan
Stanley Capital International-USA Index. We exclude the 30 stocks of the Dow and
all utility and financial stocks. The remaining securities are screened for
quality 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 at the time of investment, and the other half
of the Portfolio's new assets are invested in equal amounts of these stocks each
month.
By limiting our investments to these two indices, we select from a pool of
high-quality U.S. companies. Also, because stocks with high dividend yields tend
to be undervalued, our strategy pinpoints 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--so there are 12
separate "baskets" of stocks. Each basket is sold after 12 months, and a
new basket of 20 stocks is purchased to replace it. The Portfolio sold its
first basket of stocks on December 1, 1998.
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 stock selection process, the Portfolio is rotated every month
to purchase stocks that may be undervalued in the marketplace and sell stocks
that have had a full 12 months to potentially rebound to their fair values. It
has been our experience that solid, well-established companies don't often
languish at reduced valuations. Their true worth is usually recognized over
time. Our strategy gives each stock a 12-month window to achieve its
appreciation potential. At the same time, these stocks have relatively high
dividend yields, so they boost returns by providing investors with income
potential.
106
<PAGE> 108
Q
WHICH STOCKS HAD THE GREATEST EFFECT ON THE PORTFOLIO'S PERFORMANCE?
A
The Portfolio's largest holdings are stocks that passed our screens every
month and therefore were purchased repeatedly throughout the year. These
stocks include familiar names such as Philip Morris, General Motors,
Chevron, and Exxon.
The stocks that most significantly contributed to the Portfolio's total
return for the year included Philip Morris, AMP, and AT&T. Tobacco stocks such
as Philip Morris performed well after an industry settlement of tobacco
liabilities; the company's stock price rose nearly 17 percent during the
reporting period. AMP's stock appreciated when the company agreed to be
purchased at a premium by Tyco International. AT&T, meanwhile, has received the
Department of Justice's approval for a merger with cable concern TCI. AT&T,
whose stock price rose 23 percent between early January and December, plans to
enter the local telephone market through cable connections.
Unfortunately, several stocks in the Portfolio significantly underperformed
the market, hurting the Portfolio. These stocks included Deere, Harris, and
Minnesota Mining & Manufacturing (3M)--each of which suffered declining sales
and earnings resulting from the global economic slowdown.
Q
HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A
The Portfolio achieved a 12-month total return of 16.51 percent(1) as of
December 31, 1998. By comparison, the Standard & Poor's 500-Stock Index
returned 28.52 percent, the Dow Jones Industrial Average returned 18.14
percent, and the MSCI-USA Index returned 28.79 percent 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 104 for additional performance results.
Q
WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A
We are optimistic about the stock market in the long term but anticipate
continued volatility as we head into 1999. With solid fundamentals and low
inflation, the U.S. economy is still growing, albeit more slowly than in
recent years. At the same time, economies around the world face challenges
ahead, which could put pressure on next year's U.S. corporate earnings. The
"Year 2000" computer problem also adds questions to the mix. During periods of
market uncertainty, investors often look to purchase stock in large,
well-established companies with a history of high dividend yields. We believe
that the Strategic Stock Portfolio, which purchases stock in only these types of
companies, may represent an attractive option for such investors.
/s/ John M. Cunniff
- -------------------
John M. Cunniff
Portfolio Manager
Strategic Stock Portfolio
/s/ Stephen L. Boyd
- -------------------
Stephen L. Boyd
Chief Investment Officer
Equity Investments
Please see footnotes on page 104
107
<PAGE> 109
STRATEGIC STOCK PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 98.1%
CONSUMER DISTRIBUTION 6.9%
Limited, Inc................................................ 13,490 $ 392,896
May Department Stores Co.................................... 10,620 641,183
SUPERVALU, Inc.............................................. 4,410 123,480
SYSCO Corp.................................................. 11,810 324,037
-----------
1,481,596
-----------
CONSUMER DURABLES 18.2%
DaimlerChrysler, AG......................................... 3,491 335,354
Eastman Kodak Co............................................ 12,770 919,440
General Motors Corp......................................... 14,740 1,054,832
Genuine Parts Co............................................ 25,820 863,356
Goodyear Tire & Rubber Co................................... 2,010 101,379
Maytag Corp................................................. 2,950 183,638
Newell Co................................................... 10,530 434,363
-----------
3,892,362
-----------
CONSUMER NON-DURABLES 13.9%
AMP, Inc.................................................... 12,690 660,672
Anheuser-Busch Cos., Inc.................................... 5,660 371,437
Avon Products, Inc.......................................... 5,610 248,243
Campbell Soup Co............................................ 3,690 202,950
Clorox Co................................................... 1,460 170,546
H. J. Heinz Co.............................................. 2,300 130,238
Philip Morris Cos., Inc..................................... 22,290 1,192,515
-----------
2,976,601
-----------
