<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2000
REGISTRATION NO. 33-00628
811-4424
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 29 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 31 [X]
</TABLE>
VAN KAMPEN LIFE INVESTMENT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
---------------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
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<PAGE> 2
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
ASSET ALLOCATION PORTFOLIO
The Asset Allocation Portfolio is a mutual fund with the investment objective to
seek high total investment return consistent with prudent investment risk
through a fully managed investment policy utilizing equity securities as well as
investment grade intermediate- and long-term debt securities and money market
securities. Total investment return consists of current income (including
dividends, interest and discount accruals) and capital appreciation or
depreciation.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 9
Purchase of Shares................................ 10
Redemption of Shares.............................. 11
Dividends, Distributions and Taxes................ 11
Financial Highlights.............................. 13
Appendix -- Description of Securities Ratings..... A-1
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek high total
investment return consistent with prudent investment risk through a fully
managed investment policy utilizing equity securities as well as investment
grade intermediate-and long-term debt securities and money market securities.
Total investment return consists of current income (including dividends,
interest and discount accruals) and capital appreciation or depreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing in a portfolio of
equity securities, investment grade intermediate- and long-term debt securities,
including preferred stocks, convertible preferred stocks and convertible debt
securities, and money market securities. The composition of the Portfolio will
vary from time to time to reflect the investment adviser's views on economic and
market trends and the anticipated relative total investment return available
from a particular type of security. Portfolio securities are typically sold when
the Portfolio's investment adviser's assessments of the relative total return
for such securities materially change. The Portfolio may invest up to 25% of its
total assets in securities of foreign issuers. The Portfolio may purchase and
sell certain derivative instruments, such as options, futures and options on
futures, for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock market, which
fluctuate substantially over time, sometimes suddenly and sharply. The prices of
the Portfolio's equity securities may or may not fluctuate in tandem with
overall changes in the stock markets. The prices of debt securities generally
are affected by changes in interest rates and the creditworthiness of the
issuer. The prices of debt securities tend to fall as interest rates rise, and
such declines may be greater among securities with longer maturities. The prices
of convertible securities are affected by changes similar to those of debt and
equity securities. The value of a convertible security tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying common stock.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. The Portfolio generally invests in investment
grade-quality debt securities, therefore, the Portfolio is subject to a lower
level of credit risk than a portfolio that invests solely or primarily in
lower-grade securities. Securities rated in the lowest of the four investment
grades are considered to be medium-grade obligations, which possess speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity of the issuer to make principal
and interest payments than in the case of higher-rated securities.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful
3
<PAGE> 5
in selecting the best-performing securities or investment techniques, and the
Portfolio's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek high total investment return over the long term
- - Can withstand volatility in the value of their shares in the Portfolio
- - Wish to add to their investment holdings a portfolio that invests in a varying
mix of equity, debt securities and money market securities seeking high total
investment return
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the ten calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 1.89
1991 27.05
1992 7.29
1993 7.70
1994 -3.66
1995 31.36
1996 13.87
1997 21.81
1998 15.67
1999 4.94
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
2.22%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 11.04% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -7.45% (for the quarter ended September 30, 1990).
4
<PAGE> 6
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Standard & Poor's
500-Stock Index*, a broad-based market index that the Portfolio's investment
adviser believes is an appropriate benchmark for the Portfolio, and with the
Lipper Flexible Portfolio Fund Index**, an index of funds with similar
investment objectives. The Portfolio's performance figures do not include sales
charges or other expenses at the contract level that would be paid by investors.
The indices' performance figures do not include any commissions or sales charges
that would be paid by investors purchasing securities represented by the
indices. Average annual total returns are shown for the periods ended December
31, 1999 (the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen Asset
Allocation
Portfolio--Class
I Shares 4.94% 17.21% 12.29%
.......................................................
Standard & Poor's
500-Stock Index 21.04% 28.56% 18.21%
.......................................................
Lipper Flexible
Portfolio Fund
Index 9.82% 16.37% 12.23%
.......................................................
</TABLE>
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that are
a representative sample of approximately 100 industries, chosen mainly for
market size, liquidity and industry group representation (assumes dividends
are reinvested).
** The Lipper Flexible Portfolio Fund Index reflects the average performance of
the 30 largest flexible portfolio funds.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Asset Allocation Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares of each portfolio are sold only to separate accounts (the "Accounts") of
various insurance companies to fund the benefits of variable annuity or variable
life insurance policies (the "Contracts"). The Accounts may invest in shares of
the portfolios in accordance with allocation instructions received from contract
owners ("Contract Owners"). Such allocation rights, as well as sales charges and
other expenses imposed on Contract Owners by the Contracts, are further
described in the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek a high total investment
return consistent with prudent investment risk through a fully managed
investment policy utilizing equity securities as well as investment grade
intermediate- and long-term debt securities and money market securities. Total
investment return consists of current income (including dividends, interest and
discount accrual) and capital appreciation or depreciation. The investment
objective of the Portfolio is a fundamental policy and may not be changed
without shareholder approval of a majority of the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Portfolio will achieve its
investment objective.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of equity
securities, investment grade intermediate- and long-term debt securities,
including preferred stocks, convertible preferred stocks and convertible debt
securities, and money market securities. The Portfolio's investment adviser may
vary the composition of the Portfolio from time to time based upon its
evaluation of economic and market trends and the anticipated relative total
investment return available from a particular type of security. Accordingly, the
5
<PAGE> 7
Portfolio may, at any given time, be substantially invested in equity
securities, debt securities or money market securities. Achieving the
Portfolio's investment objective depends on the investment adviser's ability to
assess the effect of economic and market trends on different sectors of the
market.
Common stocks are equity securities of a corporation or other entity that
entitle the holder to a pro rata share of the profits of a corporation, if any,
without preference over any other class of securities, including such entity's
debt securities, preferred stock or other senior equity security. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. The common stocks in which the Portfolio invests will be primarily those
of large capitalization companies with characteristics including a strong
balance sheet, good financial resources, a satisfactory rate of return on
capital, a good industry position and superior management skills. The
Portfolio's investment adviser believes that companies that conform most closely
to these characteristics often tend to exhibit generally consistent earnings
growth. Among the types of securities in which the Portfolio may invest, the
investments in common stocks generally exhibit the greatest market risk, which
at times can substantially impact the market value of the Portfolio, sometimes
suddenly and sharply.
The Portfolio may invest in intermediate- and long-term debt securities
(including preferred stock, convertible preferred stock and convertible debt
securities) which are rated at the time of purchase BBB or better by Standard &
Poor's ("S&P") or rated Baa or better by Moody's Investors Service, Inc.
("Moody's") or unrated securities determined by the Portfolio's investment
adviser to be of comparable quality at the time of purchase. To the extent
investments are made in fixed-income securities, the Portfolio will invest
primarily in such securities which are rated A or better by either rating
agency. A more complete description of security ratings is contained in the
appendix to this prospectus. The market prices of debt securities generally vary
inversely with changes in prevailing interest rates and generally vary more for
debt securities with longer maturities. The Portfolio is not limited as to the
maturities of the debt securities it may purchase and the debt securities in
which the Portfolio intends to invest are those with intermediate- or
longer-maturities. Debt securities with longer maturities generally tend to
produce higher yields but are subject to greater price fluctuation as a result
of changes in interest rates than debt securities with shorter maturities.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer or
into cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity security.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stocks of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity security.
The Portfolio may invest money market securities including securities issued or
guaranteed by the U.S. government, its agencies or its instrumentalities, prime
commercial paper, certificates of deposit, bankers' acceptances or other
obligations of certain domestic banks and repurchase agreements. Money market
securities generally have low market risk and credit risk but also generally
have a low potential for total investment return.
Because of the fully managed approach of the Portfolio, the Portfolio's turnover
rate may be greater than other
6
<PAGE> 8
portfolios and result in increased transaction costs, including higher brokerage
charges, which may adversely impact the Portfolio's performance.
RISKS OF INVESTING IN SECURITIES OF
FOREIGN ISSUERS
The Portfolio may invest up to 25% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock or bond index futures
contracts, however, the Portfolio can compensate for the cash portion of its
assets and may obtain performance equivalent to investing all of its assets in
securities.
7
<PAGE> 9
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock or bond index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock or bond index options or stock or bond index futures options) to manage
the Portfolio's risk in advancing or declining markets. For example, the value
of a put option generally increases as the underlying security declines below a
specified level, value is protected against a market decline to the degree the
performance of the put correlates with the performance of the Portfolio's
investment portfolio. If the market remains stable or advances, the Portfolio
can refrain from exercising the put and the Portfolio will participate in the
advance, having incurred only the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high
8
<PAGE> 10
portfolio turnover rate (100% or more) increases the a fund's transaction costs,
including brokerage commissions or dealer costs, and may result in the
realization of more short-term capital gains than if a fund had lower portfolio
turnover. Increases in a fund's transaction costs would adversely impact the
fund's performance. The turnover rate will not be a limiting factor, however, if
the Portfolio's investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for total return on these securities will tend to be
lower than the potential for total return on other securities that may be owned
by the Portfolio. In taking such a defensive position, the Portfolio would not
be pursuing and may not achieve its investment objective of high total
investment return.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
Average Daily % Per
Net Assets Annum
- -----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
...............................................
Next $500 million 0.45%
...............................................
Over $1 billion 0.40%
...............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.33% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accor-
9
<PAGE> 11
dance with such limitations as the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Adviser and the Distributor have adopted Codes
of Ethics designed to recognize the fiduciary relationships among the Portfolio,
the Adviser, the Distributor and their respective employees. The Codes permit
directors, trustees, officers and employees to buy and sell securities for their
personal accounts subject to certain restrictions. Persons with access to
certain sensitive information are subject to preclearance and other procedures
designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Asset Allocation Portfolio is managed by a group of
Portfolio Managers headed by John Cunniff, Senior Portfolio Manager. Mr. Cunniff
and Raj Wagle are responsible for allocating the Portfolio's assets between the
equity and fixed-income categories. Mr. Cunniff has been affiliated with the
Portfolio since March 1996. Mr. Cunniff has been a Vice President and Director
of Equity Research with the Adviser since October 1995. Prior to October 1995,
Mr. Cunniff was a portfolio manager for three years with Templeton Quantitative
Advisors, a subsidiary of the Franklin Group.
Mr. Cunniff and Tom Copper are responsible for the day-to-day management of the
Portfolio's equity investments. Mr. Copper has been affiliated with the
Portfolio since April 1999. Mr. Copper has been Vice President and Portfolio
Manager of the Adviser since December 1986.
Mr. Wagle has been affiliated with the Portfolio since April 1999. Mr. Wagle has
been Portfolio Manager of the Adviser since April 1999 and a Quantitative Equity
Analyst of the Adviser since February 1998. Prior to November 1997, he was an
Equity Analyst with Aeltus Investment Management. Prior to December 1995, he was
with Oppenheimer & Company for three years. He was an Equity Analyst for two
years and spent his first year as a Research Associate.
Kelly Gilbert is responsible for the day-to-day management of the Portfolio's
fixed-income investments. Ms. Gilbert has been affiliated with the Portfolio
since June 1999. Ms. Gilbert joined the Adviser and Advisory Corp. in September
1995 and became an Assistant Vice President of the Adviser and Advisory Corp. in
December 1997. Ms. Gilbert has been a Vice President of the Adviser and Advisory
Corp. since February 1999. Prior to September 1995, Ms. Gilbert was a corporate
bond trader for 2 years at ABN AMRO, N.A., a foreign owned bank.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois
10
<PAGE> 12
60181-5555, acts as the distributor of the shares. The Trust and the Distributor
reserves the right to refuse any order for the purchase of shares. Net asset
value is determined in the manner set forth below under "Determination of Net
Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies for
information regarding holidays observed by the insurance company. Net asset
value of the Portfolio is determined by adding the total market value of all
portfolio securities held by the Portfolio, cash and other assets, including
accrued interest. All liabilities, including accrued expenses, of the Portfolio
are subtracted. The resulting amount is divided by the total number of
outstanding shares of the Portfolio to arrive at the net asset value of each
share. See "Determination of Net Asset Value" in the Statement of Additional
Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio is valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gain distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower
11
<PAGE> 13
than the prices the Portfolio paid to purchase them. The Portfolio distributes
any net capital gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gains. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
12
<PAGE> 14
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Ended December 31,
ASSET ALLOCATION PORTFOLIO 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $13.384 $11.910 $11.352 $ 11.64 $ 9.99
------- ------- ------- ------- ------
Net Investment Income................... .459 .425 .513 .482 .48
Net Realized and Unrealized Gain/Loss... .115 1.416 1.897 1.083 2.6425
------- ------- ------- ------- ------
Total from Investment Operations.......... .574 1.841 2.410 1.565 3.1225
------- ------- ------- ------- ------
Less:
Distributions from Net Investment
Income............................... .451 .013 .518 .478 .4775
Distributions from Net Realized Gain.... 1.359 .354 1.334 1.375 .995
------- ------- ------- ------- ------
Total Distributions....................... 1.810 .367 1.852 1.853 1.4725
------- ------- ------- ------- ------
Net Asset Value, End of the Period........ $12.148 $13.384 $11.910 $11.352 $11.64
======= ======= ======= ======= ======
Total Return*............................. 4.94% 15.67% 21.81% 13.87% 31.36%
Net Assets at End of the Period (In
millions)............................... $ 53.4 $ 61.5 $ 63.3 $ 63.9 $ 63.0
Ratio of Expenses to Average Net
Assets*................................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average
Net Assets*............................. 3.41% 3.17% 3.86% 3.78% 3.85%
Portfolio turnover........................ 78% 93% 58% 118% 124%
*If certain expenses had not been assumed
by the Adviser, Total Return would have
been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets... .77% .72% .71% .81% .74%
Ratio of Net Investment Income to Average
Net Assets.............................. 3.24% 3.05% 3.75% 3.57% 3.71%
</TABLE>
13
<PAGE> 15
APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P corporate or municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the obligor or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT
Investment Grade
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
Speculative Grade
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
A- 1
<PAGE> 16
C: Debt rated "C" is currently highly vulnerable to nonpayment. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
r: This symbol highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of non credit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the due date, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
MOODY'S INVESTORS SERVICE, INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A- 2
<PAGE> 17
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date date to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
A- 3
<PAGE> 18
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba: An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca: An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
4. COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's makes no representation that such obligations are exempt
from registration under the Securities Act of 1933, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law.
A- 4
<PAGE> 19
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (on supporting institutions) have a superior ability for
repayment of short-term debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well established access to a ranges of financial markets and assured sources
of alternative liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supported institutions) have an acceptable ability for
repayment of short-term debt obligations. The effect of industry characteristics
and market compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained.
Issuers rated Not Prime do not fall within any of the prime rating categories.
A- 5
<PAGE> 20
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST
- -- ASSET ALLOCATION PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust
- -- Asset Allocation Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust
- -- Asset Allocation Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 21
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO AA
I 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
ASSET ALLOCATION PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Asset Allocation Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Asset
Allocation Portfolio, including the reports
and Statement of Additional Information, has
been filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 22
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
COMSTOCK PORTFOLIO
The Comstock Portfolio is a mutual fund with the investment objective to seek
capital growth and income through investments in equity securities, including
common stocks, preferred stocks and securities convertible into common and
preferred stocks.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
<PAGE> 23
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 4
Investment Objective, Policies and Risks.......... 4
Investment Advisory Services...................... 7
Purchase of Shares................................ 9
Redemption of Shares.............................. 10
Dividends, Distributions and Taxes................ 10
Financial Highlights.............................. 12
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 24
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek capital
growth and income through investments in equity securities, including common
stocks, preferred stocks and securities convertible into common and preferred
stocks.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing in a portfolio of
equity securities, consisting principally of common stocks. The Portfolio
emphasizes a "value" style of investing seeking well-established, undervalued
companies believed to possess the potential for capital growth and income.
Portfolio securities are typically sold when the Portfolio's investment
adviser's assessments of the growth and income potential for such securities
materially change. The Portfolio may invest up to 15% of its total assets in
securities of foreign issuers. The Portfolio may purchase and sell certain
derivative instruments, such as options, futures and options on futures, for
various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. A "value"
style of investing emphasizes undervalued companies with characteristics for
improved valuations. This style of investing is subject to the risks that the
valuations never improve or that the returns on "value" equity securities are
less than the returns on other styles of investing or the overall stock markets.
During an overall stock market decline, stock prices of small- or medium-sized
companies (in which the Portfolio may invest) often fluctuate more than prices
of larger companies. The ability of the Portfolio's investment holdings to
generate income depends on the earnings and the continuing declaration of
dividends by the issuers of such securities.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek capital growth and income over the long term
- - Can withstand volatility in the value of their shares of the Portfolio
- - Wish to add to their investment holdings a portfolio that emphasize a "value"
style of investing in equity securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should
3
<PAGE> 25
consider their long-term investment goals and financial needs when making an
investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
PERFORMANCE INFORMATION
The Comstock Portfolio commenced investment operations as of April 30, 1999.
Accordingly, the Portfolio does not have a full calendar year of historical
annual performance or comparative performance to provide to investors.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Comstock Portfolio. Each portfolio is in effect a separate mutual fund.
Each portfolio of the Trust has a different investment objective(s) which it
pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares of each portfolio are sold only to separate accounts (the "Accounts") of
various insurance companies to fund the benefits of variable annuity or variable
life insurance policies (the "Contracts"). The Accounts may invest in shares of
the portfolios in accordance with allocation instructions received from contract
owners ("Contract Owners"). Such allocation rights, as well as sales charges and
other expenses imposed on Contract Owners by the Contracts, are further
described in the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek capital growth and income
through investments in equity securities, including common stocks, preferred
stocks and securities convertible into common and preferred stocks. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
In selecting securities for investment, the Portfolio will focus primarily on
the security's potential for capital growth and income. The Portfolio emphasizes
a "value" style of investing seeking well-established, undervalued companies.
The Portfolio's investment adviser generally seeks to identify companies that
are undervalued and have identifiable factors that might lead to improved
valuations. This catalyst could come from within the company in the form of new
management, operational enhancements, restructurings or reorganization. It could
also be an external factor, such as an improvement in industry conditions or a
regulatory change. The Portfolio's style presents the risk that the valuations
never improve or that the returns on "value" equity securities are less than
returns on other styles of investing or the overall stock market. The Portfolio
may invest in issuers of small-, medium- or large-capitalization companies. The
securities of small- or medium-sized companies may be subject to more abrupt or
erratic market movements than securities of larger companies or the market
averages in general. In addition, such companies typically are subject to a
greater degree of change in earnings and business prospects than are larger
companies. Thus, the Portfolio may be subject to greater investment risk than
that assumed through investment in the equity securities of larger-
capitalization companies.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is desirable to do so. Such
factors include change in economic or market factors in general or with respect
to a particular industry, a change in the market trend or other factors
affecting an individual security, changes in the relative market performance or
appreciation possibilities offered by individual securities and other
circumstances bearing on the desirability of a given investment.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment
4
<PAGE> 26
objective by investing in equity securities, consisting principally of common
stocks. Common stocks are shares of a corporation or other entity that entitle
the holder to a pro rata share of the profits of the corporation, if any,
without preference over any other class of securities, including such entity's
debt securities, preferred stock and other senior equity securities. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so.
While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stock and securities convertible into common and preferred
stocks. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. A convertible security is a bond, debenture, note,
preferred stock, warrant or other security that may be converted into or
exchanged for a prescribed amount of common stock or other equity security of
the same or a different issuer or into cash within a particular period of time
at a specified price or formula. A convertible security generally entitles the
holder to receive interest paid or accrued on debt securities or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity security. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Convertible securities generally do not
participate directly in any dividend increases or decreases of the underlying
equity security although the market prices of convertible securities may be
affected by any such dividend changes or other changes in the underlying equity
security.
The Portfolio generally holds up to 10% of its total assets in high-quality
short-term debt securities and in investment grade corporate debt securities in
order to provide liquidity. High-quality short-term debt investments include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and other obligations of domestic banks having total assets of at
least $500 million and repurchase agreements. Investment grade corporate debt
securities include securities rated BBB or better by Standard & Poor's ("S&P")
or rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or unrated
securities judged by the investment adviser to be of comparable quality. A more
complete description of security ratings is contained in the Portfolio's
Statement of Additional Information. The market prices of such debt securities
generally vary inversely with changes in prevailing interest rates.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Portfolio may invest up to 15% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers
5
<PAGE> 27
and dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of
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<PAGE> 28
foreign currency denominated securities and against increases in the U.S. dollar
cost of such securities to be acquired. As in the case of other kinds of
options, however, the selling of an option on a foreign currency constitutes
only a partial hedge, up to the amount of the premium received, and the
Portfolio could be required to cover its position by purchasing or selling
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Portfolio's position, the Portfolio may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies in which the Portfolio invests are traded on U.S. and foreign
exchanges for over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 10% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital growth and income on these securities will
tend to be lower than the potential for capital growth and income on other
securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the
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<PAGE> 29
"Adviser"). The Adviser is a wholly owned subsidiary of Van Kampen Investments
Inc. ("Van Kampen Investments"). Van Kampen Investments is a diversified asset
management company with more than two million retail investor accounts,
extensive capabilities for managing institutional portfolios, and more than $90
billion under management or supervision as of December 31, 1999. Van Kampen
Investments' more than 50 open-end and 39 closed-end funds and more than 2,700
unit investment trusts are professionally distributed by leading authorized
dealers nationwide. Van Kampen Funds Inc., the distributor of the Portfolio (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.60%
..............................................
Over $500 million 0.55%
..............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar months. Such
fee is payable for each a calendar month as soon as practicable after the end of
the month.
After voluntary fee waivers, the effective advisory fee rate was 0.00% for the
fiscal year ended December 31, 1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Comstock Portfolio is managed by a team of portfolio
managers headed by B. Robert Baker, Jr., Senior Portfolio Manager. Mr. Baker has
been primarily responsible for managing the Comstock Portfolio's investment
portfolio since its inception. Mr. Baker has been a Senior Vice President since
March 1999 and a Vice President and a Portfolio Manager of the Adviser and
Advisory Corp. since June 1995. Prior to June 1995, Mr. Baker was an Associate
Portfolio Manager of the Adviser. Mr. Baker has been employed by the Adviser
since 1991.
Portfolio Managers Jason S. Leder and Kevin C. Holt have been responsible as
co-managers for the day-to-day management of the Comstock Portfolio's investment
portfolio since its inception and August 1999, respectively. Mr. Leder has been
a Vice President of the Adviser and Advisory Corp. since March 1999 and an
Assistant Vice President of the Adviser and Advisory Corp. since October 1996.
Prior to October 1996, Mr. Leder was an Associate Portfolio Manager of the
Adviser. Prior to February 1995, Mr. Leder was a Securities Analyst for almost
two years with Salomon Brothers, Inc.
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<PAGE> 30
Mr. Holt has been a Vice President of the Adviser since August 1999. Prior to
joining the Adviser, Mr. Holt was a Senior Research Analyst with Strong Capital
Management from October 1997 to August 1999. From July 1995 to October 1997, he
was a Portfolio Manager/Analyst with Citibank Global Asset Management. Mr. Holt
was a Senior Financial Analyst with Harris Trust and Savings Bank from August
1989 to August 1994.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class or shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities
9
<PAGE> 31
may occur at times or on days on which the Portfolio's net asset value is not
calculated and on which the Portfolio does not effect sales, redemptions and
exchanges of its shares. The Portfolio calculates net asset value per share, and
therefore effects sales, redemptions and exchanges of its shares, as of the
close of trading on the Exchange each day the Exchange is open for trading. Such
calculation does not take place contemporaneously with the determination of the
prices of certain foreign portfolio securities used in such calculation. If
events materially affecting the value of such securities occur between the time
when their price is determined and the time when the Portfolio's net asset value
is calculated, such securities may be valued at fair value as determined in good
faith by the Adviser based in accordance with procedures established by the
Portfolio's Board of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gain distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio distributes less than an amount equal to the sum
of 98% of its ordinary income and 98% of its capital gain net income, then the
Portfolio will be subject to a 4% excise tax on the undistributed amounts. If
for any taxable year the Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net capital gain, would be subject to tax at regular corporate
rates (without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the
10
<PAGE> 32
Portfolio receives qualifying dividends during the taxable year and if certain
other requirements of the Code are satisfied. The Portfolio will send to the
Accounts a written notice (contained in the annual report) required by the Code
designating the amount and character of any distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
11
<PAGE> 33
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past fiscal period. Prior
to April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
April 30, 1999
(Commencement of
Investment Operations) to
COMSTOCK PORTFOLIO December 31, 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $10.000
-------
Net Investment Income................. .101
Net Realized and Unrealized Gain...... (.655)
-------
Total from Investment Operations........ (.554)
Less Distributions from and in Excess of
Net Investment Income................. .134
-------
Net Asset Value, End of the Period...... $ 9.312
=======
Total Return*........................... (5.53%)**
Net Assets at End of the Period (In
millions)............................. $ 1.6
Ratio of Expenses to Average Net
Assets*............................... .95%
Ratio of Net Investment Income to
Average Net Assets*................... 1.99%
Portfolio Turnover...................... 42%**
*If certain expenses had not been
assumed by the Adviser, Total Return
would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets................................ 10.36%
Ratio of Net Investment Income to
Average Net Assets.................... (7.42%)
</TABLE>
** Non-Annualized
12
<PAGE> 34
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- COMSTOCK PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Comstock Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Comstock Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 35
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO COM I 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
COMSTOCK PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Comstock Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Comstock
Portfolio, including the reports and Statement
of Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
<PAGE> 36
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
DOMESTIC INCOME PORTFOLIO
The Domestic Income Portfolio is a mutual fund with the primary investment
objective to seek current income. When consistent with the primary investment
objective, capital appreciation is a secondary investment objective.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
<PAGE> 37
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objectives, Policies and Risks......... 5
Investment Advisory Services...................... 11
Purchase of Shares................................ 12
Redemption of Shares.............................. 13
Dividends, Distributions and Taxes................ 13
Financial Highlights.............................. 15
Appendix -- Description of Securities Ratings..... A-1
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 38
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Portfolio is a mutual fund with the primary investment objective to seek
current income. When consistent with the primary investment objective, capital
appreciation is a secondary investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objectives by investing primarily in a
portfolio of income securities, including convertible and non-convertible debt
securities and preferred stocks. Under normal market conditions, the Portfolio
invests at least 80% of its total assets in income securities rated at the time
of purchase B or higher by Standard & Poor's ("S&P") or rated B or higher by
Moody's Investors Service, Inc. ("Moody's") or unrated securities judged by the
Portfolio's investment adviser to be of comparable quality at the time of
purchase. Securities rated BB or below by S&P or rated Ba or below by Moody's or
unrated securities of comparable quality are commonly referred to as "junk
bonds" and involve special risks as compared to investments in higher-grade
securities (see the appendix to the prospectus for an explanation of quality
ratings).
The Portfolio buys and sells securities with a view towards seeking current
income and, secondarily, capital appreciation. In considering portfolio
securities transactions, the investment adviser considers, among other things,
the security's current income potential, the rating assigned to the security,
the issuer's experience and managerial strength, the financial soundness of the
issuer and the outlook of its industry, changing financial condition, borrowing
requirements or debt maturity schedules, regulatory concerns, and responsiveness
to changes in business conditions and interest rates. The Portfolio's investment
adviser also may consider relative values based on anticipated cash flow,
interest or dividend coverage, balance sheet analysis, and earnings prospects.
The Portfolio's investment adviser evaluates each individual security for income
potential, credit quality and value and attempts to identify higher-yielding
securities of companies whose financial condition has improved or is anticipated
to improve in the future.
The Portfolio may invest up to 25% of its total assets in securities of foreign
issuers. The Portfolio may purchase or sell securities on a when-issued or
delayed delivery basis.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objectives.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. The prices of income securities tend to
fall as interest rates rise, and such declines tend to be greater among
securities with longer durations. Although the Portfolio has no policy limiting
the maturities of its investments, the Portfolio's investment adviser seeks to
maintain the dollar-weighted average duration of the Portfolio between four to
six years. This means the Portfolio generally will be subject to greater market
risk than a portfolio that owns only shorter term securities but lesser market
risk than a portfolio that owns only longer term securities. Lower-grade
securities, especially those with longer durations or that do not make regular
interest payments, may be more volatile and decline more in price in response to
negative issuer or general economic news than higher-grade securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased. The greater the
Portfolio's outstanding commitments for these securities, the greater the
Portfolio's exposure to market price fluctuation.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. The Portfolio may invest in securities with below
investment grade credit quality, therefore the Portfolio is subject to a higher
level of credit risk than a portfolio that buys only investment grade
securities. The credit quality of "noninvestment grade" securities is considered
speculative by recognized rating agencies with respect to the issuer's
continuing ability to pay interest and principal. Lower-grade
3
<PAGE> 39
securities may have less liquidity and a higher incidence of default than
investments in higher-grade securities. The Portfolio may incur higher expenses
to protect the Portfolio's interest in such securities. The credit risks and
market prices of lower-grade securities generally are more sensitive to negative
issuer developments, such as reduced revenues or increased expenditures, or
adverse economic conditions, such as a recession, than are the prices of
higher-grade securities.
INCOME RISK. The income you receive from the Portfolio is based primarily on
interest rates, which can vary widely over the short and long term. If interest
rates drop, your income from the Portfolio may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of callable
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities would likely be reinvested by the Portfolio in securities bearing the
new, lower interest rates, resulting in a possible decline in the Portfolio's
income and distributions to shareholders.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objectives and strategies, the Portfolio
may be appropriate for investors who:
- - Seek current income and capital appreciation over the long term
- - Are willing to take on the increased risks of medium- and lower-grade
securities in exchange for potentially higher income
- - Wish to add to their investment holdings a portfolio that invests primarily in
income securities, including medium- and lower-grade income securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the ten calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 -7.23
1991 21.23
1992 12.5
1993 16.32
1994 -4.33
1995 21.37
1996 6.68
1997 11.90
1998 6.34
1999 -1.55
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
1.26%.
4
<PAGE> 40
During the ten-year period shown in the bar chart, the highest quarterly return
was 7.16% (for the quarter ended June 30, 1995) and the lowest quarterly return
was -5.97% (for the quarter ended September 30, 1990).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Lehman Brothers Index of
BBB Corporate Bonds*, a broad-based market index that the Portfolio's investment
adviser believes is an appropriate benchmark for the Portfolio. The Portfolio's
performance figures do not include sales charges or other expenses at the
contract level that would be paid by investors. The index's performance figures
do not include any commissions or sales charges that would be paid by investors
purchasing securities represented by the index. Average annual total returns are
shown for the periods ended December 31, 1999 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Domestic Income
Portfolio--
Class I Shares -1.55% 8.69% 7.88
.......................................................
Lehman Brothers
Index of BBB
Corporate Bonds -0.82% 8.49% 8.48%
.......................................................
</TABLE>
* The Lehman Brothers BBB Corporate Bond Index is a broad-based, unmanaged
index, which reflects the general performance of corporate bonds.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios including
this Domestic Income Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The primary investment objective of the Portfolio is to seek current income.
When consistent with the primary investment objective, capital appreciation is a
secondary investment objective. The investment objectives of the Portfolio are
fundamental policies and may not be changed without shareholder approval of a
majority of the Portfolio's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). There are risks
inherent in all investments in securities; accordingly there can be no assurance
that the Portfolio will achieve its investment objectives.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objectives by investing primarily in a
portfolio of income securities, including convertible and non-convertible debt
securities and preferred stocks. The Portfolio may invest in investment grade
securities and lower-rated and unrated securities. Under normal market
conditions, the Portfolio invests at least 80% of its total assets in income
securities rated at the time of purchase B or higher by S&P or rated B or higher
by Moody's or unrated securities judged by the Portfolio's investments adviser
to be of comparable quality at the time of
5
<PAGE> 41
purchase. Securities rated BB or below by S&P or Ba or below by Moody's or
unrated securities of comparable quality are commonly referred to as "junk
bonds" and involve special risks as compared to investments in higher-grade
securities. See "Risks of Investing in Lower-Grade Securities" below.
UNDERSTANDING
QUALITY RATINGS
Security ratings are based on the issuer's ability to pay interest and repay
the principal. Debt Securities with ratings above the line are considered
"investment grade," while those with ratings below the line are regarded as
"noninvestment grade." A detailed explanation of these and other ratings can
be found in the appendix to this prospectus.
<TABLE>
<CAPTION>
S&P Moody's Meaning
- ------------------------------------------------------
<C> <S> <C>
AAA Aaa Highest quality
......................................................
AA Aa High quality
......................................................
A A Above-average quality
......................................................
BBB Baa Average quality
- ------------------------------------------------------
BB Ba Below-average quality
......................................................
B B Marginal quality
......................................................
CCC Caa Poor quality
......................................................
CC Ca Highly speculative
......................................................
C C Lowest quality
......................................................
D -- In default
......................................................
</TABLE>
In buying and selling securities for the Portfolio, the investment adviser
considers, among other thing, the security's current income potential, the
rating assigned to the security, the issuer's experience and managerial
strength, the financial soundness of the issuer and the outlook of its industry,
changing financial condition, borrowing requirements or debt maturity schedules,
regulatory concerns, and responsiveness to changes in business conditions and
interest rates. The Portfolio's investment adviser also may consider relative
values based on anticipated cash flow, interest or dividend coverage, balance
sheet analysis, and earnings prospects. The investment adviser evaluates each
individual security for income potential, credit quality and value and attempts
to identify higher-yielding securities of companies whose financial condition
has improved since the issuance of such securities or is anticipated to improve
in the future. Because of the number of investment considerations involved in
investing in medium- and lower-grade securities, achievement of the Portfolio's
investment objectives may be more dependent upon the investment adviser's credit
analysis than is the case with investing solely in higher-grade securities.
In general, the prices of income securities vary inversely with interest rates.
If interest rates rise, income security prices generally fall; if interest rates
fall, income security prices generally rise. In general, longer-maturity income
securities offer higher yields than shorter-maturity income securities, all
other factors, including credit quality, being equal; however, for a given
change in interest rates, longer-maturity income securities generally fluctuate
more in price (gaining or losing more in value) than shorter-maturity income
securities. While the Portfolio has no policy limiting the maturities of the
income securities in which it may invest, the Portfolio's investment adviser
seeks to moderate market risk by generally maintaining a portfolio duration
within a range of four to six years. Duration is a measure of the expected life
of an income security that was developed as an alternative to the concept of
"term to maturity." Duration incorporates an income security's yield, coupon
interest payments, final maturity and call features into one measure. A duration
calculation looks at the present value of a security's entire payment stream
whereas term to maturity is based solely on the date of a security's final
principal repayment.
In general, medium- and lower-grade securities provide higher yields than
higher-grade securities of similar maturity but are subject to greater risks,
including greater credit risk, greater market risk and volatility, greater
liquidity concerns and potentially greater manager risk. Such securities may be
issued in connection with corporate restructurings, such as leveraged buyouts,
mergers, acquisitions, debt recapitalization or similar events. These securities
are often issued by smaller, less creditworthy companies or companies with
substantial debt and may include financially troubled companies or companies in
default or in restructuring. Lower-grade securities often are subordinated to
the prior claims of banks and other senior lenders. Lower-grade securities are
regarded by the rating agencies as predominately speculative with respect to the
issuer's continuing ability to make principal and interest payments. The ratings
of S&P and Moody's represent their opinions of the quality of the securities
they undertake to rate, but not the market risk of such securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity, coupon and rating
6
<PAGE> 42
may have different yields while securities of the same maturity and coupon with
different ratings may have the same yield. See "Risks of Investing in Lower-
Grade Securities" below.
The Portfolio may invest in securities not producing immediate cash income when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Portfolio's investment adviser will weigh these concerns
against the expected total returns from such instruments.
The Portfolio also may purchase or sell U.S. government securities on a forward
commitment basis. See "When-Issued and Delayed Delivery" below.
Although the Portfolio invests primarily in domestic income securities, the
Portfolio may invest up to 25% of its total assets based on the market value at
the time of investment in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Risks of Investing in Securities of Foreign Issuers" below.
Income securities in which the Portfolio may invest include the following:
STRAIGHT INCOME SECURITIES. These include bonds and other debt obligations which
bear a fixed or variable rate of interest payable at regular intervals and have
a fixed or resettable maturity date, and preferred stock, which generally has a
fixed or variable dividend rate (and, unlike interest on debt securities, such
dividends must be declared by the issuer's board of directors before becoming
payable) and may be subject to optional or mandatory redemption provisions. The
particular terms of such securities vary and may include features such as call
provisions and sinking funds.
PAY-IN-KIND INCOME SECURITIES. These pay interest in additional income
securities rather than in cash.
ZERO-COUPON SECURITIES. These bear no interest obligation but are issued at a
discount from their value at maturity. When held to maturity, their entire
return equals the difference between their issue price and their maturity value.
Interest is however accrued by the Portfolio each day for accounting and federal
income tax purposes.
ZERO-FIXED-COUPON SECURITIES. These are zero-coupon securities which convert on
a specified date to interest-bearing income securities.
The Portfolio may invest in securities rated below B by both S&P and Moody's,
common stocks or other equity securities and income securities on which interest
or dividends are not being paid when such investments are consistent with the
Portfolio's investment objectives or are acquired as part of a unit consisting
of a combination of income or equity securities. The Portfolio will not purchase
any such securities which will cause more than 20% of its total assets to be so
invested or which would cause more than 10% of its total assets to be invested
in common stocks or other equity securities. Equity securities as referred to
herein do not include preferred stocks (which the Portfolio considers income
securities). This limitation does not require the Portfolio to sell a portfolio
security because its rating has been changed.
Securities rated below B by both S&P and Moody's often include debt obligations
or other securities of companies that are financially troubled, in default or
are in bankruptcy or reorganization. Securities of such companies are usually
available at a deep discount from the face value of the instrument. The
Portfolio may invest in deep discount securities when the Portfolio's investment
adviser believes that existing factors are likely to restore the company to a
healthy financial condition. Such factors include a restructuring of debt,
management changes, existence of adequate assets, or other unusual
circumstances.
A security purchased at a deep discount may pay a very high effective yield. In
addition, if the financial condition of the issuer improves, the underlying
value of the security may increase, resulting in a capital gain. If the company
defaults on its obligations or remains in default, or if the plan of
reorganization is insufficient for debtholders, the deep discount securities may
stop generating income and lose value or become worthless. The Portfolio's
investment adviser will balance the benefits of deep discount securities with
their risks. While a diversified portfolio may reduce the overall impact of a
deep
7
<PAGE> 43
discount security that is in default or loses its value, the risk cannot be
eliminated.
Other investment practices and risks of the Portfolio are described under the
heading "Other Investment Practices and Risk Factors."
RISKS OF INVESTING IN LOWER-GRADE SECURITIES
Securities which are in the lower-grade categories generally offer a higher
current yield than is offered by higher-grade securities of similar maturities,
but they also generally involve greater risks, such as greater credit risk,
greater market risk and volatility, greater liquidity concerns and potentially
greater manager risk. Investors should carefully consider the risks of owning
shares of a portfolio which invests in lower-grade securities before investing
in the Portfolio.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade income securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Portfolio
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Portfolio may
incur additional expenses and may determine to invest additional assets with
respect to such issuer or the project or projects to which the Portfolio's
securities relate. Further, the Portfolio may incur additional expenses to the
extent that it is required to seek recovery upon a default in the payment of
interest or the repayment of principal on its portfolio holdings, and the
Portfolio may be unable to obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Portfolio's investments can be expected
to fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Portfolio
and thus in the net asset value of the Portfolio. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value and
liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Portfolio may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer or lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Portfolio more difficult, at least in the absence of price concessions.
The effects of adverse publicity and investor perceptions may be more pronounced
for securities for which no established retail market exists as compared with
the effects on securities for which such a market does exist. An economic
downturn or an increase in interest rates could severely disrupt the market for
such securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Portfolio
may have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
The Portfolio's investment adviser is responsible for determining the net asset
value of the Portfolio,
8
<PAGE> 44
subject to the supervision of the Portfolio's Board of Trustees. During periods
of reduced market liquidity and in the absence of readily available market
quotations for lower-grade securities held in the Portfolio's portfolio, the
ability of the Portfolio's investment adviser to value the Portfolio's
securities becomes more difficult and the investment adviser's use of judgment
may play a greater role in the valuation of the Portfolio's securities due to
the reduced availability of reliable objective data.
New or proposed laws may have an impact on the market for lower-grade
securities. The Portfolio's investment adviser is unable at this time to predict
what effect, if any, legislation may have on the market for lower-grade
securities.
Special tax considerations are associated with investing in certain lower-grade
securities, such as zero coupon or pay-in-kind securities. The Portfolio accrues
income on these securities prior to the receipt of cash payments. The Portfolio
must distribute substantially all of its income to its shareholders to qualify
for pass-through treatment under federal income tax law and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
The Portfolio will rely on its investment adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. The amount of
available information about the financial condition of certain lower-grade
issuers may be less extensive than other issuers. In its analysis, the
Portfolio's investment adviser may consider the credit ratings of S&P and
Moody's in evaluating securities although the investment adviser does not rely
primarily on these ratings. Ratings evaluate only the safety of principal and
interest payments, not the market value risk. Additionally, ratings are general
and not absolute standards of quality, and credit ratings are subject to the
risk that the creditworthiness of an issuer may change and the rating agencies
may fail to change such ratings in a timely fashion. A rating downgrade does not
require the Portfolio to dispose of a security. The Portfolio's investment
adviser continuously monitors the issuers of securities held in the Portfolio.
Because of the number of investment considerations involved in investing in
lower-grade securities, achievement of the Portfolio's investment objectives may
be more dependent upon the investment adviser's credit analysis than is the case
with investing in higher-grade securities.
The table below sets forth the percentages of the Portfolio's assets invested
during the fiscal year ended December 31, 1999 in the various S&P's and Moody's
rating categories and in unrated securities determined by the Portfolio's
investment adviser to be of comparable quality. The percentages are based on the
dollar-weighted average of credit ratings of all securities held by the
Portfolio during the 1999 fiscal year computed on a monthly basis.
<TABLE>
<CAPTION>
Period Ended December 31, 1999
Unrated Securities of
Rated Securities Comparable Quality
(As a Percentage of (As a Percentage of
Rating Category Portfolio Value) Portfolio Value)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA/Aaa 2.01% 0.00%
....................................................................
AA/Aa 2.30% 0.00%
....................................................................
A/A 17.47% 0.00%
....................................................................
BBB/Baa 59.77% 0.00%
....................................................................
BB/Ba 16.74% 1.71%
....................................................................
Percentage of
Rated and
Unrated
Securities 98.29% 1.71%
....................................................................
</TABLE>
The percentages of the Portfolio's assets invested in securities of various
grades may vary from time to time from those listed above.
RISKS OF INVESTING IN SECURITIES OF
FOREIGN ISSUERS
The Portfolio may invest up to 25% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
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<PAGE> 45
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of developing or emerging market
countries. Investments in securities of developing or emerging markets are
subject to greater risks than investments in securities of developed countries
since emerging markets tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may purchase or sell U.S. government securities on a "when-issued"
or "delayed delivery" basis ("Forward Commitments"). These transactions occur
when securities are purchased or sold by the Portfolio with payment and delivery
taking place in the future, frequently a month or more after such transaction.
The price is fixed on the date of the commitment, and the seller continues to
accrue interest on the securities covered by the Forward Commitment until
delivery and payment take place. At the time of settlement, the market value of
the securities may be more or less than the purchase or sale price. The
Portfolio may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Portfolio may reinvest the proceeds in
another Forward Commitment. These transactions are subject to market risk as the
value or yield of a security at delivery may be more or less than the purchase
price or the yield generally available on securities when delivery occurs. When
engaging in Forward Commitments, the Portfolio relies on the other party to
complete the transaction, should the other party fail to do so, the Portfolio
might lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. The Portfolio maintains a
segregated account (which is marked to market daily) of cash or liquid portfolio
securities with the Portfolio's custodian in an aggregate amount equal to the
amount of its commitment as long as the obligation to purchase or sell
continues.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities potential relative to the
Portfolio's investment objectives has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate
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<PAGE> 46
for the Portfolio may vary from year to year. A high portfolio turnover rate
(100% or more) increases a fund's transaction costs, including brokerage
commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for current income or capital appreciation on these
securities will tend to be lower than the potential for current income or
capital appreciation on other securities that may be owned by the Portfolio. In
taking such a defensive position, the Portfolio would not be pursuing and may
not achieve its investment objectives.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
..............................................
Next $500 million 0.45%
..............................................
Over $1 billion 0.40%
..............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.00% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's
11
<PAGE> 47
expenses by reducing the fees payable to them or by reducing other expenses of
the Portfolio in accordance with such limitations as the Adviser of Distributor
may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Domestic Income Portfolio is managed by Kelly Gilbert,
a Vice President of the Adviser, and Reid Hill, an Assistant Vice President of
the Adviser. Ms. Gilbert joined the Adviser and Advisory Corp. in September 1995
and became an Assistant Vice President of the Adviser and Advisory Corp. in
December 1997. Ms. Gilbert has been a Vice President of the Adviser and Advisory
Corp. since February 1999. Prior to September 1995, Ms. Gilbert was a corporate
bond trader for 2 years at ABN AMRO, N.A., a foreign owned bank. Ms. Gilbert has
been affiliated with the Portfolio since June 1999.
Reid Hill joined the Adviser in 1995 and Advisory Corp. in 1992 and became an
Assistant Vice President of the Adviser and Advisory Corp. in December 1998. Mr.
Hill has been affiliated with the Portfolio since June 1999.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
12
<PAGE> 48
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Private placement
securities are valued at the last reported bid price. Securities for which
market quotations are not readily available and other assets are valued at a
fair value in good faith by the Adviser in accordance with procedures
established by the Portfolio's Board of Trustees. Short-term investments for the
Portfolio are valued as described in the notes to financial statements in the
Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Interest earned from investments is the main source of income for the Portfolio.
Substantially all of this income, less expenses, is distributed to Accounts at
least annually. When the Portfolio sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Portfolio paid to purchase them. The
Portfolio distributes any net capital gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no
13
<PAGE> 49
more than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
14
<PAGE> 50
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Ended December 31,
DOMESTIC INCOME PORTFOLIO 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................... $8.748 $8.252 $8.008 $ 8.21 $ 7.35
------ ------ ------ ------ -------
Net Investment Income................ .611 .614 .704 .755 .71
Net Realized and Unrealized
Gain/Loss......................... (.738) (.096) .252 (.212) .8525
------ ------ ------ ------ -------
Total from Investment Operations....... (.127) .518 .956 .543 1.5625
Less Distributions from Net Investment
Income............................... .580 .022 .712 .745 .7025
------ ------ ------ ------ -------
Net Asset Value, End of the Period..... $8.041 $8.748 $8.252 $8.008 $ 8.21
====== ====== ====== ====== =======
Total Return*.......................... (1.55%) 6.34% 11.90% 6.68% 21.37%
Net Assets at End of the Period (In
millions)............................ $ 16.3 $ 17.9 $ 17.2 $ 19.8 $ 26.6
Ratio of Expenses to Average Net
Assets*(a)........................... .61% .60% .60% .60% .60%
Ratio of Net Investment Income to
Average Net Assets*.................. 7.43% 7.29% 7.74% 7.97% 8.11%
Portfolio Turnover..................... 74% 46% 78% 77% 54%
*If certain expenses had not been
assumed by the Adviser, Total Return
would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets............................... 1.10% 1.09% 1.05% 1.29% .93%
Ratio of Net Investment Income to
Average Net Assets................... 6.94% 6.80% 7.29% 7.28% 7.78%
</TABLE>
(a) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .01% for the year ended December 31,
1999.
15
<PAGE> 51
APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P corporate or municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the obligor or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT
Investment Grade
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
Speculative Grade
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
A- 1
<PAGE> 52
C: Debt rated "C" is currently highly vulnerable to nonpayment. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
r: This symbol highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of non credit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the due date, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
MOODY'S INVESTORS SERVICE, INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A- 2
<PAGE> 53
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date date to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
A- 3
<PAGE> 54
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba: An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca: An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
4. COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's makes no representation that such obligations are exempt
from registration under the Securities Act of 1933, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (on supporting institutions) have a superior ability for
repayment of short-term debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
A- 4
<PAGE> 55
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well established access to a ranges of financial markets and assured sources
of alternative liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supported institutions) have an acceptable ability for
repayment of short-term debt obligations. The effect of industry characteristics
and market compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained.
Issuers rated Not Prime do not fall within any of the prime rating categories.
A- 5
<PAGE> 56
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- DOMESTIC INCOME PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Domestic Income Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Domestic Income Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 57
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO DI
I 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
DOMESTIC INCOME PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Domestic Income Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Domestic
Income Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 58
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio is a mutual fund with the investment objective to
seek capital appreciation.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
<PAGE> 59
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 9
Purchase of Shares................................ 10
Redemption of Shares.............................. 12
Dividends, Distributions and Taxes................ 12
Financial Highlights.............................. 13
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 60
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek capital
appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing at least 65% of the
Portfolio's total assets in common stocks of emerging growth companies. Emerging
growth companies are those companies in the early stages of their life cycles
that the Portfolio's investment adviser believes have the potential to become
major enterprises. Investing in such companies involves risks not ordinarily
associated with investments in larger, more established companies. The
Portfolio's investment adviser uses a "bottom up" investment strategy in stock
selection focusing on those companies that it believes have rising earnings
expectations and rising valuations. The Portfolio seeks growth companies with
long-term capital appreciation potential. The Portfolio generally sells
securities when earnings expectations or valuations flatten or decline. The
Portfolio may invest up to 20% of its total assets in securities of foreign
issuers. The Portfolio may purchase and sell certain derivative instruments,
such as options, futures and options on futures, for various portfolio
management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes a "growth" style of investing. The market values of such securities
may be more volatile than other types of investments. The returns on "growth"
securities may or may not move in tandem with the returns on other styles of
investing or the overall stock markets. During an overall stock market decline,
stock prices of smaller or unseasoned companies (in which the Portfolio may
invest) often fluctuate more and may fall more than the stock prices of larger,
more established companies. Historically, smaller- and medium-sized company
stocks have sometimes gone through extended periods when they did not perform as
well as larger company stocks.
RISKS OF EMERGING GROWTH COMPANIES. Companies that the Portfolio's investment
adviser believe are emerging growth companies are often companies with limited
product lines, markets, distribution channels or financial resources and the
management of such companies may be dependent upon one or a few key people. The
stocks of emerging growth companies can therefore be subject to more abrupt or
erratic market movements than stocks of larger, more established companies or
the stock market in general.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
3
<PAGE> 61
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek capital appreciation over the long term
- - Are willing to take on the increased risks of investing in emerging growth
companies in exchange for potentially higher capital appreciation
- - Can withstand substantial volatility in the value of their shares of the
Portfolio
- - Wish to add to their holdings a portfolio that invests primarily in common
stocks of emerging growth companies
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the four calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1996 16.55
1997 20.42
1998 37.56
1999* 104.38
</TABLE>
* The Portfolio's performance during the one-year period ended December 31,
1999 is largely attributable to investments in the technology sector, which
performed favorably for the period. This performance was achieved during a
rising market, and there is no guarantee that this performance record or the
circumstances leading to it can be replicated in the future. As the Portfolio
expects to have a substantial portion of its assets invested in equity
securities of emerging growth companies, the Portfolio will be subject to
more volatility and erratic movements than the market in general.
The Portfolio's return for the three-month period ended March 31, 2000 was
25.42%.
During the four-year period shown in the bar chart, the highest quarterly return
was 60.58% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -12.05% (for the quarter ended September 30, 1998).
4
<PAGE> 62
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the portfolio: the Russell 2000 Stock Index* and the Standard &
Poor's Midcap 400 Index**. The Portfolio's performance figures do not include
sales charges or other expenses at the contract level that would be paid by
investors. The indices' performance figures do not include any commissions or
sales charges that would be paid by investors purchasing securities represented
by the indices. Average annual total returns are shown for the periods ended
December 31, 1999 (the most recently completed calendar year prior to the date
of this prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen
Emerging Growth
Portfolio--Class
I Shares 104.38% 40.58%(1)
.............................................
Russel 2000
Stock Index 21.26% 15.21%(2)
.............................................
Standard & Poor's
Midcap 400 Index 14.72% 21.46%(2)
.............................................
</TABLE>
Inception dates: (1) 7/3/95, (2) 6/30/95.
* The Russell 2000 Stock Index is a small capitalization stock benchmark
composed of the smallest 2,000 companies of the Russell 3000 Index (an index
of the 3,000 largest U.S. companies based on market capitalization). Based on
the Portfolio's asset composition, the Portfolio's investment adviser
believes adding the Standard & Poor's Midcap 400 Index is a more appropriate
benchmark for the Portfolio, and the Russell 2000 Index will not be shown in
future prospectuses of the Portfolio.
** The Standard & Poor's Midcap 400 is an unmanaged market-weighted index of 400
domestic mid-capitalization stocks.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
the Emerging Growth Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its a own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek capital appreciation. Any
ordinary income received from securities owned by the Portfolio is entirely
incidental to the Portfolio's investment objective of capital appreciation. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
Under normal conditions, the Portfolio's investment adviser seeks to achieve the
Portfolio's investment objective by investing at least 65% of the Portfolio's
total assets in common stocks of emerging growth companies. Emerging growth
companies are those companies in the early stages of their life cycles that the
Portfolio's investment adviser believes have the potential to become major
enterprises. Investments in such companies may offer greater opportunities for
growth of capital than larger, more established companies, but also may involve
certain special risks. Emerging growth companies often have limited product
lines, markets, distribution channels or financial resources, and they may be
dependent upon one or a few key people for management. The
5
<PAGE> 63
securities of such companies may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general.
The Portfolio's primary approach is to seek what the Portfolio's investment
adviser believes to be unusually attractive growth opportunities on an
individual company basis. The Portfolio's investment adviser uses a "bottom-up"
disciplined style of investing. The Portfolio's investment adviser relies on its
research capabilities and company/analyst meetings in reviewing companies. The
Portfolio focuses on those companies that exhibit rising earnings expectations
and rising valuations. In selecting securities for investment, the Portfolio
generally seeks companies that appear to be positioned to produce an attractive
level of future earnings through the development of new products, services or
markets or as a result of changing markets or industry conditions. The
Portfolio's investment adviser expects that many of the companies in which the
Portfolio invests will, at the time of investment, be experiencing high rates of
earnings growth. The securities of such companies may trade at higher price to
earnings ratios relative to more established companies and rates of earnings
growth may be volatile.
The Portfolio does not limit its investments to any single group or type of
security. The Portfolio may invest in securities involving special situations,
such as initial public offerings, companies with new management or management
reliant on one or a few key people, special products and techniques, limited or
cyclical product lines, markets or resources, or unusual developments, such as
mergers, liquidations or principal buyouts. Investments in smaller or unseasoned
companies or companies with special situations often involve much greater risks
than are inherent in other types of investments, because securities of such
companies may be more likely to experience unexpected fluctuations in price.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is advisable to do so. The
Portfolio generally sells securities when earnings expectations or valuations
flatten or decline. Other factors may include changes in the company's
operations or relative market performance or appreciation possibilities offered
by individual securities, a change in the market trend or other factors
affecting an individual security, a change in economic or market factors in
general or with respect to a particular industry, and other circumstances
bearing on the desirability of a given investment. In addition, if an individual
stock position appreciates to a point where it begins to account for a larger
percentage of the Portfolio's assets, the Portfolio's investment adviser may
sell a portion of the position held.
The Portfolio may invest in securities that have above average volatility of
price movement. Because prices of common stocks and other securities fluctuate,
the value of an investment in the Portfolio will vary based upon the Portfolio's
investment performance. The Portfolio attempts to reduce overall exposure to
risk from declines in securities prices by spreading its investments over many
different companies in a variety of industries. There is, however, no assurance
that the Portfolio will be successful in achieving its objective.
The Portfolio invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Portfolio invests primarily in common stocks, it may invest in
preferred stocks, convertible securities and rights and warrants to purchase
common or preferred stock. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of
6
<PAGE> 64
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity securities. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Convertible securities generally do not
participate directly in any dividend increases or decreases of the underlying
equity securities although the market prices of the convertible securities may
be affected by any dividend changes or other changes in the underlying equity
securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights typically have a substantially
shorter duration than do warrants. Rights and warrants may be considered more
speculative and less liquid than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
underlying securities nor do they represent any rights in the assets of the
issuing company. Rights and warrants may lack a secondary market.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Portfolio may invest up to 20% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issues in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts or options on futures
contracts, in several different ways, depending upon the status of
7
<PAGE> 65
the Portfolio's securities and the investment adviser's expectations concerning
the securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available
8
<PAGE> 66
cash. Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital appreciation on these securities will tend
to be lower than the potential for capital appreciation on other securities that
may be owned by the Portfolio. In taking such a defensive position, the
Portfolio would not be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ---------------------------------------
<S> <C> <C> <C>
First $500 million 0.70%
.......................................
Next $500 million 0.65%
.......................................
Over $1 billion 0.60%
.......................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.67% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
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<PAGE> 67
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Emerging Growth Portfolio is managed by a team of
portfolio managers headed by Gary M. Lewis, Senior Portfolio Manager. Mr. Lewis
has been a Senior Vice President of the Adviser and Advisory Corp. since
September 1995. Mr. Lewis became a Vice President and Portfolio Manager of the
Adviser in June 1991. Mr. Lewis has been employed by the Adviser since September
1986. He has been affiliated with the Portfolio since its inception.
Portfolio Managers Dudley Brickhouse, Matthew Hart, Janet Luby and David Walker
are responsible as co-managers for the day-to-day management of the Portfolio.
Mr. Brickhouse has been a Portfolio Manager and Vice President of the Adviser
and Advisory Corp. since December 1998. Mr. Brickhouse became an Associate
Portfolio Manager of the Adviser and Advisory Corp. in September 1997. Prior to
September 1997, Mr. Brickhouse was a Vice President and Portfolio Manager with
NationsBank Investment Management where he had worked since 1995. He has been
affiliated with the Portfolio since September 1997.
Mr. Hart has been a Vice President of the Adviser and Advisory Corp. since
December 1998. Mr. Hart, a Portfolio Manager since January 1998, became
Associate Portfolio Manager of the Adviser and Advisory Corp. in August 1997.
Prior to August 1997, Mr. Hart was with AIM Capital Management, Inc. since June
1992. His last position in the AIM portfolio area was as a convertible bonds
analyst. Mr. Hart has been affiliated with the Portfolio since January 2000.
Ms. Luby has been a Portfolio Manager and Vice President of the Adviser and
Advisory Corp. since December 1998. Ms. Luby became an Assistant Vice President
of the Adviser and Advisory Corp. in December 1997. Ms. Luby was an Associate
Portfolio Manager of the Adviser since July 1995. Prior to July 1995, she spent
eight years at AIM Capital Management, Inc. where she worked five years in the
accounting department and three years in the investment area. Her last position
in the AIM investment area was as Senior Securities Analyst. Ms. Luby is also
the portfolio manager for various unit investment trusts managed by the Adviser
or its affiliates since August 1999. She has been affiliated with the Portfolio
since July 1995.
Mr. Walker has been a Portfolio Manager and Vice President of the Adviser and
Advisory Corp. since December 1998. Mr. Walker became an Assistant Vice
President of the Adviser and Advisory Corp. in June 1995. Prior to April 1996,
Mr. Walker was a Quantitative Analyst of the Adviser and has worked for the
Adviser since October 1990. Mr. Walker is also the portfolio manager for various
unit investment trusts managed by the Adviser or its affiliates since September
1997. Mr. Walker has been affiliated with the Portfolio since May 1996.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are
10
<PAGE> 68
offered by this prospectus (Class II Shares of the Portfolio are offered through
a separate prospectus). Each class of shares represents an interest in the same
portfolio of investments of the Portfolio and has the same rights, except for
the differing distribution fees, services fees and related expenses associated
with each class of shares and the exclusive voting rights by each class with
respect to any Rule 12b-1 distribution plan or service plan for such class of
shares. Investors can contact their financial adviser for more information
regarding the insurance company's Accounts and class of the Portfolio's shares
available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
11
<PAGE> 69
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
Annual Report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the Annual Report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
12
<PAGE> 70
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
July 3, 1995
(Commencement of
Year Ended December 31, Investment Operations) to
EMERGING GROWTH PORTFOLIO 1999 1998 1997 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $22.615 $16.450 $13.660 $ 11.72 $10.00
------- ------- ------- ------- ------
Net Investment Loss................... (.012) (.014) (.007) (.016) (.08)
Net Realized and Unrealized Gain...... 23.619 6.186 2.797 1.956 1.80
------- ------- ------- ------- ------
Total from Investment Operations........ 23.607 6.172 2.790 1.940 1.72
Less Distributions in Excess of Net
Investment Income..................... -0- .007 -0- -0- -0-
------- ------- ------- ------- ------
Net Asset Value, End of the Period...... $46.222 $22.615 $16.450 $13.660 $11.72
======= ======= ======= ======= ======
Total Return*........................... 104.38% 37.56% 20.42% 16.55% 17.20%**
Net Assets at End of the Period (In
millions)............................. $ 263.5 $ 33.4 $ 10.5 $ 5.2 $ 2.3
Ratio of Expenses to Average Net
Assets*............................... .85% .85% .85% .85% 2.50%
Ratio of Net Investment Loss to Average
Net Assets*........................... (.17%) (.23%) (.11%) (.17%) (1.45%)
Portfolio Turnover...................... 96% 91% 116% 102% 41%**
*If certain expenses had not been
assumed by the Adviser, Total Return
would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets................................ .88% 1.23% 2.14% 3.28% 5.40%
Ratio of Net Investment Loss to Average
Net Assets............................ (.20%) (.61%) (1.40%) (2.60%) (4.35%)
</TABLE>
** Non-Annualized
13
<PAGE> 71
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
Peter W. Hegel*
Vice President
Michael H. Santo*
Vice President
John H. Zimmerman, III*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST - EMERGING GROWTH PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust - Emerging Growth Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust - Emerging Growth Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 72
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO EM I 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Emerging Growth Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Emerging
Growth Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 73
VAN KAMPEN
LIFE INVESTMENT TRUST
ENTERPRISE PORTFOLIO
The Enterprise Portfolio is a mutual fund with the investment objective to seek
capital appreciation through investments in securities believed by the
Portfolio's investment adviser to have above average potential for capital
appreciation.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
[VAN KAMPEN FUNDS LOGO]
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 4
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 8
Purchase of Shares................................ 10
Redemption of Shares.............................. 11
Dividends, Distributions and Taxes................ 11
Financial Highlights.............................. 13
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 75
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek capital
appreciation through investments in securities believed by the Portfolio's
investment adviser to have above average potential for capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing primarily in common
stocks of "growth" companies focusing on those securities believed to offer a
combination of strong business fundamentals at an attractive valuation.
Portfolio securities are typically sold when the Portfolio's investment
adviser's assessments of the capital appreciation potential for such securities
materially change. The Portfolio may invest up to 10% of its total assets in
securities of foreign issuers. The Portfolio may purchase and sell certain
derivative instruments, such as options, futures and options on futures, for
various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks generally are affected by changes in the stock markets, which fluctuate
substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes a "growth" style of investing. The market values of "growth" common
stocks may be more volatile than other types of investments. The returns on
"growth" securities may or may not move in tandem with the returns on other
styles of investing or the overall stock markets. During an overall stock market
decline, stock prices of small- or medium-sized companies (in which the
Portfolio may invest) may be more volatile and may fall more than stock prices
of larger companies.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Can withstand substantial volatility in the value of their shares of the
Portfolio
- - Wish to add to their investment holdings a portfolio that emphasizes a
"growth" style of investing in common stocks
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
3
<PAGE> 76
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the ten calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 -6.84
1991 36.41
1992 7.48
1993 8.98
1994 -3.39
1995 36.98
1996 24.80
1997 30.66
1998 25.00
1999 25.85
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
11.29%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 24.94% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -16.52% (for the quarter ended September 30, 1990).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the Portfolio: the Standard & Poor's 500-Stock Index* and the
Russell 1000 Growth Index.** The Portfolio's performance figures do not include
sales charges or other expenses at the contract level that would be paid by
investors. The indices' performance figures do not include any commissions or
sales charges that would be paid by investors purchasing securities represented
by the indices. Average annual total returns are shown for the periods ended
December 31, 1999 (the most recently completed calendar year prior to the date
of this prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Enterprise
Portfolio
-- Class I Shares 25.85% 28.57% 17.58%
.......................................................
Standard & Poor's
500-Stock Index 21.04% 28.56% 18.21%
.......................................................
Russell 1000
Growth Index 33.16% 32.41% 20.32%
.......................................................
</TABLE>
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that are
a representative sample of approximately 100 industries, chosen mainly for
market size, liquidity and industry group representation (assumes dividends
are reinvested).
** The Russell 1000 Growth Index measures the performance of those Russell 1000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The Russell 1000 Index is an index of the 1,000 largest U.S.
companies based on market capitalization.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios including
this Enterprise Portfolio. Each portfolio is in effect a separate mutual fund.
Each portfolio of the Trust has a different investment objective(s) which it
pursues
4
<PAGE> 77
through its investment policies. Each portfolio has its own income, expenses,
assets, liabilities and net asset value and each portfolio issues its own
shares.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek capital appreciation
through investments in securities believed by the Portfolio's investment adviser
to have above average potential for capital appreciation. Any income received on
securities owned by the Portfolio is entirely incidental to the Portfolio's
investment objective of capital appreciation. The investment objective of the
Portfolio is a fundamental policy and may not be changed without shareholder
approval of a majority of the Portfolio's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
There are risks inherent in all investments in securities; accordingly there can
be no assurance that the Portfolio will achieve its investment objective.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing primarily in common
stocks which it believes have above-average potential for capital appreciation.
The Portfolio's primary approach is to seek what the Portfolio's investment
adviser believes to be unusually attractive growth investments on an individual
company basis. The Portfolio may invest in securities that have above average
volatility of price movement. Because prices of common stocks and other
securities fluctuate, the value of an investment in the Portfolio will vary. The
Portfolio attempts to reduce overall exposure to risk from declines in
securities prices by spreading its investments over many different companies in
a variety of industries.
In selecting securities for investment, the Portfolio generally focuses on
common stocks of "growth" companies, including companies with new products,
services or processes. The investment adviser seeks such securities which it
believes offer a combination of strong business fundamentals at an attractive
valuation. Growth companies generally include those companies with established
records of growth in sales or earnings that the Portfolio's investment adviser
believes are entering into a growth cycle in their respective businesses, with
the expectation that the stock of such companies will increase in value. Stocks
of different types, such as "growth" stocks or "value" stocks, tend to shift in
and out of favor depending on market and economic conditions. Thus, the value of
the Portfolio's investments in "growth" stocks will vary and may at times be
lower or higher than that of other types of funds. The market values of "growth"
common stocks may be more volatile than other types of investments. The
Portfolio may invest in companies generating or applying new technologies, new
or improved distribution techniques or new services, which companies may benefit
from changing consumer demands or lifestyles, or companies that have projected
earnings in excess of the average for their sector or industry. In each case,
such companies have prospects that the Portfolio's investment adviser believes
are favorable for above-average capital appreciation. The Portfolio also may
focus its investments on stocks of companies in cyclical industries during
periods when their securities appear attractive for capital appreciation.
The companies in which the Portfolio invests may be in any market capitalization
range, provided the Portfolio's investment adviser believes the investment is
consistent with the Portfolio's objective. The securities of small- or
medium-sized companies may be subject to more abrupt or erratic market movements
than securities of larger companies or the market averages in general. In
addition, such companies typically are subject to a greater degree of change in
earnings and business prospects than are larger companies. Thus, to the extent
the Portfolio invests in small- and medium-sized companies, the Portfolio may be
subject to greater investment risk than that assumed through investment in the
equity securities of larger-capitalization companies.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is desirable to do so. Such
factors include change in economic or market factors in general or with respect
to a particular industry, a
5
<PAGE> 78
change in the market trend or other factors affecting an individual security,
changes in the relative market performance or appreciation possibilities offered
by individual securities and other circumstances bearing on the desirability of
a given investment.
The Portfolio invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stocks and warrants. Preferred stock generally has a
preference as to dividends and liquidation over an issuer's common stock but
ranks junior to debt securities in an issuer's capital structure. Unlike
interest payments on debt securities, preferred stock dividends are payable only
if declared by the issuer's board of directors. Preferred stock also may be
subject to optional mandatory redemption provisions. Generally, warrants are
securities that may be exchanged for a prescribed amount of common stock or
other equity security of the issuer within a particular period of time at a
specified price or in accordance with a specific formula.
The Portfolio generally holds a portion of its assets in investment grade
short-term debt securities and in investment grade corporate debt securities in
order to provide liquidity. Investment grade short-term debt investments include
securities issued or guaranteed by the U.S. government, its agencies or its
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and other obligations of domestic banks having total assets of at
least $500 million and repurchase agreements. Investment grade corporate debt
securities include securities rated BBB or better by Standard & Poor's ("S&P")
or Baa or higher by Moody's Investors Service, Inc. ("Moody's"). A more complete
description of security ratings is contained in the Portfolio's Statement of
Additional Information. The market prices of such debt securities generally vary
inversely with changes in prevailing interest rates.
RISKS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Portfolio may invest up to 10% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are
6
<PAGE> 79
less diverse and mature and political systems that are less stable than
developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to use, various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolios' investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are
7
<PAGE> 80
traded on U.S. and foreign exchanges or over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital appreciation on these securities will tend
to be lower than the potential for capital appreciation on other securities that
may be owned by the Portfolio. In taking such a defensive position, the
Portfolio would not be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned
8
<PAGE> 81
subsidiary of Van Kampen Investments. Van Kampen Investments is an indirect
wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's
principal office is located at 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and for other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ------------------------------------------------
<S> <C> <C>
First $500 million 0.50%
................................................
Next $500 million 0.45%
................................................
Over $1 billion 0.40%
................................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.48% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Enterprise Portfolio is managed by a management team
headed by Jeff New, Senior Portfolio Manager. Mr. New has been affiliated with
the Portfolio since 1991, has assisted in co-managing the Portfolio since July
1994 and has been the Senior Portfolio Manager of the Portfolio since December
1994. Mr. New has been a Senior Vice President and Senior Portfolio Manager of
the Adviser since December 1997. Prior to December 1997, Mr. New was a Vice
President and Portfolio Manager of the Adviser. Prior to December 1994, he was
an Associate Portfolio Manager of the Adviser. He joined the Adviser in 1990.
Portfolio Managers Michael Davis and Mary Jayne Maly are responsible for the
day-to-day management of the Portfolio. Mr. Davis has been a Vice President and
Portfolio Manager of the Adviser since March 1998. Prior to March 1998 he was
the owner of Davis Equity Research, a stock research company. Mr. Davis has been
an investment professional since 1983. Mr. Davis has been affiliated with the
Portfolio since March 1998.
Ms. Maly has been a Vice President and Portfolio Manager of the Adviser since
July 1998. From July 1997 to June 1998, she was a Vice President at the
predecessor of Morgan Stanley Dean Witter Investment Management Inc. and
assisted in the management of the Morgan Stanley Institutional Real Estate Funds
and the Van Kampen Real Estate Securities Fund. Prior to July 1997, she was a
Vice President and Portfolio Manager of the Adviser. Prior to November 1992, she
was a Vice President and Senior
9
<PAGE> 82
Equity Analyst at Texas Commerce Investment Management Company. Ms. Maly has
been affiliated with the Portfolio since July 1998.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does
10
<PAGE> 83
not take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
11
<PAGE> 84
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
12
<PAGE> 85
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Ended December 31,
ENTERPRISE PORTFOLIO 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................... $22.390 $18.106 $16.262 $ 14.69 $ 12.39
------- ------- ------- ------- -------
Net Investment Income................ .047 .069 .091 .113 .32
Net Realized and Unrealized
Gain/Loss......................... 5.390 4.441 4.734 3.417 4.22
------- ------- ------- ------- -------
Total from Investment Operations....... 5.437 4.510 4.825 3.530 4.54
------- ------- ------- ------- -------
Less:
Distributions from Net Investment
Income............................ .070 .017 .096 .109 .3175
Distributions from Net Realized
Gain.............................. 1.649 .209 2.885 1.849 1.9225
------- ------- ------- ------- -------
Total Distributions.................... 1.719 .226 2.981 1.958 2.24
------- ------- ------- ------- -------
Net Asset Value, End of the Period..... $26.108 $22.390 $18.106 $16.262 $ 14.69
======= ======= ======= ======= =======
Total Return*.......................... 25.85% 25.00% 30.66% 24.80% 36.98%
Net Assets at End of the Period (In
millions)............................ $ 174.1 $ 123.6 $ 98.7 $ 84.8 $ 76.0
Ratio of Expenses to Average Net
Assets*.............................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to
Average Net Assets*.................. .22% .35% .47% .68% 2.06%
Portfolio Turnover..................... 116% 82% 82% 152% 145%
*If certain expenses had not been
assumed by the Adviser, Total Return
would have been lower and the ratios
would have been as follows:
Ratio of Expense to Average Net
Assets............................... .62% .64% .66% .75% .68%
Ratio of Net Investment Income to
Average Net Assets................... .20% .31% .41% .53% 1.98%
</TABLE>
13
<PAGE> 86
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- ENTERPRISE PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Enterprise Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Enterprise Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 87
VAN KAMPEN
LIFE INVESTMENT TRUST
ENTERPRISE PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Enterprise Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Enterprise
Portfolio, including the reports and Statement
of Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-2424. LIT PRO ENT I 4/00
<PAGE> 88
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
GLOBAL EQUITY PORTFOLIO
The Global Equity Portfolio is a mutual fund with the investment objective to
seek long-term growth of capital through investments in an internationally
diversified portfolio of equity securities of companies of any nation including
the United States.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 10
Purchase of Shares................................ 11
Redemption of Shares.............................. 12
Dividends, Distributions and Taxes................ 13
Financial Highlights.............................. 14
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 90
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek long-term
growth of capital through investments in an internationally diversified
portfolio of equity securities of companies of any nation including the United
States.
INVESTMENT STRATEGIES
The Portfolio's investment adviser seeks to achieve the Portfolio's investment
objective by investing in an internationally diversified portfolio of equity
securities, including common stocks, preferred stocks and warrants or options to
acquire such securities. The Portfolio's investment adviser uses a "top-down"
investment management approach that emphasizes country and/or sector selection
and weighting rather than individual security selection. Within a particular
country, the Portfolio may select securities of issuers designed to track the
markets of that country or a particular sector.
The composition of the Portfolio's investments will vary over time based on the
Portfolio's investment adviser's evaluation of economic and market trends and
the anticipated relative capital appreciation available from particular
countries, sectors and securities. Portfolio securities are typically sold when
the Portfolio's investment adviser's assessments for capital appreciation of
countries or sectors materially change. The Portfolio may invest in any country,
including developed or undeveloped countries. Under normal market conditions,
the Portfolio invests at least 65% of its total assets in securities of issuers
of at least three countries (including the United States). The Portfolio may
purchase and sell certain derivative instruments, such as options, futures,
options on futures and currency-related transactions involving options, futures
or forward contracts, for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. Foreign
markets may, but often do not, move in tandem with changes in U.S. markets, and
foreign markets, especially developing or emerging markets countries, may be
more volatile than U.S. markets. During an overall stock market decline, stock
prices of small- and medium-sized companies (in which the Portfolio may invest)
often fluctuate more than stock prices of larger companies.
FOREIGN RISKS. Because the Portfolio will own securities of foreign issuers, it
will be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues. The risks of investing in developing or emerging
markets (in which the Portfolio may invest) are greater than the risks generally
associated with foreign investments including investment and trading
limitations, greater credit and liquidity concerns, greater political
uncertainties, an economy's dependence on international development assistance,
greater foreign currency exchange and currency transfer restrictions, and
greater delays and disruptions in settlement transactions.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and
currency-related transactions involving options, futures and forward contracts
are examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
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<PAGE> 91
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek long-term growth of capital
- - Are willing to take on the increased risks associated with investing in
foreign securities
- - Can withstand volatility in the value of their shares in the Portfolio
- - Wish to add to their investment holdings a portfolio that invests in an
international portfolio of equity securities.
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the four calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1996 16.72
1997 15.85
1998 21.61
1999 30.06
</TABLE>
The Portfolio return for the three-month period ended March 31, 2000 was -1.31%.
During the four-year period shown in the bar chart, the highest quarterly return
was 19.37% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -11.02% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Morgan Stanley Capital
International World Index + dividends* (the "MSCI World Index + dividends"), a
broad-based market index that the Portfolio's investment adviser believes is an
appropriate benchmark for the Portfolio. The Portfolio's performance figures do
not include sales charges or other expenses at the contract level that would be
paid by investors. The index's performance figures do not include any
commissions or sales charges that would be paid by investors purchasing
securities represented by the index. Average annual total returns are shown for
the periods ended December 31, 1999 (the most recently completed calendar year
prior to the date of this prospectus). Remember that the past performance of
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<PAGE> 92
the Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns for
the Periods Ended Past Since
December 31, 1999 1 Year Inception
- ----------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Global
Equity Portfolio
-- Class I Shares 30.06% 19.23%(1)
..............................................
MSCI World Index +
dividends 24.93% 19.83%(2)
..............................................
</TABLE>
Inception dates: (1) 7/3/95, (2) 6/30/95.
* The MSCI World Index + dividends is an unmanaged index that includes
securities listed on stock exchanges of the U.S., Europe, Canada, Australia,
New Zealand and the Far East assumes dividends are reinvested net withholding
tax.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios including
this Global Equity Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek long-term growth of capital
through investments in an internationally diversified portfolio of equity
securities of companies of any nation including the United States. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
The Portfolio's investment adviser seeks to achieve the investment objective by
investing in an internationally diversified portfolio of equity securities,
including common stocks, preferred stocks and warrants or options to acquire
such securities, based upon the "top-down" evaluation by the Portfolio's
investment adviser of economic and market trends and the anticipated relative
capital growth opportunities available from a particular country and/or sector.
When the Portfolio's investment adviser deems it advantageous within a
particular country or sector, the Portfolio's investment adviser selects
securities designed to track the markets of that country or sector. Under normal
market conditions, the Portfolio invests at least 65% of its total assets in
securities of issuers of at least three countries (including the United States.)
This approach reflects the investment adviser's philosophy for this Portfolio
that a broad selection of securities representing exposure to world markets
based upon the economic outlook and current valuation levels for each country
and certain sectors is an effective way to maximize the return and minimize the
risk associated with global investment. The Portfolio's investments may be
shifted among the world's various capital markets, including developed and
undeveloped countries, and among different types of securities in accordance
with the investment adviser's ongoing analysis of economic or market trends,
developments affecting the markets and securities in which the Portfolio may
invest and the anticipated relative capital growth opportunities available from
a particular country and/or sector.
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<PAGE> 93
The Portfolio invests primarily in those countries (including in the United
States and other industrialized countries throughout the world) that comprise
the Morgan Stanley Capital International World Index. In addition, the Portfolio
may invest a portion of its assets in securities of certain developing or
emerging markets countries whose economies are developing strongly and whose
markets are becoming more sophisticated.
By analyzing a variety of macroeconomic and political factors, the Portfolio's
investment adviser develops fundamental projections on interest rates,
currencies, corporate profits and economic growth for each country or sector.
These country projections are then used to determine what the investment adviser
believes to be a fair value for the stock market of each country or sector.
Discrepancies between actual value and fair value, as determined by the
investment adviser, provide an expected return for each stock market. The
expected return is adjusted by currency return expectations derived from the
investment adviser's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country and sector allocation
decision is then reached by considering the expected total return in light of
various considerations such as market size, volatility, liquidity, country risk
and transaction costs.
When the investment adviser deems it advantageous, investments are made through
the purchase of equity securities which, in the aggregate, are designed to track
the markets for a particular country or sector.
The investment adviser's sell decisions are based on a country or
industry/sectors relative attractiveness as judged by the three major
components: valuations, fundamentals and market sentiment. The investment
adviser sells a country or sector when the rationale for the purchase has been
realized or the investment adviser expects the country/sector fundamentals (such
as economic growth and government policy) or market sentiment to disappoint. The
investment adviser does not establish pre-specified targets for sell points
given the relative nature of the process. It ranks country/sector attractiveness
and looks to identify alternatives prior to initiating or soon after a sale.
The Portfolio may invest in equity securities including common stocks, preferred
stocks, warrants or options to acquire such securities and depository receipts.
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. Generally, warrants or options to acquire equity
securities are securities that may be exchanged for a prescribed amount of such
equity securities of the issuer within a particular period of time at a
specified price or in accordance with a specified formula.
The Portfolio may invest in issuers of small-, medium- or large-capitalization
companies. The securities of small- or medium-sized companies may be subject to
more abrupt or erratic market movements than securities of larger companies or
the market averages in general. In addition, such companies typically are
subject to a greater degree of change in earnings and business prospects than
are larger companies. Thus, to the extent the Portfolio invests in small- and
medium-sized companies, the Portfolio may be subject to greater investment risk
than that assumed through investment in the equity securities of
larger-capitalization companies.
The Portfolio may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. These securities are not
necessarily denominated in the same currency as the underlying securities but
generally are denominated in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by foreign
corporations. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are
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<PAGE> 94
paid by the ADR holders. In addition, less information generally is available
for an unsponsored ADR than a sponsored ADR, and financial information about a
company may not be as reliable for an unsponsored ADR as it is for a sponsored
ADR. The Portfolio may invest in ADRs through both sponsored and unsponsored
arrangements. EDRs are receipts issued in Europe by banks or depositaries which
evidence similar ownership arrangements.
The Portfolio generally holds a portion of its assets in short-term debt
securities in order to provide liquidity. Short-term debt securities include
securities issued or guaranteed by the U.S. government or foreign governments,
their agencies or instrumentalities, prime commercial paper, certificates of
deposit, bankers' acceptances and other obligations of banks having total assets
of at least $500 million and repurchase agreements.
RISK FACTORS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS
An investment in the Portfolio involves risks similar to those of investing in
foreign securities generally. The Portfolio invests in securities denominated in
U.S. dollars and in currencies other than U.S. dollars. The percentage of assets
invested in securities of a particular country or denominated in a particular
currency will vary in accordance with the investment adviser's assessment of the
relative yield, growth potential and the relationship of a country's currency to
the U.S. dollar, which is based upon such factors as fundamental economic
strength, credit quality and interest rate trends. Investments in foreign
securities present certain risks not ordinarily associated with investments in
securities of U.S. issuers. These risks include fluctuations in foreign currency
exchange rates, political, economic or legal developments (including war or
other instability, expropriation of assets, nationalization and confiscatory
taxation), imposition of foreign exchange limitations (including currency
blockage), withholding taxes on dividend or interest payments or capital
transactions or other restrictions, higher transaction costs (including higher
brokerage, custodial and settlement costs and currency translation costs) and
possible difficulty in enforcing contractual obligations or taking judicial
action. Also, foreign securities may not be as liquid and may be more volatile
than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio's investments in securities of developing or emerging markets are
subject to greater risks than the Portfolio's investments in securities of
developed countries since emerging markets tend to have economic structures that
are less diverse and mature and political systems that are less stable than
developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transaction costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
Since the Portfolio invests in securities denominated or quoted in currencies
other than the U.S. dollar, the Portfolio will be affected by changes in foreign
currency exchange rates (and exchange control regulations) which affect the
value of securities in the Portfolio and the income and appreciation or
depreciation of Portfolio investments. Changes in foreign currency exchange
ratios relative to the U.S. dollar will affect the U.S. dollar value of the
Portfolio's assets denominated in that currency and the Portfolio's yield on
such assets. In addition, the Portfolio will incur costs in connection with
conversions between various currencies. The Portfolio may purchase and sell
foreign currency on a spot
7
<PAGE> 95
basis in connection with the settlement of transactions in securities traded in
such foreign currency. The Portfolio also may enter into contracts with banks or
other foreign currency brokers or dealers to purchase or sell foreign currencies
at a future date ("forward contracts"). A foreign currency forward contract is a
negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. The rate can
be higher or lower than the spot rate between the currencies that are the
subject of the contract.
The Portfolio may attempt to protect against adverse changes in the value of the
U.S. dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency option or futures
contract for such amount. Such strategies may be employed before the Portfolio
purchases a foreign security traded in the currency which the Portfolio
anticipates acquiring or between the date the foreign security is purchased or
sold and the date on which payment therefor is made or received. Seeking to
protect against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Furthermore, such
transactions reduce or preclude the opportunity for gain if the value of the
currency should move in the direction opposite to the position taken.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The Portfolio's custodian will place cash or liquid securities in a segregated
account having a value equal to the aggregate amount of the Portfolio's
commitments under forward contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities are placed in the
account on a daily basis so that the value of the account equals the amount of
the Portfolio's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign currency
by a forward sale contract at a price no higher than the forward contract price
or the Portfolio may purchase a put option permitting the Portfolio to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the
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<PAGE> 96
degree the performance of the put correlates with the performance of the
Portfolio's investment portfolio. If the market remains stable or advances, the
Portfolio can refrain from exercising the put and the Portfolio will participate
in the advance, having incurred only the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may from time to time make short sales of securities it owns or
has the right to acquire through conversion or exchange of other securities it
owns. A short sale is "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short. In a short sale, the Portfolio does not
immediately deliver the securities sold and does not receive the proceeds from
the sale. The Portfolio is required to recognize gain from the short sale for
federal income tax purposes at the time it enters into the short sale, even
though it does not receive the sales proceeds until it delivers the securities.
The Portfolio is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Portfolio may not make short sales or maintain a short position if to
do so would cause more than 25% of its total assets, taken at market value, to
be held as collateral for such sales. To secure its obligation to deliver the
securities sold short, the Portfolio will deposit in escrow in a separate
account with its custodian an equal amount of the securities sold short or
securities convertible into or exchangeable for such securities. The Portfolio
may close out a short position by purchasing and delivering an equal amount of
the securities sold short, rather than by delivering securities already held by
the Portfolio, because it may want to continue to receive interest and dividend
payments on its investments that are convertible into the securities sold short.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to
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<PAGE> 97
take advantage of new investment opportunities or when the Portfolio's
investment adviser believes the securities' potential relative to the
Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. or foreign
governments, their agencies or instrumentalities, prime commercial paper,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks having total assets of at least $500 million, and repurchase agreements;
however, during times of international political or economic uncertainty, all or
a portion of the Portfolio's assets may be in U.S. issuers and denominated in
U.S. dollars.
Under normal market conditions, the potential for capital growth on these
securities will tend to be lower than the potential for capital growth on other
securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Asset Management Inc. is the investment adviser for the Portfolio
(the "Adviser"). The Adviser is a wholly owned subsidiary of Van Kampen
Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ---------------------------------------
<S> <C> <C> <C>
First $500 million 1.00%
.......................................
Next $500 million 0.95%
.......................................
Over $1 billion 0.90%
.......................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.00% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
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<PAGE> 98
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Portfolio. The Subadviser is a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., and is an affiliate of the Adviser. The
Subadviser conducts a worldwide portfolio management business and provides a
broad range of portfolio management services to customers in the United States
and abroad. At December 31, 1999, the Subadviser, together with its affiliated
institutional asset management companies, managed assets of approximately $184.8
billion, including assets under fiduciary advice. The Subadviser's principal
office is located at 1221 Avenue of the Americas, New York, New York 10020. On
December 1, 1998, Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc. but continues to do
business in certain instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Portfolio in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser, the Subadviser and the
Distributor have adopted Codes of Ethics designed to recognize the fiduciary
relationships among the Portfolio, the Adviser, the Subadviser, the Distributor
and their respective employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. The Global Equity Portfolio has been managed by Barton M.
Biggs and Ann D. Thivierge since April 1997. Mr. Biggs has been Chairman and a
director of the Subadviser since 1980. Mr. Biggs is also a Managing Director of
the Subadviser and Morgan Stanley & Co. Incorporated and is a director and
chairman of various registered investment companies to which the Subadviser and
certain of its affiliates provide investment advisory services. Mr. Biggs holds
a B.A. from Yale University and an M.B.A. from New York University. Ms.
Thivierge is a Managing Director of the Subadviser and Morgan Stanley & Co.
Incorporated. Ms. Thivierge has been with the Subadviser since 1986. Ms.
Thivierge holds a B.A. in International Relations from James Madison College,
Michigan State University, and an M.B.A. in Finance from New York University.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors
11
<PAGE> 99
can contact their financial adviser for more information regarding the insurance
company's Accounts and class of the Portfolio's shares available through such
Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a
12
<PAGE> 100
request in proper form. The market values of the securities in the Portfolio are
subject to daily fluctuations and the net asset value per share of the
Portfolio's shares will fluctuate accordingly. Therefore, the redemption value
may be more or less than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a regulated investment company
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio distributes less than an amount equal to the sum
of 98% of its ordinary income and 98% of its capital gain net income, then the
Portfolio will be subject to a 4% excise tax on the undistributed amounts. If
for any taxable year the Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net capital gain, would be subject to tax at regular corporate
rates (without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
13
<PAGE> 101
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
July 3, 1995
(Commencement of
Year Ended December 31, Investment Operations) to
GLOBAL EQUITY PORTFOLIO 1999 1998 1997 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $13.208 $11.004 $11.658 $ 10.30 $10.00
------- ------- ------- ------- ------
Net Investment Income/Loss............. .240 .089 .110 .035 (.16)
Net Realized and Unrealized Gain....... 3.712 2.258 1.696 1.687 .46
------- ------- ------- ------- ------
Total from Investment Operations......... 3.952 2.347 1.806 1.722 .30
------- ------- ------- ------- ------
Less:
Distributions from and in Excess of Net
Investment Income................... .041 .143 .106 .188 -0-
Distributions from and in Excess of Net
Realized Gain....................... .179 -0- 2.354 .176 -0-
------- ------- ------- ------- ------
Total Distributions...................... .220 .143 2.460 .364 -0-
------- ------- ------- ------- ------
Net Asset Value, End of the Period....... $16.940 $13.208 $11.004 $11.658 $10.30
======= ======= ======= ======= ======
Total Return*............................ 30.06% 21.61% 15.85% 16.72% 3.00%**
Net Assets at End of the Period (In
millions).............................. $ 4.3 $ 3.4 $ 3.0 $ 2.5 $ 2.4
Ratio of Expenses to Average Net
Assets*................................ 1.20% 1.20% 1.20% 1.20% 4.35%
Ratio of Net Investment Income/Loss to
Average Net Assets*.................... .42% .79% .76% .27% (2.76%)
Portfolio Turnover....................... 7% 3% 132% 94% 42%**
*If certain expenses had not been assumed
by the Adviser, Total Return would have
been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net
Assets................................. 4.84% 6.27% 6.78% 7.43% 8.27%
Ratio of Net Investment Loss to Average
Net Assets............................. (3.22%) (4.28%) (4.82%) (5.96%) (6.68%)
** Non-Annualized
</TABLE>
14
<PAGE> 102
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- GLOBAL EQUITY PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Subadviser
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT
1221 Avenue of the Americas
New York, NY 10020
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Global Equity Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Global Equity Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 103
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO GE I 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST GLOBAL EQUITY PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Global Equity Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Global
Equity Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 104
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
GOVERNMENT PORTFOLIO
The Government Portfolio is a mutual fund with the investment objective to seek
to provide investors with high current return consistent with preservation of
capital.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
<PAGE> 105
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 6
Investment Objective, Policies and Risks.......... 6
Investment Advisory Services...................... 12
Purchase of Shares................................ 13
Redemption of Shares.............................. 14
Dividends, Distributions and Taxes................ 14
Financial Highlights.............................. 16
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 106
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek to provide
investors with high current return consistent with preservation of capital.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing at least 80% of the
Portfolio's total assets in debt securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities, including mortgage-related
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government. Under normal market conditions, the Portfolio may invest up to 20%
of its total assets in government-related securities, including privately issued
mortgage-related and mortgage-backed securities not directly issued or
guaranteed by instrumentalities of the U.S. government, privately issued
certificates representing "stripped" U.S. government or mortgage-related
securities and repurchase agreements fully collateralized by U.S. government
securities. The Portfolio's investment adviser purchases and sells securities
for the Portfolio with a view toward seeking a high level of current income
based on the investment adviser's analysis and expectations on interest rates
and yield spreads between types of securities. The Portfolio may purchase and
sell certain derivative instruments, such as options, futures, options on
futures and interest rate swaps or other interest rate-related transactions, for
various portfolio management purposes. The Portfolio may purchase or sell
securities on a when-issued or delayed delivery basis.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. The value of debt securities tend to fall
as interest rates rise and such declines tend to be greater among debt
securities with longer maturities or longer durations. Although the Portfolio
has no policy limiting the maturities of its investments, the Portfolio's
investment adviser seeks to moderate market risk by normally maintaining a
portfolio duration of four to six years. This means that the Portfolio will be
subject to greater market risk than a portfolio investing solely in shorter-term
securities but lesser market risk than a portfolio investing solely in
longer-term securities. The yields and market prices of U.S. government
securities may move differently and adversely compared to the yields and market
prices of the overall securities markets. These securities, while backed by the
U.S. government, are not guaranteed against declines in their market prices.
The prices of mortgage-related securities, like traditional debt securities,
tend to fall as interest rates rise. Mortgage-related securities may be more
susceptible to further price declines than traditional debt securities in
periods of rising interest rates because of extension risk (described below).
Additionally, mortgage-related securities may benefit less than traditional debt
securities during periods of declining interest rates because of prepayment risk
(described below).
Market risk is often greater among certain types of debt securities, such as
zero-coupon securities or mortgage-related stripped securities, which do not
make regular or periodic interest payments. As interest rates change, these
securities often fluctuate more in price than securities that make current
interest payments. Therefore, the Portfolio may be subject to greater market
risk than a portfolio that does not own these types of securities.
Investments in when-issued and delayed delivery transactions are subject to
changes in market conditions from the time of the commitment until settlement.
This may adversely affect the prices or yields of the securities being
purchased, as well as any portfolio securities held for payment of such
commitments. The greater the Portfolio's outstanding commitments for these
securities, the greater the Portfolio's exposure to market price fluctuation.
3
<PAGE> 107
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Portfolio because
it invests substantially all of its assets in U.S. government securities.
INCOME RISK. The income you receive from the Portfolio is based primarily on
interest rates, which can vary widely over the short and long term. If interest
rates drop, your income from the Portfolio may drop as well. The more the
Portfolio invests in adjustable, variable or floating rate securities or in
securities susceptible to prepayment risk, the greater the Portfolio's income
risk.
PREPAYMENT RISK. If interest rates fall, the principal on debt securities held
by the Portfolio may be paid earlier than expected. If this happens, the
proceeds from a prepaid security would be reinvested by the Portfolio in
securities bearing the new, lower interest rates, resulting in a possible
decline in the Portfolio's income and distributions to shareholders.
The Portfolio may invest in mortgage-related securities, which are especially
sensitive to prepayment risk because property owners often refinance their
mortgages when interest rates drop.
EXTENSION RISK. The value of debt securities tends to fall as interest rates
rise. For mortgage-related securities, if interest rates rise, property owners
may prepay mortgages more slowly than expected when the security was purchased
by the Portfolio which may further reduce the market value of such security and
lengthen the duration of the security.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and interest
rate swaps or other interest-rate related transactions are examples of
derivatives. Derivative instruments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and investment strategies, the
Portfolio may be appropriate for investors who:
- - Seek high current return consistent with preservation of capital
- - Wish to add to their investment holdings a portfolio that invests primarily in
debt securities issued or guaranteed by the U.S. government, its agencies or
its instrumentalities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the ten calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If these sales charges or other expenses
at the contract level had been included, the returns shown below would have been
lower. Remember that the past performance of the Portfolio is not indicative of
its future performance.
4
<PAGE> 108
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 8.31
1991 16.23
1992 5.73
1993 7.86
1994 -4.63
1995 17.17
1996 2.12
1997 9.61
1998 8.59
1999 -3.36
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
2.86%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 5.71% (for the quarter ended September 30, 1991) and the lowest quarterly
return was -3.98% (for the quarter ended March 31, 1994).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Lehman Brothers Mutual
Fund Government/Mortgage Index*, a broad-based market index that the Portfolio's
investment adviser believes is an appropriate benchmark for the Portfolio. The
Portfolio's performance figures do not include sales charges or other expenses
at the contract level that would be paid by investors. The index's performance
figures do not include any commissions or sales charges that would be paid by
investors purchasing securities represented by the index. Average annual total
returns are shown for the periods ended December 31, 1999 (the most recently
completed calendar year prior to the date of this prospectus). Remember that the
past performance of the Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Government
Portfolio
-- Class I Shares -3.36% 6.60% 6.54%
.......................................................
Lehman Brothers
Mutual Fund
Government/Mortgage
Index -0.54% 7.67% 7.60%
.......................................................
</TABLE>
* The Lehman Brothers Mutual Fund Government/Mortgage Index is an unmanaged
index comprised of U.S. government treasuries and agency mortgage-backed
securities.
5
<PAGE> 109
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is a diversified, open-end
management investment company which offers shares in eleven separate portfolios,
including this Government Portfolio. Each portfolio is in effect a separate
mutual fund. Each portfolio of the Trust has a different investment objective(s)
which it pursues through its investment policies. Each portfolio has its own
income, expenses, assets, liabilities and net asset value and each portfolio
issues its own shares. Shares of each portfolio represent an interest only in
that portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek to provide investors with
high current return consistent with preservation of capital. The investment
objective of the Portfolio is a fundamental policy and may not be changed
without shareholder approval of a majority of the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Portfolio will achieve its
investment objective.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing at least 80% of the
Portfolio's total assets in debt securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities, including mortgage-related
securities issued or guaranteed by instrumentalities of the U.S. government.
Under normal market conditions, the Portfolio may invest up to 20% of its total
assets in other government-related securities, including privately issued
mortgage-related and mortgage-backed securities not issued or directly
guaranteed by instrumentalities of the U.S. government, privately issued
certificates representing "stripped" U.S. government or mortgage-related
securities and repurchase agreements fully collateralized by U.S. government
securities. While securities purchased for the Portfolio's investments may be
issued or guaranteed by the U.S. government, the shares issued by the Portfolio
to investors are not insured or guaranteed by the U.S. government, its agencies
or its instrumentalities or any other person or entity. For more information on
the Portfolio's investments, see "U.S. Government Securities" and
"Government-Related Securities" below.
The value of debt securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, debt security prices
generally fall; if interest rates fall, debt security prices generally rise.
Debt securities with longer maturities generally offer higher yields than debt
securities with shorter maturities assuming all other factors, including credit
quality, being equal. For a given change in interest rates, the market prices of
longer-maturity debt securities generally fluctuate more than the market prices
of shorter-maturity debt securities. While the Portfolio has no policy limiting
the maturities of the individual debt securities in which it may invest, the
Portfolio's investment adviser seeks to moderate market risk by generally
maintaining a portfolio duration of four to six years. Duration is a measure of
the expected life of a debt security that was developed as an alternative to the
concept of "term to maturity." Duration incorporates a debt security's yield,
coupon interest payments, final maturity and call features into one measure. A
duration calculation looks at the present value of a security's entire payment
stream whereas term to maturity is based solely on the date of a security's
final principal repayment.
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<PAGE> 110
UNDERSTANDING
MATURITIES
A debt security can be categorized according to its maturity, which is the
length of time before the issuer must repay the principal.
<TABLE>
<C> <S>
Term Maturity Level
- --------------------------------------------------
1-3 years Short
..................................................
4-10 years Intermediate
..................................................
More than 10 years Long
..................................................
</TABLE>
UNDERSTANDING
DURATION
Duration provides an alternative approach to assessing a security's market
risk. Duration measures the expected life of a security by incorporating the
security's yield, coupon interest payments, final maturity and call features
into one measure. While maturity focuses only on the final principal
repayment date of a security, duration looks at the timing and present value
of a security's principal, interest or other payments. Typically, a debt
security with interest payments due prior to maturity has a duration less
than maturity. A zero-coupon bond, which does not make interest payments
prior to maturity, would have the same duration and maturity.
The Portfolio may invest in mortgage-related or mortgage-backed securities. The
values of such securities tend to vary inversely with changes in prevailing
interest rates, but also are more susceptible to prepayment risk and extension
risk than other debt securities.
The Portfolio may purchase debt securities at a premium over the principal or
face value in order to obtain higher current income. The amount of any premium
declines during the term of the security to zero at maturity. Such decline
generally is reflected in the market price of the security and thus in the
Portfolio's net asset value. Any such decline is realized for accounting
purposes as a capital loss at maturity or upon resale. Prior to maturity or
resale, such decline in value could be offset, in whole or part, or increased by
changes in the value of the security due to changes in interest rate levels.
In order to hedge against changes in interest rates, the Portfolio may enter
into certain derivative transactions, such as the purchase or sale of options,
futures contracts and options on such contracts and interest rate swaps or other
interest rate-related transactions. By using such instruments, the Portfolio
seeks to limit its exposure to adverse interest rate changes, but the Portfolio
also reduces its potential for capital appreciation on debt securities if
interest rates decline. The purchase and sale of such securities may result in a
higher portfolio turnover rate than if the Portfolio had not purchased or sold
such securities. See "Interest Rate Transactions" and "Using Options, Futures
Contracts and Options on Futures Contracts."
The Portfolio also may purchase or sell U.S. government securities on a forward
commitment basis. See "When-Issued and Delayed Delivery Securities" below.
The Portfolio intends to invest in U.S. Treasury securities and in securities
issued by at least four U.S. government agencies or instrumentalities in the
amounts necessary to permit the Accounts to meet certain diversification
requirements imposed by Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code"), at the end of each quarter of the year (or within 30 days
thereafter). See "Dividends, Distributions and Taxes." In the event the
Portfolio does not meet the diversification requirements of Section 817(h) of
the Code, the policies funded by shares of the Portfolio will not be treated as
life insurance for federal income tax purposes and the owners of the policies
will be subject to taxation on their share of the dividends and distributions
paid by the Portfolio.
U.S. GOVERNMENT SECURITIES. Debt securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities include: (1) U.S. Treasury
obligations, which differ in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturity of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years), including the principal components or the
interest components issued by the U.S. government under the Separate Trading of
Registered Interest and Principal Securities program (i.e. "STRIPS"), all of
which are backed by the full faith and credit of the U.S.; and (2) obligations
issued or guaranteed by U.S. government agencies or instrumentalities, including
government guaranteed mortgage-related securities,
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<PAGE> 111
some of which are backed by the full faith and credit of the U.S. Treasury, some
of which are supported by the right of the issuer to borrow from the U.S.
government and some of which are backed only by the credit of the issuer itself.
MORTGAGE-RELATED SECURITIES. Mortgage loans securing real property made by
banks, savings and loan institutions, and other lenders are often assembled into
pools. Interests in such pools may then be issued by private entities or also
may be issued or guaranteed by an agency or instrumentality of the U.S.
government. Interests in such pools are what this prospectus calls
"mortgage-related securities." Mortgage-related securities include, but are not
limited to, obligations issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA is a wholly owned
corporate instrumentality of the U.S. whose securities and guarantees are backed
by the full faith and credit of the U.S. FNMA, a federally chartered and
privately owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the U.S. The securities and guarantees of FNMA and FHLMC
are not backed, directly or indirectly, by the full faith and credit of the U.S.
Although the Secretary of the Treasury of the U.S. has discretionary authority
to lend amounts to FNMA up to certain specified limits, neither the U.S.
government nor any agency thereof is obligated to finance FNMA's or FHLMC's
operations or to assist FNMA or FHLMC in any other manner. Securities of FNMA
and FHLMC include those issued in principal only or interest only components.
The yield and payment characteristics of mortgage-related securities differ from
traditional debt securities. Mortgage-related securities are characterized by
monthly payments to the holder, reflecting the monthly payments made by the
borrowers who received the underlying mortgage loans less fees paid to the
guarantor and the servicer of such mortgage loans. The payments to the holders
of mortgage-related securities (such as the Portfolio), like the payments on the
underlying mortgage loans, represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such as 20 or 30
years, the borrowers can, and typically do, pay them off sooner. Thus, the
holders of mortgage-related securities frequently receive prepayments of
principal, in addition to the principal which is part of the regular monthly
payment. Faster or slower prepayments than expected on underlying mortgage loans
can dramatically alter the valuation and yield-to-maturity of mortgage-related
securities. The value of mortgage-related securities, like traditional debt
securities, tends to vary inversely with changes in prevailing interest rates.
Mortgage-related securities, however, may benefit less than traditional debt
securities from declining interest rates because a property owner is more likely
to refinance a mortgage which bears a relatively high rate of interest during a
period of declining interest rates. This means some of the Portfolio's higher
yielding securities might be converted to cash, and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase new securities
at prevailing interest rates. The increased likelihood of prepayment when
interest rates decline also limits market price appreciation of mortgage-related
securities. If the Portfolio buys mortgage-related securities at a premium,
mortgage foreclosures or mortgage prepayments may result in a loss to the
Portfolio of up to the amount of the premium paid since only timely payment of
principal and interest is guaranteed. Alternatively, during periods of rising
interest rates, mortgage-related securities are often more susceptible to
extension risk (i.e. rising interest rates could cause property owners to prepay
their mortgage loans more slowly than expected when the security was purchased
by the Portfolio which may further reduce the market value of such security and
lengthen the duration of such security).
The Portfolio may invest in collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs"). CMOs are debt obligations
collateralized by a pool of mortgage loans or mortgaged-related securities which
generally are held under an indenture issued by financial institutions or other
mortgage lenders or issued or guaranteed by agencies or instrumentalities of the
U.S. government. REMICs are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. CMOs and REMICs
generally are issued in a number of classes or series with different maturities.
The classes or series are retired in sequence as the underlying mortgages are
repaid. Such securities generally are subject to market risk, prepayment risk
and extension risk like other mortgage-related securities. Certain of these
securities may have variable or floating interest rates and others may be
stripped (securities which provide only the principal or interest feature of the
underlying security). CMOs or REMICs issued or guaranteed by agencies or
instrumentalities of the U.S. government are treated by the Portfolio as U.S.
government securities.
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<PAGE> 112
GOVERNMENT-RELATED SECURITIES. Under normal market conditions, the Portfolio may
invest up to 20% of its assets in, among other things, government-related
securities, including privately issued mortgage-related and mortgage-backed
securities not directly guaranteed by instrumentalities of the U.S. government,
privately issued certificates representing stripped U.S. government or
mortgage-related securities and repurchase agreements fully collateralized by
U.S. government securities.
The Portfolio may invest in private mortgage-related securities ("Private
Pass-Throughs") as opposed to mortgage-related securities issued or guaranteed
by agencies or instrumentalities of the U.S. government such as GNMA, FNMA, and
FHLMC, only if such Private Pass-Throughs are rated at the time of purchase in
the two highest grades by a nationally recognized statistical rating agency
("NRSRO") or in any unrated debt security considered by the Portfolio's
investment adviser to be of comparable quality. CMOs and REMICs issued by
private entities and not directly guaranteed by any government agency or
instrumentality are secured by the underlying collateral of the private issuer.
The Portfolio will invest in such privately issued securities only if: they are
100% collateralized at the time of issuance by securities issued or guaranteed
by the U.S. government, its agencies or its instrumentalities and they are rated
at the time of purchase in the two highest grades by a NRSRO. A more complete
description of security ratings is contained in the Portfolio's Statement
Additional Information.
The Portfolio may invest in the principal only or interest only components of
U.S. government securities. Certain agencies or instrumentalities of the U.S.
government and a number of banks and brokerage firms separate ("strip") the
principal portions from the coupon portions of U.S. Treasury bonds and notes and
sell them separately in the form of receipts or certificates representing
undivided interests in these instruments (which instruments are often held by a
bank in a custodial or trust account). Such custodial receipts or certificates
of private issuers are not considered by the Portfolio to be U.S. government
securities. The principal only securities are not entitled to any periodic
payments of interest prior to maturity. Such securities usually trade at a deep
discount from their face or par value and are subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Current
federal tax law requires that a holder (such as the Portfolio) of a principal
only security accrue a portion of the discount at which the security was
purchased as income each year even though the Portfolio receives no interest
payment in cash on the security during the year. The Portfolio is required to
distribute substantially all of its investment company taxable income each year
and, in order to generate sufficient cash to make distributions of such income,
the Portfolio may have to dispose of securities that it would otherwise continue
to hold, which, in some cases may be disadvantageous to the Portfolio.
Stripped mortgage-related securities (hereinafter referred to as "stripped
mortgage securities") are derivative multiclass mortgage securities. Stripped
mortgage securities may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities usually are structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage securities will have one
class receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment in these securities even if the security is rated the highest
quality by a NRSRO. Holders of PO securities are not entitled to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Current federal tax law requires that a holder (such as the Portfolio)
of principal only securities accrue a portion of the discount at which the
security was purchased as income each year even though the holder receives no
interest payment in cash on the
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<PAGE> 113
certificate during the year. The Portfolio is required to distribute
substantially all of its investment company taxable income each year, and, in
order to generate sufficient cash to make distributions of such income, the
Portfolio may have to dispose of securities that it would otherwise continue to
hold, which, in some cases, may be disadvantageous to the Portfolio.
Although the market for stripped securities is increasingly liquid, certain of
such securities may not be readily marketable and will be considered illiquid
for purposes of the Portfolio's limitation on investments in illiquid
securities. The Portfolio will follow established guidelines and standards for
determining whether a particular stripped security is liquid. Generally, such a
security may be deemed liquid if it can be disposed of promptly in the ordinary
course of business at a value reasonably close to that used in the calculation
of the net asset value per share. Stripped mortgage securities, other than
government-issued IO and PO securities backed by fixed-rate mortgages, are
presently considered by the staff of the SEC to be illiquid securities and thus
subject to the Portfolio's limitation on investment in illiquid securities.
INTEREST RATE TRANSACTIONS. The Portfolio may, but is not required to, enter
into interest rate swaps and may purchase or sell interest rate caps, floors and
collars. The Portfolio expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio. The Portfolio may also enter into these transactions to protect
against any increase in the price of securities the Portfolio anticipates
purchasing at a later date. Interest rate swaps, caps, floors and collars will
be treated as illiquid securities for the purposes of the Portfolio's investment
restriction limiting investment in illiquid securities. Besides liquidity, such
transactions include market risk, risk of default by the other party to the
transaction, risk of imperfect correlation and manager risk. Such transactions
may involve commissions or other costs. A more complete discussion of interest
rate transactions and their risks is contained in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase or sell
U.S. government securities on a "when-issued" or "delayed delivery" basis
("Forward Commitments"). These transactions occur when securities are purchased
or sold by the Portfolio with payment and delivery taking place in the future,
frequently a month or more after such transaction. The price is fixed on the
date of the commitment, and the seller continues to accrue interest on the
securities covered by the Forward Commitment until delivery and payment take
place. At the time of settlement, the market value of the securities may be more
or less than the purchase or sale price. The Portfolio may either settle a
Forward Commitment by taking delivery of the securities or may either resell or
repurchase a Forward Commitment on or before the settlement date in which event
the Portfolio may reinvest the proceeds in another Forward Commitment. These
transactions are subject to market risk as the value or yield of a security at
delivery may be more or less than the purchase price or the yield generally
available on securities when delivery occurs. When engaging in Forward
Commitments, the Portfolio relies on the other party to complete the
transaction, should the other party fail to do so, the Portfolio might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure. The Portfolio maintains a segregated
account (which is marked to market daily) of cash or liquid portfolio securities
with the Portfolio's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase or sell continues.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio
may, but is not required to, use various investment strategic transactions, such
as options, futures contracts and options on futures contracts, in several
different ways, depending upon the status of the Portfolio's securities and the
investment adviser's expectations concerning the securities or currency markets.
Although the Portfolio's investment adviser seeks to use the practices to
further the Portfolio's investment objective, no assurance can be given that the
use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing bond index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
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If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling bond index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
bond index options or bond index futures options) to manage the Portfolio's risk
in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or over-
the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the
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realization of more short-term capital gains than if a fund had lower portfolio
turnover. Increases in a fund's transaction costs would adversely impact the
fund's performance. The turnover rate will not be a limiting factor, however, if
the Portfolio's investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in short term securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, prime commercial paper,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks having total assets of at least $500 million, and repurchase agreements.
Under normal market conditions, the potential for high current return on these
securities will tend to be lower than the potential for high current return on
other securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective of high current income.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
..............................................
Next $500 million 0.45%
..............................................
Over $1 billion 0.40%
..............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.36% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
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<PAGE> 116
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Government Portfolio is co-managed by John R.
Reynoldson, Barbara M. Downey and Ted V. Mundy III who are responsible for the
day-to-day management of the Portfolio's investment portfolio. Mr. Reynoldson
has been Senior Vice President of Adviser since July 1991 and Senior Vice
President of Advisory Corp. since June 1995. Mr. Reynoldson has been affiliated
with the Portfolio since 1988.
Barbara M. Downey has been Vice President of the Adviser since 1996. Prior to
1996, Ms. Downey spent about two years as a Vice President and Senior Portfolio
Manager at CSI Asset Management, Inc. Ms. Downey has been affiliated with the
Portfolio since January 2000.
Ted V. Mundy III has been Vice President of Adviser since September 1994 and
Vice President of Advisory Corp. since June 1995. Mr. Mundy has been affiliated
with the Portfolio since January 2000.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
13
<PAGE> 117
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Interest earned from investments is the main source of income for the Portfolio.
Substantially all of this income, less expenses, is distributed to Accounts at
least annually. When the Portfolio sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Portfolio paid to purchase them. The
Portfolio distributes any net capital gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Distributions from the
Portfolio will not be eligible for the dividends received deduction for
corporations.
14
<PAGE> 118
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
15
<PAGE> 119
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Ended December 31,
GOVERNMENT PORTFOLIO 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $9.594 $8.920 $8.666 $ 9.06 $ 8.28
------ ------ ------ ------ ------
Net Investment Income................. .526 .520 .566 .569 .60
Net Realized and Unrealized
Gain/Loss.......................... (.845) .244 .231 (.388) .78
------ ------ ------ ------ ------
Total From Investment Operations........ (.319) .764 .797 .181 1.38
Less Distributions from and in Excess of
Net Investment Income................. .457 .090 .543 .575 .60
------ ------ ------ ------ ------
Net Asset Value, End of the Period...... $8.818 $9.594 $8.920 $8.666 $ 9.06
====== ====== ====== ====== ======
Total Return*........................... (3.36%) 8.59% 9.61% 2.12% 17.17%
Net Assets at End of the Period (In
millions)............................. $ 53.3 $ 57.1 $ 52.6 $ 57.3 $ 67.0
Ratio of Expenses to Average Net
Assets*............................... .60% .60% .60% .60% .60%
Ratio of Net Investment Income to
Average Net Assets*................... 5.92% 5.74% 6.51% 6.56% 6.89%
Portfolio Turnover...................... 92% 107% 119% 143% 164%
*If certain expenses had not been
assumed by the Adviser, Total Return
would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets................................ .74% .73% .74% .80% .72%
Ratio of Net Investment Income to
Average Net Assets.................... 5.78% 5.61% 6.37% 6.36% 6.77%
</TABLE>
16
<PAGE> 120
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- GOVERNMENT PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Government Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Government Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 121
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO GV I
4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
GOVERNMENT PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Government Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Government
Portfolio, including the reports and Statement
of Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
<PAGE> 122
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio is a mutual fund with the investment objective
to seek long-term growth of capital and income.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
<PAGE> 123
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 8
Purchase of Shares................................ 10
Redemption of Shares.............................. 11
Dividends, Distributions and Taxes................ 11
Financial Highlights.............................. 13
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 124
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with an investment objective to seek long-term
growth of capital and income.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing primarily in
income-producing equity securities, including common stocks and convertible
securities; although investments are also made in non-convertible preferred
stocks and debt securities. In selecting securities for investments the
Portfolio focuses primarily on the security's potential for growth of capital
and income. The Portfolio's investment adviser may focus on larger
capitalization companies which it believes possess characteristics for improved
valuation. Portfolio securities are typically sold when the Portfolio's
investment adviser's assessments of the growth and income potential for such
securities materially change. The Portfolio may invest up to 15% of its total
assets in securities of foreign issuers. The Portfolio may purchase and sell
certain derivative instruments, such as options, futures and options on futures,
for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. During an
overall stock market decline, stock prices of small- or medium-sized companies
or newly-formed companies (in which the Portfolio may invest) often fluctuate
more than prices of larger, more established companies. The ability of the
Portfolio's equity securities holdings to generate income is dependent on the
earnings and the continuing declaration of dividends by the issuers of such
securities. The values of income-producing equity securities may or may not
fluctuate in tandem with overall changes in the stock markets. Investments in
fixed income or debt securities generally are affected by changes in interest
rates and creditworthiness of the issuer. The market prices of such securities
tend to fall as interest rates rise, and such declines may be greater among
securities with longer duration. The Portfolio's investments in convertible
securities are affected by changes similar to those of equity and debt
securities. The value of convertible securities tends to decline as interest
rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity security.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; and risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities, and the
Portfolio's performance may lag behind that of similar funds.
3
<PAGE> 125
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek growth of capital and income over the long term
- - Can withstand volatility in the value of their shares of the Portfolio
- - Wish to add to their investment holdings a portfolio that invests primarily in
income-producing equity securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the three calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1997 23.9
1998 19.61
1999 12.99
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
6.97%.
During the three-year period shown in the bar chart, the highest quarterly
return was 15.84% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -10.52% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are an appropriate
benchmarks for the Portfolio: the Standard & Poor's 500-Stock Index* and the
Russell 1000 Stock Index**; and with the Lipper Growth and Income Fund Index***
an index of funds with similar investment objectives. The Portfolio's
performance figures do not include sales charges or other expenses at the
contract level that would be paid by investors. The indices' performance figures
do not include any commissions or sales charges that would be paid by investors
purchasing securities represented by the indices. Average annual total returns
are shown for the periods ended December 31, 1999 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of a Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Growth
and Income
Portfolio--Class
I Shares 12.99% 18.48%(1)
.............................................
Standard & Poor's
500-Stock Index 21.04% 26.60%(2)
.............................................
Russell 1000
Stock Index 20.91% 22.45%(2)
.............................................
Lipper Growth and
Income Fund Index 11.86% 16.81%(2)
.............................................
</TABLE>
Inception dates: (1) 12/23/96, (2) 12/26/96.
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that
are a representative sample of approximately 100 industries, chosen mainly
for market size, liquidity and industry group representation (assumes
dividends are reinvested).
** The Russell 1000 Stock Index is an unmanaged index that reflects the general
performance of the 1,000 largest U.S. companies based on total market
capitalization.
*** The Lipper Growth and Income Index is an index of funds with similar
investment objectives. The Lipper Growth and Income Index was initially
selected as a benchmark for the Fund's performance; however, based on the
Fund's asset composition, the Fund's investment adviser believes the Russell
1000 Stock Index provides a more appropriate benchmark for the Fund.
Therefore, the Lipper Growth and Income Index will not be shown in future
prospectuses.
4
<PAGE> 126
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Growth and Income Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek long-term growth of capital
and income. The investment objective of the Portfolio is a fundamental policy
and may not be changed without shareholder approval of a majority of the
Portfolio's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). There are risks inherent in all
investments in securities; accordingly there can be no assurance that the
Portfolio will achieve its investment objectives.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing primarily in income-producing
equity securities, including common stocks and convertible securities; although
investments are also made in non-convertible preferred stocks and debt
securities rated "investment grade," which are securities rated within the four
highest grades assigned by Standard & Poor's ("S&P") or by Moody's Investors
Service, Inc. ("Moody's"). A more complete description of security ratings is
contained in the Portfolio's Statement of Additional Information.
In selecting common stocks for investment, the Portfolio focuses primarily on
the security's potential for capital growth and income. The Portfolio's
investment adviser may focus on larger capitalization companies which it
believes possess characteristics for improved valuation. The Portfolio's
investment adviser looks for catalysts for change that may positively impact a
company, such as a new management, industry development or regulatory change.
The aim is to uncover these catalysts for change, and then benefit from
potential stock price appreciation of the change taking place at the company.
Although focusing on large capitalization companies, the Portfolio may invest in
securities of small- or medium-sized companies which often are subject to more
abrupt or erratic market movements than securities of larger, more established
companies or the market averages in general. In addition, such companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger, more established companies.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is desirable to do so. Such
factors include change in economic or market factors in general or with respect
to a particular industry, a change in the market trend or other factors
affecting an individual security, changes in the relative market performance or
appreciation possibilities offered by individual securities and other
circumstances bearing on the desirability of a given investment.
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so.
A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer or
into cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest
5
<PAGE> 127
paid or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity security.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity security.
While the Portfolio invests primarily in income-producing equity securities, the
Portfolio may invest in non-convertible adjustable or fixed rate preferred stock
and debt securities. Preferred stock generally has a preference as to dividends
and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The Portfolio may invest in debt securities of
various maturities. The Portfolio invests only in debt securities rated
investment grade at the time of investment, and a subsequent reduction in rating
does not require the Portfolio to dispose of a security. Securities rated BBB by
S&P or Baa by Moody's are in the lowest of the four investment grades and are
considered by the rating agencies to be medium grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated securities. A more
complete description of security ratings is contained in the Portfolio's
Statement of Additional Information. The market prices of debt securities
generally fluctuate inversely with changes in interest rates so that the value
of investments in such securities can be expected to decrease as interest rates
rise and increase as interest rates fall and such fluctuations generally are
larger among securities with longer maturities.
RISKS OF INVESTING IN
SECURITIES OF FOREIGN ISSUERS
The Portfolio may invest up to 15% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are
6
<PAGE> 128
less diverse and mature and political systems that are less stable than
developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock or bond index futures
contracts, however, the Portfolio can compensate for the cash portion of its
assets and may obtain performance equivalent to investing all of its assets in
securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock or bond index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock or bond index options or stock or bond index futures options) to manage
the Portfolio's risk in advancing or declining markets. For example, the value
of a put option generally increases as the underlying security declines below a
specified level, value is protected against a market decline to the degree the
performance of the put correlates with the performance of the Portfolio's
investment portfolio. If the market remains stable or advances, the Portfolio
can refrain from exercising the put and the Portfolio will participate in the
advance, having incurred only the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests
7
<PAGE> 129
are traded on U.S. and foreign exchanges or over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital growth and income on these securities will
tend to be lower than the potential for capital growth and income on other
securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned
8
<PAGE> 130
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENTS. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- -----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.60%
...............................................
Over $500 million 0.55%
...............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of the
month.
After voluntary fee waivers, the effective advisory fee rate was 0.43% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Growth and Income Portfolio is managed by a team of
portfolio managers, James A. Gilligan, Senior Portfolio Manager, Scott Carroll,
Portfolio Manager and James O. Roeder, Portfolio Manager. Mr. Gilligan has been
primarily responsible for managing the Portfolio's investments since the
Portfolio's inception. Mr. Gilligan has been Senior Vice President and Portfolio
Manager of the Adviser since September 1995 and of Advisory Corp. since June
1995. Prior to September 1995, Mr. Gilligan was a Vice President and Portfolio
Manager of the Adviser.
Mr. Carroll has been a Portfolio Manager of the Portfolio since July 1997 and
employed by the Adviser and Advisory Corp. since December 1996 and a Vice
President of the Adviser and Advisory Corp. since February 1999. Prior to
December 1996, Mr. Carroll was an Equity Analyst for 2 years with Lincoln
Capital Management Company.
Mr. Roeder has been a Portfolio Manager of the Portfolio since May 1999 and a
Vice President of the Adviser and Advisory Corp. since May 1999. Prior to that
time, Mr. Roeder was an analyst for 3 years with Midwest Research and prior to
that, an analyst for approximately 2 years with Duff & Phelps Equity Research.