ENERGY 11.9%
Amoco Corp.................................................. 3,100 187,162
Chevron Corp................................................ 12,070 1,001,056
Exxon Corp.................................................. 13,980 1,022,288
Mobil Corp.................................................. 1,910 166,409
Tidewater, Inc.............................................. 1,610 37,332
USX -- Marathon Group....................................... 4,640 139,780
-----------
2,554,027
-----------
FINANCE 4.3%
JP Morgan & Co., Inc........................................ 8,780 922,449
-----------
HEALTHCARE 5.8%
Abbott Laboratories, Inc.................................... 11,150 546,349
American Home Products Corp................................. 12,410 698,837
-----------
1,245,186
-----------
PRODUCER MANUFACTURING 13.6%
Caterpillar, Inc............................................ 13,960 642,160
Deere & Co.................................................. 10,570 350,131
Fluor Corp.................................................. 7,190 306,024
Milacron, Inc............................................... 5,980 115,115
Minnesota Mining & Manufacturing Co......................... 12,010 854,211
Parker-Hannifin Corp........................................ 8,990 294,423
Textron, Inc................................................ 4,560 346,275
-----------
2,908,339
-----------
</TABLE>
See Notes to Financial Statements
108
<PAGE> 110
STRATEGIC STOCK PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 11.0%
Air Products & Chemicals, Inc............................... 11,140 $ 445,599
E. I. Du Pont de Nemours & Co............................... 11,060 586,871
International Paper Co...................................... 18,280 819,173
PPG Industries, Inc......................................... 1,180 68,735
Sherwin-Williams Co......................................... 11,620 341,338
Union Carbide Corp.......................................... 1,910 81,175
-----------
2,342,891
-----------
TECHNOLOGY 3.3%
General Dynamics Corp....................................... 5,800 340,025
Harris Corp................................................. 10,130 371,011
-----------
711,036
-----------
TRANSPORTATION 0.6%
Norfolk Southern Corp....................................... 4,340 137,524
-----------
UTILITIES 8.6%
AT&T Corp................................................... 10,990 826,997
Bell Atlantic Corp.......................................... 2,690 152,826
BellSouth Corp.............................................. 4,220 210,473
SBC Communications, Inc..................................... 11,980 642,428
-----------
1,832,724
-----------
TOTAL LONG-TERM INVESTMENTS 98.1%
(Cost $19,786,130).............................................. 21,004,735
REPURCHASE AGREEMENT 2.6%
Warburg Dillon Read ($550,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/98, to be sold on
01/04/99 at $550,290)
(Cost $550,000)................................................... 550,000
-----------
TOTAL INVESTMENTS 100.7%
(Cost $20,336,130)................................................ 21,554,735
LIABILITIES IN EXCESS OF OTHER ASSETS (0.7%)....................... (145,879)
-----------
NET ASSETS 100.0%.................................................. $21,408,856
-----------
</TABLE>
See Notes to Financial Statements
109
<PAGE> 111
STRATEGIC STOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $20,336,130)........................ $21,554,735
Cash........................................................ 3,690
Receivables:
Dividends................................................. 40,726
Portfolio Shares Sold..................................... 8,083
Expense Reimbursement by Adviser.......................... 6,697
Unamortized Organizational Costs............................ 30,750
-----------
Total Assets.......................................... 21,644,681
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 201,124
Distributor and Affiliates................................ 6,723
Portfolio Shares Repurchased.............................. 71
Accrued Expenses............................................ 21,226
Trustees' Deferred Compensation and Retirement Plans........ 6,681
-----------
Total Liabilities..................................... 235,825
-----------
NET ASSETS.................................................. $21,408,856
===========
NET ASSETS CONSIST OF:
Capital..................................................... $19,933,653
Net Unrealized Appreciation................................. 1,218,605
Accumulated Undistributed Net Investment Income............. 228,802
Accumulated Net Realized Gain............................... 27,796
-----------
NET ASSETS.................................................. $21,408,856
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $21,408,856 and 1,794,237 shares
of beneficial interest issued and outstanding).......... $ 11.93
===========
</TABLE>
See Notes to Financial Statements
110
<PAGE> 112
STRATEGIC STOCK PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 278,342
Interest.................................................... 24,590
----------
Total Income............................................ 302,932
----------
EXPENSES:
Investment Advisory Fee..................................... 56,672
Accounting.................................................. 17,468
Audit....................................................... 16,890
Reports to Shareholders..................................... 13,816
Trustees' Fees and Expenses................................. 9,485
Amortization of Organizational Costs........................ 9,250
Custody..................................................... 8,535
Shareholder Services........................................ 8,495
Legal....................................................... 1,239