9
<PAGE> 131
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value
10
<PAGE> 132
of such securities occur between the time when their price is determined and the
time when the Portfolio's net asset value is calculated, such securities may be
valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Portfolio's Board of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio distributes less than an amount equal to the sum
of 98% of its ordinary income and 98% of its capital gain net income, then the
Portfolio will be subject to a 4% excise tax on the undistributed amounts. If
for any taxable year the Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net capital gain, would be subject to tax at regular corporate
rates (without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
11
<PAGE> 133
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
12
<PAGE> 134
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past four years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
December 23, 1996
(Commencement of
Year Ended December 31, Investment Operations) to
GROWTH AND INCOME PORTFOLIO 1999(a) 1998 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $14.481 $12.123 $ 9.970 $10.000
------- ------- ------- -------
Net Investment Income....................... .190 .120 .072 .011
Net Realized and Unrealized Gain/Loss....... 1.655 2.254 2.309 (.041)
------- ------- ------- -------
Total From Investment Operations.............. 1.845 2.374 2.381 (.030)
------- ------- ------- -------
Less:
Distributions from Net Investment Income.... .264 .016 .065 -0-
Distributions from and in Excess of Net
Realized Gain............................ .722 -0- .163 -0-
------- ------- ------- -------
Total Distributions........................... .986 .016 .228 -0-
------- ------- ------- -------
Net Asset Value, End of the Period............ $15.340 $14.481 $12.123 $ 9.970
======= ======= ======= =======
Total Return*................................. 12.99% 19.61% 23.90% (.30%) **
Net Assets at End of the Period (In
millions)................................... $ 52.5 $ 32.2 $ 11.7 $ 0.5
Ratio of Expenses to Average Net Assets*...... .75% .75% .75% .75%
Ratio of Net Investment Income to Average Net
Assets*..................................... 1.25% 1.27% 1.19% 4.47%
Portfolio Turnover............................ 96% 70% 96% 0%**
*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets....... .92% 1.09% 1.63% 45.97%
Ratio of Net Investment Income/Loss to Average
Net Assets.................................. 1.08% .93% .31% (40.74%)
** Non-Annualized
(a) Based on average month-end shares
outstanding
</TABLE>
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<PAGE> 135
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST --
GROWTH AND INCOME PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust --
Growth and Income Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust --
Growth and Income Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 136
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO GI
I 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
GROWTH AND INCOME PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and
Growth and Income Portfolio, is incorporated
by reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Growth and
Income Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 137
VAN KAMPEN
LIFE INVESTMENT TRUST
MONEY MARKET PORTFOLIO
The Money Market Portfolio is a mutual fund with the investment objective to
seek protection of capital and high current income through investments in money
market instruments.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
[VAN KAMPEN FUNDS LOGO]
<PAGE> 138
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 4
Investment Objective, Policies and Risks.......... 4
Investment Advisory Services...................... 6
Purchase of Shares................................ 7
Redemption of Shares.............................. 8
Dividends, Distributions and Taxes................ 8
Financial Highlights.............................. 10
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 139
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek protection
of capital and high current income through investments in money market
instruments.
INVESTMENT STRATEGIES
The Portfolio's investment adviser seeks to achieve the Portfolio's investment
objective by investing in a portfolio of U.S. dollar-denominated money market
securities, including U.S. government securities, bank obligations, commercial
paper and repurchase agreements secured by such obligations. The Portfolio seeks
to maintain a constant net asset value of $1.00 per share by investing in a
diversified portfolio of money market instruments maturing within one year and
with a dollar-weighted average maturity of 90 days or less.
The Portfolio buys and sells securities with a view towards seeking high current
income from these short-term investments to the extent consistent with
protection of capital. The Portfolio's investment adviser seeks those securities
that it believes entail reasonable credit risk considered in relation to the
Portfolio's investment policies. The Portfolio's investment adviser may sell
such securities to adjust the average maturity or credit quality of the
Portfolio's investment portfolio. The Portfolio's investments are limited to
those securities that meet maturity, quality and diversification standards with
which money market funds must comply.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks. An investment in
the Portfolio is not a deposit of any bank, and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Portfolio. There can
be no assurance that the Portfolio will achieve its investment objective.
INCOME RISK. The income you receive from the Portfolio is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Portfolio may drop as well.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. While credit risk is expected to be low for the
Portfolio because it invests in high-quality money market instruments, an
investment in the Portfolio is not risk free. The Portfolio is still subject to
the risk that the issuers of such securities may experience financial
difficulties and, as a result, fail to pay on their obligations.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline and adversely affect the Portfolio's net
asset value. The prices of debt securities tend to fall as interest rates rise.
Market risk is expected to be low for the Portfolio because it invests in
high-quality, short-term securities.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek protection of capital and high current income through investments in
money market instruments
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the ten calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
3
<PAGE> 140
[BAR GRAPH]
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 7.83
1991 5.6
1992 3.36
1993 2.66
1994 3.71
1995 5.46
1996 4.89
1997 5.06
1998 5.02
1999 4.63
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
1.31%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 1.96% (for the quarter ended June 30, 1990) and the lowest quarterly return
was 0.64% (for the quarter ended June 30, 1993).
Investors can obtain the current seven-day yield of the Portfolio by calling
(800) 341-2911.
COMPARATIVE PERFORMANCE
The table below shows the Portfolio's performance for the periods ended December
31, 1999 (the most recently completed calendar year prior to the date of this
prospectus). The performance figures do not include sales charges or other
expenses at the contract level that would be paid by investors. Remember that
the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen Money
Market
Portfolio --
Class I Shares 4.63% 5.01% 4.81%
.......................................................
</TABLE>
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Money Market Portfolio. Each portfolio is in effect a separate mutual fund.
Each portfolio of the Trust has a different investment objective(s) which it
pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek protection of capital and
high current income through investments in money market instruments. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
The Portfolio's investment adviser seeks to achieve the Portfolio's investment
objective by investing in a portfolio of U.S. dollar-denominated money market
securities, including U.S. government securities, bank obligations, commercial
paper and repurchase agreements secured by such obligations. The
4
<PAGE> 141
Portfolio seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments maturing within
one year and with a dollar-weighted average maturity of 90 days or less. The
Portfolio seeks high current income from these short-term investments to the
extent consistent with protection of capital.
The Portfolio's investment adviser seeks to invest in those securities that meet
the maturity, quality and diversification standards established by the
Portfolio's Board of Trustees and special rules for money market funds under
law. These standards include requirements for maintaining high credit quality in
the Portfolio's portfolio, a short average portfolio maturity to reduce the
effects of changes in interest rates on the value of portfolio securities and
diversifying investments among issuers to reduce the effects of a default by any
one issuer on the value of the Portfolio's shares. In selecting securities for
investment, the Portfolio's investment adviser focuses on identifying the best
relative values among potential investments based upon an analysis of the yield,
price, interest rate sensitivity and credit quality of such securities. The
Portfolio's investment adviser seeks to add value and limit risk through careful
security selection and by actively managing the Portfolio's portfolio. On an
ongoing basis, the Portfolio's investment adviser analyzes the economic and
financial outlook of the money markets in order to anticipate and respond to
changing developments that may affect the Portfolio's existing and prospective
investments. While the Portfolio generally intends to hold investments until
maturity, it may sell portfolio securities prior to maturity in order to
increase the yield or to maintain the average maturity or credit quality of the
Portfolio's portfolio. The investment policies, the percentage limitations, and
the kinds of securities in which the Portfolio can invest may be changed by the
Portfolio's Board of Trustees, unless expressly governed by those limitations
stated under "Investment Restrictions" in the Portfolio's Statement of
Additional Information which can be changed only by action of the shareholders
of the Portfolio. It is not the intention of the Portfolio's Trustees, however,
to change these policies without prior notice to shareholders.
There are risks inherent in all investments in securities, accordingly there can
be no assurance that the Portfolio will achieve its investment objective or that
the Portfolio will be able at all times to preserve the net asset value per
share at $1.00 per share. The daily dividend rate paid by the Portfolio is
expected to fluctuate with changes in prevailing market interest rates. The
Portfolio uses the amortized cost method for valuing portfolio securities
purchased at a discount.
The Portfolio may invest in money market instruments of the following types, all
of which will be U.S. dollar-denominated obligations:
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in obligations issued or
guaranteed as to principal and interest by the U.S. government, its agencies or
its instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. government, (b) the right of the issuer to borrow
an amount limited to a specific line of credit from the U.S. government, (c)
discretionary authority of the U.S. government to purchase obligations of its
agencies or instrumentalities or (d) the credit of the instrumentality. Such
agencies or instrumentalities include, but are not limited to, the Federal
National Mortgage Association, the Government National Mortgage Association,
Federal Land Banks, and the Farmer's Home Administration.
BANK OBLIGATIONS. The Portfolio may invest in negotiable time deposits,
certificates of deposit and bankers' acceptances which are obligations of
domestic banks having total assets in excess of $1 billion as of the date of
their most recently published financial statements. The Portfolio is also
authorized to invest up to 5% of its total assets in certificates of deposit
issued by domestic banks having total assets of less than $1 billion, provided
that the principal amount of the certificate of deposit acquired by the
Portfolio is insured in full by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. The Portfolio may invest in short-term commercial paper
obligations of companies which at the time of investment are (a) rated in one of
the two highest categories by at least two nationally recognized statistical
organizations (or one rating organization if the obligation was rated by only
one such organization) or (b) if unrated, are of comparable quality as
determined in accordance with procedures established by the Portfolio's Board of
Trustees. Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. The Portfolio's current policy is to limit investments in
commercial paper to obligations rated in the highest rating category. A more
complete description of security ratings is in the Portfolio's Statement of
Additional Information.
5
<PAGE> 142
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
banks or broker-dealers in order to earn a return on temporarily available cash.
A repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Portfolio) acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Portfolio may enter into
repurchase agreements with banks or broker-dealers deemed to be creditworthy by
the Portfolio's investment adviser under guidelines approved by the Portfolio's
Board of Trustees. The Portfolio will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Portfolio, would exceed 5% of the Portfolio's
net assets. In the event of the bankruptcy or other default of a seller of a
repurchase agreement, the Portfolio could experience both delays in liquidating
the underlying securities and losses including: (a) possible decline in the
value of the underlying security during the period while the Portfolio seeks to
enforce its rights thereto; (b) possible lack of access to income on the
underlying security during this period; and (c) expenses of enforcing its
rights.
For the purpose of investing in repurchase agreements, the Portfolio's
investment adviser may aggregate the cash that certain funds or portfolios
advised or subadvised by the investment adviser or certain of its affiliates
would otherwise invest separately into a joint account. The cash in the joint
account is then invested in repurchase agreements and the funds or portfolios
that contributed to the joint account share pro rata in the net revenue
generated. The investment adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the participating Portfolio than would be available to the
Portfolio investing separately. The manner in which the joint account is managed
is subject to conditions set forth in an exemptive order from the SEC permitting
this practice, which conditions are designed to ensure the fair administration
of the joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying debt securities
and are considered to be loans under the 1940 Act. The Portfolio pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies and its
instrumentalities) may have maturity dates exceeding one year. The Portfolio
does not bear the risk of a decline in value of the underlying security unless
the seller defaults under its repurchase obligation.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
6
<PAGE> 143
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its share of a fee computed based upon an annual rate applied to combined
average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
..............................................
Next $500 million 0.45%
..............................................
Over $1 billion 0.40%
..............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.19% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES
The Portfolio, the Adviser and the Distributor have adopted Codes of Ethics
designed to recognize the fiduciary relationships among the Portfolio, the
Adviser, the Distributor and their respective employees. The Codes permit
directors, trustees, officers and employees to buy and sell securities for their
personal accounts subject to certain restrictions. Persons with access to
certain sensitive information are subject to preclearance and other procedures
designed to prevent conflicts of interest.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the
7
<PAGE> 144
right to refuse any order for the purchase of shares. Net asset value is
determined in the manner set forth below under "Determination of Net Asset
Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
The Portfolio's assets are valued on the basis of amortized cost, which involves
valuing a portfolio security at its cost, assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which value as determined by
amortized cost is higher or lower than the price the Portfolio would receive if
it sold the security. During such periods, the yield to investors in the
Portfolio may differ somewhat from that obtained in a similar fund which uses
available market quotations to value all of its portfolio securities.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio. Shares of the
Portfolio become entitled to income distributions declared on the day the
shareholder service agent receives payment of the purchase price in the form of
federal funds. Such shares do not receive income distributions declared on the
date of redemption.
DIVIDENDS. The Portfolio declares income dividends each business day payable
monthly. The Portfolio's net investment income for dividend purposes is
calculated daily and consists of interest accrued or discount earned, plus or
minus any net realized gains or losses on portfolio securities, less any
amortization of premium and the expenses of the Portfolio.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio
8
<PAGE> 145
are not properly diversified under Code Section 817(h), then the policies funded
by shares of the Portfolio will not be treated as life insurance for federal
income tax purposes and the owners of the policies will be subject to taxation
on their respective shares of the dividends and distributions paid by the
Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Distributions from the
Portfolio will not be eligible for the dividends received deduction for
corporations.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
9
<PAGE> 146
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Ended December 31,
MONEY MARKET PORTFOLIO 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <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......................... .045 .049 .049 .048 .0533
Less Distributions from Net Investment
Income...................................... .045 .049 .049 .048 .0533
----- ----- ----- ----- ------
Net Asset Value, End of the Period............ $1.00 $1.00 $1.00 $1.00 $ 1.00
===== ===== ===== ===== ======
Total Return*................................. 4.63% 5.02% 5.06% 4.89% 5.46%
Net Assets at End of the Period (In
millions)................................... $33.3 $26.7 $19.7 $19.6 $ 21.6
Ratio of Expenses to Average Net Assets*(a)... .62% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*..................................... 4.25% 4.88% 4.95% 4.78% 5.33%
*If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets....... .93% .99% .98% 1.29% .93%
Ratio of Net Investment Income to Average Net
Assets...................................... 4.56% 4.49% 4.57% 4.10% 5.00%
(a) The Ratio of Expenses to Average Net Assets does not reflect credits earned on overnight cash
balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by
.02% for the year ended December 31, 1999.
</TABLE>
10
<PAGE> 147
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST--MONEY MARKET PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust--Money Market Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust--Money Market Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 148
VAN KAMPEN
LIFE INVESTMENT TRUST
MONEY MARKET PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Money Market Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Money
Market Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO MM I 4/00
<PAGE> 149
VAN KAMPEN
LIFE INVESTMENT TRUST
MORGAN STANLEY
REAL ESTATE
SECURITIES PORTFOLIO
The Morgan Stanley Real Estate Securities Portfolio is a mutual fund with the
primary investment objective to seek long-term growth of capital. Current income
is a secondary investment objective.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
[VAN KAMPEN FUNDS LOGO]
<PAGE> 150
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objectives, Policies and Risks......... 5
Investment Advisory Services...................... 10
Purchase of Shares................................ 11
Redemption of Shares.............................. 12
Dividends, Distributions and Taxes................ 13
Financial Highlights.............................. 14
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 151
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Portfolio is a mutual fund with the primary investment objective to seek
long-term growth of capital. Current income is a secondary investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objectives by investing at least 65% of the
Portfolio's total assets in a portfolio of securities of companies operating in
the real estate industry, including equity securities of real estate investment
trusts ("REITs") and other securities of real estate operating companies. The
Portfolio's investment adviser diversifies its investments as to issuers,
property types and regions. The Portfolio's investment adviser emphasizes a
bottom-up stock selection (seeking individual companies with attractive
fundamental valuations relative to their underlying real estate value) with a
top-down asset allocation overlay (focusing on key regional criteria, including
demographic and macroeconomic considerations, for optimizing regional and
property market mix). Portfolio securities are typically sold when the
investment adviser's assessments of the growth or income potential of such
securities materially change. A company operating in the real estate industry is
one that derives at least 50% of its assets, gross income or net profits from
the ownership, construction, management or sale of residential, commercial or
industrial real estate. Besides equity securities of REITs, the Portfolio may
invest in equity securities, including common stocks and convertible securities,
or non-convertible preferred stocks and investment-grade quality securities of
companies operating in the real estate industry. The Portfolio may purchase or
sell up to 35% of its total assets in securities of companies outside the real
estate industry. The Portfolio may invest up to 25% of its total assets in
securities of foreign issuers, some or all of which may be in the real estate
industry. The Portfolio may purchase and sell certain derivative instruments,
such as options, futures and options on futures, for various portfolio
management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objectives.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. The prices of
equity securities of companies in the real estate industry may be more volatile
and may not fluctuate in tandem with overall changes in the stock markets. The
value of debt securities tend to fall as interest rates rise, and such declines
may be greater among securities with longer maturities.
RISKS OF INVESTING IN REAL ESTATE. Because of the Portfolio's policy of
concentrating its of investments in securities of companies operating in the
real estate industry and because a substantial portion of the Portfolio's
investments may be comprised of REITs, the Portfolio may be more susceptible to
risks associated with the ownership of real estate and with the real estate
industry in general. These risks can include fluctuations in the value of
underlying properties; defaults by borrowers or tenants; market saturation;
changes in general and local economic conditions; decreases in market rates for
rents; increases in competition, property taxes, capital expenditures, or
operating expenses; and other economic, political or regulatory occurrences
affecting the real estate industry. In addition, REITs depend upon specialized
management skills, may have limited financial resources, may have less trading
volume and may be subject to more abrupt or erratic price movements than the
overall securities markets. REITs must comply with certain federal income tax
law requirements to maintain their federal income tax status. Some REITs
(especially mortgage REITs) are affected by risks similar to those associated
with investments in debt securities including changes in interest rates and the
quality of credit extended.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
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<PAGE> 152
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objectives and strategies, the Portfolio
may be appropriate for investors who:
- - Seek to grow their capital over the long term
- - Are willing to take on the increased risks of an investment concentrated in
securities of companies that operate within the same industry
- - Can withstand volatility in the value of their shares of the Portfolio
- - Wish to add to their investment holdings a portfolio that invests primarily in
companies operating in the real estate industry
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio's Class I Shares over the four calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1996 40.53
1997 21.47
1998 -11.62
1999 -3.37
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
2.14%.
During the four-year period shown in the bar chart, the highest quarterly return
was 19.89% (for the quarter ended December 31, 1996) and the lowest quarterly
return was -9.32% (for the quarter ended September 30, 1998).
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<PAGE> 153
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the Portfolio: Standard & Poor's 500-Stock Index* and the NAREIT
Equity Index**. The Portfolio's performance figures do not include sales charges
or other expenses at the contract level that would be paid by investors. The
indices' performance figures do not include any commissions or sales charges
that would be paid by investor purchasing securities represented by the indices.
Average annual total returns are shown for the periods ended December 31, 1999
(the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ----------------------------------------------
<S> <C> <C> <C> <C>
Morgan Stanley
Real Estate
Securities
Portfolio --
Class I Shares -3.37% 10.70%(1)
..............................................
Standard & Poor's
500-Stock Index 21.04% 26.90%(2)
..............................................
NAREIT Equity
Index -4.62% 6.80%(2)
..............................................
</TABLE>
Inception dates: (1) 7/3/95, (2) 6/30/95.
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that are
a representative sample of approximately 100 industries, chosen mainly for
market size, liquidity and industry group representation (assumes dividends
are reinvested).
** NAREIT (National Association of Real Estate Investment Trusts) Equity Index
is an unmanaged market weighted index of tax-qualified REIT's listed on the
New York Stock Exchange, American Stock Exchange and the NASDAQ National
Market Systems (including dividends).
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Morgan Stanley Real Estate Securities Portfolio. Each portfolio is in
effect a separate mutual fund. Each portfolio of the Trust has a different
investment objective(s) which it pursues through its investment policies. Each
portfolio has its own income, expenses, assets, liabilities and net asset value
and each portfolio issues its own shares. Shares of each portfolio represent an
interest only in that portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The primary investment objective of the Portfolio is to seek long-term growth of
capital. Current income is a secondary investment objective. The investment
objectives of the Portfolio may be changed by the Board of Trustees without
shareholder approval, but no change is anticipated. If there is a change in the
investment objectives of the Portfolio, the Portfolio will notify shareholders
and shareholders should consider whether the Portfolio remains an appropriate
investment in light of their then current financial position and needs. There
are risks inherent in all investments in securities; accordingly there can be no
assurance that the Portfolio will achieve its investment objectives.
The Portfolio's investment adviser seeks to achieve the investment objectives by
investing primarily in a portfolio of securities of companies operating in the
real estate industry. A company operating in the real estate industry is one
that derives at least 50% of its assets (marked-to-market), gross income or net
profits from the ownership, construction, management or sale of residential,
commercial or industrial real estate. Real estate industry companies include,
among others: equity real estate investment trusts, which pool investors' funds
for investment primarily in commercial real estate properties; mortgage real
estate investment trusts, which invest pooled funds in
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<PAGE> 154
real estate related loans; brokers or real estate developers; and companies with
substantial real estate holdings, such as paper and lumber products and hotel
and entertainment companies. Because of the Portfolio's policy of concentrating
its investments in real estate securities, the Portfolio may be more susceptible
to economic, political or regulatory occurrences affecting the real estate
industry than a portfolio without such a policy.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in securities of companies operating in the real estate industry,
including equity securities of REITs and other securities of real estate
operating companies. The Portfolio's investment adviser diversifies its
investments as to issuers, property types and regions. The investment adviser's
approach emphasizes a bottom-up stock selection with a top-down asset allocation
overlay. Besides equity securities of REITs, the Portfolio may also invest in
equity securities, including common stocks and convertible securities, or
non-convertible preferred stocks and investment-grade debt securities of real
estate industry companies. REITs pool investors' funds for investment primarily
in income producing real estate or real estate related loans or interests. REITs
can generally be classified as equity REITs, mortgage REITs or a combination of
both. Equity REITs, which invest the majority of their assets directly in real
property, derive their income from rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs,
which invest the majority of their assets in real estate mortgagees, derive
their income primarily from interest payments. REITs are not taxed on income
distributed to shareholders provided such REITs comply with several requirements
of the Internal Revenue Code of 1986, as amended (the "Code").
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so.
A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer or
into cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity security.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity security.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by an issuer's board of directors.
Preferred stock may be subject to optional or mandatory redemption provisions.
The ability of common stocks and preferred stocks to generate income is
dependent on the earnings and continuing declaration of dividends by the issuers
of such securities.
Debt securities of a corporation or other entity generally entitle the holder to
receive interest, at a fixed, variable or floating interest rate, during the
term of the security and repayment of principal at maturity or redemption. The
Portfolio invests in investment-grade debt securities (securities rated at the
time of investment BBB or higher by Standard & Poor's ("S&P") or rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or comparably rated by
another nationally recognized statistical rating organization ("NRSRO") or
unrated securities considered by the Portfolio's investment adviser to be of
comparable quality). Credit quality at the time of purchase determines which
securities may be acquired, and a subsequent reduction in ratings does not
require the Portfolio to dispose of a security. Securities rated BBB by S&P or
Baa by Moody's are
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<PAGE> 155
considered to be medium-grade obligations which possess speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher-rated securities. The ratings assigned by
the ratings agencies represent their opinions of the quality of the debt
securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized that ratings are general and are not
absolute standards of quality. A more complete description of security ratings
is contained in the Portfolio's Statement of Additional Information.
Under normal market conditions, the Portfolio may invest up to 35% of its total
assets in securities of companies outside the real estate industry.
RISK FACTORS OF INVESTING
IN REAL ESTATE SECURITIES
The values and return on securities of companies in the real estate industry may
or may not fluctuate in tandem with the overall securities markets. Although the
Portfolio does not invest directly in real estate, an investment in the
Portfolio generally will be subject to the risks associated with investments in
real estate because of its policy of concentrating in the securities of
companies operating in the real estate industry. These risks include, among
others: declines in the value of real estate; defaults by borrowers or tenants;
risks related to general and local economic conditions; overbuilding and
increased competition; increases in property taxes, capital expenditures or
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; changes in interest rates; and political or regulatory
occurrences affecting the real estate industry. The value of securities of
companies which service the real estate industry also will be affected by such
risks. If the Portfolio has rental income or income from the disposition of real
property acquired as a result of a default on securities the Portfolio may own,
the receipt of such income may adversely affect the Portfolio's ability to
retain its tax status as a regulated investment company.
Equity REITs may be affected by changes in the value of the underlying property
owned by the trusts, while mortgage REITs may be affected by changes in interest
rates and the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, may not be diversified (which may increase the
volatility of the REIT's value) and are subject to the risks of financing
projects. REITs are subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Code and to maintain exemption from
the Investment Company Act of 1940, as amended (the "1940 Act"). REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Code. Mortgage REITs, like debt securities, tend to decline
in value as interest rates rise. Mortgage REITs are often more susceptible than
traditional debt securities to further price declines in periods of rising
interest rates because of extension risks (i.e. rising interest rates could
cause property owners to prepay their mortgages more slowly than expected when
the security was purchased by the Portfolio which may further reduce the market
value of such security and lengthen the duration of the security). In addition,
mortgage REITs tend to benefit less than traditional debt securities when
interest rates decline because underlying mortgages often get prepaid faster
than expected in periods of declining interest rates. In addition, the Portfolio
indirectly will bear its proportionate share of any expenses paid by the REITs
in which it invests.
RISKS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Portfolio may invest up to 25% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign
securities may not be as liquid and may be more volatile than comparable
domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial
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<PAGE> 156
reporting and disclosure requirements than domestic issuers. There is generally
less government regulation of stock exchanges, brokers and listed companies
abroad than in the U.S., and, with respect to certain foreign countries, there
is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
market countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to use, various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objectives, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options").
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<PAGE> 157
OTC Options are subject to certain additional risks including default by the
other party to the transaction and the liquidity of the transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of its net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may purchase and sell debt securities on a "when-issued" or
"delayed delivery" basis ("Forward Commitments"). These transactions occur when
securities are purchased or sold by the Portfolio with payment and delivery
taking place in the future, frequently a month or more after such transaction.
The price is fixed on the date of the commitment, and the seller continues to
accrue interest on the securities covered by the Forward Commitment until
delivery and payment take place. At the time of settlement, the market value of
the securities may be more or less than the purchase or sale price. The
Portfolio may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Portfolio may reinvest the proceeds in
another Forward Commitment. These transactions are subject to market risk as the
value or yield of a security at delivery may be more or less than the purchase
price or the yield generally available on securities when delivery occurs. When
engaging in Forward Commitments, the Portfolio relies on the other party to
complete the transaction. Should the other party fail to do so, the Portfolio
might lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. The Portfolio maintains a
segregated account (which is marked to market daily) of cash or liquid portfolio
securities with the Portfolio's custodian in an aggregate amount equal to the
amount of its commitment as long as the obligation to purchase or sell
continues.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objectives has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate
9
<PAGE> 158
for the Portfolio may vary from year to year. A high portfolio turnover rate
(100% or more) increases a fund's transaction costs, including brokerage
commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital growth on these securities will tend to be
lower than the potential for capital growth on other securities that may be
owned by the Portfolio. In taking such a defensive position, the Portfolio would
not be pursuing and may not achieve its investment objectives.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Asset Management Inc. is the investment adviser for the Portfolio
(the "Adviser"). The Adviser is a wholly owned subsidiary of Van Kampen
Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ------------------------------------------------
<S> <C> <C> <C>
First $500 million 1.00%
................................................
Next $500 million 0.95%
................................................
Over $1 billion 0.90%
................................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.97% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
10
<PAGE> 159
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. is the subadviser (the
"Subadviser") for the Portfolio. The Subadviser is a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., and is an affiliate of the Adviser. The
Subadviser conducts a worldwide portfolio management business and provides a
broad range of portfolio management services to customers in the United States
and abroad. At December 31, 1999, the Subadviser, together with its affiliated
institutional asset management companies, managed assets of approximately $184.8
billion, including assets under fiduciary advice. The Subadviser's principal
office is located at 1221 Avenue of the Americas, New York, New York 10020. On
December 1, 1998, Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc. but continues to do
business in certain instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser, the Subadviser and the
Distributor have adopted Codes of Ethics designed to recognize the fiduciary
relationships among the Portfolio, the Adviser, the Subadviser, the Distributor
and their respective employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. The Portfolio is managed by Theodore R. Bigman and Douglas
A. Funke. Theodore R. Bigman joined the Subadviser in 1995 and currently is a
Managing Director of the Subadviser and Morgan Stanley & Co. Incorporated. He
has primary responsibility for managing the Subadviser's global real estate
securities business. Prior to joining the Subadviser, he was a Director at CS
First Boston, where he worked for eight years in the Real Estate Group. While at
CS First Boston, Mr. Bigman established and managed that firm's REIT effort,
including primary responsibility for $2.5 billion of initial public offerings by
REITs. Mr. Bigman graduated from Brandeis University in 1983 with a B.A. in
Economics and received his M.B.A. from Harvard University in 1987. Mr. Bigman
has shared primary responsibility for managing the Portfolio's assets since
March 1995.
Douglas A. Funke joined Morgan Stanley & Co. Incorporated in 1993 as a Financial
Analyst. Currently, he is Vice President of the Subadviser and Morgan Stanley &
Co. Incorporated and is responsible for providing research and analytical
support for the group's real estate securities investment business. Prior to
joining the Subadviser, he was a member of Morgan Stanley's Interest Rate and
Foreign Exchange Risk Management Group, where he assisted in the execution of
more than $3 billion of structured financings and firm-related risk management
projects. Mr. Funke graduated from the University of Chicago in 1993 with a B.A.
in Economics and Political Science. He is a member of the National Association
of Real Estate Investment Trusts and the New York Society of Securities
Analysts. Mr. Funke has shared primary responsibility for managing the
Portfolio's assets since January 1999.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for
11
<PAGE> 160
more information regarding the insurance company's Accounts and class of the
Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC.
12
<PAGE> 161
The redemption price will be the net asset value per share next determined after
the receipt of a request in proper form. The market values of the securities in
the Portfolio are subject to daily fluctuations and the net asset value per
share of the Portfolio's shares will fluctuate accordingly. Therefore, the
redemption value may be more or less than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gains. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its income and distributions of the
Portfolio's investment company taxable income (consisting generally of taxable
income net short-term capital gain) are includable in the insurance company's
gross income. The tax treatment of such dividends and distributions depends on
the insurance company's tax status. Some portion of the dividends from the
Portfolio may be eligible for the dividends received deduction for corporations
if the Portfolio receives qualifying dividends during the taxable year and if
certain other requirements of the Code are satisfied. The Portfolio will send to
the Accounts a written notice (contained in the annual report) required by the
Code designating the amount and character of any distributions made during such
year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gains are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be designated as such in a written notice to
the Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
13
<PAGE> 162
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past five years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
July 3, 1995
(Commencement
Year Ended December 31, of Investment
---------------------------------------------- Operations) to
1999 1998 1997 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $13.759 $15.846 $14.784 $ 10.74 $ 10.00
------- ------- ------- ------- -----------------
Net Investment Income........... .676 .781 .464 .217 .20
Net Realized and Unrealized
Gain/Loss.................... (1.150) (2.597) 2.617 4.117 .6325
------- ------- ------- ------- -----------------
Total from Investment
Operations...................... (.474) (1.816) 3.081 4.334 .8325
------- ------- ------- ------- -----------------
Less:
Distributions from Net
Investment Income............ .913 .025 .470 .199 .0925
Distributions from Net Realized
Gain......................... -0- .246 1.549 .091 -0-
------- ------- ------- ------- -----------------
Total Distributions............... .913 .271 2.019 .290 .0925
------- ------- ------- ------- -----------------
Net Asset Value, End of the
Period.......................... $12.372 $13.759 $15.846 $14.784 $ 10.74
======= ======= ======= ======= =================
Total Return*..................... (3.37%) (11.62%) 21.47% 40.53% 8.35%**
Net Assets at End of the Period
(In millions)................... $ 149.6 $ 208.8 $ 299.4 $ 167.5 $ 8.6
Ratio of Expenses to Average Net
Assets*......................... 1.10% 1.08% 1.07% 1.10% 2.50%
Ratio of Net Investment Income to
Average Net Assets*............. 3.74% 4.72% 3.42% 5.06% 3.75%
Portfolio Turnover................ 23% 110% 177% 84% 85%**
*If certain expenses had not been
assumed by the Adviser, Total
Return would have been lower and
the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets.......................... 1.13% N/A N/A 1.27% 2.90%
Ratio of Net Investment Income to
Average Net Assets.............. 3.71% N/A N/A 4.89% 3.36%
** Non-Annualized
N/A = Not Applicable
</TABLE>
14
<PAGE> 163
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and
Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST--
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Subadviser
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust--
Morgan Stanley Real Estate Securities Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust--
Morgan Stanley Real Estate Securities Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 164
VAN KAMPEN
LIFE INVESTMENT TRUST
MORGAN STANLEY
REAL ESTATE
SECURITIES PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Portfolio, is incorporated by reference in its
entirety into this prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Portfolio,
including the reports and Statement of
Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO RLI 4/00
<PAGE> 165
VAN KAMPEN
LIFE INVESTMENT TRUST
STRATEGIC STOCK PORTFOLIO
The Strategic Stock Portfolio is a mutual fund with the investment objective to
seek an above average total return through a combination of potential capital
appreciation and dividend income, consistent with the preservation of invested
capital.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS I SHARES
PROSPECTUS
(ANY SHARES OFFERED PRIOR TO
APRIL 28, 2000 HAVE BEEN
DESIGNATED CLASS I SHARES)
[VAN KAMPEN FUNDS LOGO]
<PAGE> 166
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary................................ 3
Van Kampen Life Investment Trust General
Information...................................... 4
Investment Objective, Policies and Risks........... 5
Investment Advisory Services....................... 9
Purchase of Shares................................. 10
Redemption of Shares............................... 11
Dividends, Distributions and Taxes................. 11
Financial Highlights............................... 12
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 167
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek an above
average total return through a combination of potential capital appreciation and
dividend income, consistent with the preservation of invested capital.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing in a portfolio of high
dividend yielding equity securities of companies included in the Dow Jones
Industrial Average (the "DJIA") or in the Morgan Stanley Capital International
USA Index (the "MSCI USA Index"). The Portfolio's investment adviser buys and
sells investment securities based primarily upon specific objective criteria
(emphasizing dividend yield) applied to DJIA and MSCI USA Index companies. The
Portfolio may purchase and sell certain derivative instruments, such as options,
futures and options on futures, for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes high dividend yielding stocks selected based upon specific objective
criteria. The market value of the Portfolio's equity securities may or may not
fluctuate in tandem with overall changes in the stock markets. The ability of
the Portfolio's investment holdings to generate income is dependent on the
earnings and the continuing declaration of dividends by the issuers of such
securities.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
STYLE RISK. Securities are purchased and sold for the Portfolio based primarily
upon specific objective criteria. The Portfolio's style may not be as successful
in selecting the best-performing securities as other styles and may underperform
the overall market.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek an above average total return through a combination of potential capital
appreciation and dividend income
- - Can withstand volatility in the value of their shares in the Portfolio
- - Wish to add their investment holdings a portfolio that invests primarily in
equity securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
3
<PAGE> 168
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
return of the Portfolio's Class I Shares over the two calendar years prior to
the date of this prospectus. Sales charges or other expenses at the contract
level are not reflected in this chart. If sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1998 16.51
1999 -0.47
</TABLE>
The Portfolio's return for the three-month period ended March 31, 2000 was
- -7.90%.
During the two-year period shown in the bar chart, the highest quarterly return
was 12.23% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -8.90% (for the quarter ended September 30, 1999).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the Portfolio: Dow Jones Industrial Average* and the MSCI USA
Index**. The Portfolio's performance figures do not include sales charges or
other expenses at the contract level that would be paid by investors. The
indices' performance figures do not include any commissions or sales charges
that would be paid by investors purchasing securities represented by the
indices. Average annual total returns are shown for the periods ended December
31, 1999 (the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen
Strategic Stock
Portfolio --
Class I Shares -0.47% 8.33%(1)
.............................................
Dow Jones
Industrial
Average 27.21% 24.35%(2)
.............................................
MSCI
USA Index 22.38% 27.84%(2)
.............................................
</TABLE>
Inception dates: (1) 11/3/97, (2) 10/31/97.
* The Dow Jones Industrial Average is a price-weighted average of 30 stocks as
selected by Dow Jones & Co.
** The MSCI USA Index consists of approximately 320 large domestic companies.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolio, including
this Strategic Stock Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
4
<PAGE> 169
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek an above average total
return through a combination of potential capital appreciation and dividend
income, consistent with the preservation of invested capital. The investment
objective of the Portfolio is a fundamental policy and may not be changed
without shareholder approval of a majority of the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Portfolio will achieve its
investment objective.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of high dividend
yielding equity securities of companies included in the DJIA or in the MSCI USA
Index. The DJIA was first published in The Wall Street Journal in 1896.
Initially consisting of just 12 stocks, the DJIA expanded to 20 stocks in 1916
and to its present size of 30 stocks on October 1, 1928. The MSCI USA Index
consists of approximately 320 large domestic companies in the United States and
has existed since January 1, 1970.
The Portfolio's investment adviser selects investment securities for the
Portfolio based upon the Portfolio's strategic selection policies (the
"Strategic Selection Policies") as follows:
The ten highest dividend yielding securities in the DJIA are identified for
investment. In addition, all companies having securities in the MSCI USA Index
are reviewed by the Portfolio's investment adviser. Securities of companies in
the financial or utility sectors and companies having securities included in the
DJIA are excluded. The remaining pool of MSCI USA Index securities is further
evaluated and securities of companies that do not have positive one- and
three-year sales and earnings growth rates and two years of positive dividend
growth are excluded. The Portfolio's investment adviser also excludes MSCI USA
Index securities that are in the bottom 25% of all MSCI USA Index securities
measured in terms of total annual trading volume. MSCI USA Index securities of
the remaining companies are ranked by dividend yield, and the ten
highest-yielding such MSCI USA Index securities are identified for investment.
In the event that this process results in less than 10 remaining MSCI USA Index
securities, those companies with the most favorable one- and three-year sales
and earnings performance and two-year dividend performance as determined by the
Portfolio's investment adviser are added back until the number of MSCI USA Index
securities equals 10. Dividend yield for purposes of applying the foregoing
investment policies is calculated for each security by annualizing the last
quarterly or semi-annual ordinary dividend declared on the security and dividing
the result by the security's closing sale price on the applicable date. This
yield is historical and there can be no assurance that any dividends will be
declared or paid in the future.
At the commencement of the Portfolio's investment operations, the 20 securities
so identified at that time represented the Portfolio's initial investments.
Approximately monthly, the Portfolio's investment adviser employs the same
Strategic Selection Policies to identify a new list of 20 strategic securities.
Based on a rolling 12-month schedule, the investment adviser reviews and adjusts
the oldest one-twelfth portion of the Portfolio's assets so as to invest that
portion of the Portfolio's assets approximately equally in the new list of 20
strategic securities. For a more detailed discussion of the Portfolio's
investment policies, including the frequency of security re-evaluations and the
portion of the Portfolio's assets that the Portfolio's investment adviser
presently expects to re-evaluate at the end of each period, see the Statement of
Additional Information.
The Portfolio's investment adviser generally seeks to allocate cash available
for investment due to the sale of new shares of the Portfolio and the receipt of
dividends and interest income from Portfolio investments approximately
proportionately among its current list of strategic securities in the Portfolio.
To the extent that the Portfolio is required to dispose of securities in order
to satisfy redemption requests, make distributions, pay expenses or otherwise
raise cash for operational purposes, the Portfolio's investment adviser
generally intends to sell approximately proportionate amounts of securities from
all securities in the Portfolio.
Application of the foregoing Strategic Selection Policies is subject to and
limited by certain of the Portfolio's other investment policies and
restrictions, including restrictions and limitations which must be met in order
for the Portfolio to qualify for U.S. federal income tax purposes as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the
5
<PAGE> 170
"Code"), or in order to comply with requirements of the 1940 Act. The Portfolio
is subject to investment diversification requirements that generally provide
that the Portfolio may not, with respect to 75% of its assets, invest more than
5% of its assets in the securities of any one issuer or purchase more than 10%
of the outstanding voting securities of any one issuer. Further, the Portfolio
generally may not invest more than 25% of the value of its total assets in
securities of issuers in any particular industry. The Portfolio's satisfaction
of these requirements will take precedent over the Strategic Selection Policies.
In addition, the Portfolio's investment adviser will try to avoid transacting in
odd-lots of securities in order to minimize transaction costs. These limitations
may, at times, cause the composition of the Portfolio's investment portfolio to
differ significantly from that which would have resulted had the Strategic
Selection Policies been fully implemented. In selecting securities for
investment or disposition at times that the Portfolio's investment policies and
restrictions do not permit full implementation of the Strategic Selection
Policies, the Portfolio's investment adviser will have sole discretion to select
securities for purchase or sale and generally will make such selections in a
manner that is consistent with the Portfolio's investment objective and in a
manner that it believes is consistent with the investment rationale that is the
basis for the Strategic Selection Policies.
The Portfolio will continue to hold securities, even though such securities may
not be included in the most recent list of strategic securities determined for
the review and adjustment of a portion of the Portfolio's assets. In addition,
although each new list of strategic securities will include only 20 securities,
because only a portion of the Portfolio's assets may be reviewed and adjusted at
any given time, the Portfolio's investment adviser expects that the number of
securities held by the Portfolio may over time increase and that the Portfolio
may at times hold forty or more different securities.
The Portfolio may invest up to 5% of its total assets in options on equity
securities indices, futures contracts on such indices and options on such
futures contracts for both hedging purposes and in an attempt to enhance gain.
The Portfolio also may invest up to 5% of its total assets in securities of
other registered investment companies that seek to provide investment results
that generally correspond to the performance of securities included in one or
more broad market indices. Investment in securities of other investment
companies will subject the Portfolio to additional and potentially duplicative
costs and expenses, including investment management fees charged by such
registered investment companies. Pending investment and for temporary defensive
purposes the Portfolio may invest without limit in short-term, high quality
fixed income securities and in money-market instruments.
The DJIA is the property of Dow Jones & Company, Inc. Dow Jones & Company, Inc.
has not granted to the Portfolio a license to use the DJIA. Dow Jones & Company,
Inc. has not participated in any way in the creation of the Portfolio or in the
selection of the stocks included in such Portfolio and has not approved any
information herein relating thereto. Shares of the Portfolio are not designed so
that their prices will parallel or correlate with any movements in the DJIA, and
it is expected that their prices will not parallel or correlate with such
movements.
The MSCI USA Index is the property of Morgan Stanley Dean Witter & Co. ("Morgan
Stanley"). Morgan Stanley makes no representation or warranty, express or
implied, to the owners of shares of the Portfolio or any member of the public
regarding the advisability of investing in investment portfolios generally or in
the Portfolio particularly or the ability of the MSCI USA Index to track general
stock market performance. Morgan Stanley is the licensor of certain trademarks,
service marks and trade names of Morgan Stanley and of the MSCI USA Index which
is determined, composed and calculated by Morgan Stanley without regard to this
Portfolio. Morgan Stanley has no obligation to take the needs of this Portfolio
or the owners of this Portfolio into consideration in determining, composing or
calculating the MSCI USA Index. Morgan Stanley is not responsible for and has
not participated in the determination of the timing of, prices at, or quantities
of this Portfolio to be issued. Morgan Stanley has no obligation or liability to
owners of this Portfolio in connection with the administration, marketing or
trading of this Portfolio.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDICES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE ACCURACY
AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN. NEITHER
MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES,
OWNERS OF THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM
6
<PAGE> 171
THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE
RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR ANY
OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MORGAN STANLEY HEREBY
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR ANY
OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
RISK FACTORS. There is no guarantee that the investment objective of the
Portfolio will be achieved because it is subject to the continuing ability of
the respective issuers of equity securities in which the Portfolio invests to
declare and pay dividends and because the market value of such equity securities
can be affected by a variety of factors. Common stocks may be especially
susceptible to general stock market movements and to volatile increases and
decreases of value as market confidence in and perceptions of the issuers
change. There can be no assurance that the value of the underlying securities
will increase or that the issuers of the securities will pay dividends on
outstanding securities. The declaration of dividends by any issuer depends upon
several factors including the financial condition of the issuer and general
economic conditions. Risks associated with an investment in the Portfolio
include the possible deterioration of either the financial condition of the
issuers or the general condition of the stock market, and general price
volatility. The relatively high dividend yield of certain securities that the
Portfolio will acquire may reflect the market's assessment of the risk that the
company may reduce or eliminate the dividend in the current period or in the
future, or otherwise reflect the market's unfavorable assessment of the
company's performance outlook. The Portfolio's investment adviser generally will
not take these considerations into account in implementing the Strategic
Selection Policies and, accordingly, the Portfolio may at times acquire
securities of companies that the market and the Portfolio's investment adviser
believe are more susceptible to financial difficulty and corresponding adverse
market performance than are other companies with securities included in the DJIA
or in the MSCI USA Index.
In addition, investors should be aware that the Portfolio is not "actively
managed." Except to raise cash for operational purposes, the Portfolio
ordinarily will not sell securities or re-evaluate its investments except as
periodically determined by the Portfolio's investment adviser. In addition, only
a portion of the Portfolio's assets may be reviewed and adjusted for any given
period. As a result, although the Portfolio may (but need not) dispose of a
security in certain events such as the issuer having defaulted on the payment on
any of its outstanding obligations or the price of a security having declined to
such an extent or other factors existing so that in the opinion of the
Portfolio's investment adviser the retention of such security would be
detrimental to the Portfolio, the adverse financial condition of a company will
not result in its elimination from the Portfolio prior to scheduled review and
adjustment except under extraordinary circumstances. Similarly, securities held
in the Portfolio ordinarily will not be sold by the Portfolio for the purpose of
taking advantage of market fluctuations or changes in anticipated rates of
appreciation.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS
ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts or options on futures contracts
in several different ways, depending upon the status of the Portfolio's
securities and the investment adviser's expectations concerning the securities
or currency markets. Although the Portfolio's investment adviser seeks to use
the practices to further the Portfolio's investment objective, no assurance can
be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash
7
<PAGE> 172
portion of its assets and may obtain performance equivalent to investing all of
its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invest are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion
8
<PAGE> 173
or all of its assets in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, prime commercial paper, certificates of
deposit, bankers' acceptances and other obligations of domestic banks having
total assets of at least $500 million, and repurchase agreements. Under normal
market conditions, the potential for total return on these securities will tend
to be lower than the potential for total return on other securities that may be
owned by the Portfolio. In taking such a defensive position, the Portfolio would
not be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
..............................................
Over $500 million 0.45%
..............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each month as soon as practicable after the end of that month.
After voluntary fee waivers, the effective advisory fee rate was 0.24% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
9
<PAGE> 174
preclearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Strategic Stock Portfolio is managed by a management
team headed by John Cunniff, Senior Portfolio Manager. Mr. Cunniff has had
responsibility for the Portfolio since its inception. Mr. Cunniff has been a
Vice President and Director of Equity Research with the Adviser since October
1995. Prior to October 1995, Mr. Cunniff was a portfolio manager for three years
with Templeton Quantitative Advisors, a subsidiary of the Franklin Group.
Raj Wagle, Portfolio Manager, has been affiliated with the Portfolio since April
1999. Mr. Wagle has been a Portfolio Manager of the Adviser since April 1999 and
Quantitative Equity Analyst of the Adviser since February 1998. Prior to
November 1997, he was an Equity Analyst with Aeltus Investment Management. Prior
to December 1995, he was with Oppenheimer & Company for three years. He was an
Equity Analyst for two years and spent his first year as a Research Associate.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. Prior to April 28, 2000, the Portfolio issued one class of
shares and that class of shares has been designated as Class I Shares. The Class
I Shares of the Portfolio are offered by this prospectus (Class II Shares of the
Portfolio are offered through a separate prospectus). Each class of shares
represents an interest in the same portfolio of investments of the Portfolio and
has the same rights, except for the differing distribution fees, services fees
and related expenses associated with each class of shares and the exclusive
voting rights by each class with respect to any Rule 12b-1 distribution plan or
service plan for such class of shares. Investors can contact their financial
adviser for more information regarding the insurance company's Accounts and
class of the Portfolio's shares available through such Accounts.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
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<PAGE> 175
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
11
<PAGE> 176
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Portfolio's Class I Shares for the past three years. Prior to
April 28, 2000, the Portfolio issued one class of shares and that class of
shares has been designated as Class I Shares. Certain information reflects
financial results for a single Class I Share of the Portfolio. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
November 3, 1997
Year Ended (Commencement of
December 31, Investment Operations) to
STRATEGIC STOCK PORTFOLIO 1999 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................... $11.932 $10.245 $10.000
------- ------- -------
Net Investment Income................ .182 .113 .027
Net Realized and Unrealized Gain..... (.236) 1.586 .218
------- ------- -------
Total from Investment Operations....... (.054) 1.699 .245
------- ------- -------
Less:
Distributions from Net Investment
Income............................ .117 .012 -0-
Distributions from Net Realized
Gain.............................. .031 -0- -0-
------- ------- -------
Total Distributions.................... .148 .012 -0-
------- ------- -------
Net Asset Value, End of the Period..... $11.730 $11.932 $10.245
======= ======= =======
Total Return*.......................... (.47%) 16.51% 2.45%**
Net Assets at End of the Period (In
millions)............................ $ 29.9 $ 21.4 $ 2.5
Ratio of Expenses to Average Net
Assets*.............................. .65% .65% .61%
Ratio of Net Investment Income to
Average Net Assets*.................. 1.81% 2.01% 2.67%
Portfolio Turnover..................... 43% 10% 0%**
*If certain expenses had not been
assumed by the Adviser, Total Return
would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets............................... .91% 1.25% 2.59%
Ratio of Net Investment Income to
Average Net Assets................... 1.55% 1.41% .68%
</TABLE>
** Non-Annualized
12
<PAGE> 177
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST--STRATEGIC STOCK PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust--Strategic Stock Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust--Strategic Stock Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 178
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO SS
I 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
STRATEGIC STOCK PORTFOLIO
CLASS I SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Strategic Stock Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Strategic
Stock Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing to the
Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
<PAGE> 179
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
ASSET ALLOCATION PORTFOLIO
The Asset Allocation Portfolio is a mutual fund with the investment objective to
seek high total investment return consistent with prudent investment risk
through a fully managed investment policy utilizing equity securities as well as
investment grade intermediate- and long-term debt securities and money market
securities. Total investment return consists of current income (including
dividends, interest and discount accruals) and capital appreciation or
depreciation.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
<PAGE> 180
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 9
Purchase of Shares................................ 10
Redemption of Shares.............................. 12
Dividends, Distributions and Taxes................ 12
Appendix -- Description of Securities Ratings..... A-1
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 181
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek high total
investment return consistent with prudent investment risk through a fully
managed investment policy utilizing equity securities as well as investment
grade intermediate-and long-term debt securities and money market securities.
Total investment return consists of current income (including dividends,
interest and discount accruals) and capital appreciation or depreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing in a portfolio of
equity securities, investment grade intermediate- and long-term debt securities,
including preferred stocks, convertible preferred stocks and convertible debt
securities, and money market securities. The composition of the Portfolio will
vary from time to time to reflect the investment adviser's views on economic and
market trends and the anticipated relative total investment return available
from a particular type of security. Portfolio securities are typically sold when
the Portfolio's investment adviser's assessments of the relative total return
for such securities materially change. The Portfolio may invest up to 25% of its
total assets in securities of foreign issuers. The Portfolio may purchase and
sell certain derivative instruments, such as options, futures and options on
futures, for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock market, which
fluctuate substantially over time, sometimes suddenly and sharply. The prices of
the Portfolio's equity securities may or may not fluctuate in tandem with
overall changes in the stock markets. The prices of debt securities generally
are affected by changes in interest rates and the creditworthiness of the
issuer. The prices of debt securities tend to fall as interest rates rise, and
such declines may be greater among securities with longer maturities. The prices
of convertible securities are affected by changes similar to those of debt and
equity securities. The value of a convertible security tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying common stock.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. The Portfolio generally invests in investment
grade-quality debt securities, therefore, the Portfolio is subject to a lower
level of credit risk than a portfolio that invests solely or primarily in
lower-grade securities. Securities rated in the lowest of the four investment
grades are considered to be medium-grade obligations, which possess speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity of the issuer to make principal
and interest payments than in the case of higher-rated securities.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful
3
<PAGE> 182
in selecting the best-performing securities or investment techniques, and the
Portfolio's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek high total investment return over the long term
- - Can withstand volatility in the value of their shares in the Portfolio
- - Wish to add to their investment holdings a portfolio that invests in a varying
mix of equity, debt securities and money market securities seeking high total
investment return
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the ten calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 1.89
1991 27.05
1992 7.29
1993 7.70
1994 -3.66
1995 31.36
1996 13.87
1997 21.81
1998 15.67
1999 4.94
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
2.22%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 11.04% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -7.45% (for the quarter ended September 30, 1990).
4
<PAGE> 183
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Standard & Poor's
500-Stock Index*, a broad-based market index that the Portfolio's investment
adviser believes is an appropriate benchmark for the Portfolio, and with the
Lipper Flexible Portfolio Fund Index**, an index of funds with similar
investment objectives. The Portfolio's performance figures do not include sales
charges or other expenses at the contract level that would be paid by investors.
The indices' performance figures do not include any commissions or sales charges
that would be paid by investors purchasing securities represented by the
indices. Average annual total returns are shown for the periods ended December
31, 1999 (the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen Asset
Allocation
Portfolio*** 4.94% 17.21% 12.29%
.......................................................
Standard & Poor's
500-Stock Index 21.04% 28.56% 18.21%
.......................................................
Lipper Flexible
Portfolio Fund
Index 9.82% 16.37% 12.23%
.......................................................
</TABLE>
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that
are a representative sample of approximately 100 industries, chosen mainly
for market size, liquidity and industry group representation (assumes
dividends are reinvested).
** The Lipper Flexible Portfolio Fund Index reflects the average performance of
the 30 largest flexible portfolio funds.
*** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of
the Portfolio's shares are invested in the same portfolio of securities;
however, the actual annual returns of the Class II Shares would be lower
than the annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Asset Allocation Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares of each portfolio are sold only to separate accounts (the "Accounts") of
various insurance companies to fund the benefits of variable annuity or variable
life insurance policies (the "Contracts"). The Accounts may invest in shares of
the portfolios in accordance with allocation instructions received from contract
owners ("Contract Owners"). Such allocation rights, as well as sales charges and
other expenses imposed on Contract Owners by the Contracts, are further
described in the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek a high total investment
return consistent with prudent investment risk through a fully managed
investment policy utilizing equity securities as well as investment grade
intermediate- and long-term debt securities and money market securities. Total
investment return consists of current income (including dividends, interest and
discount accrual) and capital appreciation or depreciation. The investment
objective of the Portfolio is a fundamental policy and may not be changed
without shareholder approval of a majority of the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Portfolio will achieve its
investment objective.
5
<PAGE> 184
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of equity
securities, investment grade intermediate- and long-term debt securities,
including preferred stocks, convertible preferred stocks and convertible debt
securities, and money market securities. The Portfolio's investment adviser may
vary the composition of the Portfolio from time to time based upon its
evaluation of economic and market trends and the anticipated relative total
investment return available from a particular type of security. Accordingly, the
Portfolio may, at any given time, be substantially invested in equity
securities, debt securities or money market securities. Achieving the
Portfolio's investment objective depends on the investment adviser's ability to
assess the effect of economic and market trends on different sectors of the
market.
Common stocks are equity securities of a corporation or other entity that
entitle the holder to a pro rata share of the profits of a corporation, if any,
without preference over any other class of securities, including such entity's
debt securities, preferred stock or other senior equity security. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. The common stocks in which the Portfolio invests will be primarily those
of large capitalization companies with characteristics including a strong
balance sheet, good financial resources, a satisfactory rate of return on
capital, a good industry position and superior management skills. The
Portfolio's investment adviser believes that companies that conform most closely
to these characteristics often tend to exhibit generally consistent earnings
growth. Among the types of securities in which the Portfolio may invest, the
investments in common stocks generally exhibit the greatest market risk, which
at times can substantially impact the market value of the Portfolio, sometimes
suddenly and sharply.
The Portfolio may invest in intermediate- and long-term debt securities
(including preferred stock, convertible preferred stock and convertible debt
securities) which are rated at the time of purchase BBB or better by Standard &
Poor's ("S&P") or rated Baa or better by Moody's Investors Service, Inc.
("Moody's") or unrated securities determined by the Portfolio's investment
adviser to be of comparable quality at the time of purchase. To the extent
investments are made in fixed-income securities, the Portfolio will invest
primarily in such securities which are rated A or better by either rating
agency. A more complete description of security ratings is contained in the
appendix to this prospectus. The market prices of debt securities generally vary
inversely with changes in prevailing interest rates and generally vary more for
debt securities with longer maturities. The Portfolio is not limited as to the
maturities of the debt securities it may purchase and the debt securities in
which the Portfolio intends to invest are those with intermediate- or
longer-maturities. Debt securities with longer maturities generally tend to
produce higher yields but are subject to greater price fluctuation as a result
of changes in interest rates than debt securities with shorter maturities.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer or
into cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity security.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stocks of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity security.
6
<PAGE> 185
The Portfolio may invest money market securities including securities issued or
guaranteed by the U.S. government, its agencies or its instrumentalities, prime
commercial paper, certificates of deposit, bankers' acceptances or other
obligations of certain domestic banks and repurchase agreements. Money market
securities generally have low market risk and credit risk but also generally
have a low potential for total investment return.
Because of the fully managed approach of the Portfolio, the Portfolio's turnover
rate may be greater than other portfolios and result in increased transaction
costs, including higher brokerage charges, which may adversely impact the
Portfolio's performance.
RISKS OF INVESTING IN SECURITIES OF
FOREIGN ISSUERS
The Portfolio may invest up to 25% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor
7
<PAGE> 186
redemption requests and for other short-term needs. The Portfolio may also have
cash on hand that has not yet been invested. The portion of the Portfolio's
assets that is invested in cash or cash equivalents does not fluctuate with
overall market prices, so that, in times of rising market prices, the Portfolio
may underperform the market in proportion to the amount of cash or cash
equivalents in the Portfolio. By purchasing stock or bond index futures
contracts, however, the Portfolio can compensate for the cash portion of its
assets and may obtain performance equivalent to investing all of its assets in
securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock or bond index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock or bond index options or stock or bond index futures options) to manage
the Portfolio's risk in advancing or declining markets. For example, the value
of a put option generally increases as the underlying security declines below a
specified level, value is protected against a market decline to the degree the
performance of the put correlates with the performance of the Portfolio's
investment portfolio. If the market remains stable or advances, the Portfolio
can refrain from exercising the put and the Portfolio will participate in the
advance, having incurred only the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such
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securities at a lower price, sell other securities instead to obtain cash or
forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases the a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for total return on these securities will tend to be
lower than the potential for total return on other securities that may be owned
by the Portfolio. In taking such a defensive position, the Portfolio would not
be pursuing and may not achieve its investment objective of high total
investment return.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
Average Daily % Per
Net Assets Annum
- -----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
...............................................
Next $500 million 0.45%
...............................................
Over $1 billion 0.40%
...............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
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After voluntary fee waivers, the effective advisory fee rate was 0.33% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Adviser and the Distributor have adopted Codes
of Ethics designed to recognize the fiduciary relationships among the Portfolio,
the Adviser, the Distributor and their respective employees. The Codes permit
directors, trustees, officers and employees to buy and sell securities for their
personal accounts subject to certain restrictions. Persons with access to
certain sensitive information are subject to preclearance and other procedures
designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Asset Allocation Portfolio is managed by a group of
Portfolio Managers headed by John Cunniff, Senior Portfolio Manager. Mr. Cunniff
and Raj Wagle are responsible for allocating the Portfolio's assets between the
equity and fixed-income categories. Mr. Cunniff has been affiliated with the
Portfolio since March 1996. Mr. Cunniff has been a Vice President and Director
of Equity Research with the Adviser since October 1995. Prior to October 1995,
Mr. Cunniff was a portfolio manager for three years with Templeton Quantitative
Advisors, a subsidiary of the Franklin Group.
Mr. Cunniff and Tom Copper are responsible for the day-to-day management of the
Portfolio's equity investments. Mr. Copper has been affiliated with the
Portfolio since April 1999. Mr. Copper has been Vice President and Portfolio
Manager of the Adviser since December 1986.
Mr. Wagle has been affiliated with the Portfolio since April 1999. Mr. Wagle has
been Portfolio Manager of the Adviser since April 1999 and a Quantitative Equity
Analyst of the Adviser since February 1998. Prior to November 1997, he was an
Equity Analyst with Aeltus Investment Management. Prior to December 1995, he was
with Oppenheimer & Company for three years. He was an Equity Analyst for two
years and spent his first year as a Research Associate.
Kelly Gilbert is responsible for the day-to-day management of the Portfolio's
fixed-income investments. Ms. Gilbert has been affiliated with the Portfolio
since June 1999. Ms. Gilbert joined the Adviser and Advisory Corp. in September
1995 and became an Assistant Vice President of the Adviser and Advisory Corp. in
December 1997. Ms. Gilbert has been a Vice President of the Adviser and Advisory
Corp. since February 1999. Prior to September 1995, Ms. Gilbert was a corporate
bond trader for two years at ABN AMRO, N.A., a foreign owned bank.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
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The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Trust and the Distributor reserves the right to refuse any
order for the purchase of shares. Net asset value is determined in the manner
set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies for
information regarding holidays observed by the insurance company. Net asset
value of the Portfolio is determined by adding the total market value of all
portfolio securities held by the Portfolio, cash and other assets, including
accrued interest. All liabilities, including accrued expenses, of the Portfolio
are subtracted. The resulting amount is divided by the total number of
outstanding shares of the Portfolio to arrive at the net asset value of each
share. See "Determination of Net Asset Value" in the Statement of Additional
Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio is valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at
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times or on days on which the Portfolio's net asset value is not calculated and
on which the Portfolio does not effect sales, redemptions and exchanges of its
shares. The Portfolio calculates net asset value per share, and therefore
effects sales, redemptions and exchanges of its shares, as of the close of
trading on the Exchange each day the Exchange is open for trading. Such
calculation does not take place contemporaneously with the determination of the
prices of certain foreign portfolio securities used in such calculation. If
events materially affecting the value of such securities occur between the time
when their price is determined and the time when the Portfolio's net asset value
is calculated, such securities may be valued at fair value as determined in good
faith by the Adviser based in accordance with procedures established by the
Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gain distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gains. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual
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<PAGE> 191
report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
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APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P corporate or municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the obligor or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT
Investment Grade
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
Speculative Grade
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
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C: Debt rated "C" is currently highly vulnerable to nonpayment. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
r: This symbol highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of non credit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the due date, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
MOODY'S INVESTORS SERVICE, INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
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A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date date to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
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- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba: An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca: An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
4. COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's makes no representation that such obligations are exempt
from registration under the Securities Act of 1933, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law.