Other....................................................... 1,011
----------
Total Expenses.......................................... 142,861
Less Fees Waived and Expenses Reimbursed ($56,672 and
$12,100, respectively)................................. 68,772
----------
Net Expenses............................................ 74,089
----------
NET INVESTMENT INCOME....................................... $ 228,843
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 27,796
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 6,835
End of the Period:
Investments............................................. 1,218,605
----------
Net Unrealized Appreciation During the Period............... 1,211,770
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,239,566
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,468,409
==========
</TABLE>
See Notes to Financial Statements
111
<PAGE> 113
STRATEGIC STOCK PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1998 and the Period November 3, 1997
(Commencement of Investment Operations) to December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 228,843 $ 6,576
Net Realized Gain........................................... 27,796 -0-
Net Unrealized Appreciation During the Period............... 1,211,770 6,835
----------- -----------
Change in Net Assets from Operations........................ 1,468,409 13,411
Distributions from Net Investment Income.................... (6,617) -0-
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 1,461,792 13,411
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 19,135,086 2,312,791
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 6,375 -0-
Cost of Shares Purchased.................................... (1,720,599) -0-
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 17,420,862 2,312,791
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 18,882,654 2,326,202
NET ASSETS:
Beginning of the Period..................................... 2,526,202 200,000
----------- -----------
End of Period (Including accumulated undistributed net
investment income of $228,802 and $6,576, respectively)... $21,408,856 $ 2,526,202
=========== ===========
</TABLE>
See Notes to Financial Statements
112
<PAGE> 114
STRATEGIC STOCK PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Portfolio outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 3, 1997
(Commencement
of Investment
Year Ended Operations) to
December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period.................... $10.245 $10.000
------- -------
Net Investment Income..................................... .113 .027
Net Realized and Unrealized Gain.......................... 1.586 .218
------- -------
Total from Investment Operations............................ 1.699 .245
Less Distributions from Net Investment Income............... .012 -0-
------- -------
Net Asset Value, End of the Period.......................... $11.932 $10.245
======= =======
Total Return*............................................... 16.51% 2.45%**
Net Assets at End of the Period (In millions)............... $ 21.4 $ 2.5
Ratio of Expenses to Average Net Assets*.................... .65% .61%
Ratio of Net Investment Income to Average Net Assets*....... 2.01% 2.67%
Portfolio Turnover.......................................... 10% 0%**
* If certain expenses had not been assumed by Van Kampen,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.25% 2.59%
Ratio of Net Investment Income to Average Net Assets........ 1.41% .68%
</TABLE>
** Non-Annualized
See Notes to Financial Statements
113
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Life Investment Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company comprised of ten Portfolios: Asset Allocation Portfolio
("Asset Allocation"), Domestic Income Portfolio ("Domestic"), Emerging Growth
Portfolio ("Emerging Growth"), Enterprise Portfolio ("Enterprise"), Global
Equity Portfolio ("Global Equity"), Government Portfolio ("Government"), Growth
and Income Portfolio ("Growth and Income"), Money Market Portfolio ("Money
Market"), Morgan Stanley Real Estate Securities Portfolio ("Real Estate") and
Strategic Stock Portfolio ("Strategic Stock") (collectively the "Portfolios").
Each Portfolio is accounted for as a separate entity.
The goals of the Portfolios are as follows: Asset Allocation seeks a high
total investment return consistent with prudent risk; Domestic seeks income as
its primary objective and capital appreciation as a secondary objective;
Emerging Growth seeks capital appreciation by investing principally in common
stocks of small and medium sized companies; Enterprise seeks capital
appreciation by investing principally in common stocks; Global Equity seeks
long-term growth of capital through an internationally diversified portfolio of
equity securities of any nation, including the United States; Government seeks
high current return consistent with preservation of capital; Growth and Income
seeks long-term growth of capital and income by investing primarily in
income-producing equity securities including common stocks and convertible
securities; Money Market seeks protection of capital and high current income by
investing in short-term money market instruments; Real Estate seeks long-term
growth of capital by investing principally in securities of companies operating
in the real estate industry; and Strategic Stock seeks an above average total
return consistent with the preservation of invested capital, by investing
primarily in a portfolio of dividend paying equity securities included in the
Dow Jones Industrial Average or the Morgan Stanley Capital International USA
Index.
The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments in securities listed on a securities exchange
are valued at their sales price as of the close of such securities exchange.