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Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (on supporting institutions) have a superior ability for
repayment of short-term debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well established access to a ranges of financial markets and assured sources
of alternative liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supported institutions) have an acceptable ability for
repayment of short-term debt obligations. The effect of industry characteristics
and market compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained.
Issuers rated Not Prime do not fall within any of the prime rating categories.
A- 5
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BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST
- -- ASSET ALLOCATION PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust
- -- Asset Allocation Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust
- -- Asset Allocation Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 198
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
ASSET ALLOCATION PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Asset Allocation Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Asset
Allocation Portfolio, including the reports
and Statement of Additional Information, has
been filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
The Fund's Investment Company Act File No. is 811-4424. LIT PRO AA II 4/00
<PAGE> 199
VAN KAMPEN
LIFE INVESTMENT TRUST
COMSTOCK PORTFOLIO
The Comstock Portfolio is a mutual fund with the investment objective to seek
capital growth and income through investments in equity securities, including
common stocks, preferred stocks and securities convertible into common and
preferred stocks.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 200
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 4
Investment Objective, Policies and Risks.......... 4
Investment Advisory Services...................... 8
Purchase of Shares................................ 9
Redemption of Shares.............................. 10
Dividends, Distributions and Taxes................ 10
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 201
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek capital
growth and income through investments in equity securities, including common
stocks, preferred stocks and securities convertible into common and preferred
stocks.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing in a portfolio of
equity securities, consisting principally of common stocks. The Portfolio
emphasizes a "value" style of investing seeking well-established, undervalued
companies believed to possess the potential for capital growth and income.
Portfolio securities are typically sold when the Portfolio's investment
adviser's assessments of the growth and income potential for such securities
materially change. The Portfolio may invest up to 15% of its total assets in
securities of foreign issuers. The Portfolio may purchase and sell certain
derivative instruments, such as options, futures and options on futures, for
various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. A "value"
style of investing emphasizes undervalued companies with characteristics for
improved valuations. This style of investing is subject to the risks that the
valuations never improve or that the returns on "value" equity securities are
less than the returns on other styles of investing or the overall stock markets.
During an overall stock market decline, stock prices of small- or medium-sized
companies (in which the Portfolio may invest) often fluctuate more than prices
of larger companies. The ability of the Portfolio's investment holdings to
generate income depends on the earnings and the continuing declaration of
dividends by the issuers of such securities.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek capital growth and income over the long term
- - Can withstand volatility in the value of their shares of the Portfolio
- - Wish to add to their investment holdings a portfolio that emphasize a "value"
style of investing in equity securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should
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<PAGE> 202
consider their long-term investment goals and financial needs when making an
investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
PERFORMANCE INFORMATION
The Comstock Portfolio commenced investment operations as of April 30, 1999.
Accordingly, the Portfolio does not have a full calendar year of historical
annual performance or comparative performance to provide to investors.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Comstock Portfolio. Each portfolio is in effect a separate mutual fund.
Each portfolio of the Trust has a different investment objective(s) which it
pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares of each portfolio are sold only to separate accounts (the "Accounts") of
various insurance companies to fund the benefits of variable annuity or variable
life insurance policies (the "Contracts"). The Accounts may invest in shares of
the portfolios in accordance with allocation instructions received from contract
owners ("Contract Owners"). Such allocation rights, as well as sales charges and
other expenses imposed on Contract Owners by the Contracts, are further
described in the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek capital growth and income
through investments in equity securities, including common stocks, preferred
stocks and securities convertible into common and preferred stocks. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
In selecting securities for investment, the Portfolio will focus primarily on
the security's potential for capital growth and income. The Portfolio emphasizes
a "value" style of investing seeking well-established, undervalued companies.
The Portfolio's investment adviser generally seeks to identify companies that
are undervalued and have identifiable factors that might lead to improved
valuations. This catalyst could come from within the company in the form of new
management, operational enhancements, restructurings or reorganization. It could
also be an external factor, such as an improvement in industry conditions or a
regulatory change. The Portfolio's style presents the risk that the valuations
never improve or that the returns on "value" equity securities are less than
returns on other styles of investing or the overall stock market. The Portfolio
may invest in issuers of small-, medium- or large-capitalization companies. The
securities of small- or medium-sized companies may be subject to more abrupt or
erratic market movements than securities of larger companies or the market
averages in general. In addition, such companies typically are subject to a
greater degree of change in earnings and business prospects than are larger
companies. Thus, the Portfolio may be subject to greater investment risk than
that assumed through investment in the equity securities of larger-
capitalization companies.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is desirable to do so. Such
factors include change in economic or market factors in general or with respect
to a particular industry, a change in the market trend or other factors
affecting an individual security, changes in the relative market performance or
appreciation possibilities offered by individual securities and other
circumstances bearing on the desirability of a given investment.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment
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objective by investing in equity securities, consisting principally of common
stocks. Common stocks are shares of a corporation or other entity that entitle
the holder to a pro rata share of the profits of the corporation, if any,
without preference over any other class of securities, including such entity's
debt securities, preferred stock and other senior equity securities. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so.
While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stock and securities convertible into common and preferred
stocks. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. A convertible security is a bond, debenture, note,
preferred stock, warrant or other security that may be converted into or
exchanged for a prescribed amount of common stock or other equity security of
the same or a different issuer or into cash within a particular period of time
at a specified price or formula. A convertible security generally entitles the
holder to receive interest paid or accrued on debt securities or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity security. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Convertible securities generally do not
participate directly in any dividend increases or decreases of the underlying
equity security although the market prices of convertible securities may be
affected by any such dividend changes or other changes in the underlying equity
security.
The Portfolio generally holds up to 10% of its total assets in high-quality
short-term debt securities and in investment grade corporate debt securities in
order to provide liquidity. High-quality short-term debt investments include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and other obligations of domestic banks having total assets of at
least $500 million and repurchase agreements. Investment grade corporate debt
securities include securities rated BBB or better by Standard & Poor's ("S&P")
or rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or unrated
securities judged by the investment adviser to be of comparable quality. A more
complete description of security ratings is contained in the Portfolio's
Statement of Additional Information. The market prices of such debt securities
generally vary inversely with changes in prevailing interest rates.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Portfolio may invest up to 15% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers
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and dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of
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foreign currency denominated securities and against increases in the U.S. dollar
cost of such securities to be acquired. As in the case of other kinds of
options, however, the selling of an option on a foreign currency constitutes
only a partial hedge, up to the amount of the premium received, and the
Portfolio could be required to cover its position by purchasing or selling
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Portfolio's position, the Portfolio may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies in which the Portfolio invests are traded on U.S. and foreign
exchanges for over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 10% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital growth and income on these securities will
tend to be lower than the potential for capital growth and income on other
securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective.
7
<PAGE> 206
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- -------------------------------------------------
<S> <C> <C> <C>
First $500 million 0.60%
.................................................
Over $500 million 0.55%
.................................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar months. Such
fee is payable for each a calendar month as soon as practicable after the end of
the month.
After voluntary fee waivers, the effective advisory fee rate was 0.00% for the
fiscal year ended December 31, 1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Comstock Portfolio is managed by a team of portfolio
managers headed by B. Robert Baker, Jr., Senior Portfolio Manager. Mr. Baker has
been primarily responsible for managing the Comstock Portfolio's investment
portfolio since its inception. Mr. Baker has been a Senior Vice President since
March 1999 and a Vice President and a Portfolio Manager of the Adviser and
Advisory Corp. since June 1995. Prior to June 1995, Mr. Baker was an Associate
Portfolio Manager of the Adviser. Mr. Baker has been employed by the Adviser
since 1991.
Portfolio Managers Jason S. Leder and Kevin C. Holt have been responsible as
co-managers for the day-to-day management of the Comstock Portfolio's investment
portfolio since its inception and August
8
<PAGE> 207
1999, respectively. Mr. Leder has been a Vice President of the Adviser and
Advisory Corp. since March 1999 and an Assistant Vice President of the Adviser
and Advisory Corp. since October 1996. Prior to October 1996, Mr. Leder was an
Associate Portfolio Manager of the Adviser. Prior to February 1995, Mr. Leder
was a Securities Analyst for almost two years with Salomon Brothers, Inc.
Mr. Holt has been a Vice President of the Adviser since August 1999. Prior to
joining the Adviser, Mr. Holt was a Senior Research Analyst with Strong Capital
Management from October 1997 to August 1999. From July 1995 to October 1997, he
was a Portfolio Manager/Analyst with Citibank Global Asset Management. Mr. Holt
was a Senior Financial Analyst with Harris Trust and Savings Bank from August
1989 to August 1994.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class or shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all
9
<PAGE> 208
portfolio securities held by the Portfolio, cash and other assets, including
accrued interest. All liabilities, including accrued expenses, of the Portfolio
are subtracted. The resulting amount is divided by the total number of
outstanding shares of the Portfolio to arrive at the net asset value of each
share. See "Determination of Net Asset Value" in the Statement of Additional
Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gain distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio distributes less than an amount equal to the sum
of 98% of its ordinary income and 98% of its capital gain net income, then the
Portfolio will be
10
<PAGE> 209
subject to a 4% excise tax on the undistributed amounts. If for any taxable year
the Portfolio does not qualify for the special tax treatment afforded regulated
investment companies, all of its taxable income, including any net capital gain,
would be subject to tax at regular corporate rates (without any deduction for
distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
11
<PAGE> 210
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- COMSTOCK PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Comstock Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Comstock Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 211
VAN KAMPEN
LIFE INVESTMENT TRUST
COMSTOCK PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Comstock Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Comstock
Portfolio, including the reports and Statement
of Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO COM II 4/00
<PAGE> 212
VAN KAMPEN
LIFE INVESTMENT TRUST
DOMESTIC INCOME PORTFOLIO
The Domestic Income Portfolio is a mutual fund with the primary investment
objective to seek current income. When consistent with the primary investment
objective, capital appreciation is a secondary investment objective.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 213
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objectives, Policies and Risks......... 5
Investment Advisory Services...................... 11
Purchase of Shares................................ 12
Redemption of Shares.............................. 13
Dividends, Distributions and Taxes................ 14
Appendix -- Description of Securities Ratings..... A-1
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 214
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Portfolio is a mutual fund with the primary investment objective to seek
current income. When consistent with the primary investment objective, capital
appreciation is a secondary investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objectives by investing primarily in a
portfolio of income securities, including convertible and non-convertible debt
securities and preferred stocks. Under normal market conditions, the Portfolio
invests at least 80% of its total assets in income securities rated at the time
of purchase B or higher by Standard & Poor's ("S&P") or rated B or higher by
Moody's Investors Service, Inc. ("Moody's") or unrated securities judged by the
Portfolio's investment adviser to be of comparable quality at the time of
purchase. Securities rated BB or below by S&P or rated Ba or below by Moody's or
unrated securities of comparable quality are commonly referred to as "junk
bonds" and involve special risks as compared to investments in higher-grade
securities (see the appendix to the prospectus for an explanation of quality
ratings).
The Portfolio buys and sells securities with a view towards seeking current
income and, secondarily, capital appreciation. In considering portfolio
securities transactions, the investment adviser considers, among other things,
the security's current income potential, the rating assigned to the security,
the issuer's experience and managerial strength, the financial soundness of the
issuer and the outlook of its industry, changing financial condition, borrowing
requirements or debt maturity schedules, regulatory concerns, and responsiveness
to changes in business conditions and interest rates. The Portfolio's investment
adviser also may consider relative values based on anticipated cash flow,
interest or dividend coverage, balance sheet analysis, and earnings prospects.
The Portfolio's investment adviser evaluates each individual security for income
potential, credit quality and value and attempts to identify higher-yielding
securities of companies whose financial condition has improved or is anticipated
to improve in the future.
The Portfolio may invest up to 25% of its total assets in securities of foreign
issuers. The Portfolio may purchase or sell securities on a when-issued or
delayed delivery basis.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objectives.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. The prices of income securities tend to
fall as interest rates rise, and such declines tend to be greater among
securities with longer durations. Although the Portfolio has no policy limiting
the maturities of its investments, the Portfolio's investment adviser seeks to
maintain the dollar-weighted average duration of the Portfolio between four to
six years. This means the Portfolio generally will be subject to greater market
risk than a portfolio that owns only shorter term securities but lesser market
risk than a portfolio that owns only longer term securities. Lower-grade
securities, especially those with longer durations or that do not make regular
interest payments, may be more volatile and decline more in price in response to
negative issuer or general economic news than higher-grade securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased. The greater the
Portfolio's outstanding commitments for these securities, the greater the
Portfolio's exposure to market price fluctuation.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. The Portfolio may invest in securities with below
investment grade credit quality, therefore the Portfolio is subject to a higher
level of credit risk than a portfolio that buys only investment grade
securities. The credit quality of "noninvestment grade" securities is considered
speculative by recognized rating agencies with respect to the issuer's
continuing ability to pay interest and principal. Lower-grade
3
<PAGE> 215
securities may have less liquidity and a higher incidence of default than
investments in higher-grade securities. The Portfolio may incur higher expenses
to protect the Portfolio's interest in such securities. The credit risks and
market prices of lower-grade securities generally are more sensitive to negative
issuer developments, such as reduced revenues or increased expenditures, or
adverse economic conditions, such as a recession, than are the prices of
higher-grade securities.
INCOME RISK. The income you receive from the Portfolio is based primarily on
interest rates, which can vary widely over the short and long term. If interest
rates drop, your income from the Portfolio may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of callable
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities would likely be reinvested by the Portfolio in securities bearing the
new, lower interest rates, resulting in a possible decline in the Portfolio's
income and distributions to shareholders.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objectives and strategies, the Portfolio
may be appropriate for investors who:
- - Seek current income and capital appreciation over the long term
- - Are willing to take on the increased risks of medium- and lower-grade
securities in exchange for potentially higher income
- - Wish to add to their investment holdings a portfolio that invests primarily in
income securities, including medium- and lower-grade income securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the ten calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 -7.23
1991 21.23
1992 12.5
1993 16.32
1994 -4.33
1995 21.37
1996 6.68
1997 11.91
1998 6.34
1999 -1.55
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's
4
<PAGE> 216
Class II Shares would be substantially similar to that shown for the Class I
Shares because all of the Portfolio's shares are invested in the same
portfolio of securities; however, the actual annual returns of the Class II
Shares would be lower than the annual returns shown for the Portfolio's Class
I Shares because of differences in the expenses borne by each class of shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
1.26%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 7.16% (for the quarter ended June 30, 1995) and the lowest quarterly return
was -5.97% (for the quarter ended September 30, 1990).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Lehman Brothers Index of
BBB Corporate Bonds*, a broad-based market index that the Portfolio's investment
adviser believes is an appropriate benchmark for the Portfolio. The Portfolio's
performance figures do not include sales charges or other expenses at the
contract level that would be paid by investors. The index's performance figures
do not include any commissions or sales charges that would be paid by investors
purchasing securities represented by the index. Average annual total returns are
shown for the periods ended December 31, 1999 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Domestic Income
Portfolio ** -1.55% 8.69% 7.88
.......................................................
Lehman Brothers
Index of BBB
Corporate Bonds -0.82% 8.49% 8.48%
.......................................................
</TABLE>
* The Lehman Brothers BBB Corporate Bond Index is a broad-based, unmanaged
index, which reflects the general performance of corporate bonds.
** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of the
Portfolio's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class II Shares would be lower than the
annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios including
this Domestic Income Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The primary investment objective of the Portfolio is to seek current income.
When consistent with the primary investment objective, capital appreciation is a
secondary investment objective. The investment objectives of the Portfolio are
fundamental policies and may not be changed without shareholder approval of a
majority of the Portfolio's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). There are risks
inherent in all investments in securities; accordingly there can be no assurance
that the Portfolio will achieve its investment objectives.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objectives by investing primarily in a
portfolio of income securities, including convertible
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<PAGE> 217
and non-convertible debt securities and preferred stocks. The Portfolio may
invest in investment grade securities and lower-rated and unrated securities.
Under normal market conditions, the Portfolio invests at least 80% of its total
assets in income securities rated at the time of purchase B or higher by S&P or
rated B or higher by Moody's or unrated securities judged by the Portfolio's
investments adviser to be of comparable quality at the time of purchase.
Securities rated BB or below by S&P or Ba or below by Moody's or unrated
securities of comparable quality are commonly referred to as "junk bonds" and
involve special risks as compared to investments in higher-grade securities. See
"Risks of Investing in Lower-Grade Securities" below.
UNDERSTANDING
QUALITY RATINGS
Security ratings are based on the issuer's ability to pay interest and repay
the principal. Debt Securities with ratings above the line are considered
"investment grade," while those with ratings below the line are regarded as
"noninvestment grade." A detailed explanation of these and other ratings can
be found in the appendix to this prospectus.
<TABLE>
<CAPTION>
S&P Moody's Meaning
- ------------------------------------------------------
<C> <S> <C>
AAA Aaa Highest quality
......................................................
AA Aa High quality
......................................................
A A Above-average quality
......................................................
BBB Baa Average quality
- ------------------------------------------------------
BB Ba Below-average quality
......................................................
B B Marginal quality
......................................................
CCC Caa Poor quality
......................................................
CC Ca Highly speculative
......................................................
C C Lowest quality
......................................................
D -- In default
......................................................
</TABLE>
In buying and selling securities for the Portfolio, the investment adviser
considers, among other thing, the security's current income potential, the
rating assigned to the security, the issuer's experience and managerial
strength, the financial soundness of the issuer and the outlook of its industry,
changing financial condition, borrowing requirements or debt maturity schedules,
regulatory concerns, and responsiveness to changes in business conditions and
interest rates. The Portfolio's investment adviser also may consider relative
values based on anticipated cash flow, interest or dividend coverage, balance
sheet analysis, and earnings prospects. The investment adviser evaluates each
individual security for income potential, credit quality and value and attempts
to identify higher-yielding securities of companies whose financial condition
has improved since the issuance of such securities or is anticipated to improve
in the future. Because of the number of investment considerations involved in
investing in medium- and lower-grade securities, achievement of the Portfolio's
investment objectives may be more dependent upon the investment adviser's credit
analysis than is the case with investing solely in higher-grade securities.
In general, the prices of income securities vary inversely with interest rates.
If interest rates rise, income security prices generally fall; if interest rates
fall, income security prices generally rise. In general, longer-maturity income
securities offer higher yields than shorter-maturity income securities, all
other factors, including credit quality, being equal; however, for a given
change in interest rates, longer-maturity income securities generally fluctuate
more in price (gaining or losing more in value) than shorter-maturity income
securities. While the Portfolio has no policy limiting the maturities of the
income securities in which it may invest, the Portfolio's investment adviser
seeks to moderate market risk by generally maintaining a portfolio duration
within a range of four to six years. Duration is a measure of the expected life
of an income security that was developed as an alternative to the concept of
"term to maturity." Duration incorporates an income security's yield, coupon
interest payments, final maturity and call features into one measure. A duration
calculation looks at the present value of a security's entire payment stream
whereas term to maturity is based solely on the date of a security's final
principal repayment.
In general, medium- and lower-grade securities provide higher yields than
higher-grade securities of similar maturity but are subject to greater risks,
including greater credit risk, greater market risk and volatility, greater
liquidity concerns and potentially greater manager risk. Such securities may be
issued in connection with corporate restructurings, such as leveraged buyouts,
mergers, acquisitions, debt recapitalization or similar events. These securities
are often issued by smaller, less creditworthy companies or companies with
substantial debt and may include financially troubled companies or companies in
default or in restructuring. Lower-grade securities often are subordinated to
the prior claims of banks and other senior lenders. Lower-grade securities are
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<PAGE> 218
regarded by the rating agencies as predominately speculative with respect to the
issuer's continuing ability to make principal and interest payments. The ratings
of S&P and Moody's represent their opinions of the quality of the securities
they undertake to rate, but not the market risk of such securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity, coupon and rating may
have different yields while securities of the same maturity and coupon with
different ratings may have the same yield. See "Risks of Investing in Lower-
Grade Securities" below.
The Portfolio may invest in securities not producing immediate cash income when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Portfolio's investment adviser will weigh these concerns
against the expected total returns from such instruments.
The Portfolio also may purchase or sell U.S. government securities on a forward
commitment basis. See "When-Issued and Delayed Delivery" below.
Although the Portfolio invests primarily in domestic income securities, the
Portfolio may invest up to 25% of its total assets based on the market value at
the time of investment in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Risks of Investing in Securities of Foreign Issuers" below.
Income securities in which the Portfolio may invest include the following:
STRAIGHT INCOME SECURITIES. These include bonds and other debt obligations which
bear a fixed or variable rate of interest payable at regular intervals and have
a fixed or resettable maturity date, and preferred stock, which generally has a
fixed or variable dividend rate (and, unlike interest on debt securities, such
dividends must be declared by the issuer's board of directors before becoming
payable) and may be subject to optional or mandatory redemption provisions. The
particular terms of such securities vary and may include features such as call
provisions and sinking funds.
PAY-IN-KIND INCOME SECURITIES. These pay interest in additional income
securities rather than in cash.
ZERO-COUPON SECURITIES. These bear no interest obligation but are issued at a
discount from their value at maturity. When held to maturity, their entire
return equals the difference between their issue price and their maturity value.
Interest is however accrued by the Portfolio each day for accounting and federal
income tax purposes.
ZERO-FIXED-COUPON SECURITIES. These are zero-coupon securities which convert on
a specified date to interest-bearing income securities.
The Portfolio may invest in securities rated below B by both S&P and Moody's,
common stocks or other equity securities and income securities on which interest
or dividends are not being paid when such investments are consistent with the
Portfolio's investment objectives or are acquired as part of a unit consisting
of a combination of income or equity securities. The Portfolio will not purchase
any such securities which will cause more than 20% of its total assets to be so
invested or which would cause more than 10% of its total assets to be invested
in common stocks or other equity securities. Equity securities as referred to
herein do not include preferred stocks (which the Portfolio considers income
securities). This limitation does not require the Portfolio to sell a portfolio
security because its rating has been changed.
Securities rated below B by both S&P and Moody's often include debt obligations
or other securities of companies that are financially troubled, in default or
are in bankruptcy or reorganization. Securities of such companies are usually
available at a deep discount from the face value of the instrument. The
Portfolio may invest in deep discount securities when the Portfolio's investment
adviser believes that existing factors are likely to restore the company to a
healthy financial condition. Such factors include a restructuring of debt,
management changes, existence of adequate assets, or other unusual
circumstances.
A security purchased at a deep discount may pay a very high effective yield. In
addition, if the financial condition of the issuer improves, the underlying
value
7
<PAGE> 219
of the security may increase, resulting in a capital gain. If the company
defaults on its obligations or remains in default, or if the plan of
reorganization is insufficient for debtholders, the deep discount securities may
stop generating income and lose value or become worthless. The Portfolio's
investment adviser will balance the benefits of deep discount securities with
their risks. While a diversified portfolio may reduce the overall impact of a
deep discount security that is in default or loses its value, the risk cannot be
eliminated.
Other investment practices and risks of the Portfolio are described under the
heading "Other Investment Practices and Risk Factors."
RISKS OF INVESTING IN LOWER-GRADE SECURITIES
Securities which are in the lower-grade categories generally offer a higher
current yield than is offered by higher-grade securities of similar maturities,
but they also generally involve greater risks, such as greater credit risk,
greater market risk and volatility, greater liquidity concerns and potentially
greater manager risk. Investors should carefully consider the risks of owning
shares of a portfolio which invests in lower-grade securities before investing
in the Portfolio.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade income securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Portfolio
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Portfolio may
incur additional expenses and may determine to invest additional assets with
respect to such issuer or the project or projects to which the Portfolio's
securities relate. Further, the Portfolio may incur additional expenses to the
extent that it is required to seek recovery upon a default in the payment of
interest or the repayment of principal on its portfolio holdings, and the
Portfolio may be unable to obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Portfolio's investments can be expected
to fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Portfolio
and thus in the net asset value of the Portfolio. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value and
liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Portfolio may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer or lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Portfolio more difficult, at least in the absence of price concessions.
The effects of adverse publicity and investor perceptions may be more pronounced
for securities for which no established retail market exists as compared with
the effects on securities for which such a market does exist. An economic
downturn or an increase in interest rates could severely disrupt the market for
8
<PAGE> 220
such securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Portfolio
may have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
The Portfolio's investment adviser is responsible for determining the net asset
value of the Portfolio, subject to the supervision of the Portfolio's Board of
Trustees. During periods of reduced market liquidity and in the absence of
readily available market quotations for lower-grade securities held in the
Portfolio's portfolio, the ability of the Portfolio's investment adviser to
value the Portfolio's securities becomes more difficult and the investment
adviser's use of judgment may play a greater role in the valuation of the
Portfolio's securities due to the reduced availability of reliable objective
data.
New or proposed laws may have an impact on the market for lower-grade
securities. The Portfolio's investment adviser is unable at this time to predict
what effect, if any, legislation may have on the market for lower-grade
securities.
Special tax considerations are associated with investing in certain lower-grade
securities, such as zero coupon or pay-in-kind securities. The Portfolio accrues
income on these securities prior to the receipt of cash payments. The Portfolio
must distribute substantially all of its income to its shareholders to qualify
for pass-through treatment under federal income tax law and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
The Portfolio will rely on its investment adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. The amount of
available information about the financial condition of certain lower-grade
issuers may be less extensive than other issuers. In its analysis, the
Portfolio's investment adviser may consider the credit ratings of S&P and
Moody's in evaluating securities although the investment adviser does not rely
primarily on these ratings. Ratings evaluate only the safety of principal and
interest payments, not the market value risk. Additionally, ratings are general
and not absolute standards of quality, and credit ratings are subject to the
risk that the creditworthiness of an issuer may change and the rating agencies
may fail to change such ratings in a timely fashion. A rating downgrade does not
require the Portfolio to dispose of a security. The Portfolio's investment
adviser continuously monitors the issuers of securities held in the Portfolio.
Because of the number of investment considerations involved in investing in
lower-grade securities, achievement of the Portfolio's investment objectives may
be more dependent upon the investment adviser's credit analysis than is the case
with investing in higher-grade securities.
The table below sets forth the percentages of the Portfolio's assets invested
during the fiscal year ended December 31, 1999 in the various S&P's and Moody's
rating categories and in unrated securities determined by the Portfolio's
investment adviser to be of comparable quality. The percentages are based on the
dollar-weighted average of credit ratings of all securities held by the
Portfolio during the 1999 fiscal year computed on a monthly basis.
<TABLE>
<CAPTION>
Period Ended December 31, 1999
Unrated Securities of
Rated Securities Comparable Quality
(As a Percentage of (As a Percentage of
Rating Category Portfolio Value) Portfolio Value)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA/Aaa 2.01% 0.00%
....................................................................
AA/Aa 2.30% 0.00%
....................................................................
A/A 17.47% 0.00%
....................................................................
BBB/Baa 59.77% 0.00%
....................................................................
BB/Ba 16.74% 1.71%
....................................................................
Percentage of
Rated and
Unrated
Securities 98.29% 1.71%
....................................................................
</TABLE>
The percentages of the Portfolio's assets invested in securities of various
grades may vary from time to time from those listed above.
9
<PAGE> 221
RISKS OF INVESTING IN SECURITIES OF
FOREIGN ISSUERS
The Portfolio may invest up to 25% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of developing or emerging market
countries. Investments in securities of developing or emerging markets are
subject to greater risks than investments in securities of developed countries
since emerging markets tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may purchase or sell U.S. government securities on a "when-issued"
or "delayed delivery" basis ("Forward Commitments"). These transactions occur
when securities are purchased or sold by the Portfolio with payment and delivery
taking place in the future, frequently a month or more after such transaction.
The price is fixed on the date of the commitment, and the seller continues to
accrue interest on the securities covered by the Forward Commitment until
delivery and payment take place. At the time of settlement, the market value of
the securities may be more or less than the purchase or sale price. The
Portfolio may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Portfolio may reinvest the proceeds in
another Forward Commitment. These transactions are subject
10
<PAGE> 222
to market risk as the value or yield of a security at delivery may be more or
less than the purchase price or the yield generally available on securities when
delivery occurs. When engaging in Forward Commitments, the Portfolio relies on
the other party to complete the transaction, should the other party fail to do
so, the Portfolio might lose a purchase or sale opportunity that could be more
advantageous than alternative opportunities at the time of the failure. The
Portfolio maintains a segregated account (which is marked to market daily) of
cash or liquid portfolio securities with the Portfolio's custodian in an
aggregate amount equal to the amount of its commitment as long as the obligation
to purchase or sell continues.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities potential relative to the
Portfolio's investment objectives has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for current income or capital appreciation on these
securities will tend to be lower than the potential for current income or
capital appreciation on other securities that may be owned by the Portfolio. In
taking such a defensive position, the Portfolio would not be pursuing and may
not achieve its investment objectives.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
..............................................
Next $500 million 0.45%
..............................................
Over $1 billion 0.40%
..............................................
</TABLE>
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<PAGE> 223
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.00% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser of Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Domestic Income Portfolio is managed by Kelly Gilbert,
a Vice President of the Adviser, and Reid Hill, an Assistant Vice President of
the Adviser. Ms. Gilbert joined the Adviser and Advisory Corp. in September 1995
and became an Assistant Vice President of the Adviser and Advisory Corp. in
December 1997. Ms. Gilbert has been a Vice President of the Adviser and Advisory
Corp. since February 1999. Prior to September 1995, Ms. Gilbert was a corporate
bond trader for two years at ABN AMRO, N.A., a foreign owned bank. Ms. Gilbert
has been affiliated with the Portfolio since June 1999.
Reid Hill joined the Adviser in 1995 and Advisory Corp. in 1992 and became an
Assistant Vice President of the Adviser and Advisory Corp. in December 1998. Mr.
Hill has been affiliated with the Portfolio since June 1999.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II
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Shares. From such amount, under the Service Plan, the Portfolio may spend up to
0.25% per year of the Portfolio's average daily net assets with respect to its
Class II Shares. Because these fees are paid out of the Portfolio's assets on an
ongoing basis, these fees will increase the cost of your investment in the
Portfolio and may cost you more over time than a class of shares with other
types of sales charge arrangements. The net income attributable to Class II
Shares will be reduced by the amount of the distribution and service fees and
other expenses of the Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Private placement
securities are valued at the last reported bid price. Securities for which
market quotations are not readily available and other assets are valued at a
fair value in good faith by the Adviser in accordance with procedures
established by the Portfolio's Board of Trustees. Short-term investments for the
Portfolio are valued as described in the notes to financial statements in the
Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within
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seven days after tender in proper form, except under unusual circumstances as
determined by the SEC. The redemption price will be the net asset value per
share next determined after the receipt of a request in proper form. The market
values of the securities in the Portfolio are subject to daily fluctuations and
the net asset value per share of the Portfolio's shares will fluctuate
accordingly. Therefore, the redemption value may be more or less than the
investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Interest earned from investments is the main source of income for the Portfolio.
Substantially all of this income, less expenses, is distributed to Accounts at
least annually. When the Portfolio sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Portfolio paid to purchase them. The
Portfolio distributes any net capital gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
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APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P corporate or municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the obligor or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT
Investment Grade
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
Speculative Grade
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the
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obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: Debt rated "C" is currently highly vulnerable to nonpayment. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
r: This symbol highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of non credit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the due date, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
MOODY'S INVESTORS SERVICE, INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa
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group they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date date to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
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- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba: An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca: An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
4. COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's makes no representation that such obligations are exempt
from registration under the Securities Act of 1933, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law.
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Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (on supporting institutions) have a superior ability for
repayment of short-term debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well established access to a ranges of financial markets and assured sources
of alternative liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supported institutions) have an acceptable ability for
repayment of short-term debt obligations. The effect of industry characteristics
and market compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained.
Issuers rated Not Prime do not fall within any of the prime rating categories.
A- 5
<PAGE> 231
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- DOMESTIC INCOME PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Domestic Income Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Domestic Income Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 232
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO DI
II 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
DOMESTIC INCOME PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Domestic Income Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Domestic
Income Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 233
VAN KAMPEN
LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio is a mutual fund with the investment objective to
seek capital appreciation.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 234
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 9
Purchase of Shares................................ 11
Redemption of Shares.............................. 12
Dividends, Distributions and Taxes................ 12
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 235
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek capital
appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing at least 65% of the
Portfolio's total assets in common stocks of emerging growth companies. Emerging
growth companies are those companies in the early stages of their life cycles
that the Portfolio's investment adviser believes have the potential to become
major enterprises. Investing in such companies involves risks not ordinarily
associated with investments in larger, more established companies. The
Portfolio's investment adviser uses a "bottom up" investment strategy in stock
selection focusing on those companies that it believes have rising earnings
expectations and rising valuations. The Portfolio seeks growth companies with
long-term capital appreciation potential. The Portfolio generally sells
securities when earnings expectations or valuations flatten or decline. The
Portfolio may invest up to 20% of its total assets in securities of foreign
issuers. The Portfolio may purchase and sell certain derivative instruments,
such as options, futures and options on futures, for various portfolio
management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes a "growth" style of investing. The market values of such securities
may be more volatile than other types of investments. The returns on "growth"
securities may or may not move in tandem with the returns on other styles of
investing or the overall stock markets. During an overall stock market decline,
stock prices of smaller or unseasoned companies (in which the Portfolio may
invest) often fluctuate more and may fall more than the stock prices of larger,
more established companies. Historically, smaller- and medium-sized company
stocks have sometimes gone through extended periods when they did not perform as
well as larger company stocks.
RISKS OF EMERGING GROWTH COMPANIES. Companies that the Portfolio's investment
adviser believe are emerging growth companies are often companies with limited
product lines, markets, distribution channels or financial resources and the
management of such companies may be dependent upon one or a few key people. The
stocks of emerging growth companies can therefore be subject to more abrupt or
erratic market movements than stocks of larger, more established companies or
the stock market in general.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
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<PAGE> 236
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek capital appreciation over the long term
- - Are willing to take on the increased risks of investing in emerging growth
companies in exchange for potentially higher capital appreciation
- - Can withstand substantial volatility in the value of their shares of the
Portfolio
- - Wish to add to their holdings a portfolio that invests primarily in common
stocks of emerging growth companies
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the four calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1996 16.55
1997 20.42
1998 37.56
1999** 104.38
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
** The Portfolio's performance during the one-year period ended December 31,
1999 is largely attributable to investments in the technology sector, which
performed favorably for the period. This performance was achieved during a
rising market, and there is no guarantee that this performance record or the
circumstances leading to it can be replicated in the future. As the Portfolio
expects to have a substantial portion of its assets invested in equity
securities of emerging growth companies, the Portfolio will be subject to
more volatility and erratic movements than the market in general.
The Portfolio's return for the three-month period ended March 31, 2000 was
25.42%.
During the four-year period shown in the bar chart, the highest quarterly return
was 60.58% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -12.05% (for the quarter ended September 30, 1998).
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<PAGE> 237
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the portfolio: the Russell 2000 Stock Index* and the Standard &
Poor's Midcap 400 Index**. The Portfolio's performance figures do not include
sales charges or other expenses at the contract level that would be paid by
investors. The indices' performance figures do not include any commissions or
sales charges that would be paid by investors purchasing securities represented
by the indices. Average annual total returns are shown for the periods ended
December 31, 1999 (the most recently completed calendar year prior to the date
of this prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen
Emerging Growth
Portfolio*** 104.38% 40.58%(1)
.............................................
Russel 2000
Stock Index 21.26% 15.21%(2)
.............................................
Standard & Poor's
Midcap 400 Index 14.72% 21.46%(2)
.............................................
</TABLE>
Inception dates: (1) 7/3/95, (2) 6/30/95.
* The Russell 2000 Stock Index is a small capitalization stock benchmark
composed of the smallest 2,000 companies of the Russell 3000 Index (an index
of the 3,000 largest U.S. companies based on market capitalization). Based
on the Portfolio's asset composition, the Portfolio's investment adviser
believes adding the Standard & Poor's Midcap 400 Index is a more appropriate
benchmark for the Portfolio, and the Russell 2000 Index will not be shown in
future prospectuses of the Portfolio.
** The Standard & Poor's Midcap 400 is an unmanaged market-weighted index of
400 domestic mid-capitalization stocks.
*** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of
the Portfolio's shares are invested in the same portfolio of securities;
however, the actual annual returns of the Class II Shares would be lower
than the annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
the Emerging Growth Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its a own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek capital appreciation. Any
ordinary income received from securities owned by the Portfolio is entirely
incidental to the Portfolio's investment objective of capital appreciation. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
Under normal conditions, the Portfolio's investment adviser seeks to achieve the
Portfolio's investment objective by investing at least 65% of the Portfolio's
total assets in common stocks of emerging growth
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<PAGE> 238
companies. Emerging growth companies are those companies in the early stages of
their life cycles that the Portfolio's investment adviser believes have the
potential to become major enterprises. Investments in such companies may offer
greater opportunities for growth of capital than larger, more established
companies, but also may involve certain special risks. Emerging growth companies
often have limited product lines, markets, distribution channels or financial
resources, and they may be dependent upon one or a few key people for
management. The securities of such companies may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general.
The Portfolio's primary approach is to seek what the Portfolio's investment
adviser believes to be unusually attractive growth opportunities on an
individual company basis. The Portfolio's investment adviser uses a "bottom-up"
disciplined style of investing. The Portfolio's investment adviser relies on its
research capabilities and company/analyst meetings in reviewing companies. The
Portfolio focuses on those companies that exhibit rising earnings expectations
and rising valuations. In selecting securities for investment, the Portfolio
generally seeks companies that appear to be positioned to produce an attractive
level of future earnings through the development of new products, services or
markets or as a result of changing markets or industry conditions. The
Portfolio's investment adviser expects that many of the companies in which the
Portfolio invests will, at the time of investment, be experiencing high rates of
earnings growth. The securities of such companies may trade at higher price to
earnings ratios relative to more established companies and rates of earnings
growth may be volatile.
The Portfolio does not limit its investments to any single group or type of
security. The Portfolio may invest in securities involving special situations,
such as initial public offerings, companies with new management or management
reliant on one or a few key people, special products and techniques, limited or
cyclical product lines, markets or resources, or unusual developments, such as
mergers, liquidations or principal buyouts. Investments in smaller or unseasoned
companies or companies with special situations often involve much greater risks
than are inherent in other types of investments, because securities of such
companies may be more likely to experience unexpected fluctuations in price.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is advisable to do so. The
Portfolio generally sells securities when earnings expectations or valuations
flatten or decline. Other factors may include changes in the company's
operations or relative market performance or appreciation possibilities offered
by individual securities, a change in the market trend or other factors
affecting an individual security, a change in economic or market factors in
general or with respect to a particular industry, and other circumstances
bearing on the desirability of a given investment. In addition, if an individual
stock position appreciates to a point where it begins to account for a larger
percentage of the Portfolio's assets, the Portfolio's investment adviser may
sell a portion of the position held.
The Portfolio may invest in securities that have above average volatility of
price movement. Because prices of common stocks and other securities fluctuate,
the value of an investment in the Portfolio will vary based upon the Portfolio's
investment performance. The Portfolio attempts to reduce overall exposure to
risk from declines in securities prices by spreading its investments over many
different companies in a variety of industries. There is, however, no assurance
that the Portfolio will be successful in achieving its objective.
The Portfolio invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Portfolio invests primarily in common stocks, it may invest in
preferred stocks, convertible securities and rights and warrants to purchase
common or preferred stock. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be
6
<PAGE> 239
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer or into cash within a
particular period of time at a specified price or formula. A convertible
security generally entitles the holder to receive interest paid or accrued on
debt securities or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of the convertible securities may be affected by any dividend
changes or other changes in the underlying equity securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights typically have a substantially
shorter duration than do warrants. Rights and warrants may be considered more
speculative and less liquid than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
underlying securities nor do they represent any rights in the assets of the
issuing company. Rights and warrants may lack a secondary market.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Portfolio may invest up to 20% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issues in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of
7
<PAGE> 240
foreign investments should be considered carefully by an investor in a Portfolio
that invests in foreign securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts or options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such
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<PAGE> 241
transactions may involve commissions and other costs, which may increase the
Portfolio's expenses and reduce its return. A more complete discussion of
options, futures contracts and related options and their risks is contained in
the Statement of Additional Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital appreciation on these securities will tend
to be lower than the potential for capital appreciation on other securities that
may be owned by the Portfolio. In taking such a defensive position, the
Portfolio would not be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ---------------------------------------
<S> <C> <C> <C>
First $500 million 0.70%
.......................................
Next $500 million 0.65%
.......................................
Over $1 billion 0.60%
.......................................
</TABLE>
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<PAGE> 242
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.67% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Emerging Growth Portfolio is managed by a team of
portfolio managers headed by Gary M. Lewis, Senior Portfolio Manager. Mr. Lewis
has been a Senior Vice President of the Adviser and Advisory Corp. since
September 1995. Mr. Lewis became a Vice President and Portfolio Manager of the
Adviser in June 1991. Mr. Lewis has been employed by the Adviser since September
1986. He has been affiliated with the Portfolio since its inception.
Portfolio Managers Dudley Brickhouse, Matthew Hart, Janet Luby and David Walker
are responsible as co-managers for the day-to-day management of the Portfolio.
Mr. Brickhouse has been a Portfolio Manager and Vice President of the Adviser
and Advisory Corp. since December 1998. Mr. Brickhouse became an Associate
Portfolio Manager of the Adviser and Advisory Corp. in September 1997. Prior to
September 1997, Mr. Brickhouse was a Vice President and Portfolio Manager with
NationsBank Investment Management where he had worked since 1995. He has been
affiliated with the Portfolio since September 1997.
Mr. Hart has been a Vice President of the Adviser and Advisory Corp. since
December 1998. Mr. Hart, a Portfolio Manager since January 1998, became
Associate Portfolio Manager of the Adviser and Advisory Corp. in August 1997.
Prior to August 1997, Mr. Hart was with AIM Capital Management, Inc. since June
1992. His last position in the AIM portfolio area was as a convertible bonds
analyst. Mr. Hart has been affiliated with the Portfolio since January 2000.
Ms. Luby has been a Portfolio Manager and Vice President of the Adviser and
Advisory Corp. since December 1998. Ms. Luby became an Assistant Vice President
of the Adviser and Advisory Corp. in December 1997. Ms. Luby was an Associate
Portfolio Manager of the Adviser since July 1995. Prior to July 1995, she spent
eight years at AIM Capital Management, Inc. where she worked five years in the
accounting department and three years in the investment area. Her last position
in the AIM investment area was as Senior Securities Analyst. Ms. Luby is also
the portfolio manager for various unit investment trusts managed by the Adviser
or its affiliates since August 1999. She has been affiliated with the Portfolio
since July 1995.
Mr. Walker has been a Portfolio Manager and Vice President of the Adviser and
Advisory Corp. since December 1998. Mr. Walker became an Assistant Vice
President of the Adviser and Advisory Corp. in June 1995. Prior to April 1996,
Mr. Walker was a Quantitative Analyst of the Adviser and has worked for the
Adviser since October 1990. Mr. Walker is also the portfolio manager for various
unit investment trusts managed by the Adviser or its affiliates since September
1997. Mr. Walker has been affiliated with the Portfolio since May 1996.
10
<PAGE> 243
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with resect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked
11
<PAGE> 244
prices. Private placement securities are valued at the last reported bid price.
Securities for which market quotations are not readily available and other
assets are valued at a fair value in good faith by the Adviser in accordance
with procedures established by the Portfolio's Board of Trustees. Short-term
investments for the Portfolio are valued as described in the notes to financial
statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
12
<PAGE> 245
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
Annual Report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the Annual Report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
13
<PAGE> 246
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
Peter W. Hegel*
Vice President
Michael H. Santo*
Vice President
John H. Zimmerman, III*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST - EMERGING GROWTH PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust - Emerging Growth Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust - Emerging Growth Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 247
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO EM II 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Emerging Growth Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Emerging
Growth Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 248
VAN KAMPEN
LIFE INVESTMENT TRUST
ENTERPRISE PORTFOLIO
The Enterprise Portfolio is a mutual fund with the investment objective to seek
capital appreciation through investments in securities believed by the
Portfolio's investment adviser to have above average potential for capital
appreciation.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 249
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 8
Purchase of Shares................................ 10
Redemption of Shares.............................. 11
Dividends, Distributions and Taxes................ 11
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 250
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek capital
appreciation through investments in securities believed by the Portfolio's
investment adviser to have above average potential for capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing primarily in common
stocks of "growth" companies focusing on those securities believed to offer a
combination of strong business fundamentals at an attractive valuation.
Portfolio securities are typically sold when the Portfolio's investment
adviser's assessments of the capital appreciation potential for such securities
materially change. The Portfolio may invest up to 10% of its total assets in
securities of foreign issuers. The Portfolio may purchase and sell certain
derivative instruments, such as options, futures and options on futures, for
various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks generally are affected by changes in the stock markets, which fluctuate
substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes a "growth" style of investing. The market values of "growth" common
stocks may be more volatile than other types of investments. The returns on
"growth" securities may or may not move in tandem with the returns on other
styles of investing or the overall stock markets. During an overall stock market
decline, stock prices of small- or medium-sized companies (in which the
Portfolio may invest) may be more volatile and may fall more than stock prices
of larger companies.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Can withstand substantial volatility in the value of their shares of the
Portfolio
- - Wish to add to their investment holdings a portfolio that emphasizes a
"growth" style of investing in common stocks
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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<PAGE> 251
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the ten calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 -6.84
1991 36.41
1992 7.48
1993 8.98
1994 -3.39
1995 36.98
1996 24.80
1997 30.66
1998 25.00
1999 25.85
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
11.29%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 24.94% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -16.52% (for the quarter ended September 30, 1990).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the Portfolio: the Standard & Poor's 500-Stock Index* and the
Russell 1000 Growth Index.** The Portfolio's performance figures do not include
sales charges or other expenses at the contract level that would be paid by
investors. The indices' performance figures do not include any commissions or
sales charges that would be paid by investors purchasing securities represented
by the indices. Average annual total returns are shown for the periods ended
December 31, 1999 (the most recently completed calendar year prior to the date
of this prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Enterprise
Portfolio*** 25.85% 28.57% 17.58%
.......................................................
Standard & Poor's
500-Stock Index 21.04% 28.56% 18.21%
.......................................................
Russell 1000
Growth Index 33.16% 32.41% 20.32%
.......................................................
</TABLE>
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that are
a representative sample of approximately 100 industries, chosen mainly for
market size, liquidity and industry group representation (assumes dividends
are reinvested).
** The Russell 1000 Growth Index measures the performance of those Russell 1000
Index companies with higher price-to-book ratios and higher forecasted
growth values. The Russell 1000 Index is an index of the 1,000 largest U.S.
companies based on market capitalization.
*** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of
the Portfolio's shares are invested in the same portfolio of securities;
however, the actual annual returns of the Class II Shares would be lower
than the annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
4
<PAGE> 252
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios including
this Enterprise Portfolio. Each portfolio is in effect a separate mutual fund.
Each portfolio of the Trust has a different investment objective(s) which it
pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek capital appreciation
through investments in securities believed by the Portfolio's investment adviser
to have above average potential for capital appreciation. Any income received on
securities owned by the Portfolio is entirely incidental to the Portfolio's
investment objective of capital appreciation. The investment objective of the
Portfolio is a fundamental policy and may not be changed without shareholder
approval of a majority of the Portfolio's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
There are risks inherent in all investments in securities; accordingly there can
be no assurance that the Portfolio will achieve its investment objective.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing primarily in common
stocks which it believes have above-average potential for capital appreciation.
The Portfolio's primary approach is to seek what the Portfolio's investment
adviser believes to be unusually attractive growth investments on an individual
company basis. The Portfolio may invest in securities that have above average
volatility of price movement. Because prices of common stocks and other
securities fluctuate, the value of an investment in the Portfolio will vary. The
Portfolio attempts to reduce overall exposure to risk from declines in
securities prices by spreading its investments over many different companies in
a variety of industries.
In selecting securities for investment, the Portfolio generally focuses on
common stocks of "growth" companies, including companies with new products,
services or processes. The investment adviser seeks such securities which it
believes offer a combination of strong business fundamentals at an attractive
valuation. Growth companies generally include those companies with established
records of growth in sales or earnings that the Portfolio's investment adviser
believes are entering into a growth cycle in their respective businesses, with
the expectation that the stock of such companies will increase in value. Stocks
of different types, such as "growth" stocks or "value" stocks, tend to shift in
and out of favor depending on market and economic conditions. Thus, the value of
the Portfolio's investments in "growth" stocks will vary and may at times be
lower or higher than that of other types of funds. The market values of "growth"
common stocks may be more volatile than other types of investments. The
Portfolio may invest in companies generating or applying new technologies, new
or improved distribution techniques or new services, which companies may benefit
from changing consumer demands or lifestyles, or companies that have projected
earnings in excess of the average for their sector or industry. In each case,
such companies have prospects that the Portfolio's investment adviser believes
are favorable for above-average capital appreciation. The Portfolio also may
focus its investments on stocks of companies in cyclical industries during
periods when their securities appear attractive for capital appreciation.
The companies in which the Portfolio invests may be in any market capitalization
range, provided the Portfolio's investment adviser believes the investment is
consistent with the Portfolio's objective. The securities of small- or
medium-sized companies may be subject to more abrupt or erratic market movements
than securities of larger companies or the market averages in general. In
addition, such
5
<PAGE> 253
companies typically are subject to a greater degree of change in earnings and
business prospects than are larger companies. Thus, to the extent the Portfolio
invests in small- and medium-sized companies, the Portfolio may be subject to
greater investment risk than that assumed through investment in the equity
securities of larger-capitalization companies.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is desirable to do so. Such
factors include change in economic or market factors in general or with respect
to a particular industry, a change in the market trend or other factors
affecting an individual security, changes in the relative market performance or
appreciation possibilities offered by individual securities and other
circumstances bearing on the desirability of a given investment.
The Portfolio invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stocks and warrants. Preferred stock generally has a
preference as to dividends and liquidation over an issuer's common stock but
ranks junior to debt securities in an issuer's capital structure. Unlike
interest payments on debt securities, preferred stock dividends are payable only
if declared by the issuer's board of directors. Preferred stock also may be
subject to optional mandatory redemption provisions. Generally, warrants are
securities that may be exchanged for a prescribed amount of common stock or
other equity security of the issuer within a particular period of time at a
specified price or in accordance with a specific formula.
The Portfolio generally holds a portion of its assets in investment grade
short-term debt securities and in investment grade corporate debt securities in
order to provide liquidity. Investment grade short-term debt investments include
securities issued or guaranteed by the U.S. government, its agencies or its
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and other obligations of domestic banks having total assets of at
least $500 million and repurchase agreements. Investment grade corporate debt
securities include securities rated BBB or better by Standard & Poor's ("S&P")
or Baa or higher by Moody's Investors Service, Inc. ("Moody's"). A more complete
description of security ratings is contained in the Portfolio's Statement of
Additional Information. The market prices of such debt securities generally vary
inversely with changes in prevailing interest rates.
RISKS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Portfolio may invest up to 10% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
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Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to use, various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolios' investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign
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currency constitutes only a partial hedge, up to the amount of the premium
received, and the Portfolio could be required to cover its position by
purchasing or selling foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to a Portfolio's position, the Portfolio
may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies in which the Portfolio invests are traded on U.S.
and foreign exchanges or over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital appreciation on these securities will tend
to be lower than the potential for capital appreciation on other securities that
may be owned by the Portfolio. In taking such a defensive position, the
Portfolio would not be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
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Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $90 billion under management or supervision as of
December 31, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,700 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Portfolio (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and for other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ------------------------------------------------
<S> <C>
First $500 million 0.50%
................................................
Next $500 million 0.45%
................................................
Over $1 billion 0.40%
................................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.48% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Enterprise Portfolio is managed by a management team
headed by Jeff New, Senior Portfolio Manager. Mr. New has been affiliated with
the Portfolio since 1991, has assisted in co-managing the Portfolio since July
1994 and has been the Senior Portfolio Manager of the Portfolio since December
1994. Mr. New has been a Senior Vice President and Senior Portfolio Manager of
the Adviser since December 1997. Prior to December 1997, Mr. New was a Vice
President and Portfolio Manager of the Adviser. Prior to December 1994, he was
an Associate Portfolio Manager of the Adviser. He joined the Adviser in 1990.
Portfolio Managers Michael Davis and Mary Jayne Maly are responsible for the
day-to-day management of the Portfolio. Mr. Davis has been a Vice President and
Portfolio Manager of the Adviser since March 1998. Prior to March 1998 he was
the owner of Davis Equity Research, a stock research company. Mr. Davis has been
an investment professional since 1983. Mr. Davis has been affiliated with the
Portfolio since March 1998.
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Ms. Maly has been a Vice President and Portfolio Manager of the Adviser since
July 1998. From July 1997 to June 1998, she was a Vice President at the
predecessor of Morgan Stanley Dean Witter Investment Management Inc. and
assisted in the management of the Morgan Stanley Institutional Real Estate Funds
and the Van Kampen Real Estate Securities Fund. Prior to July 1997, she was a
Vice President and Portfolio Manager of the Adviser. Prior to November 1992, she
was a Vice President and Senior Equity Analyst at Texas Commerce Investment
Management Company. Ms. Maly has been affiliated with the Portfolio since July
1998.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to
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<PAGE> 258
arrive at the net asset value of each share. See "Determination of Net Asset
Value" in the Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
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<PAGE> 259
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
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<PAGE> 260
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- ENTERPRISE PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Enterprise Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Enterprise Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 261
VAN KAMPEN
LIFE INVESTMENT TRUST
ENTERPRISE PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Enterprise Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Enterprise
Portfolio, including the reports and Statement
of Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-2424. LIT PRO ENT II 4/00
<PAGE> 262
VAN KAMPEN
LIFE INVESTMENT TRUST
GLOBAL EQUITY PORTFOLIO
The Global Equity Portfolio is a mutual fund with the investment objective to
seek long-term growth of capital through investments in an internationally
diversified portfolio of equity securities of companies of any nation including
the United States.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 263
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 10
Purchase of Shares................................ 11
Redemption of Shares.............................. 13
Dividends, Distributions and Taxes................ 13
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 264
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek long-term
growth of capital through investments in an internationally diversified
portfolio of equity securities of companies of any nation including the United
States.
INVESTMENT STRATEGIES
The Portfolio's investment adviser seeks to achieve the Portfolio's investment
objective by investing in an internationally diversified portfolio of equity
securities, including common stocks, preferred stocks and warrants or options to
acquire such securities. The Portfolio's investment adviser uses a "top-down"
investment management approach that emphasizes country and/or sector selection
and weighting rather than individual security selection. Within a particular
country, the Portfolio may select securities of issuers designed to track the
markets of that country or a particular sector.
The composition of the Portfolio's investments will vary over time based on the
Portfolio's investment adviser's evaluation of economic and market trends and
the anticipated relative capital appreciation available from particular
countries, sectors and securities. Portfolio securities are typically sold when
the Portfolio's investment adviser's assessments for capital appreciation of
countries or sectors materially change. The Portfolio may invest in any country,
including developed or undeveloped countries. Under normal market conditions,
the Portfolio invests at least 65% of its total assets in securities of issuers
of at least three countries (including the United States). The Portfolio may
purchase and sell certain derivative instruments, such as options, futures,
options on futures and currency-related transactions involving options, futures
or forward contracts, for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. Foreign
markets may, but often do not, move in tandem with changes in U.S. markets, and
foreign markets, especially developing or emerging markets countries, may be
more volatile than U.S. markets. During an overall stock market decline, stock
prices of small- and medium-sized companies (in which the Portfolio may invest)
often fluctuate more than stock prices of larger companies.
FOREIGN RISKS. Because the Portfolio will own securities of foreign issuers, it
will be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues. The risks of investing in developing or emerging
markets (in which the Portfolio may invest) are greater than the risks generally
associated with foreign investments including investment and trading
limitations, greater credit and liquidity concerns, greater political
uncertainties, an economy's dependence on international development assistance,
greater foreign currency exchange and currency transfer restrictions, and
greater delays and disruptions in settlement transactions.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and
currency-related transactions involving options, futures and forward contracts
are examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
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MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek long-term growth of capital
- - Are willing to take on the increased risks associated with investing in
foreign securities
- - Can withstand volatility in the value of their shares in the Portfolio
- - Wish to add to their investment holdings a portfolio that invests in an
international portfolio of equity securities.
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the four calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1996 16.72
1997 15.85
1998 21.61
1999 30.06
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio return for the three-month period ended March 31, 2000 was -1.31%.
During the four-year period shown in the bar chart, the highest quarterly return
was 19.37% (for the quarter ended December 31, 1999) and the lowest quarterly
return was -11.02% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Morgan Stanley Capital
International World Index + Dividends* (the "MSCI World Index + Dividends"), a
broad-based market index that the Portfolio's investment adviser believes is an
appropriate benchmark for the Portfolio. The Portfolio's performance figures do
not include sales charges or other expenses at the contract level that would be
paid by investors. The index's performance figures do not include any
commissions or sales charges that would be paid by investors purchasing
securities represented by the index. Average annual total returns are shown for
the periods ended December 31, 1999 (the most recently completed calendar year
prior to the date of this prospectus). Remember that the past performance of
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the Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns for
the Periods Ended Past Since
December 31, 1999 1 Year Inception
- ----------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Global
Equity Portfolio** 30.06% 19.23%(1)
..............................................
MSCI World Index +
dividends 24.93% 19.83%(2)
..............................................
</TABLE>
Inception dates: (1) 7/3/95, (2) 6/30/95.
* The MSCI World Index + dividends is an unmanaged index that includes
securities listed on stock exchanges of the U.S., Europe, Canada, Australia,
New Zealand and the Far East and assumes dividends are reinvested net
withholding tax.
** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of the
Portfolio's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class II Shares would be lower than the
annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios including
this Global Equity Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek long-term growth of capital
through investments in an internationally diversified portfolio of equity
securities of companies of any nation including the United States. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
The Portfolio's investment adviser seeks to achieve the investment objective by
investing in an internationally diversified portfolio of equity securities,
including common stocks, preferred stocks and warrants or options to acquire
such securities, based upon the "top-down" evaluation by the Portfolio's
investment adviser of economic and market trends and the anticipated relative
capital growth opportunities available from a particular country and/or sector.
When the Portfolio's investment adviser deems it advantageous within a
particular country or sector, the Portfolio's investment adviser selects
securities designed to track the markets of that country or sector. Under normal
market conditions, the Portfolio invests at least 65% of its total assets in
securities of issuers of at least three countries (including the United States.)
This approach reflects the investment adviser's philosophy for this Portfolio
that a broad selection of securities representing exposure to world markets
based upon the economic outlook and current valuation levels for each country
and certain sectors is an effective way to maximize the return and minimize the
risk associated with global investment. The Portfolio's investments may be
shifted among the world's various capital markets, including developed and
undeveloped countries, and among different types of securities in accordance
with the investment adviser's ongoing analysis of economic or market trends,
developments affecting the markets and securities in which the Portfolio may
invest and the anticipated relative capital growth opportunities available from
a particular country and/or sector.
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<PAGE> 267
The Portfolio invests primarily in those countries (including in the United
States and other industrialized countries throughout the world) that comprise
the Morgan Stanley Capital International World Index. In addition, the Portfolio
may invest a portion of its assets in securities of certain developing or
emerging markets countries whose economies are developing strongly and whose
markets are becoming more sophisticated.
By analyzing a variety of macroeconomic and political factors, the Portfolio's
investment adviser develops fundamental projections on interest rates,
currencies, corporate profits and economic growth for each country or sector.
These country projections are then used to determine what the investment adviser
believes to be a fair value for the stock market of each country or sector.
Discrepancies between actual value and fair value, as determined by the
investment adviser, provide an expected return for each stock market. The
expected return is adjusted by currency return expectations derived from the
investment adviser's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country and sector allocation
decision is then reached by considering the expected total return in light of
various considerations such as market size, volatility, liquidity, country risk
and transaction costs.
When the investment adviser deems it advantageous, investments are made through
the purchase of equity securities which, in the aggregate, are designed to track
the markets for a particular country or sector.
The investment adviser's sell decisions are based on a country or
industry/sectors relative attractiveness as judged by the three major
components: valuations, fundamentals and market sentiment. The investment
adviser sells a country or sector when the rationale for the purchase has been
realized or the investment adviser expects the country/sector fundamentals (such
as economic growth and government policy) or market sentiment to disappoint. The
investment adviser does not establish pre-specified targets for sell points
given the relative nature of the process. It ranks country/sector attractiveness
and looks to identify alternatives prior to initiating or soon after a sale.
The Portfolio may invest in equity securities including common stocks, preferred
stocks, warrants or options to acquire such securities and depository receipts.
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. Generally, warrants or options to acquire equity
securities are securities that may be exchanged for a prescribed amount of such
equity securities of the issuer within a particular period of time at a
specified price or in accordance with a specified formula.
The Portfolio may invest in issuers of small-, medium- or large-capitalization
companies. The securities of small- or medium-sized companies may be subject to
more abrupt or erratic market movements than securities of larger companies or
the market averages in general. In addition, such companies typically are
subject to a greater degree of change in earnings and business prospects than
are larger companies. Thus, to the extent the Portfolio invests in small- and
medium-sized companies, the Portfolio may be subject to greater investment risk
than that assumed through investment in the equity securities of
larger-capitalization companies.
The Portfolio may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. These securities are not
necessarily denominated in the same currency as the underlying securities but
generally are denominated in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by foreign
corporations. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are
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paid by the ADR holders. In addition, less information generally is available
for an unsponsored ADR than a sponsored ADR, and financial information about a
company may not be as reliable for an unsponsored ADR as it is for a sponsored
ADR. The Portfolio may invest in ADRs through both sponsored and unsponsored
arrangements. EDRs are receipts issued in Europe by banks or depositaries which
evidence similar ownership arrangements.
The Portfolio generally holds a portion of its assets in short-term debt
securities in order to provide liquidity. Short-term debt securities include
securities issued or guaranteed by the U.S. government or foreign governments,
their agencies or instrumentalities, prime commercial paper, certificates of
deposit, bankers' acceptances and other obligations of banks having total assets
of at least $500 million and repurchase agreements.