Fixed income investments are stated at value using market quotations or
indications of value obtained from an independent pricing service. For those
securities where prices or quotations are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. The security valuation methodology, for fixed income investments
and unlisted securities and listed securities for which the last sales price is
not available, was changed in 1998 from bid side pricing to the mean of the bid
and asked prices. The impact of the change, which was not considered material,
is included as a component of the change in unrealized appreciation/depreciation
for the year ended December 31, 1998. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost. For Money Market,
all investments are valued at amortized cost.
Domestic's investments include lower rated and unrated debt securities
which may be more susceptible to a decline in value due to adverse economic
conditions than other investment grade holdings. These securities are often
subordinated to the prior claims of other senior lenders and uncertainties exist
as to an issuer's ability to meet principal and interest payments. Debt
securities rated below investment grade and comparable unrated securities
represented approximately 28% of Domestic's net assets at December 31, 1998.
114
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Portfolios may purchase and sell securities on a "when issued" or "delayed
delivery" basis, with settlement to occur at a later date. The value of the
security so purchased is subject to market fluctuations during this period. The
Portfolios will maintain, in a segregated account with its custodian, assets
having an aggregate value at least equal to the amount of the when issued or
delayed delivery purchase commitments until payment is made.
The Portfolios may invest in repurchase agreements which are short-term
investments in which the Portfolios acquire ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Portfolios may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Portfolios will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of the custodian bank. The
seller is required to maintain the value of the underlying security at not less
than the repurchase proceeds due the Portfolios.
C. INCOME AND EXPENSES--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Discounts on debt securities
purchased are amortized over the expected life of each applicable security.
Premiums on debt securities are not amortized.
D. ORGANIZATIONAL COSTS--Emerging Growth, Global Equity and Real Estate have
reimbursed Van Kampen Funds Inc. or its affiliates (collectively "Van Kampen")
for costs incurred in connection with each Portfolio's organization in the
amount of $6,828 per Portfolio. These costs are being amortized on a straight
line basis over the 60 month period ending July 2, 2000. The Adviser has agreed
that in the event any of the initial shares of the Portfolios originally
purchased by Van Kampen are redeemed during the amortization period, the
Portfolios will be reimbursed for any unamortized organizational costs in the
same proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is each Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
Each Portfolio intends to utilize provisions of the federal income tax
laws which allow each Portfolio to carry a realized capital loss forward for
eight years following the year of the loss and offset such losses against any
future realized capital gains. The following table presents the capital loss
carryforward at December 31, 1998 along with its expiration dates. The table
also presents the identified cost of investments, including foreign currencies,
at December 31, 1998 for federal income tax purposes with the associated gross
unrealized
115
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
appreciation, gross unrealized depreciation and net unrealized appreciation/
depreciation on investments and foreign currency.
<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Realized capital loss
carryforward................ -- $ 1,171,850 $ 1,676,588 -- $ 5,428
Expiration dates of
capital loss
carryforward................ -- 1999-2006 2004-2006 -- 2006
Amount expiring on
12/31/99.................... -- $ 409,491 -- -- --
Identified cost............... $53,021,192 $17,035,970 $24,251,612 $79,388,485 $ 2,532,710
Gross unrealized
appreciation................ 9,195,173 958,568 10,403,408 44,478,452 1,058,770
Gross unrealized
depreciation................ 523,508 267,368 311,896 855,580 183,626
Net unrealized
appreciation/depreciation... 8,671,665 691,200 10,091,512 43,622,872 875,144
</TABLE>
<TABLE>
<CAPTION>
GROWTH
AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Realized capital loss
carryforward................ $ 7,323,324 $ 289,636 $ 1,725 $ 3,603,556 --
Expiration dates of
capital loss
carryforward................ 2000-2004 2006 2003-2006 2006 --
Amount expiring on
12/31/99.................... -- -- -- -- --
Identified cost............... $69,076,232 $28,113,046 $26,565,619 $215,307,454 $20,369,570
Gross unrealized
appreciation................ 1,892,183 4,867,800 -- 7,976,805 2,089,399
Gross unrealized
depreciation................ 88,509 737,808 -- 17,601,764 904,234
Net unrealized
appreciation/depreciation... 1,803,674 4,129,992 -- (9,624,959) 1,185,165
</TABLE>
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
the deferral of losses for tax purposes resulting from wash sales.
F. DISTRIBUTION OF INCOME AND GAINS--Money Market declares dividends from net
investment income and net realized gain/loss on each business day. Asset
Allocation, Domestic, Emerging Growth, Enterprise, Global Equity, Government,
Growth and Income, Real Estate and Strategic Stock declare dividends from net
investment income and net realized gains, if any, annually. Distributions from
net realized gains for book purposes may include short-term capital gains and
gains on option and futures transactions. All short-term capital gains and a
portion of option and futures gains are included in ordinary income for tax
purposes.
116
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
For federal income tax purposes, the following information is furnished
with respect to the distributions paid by the Portfolio during its taxable year
ended December 31, 1998.
<TABLE>
<CAPTION>
20% RATE GAIN
PORTFOLIO DISTRIBUTION
----------------------------------------------------------------
<S> <C>
Asset Allocation.................................. $1,045,830
Enterprise........................................ 778,167
Real Estate....................................... 1,553,350
</TABLE>
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and for
federal income tax purposes, the amount of distributable net investment income
may differ between book and federal income tax purposes for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods. The
following permanent differences between book and tax basis reporting for the
1998 fiscal year have been identified and appropriately reclassified.
<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH EQUITY GOVERNMENT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accumulated Undistributed Net Investment
Income................................. $1,091 (b) $(25,606)(b) $ 32,565 (d) $ 2,780 (a) $ 16,566(b)
Accumulated Net Realized Gain/Loss....... (1,091)(b) 186,371 (b)(c) -- (2,780)(a) 1,598,775(b)(c)
Capital.................................. -- (160,765)(c) (32,565)(d) -- (1,615,341)(c)
</TABLE>
(a) For federal income tax purposes, realized gains and losses on transactions
in foreign currencies are included as ordinary income. These realized gains
and losses are included in net realized gain/loss for financial reporting
purposes and have been reclassified from accumulated net realized gain/loss
to accumulated undistributed net investment income.
(b) Accretion of market discounts on bonds and paydowns of mortgage pool
obligations are recognized as ordinary income/loss for federal income tax
purposes but as realized gains or losses for book purposes. These permanent
differences have been reclassified from accumulated net realized gain/loss
to accumulated undistributed net investment income.
(c) At December 31, 1998, all or a portion of capital loss carryforward expired
creating a permanent difference between book and tax basis reporting. These
items have been reclassified from accumulated net realized loss to capital.
(d) A permanent difference related to a net operating loss has been reclassified
from accumulated undistributed net investment income to capital.
G. FOREIGN CURRENCY TRANSLATION--The market values of foreign securities,
forward currency exchange contracts and other assets and liabilities denominated
in a foreign currency are translated into U.S. dollars based on quoted exchange
rates as of noon Eastern Standard Time. The cost of securities is determined
using historical exchange rates. Income and expenses are translated at
prevailing exchange rates when accrued or incurred. Gains and losses on the sale
of securities are not segregated for financial reporting purposes between
amounts arising from changes in exchange rates and amounts arising from changes
in the market prices of securities. Realized gain and loss on foreign currency
includes the net realized amount from the sale of currency and the amount
realized between trade date and settlement date on security transactions.
117
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly based upon the average daily net assets as follows:
<TABLE>
<S> <C>
- ----------------------------------------------------------------
Asset Allocation, Domestic, Enterprise, Government
and Money Market (based upon their combined net assets)
First $500 million................................. .50%
Next $500 million.................................. .45%
Over $1 billion.................................... .40%
(The resulting fee is prorated to each of these
Portfolios based upon
their respective average daily net assets.)
Emerging Growth......................................... .70%
Global Equity........................................... 1.00%
Growth and Income
First $500 million................................. .60%
Over $500 million.................................. .55%
Real Estate............................................. 1.00%
Strategic Stock......................................... .50%
</TABLE>
In relation to Global Equity and Real Estate, the Adviser has entered
into subadvisory agreements, dated April 1, 1997 and October 1, 1998,
respectively, with Morgan Stanley Dean Witter Investment Management Inc. (the
"Subadviser") to provide advisory services to these Portfolios and the Adviser
with respect to these Portfolios' investments. For these services, the Adviser
pays 50% of its advisory fees to the Subadviser.