RISK FACTORS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS
An investment in the Portfolio involves risks similar to those of investing in
foreign securities generally. The Portfolio invests in securities denominated in
U.S. dollars and in currencies other than U.S. dollars. The percentage of assets
invested in securities of a particular country or denominated in a particular
currency will vary in accordance with the investment adviser's assessment of the
relative yield, growth potential and the relationship of a country's currency to
the U.S. dollar, which is based upon such factors as fundamental economic
strength, credit quality and interest rate trends. Investments in foreign
securities present certain risks not ordinarily associated with investments in
securities of U.S. issuers. These risks include fluctuations in foreign currency
exchange rates, political, economic or legal developments (including war or
other instability, expropriation of assets, nationalization and confiscatory
taxation), imposition of foreign exchange limitations (including currency
blockage), withholding taxes on dividend or interest payments or capital
transactions or other restrictions, higher transaction costs (including higher
brokerage, custodial and settlement costs and currency translation costs) and
possible difficulty in enforcing contractual obligations or taking judicial
action. Also, foreign securities may not be as liquid and may be more volatile
than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio's investments in securities of developing or emerging markets are
subject to greater risks than the Portfolio's investments in securities of
developed countries since emerging markets tend to have economic structures that
are less diverse and mature and political systems that are less stable than
developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transaction costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
Since the Portfolio invests in securities denominated or quoted in currencies
other than the U.S. dollar, the Portfolio will be affected by changes in foreign
currency exchange rates (and exchange control regulations) which affect the
value of securities in the Portfolio and the income and appreciation or
depreciation of Portfolio investments. Changes in foreign currency exchange
ratios relative to the U.S. dollar will affect the U.S. dollar value of the
Portfolio's assets denominated in that currency and the Portfolio's yield on
such assets. In addition, the Portfolio will incur costs in connection with
conversions between various currencies. The Portfolio may purchase and sell
foreign currency on a spot
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<PAGE> 269
basis in connection with the settlement of transactions in securities traded in
such foreign currency. The Portfolio also may enter into contracts with banks or
other foreign currency brokers or dealers to purchase or sell foreign currencies
at a future date ("forward contracts"). A foreign currency forward contract is a
negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. The rate can
be higher or lower than the spot rate between the currencies that are the
subject of the contract.
The Portfolio may attempt to protect against adverse changes in the value of the
U.S. dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency option or futures
contract for such amount. Such strategies may be employed before the Portfolio
purchases a foreign security traded in the currency which the Portfolio
anticipates acquiring or between the date the foreign security is purchased or
sold and the date on which payment therefor is made or received. Seeking to
protect against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Furthermore, such
transactions reduce or preclude the opportunity for gain if the value of the
currency should move in the direction opposite to the position taken.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The Portfolio's custodian will place cash or liquid securities in a segregated
account having a value equal to the aggregate amount of the Portfolio's
commitments under forward contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities are placed in the
account on a daily basis so that the value of the account equals the amount of
the Portfolio's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign currency
by a forward sale contract at a price no higher than the forward contract price
or the Portfolio may purchase a put option permitting the Portfolio to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the
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degree the performance of the put correlates with the performance of the
Portfolio's investment portfolio. If the market remains stable or advances, the
Portfolio can refrain from exercising the put and the Portfolio will participate
in the advance, having incurred only the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may from time to time make short sales of securities it owns or
has the right to acquire through conversion or exchange of other securities it
owns. A short sale is "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short. In a short sale, the Portfolio does not
immediately deliver the securities sold and does not receive the proceeds from
the sale. The Portfolio is required to recognize gain from the short sale for
federal income tax purposes at the time it enters into the short sale, even
though it does not receive the sales proceeds until it delivers the securities.
The Portfolio is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Portfolio may not make short sales or maintain a short position if to
do so would cause more than 25% of its total assets, taken at market value, to
be held as collateral for such sales. To secure its obligation to deliver the
securities sold short, the Portfolio will deposit in escrow in a separate
account with its custodian an equal amount of the securities sold short or
securities convertible into or exchangeable for such securities. The Portfolio
may close out a short position by purchasing and delivering an equal amount of
the securities sold short, rather than by delivering securities already held by
the Portfolio, because it may want to continue to receive interest and dividend
payments on its investments that are convertible into the securities sold short.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to
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take advantage of new investment opportunities or when the Portfolio's
investment adviser believes the securities' potential relative to the
Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. or foreign
governments, their agencies or instrumentalities, prime commercial paper,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks having total assets of at least $500 million, and repurchase agreements;
however, during times of international political or economic uncertainty, all or
a portion of the Portfolio's assets may be in U.S. issuers and denominated in
U.S. dollars.
Under normal market conditions, the potential for capital growth on these
securities will tend to be lower than the potential for capital growth on other
securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Asset Management Inc. is the investment adviser for the Portfolio
(the "Adviser"). The Adviser is a wholly owned subsidiary of Van Kampen
Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ---------------------------------------
<S> <C> <C> <C>
First $500 million 1.00%
.......................................
Next $500 million 0.95%
.......................................
Over $1 billion 0.90%
.......................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.00% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
10
<PAGE> 272
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Portfolio. The Subadviser is a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., and is an affiliate of the Adviser. The
Subadviser conducts a worldwide portfolio management business and provides a
broad range of portfolio management services to customers in the United States
and abroad. At December 31, 1999, the Subadviser, together with its affiliated
institutional asset management companies, managed assets of approximately $184.8
billion, including assets under fiduciary advice. The Subadviser's principal
office is located at 1221 Avenue of the Americas, New York, New York 10020. On
December 1, 1998, Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc. but continues to do
business in certain instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Portfolio in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser, the Subadviser and the
Distributor have adopted Codes of Ethics designed to recognize the fiduciary
relationships among the Portfolio, the Adviser, the Subadviser, the Distributor
and their respective employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. The Global Equity Portfolio has been managed by Barton M.
Biggs and Ann D. Thivierge since April 1997. Mr. Biggs has been Chairman and a
director of the Subadviser since 1980. Mr. Biggs is also a Managing Director of
the Subadviser and Morgan Stanley & Co. Incorporated and is a director and
chairman of various registered investment companies to which the Subadviser and
certain of its affiliates provide investment advisory services. Mr. Biggs holds
a B.A. from Yale University and an M.B.A. from New York University. Ms.
Thivierge is a Managing Director of the Subadviser and Morgan Stanley & Co.
Incorporated. Ms. Thivierge has been with the Subadviser since 1986. Ms.
Thivierge holds a B.A. in International Relations from James Madison College,
Michigan State University, and an M.B.A. in Finance from New York University.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class
11
<PAGE> 273
of the Portfolio's shares available through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholder's accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities
12
<PAGE> 274
may occur at times or on days on which the Portfolio's net asset value is not
calculated and on which the Portfolio does not effect sales, redemptions and
exchanges of its shares. The Portfolio calculates net asset value per share, and
therefore effects sales, redemptions and exchanges of its shares, as of the
close of trading on the Exchange each day the Exchange is open for trading. Such
calculation does not take place contemporaneously with the determination of the
prices of certain foreign portfolio securities used in such calculation. If
events materially affecting the value of such securities occur between the time
when their price is determined and the time when the Portfolio's net asset value
is calculated, such securities may be valued at fair value as determined in good
faith by the Adviser based in accordance with procedures established by the
Portfolio's Board of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a regulated investment company
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio distributes less than an amount equal to the sum
of 98% of its ordinary income and 98% of its capital gain net income, then the
Portfolio will be subject to a 4% excise tax on the undistributed amounts. If
for any taxable year the Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net capital gain, would be subject to tax at regular corporate
rates (without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
13
<PAGE> 275
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
14
<PAGE> 276
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST--GLOBAL EQUITY PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Subadviser
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT
1221 Avenue of the Americas
New York, NY 10020
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust--Global Equity Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust--Global Equity Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 277
VAN KAMPEN
LIFE INVESTMENT TRUST GLOBAL EQUITY PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Global Equity Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Global
Equity Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO GE II 4/00
<PAGE> 278
VAN KAMPEN
LIFE INVESTMENT TRUST
GOVERNMENT PORTFOLIO
The Government Portfolio is a mutual fund with the investment objective to seek
to provide investors with high current return consistent with preservation of
capital.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 279
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 6
Investment Objective, Policies and Risks.......... 6
Investment Advisory Services...................... 12
Purchase of Shares................................ 13
Redemption of Shares.............................. 14
Dividends, Distributions and Taxes................ 14
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 280
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek to provide
investors with high current return consistent with preservation of capital.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing at least 80% of the
Portfolio's total assets in debt securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities, including mortgage-related
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government. Under normal market conditions, the Portfolio may invest up to 20%
of its total assets in government-related securities, including privately issued
mortgage-related and mortgage-backed securities not directly issued or
guaranteed by instrumentalities of the U.S. government, privately issued
certificates representing "stripped" U.S. government or mortgage-related
securities and repurchase agreements fully collateralized by U.S. government
securities. The Portfolio's investment adviser purchases and sells securities
for the Portfolio with a view toward seeking a high level of current income
based on the investment adviser's analysis and expectations on interest rates
and yield spreads between types of securities. The Portfolio may purchase and
sell certain derivative instruments, such as options, futures, options on
futures and interest rate swaps or other interest rate-related transactions, for
various portfolio management purposes. The Portfolio may purchase or sell
securities on a when-issued or delayed delivery basis.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. The value of debt securities tend to fall
as interest rates rise and such declines tend to be greater among debt
securities with longer maturities or longer durations. Although the Portfolio
has no policy limiting the maturities of its investments, the Portfolio's
investment adviser seeks to moderate market risk by normally maintaining a
portfolio duration of four to six years. This means that the Portfolio will be
subject to greater market risk than a portfolio investing solely in shorter-term
securities but lesser market risk than a portfolio investing solely in
longer-term securities. The yields and market prices of U.S. government
securities may move differently and adversely compared to the yields and market
prices of the overall securities markets. These securities, while backed by the
U.S. government, are not guaranteed against declines in their market prices.
The prices of mortgage-related securities, like traditional debt securities,
tend to fall as interest rates rise. Mortgage-related securities may be more
susceptible to further price declines than traditional debt securities in
periods of rising interest rates because of extension risk (described below).
Additionally, mortgage-related securities may benefit less than traditional debt
securities during periods of declining interest rates because of prepayment risk
(described below).
Market risk is often greater among certain types of debt securities, such as
zero-coupon securities or mortgage-related stripped securities, which do not
make regular or periodic interest payments. As interest rates change, these
securities often fluctuate more in price than securities that make current
interest payments. Therefore, the Portfolio may be subject to greater market
risk than a portfolio that does not own these types of securities.
Investments in when-issued and delayed delivery transactions are subject to
changes in market conditions from the time of the commitment until settlement.
This may adversely affect the prices or yields of the securities being
purchased, as well as any portfolio securities held for payment of such
commitments. The greater the Portfolio's outstanding commitments for these
securities, the greater the Portfolio's exposure to market price fluctuation.
3
<PAGE> 281
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Portfolio because
it invests substantially all of its assets in U.S. government securities.
INCOME RISK. The income you receive from the Portfolio is based primarily on
interest rates, which can vary widely over the short and long term. If interest
rates drop, your income from the Portfolio may drop as well. The more the
Portfolio invests in adjustable, variable or floating rate securities or in
securities susceptible to prepayment risk, the greater the Portfolio's income
risk.
PREPAYMENT RISK. If interest rates fall, the principal on debt securities held
by the Portfolio may be paid earlier than expected. If this happens, the
proceeds from a prepaid security would be reinvested by the Portfolio in
securities bearing the new, lower interest rates, resulting in a possible
decline in the Portfolio's income and distributions to shareholders.
The Portfolio may invest in mortgage-related securities, which are especially
sensitive to prepayment risk because property owners often refinance their
mortgages when interest rates drop.
EXTENSION RISK. The value of debt securities tends to fall as interest rates
rise. For mortgage-related securities, if interest rates rise, property owners
may prepay mortgages more slowly than expected when the security was purchased
by the Portfolio which may further reduce the market value of such security and
lengthen the duration of the security.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and interest
rate swaps or other interest-rate related transactions are examples of
derivatives. Derivative instruments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and investment strategies, the
Portfolio may be appropriate for investors who:
- - Seek high current return consistent with preservation of capital
- - Wish to add to their investment holdings a portfolio that invests primarily in
debt securities issued or guaranteed by the U.S. government, its agencies or
its instrumentalities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the ten calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If these sales charges or other expenses at the
contract level had been included, the returns shown below would have been lower.
Remember that the past performance of the Portfolio is not indicative of its
future performance.
4
<PAGE> 282
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 8.31
1991 16.23
1992 5.73
1993 7.86
1994 -4.63
1995 17.17
1996 2.12
1997 9.61
1998 8.59
1999 -3.36
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
2.86%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 5.71% (for the quarter ended September 30, 1991) and the lowest quarterly
return was -3.98% (for the quarter ended March 31, 1994).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with the Lehman Brothers Mutual
Fund Government/Mortgage Index*, a broad-based market index that the Portfolio's
investment adviser believes is an appropriate benchmark for the Portfolio. The
Portfolio's performance figures do not include sales charges or other expenses
at the contract level that would be paid by investors. The index's performance
figures do not include any commissions or sales charges that would be paid by
investors purchasing securities represented by the index. Average annual total
returns are shown for the periods ended December 31, 1999 (the most recently
completed calendar year prior to the date of this prospectus). Remember that the
past performance of the Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Government
Portfolio ** -3.36% 6.60% 6.54%
.......................................................
Lehman Brothers
Mutual Fund
Government/Mortgage
Index -0.54% 7.67% 7.60%
.......................................................
</TABLE>
* The Lehman Brothers Mutual Fund Government/Mortgage Index is an unmanaged
index comprised of U.S. government treasuries and agency mortgage-backed
securities.
** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of the
Portfolio's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class II Shares would be lower than the
annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
5
<PAGE> 283
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is a diversified, open-end
management investment company which offers shares in eleven separate portfolios,
including this Government Portfolio. Each portfolio is in effect a separate
mutual fund. Each portfolio of the Trust has a different investment objective(s)
which it pursues through its investment policies. Each portfolio has its own
income, expenses, assets, liabilities and net asset value and each portfolio
issues its own shares. Shares of each portfolio represent an interest only in
that portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek to provide investors with
high current return consistent with preservation of capital. The investment
objective of the Portfolio is a fundamental policy and may not be changed
without shareholder approval of a majority of the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Portfolio will achieve its
investment objective.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing at least 80% of the
Portfolio's total assets in debt securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities, including mortgage-related
securities issued or guaranteed by instrumentalities of the U.S. government.
Under normal market conditions, the Portfolio may invest up to 20% of its total
assets in other government-related securities, including privately issued
mortgage-related and mortgage-backed securities not issued or directly
guaranteed by instrumentalities of the U.S. government, privately issued
certificates representing "stripped" U.S. government or mortgage-related
securities and repurchase agreements fully collateralized by U.S. government
securities. While securities purchased for the Portfolio's investments may be
issued or guaranteed by the U.S. government, the shares issued by the Portfolio
to investors are not insured or guaranteed by the U.S. government, its agencies
or its instrumentalities or any other person or entity. For more information on
the Portfolio's investments, see "U.S. Government Securities" and
"Government-Related Securities" below.
The value of debt securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, debt security prices
generally fall; if interest rates fall, debt security prices generally rise.
Debt securities with longer maturities generally offer higher yields than debt
securities with shorter maturities assuming all other factors, including credit
quality, being equal. For a given change in interest rates, the market prices of
longer-maturity debt securities generally fluctuate more than the market prices
of shorter-maturity debt securities. While the Portfolio has no policy limiting
the maturities of the individual debt securities in which it may invest, the
Portfolio's investment adviser seeks to moderate market risk by generally
maintaining a portfolio duration of four to six years. Duration is a measure of
the expected life of a debt security that was developed as an alternative to the
concept of "term to maturity." Duration incorporates a debt security's yield,
coupon interest payments, final maturity and call features into one measure. A
duration calculation looks at the present value of a security's entire payment
stream whereas term to maturity is based solely on the date of a security's
final principal repayment.
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<PAGE> 284
UNDERSTANDING
MATURITIES
A debt security can be categorized according to its maturity, which is the
length of time before the issuer must repay the principal.
<TABLE>
<C> <S>
Term Maturity Level
- --------------------------------------------------
1-3 years Short
..................................................
4-10 years Intermediate
..................................................
More than 10 years Long
..................................................
</TABLE>
UNDERSTANDING
DURATION
Duration provides an alternative approach to assessing a security's market
risk. Duration measures the expected life of a security by incorporating the
security's yield, coupon interest payments, final maturity and call features
into one measure. While maturity focuses only on the final principal
repayment date of a security, duration looks at the timing and present value
of a security's principal, interest or other payments. Typically, a debt
security with interest payments due prior to maturity has a duration less
than maturity. A zero-coupon bond, which does not make interest payments
prior to maturity, would have the same duration and maturity.
The Portfolio may invest in mortgage-related or mortgage-backed securities. The
values of such securities tend to vary inversely with changes in prevailing
interest rates, but also are more susceptible to prepayment risk and extension
risk than other debt securities.
The Portfolio may purchase debt securities at a premium over the principal or
face value in order to obtain higher current income. The amount of any premium
declines during the term of the security to zero at maturity. Such decline
generally is reflected in the market price of the security and thus in the
Portfolio's net asset value. Any such decline is realized for accounting
purposes as a capital loss at maturity or upon resale. Prior to maturity or
resale, such decline in value could be offset, in whole or part, or increased by
changes in the value of the security due to changes in interest rate levels.
In order to hedge against changes in interest rates, the Portfolio may enter
into certain derivative transactions, such as the purchase or sale of options,
futures contracts and options on such contracts and interest rate swaps or other
interest rate-related transactions. By using such instruments, the Portfolio
seeks to limit its exposure to adverse interest rate changes, but the Portfolio
also reduces its potential for capital appreciation on debt securities if
interest rates decline. The purchase and sale of such securities may result in a
higher portfolio turnover rate than if the Portfolio had not purchased or sold
such securities. See "Interest Rate Transactions" and "Using Options, Futures
Contracts and Options on Futures Contracts."
The Portfolio also may purchase or sell U.S. government securities on a forward
commitment basis. See "When-Issued and Delayed Delivery Securities" below.
The Portfolio intends to invest in U.S. Treasury securities and in securities
issued by at least four U.S. government agencies or instrumentalities in the
amounts necessary to permit the Accounts to meet certain diversification
requirements imposed by Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code"), at the end of each quarter of the year (or within 30 days
thereafter). See "Dividends, Distributions and Taxes." In the event the
Portfolio does not meet the diversification requirements of Section 817(h) of
the Code, the policies funded by shares of the Portfolio will not be treated as
life insurance for federal income tax purposes and the owners of the policies
will be subject to taxation on their share of the dividends and distributions
paid by the Portfolio.
U.S. GOVERNMENT SECURITIES. Debt securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities include: (1) U.S. Treasury
obligations, which differ in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturity of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years), including the principal components or the
interest components issued by the U.S. government under the Separate Trading of
Registered Interest and Principal Securities program (i.e. "STRIPS"), all of
which are backed by the full faith and credit of the U.S.; and (2) obligations
issued or guaranteed by U.S. government agencies or instrumentalities, including
government guaranteed mortgage-related securities,
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<PAGE> 285
some of which are backed by the full faith and credit of the U.S. Treasury, some
of which are supported by the right of the issuer to borrow from the U.S.
government and some of which are backed only by the credit of the issuer itself.
MORTGAGE-RELATED SECURITIES. Mortgage loans securing real property made by
banks, savings and loan institutions, and other lenders are often assembled into
pools. Interests in such pools may then be issued by private entities or also
may be issued or guaranteed by an agency or instrumentality of the U.S.
government. Interests in such pools are what this prospectus calls
"mortgage-related securities." Mortgage-related securities include, but are not
limited to, obligations issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA is a wholly owned
corporate instrumentality of the U.S. whose securities and guarantees are backed
by the full faith and credit of the U.S. FNMA, a federally chartered and
privately owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the U.S. The securities and guarantees of FNMA and FHLMC
are not backed, directly or indirectly, by the full faith and credit of the U.S.
Although the Secretary of the Treasury of the U.S. has discretionary authority
to lend amounts to FNMA up to certain specified limits, neither the U.S.
government nor any agency thereof is obligated to finance FNMA's or FHLMC's
operations or to assist FNMA or FHLMC in any other manner. Securities of FNMA
and FHLMC include those issued in principal only or interest only components.
The yield and payment characteristics of mortgage-related securities differ from
traditional debt securities. Mortgage-related securities are characterized by
monthly payments to the holder, reflecting the monthly payments made by the
borrowers who received the underlying mortgage loans less fees paid to the
guarantor and the servicer of such mortgage loans. The payments to the holders
of mortgage-related securities (such as the Portfolio), like the payments on the
underlying mortgage loans, represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such as 20 or 30
years, the borrowers can, and typically do, pay them off sooner. Thus, the
holders of mortgage-related securities frequently receive prepayments of
principal, in addition to the principal which is part of the regular monthly
payment. Faster or slower prepayments than expected on underlying mortgage loans
can dramatically alter the valuation and yield-to-maturity of mortgage-related
securities. The value of mortgage-related securities, like traditional debt
securities, tends to vary inversely with changes in prevailing interest rates.
Mortgage-related securities, however, may benefit less than traditional debt
securities from declining interest rates because a property owner is more likely
to refinance a mortgage which bears a relatively high rate of interest during a
period of declining interest rates. This means some of the Portfolio's higher
yielding securities might be converted to cash, and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase new securities
at prevailing interest rates. The increased likelihood of prepayment when
interest rates decline also limits market price appreciation of mortgage-related
securities. If the Portfolio buys mortgage-related securities at a premium,
mortgage foreclosures or mortgage prepayments may result in a loss to the
Portfolio of up to the amount of the premium paid since only timely payment of
principal and interest is guaranteed. Alternatively, during periods of rising
interest rates, mortgage-related securities are often more susceptible to
extension risk (i.e. rising interest rates could cause property owners to prepay
their mortgage loans more slowly than expected when the security was purchased
by the Portfolio which may further reduce the market value of such security and
lengthen the duration of such security).
The Portfolio may invest in collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs"). CMOs are debt obligations
collateralized by a pool of mortgage loans or mortgaged-related securities which
generally are held under an indenture issued by financial institutions or other
mortgage lenders or issued or guaranteed by agencies or instrumentalities of the
U.S. government. REMICs are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. CMOs and REMICs
generally are issued in a number of classes or series with different maturities.
The classes or series are retired in sequence as the underlying mortgages are
repaid. Such securities generally are subject to market risk, prepayment risk
and extension risk like other mortgage-related securities. Certain of these
securities may have variable or floating interest rates and others may be
stripped (securities which provide only the principal or interest feature of the
underlying security). CMOs or REMICs issued or guaranteed by agencies or
instrumentalities of the U.S. government are treated by the Portfolio as U.S.
government securities.
8
<PAGE> 286
GOVERNMENT-RELATED SECURITIES. Under normal market conditions, the Portfolio may
invest up to 20% of its assets in, among other things, government-related
securities, including privately issued mortgage-related and mortgage-backed
securities not directly guaranteed by instrumentalities of the U.S. government,
privately issued certificates representing stripped U.S. government or
mortgage-related securities and repurchase agreements fully collateralized by
U.S. government securities.
The Portfolio may invest in private mortgage-related securities ("Private
Pass-Throughs") as opposed to mortgage-related securities issued or guaranteed
by agencies or instrumentalities of the U.S. government such as GNMA, FNMA, and
FHLMC, only if such Private Pass-Throughs are rated at the time of purchase in
the two highest grades by a nationally recognized statistical rating agency
("NRSRO") or in any unrated debt security considered by the Portfolio's
investment adviser to be of comparable quality. CMOs and REMICs issued by
private entities and not directly guaranteed by any government agency or
instrumentality are secured by the underlying collateral of the private issuer.
The Portfolio will invest in such privately issued securities only if: they are
100% collateralized at the time of issuance by securities issued or guaranteed
by the U.S. government, its agencies or its instrumentalities and they are rated
at the time of purchase in the two highest grades by a NRSRO. A more complete
description of security ratings is contained in the Portfolio's Statement
Additional Information.
The Portfolio may invest in the principal only or interest only components of
U.S. government securities. Certain agencies or instrumentalities of the U.S.
government and a number of banks and brokerage firms separate ("strip") the
principal portions from the coupon portions of U.S. Treasury bonds and notes and
sell them separately in the form of receipts or certificates representing
undivided interests in these instruments (which instruments are often held by a
bank in a custodial or trust account). Such custodial receipts or certificates
of private issuers are not considered by the Portfolio to be U.S. government
securities. The principal only securities are not entitled to any periodic
payments of interest prior to maturity. Such securities usually trade at a deep
discount from their face or par value and are subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Current
federal tax law requires that a holder (such as the Portfolio) of a principal
only security accrue a portion of the discount at which the security was
purchased as income each year even though the Portfolio receives no interest
payment in cash on the security during the year. The Portfolio is required to
distribute substantially all of its investment company taxable income each year
and, in order to generate sufficient cash to make distributions of such income,
the Portfolio may have to dispose of securities that it would otherwise continue
to hold, which, in some cases may be disadvantageous to the Portfolio.
Stripped mortgage-related securities (hereinafter referred to as "stripped
mortgage securities") are derivative multiclass mortgage securities. Stripped
mortgage securities may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities usually are structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage securities will have one
class receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment in these securities even if the security is rated the highest
quality by a NRSRO. Holders of PO securities are not entitled to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Current federal tax law requires that a holder (such as the Portfolio)
of principal only securities accrue a portion of the discount at which the
security was purchased as income each year even though the holder receives no
interest payment in cash on the
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<PAGE> 287
certificate during the year. The Portfolio is required to distribute
substantially all of its investment company taxable income each year, and, in
order to generate sufficient cash to make distributions of such income, the
Portfolio may have to dispose of securities that it would otherwise continue to
hold, which, in some cases, may be disadvantageous to the Portfolio.
Although the market for stripped securities is increasingly liquid, certain of
such securities may not be readily marketable and will be considered illiquid
for purposes of the Portfolio's limitation on investments in illiquid
securities. The Portfolio will follow established guidelines and standards for
determining whether a particular stripped security is liquid. Generally, such a
security may be deemed liquid if it can be disposed of promptly in the ordinary
course of business at a value reasonably close to that used in the calculation
of the net asset value per share. Stripped mortgage securities, other than
government-issued IO and PO securities backed by fixed-rate mortgages, are
presently considered by the staff of the SEC to be illiquid securities and thus
subject to the Portfolio's limitation on investment in illiquid securities.
INTEREST RATE TRANSACTIONS. The Portfolio may, but is not required to, enter
into interest rate swaps and may purchase or sell interest rate caps, floors and
collars. The Portfolio expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio. The Portfolio may also enter into these transactions to protect
against any increase in the price of securities the Portfolio anticipates
purchasing at a later date. Interest rate swaps, caps, floors and collars will
be treated as illiquid securities for the purposes of the Portfolio's investment
restriction limiting investment in illiquid securities. Besides liquidity, such
transactions include market risk, risk of default by the other party to the
transaction, risk of imperfect correlation and manager risk. Such transactions
may involve commissions or other costs. A more complete discussion of interest
rate transactions and their risks is contained in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase or sell
U.S. government securities on a "when-issued" or "delayed delivery" basis
("Forward Commitments"). These transactions occur when securities are purchased
or sold by the Portfolio with payment and delivery taking place in the future,
frequently a month or more after such transaction. The price is fixed on the
date of the commitment, and the seller continues to accrue interest on the
securities covered by the Forward Commitment until delivery and payment take
place. At the time of settlement, the market value of the securities may be more
or less than the purchase or sale price. The Portfolio may either settle a
Forward Commitment by taking delivery of the securities or may either resell or
repurchase a Forward Commitment on or before the settlement date in which event
the Portfolio may reinvest the proceeds in another Forward Commitment. These
transactions are subject to market risk as the value or yield of a security at
delivery may be more or less than the purchase price or the yield generally
available on securities when delivery occurs. When engaging in Forward
Commitments, the Portfolio relies on the other party to complete the
transaction, should the other party fail to do so, the Portfolio might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure. The Portfolio maintains a segregated
account (which is marked to market daily) of cash or liquid portfolio securities
with the Portfolio's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase or sell continues.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio
may, but is not required to, use various investment strategic transactions, such
as options, futures contracts and options on futures contracts, in several
different ways, depending upon the status of the Portfolio's securities and the
investment adviser's expectations concerning the securities or currency markets.
Although the Portfolio's investment adviser seeks to use the practices to
further the Portfolio's investment objective, no assurance can be given that the
use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing bond index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
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<PAGE> 288
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling bond index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
bond index options or bond index futures options) to manage the Portfolio's risk
in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or over-
the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 5% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the
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realization of more short-term capital gains than if a fund had lower portfolio
turnover. Increases in a fund's transaction costs would adversely impact the
fund's performance. The turnover rate will not be a limiting factor, however, if
the Portfolio's investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in short term securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, prime commercial paper,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks having total assets of at least $500 million, and repurchase agreements.
Under normal market conditions, the potential for high current return on these
securities will tend to be lower than the potential for high current return on
other securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective of high current income.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its pro rata share of a fee computed based upon an annual rate applied to the
combined average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ---------------------------------------------
<S> <C>
First $500 million 0.50%
.............................................
Next $500 million 0.45%
.............................................
Over $1 billion 0.40%
.............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.36% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
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<PAGE> 290
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Government Portfolio is co-managed by John R.
Reynoldson, Barbara M. Downey and Ted V. Mundy III who are responsible for the
day-to-day management of the Portfolio's investment portfolio. Mr. Reynoldson
has been Senior Vice President of Adviser since July 1991 and Senior Vice
President of Advisory Corp. since June 1995. Mr. Reynoldson has been affiliated
with the Portfolio since 1988.
Barbara M. Downey has been Vice President of the Adviser since 1996. Prior to
1996, Ms. Downey spent about two years as a Vice President and Senior Portfolio
Manager at CSI Asset Management, Inc. Ms. Downey has been affiliated with the
Portfolio since January 2000.
Ted V. Mundy III has been Vice President of Adviser since September 1994 and
Vice President of Advisory Corp. since June 1995. Mr. Mundy has been affiliated
with the Portfolio since January 2000.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating
13
<PAGE> 291
insurance companies and accompanying this Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
net asset value per share of the Portfolio. The Distributor, located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the distributor
of the shares. The Portfolio and the Distributor reserves the right to refuse
any order for the purchase of shares. Net asset value is determined in the
manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Interest earned from investments is the main source of income for the Portfolio.
Substantially all of this income, less expenses, is distributed to Accounts at
least annually. When the Portfolio sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Portfolio paid to purchase them. The
Portfolio distributes any net capital gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the
14
<PAGE> 292
Portfolios are subject to the diversification requirements of Section 817(h) of
the Code, which must be met at the end of each calendar quarter of the year (or
within 30 days thereafter). Regulations issued by the Secretary of the Treasury
have the effect of requiring the Accounts to invest no more than 55% of their
total assets in securities of any one issuer, no more than 70% in the securities
of any two issuers, no more than 80% in the securities of any three issuers, and
no more than 90% in the securities of any four issuers. For this purpose, the
U.S. Treasury and each U.S. Government agency and instrumentality is considered
to be a separate issuer. In the event the investments of the Accounts in the
Portfolio are not properly diversified under Code Section 817(h), then the
policies funded by shares of the Portfolio will not be treated as life insurance
for federal income tax purposes and the owners of the policies will be subject
to taxation on their respective shares of the dividends and distributions paid
by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Distributions from the
Portfolio will not be eligible for the dividends received deduction for
corporations.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
15
<PAGE> 293
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST -- GOVERNMENT PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust -- Government Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust -- Government Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 294
VAN KAMPEN
LIFE INVESTMENT TRUST
GOVERNMENT PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Government Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Government
Portfolio, including the reports and Statement
of Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO GV II 4/00
<PAGE> 295
VAN KAMPEN
LIFE INVESTMENT TRUST
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio is a mutual fund with the investment objective
to seek long-term growth of capital and income.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 296
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 9
Purchase of Shares................................ 10
Redemption of Shares.............................. 11
Dividends, Distributions and Taxes................ 11
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 297
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with an investment objective to seek long-term
growth of capital and income.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing primarily in
income-producing equity securities, including common stocks and convertible
securities; although investments are also made in non-convertible preferred
stocks and debt securities. In selecting securities for investments the
Portfolio focuses primarily on the security's potential for growth of capital
and income. The Portfolio's investment adviser may focus on larger
capitalization companies which it believes possess characteristics for improved
valuation. Portfolio securities are typically sold when the Portfolio's
investment adviser's assessments of the growth and income potential for such
securities materially change. The Portfolio may invest up to 15% of its total
assets in securities of foreign issuers. The Portfolio may purchase and sell
certain derivative instruments, such as options, futures and options on futures,
for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. During an
overall stock market decline, stock prices of small- or medium-sized companies
or newly-formed companies (in which the Portfolio may invest) often fluctuate
more than prices of larger, more established companies. The ability of the
Portfolio's equity securities holdings to generate income is dependent on the
earnings and the continuing declaration of dividends by the issuers of such
securities. The values of income-producing equity securities may or may not
fluctuate in tandem with overall changes in the stock markets. Investments in
fixed income or debt securities generally are affected by changes in interest
rates and creditworthiness of the issuer. The market prices of such securities
tend to fall as interest rates rise, and such declines may be greater among
securities with longer duration. The Portfolio's investments in convertible
securities are affected by changes similar to those of equity and debt
securities. The value of convertible securities tends to decline as interest
rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity security.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; and risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities, and the
Portfolio's performance may lag behind that of similar funds.
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<PAGE> 298
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek growth of capital and income over the long term
- - Can withstand volatility in the value of their shares of the Portfolio
- - Wish to add to their investment holdings a portfolio that invests primarily in
income-producing equity securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the three calendar years prior to the date of
this prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1997 23.9
1998 19.61
1999 12.99
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
6.97%.
During the three-year period shown in the bar chart, the highest quarterly
return was 15.84% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -10.52% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the Portfolio: the Standard & Poor's 500-Stock Index* and the
Russell 1000 Stock Index**, and with the Lipper Growth and Income Fund Index***,
an index of funds with similar investment objectives. The Portfolio's
performance figures do not include sales charges or other expenses at the
contract level that would be paid by investors. The indices' performance figures
do not include any commissions or sales charges that would be paid by investors
purchasing securities represented by the indices. Average annual total returns
are shown for the periods ended December 31, 1999 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of a Portfolio is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Growth
and Income
Portfolio**** 12.99% 18.48%(1)
.............................................
Standard & Poor's
500-Stock Index 21.04% 26.60%(2)
.............................................
Russell 1000
Stock Index 20.91% 22.45%
.............................................
Lipper Growth and
Income Fund Index 11.86% 16.81%(2)
.............................................
</TABLE>
Inception dates: (1) 12/23/96, (2) 12/26/96.
4
<PAGE> 299
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that
are a representative sample of approximately 100 industries, chosen mainly
for market size, liquidity and industry group representation (assumes
dividends are reinvested).
** The Russell 1000 Stock Index is an unmanaged index that reflects the general
performance of the 1,000 largest U.S. companies based on total market
capitalization.
*** The Lipper Growth and Income Index is an index of funds with similar
investment objectives. The Lipper Growth and Income Index was initially
released as a benchmark for the Fund's performances, however, based as the
Fund's asset composition, the Fund's investment adviser believes the
Russell 1000 Stock Index provides a more appropriate benchmark for the
Fund. Therefore, the Lipper Growth and Income Index will not be shown in
future prospectuses.
**** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class
I Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of
the Portfolio's shares are invested in the same portfolio of securities;
however, the actual annual returns of the Class II Shares would be lower
than the annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Growth and Income Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek long-term growth of capital
and income. The investment objective of the Portfolio is a fundamental policy
and may not be changed without shareholder approval of a majority of the
Portfolio's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). There are risks inherent in all
investments in securities; accordingly there can be no assurance that the
Portfolio will achieve its investment objectives.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing primarily in income-producing
equity securities, including common stocks and convertible securities; although
investments are also made in non-convertible preferred stocks and debt
securities rated "investment grade," which are securities rated within the four
highest grades assigned by Standard & Poor's ("S&P") or by Moody's Investors
Service, Inc. ("Moody's"). A more complete description of security ratings is
contained in the Portfolio's Statement of Additional Information.
In selecting common stocks for investment, the Portfolio focuses primarily on
the security's potential for capital growth and income. The Portfolio's
investment adviser may focus on larger capitalization companies which it
believes possess characteristics for improved valuation. The Portfolio's
investment adviser looks for catalysts for change that may positively impact a
company, such as a new management, industry development or regulatory change.
The aim is to uncover these catalysts for change, and then benefit from
potential stock price appreciation of the change taking place at the company.
Although focusing on large capitalization companies, the Portfolio may invest in
securities of small- or medium-sized companies which often are subject to more
abrupt or erratic market movements than securities of larger, more established
companies or the market averages in general. In addition, such companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger, more established companies.
The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is desirable to do so. Such
factors include change in economic or market factors in
5
<PAGE> 300
general or with respect to a particular industry, a change in the market trend
or other factors affecting an individual security, changes in the relative
market performance or appreciation possibilities offered by individual
securities and other circumstances bearing on the desirability of a given
investment.
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so.
A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer or
into cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity security. Convertible
securities ordinarily provide a stream of income with generally higher yields
than those of common stock of the same or similar issuers. Convertible
securities generally rank senior to common stock in a corporation's capital
structure but are usually subordinated to comparable nonconvertible securities.
Convertible securities generally do not participate directly in any dividend
increases or decreases of the underlying equity security although the market
prices of convertible securities may be affected by any such dividend changes or
other changes in the underlying equity security.
While the Portfolio invests primarily in income-producing equity securities, the
Portfolio may invest in non-convertible adjustable or fixed rate preferred stock
and debt securities. Preferred stock generally has a preference as to dividends
and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The Portfolio may invest in debt securities of
various maturities. The Portfolio invests only in debt securities rated
investment grade at the time of investment, and a subsequent reduction in rating
does not require the Portfolio to dispose of a security. Securities rated BBB by
S&P or Baa by Moody's are in the lowest of the four investment grades and are
considered by the rating agencies to be medium grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated securities. A more
complete description of security ratings is contained in the Portfolio's
Statement of Additional Information. The market prices of debt securities
generally fluctuate inversely with changes in interest rates so that the value
of investments in such securities can be expected to decrease as interest rates
rise and increase as interest rates fall and such fluctuations generally are
larger among securities with longer maturities.
RISKS OF INVESTING IN
SECURITIES OF FOREIGN ISSUERS
The Portfolio may invest up to 15% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain
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foreign countries, there is a possibility of expropriation or confiscatory
taxation, or diplomatic developments which could affect investment in those
countries. Because there is usually less supervision and governmental regulation
of exchanges, brokers and dealers than there is in the U.S., the Portfolio may
experience settlement difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
markets countries investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objective, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock or bond index futures
contracts, however, the Portfolio can compensate for the cash portion of its
assets and may obtain performance equivalent to investing all of its assets in
securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock or bond index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock or bond index options or stock or bond index futures options) to manage
the Portfolio's risk in advancing or declining markets. For example, the value
of a put option generally increases as the underlying security declines below a
specified level, value is protected against a market decline to the degree the
performance of the put correlates with the performance of the Portfolio's
investment portfolio. If the market remains stable or advances, the Portfolio
can refrain from exercising the put and the Portfolio will participate in the
advance, having incurred only the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
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In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or over-
the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objective has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital growth and income on these securities will
tend to be lower than the potential for capital growth and income on other
securities that may be owned by the Portfolio. In taking such a defensive
position, the Portfolio would not be pursuing and may not achieve its investment
objective.
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INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENTS. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- -----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.60%
...............................................
Over $500 million 0.55%
...............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of the
month.
After voluntary fee waivers, the effective advisory fee rate was 0.43% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to preclearance
and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Growth and Income Portfolio is managed by a team of
portfolio managers, James A. Gilligan, Senior Portfolio Manager, Scott Carroll,
Portfolio Manager and James O. Roeder, Portfolio Manager. Mr. Gilligan has been
primarily responsible for managing the Portfolio's investments since the
Portfolio's inception. Mr. Gilligan has been Senior Vice President and Portfolio
Manager of the Adviser since September 1995 and of Advisory Corp. since June
1995. Prior to September 1995, Mr. Gilligan was a Vice President and Portfolio
Manager of the Adviser.
Mr. Carroll has been a Portfolio Manager of the Portfolio since July 1997 and
employed by the Adviser and Advisory Corp. since December 1996 and a Vice
President of the Adviser and Advisory Corp. since February 1999. Prior to
December 1996, Mr. Carroll was an Equity Analyst for two years with Lincoln
Capital Management Company.
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Mr. Roeder has been a Portfolio Manager of the Portfolio since May 1999 and a
Vice President of the Adviser and Advisory Corp. since May 1999. Prior to that
time, Mr. Roeder was an analyst for three years with Midwest Research and prior
to that, an analyst for approximately two years with Duff & Phelps Equity
Research.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted
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<PAGE> 305
securities and listed securities for which the last sales price is not available
are valued at the mean between the last reported bid and asked prices. U.S.
government and agency obligations are valued at the mean between the last
reported bid and asked prices. Listed options are valued at the last reported
sale price on the exchange on which such option is traded or, if no sales are
reported, at the mean between the last reported bid and asked prices. Private
placement securities are valued at the last reported bid price. Securities for
which market quotations are not readily available and other assets are valued at
a fair value in good faith by the Adviser in accordance with procedures
established by the Portfolio's Board of Trustees. Short-term investments for the
Portfolio are valued as described in the notes to financial statements in the
Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio distributes less than an amount equal to the sum
of 98% of its ordinary income and 98% of its capital gain net income, then the
Portfolio will be subject to a 4% excise tax on the undistributed amounts. If
for any taxable year the Portfolio does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net capital gain, would be
11
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subject to tax at regular corporate rates (without any deduction for
distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
12
<PAGE> 307
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST --
GROWTH AND INCOME PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust --
Growth and Income Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust --
Growth and Income Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 308
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4424.
LIT PRO GI
II 4/00
VAN KAMPEN
LIFE INVESTMENT TRUST
GROWTH AND INCOME PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and
Growth and Income Portfolio, is incorporated
by reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Growth and
Income Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
<PAGE> 309
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
LIFE INVESTMENT TRUST
MONEY MARKET PORTFOLIO
The Money Market Portfolio is a mutual fund with the investment objective to
seek protection of capital and high current income through investments in money
market instruments.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
<PAGE> 310
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 4
Investment Objective, Policies and Risks.......... 5
Investment Advisory Services...................... 7
Purchase of Shares................................ 7
Redemption of Shares.............................. 8
Dividends, Distributions and Taxes................ 9
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 311
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek protection
of capital and high current income through investments in money market
instruments.
INVESTMENT STRATEGIES
The Portfolio's investment adviser seeks to achieve the Portfolio's investment
objective by investing in a portfolio of U.S. dollar-denominated money market
securities, including U.S. government securities, bank obligations, commercial
paper and repurchase agreements secured by such obligations. The Portfolio seeks
to maintain a constant net asset value of $1.00 per share by investing in a
diversified portfolio of money market instruments maturing within one year and
with a dollar-weighted average maturity of 90 days or less.
The Portfolio buys and sells securities with a view towards seeking high current
income from these short-term investments to the extent consistent with
protection of capital. The Portfolio's investment adviser seeks those securities
that it believes entail reasonable credit risk considered in relation to the
Portfolio's investment policies. The Portfolio's investment adviser may sell
such securities to adjust the average maturity or credit quality of the
Portfolio's investment portfolio. The Portfolio's investments are limited to
those securities that meet maturity, quality and diversification standards with
which money market funds must comply.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks. An investment in
the Portfolio is not a deposit of any bank, and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Portfolio. There can
be no assurance that the Portfolio will achieve its investment objective.
INCOME RISK. The income you receive from the Portfolio is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Portfolio may drop as well.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. While credit risk is expected to be low for the
Portfolio because it invests in high-quality money market instruments, an
investment in the Portfolio is not risk free. The Portfolio is still subject to
the risk that the issuers of such securities may experience financial
difficulties and, as a result, fail to pay on their obligations.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline and adversely affect the Portfolio's net
asset value. The prices of debt securities tend to fall as interest rates rise.
Market risk is expected to be low for the Portfolio because it invests in
high-quality, short-term securities.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek protection of capital and high current income through investments in
money market instruments
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the ten calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
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<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 7.83
1991 5.6
1992 3.36
1993 2.66
1994 3.71
1995 5.46
1996 4.89
1997 5.06
1998 5.02
1999 4.63
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
1.31%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 1.96% (for the quarter ended June 30, 1990) and the lowest quarterly return
was 0.64% (for the quarter ended June 30, 1993).
Investors can obtain the current seven-day yield of the Portfolio by calling
(800) 341-2911.
COMPARATIVE PERFORMANCE
The table below shows the Portfolio's performance for the periods ended December
31, 1999 (the most recently completed calendar year prior to the date of this
prospectus). The performance figures do not include sales charges or other
expenses at the contract level that would be paid by investors. Remember that
the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past 10
December 31, 1999 1 Year 5 Years Years
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen Money
Market Portfolio* 4.63% 5.01% 4.81%
.......................................................
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of the
Portfolio's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class II Shares would be lower than the
annual returns shown for the Portfolio's Class I Shares because of differences
in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Money Market Portfolio. Each portfolio is in effect a separate mutual fund.
Each portfolio of the Trust has a different investment objective(s) which it
pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are
4
<PAGE> 313
further described in the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek protection of capital and
high current income through investments in money market instruments. The
investment objective of the Portfolio is a fundamental policy and may not be
changed without shareholder approval of a majority of the Portfolio's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly there can be no assurance that the Portfolio will
achieve its investment objective.
The Portfolio's investment adviser seeks to achieve the Portfolio's investment
objective by investing in a portfolio of U.S. dollar-denominated money market
securities, including U.S. government securities, bank obligations, commercial
paper and repurchase agreements secured by such obligations. The Portfolio seeks
to maintain a constant net asset value of $1.00 per share by investing in a
diversified portfolio of money market instruments maturing within one year and
with a dollar-weighted average maturity of 90 days or less. The Portfolio seeks
high current income from these short-term investments to the extent consistent
with protection of capital.
The Portfolio's investment adviser seeks to invest in those securities that meet
the maturity, quality and diversification standards established by the
Portfolio's Board of Trustees and special rules for money market funds under
law. These standards include requirements for maintaining high credit quality in
the Portfolio's portfolio, a short average portfolio maturity to reduce the
effects of changes in interest rates on the value of portfolio securities and
diversifying investments among issuers to reduce the effects of a default by any
one issuer on the value of the Portfolio's shares. In selecting securities for
investment, the Portfolio's investment adviser focuses on identifying the best
relative values among potential investments based upon an analysis of the yield,
price, interest rate sensitivity and credit quality of such securities. The
Portfolio's investment adviser seeks to add value and limit risk through careful
security selection and by actively managing the Portfolio's portfolio. On an
ongoing basis, the Portfolio's investment adviser analyzes the economic and
financial outlook of the money markets in order to anticipate and respond to
changing developments that may affect the Portfolio's existing and prospective
investments. While the Portfolio generally intends to hold investments until
maturity, it may sell portfolio securities prior to maturity in order to
increase the yield or to maintain the average maturity or credit quality of the
Portfolio's portfolio. The investment policies, the percentage limitations, and
the kinds of securities in which the Portfolio can invest may be changed by the
Portfolio's Board of Trustees, unless expressly governed by those limitations
stated under "Investment Restrictions" in the Portfolio's Statement of
Additional Information which can be changed only by action of the shareholders
of the Portfolio. It is not the intention of the Portfolio's Trustees, however,
to change these policies without prior notice to shareholders.
There are risks inherent in all investments in securities, accordingly there can
be no assurance that the Portfolio will achieve its investment objective or that
the Portfolio will be able at all times to preserve the net asset value per
share at $1.00 per share. The daily dividend rate paid by the Portfolio is
expected to fluctuate with changes in prevailing market interest rates. The
Portfolio uses the amortized cost method for valuing portfolio securities
purchased at a discount.
The Portfolio may invest in money market instruments of the following types, all
of which will be U.S. dollar-denominated obligations:
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in obligations issued or
guaranteed as to principal and interest by the U.S. government, its agencies or
its instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. government, (b) the right of the issuer to borrow
an amount limited to a specific line of credit from the U.S. government, (c)
discretionary authority of the U.S. government to purchase obligations of its
agencies or instrumentalities or (d) the credit of the instrumentality. Such
agencies or instrumentalities include, but are not limited to, the Federal
National Mortgage Association, the Government National Mortgage Association,
Federal Land Banks, and the Farmer's Home Administration.
BANK OBLIGATIONS. The Portfolio may invest in negotiable time deposits,
certificates of deposit and bankers' acceptances which are obligations of
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<PAGE> 314
domestic banks having total assets in excess of $1 billion as of the date of
their most recently published financial statements. The Portfolio is also
authorized to invest up to 5% of its total assets in certificates of deposit
issued by domestic banks having total assets of less than $1 billion, provided
that the principal amount of the certificate of deposit acquired by the
Portfolio is insured in full by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. The Portfolio may invest in short-term commercial paper
obligations of companies which at the time of investment are (a) rated in one of
the two highest categories by at least two nationally recognized statistical
organizations (or one rating organization if the obligation was rated by only
one such organization) or (b) if unrated, are of comparable quality as
determined in accordance with procedures established by the Portfolio's Board of
Trustees. Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. The Portfolio's current policy is to limit investments in
commercial paper to obligations rated in the highest rating category. A more
complete description of security ratings is in the Portfolio's Statement of
Additional Information.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
banks or broker-dealers in order to earn a return on temporarily available cash.
A repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Portfolio) acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Portfolio may enter into
repurchase agreements with banks or broker-dealers deemed to be creditworthy by
the Portfolio's investment adviser under guidelines approved by the Portfolio's
Board of Trustees. The Portfolio will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Portfolio, would exceed 5% of the Portfolio's
net assets. In the event of the bankruptcy or other default of a seller of a
repurchase agreement, the Portfolio could experience both delays in liquidating
the underlying securities and losses including: (a) possible decline in the
value of the underlying security during the period while the Portfolio seeks to
enforce its rights thereto; (b) possible lack of access to income on the
underlying security during this period; and (c) expenses of enforcing its
rights.
For the purpose of investing in repurchase agreements, the Portfolio's
investment adviser may aggregate the cash that certain funds or portfolios
advised or subadvised by the investment adviser or certain of its affiliates
would otherwise invest separately into a joint account. The cash in the joint
account is then invested in repurchase agreements and the funds or portfolios
that contributed to the joint account share pro rata in the net revenue
generated. The investment adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the participating Portfolio than would be available to the
Portfolio investing separately. The manner in which the joint account is managed
is subject to conditions set forth in an exemptive order from the SEC permitting
this practice, which conditions are designed to ensure the fair administration
of the joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying debt securities
and are considered to be loans under the 1940 Act. The Portfolio pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies and its
instrumentalities) may have maturity dates exceeding one year. The Portfolio
does not bear the risk of a decline in value of the underlying security unless
the seller defaults under its repurchase obligation.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
6
<PAGE> 315
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio and four other portfolios of the Trust (the
"Combined Portfolios"), the Portfolio pays the Adviser a monthly fee based on
its share of a fee computed based upon an annual rate applied to combined
average daily net assets of the Combined Portfolios as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ----------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
..............................................
Next $500 million 0.45%
..............................................
Over $1 billion 0.40%
..............................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.19% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES
The Portfolio, the Adviser and the Distributor have adopted Codes of Ethics
designed to recognize the fiduciary relationships among the Portfolio, the
Adviser, the Distributor and their respective employees. The Codes permit
directors, trustees, officers and employees to buy and sell securities for their
personal accounts subject to certain restrictions. Persons with access to
certain sensitive information are subject to preclearance and other procedures
designed to prevent conflicts of interest.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights,
7
<PAGE> 316
except for the differing distribution fees, services fees and related expenses
associated with each class of shares and the exclusive voting rights by each
class with respect to any Rule 12b-1 distribution plan or service plan for such
class of shares. Investors can contact their financial adviser for more
information regarding the insurance company's Accounts and class of the
Portfolio's shares available through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
The Portfolio's assets are valued on the basis of amortized cost, which involves
valuing a portfolio security at its cost, assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which value as determined by
amortized cost is higher or lower than the price the Portfolio would receive if
it sold the security. During such periods, the yield to investors in the
Portfolio may differ somewhat from that obtained in a similar fund which uses
available market quotations to value all of its portfolio securities.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per
8
<PAGE> 317
share next determined after the receipt of a request in proper form. The market
values of the securities in the Portfolio are subject to daily fluctuations and
the net asset value per share of the Portfolio's shares will fluctuate
accordingly. Therefore, the redemption value may be more or less than the
investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio. Shares of the
Portfolio become entitled to income distributions declared on the day the
shareholder service agent receives payment of the purchase price in the form of
federal funds. Such shares do not receive income distributions declared on the
date of redemption.
DIVIDENDS. The Portfolio declares income dividends each business day payable
monthly. The Portfolio's net investment income for dividend purposes is
calculated daily and consists of interest accrued or discount earned, plus or
minus any net realized gains or losses on portfolio securities, less any
amortization of premium and the expenses of the Portfolio.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by shares of the Portfolio
will not be treated as life insurance for federal income tax purposes and the
owners of the policies will be subject to taxation on their respective shares of
the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Distributions from the
Portfolio will not be eligible for the dividends received deduction for
corporations.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
9
<PAGE> 318
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST--MONEY MARKET PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust--Money Market Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust--Money Market Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 319
VAN KAMPEN
LIFE INVESTMENT TRUST
MONEY MARKET PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Money Market Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Money
Market Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing the Public
Reference Section of the SEC, Washington, DC
20549-6009, and paying a duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO MM II 4/00
<PAGE> 320
VAN KAMPEN
LIFE INVESTMENT TRUST
MORGAN STANLEY
REAL ESTATE
SECURITIES PORTFOLIO
The Morgan Stanley Real Estate Securities Portfolio is a mutual fund
with the primary investment objective
to seek long-term growth of capital.
Current income is a secondary
investment objective.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 321
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Van Kampen Life Investment Trust General
Information..................................... 5
Investment Objectives, Policies and Risks......... 5
Investment Advisory Services...................... 10
Purchase of Shares................................ 12
Redemption of Shares.............................. 13
Dividends, Distributions and Taxes................ 13
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 322
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Portfolio is a mutual fund with the primary investment objective to seek
long-term growth of capital. Current income is a secondary investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objectives by investing at least 65% of the
Portfolio's total assets in a portfolio of securities of companies operating in
the real estate industry, including equity securities of real estate investment
trusts ("REITs") and other securities of real estate operating companies. The
Portfolio's investment adviser diversifies its investments as to issuers,
property types and regions. The Portfolio's investment adviser emphasizes a
bottom-up stock selection (seeking individual companies with attractive
fundamental valuations relative to their underlying real estate value) with a
top-down asset allocation overlay (focusing on key regional criteria, including
demographic and macroeconomic considerations, for optimizing regional and
property market mix). Portfolio securities are typically sold when the
investment adviser's assessments of the growth or income potential of such
securities materially change. A company operating in the real estate industry is
one that derives at least 50% of its assets, gross income or net profits from
the ownership, construction, management or sale of residential, commercial or
industrial real estate. Besides equity securities of REITs, the Portfolio may
invest in equity securities, including common stocks and convertible securities,
or non-convertible preferred stocks and investment-grade quality securities of
companies operating in the real estate industry. The Portfolio may purchase or
sell up to 35% of its total assets in securities of companies outside the real
estate industry. The Portfolio may invest up to 25% of its total assets in
securities of foreign issuers, some or all of which may be in the real estate
industry. The Portfolio may purchase and sell certain derivative instruments,
such as options, futures and options on futures, for various portfolio
management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objectives.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. The prices of
equity securities of companies in the real estate industry may be more volatile
and may not fluctuate in tandem with overall changes in the stock markets. The
value of debt securities tend to fall as interest rates rise, and such declines
may be greater among securities with longer maturities.
RISKS OF INVESTING IN REAL ESTATE. Because of the Portfolio's policy of
concentrating its of investments in securities of companies operating in the
real estate industry and because a substantial portion of the Portfolio's
investments may be comprised of REITs, the Portfolio may be more susceptible to
risks associated with the ownership of real estate and with the real estate
industry in general. These risks can include fluctuations in the value of
underlying properties; defaults by borrowers or tenants; market saturation;
changes in general and local economic conditions; decreases in market rates for
rents; increases in competition, property taxes, capital expenditures, or
operating expenses; and other economic, political or regulatory occurrences
affecting the real estate industry. In addition, REITs depend upon specialized
management skills, may have limited financial resources, may have less trading
volume and may be subject to more abrupt or erratic price movements than the
overall securities markets. REITs must comply with certain federal income tax
law requirements to maintain their federal income tax status. Some REITs
(especially mortgage REITs) are affected by risks similar to those associated
with investments in debt securities including changes in interest rates and the
quality of credit extended.
FOREIGN RISKS. Because the Portfolio may own securities of foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
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RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Portfolio's investment adviser may
not be successful in selecting the best-performing securities or investment
techniques, and the Portfolio's performance may lag behind that of similar
funds.
INVESTOR PROFILE
In light of the Portfolio's investment objectives and strategies, the Portfolio
may be appropriate for investors who:
- - Seek to grow their capital over the long term
- - Are willing to take on the increased risks of an investment concentrated in
securities of companies that operate within the same industry
- - Can withstand volatility in the value of their shares of the Portfolio
- - Wish to add to their investment holdings a portfolio that invests primarily in
companies operating in the real estate industry
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment and the Portfolio should not be used as a
trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Portfolio* over the four calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1996 40.53
1997 21.47
1998 -11.62
1999 -3.37
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
2.14%.
During the four-year period shown in the bar chart, the highest quarterly return
was 19.89% (for the quarter ended December 31, 1996) and the lowest quarterly
return was -9.32% (for the quarter ended September 30, 1998).
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<PAGE> 324
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the Portfolio: Standard & Poor's 500-Stock Index* and the NAREIT
Equity Index**. The Portfolio's performance figures do not include sales charges
or other expenses at the contract level that would be paid by investors. The
indices' performance figures do not include any commissions or sales charges
that would be paid by investor purchasing securities represented by the indices.
Average annual total returns are shown for the periods ended December 31, 1999
(the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ----------------------------------------------
<S> <C> <C> <C> <C>
Morgan Stanley
Real Estate
Securities
Portfolio*** -3.37% 10.70%(1)
..............................................
Standard & Poor's
500-Stock Index 21.04% 26.90%(2)
..............................................
NAREIT Equity
Index -4.62% 6.80%(2)
..............................................
</TABLE>
Inception dates: (1) 7/3/95, (2) 6/30/95.
* The Standard and Poor's 500-Stock Index consists of 500 widely-held common
stocks of companies with market capitalization of $1 billion or more that are
a representative sample of approximately 100 industries, chosen mainly for
market size, liquidity and industry group representation (assumes dividends
are reinvested).
** NAREIT (National Association of Real Estate Investment Trusts) Equity Index
is an unmanaged market weighted index of tax-qualified REIT's listed on the
New York Stock Exchange, American Stock Exchange and the NASDAQ National
Market Systems (including dividends).
*** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of
the Portfolio's shares are invested in the same portfolio of securities;
however, the actual annual returns of the Class II Shares would be lower
than the annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolios, including
this Morgan Stanley Real Estate Securities Portfolio. Each portfolio is in
effect a separate mutual fund. Each portfolio of the Trust has a different
investment objective(s) which it pursues through its investment policies. Each
portfolio has its own income, expenses, assets, liabilities and net asset value
and each portfolio issues its own shares. Shares of each portfolio represent an
interest only in that portfolio.
Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The primary investment objective of the Portfolio is to seek long-term growth of
capital. Current income is a secondary investment objective. The investment
objectives of the Portfolio may be changed by the Board of Trustees without
shareholder approval, but no change is anticipated. If there is a change in the
investment objectives of the Portfolio, the Portfolio will notify shareholders
and shareholders should consider whether the Portfolio remains an appropriate
investment in light of their then current financial position and needs. There
are risks inherent in all investments in securities; accordingly there can be no
assurance that the Portfolio will achieve its investment objectives.
The Portfolio's investment adviser seeks to achieve the investment objectives by
investing primarily in a
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<PAGE> 325
portfolio of securities of companies operating in the real estate industry. A
company operating in the real estate industry is one that derives at least 50%
of its assets (marked-to-market), gross income or net profits from the
ownership, construction, management or sale of residential, commercial or
industrial real estate. Real estate industry companies include, among others:
equity real estate investment trusts, which pool investors' funds for investment
primarily in commercial real estate properties; mortgage real estate investment
trusts, which invest pooled funds in real estate related loans; brokers or real
estate developers; and companies with substantial real estate holdings, such as
paper and lumber products and hotel and entertainment companies. Because of the
Portfolio's policy of concentrating its investments in real estate securities,
the Portfolio may be more susceptible to economic, political or regulatory
occurrences affecting the real estate industry than a portfolio without such a
policy.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in securities of companies operating in the real estate industry,
including equity securities of REITs and other securities of real estate
operating companies. The Portfolio's investment adviser diversifies its
investments as to issuers, property types and regions. The investment adviser's
approach emphasizes a bottom-up stock selection with a top-down asset allocation
overlay. Besides equity securities of REITs, the Portfolio may also invest in
equity securities, including common stocks and convertible securities, or
non-convertible preferred stocks and investment-grade debt securities of real
estate industry companies. REITs pool investors' funds for investment primarily
in income producing real estate or real estate related loans or interests. REITs
can generally be classified as equity REITs, mortgage REITs or a combination of
both. Equity REITs, which invest the majority of their assets directly in real
property, derive their income from rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs,
which invest the majority of their assets in real estate mortgagees, derive
their income primarily from interest payments. REITs are not taxed on income
distributed to shareholders provided such REITs comply with several requirements
of the Internal Revenue Code of 1986, as amended (the "Code").
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so.
A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer or
into cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity security.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity security.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by an issuer's board of directors.
Preferred stock may be subject to optional or mandatory redemption provisions.
The ability of common stocks and preferred stocks to generate income is
dependent on the earnings and continuing declaration of dividends by the issuers
of such securities.
Debt securities of a corporation or other entity generally entitle the holder to
receive interest, at a fixed, variable or floating interest rate, during the
term of the security and repayment of principal at maturity or redemption. The
Portfolio invests in investment-grade debt securities (securities rated at
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<PAGE> 326
the time of investment BBB or higher by Standard & Poor's ("S&P") or rated Baa
or higher by Moody's Investors Service, Inc. ("Moody's") or comparably rated by
another nationally recognized statistical rating organization ("NRSRO") or
unrated securities considered by the Portfolio's investment adviser to be of
comparable quality). Credit quality at the time of purchase determines which
securities may be acquired, and a subsequent reduction in ratings does not
require the Portfolio to dispose of a security. Securities rated BBB by S&P or
Baa by Moody's are considered to be medium-grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher-rated securities. The ratings
assigned by the ratings agencies represent their opinions of the quality of the
debt securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized that ratings are general and are not
absolute standards of quality. A more complete description of security ratings
is contained in the Portfolio's Statement of Additional Information.
Under normal market conditions, the Portfolio may invest up to 35% of its total
assets in securities of companies outside the real estate industry.
RISK FACTORS OF INVESTING
IN REAL ESTATE SECURITIES
The values and return on securities of companies in the real estate industry may
or may not fluctuate in tandem with the overall securities markets. Although the
Portfolio does not invest directly in real estate, an investment in the
Portfolio generally will be subject to the risks associated with investments in
real estate because of its policy of concentrating in the securities of
companies operating in the real estate industry. These risks include, among
others: declines in the value of real estate; defaults by borrowers or tenants;
risks related to general and local economic conditions; overbuilding and
increased competition; increases in property taxes, capital expenditures or
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; changes in interest rates; and political or regulatory
occurrences affecting the real estate industry. The value of securities of
companies which service the real estate industry also will be affected by such
risks. If the Portfolio has rental income or income from the disposition of real
property acquired as a result of a default on securities the Portfolio may own,
the receipt of such income may adversely affect the Portfolio's ability to
retain its tax status as a regulated investment company.
Equity REITs may be affected by changes in the value of the underlying property
owned by the trusts, while mortgage REITs may be affected by changes in interest
rates and the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, may not be diversified (which may increase the
volatility of the REIT's value) and are subject to the risks of financing
projects. REITs are subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Code and to maintain exemption from
the Investment Company Act of 1940, as amended (the "1940 Act"). REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Code. Mortgage REITs, like debt securities, tend to decline
in value as interest rates rise. Mortgage REITs are often more susceptible than
traditional debt securities to further price declines in periods of rising
interest rates because of extension risks (i.e. rising interest rates could
cause property owners to prepay their mortgages more slowly than expected when
the security was purchased by the Portfolio which may further reduce the market
value of such security and lengthen the duration of the security). In addition,
mortgage REITs tend to benefit less than traditional debt securities when
interest rates decline because underlying mortgages often get prepaid faster
than expected in periods of declining interest rates. In addition, the Portfolio
indirectly will bear its proportionate share of any expenses paid by the REITs
in which it invests.
RISKS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Portfolio may invest up to 25% of total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or
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capital transactions or other restrictions, higher transaction costs (including
higher brokerage, custodial and settlement costs and currency translation costs)
and possible difficulty in enforcing contractual obligations or taking judicial
action. Also, foreign
securities may not be as liquid and may be more volatile than comparable
domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Portfolio may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Portfolio
are not fully invested or attractive investment opportunities are foregone.
The Portfolio may invest in securities of issuers in developing or emerging
market countries. Investments in securities of developing or emerging markets
are subject to greater risks than investments in securities of developed
countries since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodian costs.
The Portfolio may purchase foreign securities in the form of American Depository
Receipts, European Depositary Receipts or other securities representing
underlying shares of foreign companies. The risks of foreign investments should
be considered carefully by an investor in a Portfolio that invests in foreign
securities.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may, but is not required to use, various investment strategic
transactions, such as options, futures contracts and options on futures
contracts, in several different ways, depending upon the status of the
Portfolio's securities and the investment adviser's expectations concerning the
securities or currency markets. Although the Portfolio's investment adviser
seeks to use the practices to further the Portfolio's investment objectives, no
assurance can be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The
Portfolio may also have cash on hand that has not yet been invested. The portion
of the Portfolio's assets that is invested in cash or cash equivalents does not
fluctuate with overall market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash or
cash equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example,
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the value of a put option generally increases as the underlying security
declines below a specified level, value is protected against a market decline to
the degree the performance of the put correlates with the performance of the
Portfolio's investment portfolio. If the market remains stable or advances, the
Portfolio can refrain from exercising the put and the Portfolio will participate
in the advance, having incurred only the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invests are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of its net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
The Portfolio may purchase and sell debt securities on a "when-issued" or
"delayed delivery" basis ("Forward Commitments"). These transactions occur when
securities are purchased or sold by the Portfolio with payment and delivery
taking place in the future, frequently a month or more after such transaction.
The price is fixed on the date of the commitment, and the seller continues to
accrue interest on the securities covered by the Forward Commitment until
delivery and payment take place. At the time of settlement, the market value of
the securities may be more or less than the purchase or sale price. The
Portfolio may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Portfolio may reinvest the proceeds in
another Forward Commitment. These transactions are subject to market risk as the
value or yield of a security at delivery may be more or less than the purchase
price or the yield generally available on securities when delivery occurs. When
engaging in Forward Commitments, the Portfolio relies on the other party to
complete the transaction. Should the other party fail to do so, the Portfolio
might lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. The Portfolio maintains a
segregated account (which is marked to market daily) of cash or liquid portfolio
securities with the Portfolio's custodian in an aggregate amount equal to the
amount of its
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<PAGE> 329
commitment as long as the obligation to purchase or sell continues.
The Portfolio may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's investment adviser believes the securities' potential relative to
the Portfolio's investment objectives has lessened or otherwise. The Portfolio's
turnover rate is shown under the heading "Financial Highlights." The portfolio
turnover rate for the Portfolio may vary from year to year. A high portfolio
turnover rate (100% or more) increases a fund's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if a fund had lower portfolio turnover. Increases
in a fund's transaction costs would adversely impact the fund's performance. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.
Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital growth on these securities will tend to be
lower than the potential for capital growth on other securities that may be
owned by the Portfolio. In taking such a defensive position, the Portfolio would
not be pursuing and may not achieve its investment objectives.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Asset Management Inc. is the investment adviser for the Portfolio
(the "Adviser"). The Adviser is a wholly owned subsidiary of Van Kampen
Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- ------------------------------------------------
<S> <C> <C> <C>
First $500 million 1.00%
................................................
Next $500 million 0.95%
................................................
Over $1 billion 0.90%
................................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
After voluntary fee waivers, the effective advisory fee rate was 0.97% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
10
<PAGE> 330
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. is the subadviser (the
"Subadviser") for the Portfolio. The Subadviser is a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., and is an affiliate of the Adviser. The
Subadviser conducts a worldwide portfolio management business and provides a
broad range of portfolio management services to customers in the United States
and abroad. At December 31, 1999, the Subadviser, together with its affiliated
institutional asset management companies, managed assets of approximately $184.8
billion, including assets under fiduciary advice. The Subadviser's principal
office is located at 1221 Avenue of the Americas, New York, New York 10020. On
December 1, 1998, Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc. but continues to do
business in certain instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser, the Subadviser and the
Distributor have adopted Codes of Ethics designed to recognize the fiduciary
relationships among the Portfolio, the Adviser, the Subadviser, the Distributor
and their respective employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. The Portfolio is managed by Theodore R. Bigman and Douglas
A. Funke. Theodore R. Bigman joined the Subadviser in 1995 and currently is a
Managing Director of the Subadviser and Morgan Stanley & Co. Incorporated. He
has primary responsibility for managing the Subadviser's global real estate
securities business. Prior to joining the Subadviser, he was a Director at CS
First Boston, where he worked for eight years in the Real Estate Group. While at
CS First Boston, Mr. Bigman established and managed that firm's REIT effort,
including primary responsibility for $2.5 billion of initial public offerings by
REITs. Mr. Bigman graduated from Brandeis University in 1983 with a B.A. in
Economics and received his M.B.A. from Harvard University in 1987. Mr. Bigman
has shared primary responsibility for managing the Portfolio's assets since
March 1995.
Douglas A. Funke joined Morgan Stanley & Co. Incorporated in 1993 as a Financial
Analyst. Currently, he is Vice President of the Subadviser and Morgan Stanley &
Co. Incorporated and is responsible for providing research and analytical
support for the group's real estate securities investment business. Prior to
joining the Subadviser, he was a member of Morgan Stanley's Interest Rate and
Foreign Exchange Risk Management Group, where he assisted in the execution of
more than $3 billion of structured financings and firm-related risk management
projects. Mr. Funke graduated from the University of Chicago in 1993 with a B.A.
in Economics and Political Science. He is a member of the National Association
of Real Estate Investment Trusts and the New York Society of Securities
Analysts. Mr. Funke has shared primary responsibility for managing the
Portfolio's assets since January 1999.
11
<PAGE> 331
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies observed by
the insurance company. Net asset value of the Portfolio is determined by adding
the total market value of all portfolio securities held by the Portfolio, cash
and other assets, including accrued interest. All liabilities, including accrued
expenses, of the Portfolio are subtracted. The resulting amount is divided by
the total number of outstanding shares of the Portfolio to arrive at the net
asset value of each share. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale
12
<PAGE> 332
price on the exchange on which such option is traded or, if no sales are
reported, at the mean between the last reported bid and asked prices. Private
placement securities are valued at the last reported bid price. Securities for
which market quotations are not readily available and other assets are valued at
a fair value in good faith by the Adviser in accordance with procedures
established by the Portfolio's Board of Trustees. Short-term investments for the
Portfolio are valued as described in the notes to financial statements in the
Statement of Additional Information.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Portfolio's net asset value is not calculated and on which the
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when the Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Portfolio's Board
of Trustees.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gains. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury
13
<PAGE> 333
and each U.S. Government agency and instrumentality is considered to be a
separate issuer. In the event the investments of the Accounts in the Portfolio
are not properly diversified under Code Section 817(h), then the policies funded
by shares of the Portfolio will not be treated as life insurance for federal
income tax purposes and the owners of the policies will be subject to taxation
on their respective shares of the dividends and distributions paid by the
Portfolio.
Dividends paid by the Portfolio from its income and distributions of the
Portfolio's investment company taxable income (consisting generally of taxable
income net short-term capital gain) are includable in the insurance company's
gross income. The tax treatment of such dividends and distributions depends on
the insurance company's tax status. Some portion of the dividends from the
Portfolio may be eligible for the dividends received deduction for corporations
if the Portfolio receives qualifying dividends during the taxable year and if
certain other requirements of the Code are satisfied. The Portfolio will send to
the Accounts a written notice (contained in the annual report) required by the
Code designating the amount and character of any distributions made during such
year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gains are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be designated as such in a written notice to
the Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
14
<PAGE> 334
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and
Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST--
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Subadviser
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust--
Morgan Stanley Real Estate Securities Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust--
Morgan Stanley Real Estate Securities Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 335
VAN KAMPEN
LIFE INVESTMENT TRUST
MORGAN STANLEY
REAL ESTATE
SECURITIES PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Portfolio, is incorporated by reference in its
entirety into this prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Portfolio,
including the reports and Statement of
Additional Information, has been filed with
the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's
Public Reference Room in Washington, DC or on
the EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO RL II 4/00
<PAGE> 336
VAN KAMPEN
LIFE INVESTMENT TRUST
STRATEGIC STOCK PORTFOLIO
The Strategic Stock Portfolio is a mutual fund with the investment objective to
seek an above average total return through a combination of potential capital
appreciation and dividend income, consistent with the preservation of invested
capital.
Shares of the Portfolio have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulator, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus is dated APRIL 28, 2000.
CLASS II SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 337
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary................................ 3
Van Kampen Life Investment Trust General
Information...................................... 4
Investment Objective, Policies and Risks........... 5
Investment Advisory Services....................... 9
Purchase of Shares................................. 10
Redemption of Shares............................... 11
Dividends, Distributions and Taxes................. 11
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolio, the Portfolio's investment adviser
or the Portfolio's distributor. This prospectus does not constitute an offer by
the Portfolio or by the Portfolio's distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolio to make such an offer in such
jurisdiction.
<PAGE> 338
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Portfolio is a mutual fund with the investment objective to seek an above
average total return through a combination of potential capital appreciation and
dividend income, consistent with the preservation of invested capital.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the Portfolio's investment objective by investing in a portfolio of high
dividend yielding equity securities of companies included in the Dow Jones
Industrial Average (the "DJIA") or in the Morgan Stanley Capital International
USA Index (the "MSCI USA Index"). The Portfolio's investment adviser buys and
sells investment securities based primarily upon specific objective criteria
(emphasizing dividend yield) applied to DJIA and MSCI USA Index companies. The
Portfolio may purchase and sell certain derivative instruments, such as options,
futures and options on futures, for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Portfolio is subject to investment risks, and you could
lose money on your investment in the Portfolio. There can be no assurance that
the Portfolio will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Portfolio will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes high dividend yielding stocks selected based upon specific objective
criteria. The market value of the Portfolio's equity securities may or may not
fluctuate in tandem with overall changes in the stock markets. The ability of
the Portfolio's investment holdings to generate income is dependent on the
earnings and the continuing declaration of dividends by the issuers of such
securities.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
STYLE RISK. Securities are purchased and sold for the Portfolio based primarily
upon specific objective criteria. The Portfolio's style may not be as successful
in selecting the best-performing securities as other styles and may underperform
the overall market.
INVESTOR PROFILE
In light of the Portfolio's investment objective and strategies, the Portfolio
may be appropriate for investors who:
- - Seek an above average total return through a combination of potential capital
appreciation and dividend income
- - Can withstand volatility in the value of their shares in the Portfolio
- - Wish to add their investment holdings a portfolio that invests primarily in
equity securities
An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.
3
<PAGE> 339
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Portfolio is to look at how its
performance has varied from year-to-year. The following chart shows the annual
return of the Portfolio* over the two calendar years prior to the date of this
prospectus. Sales charges or other expenses at the contract level are not
reflected in this chart. If sales charges or other expenses at the contract
level had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1998 16.51
1999 -0.47
</TABLE>
* The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class I Shares of the Portfolio (which
are offered in a separate prospectus). The annual return variability of the
Portfolio's Class II Shares would be substantially similar to that shown for
the Class I Shares because all of the Portfolio's shares are invested in the
same portfolio of securities; however, the actual annual returns of the Class
II Shares would be lower than the annual returns shown for the Portfolio's
Class I Shares because of differences in the expenses borne by each class of
shares.
The Portfolio's return for the three-month period ended March 31, 2000 was
- -7.90%.
During the two-year period shown in the bar chart, the highest quarterly return
was 12.23% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -8.90% (for the quarter ended September 30, 1999).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Portfolio's performance and risks, the table below
shows how the Portfolio's performance compares with two broad-based market
indices that the Portfolio's investment adviser believes are appropriate
benchmarks for the Portfolio: Dow Jones Industrial Average* and the MSCI USA
Index**. The Portfolio's performance figures do not include sales charges or
other expenses at the contract level that would be paid by investors. The
indices' performance figures do not include any commissions or sales charges
that would be paid by investors purchasing securities represented by the
indices. Average annual total returns are shown for the periods ended December
31, 1999 (the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Portfolio is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1999 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen
Strategic Stock
Portfolio *** -0.47% 8.33%(1)
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Dow Jones
Industrial
Average 27.21% 24.35%(2)
.............................................
MSCI
USA Index 22.38% 27.84%(2)
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</TABLE>
Inception dates: (1) 11/3/97, (2) 10/31/97.
* The Dow Jones Industrial Average is a price-weighted average of 30 stocks as
selected by Dow Jones & Co.
** The MSCI USA Index consists of approximately 320 large domestic companies.
*** The Portfolio commenced offering Class II Shares on April 28, 2000. The
returns shown in the Comparative Performance chart above are for the Class I
Shares of the Portfolio (which are offered in a separate prospectus). The
annual return variability of the Portfolio's Class II Shares would be
substantially similar to that shown for the Class I Shares because all of
the Portfolio's shares are invested in the same portfolio of securities;
however, the actual annual returns of the Class II Shares would be lower
than the annual returns shown for the Portfolio's Class I Shares because of
differences in the expenses borne by each class of shares.
VAN KAMPEN LIFE
INVESTMENT TRUST
GENERAL INFORMATION
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company which offers shares in eleven separate portfolio, including
this Strategic Stock Portfolio. Each portfolio is in effect a separate mutual
fund. Each portfolio of the Trust has a different investment objective(s) which
it pursues through its investment policies. Each portfolio has its own income,
expenses, assets, liabilities and net asset value and each portfolio issues its
own shares. Shares of each portfolio represent an interest only in that
portfolio.
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Shares are sold only to separate accounts (the "Accounts") of various insurance
companies to fund the benefits of variable annuity or variable life insurance
policies (the "Contracts"). The Accounts may invest in shares of the portfolios
in accordance with allocation instructions received from contract owners
("Contract Owners"). Such allocation rights, as well as sales charges and other
expenses imposed on Contract Owners by the Contracts, are further described in
the accompanying Contract prospectus.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The investment objective of the Portfolio is to seek an above average total
return through a combination of potential capital appreciation and dividend
income, consistent with the preservation of invested capital. The investment
objective of the Portfolio is a fundamental policy and may not be changed
without shareholder approval of a majority of the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Portfolio will achieve its
investment objective.
Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of high dividend
yielding equity securities of companies included in the DJIA or in the MSCI USA
Index. The DJIA was first published in The Wall Street Journal in 1896.
Initially consisting of just 12 stocks, the DJIA expanded to 20 stocks in 1916
and to its present size of 30 stocks on October 1, 1928. The MSCI USA Index
consists of approximately 320 large domestic companies in the United States and
has existed since January 1, 1970.
The Portfolio's investment adviser selects investment securities for the
Portfolio based upon the Portfolio's strategic selection policies (the
"Strategic Selection Policies") as follows:
The ten highest dividend yielding securities in the DJIA are identified for
investment. In addition, all companies having securities in the MSCI USA Index
are reviewed by the Portfolio's investment adviser. Securities of companies in
the financial or utility sectors and companies having securities included in the
DJIA are excluded. The remaining pool of MSCI USA Index securities is further
evaluated and securities of companies that do not have positive one- and
three-year sales and earnings growth rates and two years of positive dividend
growth are excluded. The Portfolio's investment adviser also excludes MSCI USA
Index securities that are in the bottom 25% of all MSCI USA Index securities
measured in terms of total annual trading volume. MSCI USA Index securities of
the remaining companies are ranked by dividend yield, and the ten
highest-yielding such MSCI USA Index securities are identified for investment.
In the event that this process results in less than 10 remaining MSCI USA Index
securities, those companies with the most favorable one- and three-year sales
and earnings performance and two-year dividend performance as determined by the
Portfolio's investment adviser are added back until the number of MSCI USA Index
securities equals 10. Dividend yield for purposes of applying the foregoing
investment policies is calculated for each security by annualizing the last
quarterly or semi-annual ordinary dividend declared on the security and dividing
the result by the security's closing sale price on the applicable date. This
yield is historical and there can be no assurance that any dividends will be
declared or paid in the future.
At the commencement of the Portfolio's investment operations, the 20 securities
so identified at that time represented the Portfolio's initial investments.
Approximately monthly, the Portfolio's investment adviser employs the same
Strategic Selection Policies to identify a new list of 20 strategic securities.
Based on a rolling 12-month schedule, the investment adviser reviews and adjusts
the oldest one-twelfth portion of the Portfolio's assets so as to invest that
portion of the Portfolio's assets approximately equally in the new list of 20
strategic securities. For a more detailed discussion of the Portfolio's
investment policies, including the frequency of security re-evaluations and the
portion of the Portfolio's assets that the Portfolio's investment adviser
presently expects to re-evaluate at the end of each period, see the Statement of
Additional Information.
The Portfolio's investment adviser generally seeks to allocate cash available
for investment due to the sale of new shares of the Portfolio and the receipt of
dividends and interest income from Portfolio investments approximately
proportionately among its current list of strategic securities in the Portfolio.
To the extent that the Portfolio is required to dispose of securities in order
to satisfy redemption requests, make distributions, pay expenses or otherwise
raise
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cash for operational purposes, the Portfolio's investment adviser generally
intends to sell approximately proportionate amounts of securities from all
securities in the Portfolio.
Application of the foregoing Strategic Selection Policies is subject to and
limited by certain of the Portfolio's other investment policies and
restrictions, including restrictions and limitations which must be met in order
for the Portfolio to qualify for U.S. federal income tax purposes as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), or in order to comply with requirements of the
1940 Act. The Portfolio is subject to investment diversification requirements
that generally provide that the Portfolio may not, with respect to 75% of its
assets, invest more than 5% of its assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities of any one issuer.
Further, the Portfolio generally may not invest more than 25% of the value of
its total assets in securities of issuers in any particular industry. The
Portfolio's satisfaction of these requirements will take precedent over the
Strategic Selection Policies. In addition, the Portfolio's investment adviser
will try to avoid transacting in odd-lots of securities in order to minimize
transaction costs. These limitations may, at times, cause the composition of the
Portfolio's investment portfolio to differ significantly from that which would
have resulted had the Strategic Selection Policies been fully implemented. In
selecting securities for investment or disposition at times that the Portfolio's
investment policies and restrictions do not permit full implementation of the
Strategic Selection Policies, the Portfolio's investment adviser will have sole
discretion to select securities for purchase or sale and generally will make
such selections in a manner that is consistent with the Portfolio's investment
objective and in a manner that it believes is consistent with the investment
rationale that is the basis for the Strategic Selection Policies.
The Portfolio will continue to hold securities, even though such securities may
not be included in the most recent list of strategic securities determined for
the review and adjustment of a portion of the Portfolio's assets. In addition,
although each new list of strategic securities will include only 20 securities,
because only a portion of the Portfolio's assets may be reviewed and adjusted at
any given time, the Portfolio's investment adviser expects that the number of
securities held by the Portfolio may over time increase and that the Portfolio
may at times hold forty or more different securities.
The Portfolio may invest up to 5% of its total assets in options on equity
securities indices, futures contracts on such indices and options on such
futures contracts for both hedging purposes and in an attempt to enhance gain.
The Portfolio also may invest up to 5% of its total assets in securities of
other registered investment companies that seek to provide investment results
that generally correspond to the performance of securities included in one or
more broad market indices. Investment in securities of other investment
companies will subject the Portfolio to additional and potentially duplicative
costs and expenses, including investment management fees charged by such
registered investment companies. Pending investment and for temporary defensive
purposes the Portfolio may invest without limit in short-term, high quality
fixed income securities and in money-market instruments.
The DJIA is the property of Dow Jones & Company, Inc. Dow Jones & Company, Inc.
has not granted to the Portfolio a license to use the DJIA. Dow Jones & Company,
Inc. has not participated in any way in the creation of the Portfolio or in the
selection of the stocks included in such Portfolio and has not approved any
information herein relating thereto. Shares of the Portfolio are not designed so
that their prices will parallel or correlate with any movements in the DJIA, and
it is expected that their prices will not parallel or correlate with such
movements.
The MSCI USA Index is the property of Morgan Stanley Dean Witter & Co. ("Morgan
Stanley"). Morgan Stanley makes no representation or warranty, express or
implied, to the owners of shares of the Portfolio or any member of the public
regarding the advisability of investing in investment portfolios generally or in
the Portfolio particularly or the ability of the MSCI USA Index to track general
stock market performance. Morgan Stanley is the licensor of certain trademarks,
service marks and trade names of Morgan Stanley and of the MSCI USA Index which
is determined, composed and calculated by Morgan Stanley without regard to this
Portfolio. Morgan Stanley has no obligation to take the needs of this Portfolio
or the owners of this Portfolio into consideration in determining, composing or
calculating the MSCI USA Index. Morgan Stanley is not responsible for and has
not participated in the determination of the timing of, prices at, or quantities
of this Portfolio to be issued. Morgan Stanley has no obligation or liability to
owners of this Portfolio in connection with the administration, marketing or
trading of this Portfolio.
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ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDICES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE ACCURACY
AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN. NEITHER
MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES,
OWNERS OF THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
HEREUNDER OR FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR ANY OTHER PARTY MAKES
ANY EXPRESS OR IMPLIED WARRANTIES, AND MORGAN STANLEY HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
RISK FACTORS. There is no guarantee that the investment objective of the
Portfolio will be achieved because it is subject to the continuing ability of
the respective issuers of equity securities in which the Portfolio invests to
declare and pay dividends and because the market value of such equity securities
can be affected by a variety of factors. Common stocks may be especially
susceptible to general stock market movements and to volatile increases and
decreases of value as market confidence in and perceptions of the issuers
change. There can be no assurance that the value of the underlying securities
will increase or that the issuers of the securities will pay dividends on
outstanding securities. The declaration of dividends by any issuer depends upon
several factors including the financial condition of the issuer and general
economic conditions. Risks associated with an investment in the Portfolio
include the possible deterioration of either the financial condition of the
issuers or the general condition of the stock market, and general price
volatility. The relatively high dividend yield of certain securities that the
Portfolio will acquire may reflect the market's assessment of the risk that the
company may reduce or eliminate the dividend in the current period or in the
future, or otherwise reflect the market's unfavorable assessment of the
company's performance outlook. The Portfolio's investment adviser generally will
not take these considerations into account in implementing the Strategic
Selection Policies and, accordingly, the Portfolio may at times acquire
securities of companies that the market and the Portfolio's investment adviser
believe are more susceptible to financial difficulty and corresponding adverse
market performance than are other companies with securities included in the DJIA
or in the MSCI USA Index.
In addition, investors should be aware that the Portfolio is not "actively
managed." Except to raise cash for operational purposes, the Portfolio
ordinarily will not sell securities or re-evaluate its investments except as
periodically determined by the Portfolio's investment adviser. In addition, only
a portion of the Portfolio's assets may be reviewed and adjusted for any given
period. As a result, although the Portfolio may (but need not) dispose of a
security in certain events such as the issuer having defaulted on the payment on
any of its outstanding obligations or the price of a security having declined to
such an extent or other factors existing so that in the opinion of the
Portfolio's investment adviser the retention of such security would be
detrimental to the Portfolio, the adverse financial condition of a company will
not result in its elimination from the Portfolio prior to scheduled review and
adjustment except under extraordinary circumstances. Similarly, securities held
in the Portfolio ordinarily will not be sold by the Portfolio for the purpose of
taking advantage of market fluctuations or changes in anticipated rates of
appreciation.
USING OPTIONS, FUTURES CONTRACTS AND OPTIONS
ON FUTURES CONTRACTS
The Portfolio may, but is not required to, use various investment strategic
transactions, such as options, futures contracts or options on futures contracts
in several different ways, depending upon the status of the Portfolio's
securities and the investment adviser's expectations concerning the securities
or currency markets. Although the Portfolio's investment adviser seeks to use
the practices to further the Portfolio's investment objective, no assurance can
be given that the use of these practices will achieve this result.
In times of stable or rising securities' prices, the Portfolio generally seeks
to be fully invested. Even when the Portfolio is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor
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redemption requests and for other short-term needs. The Portfolio may also have
cash on hand that has not yet been invested. The portion of the Portfolio's
assets that is invested in cash or cash equivalents does not fluctuate with
overall market prices, so that, in times of rising market prices, the Portfolio
may underperform the market in proportion to the amount of cash or cash
equivalents in the Portfolio. By purchasing stock index futures contracts,
however, the Portfolio can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in securities.
If the Portfolio's investment adviser forecasts a market decline, the Portfolio
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolio's
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolio could then liquidate securities
in a more deliberate manner, reducing its futures position simultaneously to
maintain the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Portfolio can engage in options (or
stock index options or stock index futures options) to manage the Portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolio's investment portfolio. If
the market remains stable or advances, the Portfolio can refrain from exercising
the put and the Portfolio will participate in the advance, having incurred only
the premium cost for the put.
The Portfolio is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Portfolio may engage in
foreign currency futures and options. The Portfolio may use currency options to
protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies in which
the Portfolio invest are traded on U.S. and foreign exchanges or
over-the-counter.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolio's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in repurchase agreements with broker-dealers, banks and
other financial institutions to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party.
The Portfolio may invest up to 15% of net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Portfolio would like. Thus, the
Portfolio may have to sell such securities at a lower price, sell other
securities instead to obtain cash or forego other investment opportunities.
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Further information about these types of investments and other investment
practices that may be used by the Portfolio is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Portfolio may invest on a temporary basis a portion or
all of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for total return on these securities will tend to be
lower than the potential for total return on other securities that may be owned
by the Portfolio. In taking such a defensive position, the Portfolio would not
be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the investment adviser for the
Portfolio (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $90 billion under management or supervision as of December 31, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,700 unit investment trusts are professionally distributed by leading
authorized dealers nationwide. Van Kampen Funds Inc., the distributor of the
Portfolio (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT. The Portfolio retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Trust, on behalf of the Portfolio, the Portfolio pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Portfolio as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- -------------------------------------------------
<S> <C> <C> <C>
First $500 million 0.50%
.................................................
Over $500 million 0.45%
.................................................
</TABLE>
The Portfolio's average daily net assets are determined by taking the average of
all the determinations of the net assets during a given calendar month. Such fee
is payable for each month as soon as practicable after the end of that month.
After voluntary fee waivers, the effective advisory fee rate was 0.24% of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1999.
Under the advisory agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Portfolio.
The Portfolio pays all charges and expenses of its day-to-day operations,
including service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Portfolio's expenses by reducing the fees payable to them or by
reducing other expenses of the Portfolio in accordance with such limitations as
the Adviser or Distributor may establish.
The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Portfolio, the Adviser and the Distributor
have adopted Codes of Ethics designed to recognize the fiduciary relationships
among the Portfolio, the Adviser, the Distributor and their respective
employees. The Codes permit directors, trustees, officers and employees to buy
and sell securities for their personal accounts
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subject to certain restrictions. Persons with access to certain sensitive
information are subject to preclearance and other procedures designed to prevent
conflicts of interest.
PORTFOLIO MANAGEMENT. The Strategic Stock Portfolio is managed by a management
team headed by John Cunniff, Senior Portfolio Manager. Mr. Cunniff has had
responsibility for the Portfolio since its inception. Mr. Cunniff has been a
Vice President and Director of Equity Research with the Adviser since October
1995. Prior to October 1995, Mr. Cunniff was a portfolio manager for three years
with Templeton Quantitative Advisors, a subsidiary of the Franklin Group.
Raj Wagle, Portfolio Manager, has been affiliated with the Portfolio since April
1999. Mr. Wagle has been a Portfolio Manager of the Adviser since April 1999 and
Quantitative Equity Analyst of the Adviser since February 1998. Prior to
November 1997, he was an Equity Analyst with Aeltus Investment Management. Prior
to December 1995, he was with Oppenheimer & Company for three years. He was an
Equity Analyst for two years and spent his first year as a Research Associate.
PURCHASE OF SHARES
The Portfolio offers two classes of shares -- designated as Class I Shares and
Class II Shares. The Class II Shares of the Portfolio are offered by this
prospectus (Class I Shares of the Portfolio are offered through a separate
prospectus). Each class of shares represents an interest in the same portfolio
of investments of the Portfolio and has the same rights, except for the
differing distribution fees, services fees and related expenses associated with
each class of shares and the exclusive voting rights by each class with respect
to any Rule 12b-1 distribution plan or service plan for such class of shares.
Investors can contact their financial adviser for more information regarding the
insurance company's Accounts and class of the Portfolio's shares available
through such Accounts.
The Portfolio has adopted a distribution plan (the "Distribution Plan") with
respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act. The
Portfolio also has adopted a service plan (the "Service Plan") with respect to
its Class II Shares. Under the Distribution Plan and the Service Plan, the
Portfolio pays distribution fees in connection with the sale and distribution of
its Class II Shares and service fees in connection with the provision of ongoing
services to shareholders and maintenance of the shareholders' accounts of its
Class II Shares. Under the Distribution Plan and Service Plan, the Portfolio may
spend up to a total of 0.35% per year of the Portfolio's average daily net
assets with respect to its Class II Shares. Notwithstanding the foregoing, the
Portfolio's Board of Trustees currently limits the aggregate amount payable
under the Distribution Plan and Service Plan to 0.25% per year of the
Portfolio's average daily net assets with respect to Class II Shares. From such
amount, under the Service Plan, the Portfolio may spend up to 0.25% per year of
the Portfolio's average daily net assets with respect to its Class II Shares.
Because these fees are paid out of the Portfolio's assets on an ongoing basis,
these fees will increase the cost of your investment in the Portfolio and may
cost you more over time than a class of shares with other types of sales charge
arrangements. The net income attributable to Class II Shares will be reduced by
the amount of the distribution and service fees and other expenses of the
Portfolio associated with such class of shares.
The Portfolio offers shares only to Accounts of various insurance companies to
fund the benefits of variable annuity or variable life insurance contracts. The
Portfolio does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Portfolio's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies and accompanying this
Portfolio prospectus.
The Portfolio continuously offers shares to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, acts as the
distributor of the shares. The Portfolio and the Distributor reserves the right
to refuse any order for the purchase of shares. Net asset value is determined in
the manner set forth below under "Determination of Net Asset Value."
DETERMINATION OF NET ASSET VALUE
Net asset value per share is computed for the Portfolio as of the close of
trading (currently 4:00 p.m., New
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York time) each day the New York Stock Exchange is open. See the accompanying
prospectus for the policies observed by the insurance company. Net asset value
of the Portfolio is determined by adding the total market value of all portfolio
securities held by the Portfolio, cash and other assets, including accrued
interest. All liabilities, including accrued expenses, of the Portfolio are
subtracted. The resulting amount is divided by the total number of outstanding
shares of the Portfolio to arrive at the net asset value of each share. See
"Determination of Net Asset Value" in the Statement of Additional Information
for further information.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value in good faith by the Adviser in
accordance with procedures established by the Portfolio's Board of Trustees.
Short-term investments for the Portfolio are valued as described in the notes to
financial statements in the Statement of Additional Information.
REDEMPTION OF SHARES
Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value per share next determined after the receipt of a request in
proper form. The market values of the securities in the Portfolio are subject to
daily fluctuations and the net asset value per share of the Portfolio's shares
will fluctuate accordingly. Therefore, the redemption value may be more or less
than the investor's cost.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
All dividends and capital gains distributions of the Portfolio are automatically
reinvested by the Account in additional shares of the Portfolio.
Dividends from stocks and interest earned from other investments are the main
sources of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts at least annually. When the Portfolio sells
portfolio securities, it may realize capital gains or losses, depending on
whether the prices of the securities sold are higher or lower than the prices
the Portfolio paid to purchase them. The Portfolio distributes any net capital
gains to Accounts at least annually.
TAX STATUS OF THE PORTFOLIO. The Portfolio has elected and qualified, and
intends to continue to qualify, to be taxed as a "regulated investment company"
under the Code. By maintaining its qualification as a regulated investment
company, the Portfolio is not subject to federal income taxes to the extent it
distributes its investment company taxable income and net capital gain. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gain, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The investments of the
Accounts in the Portfolios are subject to the diversification requirements of
Section 817(h) of the Code, which must be met at the end of each calendar
quarter of the year (or within 30 days thereafter). Regulations issued by the
Secretary of the Treasury have the effect of requiring the Accounts to invest no
more than 55% of their total assets in securities of any one issuer, no more
than 70% in the securities of any two issuers, no more than 80% in the
securities of any three issuers, and no more than 90% in the securities of any
four issuers. For this purpose, the U.S. Treasury and each U.S. Government
agency and instrumentality is considered to be a separate issuer. In the event
the investments of the Accounts in the Portfolio are not properly diversified
under Code Section 817(h), then the policies funded by
11
<PAGE> 347
shares of the Portfolio will not be treated as life insurance for federal income
tax purposes and the owners of the policies will be subject to taxation on their
respective shares of the dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its investment company taxable income
(consisting generally of taxable income and net short-term capital gain) are
includable in the insurance company's gross income. The tax treatment of such
dividends depends on the insurance company's tax status. Some portion of the
dividends from the Portfolio may be eligible for the dividends received
deduction for corporations if the Portfolio receives qualifying dividends during
the taxable year and if certain other requirements of the Code are satisfied.
The Portfolio will send to the Accounts a written notice (contained in the
annual report) required by the Code designating the amount and character of any
distributions made during such year.
Under the Code, any dividends designated as being made from the Portfolio's net
capital gain are taxable to the insurance company as long-term capital gains.
Such capital gain dividends will be so designated in a written notice to the
Accounts (contained in the annual report). Capital gain dividends are not
eligible for the dividends received deduction for corporations. Dividends and
capital gain dividends to the insurance company may also be subject to state and
local taxes.
As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
the insurance company.
12
<PAGE> 348
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2929
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
WEB SITE
www.vankampen.com
VAN KAMPEN LIFE INVESTMENT TRUST--STRATEGIC STOCK PORTFOLIO
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Life Investment Trust--Strategic Stock Portfolio
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Life Investment Trust--Strategic Stock Portfolio
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Street
Chicago, IL 60601
<PAGE> 349
VAN KAMPEN
LIFE INVESTMENT TRUST
STRATEGIC STOCK PORTFOLIO
CLASS II SHARES
PROSPECTUS
APRIL 28, 2000
A Statement of Additional Information, which
contains more details about the Trust and the
Strategic Stock Portfolio, is incorporated by
reference in its entirety into this
prospectus.
You will find additional information about the
Portfolio in its annual and semiannual reports
to shareholders. The annual report explains
the market conditions and investment
strategies affecting the Portfolio's
performance during its last fiscal year.
You can ask questions or obtain a free copy of
the Portfolio's reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833.
Information about the Trust and the Strategic
Stock Portfolio, including the reports and
Statement of Additional Information, has been
filed with the Securities and Exchange
Commission (SEC). It can be reviewed and
copied at the SEC's Public Reference Room in
Washington, DC or on the EDGAR database on the
SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's
Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon
payment of a duplicating fee, by electronic
request at the SEC's e-mail address
([email protected]), or by writing to the
Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4424. LIT PRO SS II 4/00
<PAGE> 350
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company with eleven Portfolios (the "Portfolios"): Asset Allocation
Portfolio (formerly Multiple Strategy Fund), Comstock Portfolio, Domestic Income
Portfolio (formerly Domestic Strategic Income Fund), Emerging Growth Portfolio
(formerly Emerging Growth Fund), Enterprise Portfolio (formerly Common Stock
Fund), Global Equity Portfolio (formerly Global Equity Fund), Government
Portfolio (formerly Government Fund), Growth and Income Portfolio (formerly
Growth and Income Fund), Money Market Portfolio (formerly Money Market Fund),
Morgan Stanley Real Estate Securities Portfolio (formerly Real Estate Securities
Portfolio) and Strategic Stock Portfolio. Each Portfolio is in effect a separate
diversified mutual fund issuing its own shares.
This Statement of Additional Information is not a Prospectus. This
Statement of Additional Information should be read in conjunction with the
Portfolios' prospectuses (the "Prospectuses") dated as of the same date as this
Statement of Additional Information. This Statement of Additional Information
does not include all the information a prospective investor should consider
before purchasing shares of the Trust. Investors should obtain and read a
Prospectus containing disclosure with respect to the Portfolio in which the
investor wishes to invest prior to purchasing shares of such Portfolio. A
Prospectus may be obtained without charge by writing or calling Van Kampen Funds
Inc. (the "Distributor") at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace,
Illinois 60181-5555 at (800) 421-5666 or (800) 421-2833 for the hearing
impaired.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objective, Policies and Risks.................... B-7
Options, Futures Contracts and Options on Futures
Contracts................................................. B-15
Investment Restrictions..................................... B-23
Trustees and Officers....................................... B-39
Investment Advisory Agreements.............................. B-47
Distributor................................................. B-51
Transfer Agent.............................................. B-52
Portfolio Transactions and Brokerage Allocation............. B-52
Determination of Net Asset Value............................ B-55
Purchase and Redemption of Shares........................... B-56
Tax Status.................................................. B-57
Portfolio Performance....................................... B-61
Money Market Portfolio Yield Information.................... B-64
Other Information........................................... B-64
Description of Securities Ratings........................... B-65
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-32
Report of Independent Accountants........................... F-40
Financial Statements........................................ F-41
Notes to Financial Statements............................... F-75
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 28, 2000.
LIT SAI
4/00
<PAGE> 351
GENERAL INFORMATION
Van Kampen Life Investment Trust, formerly known as Van Kampen American
Capital Life Investment Trust (the "Trust"), was originally organized as a
business trust under the laws of the Commonwealth of Massachusetts on June 3,
1985 under the name American Capital Life Investment Trust. As of September 16,
1995, the Trust was reorganized as a business trust under the laws of the State
of Delaware and changed its name. On July 14, 1998, the Trust adopted its
current name.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly-owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect, wholly-owned subsidiary
of Morgan Stanley Dean Witter & Co. ("Morgan Stanley Dean Witter"). The
principal office of the Trust, each Portfolio, the Adviser, the Distributor and
Van Kampen Investments is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555. The principal office of Investor Services is located at
7501 Tiffany Springs Parkway, Kansas City, Missouri 64121-8256. Morgan Stanley
Dean Witter Investment Management Inc., the subadviser for the Global Equity
Portfolio and the Morgan Stanley Real Estate Portfolio ("MSDWIM" or the
"Subadviser"), is a wholly-owned subsidiary of Morgan Stanley Dean Witter. The
principal office of the Subadviser is located at 1221 Avenue of the Americas,
New York, New York 10020.
Morgan Stanley Dean Witter is a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Portfolios, and further subdivided into one or
more classes of shares of each series. Each share represents an equal
proportionate interest in the assets of the series with each other share in such
series and no interest in any other series. No series is subject to the
liabilities of any other series. The Declaration of Trust provides that
shareholders are not liable for any liabilities of the Trust or any of its
series, requires inclusion of a clause to that effect in every agreement entered
into by the Trust or any of its series and indemnifies shareholders against any
such liability.
Each Portfolio currently offers two classes of shares, designated Class I
Shares and Class II Shares. Other classes may be established from time to time
in accordance with provisions of the Declaration of Trust. Each class of shares
of a Portfolio generally are identical in all respects except that each class
bears certain distribution expenses and has exclusive voting rights with respect
to its distribution fee.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and separate votes are taken by each class of a series on matters
affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of majority of the shares then outstanding cast in
person or by proxy at such meeting. The Trust will assist such holders in
communicating with other shareholders of the Trust to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
outstanding and entitled to vote (or such higher vote as may be required by the
1940 Act or other applicable law) and except that the Trustees cannot amend the
Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
B-2
<PAGE> 352
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
As of April 3, 2000, no person was known by the Trust to own beneficially
or to hold of record 5% or more of the outstanding Class I Shares or Class II
Shares of any portfolio except as set forth below. The Trust offers its shares
only to separate accounts of various insurance companies. Those separate
accounts have authority to vote shares from which they have not received
instructions from the contract owners, but only in the same proportion with
respect to "yes" votes, "no" votes or abstentions as is the case with respect to
shares for which instructions were received.
<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE CLASS OF
RECORD HOLDER AT APRIL 3, 2000 OWNERSHIP SHARES
------------------- -------------------------- ---------- --------
<S> <C> <C> <C>
ASSET ALLOCATION PORTFOLIO
Nationwide Life Insurance Co.................. 2,362,352 49.49% I
Nationwide VL1 -- Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.................. 2,306,638 48.33% I
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
COMSTOCK PORTFOLIO
The Travelers Sep Acct ABD2 for............... 103,940 45.97% I
Variable Annuities of
The Travelers Insurance Co.
One Tower Square 5MS
Hartford CT 06183-0002
Van Kampen Funds.............................. 100,000 44.23% I
Attn: Dominick Cogliandro
1 Chase Manhattan Plz.
New York, NY 10005-1401
DOMESTIC INCOME PORTFOLIO
American General Life Insurance Co............ 420,075 19.27% I
Separate Account D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.................. 170,270 7.81% I
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.................. 472,751 21.69% I
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>
B-3
<PAGE> 353
<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE CLASS OF
RECORD HOLDER AT APRIL 3, 2000 OWNERSHIP SHARES
------------------- -------------------------- ---------- --------
<S> <C> <C> <C>
Van Kampen Generations Variable Annuities..... 597,921 27.43% I
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
The Travelers Separate Account for............ 343,792 15.77% I
Variable Annuities of the
Travelers Insurance Co.
One Tower Square 5MS
Hartford, CT 06183-0002
EMERGING GROWTH PORTFOLIO
Van Kampen Generations Variable Annuities..... 1,411,859 17.30% I
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
American General Annuity Ins. C............... 759,354 9.30% I
Elite Plus
205 E. 10th Ave.
Amarillo, TX 79101-3507
The Travelers Fund BD IV...................... 408,553 5.00% I
For Variable Annuities of
The Travelers Insurance Co.
Attn: Shareholder Accounting Dept.
1 Tower Sq. #6MS
Hartford CT 06183-0002
Northbrook Life Insurance Co.................. 4,604,310 56.44% I
MSDWVA II
3100 Sanders Road Station N4A
Northbrook, IL 60062-7156
ENTERPRISE PORTFOLIO
American General Life Insurance Co............ 683,103 8.72% I
Separate Account -- D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.................. 1,547,135 19.74% I
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.................. 1,774,233 22.64% I
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen Generations Variable Annuities..... 1,661,548 21.20% I
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
</TABLE>
B-4
<PAGE> 354
<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE CLASS OF
RECORD HOLDER AT APRIL 3, 2000 OWNERSHIP SHARES
------------------- -------------------------- ---------- --------
<S> <C> <C> <C>
Hartford Life and Annuity Insurance Company... 1,276,330 16.29% I
Separate Account Three
MSDW Select Dimensions
Attn: Carol Lewis
P.O. Box 2999
Hartford, CT 06104-2999
The Travelers Sep Acct ABD2 for............... 487,152 6.21% I
Variable Annuities of
The Travelers Insurance Co.
One Tower Square 5MS
Hartford, CT 06183-0002
GLOBAL EQUITY PORTFOLIO
Van Kampen Funds Inc.......................... 95,241 31.82% I
One Chase Manhattan Plaza
37th Floor
New York, NY 10005
Nationwide Life Insurance Co.................. 100,278 33.51% I
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.................. 103,715 34.66% I
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
GOVERNMENT PORTFOLIO
Nationwide Life Insurance Co.................. 4,668,897 74.28% I
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen Generations Variable Annuities..... 900,247 14.32% I
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.................. 357,554 5.68% I
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
GROWTH AND INCOME PORTFOLIO
Van Kampen Generations Variable Annuities..... 2,861,758 77.76% I
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
</TABLE>
B-5
<PAGE> 355
<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE CLASS OF
RECORD HOLDER AT APRIL 3, 2000 OWNERSHIP SHARES
------------------- -------------------------- ---------- --------
<S> <C> <C> <C>
The Travelers Separate Account for............ 568,295 15.44% I
Variable Annuities of the
Travelers Insurance Co.
One Tower Square JMS
Hartford, CT 06183-0002
MONEY MARKET PORTFOLIO
American General Life Insurance Co............ 3,738,717 13.75% I
Separate Account D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.................. 7,254,950 26.69% I
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.................. 2,512,703 9.24% I
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen Generations Variable Annuities..... 5,180,065 19.05% I
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
The Travelers Separate Account for............ 6,483,753 23.85% I
Variable Annuities of the
Travelers Insurance Co.
One Tower Square JMS
Hartford, CT 06183-0002
MORGAN STANLEY REAL ESTATE SECURITIES
PORTFOLIO
Nationwide Life Insurance Co.................. 7,623,520 65.32% I
Nationwide Variable Account II
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.................. 1,858,777 15.92% I
NWVA-9
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
STRATEGIC STOCK PORTFOLIO
Van Kampen Generations Variable Annuities..... 1,291,829 47.41% I
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
</TABLE>
B-6
<PAGE> 356
<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE CLASS OF
RECORD HOLDER AT APRIL 3, 2000 OWNERSHIP SHARES
------------------- -------------------------- ---------- --------
<S> <C> <C> <C>
Hartford Life and Annuity Insurance Co........ 1,083,925 39.78% I
Separate Account Three
MSDW Select Dimensions
Attn. Carol Lewis
P.O. Box 2999
Hartford, CT 06104-2999
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The following disclosure supplements the disclosure set forth in the
prospectus and does not, standing alone, present a complete or accurate
explanation of the matters disclosed. Readers must refer also to this caption in
the Prospectuses for a complete presentation of the matters disclosed below.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements with broker-dealers,
banks and other financial institutions in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Portfolio) acquires ownership of a security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. Repurchase agreements involve
certain risks in the event of default by the other party. Each Portfolio may
enter into repurchase agreements with broker-dealers, banks and other financial
institutions deemed to be creditworthy by the Portfolio's investment adviser
under guidelines approved by the Portfolio's Board of Trustees. No Portfolio
will invest in repurchase agreements maturing in more than seven days if any
such investment, together with any other illiquid securities held by such
Portfolio, would exceed the Portfolio's limitation on illiquid securities
described herein. A Portfolio does not bear the risk of a decline in value of
the underlying security unless the seller defaults under its repurchase
obligation. In the event of the bankruptcy or other default of a seller of a
repurchase agreement, a Portfolio could experience both delays in liquidating
the underlying securities and losses including: (a) possible decline in the
value of the underlying security during the period while the Portfolio seeks to
enforce its rights thereto; (b) possible lack of access to income on the
underlying security during this period; and (c) expenses of enforcing its
rights.
For the purpose of investing in repurchase agreements, a Portfolio's
investment adviser may aggregate the cash that certain funds or portfolios
advised or subadvised by the investment adviser or certain of its affiliates
would otherwise invest separately into a joint account. The cash in the joint
account is then invested in repurchase agreements and the funds or portfolios
that contributed to the joint account share pro rata in the net revenue
generated. The investment adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the participating Portfolio than would be available to the
Portfolio investing separately. The manner in which the joint account is managed
is subject to conditions set forth in an exemptive order from the SEC permitting
this practice, which conditions are designed to ensure the fair administration
of the joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying securities
and are considered to be loans under the 1940 Act. A Portfolio pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, its agencies and its
instrumentalities) may have maturity dates exceeding one year.
B-7
<PAGE> 357
FOREIGN SECURITIES
Each Portfolio that invests in securities of foreign issuers also may
purchase foreign securities in the form of American Depositary Receipts ("ADRs")
and European Depositary Receipts ("EDRs") or other securities representing
underlying shares of foreign companies. These securities may not necessarily be
denominated in the same currency as the underlying securities but generally are
denominated in the currency of the market in which they are traded. ADRs are
receipts typically issued by an American bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid by the ADR holders. In addition, less information generally is available
for an unsponsored ADR than about a sponsored ADR and financial information
about a company may not be as reliable for an unsponsored ADR as it is for a
sponsored ADR. The Portfolios may invest in ADRs through both sponsored and
unsponsored arrangements. EDRs are receipts issued in Europe by banks or
depositaries which evidence similar ownership arrangement.
FOREIGN CURRENCY TRANSACTIONS
Each Portfolio's securities that are denominated or quoted in currencies
other than the U.S. dollar will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affects the value of
these securities in the Portfolio and the income or dividends and appreciation
or depreciation of its investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Portfolio's
assets denominated in that currency and the Portfolio's yield on such assets. In
addition, the Portfolio will incur costs in connection with conversions between
various currencies. A Portfolio may purchase and sell foreign currency on a spot
basis (that is, cash basis) in connection with the settlement of transactions in
securities traded in such foreign currency. A Portfolio also may enter into
contracts with banks or other foreign currency brokers and dealers to purchase
or sell foreign currencies at a future date ("forward contracts") and purchase
and sell foreign currency futures contracts to protect against changes in
foreign currency exchange rates. A foreign currency forward contract is a
negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. The rate can
be higher or lower than the spot rate between the currencies that are the
subject of the contract. Such foreign currency strategies may be employed before
a Portfolio purchases a foreign security traded in the currency which a
Portfolio anticipates acquiring or between the date the foreign security is
purchased or sold and the date on which payment therefore is made or received.
Hedging against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the price of portfolio securities or
prevent losses if the prices of such securities decline. Furthermore, such
transactions reduce or preclude the opportunity for gain if the value of the
currency should move in the direction opposite to the position taken.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The Portfolio's custodian will place cash or liquid securities in a segregated
account having a value equal to the aggregate amount of the Portfolio's
commitments under forward contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities are placed in the
account on a daily basis so that the value of the account equals the amount of
the Portfolio's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, a Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign currency
by a forward sale contract at a price no higher than the forward contract price
or a Portfolio may purchase a put option permitting the Portfolio to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price.
DURATION
Duration is a measure of the expected life of a debt security that was
developed as an alternative to the concept of "term to maturity." Duration
incorporates a debt security's yield, coupon interest payments, final
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maturity and call features into one measure. Traditionally a debt security's
"term to maturity" has been used as a proxy for the sensitivity of the
security's price to changes in interest rates. However, "term to maturity"
measures only the time until a debt security provides its final payment taking
no account of the pattern of the security's payments of interest or principal
prior to maturity. Duration is a measure of the expected life of a debt security
on a present value basis expressed in years. It measures the length of the time
interval between the present and the time when the interest and principal
payments are scheduled (or in the case of a callable bond, expected to be
received), weighing them by the present value of the cash to be received at each
future point in time. For any debt security with interest payments occurring
prior to the payment of principal, duration is always less than maturity, and
for zero coupon issues, duration and term to maturity are equal. In general, the
lower the coupon rate of interest or the longer the maturity, or the lower the
yield-to-maturity of a debt security, the longer its duration; conversely, the
higher the coupon rate of interest, the shorter the maturity or the higher the
yield-to-maturity of a debt security, the shorter its duration. There are some
situations where even the standard duration calculation does not properly
reflect the interest rate exposure of a security. For example, floating and
variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
MORTGAGE-RELATED SECURITIES
The Government Portfolio invests in mortgage-related securities.
Mortgage-related securities may be issued or guaranteed by an agency or
instrumentality of the U.S. government, but not necessarily by the U.S.
government itself. One type of mortgage-related security is a Government
National Mortgage Association ("GNMA") Certificate which is backed as to
principal and interest by the full faith and credit of the U.S. government.
Another type of mortgage-related security is a Federal National Mortgage
Association ("FNMA") Certificate. Principal and interest payments of FNMA
Certificates are guaranteed only by FNMA itself, not by the full faith and
credit of the U.S. government. A third type of mortgage-related security is a
Federal Home Loan Mortgage Association ("FHLMC") Participation Certificate. This
type of security is backed by FHLMC as to payment of principal and interest but,
like a FNMA security, it is not backed by the full faith and credit of the U.S.
government.
GNMA Certificates
Government National Mortgage Association. The Government National Mortgage
Association is a wholly owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.
Nature of GNMA Certificates. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the Fund purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owned on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.
GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Portfolio
will be reinvested in additional GNMA Certificates or in other permissible
investments.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers
Home Administration or guaranteed by the Veterans Administra-
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tion ("VA"). The GNMA guarantee is backed by the full faith and credit of the
United States. GNMA is also empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA are normally used as
an indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities (the type of mortgages backing the vast majority of GNMA
Certificates) is approximately twelve years. For this reason, it is customary
for pricing purposes to consider GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather than at
par.
2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.
3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate.
If mortgagors prepay their mortgages, the principal returned to
Certificate holders may be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a twelve-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1.00% more
than high grade corporate bonds and 1/2 of 1.00% more than U.S. government and
U.S. government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a twelve-year life.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
FNMA Securities
The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all principal and interest payments made and owed on the
underlying pool.
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FNMA guarantees timely payment of interest and principal on FNMA Certificates.
The FNMA guarantee is not backed by the full faith and credit of the United
States.
FHLMC Securities
The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970 to
promote development of a nationwide secondary market in conventional residential
mortgages. The FHLMC issues two types of mortgage pass-through securities
("FHLMC Certificates"): mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal. GMCs also
represent a pro rata interest in a pool of mortgages. However, these instruments
pay interest semi-annually and return principal once a year in guaranteed
minimum payments. The expected average life of these securities is approximately
ten years. The FHLMC guarantee is not backed by the full faith and credit of the
United States.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Government Portfolio may invest in collateralized mortgage obligations.
Collateralized mortgage obligations are debt obligations issued generally by
agencies or instrumentalities of the U.S. government, or by private originators
of, or investors in, mortgages which are secured by mortgage-related securities,
including GNMA Certificates, FHLMC Certificates and FNMA Certificates, together
with certain funds and other collateral. Scheduled distributions on the
mortgage-related securities pledged to secure the collateralized mortgage
obligations, together with certain funds and other collateral and reinvestment
income thereon at an assumed reinvestment rate, will be sufficient to make
timely payments of interest on the obligations and to retire the obligations not
later than their stated maturity. Since the rate of payment of principal of any
collateralized mortgage obligation will depend on the rate of payment (including
prepayments) of the principal of the mortgage loans underlying the
mortgage-related securities, the actual maturity of the obligation could occur
significantly earlier than its stated maturity. Collateralized mortgage
obligations may be subject to redemption under certain circumstances. The rate
of interest borne by collateralized mortgage obligations may be either fixed or
floating. In addition, certain collateralized mortgage obligations do not bear
interest and are sold at a substantial discount (i.e., a price less than the
principal amount). Purchases of collateralized mortgage obligations at a
substantial discount involves a risk that the anticipated yield on the purchase
may not be realized if the underlying mortgage loans prepay at a slower than
anticipated rate, since the yield depends significantly on the rate of
prepayment of the underlying mortgages. Conversely, purchases of collateralized
mortgage obligations at a premium involve additional risk of loss of principal
in the event of unanticipated prepayments of the mortgage loans underlying the
mortgage-related securities since the premium may not have been fully amortized
at the time the obligation is repaid. The market value of collateralized
mortgage obligations purchased at a substantial premium of discount is extremely
volatile and the effects of prepayments on the underlying mortgage loans may
increase such volatility.
Although payment of the principal and interest on the mortgage-backed
certificates pledged to secure collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of their issuers and generally are not insured or
guaranteed by GNMA, FHLMC, FNMA or any other governmental agency or
instrumentality, or by any other person or entity. The issuers of collateralized
mortgage obligations typically have no significant assets other than those
pledged as collateral for the obligations.
LENDING OF SECURITIES
Consistent with applicable legal and regulatory requirements and applicable
investment restrictions, certain Portfolios may lend portfolio securities to
broker-dealers, banks and other recognized financial institutional borrowers of
securities provided that such loans are callable at any time by the Portfolio,
and are
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at all times secured by cash collateral that is at least equal to the market
value, determined daily, of the loaned securities. The advantage of such loans
is that the Portfolio continues to receive the interest on the loaned
securities, while at the same time earning interest on the collateral which will
be invested in short-term obligations or on an agreed-upon amount of interest
from the borrower of such security. The Portfolio may pay reasonable finders,
administrative and custodial fees in connection with loans of its securities.
There is no assurance as to the extent to which securities loans can be
effected.
If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates, and the Portfolio could use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Adviser to be creditworthy and when the consideration which can be earned from
such loans is believed to justify the attendant risks. On termination of the
loan, the borrower is required to return the securities to the Portfolio; any
gain or loss in the market price during the loan would inure to the Portfolio.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Portfolio will follow the policy of calling the loan, whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Portfolio's investment in the
securities which are the subject of the loan.
FORWARD COMMITMENTS
Each of the Government Portfolio, Domestic Income Portfolio and Morgan
Stanley Real Estate Securities Portfolio may purchase or sell securities on a
"when-issued" or "delayed-delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Portfolio with
payment and delivery taking place in the future, frequently a month or more
after such transaction. The price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment takes place. At the time of settlement,
the market value of the securities may be more or less than the purchase or sale
price. The Portfolio may either settle a Forward Commitment by taking delivery
of the securities or may either resell or repurchase a Forward Commitment on or
before the settlement date in which event the Portfolio may reinvest the
proceeds in another Forward Commitment.
Relative to a Forward Commitment purchase, the Portfolio maintains a
segregated account (which is marked-to-market daily) of cash or liquid
securities (which may have maturities which are longer than the term of the
Forward Commitment) with the Portfolio's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to purchase continues.
Since the market value of both the securities subject to the Forward Commitment
and the securities held in the segregated account may fluctuate, the use of
Forward Commitments may magnify the impact of interest rate changes on the
Portfolio's net asset value.
A Forward Commitment sale is covered if the Portfolio owns or has the right
to acquire the underlying securities subject to the Forward Commitment. A
Forward Commitment sale is for cross-hedging purposes if it is not covered, but
is designed to provide a hedge against a decline in value of a security or
currency which the Portfolio owns or has the right to acquire. Only the
Government Portfolio and the Real Estate Securities Portfolio may engage in
forward commitment transactions for cross-hedging purposes. In either
circumstance, the Portfolio maintains in a segregated account (which is marked
to market daily) either the security covered by the Forward Commitment or cash
or liquid securities with the Portfolio's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to sell continues. By
entering into a Forward Commitment sale transaction, the Portfolio foregoes or
reduces the potential for both gain and loss in the security which is being
hedged by the Forward Commitment sale.
When engaging in Forward Commitments, the Fund relies on the other party to
complete the transaction. Should the other party fail to do so, the Fund might
lose a purchase or sale opportunity that could be more
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advantageous than alternative opportunities at the time of the failure. Forward
Commitments are not traded on an exchange and thus may be less liquid than
exchange traded contracts.
INTEREST RATE TRANSACTIONS
The Government Portfolio may enter into interest rate swaps and may
purchase or sell interest rate caps, floors and collars. The Portfolio expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Portfolio may also enter
into these transactions to protect against any increase in the price of
securities the Portfolio anticipates purchasing at a later date. The Portfolio
does not intend to use these transactions as speculative investments and will
not enter into interest rate swaps or sell interest rate caps or floors where it
does not own or have the right to acquire the underlying securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling the interest rate floor. An interest rate collar combines the
elements of purchasing a cap and selling a floor. The collar protects against an
interest rate rise above the maximum amount but foregoes the benefit of an
interest rate decline below the minimum amount. Interest rate swaps, caps,
floors and collars may be treated as illiquid securities and be subject to the
Portfolio's investment restriction limiting investment in illiquid securities.