Under the terms of the advisory agreement, if the total ordinary business
expenses, exclusive of taxes, distribution fees and interest, exceed .95% of the
average daily net assets of Asset Allocation, Domestic, Enterprise, Government
or Money Market, the Adviser will reimburse the Portfolio for the amount of the
excess. Additionally, the Adviser has voluntarily agreed to reimburse the
Portfolios for all expenses as a percent of average daily net assets in excess
of the following:
<TABLE>
<S> <C>
- ----------------------------------------------------------------
Asset Allocation, Domestic, Enterprise, Government and
Money Market............................................ .60%
Emerging Growth......................................... .85%
Global Equity........................................... 1.20%
Growth and Income....................................... .75%
Real Estate............................................. 1.10%
Strategic Stock......................................... .65%
</TABLE>
118
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
Other transactions with affiliates during the year ended December 31,
1998 were as follows:
<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounting....................... $33,100 $23,600 $22,900 $42,800 $38,100
Shareholder servicing agent's
fees........................... 14,600 14,500 14,600 14,700 14,600
Legal (Skadden Arps)............. 2,600 1,200 200 1,800 100
</TABLE>
<TABLE>
<CAPTION>
GROWTH
AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounting....................... $32,700 $24,500 $25,200 $73,500 $17,500
Shareholder servicing agent's
fees........................... 14,300 14,900 14,600 14,500 7,600
Legal (Skadden Arps)............. 3,100 600 900 9,400 1,200
</TABLE>
Accounting services are provided by Van Kampen at cost. Van Kampen
Investor Services Inc. ("VKIS"), an affiliate of the Adviser, serves as the
shareholder servicing agent for the Portfolios. Beginning in 1998, the transfer
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive benchmarks. Legal services are provided by
Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Portfolios, of
which a trustee of the Portfolios is an affiliated person.
Certain officers and trustees of the Portfolios are also officers and
directors of Van Kampen. The Portfolios do not compensate their officers or
trustees who are officers of Van Kampen.
The Portfolios provide deferred compensation and retirement plans for
their trustees who are not officers of Van Kampen. Under the deferred
compensation plan, trustees may elect to defer all or a portion of their
compensation to a later date. Benefits under the retirement plan are payable for
a ten-year period and are based upon each trustee's years of service to the
Trust. The maximum annual benefit per trustee under the plan is $2,500 per
portfolio.
At December 31, 1998, Van Kampen owned 10 shares of Emerging Growth,
95,241 shares of Global Equity, 51,021 shares of Growth and Income, 10 shares of
Real Estate, and 20,000 shares of Strategic Stock.
3. CAPITAL TRANSACTIONS
The Portfolios have outstanding shares of beneficial interest with a par value
of $.01 per share. There are an unlimited number of shares authorized.
119
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, share transactions were as follows:
<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares.......... 5,314,563 2,084,276 637,815 5,452,063 270,266
Sales..................... 330,901 719,808 1,341,978 1,178,203 64,891
Dividend Reinvestment..... 153,034 5,259 260 59,530 2,004
Repurchases............... (1,206,541) (760,734) (502,294) (1,170,972) (83,467)
----------- ----------- ----------- ----------- ----------
Ending Shares............. 4,591,957 2,048,609 1,477,759 5,518,824 253,694
=========== =========== =========== =========== ==========
Capital at 12/31/98....... $44,946,853 $17,202,927 $25,032,872 $70,347,091 $2,502,119
=========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares......... 5,892,077 966,202 19,740,568 18,894,267 246,576
Sales.................... 1,196,357 1,366,787 31,396,945 6,057,194 1,699,551
Dividend Reinvestment.... 58,944 1,387 1,061,846 326,458 557
Repurchases.............. (1,200,104) (108,731) (25,489,643) (10,099,763) (152,447)
---------- ---------- ----------- ------------ -----------
Ending Shares............ 5,947,274 2,225,645 26,709,716 15,178,156 1,794,237
========== ========== =========== ============ ===========
Capital at 12/31/98...... 60,130,308 28,125,068 $26,709,716 $211,310,668 $19,933,653
========== ========== =========== ============ ===========
</TABLE>
At December 31, 1998, with the exception of Van Kampen's ownership of
shares of certain portfolios, two insurance companies or their separate accounts
were record owners of all but a de minimus number of the shares of each
Portfolio.