The Portfolio may enter into interest rate swaps, caps, floors and collars
on either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be accrued on a daily basis and an amount of cash or liquid securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. If the
Portfolio enters into an interest rate swap on other than a net basis, the
Portfolio would maintain a segregated account in the full amount accrued on a
daily basis of the Portfolio's obligations with respect to the swap. Interest
rate transactions do not constitute senior securities under the 1940 Act when
the Portfolio segregates assets to cover the obligations under the transactions.
The Portfolio will enter into interest rate swap, cap or floor transactions only
with counterparties approved by the Portfolio's Board of Trustees. The Adviser
will monitor the creditworthiness of counterparties to its interest rate swap,
cap, floor and collar transactions on an ongoing basis. If there is a default by
the other party to such a transaction, the Portfolio will have contractual
remedies pursuant to the agreements related to the transaction. To the extent
the Portfolio sells (i.e., writes) caps, floors and collars, it will maintain in
a segregated account cash or liquid securities having an aggregate net asset
value at least equal to the full amount, accrued on a daily basis, of the
Portfolio's net obligations with respect to the caps, floors or collars. The use
of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in its forecasts
of the market values, interest rates and other applicable factors, the
investment performance of the Portfolio would diminish compared with what it
would have been if these investment techniques were not used. The use of
interest rate swaps, caps, collars and floors may also have the effect of
shifting the recognition of income between current and future periods.
These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap defaults, the Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio contractually is entitled to receive.
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PORTFOLIO TURNOVER
A Portfolio's turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Portfolio's portfolio securities during such fiscal year.
The turnover rate may vary greatly from year to year as well as within a year.
ILLIQUID SECURITIES
Each Portfolio, subject to its investment restrictions, may invest a
portion of its assets in illiquid securities, which includes securities that are
not readily marketable, repurchase agreements which have a maturity of longer
than seven days and generally includes securities that are restricted from sale
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"). The sale of such securities often requires more time and
results in higher brokerage charges or dealer discounts and other selling
expenses than does the sale of liquid securities trading on national securities
exchanges or in over-the-counter markets. Restricted securities are often
purchased at a discount from the market price of unrestricted securities of the
same issuer reflecting the fact that such securities may not be readily
marketable without some time delay. Investments in securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by the Adviser in accordance with procedures approved by the
Portfolio's Board of Trustees. Ordinarily, the Portfolio would invest in
restricted securities only when it receives the issuer's commitment to register
the securities without expense to the Portfolio. However, registration and
underwriting expenses (which typically range from 7% to 15% of the gross
proceeds of the securities sold) may be paid by the Portfolio. Restricted
securities which can be offered and sold to qualified institutional buyers under
Rule 144A under the 1933 Act ("144A Securities") and are determined to be liquid
under guidelines adopted by and subject to the supervision of the Portfolio's
Board of Trustees are not subject to the limitation on illiquid securities. Such
144A Securities are subject to monitoring and may become illiquid to the extent
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Factors used to determine whether 144A Securities are liquid
include, among other things, a security's trading history, the availability of
reliable pricing information, the number of dealers making quotes or making a
market in such security and the number of potential purchasers in the market for
such security. For purposes hereof, investments by the Portfolio in securities
of other investment companies will not be considered investments in restricted
securities to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief (such as "no
action" letters issued by the staff of the SEC interpreting or providing
guidance on the 1940 Act or the regulations thereunder) from the provisions of
the 1940 Act, as amended from time to time.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to maintain a net asset value of $1.00 per
share. To do so, the Portfolio uses the amortized cost method of valuing the
Portfolio's securities pursuant to Rule 2a-7 under the 1940 Act, certain
requirements of which are summarized below.
In accordance with Rule 2a-7, the Portfolio is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of thirteen months or less and invest
only in U.S. dollar denominated securities determined in accordance with
procedures established by the Portfolio's Board of Trustees to present minimal
credit risks and which are rated in one of the two highest rating categories for
debt obligations by at least two nationally recognized statistical rating
organizations (or one rating organization if the instrument was rated by only
one such organization) or, if unrated, are of comparable quality as determined
in accordance with procedures established by the Portfolio's Board of Trustees.
In addition, the Portfolio will not invest more than 5% of its total assets
in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that (i)
the Portfolio may invest more than 5% of its total assets in a single issuer for
a period of up to three
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business days in certain limited circumstances, (ii) the Portfolio may invest in
obligations issued or guaranteed by the U.S. government without any such
limitation, and (iii) the limitation with respect to puts does not apply to
unconditional puts if no more than 10% of the Portfolio's total assets are
invested in securities issued or guaranteed by the issuer of the unconditional
put. Investments in rated securities not rated in the highest category by at
least two rating organizations (or one rating organization if the instrument was
rated by only one such organization), and unrated securities not determined by
the Portfolio's Board of Trustees to be comparable to those rated in the highest
category, will be limited to 5% of the Portfolio's total assets, with the
investment in any one such issuer being limited to no more than the greater of
1% of the Portfolio's total assets or $1,000,000. As to each security, these
percentages are measured at the time the Portfolio purchases the security. There
can be no assurance that the Portfolio will be able to maintain a stable net
asset value of $1.00 per share.
STRATEGIC STOCK PORTFOLIO
The Strategic Stock Portfolio invests primarily in dividend paying equity
securities of companies included in the DJIA or in the MSCI USA Index (each as
defined in the Strategic Stock Portfolio Prospectus). In selecting securities
for the Portfolio, the Adviser presently intends to follow the following
procedures, subject to and limited by the Portfolio's other investment policies
and restrictions.
The Portfolio will reflect on its books twelve separate sub-accounts (each
a "Strategic Sub-Account"). Strategic Sub-Accounts will be successively
designated Strategic Sub-Account 1 through Strategic Sub-Account 12.
As of the close of business on (i) the business day immediately prior to
the Portfolio's commencement of investment operations and (ii) the last business
day of each month thereafter (each a "Strategic Determination Date"), the
Adviser will identify 20 securities pursuant to the Strategic Selection Policies
discussed in the Strategic Stock Portfolio Prospectus (the "Current Period
Strategic Securities").
As of commencement of investment operations, the Portfolio invested the
assets of Strategic Sub-Account 1 approximately equally in each of the Current
Period Strategic Securities determined on the first Strategic Determination
Date. This resulted in approximately 5% of the Portfolio's assets being invested
in each of the initial Current Period Strategic Securities. On each of the
eleven subsequent Strategic Determination Dates, the Adviser invested the cash
available for investment due to the sale of new shares and the receipt of
dividend and interest income in the next successive Strategic Sub-Account
approximately equally in each of the Current Period Strategic Securities for
that Strategic Determination Date. Following the twelfth Strategic Determination
Date the assets of one Strategic Sub-Account will be evaluated and adjusted each
month so that the assets of each Strategic Sub-Account will be reviewed and
adjusted once every 12 months.
Consistent with the Portfolio's investment objective, the Adviser may
modify these procedures without prior notice to investors to adjust the
frequency of portfolio review and adjustment and to adjust the portion of the
Portfolio's assets that is reviewed and adjusted during each period.
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each of the Portfolios, except the Domestic Income Portfolio and the Money
Market Portfolio, may, but is not required to, use various investment strategic
transaction as described below to earn income, facilitate portfolio management
and mitigate risks. Techniques and instruments may change over time as new
instruments or strategies are developed or regulatory changes occur. Although
the Adviser seeks to use these transactions to further a Portfolio's investment
objective(s), no assurance can be given that the use of these transactions will
achieve that result.
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WRITING CALL AND PUT OPTIONS
Purpose. Options may be utilized to hedge various market or to obtain,
through receipt of premiums, a greater current return than would be realized on
the underlying securities alone. The Portfolio's current return can be expected
to fluctuate because premiums earned from an option writing program and dividend
or interest income yields on portfolio securities vary as economic and market
conditions change. Writing options on portfolio securities also is likely to
result in a higher portfolio turnover.
Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. Each Portfolio writes call
options only on a covered basis and only the Government Portfolio and Comstock
Portfolio write call options either on a covered basis or for cross-hedging
purposes. A call option is covered if at all times during the option period the
Portfolio owns or has the right to acquire securities of the type that it would
be obligated to deliver if any outstanding option were exercised. Thus, the
Government Portfolio may write options on mortgage-related or other U.S.
government securities or forward commitments of such securities. An option is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a security which a Portfolio owns or has the right to acquire. In
such circumstances, a Portfolio collateralizes the option by maintaining in a
segregated account with a Portfolio's custodian, cash or liquid securities in an
amount not less than the market value of the underlying security, marked to
market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. A Portfolio would write put options
only on a secured basis, which means that, at all times during the option
period, the Portfolio would maintain in a segregated account with its custodian
cash or liquid securities in an amount of not less than the exercise price of
the option, or would hold a put on the same underlying security at an equal or
greater exercise price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, a Portfolio could
enter into a "closing purchase transaction," which is the purchase of a call
(put) on the same underlying security and having the same exercise price and
expiration date as the call (put) previously written by the Portfolio. The
Portfolio would realize a gain (loss) if the premium plus commission paid in the
closing purchase transaction is lesser (greater) than the premium it received on
the sale of the option. A Portfolio would also realize a gain if an option it
has written lapses unexercised.
A Portfolio could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A
Portfolio could close out its position as writer of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, a Portfolio could purchase an offsetting option,
which would not close out its position as a writer, but would provide an asset
of equal value to its obligation under the option written. If a Portfolio is not
able to enter into a closing purchase transaction or to purchase an offsetting
option with respect to an option it has written, it will be required to maintain
the securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so. The staff of the
SEC currently takes the position that, in general, over-the-counter options on
securities purchased by a Portfolio and portfolio securities "covering" the
amount of such Portfolio's obligation pursuant to an over-the-counter option
sold by it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to the Portfolio's limitation on illiquid securities
described herein.
The exercise price of call options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market value of the
underlying securities or futures contracts at the time the options are written.
The converse applies to put options.
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Risks of Writing Options. By writing a call option, a Portfolio loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Portfolio might become
obligated to purchase the underlying security at an exercise price that exceeds
the then current market price.
PURCHASING CALL AND PUT OPTIONS
A Portfolio could purchase call options to protect against anticipated
increases in the prices of securities it wishes to acquire. In addition, the
Comstock Portfolio, the Emerging Growth Portfolio, the Enterprise Portfolio, the
Growth and Income Portfolio, the Real Estate Securities Portfolio and the
Strategic Stock Portfolio may purchase call options for capital appreciation.
Since the premium paid for a call option is typically a small fraction of the
price of the underlying security, a given amount of funds will purchase call
options covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, a Portfolio could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, a Portfolio would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Put options may be purchased to protect against anticipated declines in the
market value of either specific portfolio securities or of a Portfolio's assets
generally. In addition, the Comstock Portfolio, the Emerging Growth Portfolio,
the Enterprise Portfolio, the Growth and Income Portfolio, the Real Estate
Securities Portfolio and the Strategic Stock Portfolio may purchase put options
for capital appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option. The
purchase of put options for capital appreciation involves the same significant
risk of loss as described above for call options.
In any case, the purchase of options for capital appreciation would
increase a Portfolio's volatility by increasing the impact of changes in the
market price of the underlying securities on the Portfolio's net asset value.
The Government Portfolio will not purchase call or put options on
securities if as a result, more than 10% of its net assets would be invested in
premiums on such options.
A Portfolio may purchase either listed or over-the-counter options.
RISK FACTORS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT SECURITIES
Treasury Bonds and Notes. Because trading interest in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of bonds or notes will thus be phased out as new options are
listed on more recent issues, and options representing a full range of
expirations will not ordinarily be available for every issue on which options
are traded.
Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its custodian so that it
will be treated as being covered.
Mortgage-Related Securities. The following special considerations will be
applicable to options on mortgage-related securities. Currently such options are
only traded over-the-counter. Since the remaining principal balance of a
mortgage-related security declines each month as a result of mortgage payments,
the Portfolio as a writer of a mortgage-related call holding mortgage-related
securities as "cover" to satisfy its
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delivery obligation in the event of exercise may find that the mortgage-related
securities it holds no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Portfolio will purchase additional
mortgage-related securities from the same pool (if obtainable) or replacement
mortgage-related securities in the cash market in order to maintain its cover. A
mortgage-related security held by the Portfolio to cover an option position in
any but the nearest expiration month may cease to represent cover for the option
in the event of a decline in the coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. If this should occur,
the Portfolio will no longer be covered, and the Portfolio will either enter
into a closing purchase transaction or replace such mortgage-related security
with a mortgage-related security which represents cover. When the Portfolio
closes its position or replaces such mortgage-related security, it may realize
an unanticipated loss and incur transaction costs.
OPTIONS ON STOCK INDEXES (ASSET ALLOCATION PORTFOLIO, COMSTOCK PORTFOLIO,
EMERGING GROWTH PORTFOLIO, ENTERPRISE PORTFOLIO, GLOBAL EQUITY PORTFOLIO, GROWTH
AND INCOME PORTFOLIO, REAL ESTATE SECURITIES PORTFOLIO AND STRATEGIC STOCK
PORTFOLIO ONLY)
Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by a
specified dollar multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indices are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges.
Gain or loss to a Portfolio on transactions in stock index options will
depend on price movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements of individual
securities. As with stock options, the Portfolio may offset its position in
stock index options prior to expiration by entering into a closing transaction
on an exchange, or it may let the option expire unexercised.
FOREIGN CURRENCY OPTIONS
Certain Portfolios may purchase put and call options on foreign currencies
to reduce the risk of currency exchange fluctuation. Premiums paid for such put
and call options will be limited to no more than 5% of the Portfolio's net
assets at any given time. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies are traded on certain United States and
foreign exchanges. Exchange-traded options are expected to be purchased by the
Portfolio from time to time and over-the-counter options may also be purchased,
but only when the Adviser believes that a liquid secondary market exists for
such options, although there can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investment generally.
The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an
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odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.
FUTURES CONTRACTS
Certain Portfolios may engage in transactions involving futures contracts
and related options in accordance with rules and interpretations of the
Commodity Futures Trading Commission ("CFTC") under which the Trust and its
Portfolios would be exempt from registration as a "commodity pool."
Types of Contracts. An interest rate futures contract is an agreement
pursuant to which a party agrees to take or make delivery of a specified debt
security (such as U.S. Treasury bonds, U.S. Treasury notes, U.S. Treasury bills
and GNMA Certificates) at a specified future time and at a specified price.
Interest rate futures contracts also include cash settlement contracts based
upon a specified interest rate such as the London interbank offering rate for
dollar deposits, LIBOR.
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures contracts
can be purchased with respect to several indices on various exchanges.
Differences in the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value of the
securities being hedged.
A Portfolio also may invest in foreign stock index futures traded outside
the United States which involve additional risks, including fluctuations in
foreign exchange rates, future foreign political and economic developments, and
the possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, a Portfolio is required to deposit with its custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Portfolio upon termination of the futures contract and satisfaction of
its contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when a Portfolio purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Portfolio receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Portfolio purchases a futures contract
and the value of the underlying security or index declines, the position is less
valuable, and the Portfolio is required to make a variation margin payment to
the broker.
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At any time prior to expiration of the futures contract, the Portfolio may
elect to terminate the position by taking an opposite position. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or a
gain.
Futures Strategies. When a Portfolio anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Portfolio is
otherwise fully invested ("anticipatory hedge"). Such purchase of a futures
contract serves as a temporary substitute for the purchase of individual
securities, which may be purchased in an orderly fashion once the market has
stabilized. As individual securities are purchased, an equivalent amount of
futures contracts could be terminated by offsetting sales. A Portfolio may sell
futures contracts in anticipation of or in a general market or market sector
decline that may adversely affect the market value of the Portfolio's securities
("defensive hedge"). To the extent that the Portfolio's portfolio of securities
changes in value in correlation with the underlying security or index, the sale
of futures contracts substantially reduces the risk to a Portfolio of a market
decline and, by so doing, provides an alternative to the liquidation of
securities positions in the Portfolio with attendant transaction costs.
Ordinarily transaction costs associated with futures transactions are lower than
transaction costs that would be incurred in the purchase and sale of the
underlying securities.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts. These include the risk of imperfect
correlation between movements in the price of the futures contracts and of the
underlying securities or index; the risk of market distortion; the risk of
illiquidity risks and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for this imperfect correlation, a Portfolio could buy or sell futures contracts
in a greater dollar amount than the dollar amount of securities being hedged if
the historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, a Portfolio could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of the securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by a Portfolio could decline at the same time as
portfolio securities being hedged; if this occurred, the Portfolio would lose
money on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities, currency or index
underlying the futures contract due to certain market distortions. First, all
participants in the futures market are subject to margin depository and
maintenance requirements. Rather than meet additional margin depositary
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the futures
market and the securities or index underlying the futures contract. Second, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures markets may cause
temporary price distortions. Due to the possibility of price distortion in the
futures markets and because of the imperfect correlation between movements in
futures contracts and movements in the securities underlying them, a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although a Portfolio intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, a
Portfolio would continue to be required to make daily
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payments of variation margin. Since the securities being hedged would not be
sold until the related futures contract is sold, an increase, if any, in the
price of the securities may to some extent offset losses on the related futures
contract. In such event, the Portfolio would lose the benefit of the
appreciation in value of the securities.
Successful use of futures is also subject to the Advisers' ability
correctly to predict the direction of movements in the market. For example, if
the Portfolio hedges against a decline in the market, and market prices instead
advance, the Portfolio will lose part or all of the benefit of the increase in
value of its securities holdings because it will have offsetting losses in
futures contracts. In such cases, if the Portfolio has insufficient cash, it may
have to sell portfolio securities at a time when it is disadvantageous to do so
in order to meet the daily variation margin.
Although the Portfolio intends to enter into futures contracts only if
there is an active market for such contracts, there is no assurance that an
active market will exist for the contracts at any particular time. Most U.S.
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Portfolio would be required to make daily cash
payments of variation margin. In such circumstances, an increase in the value of
the portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price of the securities being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide an offset to losses on the
futures contract.
A Portfolio will not enter into a futures contract or option (except for
closing transactions) for other than for bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options would exceed 5% of the Portfolio's total
assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. Certain state securities laws to
which a Portfolio may be subject may further restrict the Portfolio's ability to
engage in transactions in futures contracts and related options. In order to
prevent leverage in connection with the purchase of futures contracts by a
Portfolio, an amount of cash or liquid securities equal to the market value of
the obligation under the futures contracts (less any related margin deposits)
will be maintained in a segregated account with the custodian.
OPTIONS ON FUTURES CONTRACTS
A Portfolio could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, a Portfolio is subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by a Portfolio are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. A Portfolio could purchase put options on futures contracts in lieu of,
and for the same purposes as the sale of a futures contract; at the same time,
it could write put options at a lower strike price (a "put bear spread") to
offset part of the cost of the strategy to the Portfolio. The purchase of call
options on futures contracts is intended to serve the same purpose as the actual
purchase of the futures contract.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless, in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to a
Portfolio because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However there may be circumstances, such as when there
is no movement in the level of
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the index, when the use of an option on a future would result in a loss to the
Portfolio when the use of a future would not.
ADDITIONAL RISKS OF OPTIONS AND FUTURES TRANSACTIONS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be sold by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the
Portfolio may write.
In the event of the bankruptcy of a broker through which a Portfolio
engages in transactions in options, futures or related options, the Portfolio
could experience delays or losses in liquidating open positions purchased or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by a Portfolio only with brokers or financial institutions
deemed creditworthy by the Adviser.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES
Unlike transactions entered into by a Portfolio in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the Securities and Exchange Commission ("SEC"). To the contrary,
such instruments are traded through financial institutions acting as
market-makers, although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could, therefore, continue to an unlimited extent over
a period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, the option seller and a trader of forward contracts could
lose amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign special procedures on exercise and settlement, such as
technical changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions, on exercise.
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In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many derivative transactions, in addition to other requirements, require
that a Portfolio segregate cash and liquid securities with its custodian to the
extent such Portfolio's obligations are not otherwise "covered" as described
above. In general, either the full amount of any obligation by a Portfolio to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered (or securities
convertible into the needed securities without additional consideration), or,
subject to applicable regulatory restrictions, an amount of cash or liquid
securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. In the case of a futures contract or an
option thereon, a Portfolio must deposit initial margin and possible daily
variation margin in addition to segregating cash and liquid securities
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Derivative transactions may be covered by other means when
consistent with applicable regulatory policies. A Portfolio may also enter into
offsetting transactions so that its combined position, coupled with any
segregated cash and liquid securities, equals its net outstanding obligation.
INVESTMENT RESTRICTIONS
Each Portfolio has adopted the following restrictions which may not be
changed without shareholder approval by the vote of a majority of its
outstanding voting shares; which is defined by the 1940 Act as the lesser of (i)
67% or more of the voting securities present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Portfolio are present
or represented by proxy; or (ii) more than 50% of the Portfolio's outstanding
voting securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. With
respect to the limitations on illiquid securities and borrowings, the
limitations apply at the time of purchase and on an ongoing basis. The
Portfolios are subject to the restrictions set forth below. (Those restrictions
that are only applicable to certain Portfolios are noted as such.)
THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE ASSET ALLOCATION PORTFOLIO, THE
DOMESTIC INCOME PORTFOLIO, THE EMERGING GROWTH PORTFOLIO, THE ENTERPRISE
PORTFOLIO, THE GLOBAL EQUITY PORTFOLIO, THE GOVERNMENT PORTFOLIO, THE GROWTH AND
INCOME PORTFOLIO AND THE MONEY MARKET PORTFOLIO:
A Portfolio shall not:
1. Invest in securities of any company if any officer or trustee of the
Portfolio or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more
than 5% of the outstanding securities of such issuer.
2. Invest in companies for the purpose of acquiring control or management
thereof except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
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3. Underwrite securities of other companies, except insofar as a Portfolio
might be deemed to be an underwriter for purposes of the Securities Act
of 1933 in the resale of any securities owned by the Portfolio.
4. Lend its portfolio securities in excess of 10% of its total assets,
both taken at market value provided that any loans shall be in
accordance with the guidelines established for such loans by the Board
of Trustees of the Trust as described under "Investment
Practices--Lending of Securities" including the maintenance of
collateral from the borrower equal at all times to the current market
value of the securities loaned.
THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE ASSET ALLOCATION
PORTFOLIO AND THE ENTERPRISE PORTFOLIO:
A Portfolio shall not:
1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
2. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may enter into transactions in
options, futures contracts or options on futures contracts and may
purchase securities secured by real estate or interests therein; or
issued by companies, including real estate investment trusts, which
invest in real estate or interests therein.
4. Invest in interests in oil, gas, or other mineral exploration or
development programs.
5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Portfolio may purchase securities of other investment companies
to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
6. Lend money, except that a Portfolio may invest in repurchase agreements
in accordance with applicable requirements set forth in the Prospectus
and may acquire debt securities which the Portfolio's investment
policies permit. A Portfolio will not invest in repurchase agreements
maturing in more than seven days (unless subject to a demand feature) if
any such investment, together with any illiquid securities (including
securities which are subject to legal or contractual restrictions on
resale) held by the Portfolio, exceeds 10% of the market or other fair
value of its total net assets; provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company. See
"Repurchase Agreements" in the Prospectus and herein.
7. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States government, its agencies or instrumentalities and repur-
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chase agreements secured thereby); provided, however, that this
limitation excludes shares of other open-end investment companies owned
by the Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company.
8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities. Notwithstanding the foregoing, the Portfolio may engage in
transactions in options, futures contracts and options on futures
contracts.
9. Purchase securities on margin, except that a Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Portfolio of
initial or maintenance margin in connection with transactions in
options, futures contracts or options on futures contracts is not
considered the purchase of a security on margin.
10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
11. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of covered call or secured put options, or in
connection with the purchase or sale of futures contracts and related
options are not deemed or to be a pledge or other encumbrance.
In addition, the following restrictions apply to, and may not be changed
without the approval of the holders of a majority of the shares of, the
Portfolio indicated:
The Enterprise Portfolio may not invest more than 5% of its net assets
in warrants or rights valued at the lower of cost or market, nor more than
2% of its net assets in warrants or rights (valued on such basis) which are
not listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation. Furthermore, the Enterprise Portfolio may not invest
in the securities of a foreign issuer if, at the time of acquisition, more
than 10% of the value of the Enterprise Portfolio's total assets would be
invested in such securities. Foreign investments may be subject to special
risks, including future political and economic developments, the possible
imposition of additional withholding taxes on dividend or interest income
payable on the securities, or the seizure or nationalization of companies,
or establishment of exchange controls or adoption of other restrictions
which might adversely affect the investment.
The Asset Allocation Portfolio may not invest in the securities of a
foreign issuer if, at the time of acquisition, more than 25% of the value
of the Asset Allocation Portfolio's total assets would be invested in such
securities.
THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE DOMESTIC INCOME
PORTFOLIO:
The Domestic Income Portfolio shall not:
1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the
outstanding voting securities of any one issuer except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
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<PAGE> 375
2. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may purchase securities secured by
real estate or interests therein; or issued by companies, including
real estate investment trusts, which invest in real estate or interests
therein.
4. Invest in interests in oil, gas, or other mineral exploration or
development programs.
5. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Portfolio's assets would be invested in such
securities except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
6. Lend money, except that the Portfolio may invest in repurchase
agreements in accordance with applicable requirements set forth in the
Prospectus and may acquire debt securities which the Portfolio's
investment policies permit. The Portfolio will not invest in repurchase
agreements maturing in more than seven days (unless subject to a demand
feature) if any such investment, together with any illiquid securities
(including securities which are subject to legal or contractual
restrictions on resale) held by the Portfolio, exceeds 10% of the
market or other fair value of its total net assets. See "Repurchase
Agreements" in the Prospectus and herein.
7. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby).
8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities.
9. Purchase securities on margin, except that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities.
10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
11. Write put or call options.
12. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of covered call or secured put options, or in
connection with the purchase or sale of futures contracts and related
options are not deemed or to be a pledge or other encumbrance.
13. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 25% of the value of the Portfolio's total assets
would be invested in such securities.
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<PAGE> 376
THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE COMSTOCK PORTFOLIO:
The Comstock Portfolio shall not:
1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the United States government)
or purchase more than 10% of the outstanding voting securities of any
one issuer, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
2. Make short sales or purchase securities on margin; but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities, and it may engage in transactions in
options, futures contracts and related options and make margin deposits
and payments in connection therewith.
3. Pledge any of its assets, except that the Portfolio may pledge assets
having a value of not more than 10% of its total assets in order to
secure permitted borrowings from banks. Such borrowings may not exceed
5% of the value of the Portfolio's assets and can be made only as a
temporary measure for extraordinary or emergency purposes.
Notwithstanding the foregoing, the Portfolio may engage in transactions
in options, futures contracts and related options, segregate or deposit
assets to cover or secure options written, and make margin deposits and
payments for futures contracts and related options.
4. Invest in securities issued by other investment companies, except part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
5. Invest in real estate, commodities or commodities contracts, except
that the Portfolio may engage in transactions in futures contracts and
related options.
6. Invest in securities of a company for the purpose of exercising
management or control, although the Portfolio retains the right to vote
securities held by it, except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.
7. Engage in the underwriting of securities of other issuers, except that
the Portfolio may sell an investment position even though it may be
deemed to be an underwriter as that term is defined under the
Securities Act of 1933.
8. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Portfolio's assets would be invested in such
securities, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
9. Invest more than 25% of its total net asset value in any one industry,
except that the Portfolio may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.
B-27
<PAGE> 377
10. Make loans except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investment in repurchase agreements, provided
that the Portfolio will not make any investment in repurchase
agreements maturing in more than seven days if such investments,
together with any illiquid securities held by the Portfolio, would
exceed 10% of the value of its net assets.
In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Comstock Portfolio is subject to the following
policies which may be amended by the Trustees. The Portfolio shall not:
1. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 15% of the value of the Portfolio's total assets
would be invested in securities of foreign issuers.
2. Invest more than 5% of its net assets in warrants or rights valued at
the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the
New York Stock Exchange or American Stock Exchange. Warrants or rights
acquired in units or attached to other securities are not subject to
the foregoing limitations.
3. Invest in interests in oil, gas, or other mineral exploration or
development programs.
4. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation and in securities not having readily available market
quotations, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
5. Purchase or retain securities of any issuer if those officers and
trustees of the Portfolio or its investment adviser who own
individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such issuer.
6. Invest more than 5% of its assets in the securities of any one issuer
other than the United States government, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
7. Pledge, mortgage or hypothecate its portfolio securities to the extent
that at any time the percentage of pledged securities plus the sales
load will exceed 10% of the offering price of the Fund's shares.
Notwithstanding the foregoing, the Fund may engage in transactions in
options, futures contracts and related options, segregate or deposit
assets to cover or secure options written, and make margin deposits or
payments for futures contracts and related options.
8. Invest more than 10% of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements that have
a maturity of longer than seven days.
THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE EMERGING GROWTH PORTFOLIO:
The Emerging Growth Portfolio shall not:
1. Invest directly in real estate interests of any nature, although the
Portfolio may invest indirectly through media such as real estate
investment trusts.
2. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in futures contracts or related options.
B-28
<PAGE> 378
3. Issue any of its securities for (a) services or (b) property other than
cash or securities (including securities of which the Portfolio is the
issuer), except as a dividend or distribution to its shareholders in
connection with a reorganization.
4. Issue senior securities and shall not borrow money except from banks as
a temporary measure for extraordinary or emergency purposes and in an
amount not exceeding five percent of the Portfolio's total assets.
Notwithstanding the foregoing, the Portfolio may enter into transactions
in options, futures contracts and related options and may make margin
deposits and payments in connection therewith.
5. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured hereby); provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company.
6. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
7. Sell short or borrow for short sales. Short sales "against the box" are
not subject to this limitation.
8. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States government, it agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
9. Invest in warrants in excess of 5% of its net assets (including, but not
to exceed 2% in warrants which are not listed on the New York or
American Stock Exchanges).
10. Purchase securities of issuers which have a record of less than three
years continuous operation if such purchase would cause more than 5% of
the Portfolio's total assets to be invested in securities of such
issuers except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
11. Invest more than 15% of its net assets in illiquid securities,
including securities that are not readily marketable, restricted
securities and repurchase agreements that have a maturity of more than
seven days except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
12. Invest in interests in oil, gas, or other mineral exploration or
developmental programs, except through the purchase of liquid
securities of companies which engage in such businesses.
13. Pledge, mortgage or hypothecate its portfolio securities or other
assets to the extent that the percentage of pledged assets plus the
sales load exceeds 10% of the offering price of the Portfolio's shares.
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<PAGE> 379
THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE GLOBAL EQUITY PORTFOLIO:
The Global Equity Portfolio shall not:
1. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby); provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company.
2. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than 10% of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds 5% of its net assets. Margin deposits or payments in
connection with the writing of options or in connection with the
purchase or sale of forward contracts, futures, foreign currency futures
and related options are not deemed to be a pledge or other encumbrance.
4. Lend money except through the purchase of (i) United States and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit similar evidences of indebtedness, both foreign
and domestic, and (ii) repurchase agreements; or lend securities in an
amount exceeding 15% of the total assets of the Portfolio. The purchase
of a portion of an issue of securities described under (i) above
distributed publicly, whether or not the purchase is made on the
original issuance, is not considered the making of a loan.
5. Make short sales of securities, unless at the time of the sale it owns
or has the right to acquire an equal amount of such securities; provided
that this prohibition does not apply to the writing of options or the
sale of forward contracts, futures, foreign currency futures or related
options.
6. Purchase securities on margin but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Portfolio of
initial or maintenance margin in connection with forward contracts,
futures, foreign currency futures or related options is not considered
the purchase of a security on margin.
7. Buy or sell real estate or interests in real estate including real
estate limited partnerships, provided that the foregoing prohibition
does not apply to a purchase and sale of publicly traded (i) securities
which are secured by real estate, (ii) securities representing interests
in real estate, and (iii) securities of companies principally engaged in
investing or dealing in real estate.
8. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in options, futures contracts or related
options including foreign currency futures contracts and related options
and forward contracts.
9. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making and collateralizing any permitted borrowings, (ii) making any
permitted loans of its portfolio securities or (iii) entering into
repurchase agreements, utilizing options, futures contracts, options on
futures contracts, forward contracts, forward commitments and other
investment strategies and instruments that would be considered "senior
securities" but for the
B-30
<PAGE> 380
maintenance by the Portfolio of a segregated account with its custodian
or some other form of "cover".
10. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except (a)
through purchase in the open market in a transaction involving no
commission or profit to a sponsor or dealer (other than the customary
broker's commission) or as part of a merger, consolidation or other
acquisition; or (b) to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
11. Invest more than 5% of its net assets in warrants or rights valued at
the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the
New York or American Stock Exchanges. Warrants or rights acquired in
units or attached to other securities are not subject to the foregoing
limitation.
12. Invest in interests in oil, gas, or other mineral exploration or
development programs or invest in oil, gas, or mineral leases, except
that the Portfolio may acquire securities of public companies which
themselves are engaged in such activities.
13. Invest more than 5% of its total assets in securities of unseasoned
issuers which have been in operation directly or through predecessors
for less than three years, except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.
14. Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets (taken at current value) would be invested in
securities that are illiquid by virtue of the absence of a readily
available market. This policy includes repurchase agreements maturing
in more than seven days and over-the-counter options held by the
Portfolio and that portion of assets used to cover such options. This
policy does not apply to restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 which the
Trustees or the Adviser under Board approved guidelines, may determine
are liquid nor does it apply to other securities, for which,
notwithstanding legal or contractual restrictions on resale, a liquid
market exists. Notwithstanding the foregoing, this limitation excludes
shares of other open-end investment companies owned by the Portfolio
but includes the Portfolio's pro rata portion of the securities and
other assets owned by any such investment company.
THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE GOVERNMENT
PORTFOLIO:
The Government Portfolio shall not:
1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
2. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
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<PAGE> 381
3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may invest in interest rate
futures and related options and may purchase securities secured by real
estate or interests therein; or issued by companies, including real
estate investment trusts, which invest in real estate or interests
therein.
4. Invest in interests in oil, gas, or other mineral exploration or
development programs.
5. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Portfolio's assets would be invested in such
securities except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
6. Lend money, except that the Portfolio may invest in repurchase
agreements in accordance with applicable requirements set forth in the
Prospectus and may acquire debt securities which the Portfolio's
investment policies permit. The Portfolio will not invest in repurchase
agreements maturing in more than seven days (unless subject to a demand
feature) if any such investment, together with any illiquid securities
(including securities which are subject to legal or contractual
restrictions on resale) held by the Portfolio, exceeds ten percent of
the market or other fair value of its total net assets. See "Repurchase
Agreements" in the Prospectus and herein.
7. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby).
8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities. Notwithstanding the foregoing, the Portfolio may make short
sales by entering into forward commitments for hedging or cross-hedging
purposes and the Portfolio may engage in transactions in options,
future contracts and related options.
9. Purchase securities on margin, except that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities. The deposit or payment by the
Portfolio of initial or maintenance margin in connection with interest
rate futures contracts or related options transactions is not
considered the purchase of a security on margin.
10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
11. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of options, or in connection with the purchase or sale
of futures contracts and related options are not deemed to be a pledge
or other encumbrance.
12. Write, purchase or sell puts, calls or combinations thereof, except
that the Portfolio may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or
offsetting purchase transactions with respect to such options, (b)
purchase options to the extent that the premiums paid for all such
options owned at any time do not exceed 10% of its total assets, and
enter into closing or offsetting transactions with respect to such
options, and (c) engage in transactions in interest rate futures
contracts and related options provided that such transactions are
entered into for bona fide hedging purposes (or that the underlying
commodity value of the
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Portfolio's long positions do not exceed the sum of certain identified
liquid investments as specified in CFTC regulations), provided further
that the aggregate initial margin and premiums do not exceed 5% of the
fair market value of the Portfolio's total assets, and provided further
that the Portfolio may not purchase futures contracts or related
options if more than 30% of the Portfolio's total assets would be so
invested.
THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE GROWTH AND INCOME
PORTFOLIO:
The Growth and Income Portfolio shall not:
1. Borrow money, except from a bank and then only as a temporary measure
for extraordinary or emergency purposes but not for making additional
investments and not in excess of 5% of the total net assets of the
Portfolio taken at cost. In connection with any borrowing the Portfolio
may pledge up to 15% of its total assets taken at cost. Notwithstanding
the foregoing, the Portfolio may engage in transactions in options,
futures contracts and related options, segregate or deposit assets to
cover or secure options written, and make margin deposits or payments
for futures contracts and related options.
2. Purchase or sell interests in real estate, except readily marketable
securities, including securities of real estate investment trusts.
3. Purchase or sell commodities or commodities contracts, except that the
Portfolio may enter into transactions in futures contracts and related
options.
4. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making and collateralizing any permitted borrowings, (ii) making any
permitted loans of its portfolio securities, or (iii) entering into
repurchase agreements, utilizing options, futures contracts, options on
futures contracts and other investment strategies and instruments that
would be considered "senior securities" but for the maintenance by the
Portfolio of a segregated account with its custodian or some other form
of "cover."
5. Invest more than 25% of its total net asset value in any one industry
provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Portfolio but includes the
Portfolio's pro rata portion of the securities and other assets owned by
any such company.
6. Invest more than 5% of the market value of its total assets at the time
of purchase in the securities (except U.S. government securities) of any
one issuer or purchase more than 10% of the outstanding voting
securities of such issuer except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.
In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Growth and Income Portfolio is subject to the
following policies which may be amended by the Trustees.
1. Purchase securities on margin, or sell securities short, but the
Portfolio may enter into transactions in options, futures contracts and
related options and may make margin deposits and payments in connection
therewith.
2. The Portfolio may not invest in interests in oil, gas, or other mineral
exploration or development programs, except that the Portfolio may
acquire securities of public companies which themselves are engaged in
such activities.
3. Purchase securities of a corporation in which a trustee of the Portfolio
owns a controlling interest.
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4. Permit officers or trustees of the Portfolio to profit by selling
securities to or buying them from the Portfolio. However, companies with
which the officers and trustees of the Portfolio are connected may enter
into underwriting agreements with the Portfolio to sell its shares, sell
securities to, and purchase securities from the Portfolio when acting as
broker or dealer at the customary and usual rates and discounts, to the
extent permitted by the 1940 Act.
5. Investments in repurchase agreements and purchases by the Portfolio of a
portion of an issue of publicly distributed debt securities shall not be
considered the making of a loan.
6. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 15%
of the value of the Portfolio's net assets would be invested in such
securities except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
7. Invest more than 5% of the market value of its total assets in companies
having a record together with predecessors of less than three years
continuous operation and in securities not having readily available
market quotations except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE MONEY MARKET
PORTFOLIO:
The Money Market Portfolio shall not:
1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.
2. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may purchase securities secured by
real estate or interests therein; or issued by companies, including real
estate investment trusts, which invest in real estate or interests
therein.
4. Invest in interests in oil, gas, or other mineral exploration or
development programs.
5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Fund may purchase securities of other investment companies to
the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other relief
from the provisions of the 1940 Act.
6. Lend money, except that the Portfolio may invest in repurchase
agreements in accordance with applicable requirements set forth in the
Prospectus and may acquire debt securities which the Portfolio's
investment policies permit. The Portfolio will not invest in repurchase
agreements
B-34
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maturing in more than seven days (unless subject to a demand feature)
if any such investment, together with any illiquid securities
(including securities which are subject to legal or contractual
restrictions on resale) held by the Portfolio, exceeds 10% of the
market or other fair value of its total net assets. See "Repurchase
Agreements" in the Prospectus and herein.
7. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States government, its agencies or instrumentalities and repurchase
agreements secured thereby and obligations of domestic branches of
United States banks).
8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities.
9. Purchase securities on margin, except that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities.
10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
11. Write put or call options.
12. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of covered call or secured put options, or in
connection with the purchase or sale of futures contracts and related
options are not deemed or to be a pledge or other encumbrance.
13. Purchase any security which matures more than one year from the date of
purchase.
THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE MORGAN STANLEY REAL ESTATE
SECURITIES PORTFOLIO.
The Morgan Stanley Real Estate Securities Portfolio shall not:
1. Engage in the underwriting of securities of other issuers, except that
the Portfolio may sell an investment position even though it may be
deemed to be an underwriter under the federal securities laws.
2. With respect to 75% of its total assets, invest more than 5% of its
assets in the securities of any one issuer (except the U.S. government,
its agencies and instrumentalities and repurchase agreements secured
thereby) or purchase more than 10% of the outstanding voting securities
of any one issuer, except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than 10% of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds 5% of its net assets. Margin deposits or payments in
connection with the writing of options, or in connection with the
purchase or sale of forward contracts, futures, foreign currency futures
and related options, are not deemed to be a pledge or other encumbrance.
4. Lend money or securities except by the purchase of a portion of an
issue of bonds, debentures or other obligations of types commonly
distributed to institutional investors publicly or privately (in the
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<PAGE> 385
latter case the investment will be subject to the stated limits on
investments in "restricted securities"), and except by the purchase of
securities subject to repurchase agreements.
5. Buy or sell real estate including real estate limited partnerships,
provided that the foregoing prohibition does not apply to a purchase
and sale of (i) securities which are secured by real estate, (ii)
securities representing interests in real estate, and (iii) securities
of companies operating in the real estate industry, including real
estate investment trusts. The Portfolio may hold and sell real estate
acquired as a result of the ownership of its securities.
6. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in options, futures contracts or related
options including foreign currency futures contracts and related
options and forward contracts.
7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making and collateralizing any permitted borrowings, (ii) making any
permitted loans of its portfolio securities or (iii) entering into
repurchase agreements, utilizing options, futures contracts, options on
futures contracts, forward contracts, forward commitments and other
investment strategies and instruments that would be considered "senior
securities" but for the maintenance by the Portfolio of a segregated
account with its custodian or some other form of "cover".
8. Concentrate its investment in any one industry, except that the
Portfolio will invest more than 25% of its total assets in the real
estate industry. This limitation excludes shares of other open-end
investment companies owned by the Portfolio but includes the
Portfolio's pro rata portion of the securities and other assets owned
by any such company.
9. Write, purchase or sell puts, calls or combinations thereof, except
that the Portfolio may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or
offsetting purchase transactions with respect to such options, (b)
purchase and sell options to the extent that the premiums paid for all
such options owned at any time do not exceed 10% of its total assets
and (c) engage in transactions in futures contracts and related options
transactions provided that such transactions are entered into for bona
fide hedging purposes (or meet certain conditions as specified in CFTC
regulations), and provided further that the aggregate initial margin
and premiums do not exceed 5% of the fair market value of the
Portfolio's total assets.
10. The Portfolio may not make short sales of securities, unless at the
time of the sale it owns or has the right to acquire an equal amount of
such securities; provided that this prohibition does not apply to the
writing of options or the sale of forward contracts, futures, foreign
currency futures or related options.
In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Morgan Stanley Real Estate Securities
Portfolio is subject to the following policies which may be amended by the
Morgan Stanley Real Estate Securities Portfolio's Trustees and which apply at
the time of purchase of portfolio securities.
1. The Portfolio may not make investments for the purpose of exercising
control or management although the Portfolio retains the right to vote
securities held by it except that the Portfolio may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940
Act.
2. The Portfolio may not purchase securities on margin but the Portfolio
may obtain such short-term credits as may be necessary for the clearance
of purchases and sales of securities. The deposit or payment by the
Portfolio of initial or maintenance margin in connection with forward
contracts, futures, foreign currency futures or related options is not
considered the purchase of a security on margin.
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<PAGE> 386
3. The Portfolio may not invest in the securities of other open-end
investment companies, or invest in the securities of closed-end
investment companies except through purchase in the open market in a
transaction involving no commission or profit to a sponsor or dealer
(other than the customary broker's commission) or as part of a merger,
consolidation or other acquisition except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
4. The Portfolio may not invest more than 5% of its net assets in warrants
or rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis) which are not
listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation.
5. The Portfolio may not invest in securities of any company if any officer
or trustee of the Portfolio or of the Adviser owns more than 1/2 of 1%
of the outstanding securities of such company, and such officers and
trustees who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer.
6. The Portfolio may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Portfolio may acquire securities of public
companies which themselves are engaged in such activities.
7. The Portfolio may not invest more than 5% of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years, except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
8. The Portfolio may not purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Trustees or the Adviser under approved
guidelines, may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual restrictions
on resale, a liquid market exists.
THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE STRATEGIC STOCK PORTFOLIO.
The Strategic Stock Portfolio shall not:
1. Engage in the underwriting of securities of other issuers, except that
the Portfolio may sell an investment position even though it may be
deemed to be an underwriter under the federal securities laws.
2. Purchase any securities (other than obligations issued or guaranteed by
the United States government or by its instrumentalities), if, as a
result, more than 5% of the Portfolio's total assets (taken at current
value) would then be invested in securities of a single issuer or, if as
a result, such Portfolio would hold more than 10% of the outstanding
voting securities of an issuer, except that up to 25% of the Portfolio's
total assets may be invested without regard to such limitations. Neither
limitation shall apply to the acquisition of shares of other open-end
investment companies to the extent permitted by rule or order of the SEC
exempting the Portfolio from the limitations imposed by Section 12(d)(1)
of the 1940 Act.
3. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end
investment companies owned by the Portfolio but includes the
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<PAGE> 387
Portfolio's pro rata portion of the securities and other assets owned by
any such company. (Neither the U.S. government nor any of its agencies
or instrumentalities will be considered an industry for purposes of this
restriction.)
4. Buy or sell real estate including real estate limited partnerships,
provided that the foregoing prohibition does not apply to a purchase and
sale of (i) securities which are secured by real estate, (ii) securities
representing interests in real estate, and (iii) securities of companies
operating in the real estate industry, including real estate investment
trusts. The Portfolio may hold and sell real estate acquired as a result
of the ownership of its securities.
5. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in options, futures contracts or related
options including foreign currency futures contracts and related options
and forward contracts.
6. Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3%
of the Portfolio's total assets (after giving effect to any such
borrowing); which amount does not include borrowings and reverse
repurchase agreements with any entity where such borrowings and reverse
repurchase agreements are in an amount not exceeding 5% of its total
assets and for temporary purposes only. The Portfolio will not mortgage,
pledge or hypothecate any assets other than in connection with issuances
of senior securities, borrowings, delayed delivery, and when issued
transactions, options, futures contracts, options on futures contracts,
forward contracts, forward commitments and other investment strategies
and instruments.
7. Make loans of money or property to any person, except (i) to the extent
the securities in which the Portfolio may invest are considered to be
loans, (ii) through the loan of portfolio securities, and (iii) to the
extent that the Portfolio may lend money or property in connection with
maintenance of the value of, or the Portfolio's interest with respect
to, the securities owned by the Portfolio.
In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Strategic Stock Portfolio is subject to the
following policies which may be amended by the Strategic Stock Portfolio's
Trustees and which apply at the time of purchase of portfolio securities.
1. The Portfolio may not make short sales of securities, unless at the time
of the sale it owns or has the right to acquire an equal amount of such
securities; provided that this prohibition does not apply to the writing
of options or the sale of forward contracts, futures, foreign currency
futures or related options.
2. The Portfolio may not make investments for the purpose of exercising
control or management although the Portfolio retains the right to vote
securities held by it except that the Portfolio may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940
Act.
3. The Portfolio may not purchase securities on margin but the Portfolio
may obtain such short-term credits as may be necessary for the clearance
of purchases and sales of securities. The deposit or payment by the
Portfolio of initial or maintenance margin in connection with forward
contracts, futures, foreign currency futures or related options is not
considered the purchase of a security on margin.
4. The Portfolio may not invest in the securities of other open-end
investment companies, or invest in the securities of closed-end
investment companies except as part of a merger, consolidation or other
acquisition and except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
5. The Portfolio may not invest more than 5% of its net assets in warrants
or rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis)
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<PAGE> 388
which are not listed on the New York or American Stock Exchanges.
Warrants or rights acquired in units or attached to other securities are
not subject to the foregoing limitation.
6. The Portfolio may not invest in securities of any company if any officer
or trustee of the Portfolio or of the Adviser owns more than 1/2 of 1%
of the outstanding securities of such company, and such officers and
trustees who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer.
7. The Portfolio may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Portfolio may acquire securities of public
companies which themselves are engaged in such activities.
8. The Portfolio may not invest more than 5% of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years, except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
9. The Portfolio may not purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Trustees or the Adviser under approved
guidelines, may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual restrictions
on resale, a liquid market exists.
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees and each Portfolio's officers appointed by the Board
of Trustees. The tables below list the trustees and officers of the Trust and
executive officers of each Portfolio's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of the funds
1632 Morning Mountain Road in the Fund Complex. Co-founder, and prior to August
Raleigh, NC 27614 1996, Chairman, Chief Executive Officer and President,
Date of Birth: 07/14/32 MDT Corporation (now known as Getinge/Castle, Inc., a
Age: 67 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment.
</TABLE>
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<PAGE> 389
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological company.
53 Monarch Bay Drive Trustee/Director of each of the funds in the Fund
Dana Point, CA 92629 Complex. Prior to January 1999, Chairman and Chief
Date of Birth: 09/16/38 Executive Officer of The Allstate Corporation
Age: 61 ("Allstate") and Allstate Insurance Company. Prior to
January 1995, President and Chief Executive Officer of
Allstate. Prior to August 1994, various management
positions at Allstate.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Trustee/Director of each of the funds in the
233 South Wacker Drive Fund Complex. Prior to 1997, Partner, Ray & Berndtson,
Suite 7000 Inc., an executive recruiting and management consulting
Chicago, IL 60606 firm. Formerly, Executive Vice President of ABN AMRO,
Date of Birth: 06/03/48 N.A., a Dutch bank holding company. Prior to 1992,
Age: 51 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board,
Vice Chair of the Board of The YMCA of Metropolitan
Chicago and a member of the Women's Board of the
University of Chicago. Prior to 1996, Trustee of The
International House Board, a fellowship and housing
organization for international graduate students.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States, an independent U.S. foundation created to
Washington, D.C. 20016 deepen understanding, promote collaboration and stimulate
Date of Birth: 02/29/52 exchanges of practical experience between Americans and
Age: 48 Europeans. Trustee/Director of each of the funds in the
Fund Complex. Formerly, advisor to the Dennis Trading
Group Inc., a managed futures and option company that
invests money for individuals and institutions. Prior to
1992, President and Chief Executive Officer, Director and
Member of the Investment Committee of the Joyce
Foundation, a private foundation.
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset Management
Two World Trade Center of Morgan Stanley Dean Witter since December 1998.
66th Floor President and Director since April 1997 and Chief
New York, NY 10048 Executive Officer since June 1998 of Morgan Stanley Dean
Date of Birth: 08/13/53 Witter Advisors Inc. and Morgan Stanley Dean Witter
Age: 46 Services Company Inc. Chairman, Chief Executive Officer
and Director of Morgan Stanley Dean Witter Distributors
Inc. since June 1998. Chairman and Chief Executive
Officer since June 1998, and Director since January 1998,
of Morgan Stanley Dean Witter Trust FSB. Director of
various Morgan Stanley Dean Witter subsidiaries.
President of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series since May 1999.
Trustee/Director of each of the funds in the Fund
Complex. Previously Chief Strategic Officer of Morgan
Stanley Dean Witter Advisors Inc. and Morgan Stanley Dean
Witter Services Company Inc. and Executive Vice President
of Morgan Stanley Dean Witter Distributors Inc. April
1997-June 1998, Vice President of the Morgan Stanley Dean
Witter Funds and Discover Brokerage Index Series May
1997-April 1999, and Executive Vice President of Dean
Witter, Discover & Co.
</TABLE>
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<PAGE> 390
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President and owner, Nelson Investment Planning Services,
423 Country Club Drive Inc., a financial planning company and registered
Winter Park, FL 32789 investment adviser in the State of Florida. President and
Date of Birth: 02/13/36 owner, Nelson Ivest Brokerage Services Inc., a member of
Age: 64 the National Association of Securities Dealers, Inc. and
Securities Investors Protection Corp. Trustee/Director of
each of the funds in the Fund Complex.
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer of Van
1 Parkview Plaza Kampen Investments. Chairman, Director and Chief
P.O. Box 5555 Executive Officer of the Advisers, the Distributor, Van
Oakbrook Terrace, IL 60181-5555 Kampen Advisors Inc. and Van Kampen Management Inc.
Date of Birth: 02/02/46 Director and officer of certain other subsidiaries of Van
Age: 54 Kampen Investments. Trustee/Director and President of
each of the funds in the Fund Complex. Trustee, President
and Chairman of the Board of other investment companies
advised by the Advisers and their affiliates, and Chief
Executive Officer of Van Kampen Exchange Fund. Prior to
May 1998, Executive Vice President and Director of
Marketing at Morgan Stanley Dean Witter and Director of
Dean Witter Discover & Co. and Dean Witter Realty. Prior
to 1996, Director of Dean Witter Reynolds Inc.
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director (since
One ServiceMaster Way 1994) of The ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of Illinois Tool
Date of Birth: 07/08/44 Works, Inc., a manufacturing company and the Urban
Age: 55 Shopping Centers Inc., a retail mall management company.
Trustee, University of Notre Dame. Trustee/Director of
each of the funds in the Fund Complex. Prior to 1998,
Director of Stone Smurfit Container Corp., a paper
manufacturing company. From May 1996 through February
1997 he was President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc., an
environmental services company, and from November 1984
through May 1996 he was President and Chief Operating
Officer of Waste Management, Inc.
Fernando Sisto............................ Professor Emeritus. Prior to August 1996, a George M.
155 Hickory Lane Bond Chaired Professor with Stevens Institute of
Closter, NJ 07624 Technology, and prior to 1995, Dean of the Graduate
Date of Birth: 08/02/24 School, Stevens Institute of Technology. Director,
Age: 75 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee/Director of each of the funds in the
Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other investment companies advised by the
Date of Birth: 08/22/39 Advisers or Van Kampen Management Inc. Trustee/Director
Age: 60 of each of the funds in the Fund Complex, and
Trustee/Managing General Partner of other investment
companies advised by the Advisers or Van Kampen
Management Inc.
</TABLE>
B-41
<PAGE> 391
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Suzanne H. Woolsey........................ Chief Operating Officer of the National Academy of
2101 Constitution Ave., N.W. Sciences/ National Research Council, an independent,
Room 206 federally chartered policy institution, since 1993.
Washington, D.C. 20418 Director of Neurogen Corporation, a pharmaceutical
Date of Birth: 12/27/41 company, since January 1998. Director of the German
Age: 58 Marshall Fund of the United States, Trustee of Colorado
College, and Vice Chair of the Board of the Council for
Excellence in Government. Trustee/Director of each of the
funds in the Fund Complex. Prior to 1993, Executive
Director of the Commission on Behavioral and Social
Sciences and Education at the National Academy of
Sciences/National Research Council. From 1980 through
1989, Partner of Coopers & Lybrand.
</TABLE>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. Merin and
Powers are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter or its affiliates.
B-42
<PAGE> 392
OFFICERS
Messrs. Smith, Santo, Hegel, Sullivan, and Zimmermann are located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555. Mr. Boyd is
located at 2800 Post Oak Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
A. Thomas Smith III.................. Executive Vice President, General Counsel, Secretary and
Date of Birth: 12/14/56 Director of Van Kampen Investments, the Advisers, Van Kampen
Vice President and Secretary Advisors Inc., Van Kampen Management Inc., the Distributor,
Age: 43 American Capital Contractual Services, Inc., Van Kampen
Exchange Corp., Van Kampen Recordkeeping Services Inc.,
Investor Services, Van Kampen Insurance Agency of Illinois
Inc. and Van Kampen System Inc. Vice President and
Secretary/Vice President, Principal Legal Officer and
Secretary of other investment companies advised by the
Advisers or their affiliates. Vice President and Secretary
of each of the funds in the Fund Complex. Prior to January
1999, Vice President and Associate General Counsel to New
York Life Insurance Company ("New York Life"), and prior to
March 1997, Associate General Counsel of New York Life.
Prior to December 1993, Assistant General Counsel of The
Dreyfus Corporation. Prior to August 1991, Senior Associate,
Willkie Farr & Gallagher. Prior to January 1989, Staff
Attorney at the Securities and Exchange Commission, Division
of Investment Management, Office of Chief Counsel.
Michael H. Santo..................... Executive Vice President, Chief Administrative Officer and
Date of Birth: 10/22/55 Director of Van Kampen Investments, the Advisers, the
Vice President Distributor, Van Kampen Advisors Inc., Van Kampen Management
Age: 44 Inc. and Van Kampen Investor Services Inc., and serves as a
Director or Officer of certain other subsidiaries of Van
Kampen Investments. Vice President of each of the funds in
the Fund Complex and certain other investment companies
advised by the Advisers and their affiliates. Prior to 1998,
Senior Vice President and Senior Planning Officer for
Individual Asset Management of Morgan Stanley Dean Witter
and its predecessor since 1994. From 1990-1994, First Vice
President and Assistant Controller in Dean Witter's
Controller's Department.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Vice President
Vice President of each of the funds in the Fund Complex and certain other
Age: 43 investment companies advised by the Advisers or their
affiliates. Prior to September 1996, Director of McCarthy,
Crisanti & Maffei, Inc, a financial research company.
</TABLE>
B-43
<PAGE> 393
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Stephen L. Boyd...................... Executive Vice President and Chief Investment Officer of Van
Date of Birth: 11/16/40 Kampen Investments, and President and Chief Operating
Executive Vice President and Officer of the Advisers. Executive Vice President of each of
Chief Investment Officer the funds in the Fund Complex and certain other investment
Age: 59 companies advised by the Advisers or their affiliates. Prior
to April 2000, Vice President and Chief Investment Officer
of the Advisers. Prior to October 1998, Vice President and
Senior Portfolio Manager with AIM Capital Management, Inc.
Prior to February 1998, Senior Vice President and Portfolio
Manager of Van Kampen American Capital Asset Management,
Inc., Van Kampen American Capital Investment Advisory Corp.
and Van Kampen American Capital Management, Inc.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Vice President, Chief Financial Officer and
Vice President, Chief Financial Treasurer of each of the funds in the Fund Complex and
Officer and Treasurer certain other investment companies advised by the Advisers
Age: 44 or their affiliates.
John H. Zimmermann, III.............. Senior Vice President and Director of Van Kampen
Date of Birth: 11/25/57 Investments, President and Director of the Distributor and
Vice President President of Van Kampen Insurance Agency of Illinois Inc.
Age: 42 Vice President of each of the funds in the Fund Complex.
From November 1992 to December 1997, Mr. Zimmermann was
Senior Vice President of the Distributor.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 63 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees/directors to defer receipt of their compensation
and earn a return on such deferred amounts. Deferring compensation has the
economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex on the basis of the
relative net assets of each fund as of the last business day of the preceding
calendar quarter. The compensation of each Non-Affiliated Trustee includes a per
meeting fee from each fund in the Fund Complex in the amount of $200 per
quarterly or special meeting attended by the Non-Affiliated Trustee, due on the
date of the meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred
B-44
<PAGE> 394
compensation plan is not funded and obligations thereunder represent general
unsecured claims against the general assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Retirement Annual Compensation
Aggregate Benefits Benefits from before
Compensation Accrued as the Fund Deferral from
from the Part of Upon Fund
Name Trust(2) Expenses(3) Retirement(4) Complex(5)
---- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
J. Miles Branagan $13,822 $40,303 $60,000 $126,000
Jerry D. Choate (1) 9,618 0 60,000 88,700
Linda Hutton Heagy 13,822 5,045 60,000 126,000
R. Craig Kennedy 13,622 3,571 60,000 125,600
Jack E. Nelson 13,822 21,664 60,000 126,000
Phillip B. Rooney 11,822 7,787 60,000 113,400
Fernando Sisto 13,822 72,060 60,000 126,000
Wayne W. Whalen 13,822 15,189 60,000 126,000
Suzanne H. Woolsey(1) 9,618 0 60,000 88,700
</TABLE>
- ------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Choate and Ms. Woolsey became members of the Board of Trustees
for the Portfolios and other funds in the Fund Complex on May 26, 1999 and
therefore do not have a full year of information to report.
(2) The amounts shown in this column represent the Aggregate Compensation from
all series of the Trust with respect to the Trust's fiscal year ended
December 31, 1999. The details of aggregate compensation for each series are
shown in Table A below. Certain trustees deferred compensation from the
Trust during the fiscal year ended December 31, 1999; the aggregate
compensation deferred for each Portfolio for the fiscal year ended December
31, 1999 is shown in Table B below. Amounts deferred are retained by the
respective Portfolio and earn a rate of return determined by reference to
either the return on the common shares of the Portfolio or other funds in
the Fund Complex as selected by the respective Non-Affiliated Trustee, with
the same economic effect as if such Non-Affiliated Trustee had invested in
one or more funds in the Fund Complex. To the extent permitted by the 1940
Act, each Fund may invest in securities of those funds selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. The cumulative deferred compensation (including interest)
accrued with respect to each trustee from each Portfolio as of the fiscal
year ended December 31, 1999 is shown on Table C below. The deferred
compensation plan is described above the Compensation Table.
B-45
<PAGE> 395
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the Funds' respective fiscal years ended in
1999. The retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table. Each Non-Affiliated Trustee of the Board of Trustees has
served as a member of the Board of Trustees since he or she was first
appointed or elected in the year set forth in Table D below.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1999 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1999. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$279,250 during the calendar year ended December 31, 1999.