For the year ended December 31, 1997, share transactions were as follows:
<TABLE>
<CAPTION>
ASSET EMERGING GLOBAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares.......... 5,633,242 2,472,121 379,065 5,214,950 215,901
Sales..................... 223,088 659,893 559,402 869,947 116,532
Dividend Reinvestment..... 754,688 165,298 -0- 810,210 32,495
Repurchases............... (1,296,455) (1,213,036) (300,652) (1,443,044) (94,662)
----------- ----------- ----------- ------------ ----------
Ending Shares............. 5,314,563 2,084,276 637,815 5,452,063 270,266
=========== =========== =========== ============ ==========
Capital at 12/31/97.......$53,888,909 $17,644,290 $ 8,818,482 $ 68,610,247 $2,701,945
=========== =========== =========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND MONEY REAL STRATEGIC
GOVERNMENT INCOME MARKET ESTATE STOCK
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Shares.......... 6,606,459 50,000 19,565,725 11,328,283 20,000
Sales..................... 302,118 901,291 22,688,459 17,318,837 226,576
Dividend Reinvestment..... 384,650 16,456 1,057,591 2,157,294 -0-
Repurchases............... (1,401,150) (1,545) (23,571,207) (11,910,147) -0-
----------- ----------- ------------ ------------ ----------
Ending Shares............. 5,892,077 966,202 19,740,568 18,894,267 246,576
=========== =========== ============ ============ ==========
Capital at 12/31/97....... $61,104,562 $11,202,241 $ 19,740,568 $263,842,945 $2,512,791
=========== =========== ============ ============ ==========
</TABLE>
120
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
including principal paydowns and excluding forward commitment transactions and
short-term investments, were:
<TABLE>
<CAPTION>
GROWTH
ASSET EMERGING GLOBAL AND REAL
ALLOCATION DOMESTIC GROWTH ENTERPRISE EQUITY GOVERNMENT INCOME ESTATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............ $52,264,021 $8,694,540 $31,735,818 $86,162,741 $ 86,783 $57,453,273 $28,694,756 $267,958,559
Sales................ 60,256,549 7,610,889 16,053,406 86,566,763 308,616 55,194,280 13,416,283 299,334,436
<CAPTION>
STRATEGIC
STOCK
- --------------------- -----------
<S> <C>
Purchases............ $18,505,816
Sales................ 1,075,078
</TABLE>
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Portfolios have a variety of reasons to use derivative instruments,
such as to attempt to protect the Portfolios against possible changes in the
market value of its portfolio, manage the Portfolio's effective yield, foreign
currency exposure, maturity and duration or to generate potential gain. All of
the Portfolios' holdings, including derivative instruments, are marked to market
each day with the change in value reflected in unrealized appreciation/
depreciation. Upon disposition, a realized gain or loss is recognized
accordingly, except when taking delivery of a security underlying a futures or
forward contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures or forward
contract.
Summarized below are the specific types of derivative financial
instruments used by the Portfolios.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
fixed income Portfolios generally invest in futures on U.S. Treasury Bonds and
Notes. The equity Portfolios generally invest in S&P 500 Index Futures. Upon
entering into futures contracts, the Portfolios maintain, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
Transactions in futures contracts for the year ended December 31, 1998,
were as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
-------------------------------
GOVERNMENT GROWTH AND INCOME
- -------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997..................... 98 -0-
Futures Opened....................................... 1,912 14
Futures Closed....................................... (1,856) (9)
------ ------
Outstanding at December 31, 1998..................... 154 5
====== ======
</TABLE>
121
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The futures contracts outstanding at December 31, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT
LONG CONTRACTS
U.S. Treasury Bonds--March 1999
(Current notional value of $127,781 per contract).... 60 $(8,871)
SHORT CONTRACTS
5-year U.S. Treasury Notes--March 1999
(Current notional value of $113,344 per contract).... 24 8,241
10-year U.S. Treasury Notes--March 1999
(Current notional value of $119,156 per contract).... 70 26,468
--- -------
154 $25,838
=== =======
GROWTH AND INCOME
LONG CONTRACTS
S&P 500 Index Futures -- March 1999
(Current notional value of $311,375 per contract).... 5 $52,417
=== =======
</TABLE>
B. FORWARD COMMITMENTS--Domestic, Global Equity, Government and Real Estate may
trade certain securities under the terms of forward commitments, whereby the
settlement for payment and delivery occurs at a specified future date. Forward
commitments are privately negotiated transactions between the Portfolio and
dealers. Upon executing a forward commitment and during the period of
obligation, the Portfolio maintains collateral of cash or securities in a
segregated account with its custodian in an amount sufficient to relieve the
obligation. If the intent of the Portfolio is to accept delivery of a security
traded under a forward bond purchase commitment, the commitment is recorded as a
long-term purchase. For forward bond purchase commitments for which security
settlement is not intended by the Portfolio, changes in the value of the
commitment are recognized by marking the commitment to market on a daily basis
with changes in value reflected as a component of unrealized
appreciation/depreciation. A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Upon the settlement of the contract, a realized gain or loss is recognized
and is included as a component of realized gain/loss on forwards. Purchasing
securities on a forward commitment involves a risk that the market value at the
time of delivery may be lower than the agreed upon purchase price resulting in
an unrealized loss. Selling securities on a forward commitment involves
different risks and can result in losses more significant than those arising
from the purchase of such securities. During the term of the commitment, the
Portfolio may sell the forward commitment and enter into a new forward
commitment, the effect of which is to extend the settlement date. In addition,
the Portfolio may occasionally close such forward commitments prior to delivery.
Risks may arise as a result of the potential liability of the counterparties to
meet the terms of their contracts. The Portfolio's market exposure from these
positions is equal to the Current Value noted below.
122
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The forward bond commitments outstanding as of December 31, 1998 for
which settlement is not intended, and the description and unrealized
appreciation are as follows:
<TABLE>
<CAPTION>
PAR AMOUNT CURRENT UNREALIZED
(000) DESCRIPTION VALUE APPRECIATION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT
LONG CONTRACTS
$2,000 FNMA 15 Yr Jan Dwarf Forward, 6.000%, 05/01/08
maturity.............................................. $2,005,000 $ 625
===========
</TABLE>
The forward currency contracts outstanding as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- -------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL EQUITY
LONG CONTRACTS
Japanese Yen, 3,590,501 expiring 01/11/99................. $ 31,807 $ 577
Japanese Yen, 3,017,000 expiring 01/19/99................. 26,755 677
Japanese Yen, 3,565,000 expiring 02/04/99................. 31,681 793
Japanese Yen, 924,400 expiring 02/08/99................... 8,219 208
Japanese Yen, 2,029,885 expiring 02/26/99................. 18,092 500
Singapore Dollar, 33,000 expiring 03/08/99................ 20,108 (61)
-------- ------
$136,662 2,694
======== ------
SHORT CONTRACTS
Japanese Yen, 3,590,500 expiring 01/11/99................. $ 31,807 (1,807)
Japanese Yen, 3,017,000 expiring 01/19/99................. 26,755 (701)
Japanese Yen, 3,565,000 expiring 02/04/99................. 31,681 (178)
Japanese Yen, 924,400 expiring 02/08/99................... 8,219 (219)
Japanese Yen, 2,029,885 expiring 02/26/99................. 18,092 (1,102)
Singapore Dollar, 33,000 expiring 03/08/99................ 20,108 137
-------- ------
$136,662 (3,870)
======== ------
$(1,176)
======
</TABLE>
123
<PAGE> 125
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Life Investment Trust
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Asset Allocation Portfolio,
Domestic Income Portfolio, Emerging Growth Portfolio, Enterprise Portfolio,
Global Equity Portfolio, Government Portfolio, Growth and Income Portfolio,
Money Market Portfolio, Morgan Stanley Real Estate Securities Portfolio and
Strategic Stock Portfolio (constituting Van Kampen Life Investment Trust,
hereafter referred to as the "Trust") at December 31, 1998, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 8, 1999
124
<PAGE> 126
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
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
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor 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.VANKAMPEN.COM -- to view a prospectus, select
Download 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.VANKAMPEN.COM and selecting Contact Us
125
<PAGE> 127
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
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISOR
(GLOBAL EQUITY PORTFOLIO AND
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO)
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1585 Broadway
New York, NY 10036
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
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, Illinois 60601
TAX NOTICE TO CORPORATE
SHAREHOLDERS
The following represents the percentage of 1998 income distributions paid by
the designated fund which qualify for the 70% dividends received deduction
for corporations:
Asset Allocation Portfolio............................................ 11.39%
Domestic Income Portfolio............................................. 4.61%
Enterprise Portfolio.................................................. 16.47%
Global Equity Portfolio............................................... 35.07%
Growth and Income Portfolio........................................... 32.26%
Strategic Stock Portfolio.............................................100.00%
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 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
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data.
126
<PAGE> 128
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
127
<PAGE> 129
VAN KAMPEN FUNDS
YOUR NOTES:
128
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<NAME> LIT EMG CLASS A
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<NAME> LIT GLOBAL EQUITY
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</TABLE>
<TABLE> <S> <C>
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<NAME> LIT MONEY MARKET
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.049
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<PER-SHARE-DIVIDEND> (0.049)
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<PER-SHARE-NAV-END> 1.000
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 51
<NAME> LIT ASSET ALLOCATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<SHARES-COMMON-PRIOR> 5,314,563
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<DIVIDEND-INCOME> 736,979
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<EXPENSES-NET> (370,004)
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (67,589)
<DISTRIBUTIONS-OF-GAINS> (1,826,978)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 330,901
<NUMBER-OF-SHARES-REDEEMED> (1,206,541)
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<TABLE> <S> <C>
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<NAME> LIT REAL ESTATE
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
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<SERIES>
<NUMBER> 91
<NAME> LIT GROWTH & INC
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<S> <C>
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<PERIOD-START> JAN-01-1998
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<SERIES>
<NUMBER> 101
<NAME> LIT STRATEGIC STOCK
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<S> <C>
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