TABLE A
1999 AGGREGATE COMPENSATION FROM THE TRUST AND EACH PORTFOLIO
<TABLE>
<CAPTION>
PORTFOLIO NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY
-------------- -------- ------ ----- ------- ------ ------ ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Portfolio.................. 1,277 856 1,277 1,277 1,277 1,077 1,277 1,277 856
Comstock Portfolio.......................... 800 800 800 800 800 800 800 800 800
Domestic Income Portfolio................... 1,223 817 1,223 1,223 1,223 1,023 1,223 1,223 817
Emerging Growth Portfolio................... 1,491 1,080 1,491 1,291 1,491 1,291 1,491 1,491 1,080
Enterprise Portfolio........................ 1,379 935 1,379 1,379 1,379 1,179 1,379 1,379 935
Global Equity Portfolio..................... 1,202 802 1,202 1,202 1,202 1,002 1,202 1,202 802
Government Portfolio........................ 1,276 856 1,276 1,276 1,276 1,076 1,276 1,276 856
Growth and Income Portfolio................. 1,254 843 1,254 1,254 1,254 1,054 1,254 1,254 843
Money Market Portfolio...................... 1,237 828 1,237 1,237 1,237 1,037 1,237 1,237 828
Morgan Stanley Real Estate Securities
Portfolio................................. 1,447 973 1,447 1,447 1,447 1,247 1,447 1,447 973
Strategic Stock Portfolio................... 1,236 828 1,236 1,236 1,236 1,036 1,236 1,236 828
------ ----- ------ ------ ------ ------ ------ ------ -----
Life Investment Trust Total............... 13,822 9,618 13,822 13,622 13,822 11,822 13,822 13,822 9,618
====== ===== ====== ====== ====== ====== ====== ====== =====
</TABLE>
TABLE B
1999 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH PORTFOLIO
<TABLE>
<CAPTION>
PORTFOLIO NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN
-------------- -------- ------ ----- ------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Portfolio............................. 1,277 636 1,277 639 1,277 1,077 639 1,277
Comstock Portfolio..................................... 800 600 800 400 800 800 400 800
Domestic Income Portfolio.............................. 1,223 611 1,223 612 1,223 1,023 612 1,223
Emerging Growth Portfolio.............................. 1,491 661 1,491 646 1,491 1,291 746 1,491
Enterprise Portfolio................................... 1,379 690 1,379 690 1,379 1,179 690 1,379
Global Equity Portfolio................................ 1,202 602 1,202 601 1,202 1,002 601 1,202
Government Portfolio................................... 1,276 636 1,276 638 1,276 1,076 638 1,276
Growth and Income Portfolio............................ 1,254 630 1,254 627 1,254 1,054 627 1,254
Money Market Portfolio................................. 1,237 618 1,237 619 1,237 1,037 619 1,237
Morgan Stanley Real Estate Securities Portfolio........ 1,447 714 1,447 724 1,447 1,247 724 1,447
Strategic Stock Portfolio.............................. 1,236 619 1,236 618 1,236 1,036 618 1,236
------ ----- ------ ----- ------ ------ ----- ------
Life Investment Trust Total.......................... 13,822 7,017 13,822 6,814 13,822 11,822 6,914 13,822
====== ===== ====== ===== ====== ====== ===== ======
</TABLE>
B-46
<PAGE> 396
TABLE C
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH PORTFOLIO
<TABLE>
<CAPTION>
CURRENT TRUSTEES FORMER TRUSTEES
------------------------------------------------------------------------- ----------------
PORTFOLIO NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN CARUSO GAUGHAN
-------------- -------- ------ ----- ------- ------ ------ ----- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Portfolio........ 5,988 882 5,519 4,530 11,623 5,224 15,387 7,698 1,996 131
Comstock Portfolio................ 947 833 860 518 1,112 1,219 542 939 0 0
Domestic Income Portfolio......... 5,722 848 5,169 4,234 11,107 4,951 13,251 7,349 1,318 91
Emerging Growth Portfolio......... 5,927 1,223 5,357 4,168 11,078 5,318 2,700 7,411 0 276
Enterprise Portfolio.............. 6,231 955 5,873 4,853 12,157 5,516 18,229 8,065 3,223 210
Global Equity Portfolio........... 5,554 836 5,021 4,092 10,645 4,832 2,483 7,058 0 147
Government Portfolio.............. 5,965 882 5,399 4,384 11,575 5,195 13,634 7,664 1,278 92
Growth and Income Portfolio....... 3,373 874 2,606 1,908 4,429 4,079 1,835 3,311 0 0
Money Market Portfolio............ 5,680 857 5,085 4,165 11,073 4,945 12,274 7,329 1,155 87
Morgan Stanley Real Estate
Securities Portfolio............ 6,494 988 6,095 5,025 12,077 6,043 2,975 8,118 0 101
Strategic Stock Portfolio......... 3,328 859 2,569 1,883 4,373 4,021 1,811 3,268 0 0
------ ------ ------ ------ ------- ------ ------ ------ ----- -----
Life Investment Trust Total..... 55,209 10,037 49,553 39,760 101,249 51,343 85,121 68,210 8,970 1,135
====== ====== ====== ====== ======= ====== ====== ====== ===== =====
<CAPTION>
FORMER TRUSTEES
-------------------------------------
PORTFOLIO NAME MILLER REES ROBINSON YOVOVICH
-------------- ------ ---- -------- --------
<S> <C> <C> <C> <C>
Asset Allocation Portfolio........ 2,061 4,491 4,538 1,513
Comstock Portfolio................ 0 0 0 916
Domestic Income Portfolio......... 1,978 3,721 4,245 1,448
Emerging Growth Portfolio......... 1,851 175 4,095 1,756
Enterprise Portfolio.............. 2,171 5,655 4,859 1,634
Global Equity Portfolio........... 1,862 169 4,050 1,423
Government Portfolio.............. 2,054 6,229 4,421 1,512
Growth and Income Portfolio....... 0 0 0 1,484
Money Market Portfolio............ 1,994 5,715 4,098 1,465
Morgan Stanley Real Estate
Securities Portfolio............ 1,983 185 4,313 1,717
Strategic Stock Portfolio......... 0 0 0 1,463
------ ------ ------ ------
Life Investment Trust Total..... 15,954 26,340 34,619 16,331
====== ====== ====== ======
</TABLE>
TABLE D
<TABLE>
<CAPTION>
BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY
-------- ------ ----- ------- ------ ------ ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Portfolio................... 1991 1999 1995 1995 1995 1997 1987 1995 1999
Comstock Portfolio........................... 1998 1999 1998 1998 1998 1998 1998 1998 1999
Domestic Income Portfolio.................... 1991 1999 1995 1995 1995 1997 1987 1995 1999
Emerging Growth Portfolio.................... 1995 1999 1995 1995 1995 1997 1995 1995 1999
Enterprise Portfolio......................... 1991 1999 1995 1995 1995 1997 1986 1995 1999
Global Equity Portfolio...................... 1995 1999 1995 1995 1995 1997 1995 1995 1999
Government Portfolio......................... 1991 1999 1995 1995 1995 1997 1986 1995 1999
Growth and Income Portfolio.................. 1995 1999 1995 1995 1995 1997 1995 1995 1999
Money Market Portfolio....................... 1991 1999 1995 1995 1995 1997 1986 1995 1999
Real Estate Portfolio........................ 1995 1999 1995 1995 1995 1997 1995 1995 1999
Strategic Stock Portfolio.................... 1997 1999 1997 1997 1997 1997 1997 1997 1999
</TABLE>
The Fund, the Adviser, the Subadviser and the Distributor have adopted
Codes of Ethics (collectively, the "Code of Ethics") that set forth general and
specific standards relating to the securities trading activities of their
employees. The Code of Ethics does not prohibit employees from acquiring
securities that may be purchased or held by the Fund, but is intended to ensure
that all employees conduct their personal transactions in a manner that does not
interfere with the portfolio transactions of the Fund or other Van Kampen funds,
or that such employees take unfair advantage of their relationship with the
Fund. Among other things, the Code of Ethics prohibits certain types of
transactions absent prior approval, imposes various trading restrictions (such
as time periods during which personal transactions may or may not be made) and
requires quarterly reporting of securities transactions and other matters. All
reportable securities transactions and other required reports are to be reviewed
by appropriate personnel for compliance with the Code of Ethics. Additional
restrictions apply to portfolio managers, traders, research analysts and others
who may have access to nonpublic information about the trading activities of the
Fund or other Van Kampen funds or who otherwise are involved in the investment
advisory process. Exceptions to these and other provisions of the Code of Ethics
may be granted in particular circumstances after review by appropriate,
personnel.
As of April 3, 2000, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENTS
The Trust and the Adviser are parties to an investment advisory agreement
(the "Combined Advisory Agreement") pursuant to which the Trust retains the
Adviser to manage the investment of assets and to place orders for the purchase
and sale of portfolio securities for certain portfolios including the Asset
Allocation Portfolio, the Domestic Income Portfolio, the Enterprise Portfolio,
the Government Portfolio and the Money Market Portfolio (collectively, the
"Combined Portfolios"). The Trust and the Adviser are also parties to other
investment advisory agreements pursuant to which the Adviser manages the
investment of assets and
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<PAGE> 397
places orders for the purchase and sale of portfolio securities for the
remaining Portfolios including six advisory agreements designated herein as
"Comstock Advisory Agreement," "Emerging Growth Advisory Agreement," "Global
Equity Advisory Agreement," "Growth and Income Advisory Agreement", "Morgan
Stanley Real Estate Securities Advisory Agreement" and the "Strategic Stock
Advisory Agreement" for the Comstock Portfolio, the Emerging Growth Portfolio,
the Global Equity Portfolio, the Growth and Income Portfolio, the Morgan Stanley
Real Estate Securities Portfolio and the Strategic Stock Portfolio, respectively
(such advisory agreements together with the Combined Advisory Agreement are
referred to herein collectively as the "Advisory Agreements"). Under the
Advisory Agreements, the Adviser obtains and evaluates economic, statistical,
and financial information to formulate strategy and implement each Portfolio's
investment objective. The Adviser also furnishes offices, necessary facilities
and equipment, provides administrative services, and permits its officers and
employees to serve without compensation as trustees of the Trust or officers of
the Portfolios if elected to such positions.
Under the Advisory Agreements, the Trust bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of each Portfolio. The costs of such
accounting services include the salaries and overhead expenses of a Treasurer or
other principal financial officer and the personnel operating under his
direction. The services are provided at cost which is allocated among the
investment companies advised by the Adviser. A portion of these amounts are paid
to the Adviser or its parent as reimbursement of personnel, office space,
facilities and equipment costs attributable to the provision of accounting
services to the Trust. The Trust also pays custodian fees, legal and independent
accountant fees, trustee fees (other than those who are affiliated persons of
the Adviser, Distributor or Van Kampen Investments) the costs of reports and
proxies to shareholders and all other ordinary expenses not specifically assumed
by the Adviser. The Advisory Agreements also provide that the Adviser shall not
be liable to the Trust for any actions or omissions in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its obligations and
duties under the Advisory Agreements.
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<PAGE> 398
Under the Advisory Agreements, the Trust pays to the Adviser as
compensation for the services rendered, facilities furnished, and expenses paid
by it, an annual fee payable monthly computed on average daily net assets as
follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------
Asset Allocation Portfolio, Domestic Income Portfolio,
Enterprise Portfolio, Government Portfolio and Money Market
Portfolio (based upon their combined average daily net
assets)
First $500 million..................................... 0.50%
Next $500 million...................................... 0.45%
Over $1 billion........................................ 0.40%
(The resulting fee is prorated to each of these
Portfolios based upon their respective average daily
net assets.)
Comstock Portfolio and Growth and Income Portfolio (based on
each Portfolio's average daily net assets)
First $500 million..................................... 0.60%
Over $500 million...................................... 0.55%
Emerging Growth Portfolio (based upon the Portfolio's
average daily net assets)
First $500 million..................................... 0.70%
Next $500 million...................................... 0.65%
Over $1 billion........................................ 0.60%
Global Equity Portfolio (based upon the Portfolio's average
daily net assets)
First $500 million..................................... 1.00%
Next $500 million...................................... 0.95%
Over $1 billion........................................ 0.90%
Morgan Stanley Real Estate Securities Portfolio (based upon
the Portfolio's average daily net assets)
First $500 million..................................... 1.00%
Next $500 million...................................... 0.95%
Over $1 billion........................................ 0.90%
Strategic Stock Portfolio
First $500 million..................................... 0.50%
Over $500 million...................................... 0.45%
</TABLE>
For the Global Equity Portfolio and Morgan Stanley Real Estate Securities
Portfolio, the Adviser has entered into subadvisory agreements (the "Subadvisory
Agreement") to assist the Adviser in performing its investment advisory
functions. Under the Subadvisory Agreements, the Subadviser receives on an
annual basis 50% of the net advisory fees received by the Adviser with respect
to such Portfolios.
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<PAGE> 399
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 Portfolio.................................. 0.60%
Domestic Income Portfolio................................... 0.60%
Enterprise Portfolio........................................ 0.60%
Government Portfolio........................................ 0.60%
Money Market Portfolio...................................... 0.60%
Comstock Portfolio.......................................... 0.95%
Emerging Growth Portfolio................................... 0.85%
Global Equity Portfolio..................................... 1.20%
Growth and Income Portfolio................................. 0.75%
Morgan Stanley Real Estate Securities Portfolio............. 1.10%
Strategic Stock Portfolio................................... 0.65%
</TABLE>
The Combined Advisory Agreement also provides that, in the event the
ordinary business expenses of any of the Combined Portfolios for any fiscal year
exceed 0.95% of the average daily net assets, the compensation due the Adviser
will be reduced by the amount of such excess and that, if a reduction in and
refund of the advisory fee is insufficient, the Adviser will pay the Combined
Portfolios monthly an amount sufficient to make up the deficiency, subject to
readjustment during the year. Ordinary business expenses do not include (1)
interest and taxes, (2) brokerage commissions, (3) any distribution expenses
which may be incurred in the event the Combined Portfolios' Distribution Plan is
implemented, and (4) certain litigation and indemnification expenses as
described in the Combined Advisory Agreement.
The average daily net assets of a Portfolio is determined by taking the
average of all of the determinations of net assets of that Portfolio for each
business day during a given calendar month. The fee is payable for each calendar
month as soon as practicable after the end of that month. The fee payable to the
Adviser is reduced by any commissions, tender solicitation and other fees,
brokerage or similar payments received by the Adviser or any other direct or
indirect majority owned subsidiary of Van Kampen Investments, in connection with
the purchase and sale of portfolio investments of the Portfolios, less any
direct expenses incurred by such subsidiary of Van Kampen Investments in
connection with obtaining such payments. The Adviser agrees to use its best
efforts to recapture tender solicitation fees and exchange offer fees for the
Portfolios benefit, and to advise the Trustees of the Portfolios of any other
commissions, fees, brokerage or similar payments which may be possible under
applicable laws for the Adviser or any other direct or indirect majority owned
subsidiary of Van Kampen Investments, to receive in connection with the
Portfolios investment transactions or other arrangements which may benefit the
Portfolios.
B-50
<PAGE> 400
The following table shows the approximate expenses paid under the Advisory
Agreements during the periods ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
GROWTH
ASSET DOMESTIC EMERGING GLOBAL AND
PERIOD ENDING ALLOCATION COMSTOCK INCOME GROWTH ENTERPRISE EQUITY GOVERNMENT INCOME
DECEMBER 31, 1999: PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ---------- --------- --------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees $277,200 $ 4,600 $85,500 $623,100 $675,000 $ 34,700 $275,400 $258,600
Accounting Services $ 25,200 $22,100 $16,200 $ 25,900 $ 42,900 $ 7,100 $ 29,300 $ 22,700
Contractual expense
reimbursement $ -0- $ -0- $24,490 $ -0- $ -0- $ -0- $ -0- $ -0-
Voluntary expense
reimbursement $ 95,967 $72,613 $61,741 $ 28,250 $ 36,478 $125,524 $ 76,349 $ 73,947
<CAPTION>
MORGAN
STANLEY
REAL
MONEY ESTATE STRATEGIC
PERIOD ENDING MARKET SECURITIES STOCK
DECEMBER 31, 1999: PORTFOLIO PORTFOLIO PORTFOLIO
------------------ --------- ---------- ---------
<S> <C> <C> <C>
Advisory fees $146,500 $1,761,100 $137,200
Accounting Services $ 24,100 $ 66,600 $17,300
Contractual expense
reimbursement $ -0- $ -0- $ -0-
Voluntary expense
reimbursement $ 91,001 $ 39,541 $69,223
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1998:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees $308,215 n/a $86,159 $131,521 $539,143 $ 32,086 $268,947 $127,069 $108,585
Accounting Services $ 33,100 n/a $23,600 $22,900 $ 42,800 $ 38,100 $ 32,700 $ 24,500 $ 13,678
Contractual expense
reimbursement $ -0- n/a $24,760 $ -0- $ -0- $ -0- $ -0- $ -0- $ 7,952
Voluntary expense
reimbursement $ 74,236 n/a $60,335 $71,860 $ 40,178 $162,179 $ 70,011 $ 72,329 $ 76,068
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1998:
------------------
<S> <C> <C>
Advisory fees $2,511,823 $56,672
Accounting Services $ 73,500 $17,500
Contractual expense
reimbursement $ -0- $ -0-
Voluntary expense
reimbursement $ -0- $68,772
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1997:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees $311,514 n/a $86,700 $48,713 $467,494 $ 31,290 $267,568 $ 30,777 $106,891
Accounting Services $ 14,290 n/a $ 8,861 $ 9,145 $ 19,566 $ 21,596 $ 13,895 $ 4,410 $ 10,155
Contractual expense
reimbursement $ -0- n/a $17,857 $ -0- $ -0- $ -0- $ -0- $ -0- $ 6,147
Voluntary expense
reimbursement $ 68,780 n/a $60,681 $89,683 $ 55,090 $174,632 $ 72,820 $ 45,369 $ 74,791
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1997:
------------------
<S> <C> <C>
Advisory fees $2,269,511 $ 1,083
Accounting Services $ 32,983 $ -0-
Contractual expense
reimbursement $ -0- $ -0-
Voluntary expense
reimbursement $ -0- $ 4,892
</TABLE>
The Advisory Agreements with respect to each subject Portfolio may be
continued from year to year if specifically approved at least annually (a)(i) by
the Trustees or (ii) by a vote of a majority of such Portfolio's outstanding
voting securities and (b) by the affirmative vote of a majority of the Trustees
who are not parties to the agreement or interested persons of any such party by
votes cast in person at a meeting called for such purpose. The Advisory
Agreements provide that an agreement shall terminate automatically if assigned
and that it may be terminated without penalty by either party on 60 days'
written notice.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the shares of the
Trust pursuant to a written agreement (the "Distribution and Service
Agreement"). The Distributor's obligation is an agency or "best efforts"
arrangement under which the Distributor is not obligated to sell any stated
number of shares. The Distribution and Service Agreement is renewable from year
to year if approved (a) by the Trust's Trustees or by a vote of a majority of
the Trust's outstanding voting securities and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Distribution and Service
Agreement or interested persons of any party, by votes cast in person at a
meeting called for that purpose. The Distribution and Service Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 90 days' written notice.
The Distributor bears the cost of printing (but not typesetting)
prospectuses used in connection with this offering and certain other costs
including the cost of supplemental sales literature and advertising. The Trust
pays all expenses attributable to the registrations of its shares under federal
law, including registration and
B-51
<PAGE> 401
filing fees, the cost of preparation of the prospectuses, related legal and
auditing expenses, and the cost of printing prospectuses for current
shareholders.
Each Portfolio has adopted a distribution plan (the "Distribution Plan")
with respect to its Class II Shares pursuant to Rule 12b-1 under the 1940 Act.
Each Portfolio also has adopted a service plan (the "Service Plan") with respect
to its Class II Shares. The Distribution Plan and the Service Plan sometimes are
referred to herein as the "Plans". The Plans provide that a Portfolio may spend
a portion of the average daily net assets attributable to its Class II Shares in
connection with distribution of such class of shares and in connection with the
provision of ongoing services to shareholders of such class. The Distribution
Plan and the Service Plan are being implemented through the Distribution and
Service Agreement with the Distributor and sub-agreements with parties that may
provide for their customers or clients certain services or assistance, which may
include, but not be limited to, processing purchase and redemption transactions,
establishing and maintaining shareholder accounts regarding a Portfolio, and
such other services as may be agreed to from time to time and as may be
permitted by applicable statute, rule or regulation.
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust setting forth separately by Portfolio all amounts paid under the
Distribution Plan and the purposes for which such expenditures were made,
together with such other information as from time to time is reasonably
requested by the Trustees. The Plans provide that they will continue in full
force and effect from year to year so long as such continuance is specifically
approved by a vote of the Trustees, and also by a vote of the disinterested
Trustees, cast in person at a meeting called for the purpose of voting on the
Plans. Each of the Plans may not be amended to increase materially the amount to
be spent for the services described therein with respect to Class II Shares
without approval by a vote of a majority of the outstanding voting shares of
Class II Shares, and all material amendments to either of the Plans must be
approved by the Trustees and also by the disinterested Trustees. Each of the
Plans may be terminated with respect to Class II Shares at any time by a vote of
a majority of the disinterested Trustees or by a vote of a majority of the
outstanding voting shares of Class II Shares.
For the Class II Shares of a Portfolio, in any given year in which the
Plans are in effect, the Plans generally provide for a Portfolio to pay the
Distributor the lesser of (i) the applicable amount of the Distributor's actual
distribution and service expenses incurred that year, plus any actual
distribution and service expenses from prior years that are still unpaid by the
Portfolio for such class of shares or (ii) the applicable plan fees for such
class of shares at the rates specified in the Portfolio's Prospectus. Except as
may be mandated by applicable law, the Portfolio does not impose any limit with
respect to the number of years into the future that such unreimbursed actual
expenses may be carried forward. These unreimbursed actual expenses may or may
not be recovered through plan fees in future years. If the Plans are terminated
or not continued, the Portfolio would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Portfolio.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent is Van Kampen Investor Services Inc. The transfer agency prices
are determined through negotiations with the Board of Trustees of the Trust and
are based on competitive market benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Portfolios, the selection of brokers and dealers to effect the transactions and
the negotiation of prices and any brokerage commissions on such transactions.
While the Adviser will be primarily responsible for the placement of the
Portfolios' investments, the policies and practices in this regard will at all
times be subject to review by the Board of Trustees.
B-52
<PAGE> 402
Transactions in debt securities generally made by the Fund are principal
transactions at net prices with little or no brokerage costs. Such securities
are normally purchased directly from the issuer or in the over-the-counter
market from an underwriter or market maker for the securities. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers include a spread or markup to the dealer between the bid and asked price.
Sales to dealers are effected at bid prices. The Portfolios may also purchase
certain money market instruments directly from an issuer, in which case no
commissions or discounts are paid, or may purchase and sell listed bonds on a
exchange, which are effected through brokers who charge a commission for their
services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Portfolios and not according to
any formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Portfolios and still must be
analyzed and reviewed by its staff, the receipt of research information is not
expected to reduce its expenses materially. The investment advisory fee is not
reduced as a result of the Adviser's receipt of such research services. Services
provided may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or pur-chasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund.
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Portfolios, the Adviser or the
Distributor and with brokerage firms participating in the distribution of the
Portfolios' shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Portfolios' shares.
The Adviser may place Portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Portfolios and another advisory
account. In some cases, this procedure could have an adverse effect on the price
or the amount of securities available to the Portfolios. In making such
allocations among the Portfolios and other advisory accounts, the main factors
considered by the Adviser are the respective sizes of the Portfolios and other
advisory accounts, the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Board of Trustees has adopted certain policies incorporating the standards of
Rule 17e-1 issued by the SEC under the 1940 Act which requires that the
commissions paid to affiliates of the Portfolios
B-53
<PAGE> 403
must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.
The Portfolios paid the following commissions to these brokers during the
periods shown:
<TABLE>
<CAPTION>
AFFILIATED BROKERS
-------------------------------------------------------
MORGAN STANLEY DEAN WITTER
-------------- -----------
<S> <C> <C>
Fiscal year ended 1999.................. $3,048 (Asset Allocation Portfolio) -0-
$ 78 (Comstock Portfolio)
$ 320 (Emerging Growth Portfolio)
$4,670 (Enterprise Portfolio)
$2,743 (Growth and Income Portfolio)
Fiscal year ended 1998.................. -0- -0-
Fiscal year ended 1997.................. -0- -0-
Fiscal year 1999 Percentages:
Commissions with affiliate to total
commissions........................ 5.90% (Asset Allocation Portfolio) -0-
8.19% (Comstock Portfolio)
0.39% (Emerging Growth Portfolio)
1.55% (Enterprise Portfolio)
3.17% (Growth and Income Portfolio)
Value of brokerage transactions with
affiliate to total transactions.... 0.07% (Asset Allocation Portfolio) -0-
0.34% (Comstock Portfolio)
0.01% (Emerging Growth Portfolio)
0.12% (Enterprise Portfolio)
0.14% (Growth and Income Portfolio)
</TABLE>
B-54
<PAGE> 404
The following table summarizes for each portfolio the total brokerage
commissions paid, the amount of commissions paid to brokers selected primarily
on the basis of research services provided to the Adviser and the value of these
specific transactions.
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING GLOBAL
ALLOCATION COMSTOCK ENTERPRISE GOVERNMENT INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ------------ ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
- -----------------------------
Total brokerage commissions $ 51,683 $ 952 $ 301,161 $15,648 -- $ 82,609 $ 596
Commissions for research
services $ 41,590 $ 1,738 $ 200,678 -- -- $ 75,067 --
Value of research
transactions $41,719,670 $1,810,897 $171,892,773 -- -- $241,772,787 --
1998
- -----------------------------
Total brokerage commissions $ 121,933 N/A $ 195,688 $34,884 -- $ 26,685 $ 118
Commissions for research
services $ 69,166 N/A $ 72,273 -- -- $ 17,365 --
Value of research
transactions $52,524,399 N/A $ 59,194,331 -- -- $ 33,681,640 --
1997
- -----------------------------
Total brokerage commissions $ 100,020 N/A $ 140,036 $30,799 -- $ 10,436 $13,550
Commissions for research
services $ 27,325 N/A $ 47,085 -- -- $ 5,597 --
Value of research
transactions $17,590,482 N/A $ 51,189,635 -- -- $ 9,900,077 --
<CAPTION>
MORGAN STANLEY
REAL ESTATE GROWTH AND MONEY STRATEGIC
SECURITIES INCOME MARKET STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1999
- -----------------------------
Total brokerage commissions $ 306,677 $ 86,408 -- $ 18,059
Commissions for research
services $ 296,872 $ 71,230 -- $ 17,870
Value of research
transactions $124,978,324 $66,920,240 -- $31,879,129
1998
- -----------------------------
Total brokerage commissions $ 1,216,987 $ 38,200 -- $ 11,412
Commissions for research
services $ 1,168,101 $ 20,979 -- $ 11,412
Value of research
transactions $502,717,341 $27,958,579 -- $19,379,770
1997
- -----------------------------
Total brokerage commissions $ 1,823,718 $ 13,809 -- $ 1,172
Commissions for research
services $ 1,446,147 -- -- $ 1,172
Value of research
transactions $656,816,992 -- -- $ 2,327,597
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Portfolio is computed by dividing
the value of all securities held by the Portfolio plus other assets, less
liabilities, by the number of shares outstanding. This computation is determined
for each Portfolio as of the close of business of the New York Stock Exchange
(the "Exchange") (currently 4:00 p.m., New York time) on each business day on
which the Exchange is open.
MONEY MARKET PORTFOLIO NET ASSET VALUATION
The Portfolio's use of the amortized cost method of valuing its portfolio
securities is permitted by a rule adopted by the SEC. Under this rule, the
Portfolio must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of thirteen
months or less and invest only in securities determined by the Adviser to be of
eligible quality with minimal credit risks. The valuation of each Portfolio's
investments is based upon their amortized cost, which does not take into account
unrealized capital gains or losses. Amortized cost valuation involves initially
valuing an instrument at its cost and thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price that
the Portfolio would receive if it sold the instrument.
The Portfolio has established procedures reasonably designed, taking into
account current market conditions and the Portfolio's investment objective, to
stabilize the net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Board of Trustees, at such
intervals as the Board of Trustees deem appropriate, to determine the extent, if
any, to which the new asset value per share calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. In the event
such deviation should exceed four tenths of one percent, the Board of Trustees
are required to promptly consider what action, if any, should be initiated. If
the Board of Trustees believe that the extent of any deviation from a $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing shareholders, it will take such steps as it considers
appropriate to eliminate or reduce these consequences to the extent reasonably
practicable. Such steps may include selling portfolio securities prior to
B-55
<PAGE> 405
maturity; shortening the average maturity of the portfolio; withholding or
reducing dividends; or utilizing a net asset value per share determined by using
available market quotations.
ASSET ALLOCATION, COMSTOCK, DOMESTIC INCOME, EMERGING GROWTH, ENTERPRISE, GLOBAL
EQUITY, GROWTH AND INCOME, MORGAN STANLEY REAL ESTATE SECURITIES AND STRATEGIC
STOCK PORTFOLIOS NET ASSET VALUATION
The net asset value of these Portfolios is computed by (i) valuing
securities listed or traded on a national securities exchange at the last sale
price, or if there has been no sale that day at the mean between the last
reported bid and asked prices (ii) valuing unlisted securities for which
over-the-counter market quotations are readily available at the most recent bid
price as supplied by National Association of Securities Dealers Automated
Quotations ("NASDAQ") or by broker-dealers, and (iii) valuing any securities for
which market quotations are not readily available, and any other assets at fair
value as determined in good faith by the Adviser based on procedures approved by
the Trustees. Options, futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale or settlement price as of the close
of such exchanges or if no sales are reported, at the mean between the last
reported bid and asked prices. Securities with a remaining maturity of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Securities for which market quotations are not readily available and any other
assets are valued at fair value as determined in good faith by the Adviser based
on procedures approved by the Board of Trustees.
GOVERNMENT PORTFOLIO NET ASSET VALUATION
U.S. Government securities are traded in the over-the-counter market and
are valued at the mean between the last reported bid and asked prices. Such
valuations are based on quotations of one or more dealers that make markets in
the securities as obtained from such dealers or from a pricing service. Options,
interest rate futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale or settlement price as of the close of
such exchanges or if no sales are reported, at the mean between the last
reported bid and asked prices. Securities with a remaining maturity of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Securities for which market quotations are not readily available and any other
assets are valued at fair value as determined in good faith by the Adviser based
on procedures approved by the Board of Trustees.
FAIR VALUE PRICING
Trading in securities on many foreign securities exchanges (including
European and Far Eastern securities exchange) and over-the-counter markets is
normally completed before the close of business on each business day in New York
(i.e., a day on which the Exchange is open). In addition, securities trading in
a particular country or countries may not take place on all business days for
the Exchange or may take place on days which are not business days for the
Exchange. Changes in valuations on certain securities may occur at times or on
days on which a Portfolio's net asset value is not calculated and on which a
Portfolio does not effect sales, redemptions and exchanges of its shares. The
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their price
is determined and the time when a Portfolio's net asset value is calculated,
such securities may be valued at fair value as determined in good faith by the
Adviser based in accordance with procedures established by the Board of
Trustees.
PURCHASE AND REDEMPTION OF SHARES
The purchase of shares of the Portfolios is currently limited to the
Accounts as explained in the Portfolios' Prospectuses. Such shares are sold and
redeemed at their respective net asset values as described in the Portfolios'
Prospectuses.
B-56
<PAGE> 406
Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) the SEC determines trading on the
Exchange is restricted; (c) the SEC determines an emergency exists as a result
of which disposal by the Portfolio of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Portfolio to fairly
determine the value of its net assets; or (d) the SEC, by order, so permits.
TAX STATUS
FEDERAL INCOME TAXATION OF THE PORTFOLIOS
The Trust and each of its Portfolios will be treated as separate
corporations for federal income tax purposes. The Portfolios have each elected
and qualified, and intend to continue to qualify each year, to be treated as
regulated investment companies under Subchapter M of the Internal Revenue Code
(the "Code"). To qualify as a regulated investment company, each Portfolio must
comply with certain requirements of the Code relating to, among other things,
the source of its income and diversification of its assets.
If a Portfolio so qualifies and distributes each year to its shareholders
at least 90% of its investment company taxable income (generally taxable income
and net short-term capital gain) and meets certain other requirements, it will
not be required to pay federal income taxes on any income it distributes to
shareholders. Each Portfolio intends to distribute at least the minimum amount
of investment company taxable income necessary to satisfy the 90% distribution
requirement. A Portfolio will not be subject to any federal income tax on any
net capital gain distributed to shareholders.
In order to avoid a 4% excise tax, each Portfolio that does not meet the
requirements of Code Section 4982(f) will be required to distribute, by December
31st of each year, at least an amount equal to the sum of (i) 98% of its
ordinary income for such year and (ii) 98% of its capital gain net income (the
latter of which generally is computed on the basis of the one-year period ending
on October 31st of such year), plus any amounts that were not distributed in
previous taxable years. For purposes of the excise tax, any ordinary income or
capital gain net income retained by, and subject to federal income tax in the
hands of, a Portfolio will be treated as having been distributed.
If a Portfolio failed to qualify as a regulated investment company or
failed to satisfy the 90% distribution requirement in any taxable year, such
Portfolio would be taxed as an ordinary corporation on its taxable income (even
if such income were distributed to its shareholders) and all distributions out
of earnings and profits would be taxed to shareholders as ordinary income. To
qualify again as a regulated investment company in a subsequent year, such
Portfolio may be required to pay an interest charge on 50% of its earnings and
profits attributable to non-regulated investment company years and would be
required to distribute such earnings and profits to shareholders (less any
interest charge). In addition, if the Portfolio failed to qualify as a regulated
investment company for its first taxable year or, if immediately after
qualifying as a regulated investment company for any taxable year, it failed to
qualify for a period greater than one taxable year, the Portfolio would be
required to recognize any net built-in gains (the excess of aggregate gains,
including items of income, over aggregate losses that would have been realized
if it had been liquidated) in order to qualify as a regulated investment company
in a subsequent year.
Some of the Portfolios' investment practices are subject to special
provisions of the Code that, among other things, may defer the use of certain
losses of a Portfolio, affect the holding period of the securities held by such
Portfolio and alter the character of the gains or losses realized by the
Portfolio. These provisions may also require the Portfolio to recognize income
or gain without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% distribution requirement and the distribution
requirements for avoiding income and excise taxes. Each Portfolio will monitor
its transactions and may make certain tax elections in order to mitigate the
effect of these rules and prevent disqualification of such Portfolio as a
regulated investment company.
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Investments of a Portfolio in securities issued at a discount or providing
for deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, a
Portfolio will be required to accrue as income each year a portion of the
discount and to distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid income and excise
taxes. In order to generate sufficient cash to make distributions necessary to
satisfy the 90% distribution requirement and to avoid income and excise taxes,
such Portfolio may have to dispose of securities that it would otherwise have
continued to hold.
PASSIVE FOREIGN INVESTMENT COMPANIES. A Portfolio may invest in stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at least
75% of its gross income is passive income or (ii) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the regulated investment company distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If a Portfolio invests in a PFIC and elects to treat the
PFIC as a "qualified electing fund," then in lieu of the foregoing tax and
interest obligation, such Portfolio would be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary income
earnings and net capital gain, which most likely would have to be distributed to
satisfy the 90% distribution requirement and the distribution requirement for
avoiding income and excise taxes. In most instances it will be very difficult to
make this election due to certain requirements imposed with respect to the
election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, a Portfolio may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between such Portfolio's
adjusted tax basis in such PFIC stock and its fair market value. Losses will be
allowed only to the extent of net mark-to-market gain previously included by the
Portfolio pursuant to the election for prior taxable years. A Portfolio may be
required to include in its taxable income for the first taxable year in which it
makes a PFIC Mark-to-Market Election an amount equal to the interest charge that
would otherwise accrue with respect to distributions on, or dispositions of, the
PFIC stock. This amount would not be deductible from the Portfolio's taxable
income. The PFIC Mark-to-Market Election applies to the taxable year for which
made and to all subsequent taxable years, unless the Internal Revenue Service
("IRS") consents to revocation of the election. By making the PFIC
Mark-to-Market Election, the Portfolio could ameliorate the adverse tax
consequences arising from its ownership of PFIC stock, but in any particular
year may be required to recognize income in excess of the distributions it
receives from the PFIC and proceeds from the dispositions of PFIC stock.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions of a Portfolio's investment company taxable income are
taxable to shareholders as ordinary income to the extent of such Portfolio's
earnings and profits, whether paid in cash or reinvested in additional shares.
Distributions of a Portfolio's net capital gain as capital gain dividends, if
any, are taxable to shareholders as long-term capital gains regardless of the
length of time shares of such Portfolio have been held by such shareholders.
Distributions in excess of the Portfolio's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder (assuming
such shares are held as a capital asset).
Shareholders receiving distributions in the form of additional shares
issued by a Portfolio will be treated for federal income tax purposes as
receiving a distribution in an amount equal to the fair market value of the
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shares received, determined as of the distribution date. The basis of such
shares will equal the fair market value on the distribution date.
Each Portfolio will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Some portion of
the distributions from a Portfolio may be eligible for the dividends received
deduction for corporations if such Portfolio receives qualifying dividends
during the year and if certain other requirements of the Code are satisfied.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by a Portfolio and
received by the shareholder on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of a Portfolio may be "spilled back" and treated as paid by the Portfolio
(except for purposes of the 4% excise tax) during such taxable year. In such
case, shareholders will be treated as having received such dividends in the
taxable year in which the distribution was actually made.
Income from investments in foreign securities received by a Portfolio may
be subject to income, withholding or other taxes imposed by foreign countries
and U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes.
Shareholders of a Portfolio may be entitled to claim United States foreign
tax credits with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% in value of a Portfolio's
total assets at the close of its taxable year consists of securities of foreign
issuers and, in the case of foreign withholding taxes paid with respect to
dividends from foreign corporations, such Portfolio satisfies certain holding
period and other requirements, the Portfolio will be eligible to file, and may
file, an election with the IRS pursuant to which shareholders of the Portfolio
will be required (i) to include their respective pro rata portions of such taxes
in their United States income tax returns as gross income and (ii) to treat such
respective pro rata portions as taxes paid by them. Each shareholder will be
entitled, subject to certain limitations, either to deduct his pro rata portion
of such foreign taxes in computing his taxable income or to credit them against
his United States federal income tax liability. Each shareholder of a Portfolio
that may be eligible to file the election described in this paragraph will be
notified annually whether the foreign taxes paid by such Portfolio will "pass
through" for that year and, if so, such notification will designate (i) the
shareholder's portion of the foreign taxes paid to each country and (ii) the
portion of dividends that represent income derived from sources within each
country. The amount of foreign taxes for which a shareholder may claim a credit
in any year will be subject to an overall limitation such that the credit may
not exceed the shareholder's United States federal income tax attributable to
the shareholder's foreign source taxable income. This limitation generally
applies separately to certain specific categories of foreign source income
including "passive income," which includes dividends and interest. Because
application of the foregoing rules depends on the particular circumstances of
each shareholder, shareholders are advised to consult their tax advisers.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) a Portfolio' income available
for distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, such Portfolio's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the
Portfolio may be treated for federal income tax purposes as a return of
capital,or in some circumstances, as capital gains. Generally, a shareholder's
tax basis in Portfolio shares will be reduced to the extent that an amount
distributed to such shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) may be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. Any loss recognized upon
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a taxable disposition of shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends received with
respect to such shares. For purposes of determining whether shares have been
held for six months or less, the holding period is suspended for any periods
during which the shareholder's risk of loss is diminished as a result of holding
one or more other positions in substantially similar or related property or
through certain options or short sales.
GENERAL
The federal income tax discussions set forth above is for general
information only. Prospective investors and shareholders should consult their
advisers regarding the specific federal tax consequences of purchasing, holding
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
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PORTFOLIO PERFORMANCE
The average annual total return and yield, if applicable, for each
Portfolio are shown in the table below. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of each Portfolio's
investment objectives and policies as well as the risks incurred in each
Portfolio's investment practices. All total return figures are for the Trust's
fiscal year ended December 31, 1999. The information shown is for Class I Shares
of each Portfolio; the Class II Shares, which were not offered prior to April
28, 2000, will be shown separately in future Statements of Additional
Information.
CLASS I SHARES
<TABLE>
<CAPTION>
TOTAL RETURN CUMULATIVE
TOTAL RETURN TOTAL RETURN FOR TEN YEAR NON-STANDARDIZED
FOR ONE YEAR FOR FIVE YEAR PERIOD OR TOTAL RETURN
PERIOD PERIOD SINCE INCEPTION SINCE INCEPTION
------------ ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Asset Allocation Portfolio
commencement date 06/30/87............. 4.94% 17.21% 12.29% 293.43%
Comstock Portfolio
commencement date 4/30/99.............. n/a n/a -5.53%* -5.53%
Domestic Income Portfolio
commencement date 11/04/87............. -1.55% 8.69% 7.88% 135.63%
Emerging Growth Portfolio
commencement date 07/03/95............. 104.38% n/a 40.58%* 362.47%
Enterprise Portfolio
commencement date 04/07/86............. 25.85% 28.57% 17.58% 539.50%
Global Equity Portfolio
commencement date 07/03/95............. 30.06% n/a 19.23%* 120.50%
Government Portfolio
commencement date 04/07/86............. -3.36% 6.60% 6.54% 134.90%
Growth and Income Portfolio
commencement date 12/23/96............. 12.99% n/a 18.48%* 66.95%
Money Market Portfolio
commencement date 04/07/86............. 4.63% 5.01% 4.81% 108.07%
Morgan Stanley Real Estate Securities
Portfolio commencement date 07/03/95... -3.37% n/a 10.70%* 57.95%
Strategic Stock Portfolio
commencement date 11/03/97............. -0.47% n/a 8.33%* 18.87%
</TABLE>
* Denotes since inception.
From time to time, the Portfolios, except the Money Market Portfolio, may
advertise their total return for prior periods. Any such advertisement would
include at least average annual total return quotations for one, five and ten
year periods or for the life of the Portfolio. Other total return quotations,
aggregate or average, over other time periods may also be included. Total return
calculations do not take into account expenses at the "wrap" or contractholder
level as explained in the prospectus. Investors should also review total return
calculations that include those expenses.
The total return of a Portfolio for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the
Portfolio from the beginning to the end of the period. Total return is
calculated by subtracting the value of the initial investment from the ending
value and showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the maximum public
offering price and that all income dividends or capital gains distributions
during the period are reinvested in Portfolio shares at net asset value. Total
return is based on historical earnings and asset value fluctuations and is not
intended to indicate future performance. A Portfolio's total return will vary
depending on market conditions, the securities comprising the Portfolio's
investment holdings, the Portfolio's operating
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expenses and unrealized net capital gains or losses during the period. No
adjustments are made to reflect any income taxes payable by shareholders on
dividends and distributions paid by the Portfolio.
Average annual total return quotations are computed by finding the average
annual compounded rate of return over the period that would equate the initial
amount invested to the ending redeemable value.
A Portfolio may, in supplemental sales literature, advertise
non-standardized total return figures representing the cumulative,
non-annualized total return of the Portfolio from a given date to a subsequent
given date. Cumulative non-standardized total return is calculated by measuring
the value of an initial investment in a Portfolio at a given time, determining
the value of all subsequent reinvested distributions, and dividing the net
change in the value of the investment as of the end of the period by the amount
of the initial investment and expressing the result as a percentage.
Non-standardized total return will be calculated separately for each Portfolio.
In addition to total return information, certain Portfolios may also
advertise their current "yield." Yield figures are based on historical earnings
and are not intended to indicate future performance. Yield is determined by
analyzing the Portfolio's net income per share for a 30-day (or one-month)
period (which period will be stated in the advertisement), and dividing by the
maximum offering price per share on the last day of the period. A "bond
equivalent" annualization method is used to reflect a semiannual compounding.
Yield calculations do not take into account expenses at the "wrap" or
contractholder level as expanded in the prospectus. Investors should also review
yield calculations that include those expenses.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by a Portfolio in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
lesser than a Portfolio's then current dividend rate.
A Portfolio's yield is not fixed and will fluctuate in response to
prevailing interest rates and the market value of portfolio securities, and as a
function of the type of securities owned by a Portfolio, portfolio maturity and
a Portfolio's expenses.
Yield quotations should be considered relative to changes in the net asset
value of a Portfolio's shares, a Portfolio's investment policies, and the risks
of investing in shares of a Portfolio. The investment return and principal value
of an investment in a Portfolio will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The Adviser may, from time to time, waive advisory fees or reimburse a
certain amount of the future ordinary business expenses of a Portfolio. Such
waiver/reimbursement will increase the yield or total return of such Portfolio.
The Adviser may stop waiving fees or reimbursing expenses at any time without
prior notice.
From time to time the Money Market Portfolio advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Portfolio refers
to the income generated by an investment in the Money Market Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Money
Market Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in a Portfolio's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instrument held in a
portfolio, portfolio maturity, operating expenses and market conditions.
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From time to time, certain Portfolios may include in sales literature and
shareholder reports a quotation of the current "distribution rate" for shares of
such Portfolios. Distribution rate is a measure of the level of income and
short-term capital gain dividends, if any, distributed for a specified period.
Distribution rate differs from yield, which is a measure of the income actually
earned by a Portfolio's investments, and from total return, which is a measure
of the income actually earned by, plus the effect of any realized and unrealized
appreciation or depreciation of, such investments during a stated period.
Distribution rate is, therefore, not intended to be a complete measure of a
Portfolio's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Portfolios.
From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks. A
Portfolio's marketing materials may also show the Portfolio's asset class
diversification, top sectors, largest holdings and other Portfolio asset
structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes a Portfolio compares relative to other Portfolio's of
the Adviser. Materials may also discuss the Dalbar Financial Services study from
1984 to 1994 which studied investor cash flow into and out of all types of
mutual funds. The ten year study found that investors who bought mutual fund
shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless of if shareholders purchased
their funds in direct or sales force distribution channels. The study showed
that investors working with a professional representative have tended over time
to earn higher returns than those who invested directly. The performance of the
funds purchased by the investors in the Dalbar study and the conclusions based
thereon are not necessarily indicative of future performance of such funds or
conclusions that may result from similar studies in the future. The Portfolios
will also be marketed on the internet.
In reports or other communications to shareholders or in advertising
material, a Portfolio may compare its performance with that of other mutual
funds as listed in the ratings or rankings prepared by Lipper Analytical
Services, Inc., CDA, Morningstar Mutual Funds or similar independent services
which monitor the performance of mutual funds, with the Consumer Price Index,
the Dow Jones Industrial Average Index, Standard & Poor's indices, NASDAQ
Composite Index, other appropriate indices of investment securities, or with
investment or savings vehicles. The performance information may also include
evaluations of such Portfolio published by nationally recognized ranking or
rating services and by nationally recognized financial publications. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each Portfolio. For these purposes, the performance of the Portfolios, as well
as the performance of other mutual funds or indices, do not reflect various
charges, the inclusion of which would reduce portfolio performance.
The Portfolios may also utilize performance information in hypothetical
illustrations. For example, the Portfolios may, from time to time: (1)
illustrate the benefits of tax-deferral by comparing taxable investments to
investments made through tax-deferred retirement plans; (2) illustrate in graph
or chart form, or otherwise, the benefits of dollar cost averaging by comparing
investments made pursuant to a systematic investment plan to investments made in
a rising market; (3) illustrate allocations among different types of mutual
funds for investors of different stages of their lives; and (4) in reports or
other communications to shareholders or in advertising material, illustrate the
benefits of compounding at various assumed rates of return.
The Trust's Annual Report and Semiannual Report contain additional
performance information about each of the Trust's portfolios. A copy of the
Annual Report or Semiannual Report may be obtained without charge by calling or
writing the Trust at the telephone number and address printed on the cover of
this Statement of Additional Information.
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MONEY MARKET PORTFOLIO YIELD INFORMATION
The yield of the Money Market Portfolio is its net income expressed in
annualized terms. The Securities and Exchange Commission requires by rule that a
yield quotation set forth in an advertisement for a "money market" fund be
computed by a standardized method based on a historical seven calendar day
period. The standardized yield is computed by determining the net change
(exclusive of realized gains and losses and unrealized appreciation and
depreciation) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by 365/7.
The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and such additional shares, and all fees
that are charged to all shareholder accounts, in proportion to the length of the
base period and the Portfolio's average account size. The Portfolio may also
calculate its effective yield by compounding the unannualized base period return
(calculated as described above) by adding 1 to the base period return, raising
the sum to a power equal to 365 divided by 7, and subtracting one.
The yield quoted at any time represents the amount being earned on a
current basis for the indicated period and is a function of the types of
instruments in the Portfolio, their quality and length of maturity, and the
Portfolio's operating expenses. The length of maturity for the Portfolio is the
average dollar weighted maturity of the Portfolio. This means that the Portfolio
has an average maturity of a stated number of days for all of its issues. The
calculation is weighted by the relative value of the investment.
The yield fluctuates daily as the income earned on the investments of the
Portfolio fluctuates. Accordingly, there is no assurance that the yield quoted
on any given occasion will remain in effect for any period of time. It should
also be emphasized that the Portfolio is an open-end investment company and that
there is no guarantee that the net asset value will remain constant. A
shareholder's investment in the Portfolio is not insured. Investors comparing
results of the Portfolio with investment results and yields from other sources
such as banks or savings and loan associations should understand this
distinction. The yield quotation may be of limited use for comparative purposes
because it does not reflect charges imposed at the Account level which, if
included, would decrease the yield.
Other portfolios of the money market type as well as banks and savings and
loan associations may calculate their yield on a different basis, and the yield
quoted by the Portfolio could vary upwards or downwards if another method of
calculation or base period were used.
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Portfolios and all cash,
including proceeds from the sale of shares of the Portfolios and of securities
in each Portfolio's investment portfolio, are held by State Street Bank and
Trust Company, 225 West Franklin Street, Boston, Massachusetts 02110, as
custodian. With respect to investments in foreign securities, the custodian
enters into agreements with foreign sub-custodians which are approved by the
Board of Trustees pursuant to Rule 17f-5 under the 1940 Act. The custodian and
sub-custodians generally domestically, and frequently abroad, do not actually
hold certificates for the securities in their custody, but instead have book
records with domestic and foreign securities depositories, which in turn have
book records with the transfer agents of the issuers of the securities. The
custodian also provides accounting services to the Portfolios.
SHAREHOLDER REPORTS -- Semiannual statements of the Trust containing information
about each of the Portfolios, are furnished to shareholders, and annually such
statements are audited by the independent accountants whose selection is
ratified annually by shareholders.
INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers LLP, 200 East Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Trust, performs an
annual audit of the Trust's financial statements.
LEGAL COUNSEL -- Skadden, Arps, Slate, Meagher & Flom (Illinois).
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DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P corporate or municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the obligor or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation:
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT
Investment Grade AAA: Debt rated "AAA" has the highest rating assigned by
S&P. Capacity to meet its financial commitment on the obligation is extremely
strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
Speculative Grade BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC"
and "C" are regarded as having significant speculative characteristics. "BB"
indicates the least degree of speculation and "C" the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
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CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: Debt rated "C" is currently highly vulnerable to nonpayment. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
r: This symbol highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of non credit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the due date, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
B-66
<PAGE> 416
MOODY'S INVESTORS SERVICE, INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
B-67
<PAGE> 417
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date date to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
B-68
<PAGE> 418
aa: An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba: An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca: An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
4. COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (on supporting institutions) have a superior ability
for repayment of short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a ranges of financial markets and assured
sources of alternative liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
B-69
<PAGE> 419
Issuers rated Prime-3 (or supported institutions) have an acceptable
ability for repayment of short-term debt obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the prime rating
categories.
B-70
<PAGE> 420
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of the Van Kampen Life Investment
Trust--Asset Allocation Portfolio, Domestic Income Portfolio, Global Equity
Portfolio, Government Portfolio, and Money Market Portfolio:
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, Global Equity Portfolio, Government Portfolio, and
Money Market Portfolio (each a portfolio of Van Kampen Life Investment Trust,
collectively referred to as the "Portfolios") at December 31, 1999, 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
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolios' 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 auditing standards generally accepted in the United States, 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 11, 2000
F-1
<PAGE> 421
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 47.2%
CONSUMER DISTRIBUTION 3.1%
Albertson's, Inc. ............. 1,000 $ 32,250
Best Buy Co., Inc. (a)......... 1,900 95,356
Circuit City Stores-Circuit
City Group................... 3,400 153,212
Dayton Hudson Corp. ........... 700 51,406
Federated Department Stores,
Inc. (a)..................... 1,600 80,900
Home Depot, Inc. .............. 1,800 123,413
Kmart Corp. (a)................ 7,200 72,450
Kroger Co. (a)................. 2,300 43,413
Lexmark International Group,
Inc., Class A (a)............ 1,300 117,650
Lowe's Cos., Inc. ............. 200 11,950
May Department Stores Co. ..... 4,250 137,062
Safeway, Inc. (a).............. 900 32,006
Sears Roebuck & Co. ........... 1,500 45,656
TJX Cos., Inc. ................ 3,000 61,313
Tricon Global Restaurants, Inc.
(a).......................... 2,500 96,563
Wal-Mart Stores, Inc. ......... 7,500 518,437
-----------
1,673,037
-----------
CONSUMER DURABLES 1.0%
Delphi Automotive Systems
Corp. ....................... 2,488 39,186
Ford Motor Co. ................ 5,100 272,531
General Motors Corp. .......... 1,650 119,935
Whirlpool Corp. ............... 1,300 84,581
-----------
516,233
-----------
CONSUMER NON-DURABLES 3.2%
Anheuser Busch Cos., Inc. ..... 2,300 163,012
Coca Cola Co. ................. 2,050 119,412
General Mills, Inc. ........... 3,500 125,125
Jones Apparel Group, Inc.
(a).......................... 1,800 48,825
Kimberly-Clark Corp. .......... 3,500 228,375
Loews Corp. ................... 800 48,550
Pepsi Bottling Group, Inc. .... 3,400 56,313
PepsiCo, Inc. ................. 5,500 193,875
Philip Morris Cos., Inc. ...... 8,800 204,050
Procter & Gamble Co. .......... 3,500 383,469
Tommy Hilfiger Corp. (a)....... 2,200 51,288
Tyson Foods, Inc., Class A..... 4,900 79,625
-----------
1,701,919
-----------
CONSUMER SERVICES 1.6%
Brinker International, Inc.
(a).......................... 3,800 91,200
CBS Corp. (a).................. 1,600 102,300
Comcast Corp., Class A......... 1,000 50,563
Cox Communications, Inc.,
Class A (a).................. 1,850 95,275
Darden Restaurants, Inc. ...... 3,500 63,438
Harrah's Entertainment, Inc.
(a).......................... 4,700 124,256
Infinity Broadcasting Corp.,
(a).......................... 800 28,950
New York Times Co., Class A.... 1,500 73,687
Time Warner, Inc. ............. 2,900 210,069
-----------
839,738
-----------
ENERGY 3.2%
Apache Corp. .................. 2,000 73,875
Ashland, Inc. ................. 1,700 55,994
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
Chevron Corp. ................. 1,300 $ 112,612
Coastal Corp. ................. 4,000 141,750
Columbia Energy Group.......... 600 37,950
El Paso Energy Corp. .......... 1,800 69,862
Enron Corp. ................... 1,300 57,687
Exxon Mobil Corp. ............. 8,572 690,582
McDermott International,
Inc. ........................ 3,400 30,813
Phillips Petroleum Co. ........ 1,650 77,550
Royal Dutch Petroleum Co.-- ADR
(Netherlands)................ 2,400 145,050
Texaco, Inc. .................. 900 48,881
Ultramar Diamond Shamrock
Corp. ....................... 2,200 49,913
USX-- Marathon Group........... 5,600 138,250
-----------
1,730,769
-----------
FINANCE 6.4%
Allstate Corp. ................ 1,500 36,000
Ambac Financial Group, Inc. ... 1,200 62,625
American Express Co. .......... 550 91,437
American General Corp. ........ 1,200 91,050
American International Group,
Inc. ........................ 1,946 210,411
Bank One Corp. ................ 5,434 174,228
BankAmerica Corp. ............. 3,781 189,759
Charles Schwab Corp. .......... 1,500 57,563
Chase Manhattan Corp. ......... 2,500 194,219
CIGNA Corp. ................... 1,000 80,562
Citigroup, Inc. ............... 10,225 568,127
Conseco, Inc. ................. 4,000 71,500
Countrywide Credit Industries,
Inc. ........................ 2,900 73,225
Federal Home Loan Mortgage
Corp. ....................... 1,800 84,712
Federal National Mortgage
Association.................. 4,500 280,969
First Union Corp. ............. 2,400 78,750
FleetBoston Financial Corp. ... 5,331 185,585
Lehman Brothers Holdings,
Inc. ........................ 2,000 169,375
Lincoln National Corp. ........ 1,800 72,000
MBNA Corp. .................... 3,100 84,475
Mellon Financial Corp. ........ 1,500 51,094
Merrill Lynch & Co., Inc. ..... 1,100 91,850
MGIC Investment Corp. ......... 1,400 84,262
Nationwide Financial Services,
Inc., Class A................ 1,000 27,938
Providian Financial Corp. ..... 1,900 173,019
Radian Group, Inc. ............ 1,200 57,300
Washington Mutual, Inc. ....... 2,200 57,200
Wells Fargo & Co. ............. 300 12,131
-----------
3,411,366
-----------
HEALTHCARE 4.4%
Abbott Laboratories, Inc. ..... 2,700 98,044
Aetna, Inc. ................... 1,200 66,975
Amgen, Inc. (a)................ 4,200 252,262
Baxter International, Inc. .... 600 37,688
Bristol-Myers Squibb Co. ...... 5,800 372,287
Johnson & Johnson.............. 3,900 363,187
Merck & Co., Inc. ............. 4,800 321,900
Pacificare Health Systems,
Class A (a).................. 500 26,500
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 422
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Pfizer, Inc. (a)............... 8,400 $ 272,475
Pharmacia & Upjohn, Inc. (a)... 400 18,000
Schering-Plough Corp. (a)...... 1,300 54,844
Tenet Healthcare Corp. (a)..... 1,300 30,550
United HealthCare Corp. ....... 1,700 90,312
Warner-Lambert Co. ............ 3,600 294,975
Wellpoint Health Networks,
Inc., Class A (a)............ 1,000 65,938
-----------
2,365,937
-----------
PRODUCER MANUFACTURING 3.1%
Cummins Engine Co., Inc. ...... 1,700 82,131
General Electric Co. .......... 6,900 1,067,775
Johnson Controls, Inc. ........ 1,600 91,000
Minnesota Mining &
Manufacturing Co. ........... 1,100 107,662
Navistar International Corp.
(a).......................... 2,300 108,962
Parker-Hannifin Corp. ......... 600 30,788
Rockwell International
Corp. ....................... 800 38,300
TRW, Inc. ..................... 1,400 72,713
United Technologies Corp. ..... 690 44,850
-----------
1,644,181
-----------
RAW MATERIALS/PROCESSING
INDUSTRIES 1.6%
Corus Group PLC-- ADR (United
Kingdom)..................... 2,300 59,513
Dow Chemical Co. .............. 1,400 187,075
E.I. Du Pont de Nemours &
Co. ......................... 3,150 207,506
Freeport-McMoRan Copper & Gold,
Inc., Class B (a)............ 1,200 25,350
Mead Corp. .................... 2,700 117,281
Praxair, Inc. ................. 1,600 80,500
Transocean Sedco Forex,
Inc. ........................ 2,100 70,744
Union Carbide Corp. ........... 400 26,700
USX-U.S. Steel Group........... 2,200 72,600
-----------
847,269
-----------
TECHNOLOGY 14.5%
Adaptec, Inc. (a).............. 900 44,888
ADC Telecommunications, Inc.
(a).......................... 1,300 94,331
Alcatel SA-- ADR (France)...... 2,200 99,000
America Online, Inc. (a)....... 6,280 473,747
Apple Computer, Inc. (a)....... 1,000 102,813
BMC Software, Inc. (a)......... 300 23,981
Cisco Systems, Inc. (a)........ 7,600 814,150
Compuware Corp. (a)............ 1,700 63,325
Dell Computer Corp. (a)........ 2,900 147,900
Electronic Data Systems
Corp. ....................... 2,700 180,731
Electronics for Imaging, Inc.
(a).......................... 1,000 58,125
EMC Corp. (a).................. 1,000 109,250
First Data Corp. .............. 400 19,725
Gateway 2000, Inc. (a)......... 1,000 72,063
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
General Instrument Corp. (a)... 250 $ 21,250
Hewlett Packard Co. ........... 3,800 432,962
Honeywell International,
Inc. ........................ 1,688 97,348
Intel Corp. ................... 5,900 485,644
International Business
Machines Corp. .............. 4,300 464,400
LSI Logic Corp. (a)............ 700 47,250
Lucent Technologies, Inc. ..... 4,800 359,100
Microsoft Corp. (a)............ 11,700 1,365,975
Motorola, Inc. ................ 2,000 294,500
Network Appliance, Inc. (a).... 600 49,838
Nokia Corp.-- ADR (Finland).... 500 95,000
Nortel Networks Corp. ......... 3,100 313,100
Northrop Grumman Corp. ........ 300 16,219
Oracle Corp. (a)............... 5,400 605,137
Pitney Bowes, Inc. ............ 1,100 53,144
Sanmina Corp. (a).............. 500 49,938
SCI Systems, Inc. (a).......... 1,100 90,406
Seagate Technology, Inc. (a)... 3,000 139,687
Solectron Corp. (a)............ 1,900 180,737
Sun Microsystems, Inc. (a)..... 600 46,463
Tellabs, Inc. (a).............. 2,200 141,212
Xerox Corp. ................... 5,300 120,244
-----------
7,773,583
-----------
TRANSPORTATION 0.4%
AMR Corp. (a).................. 400 26,800
CNF Transportation, Inc. ...... 1,400 48,300
Delta Air Lines, Inc. ......... 900 44,831
Union Pacific Corp. ........... 1,700 74,163
-----------
194,094
-----------
UTILITIES 4.7%
AT & T Corp. .................. 6,001 304,551
BellSouth Corp. ............... 4,000 187,250
DTE Energy Co. ................ 2,700 84,712
GPU, Inc. ..................... 1,200 35,925
GTE Corp. ..................... 6,300 444,544
MCI WorldCom, Inc. (a)......... 7,050 374,091
Nextel Communications, Inc.
(a).......................... 950 97,969
NSTAR.......................... 1,403 56,822
Qwest Communications
International, Inc. (a)...... 5,900 253,700
SBC Communications, Inc. ...... 7,238 352,852
Sprint Corp. .................. 3,300 222,131
Texas Utilities Co. ........... 1,300 46,231
U.S. WEST Communications
Group........................ 900 64,800
-----------
2,525,578
-----------
TOTAL COMMON STOCKS 47.2%................ 25,223,704
-----------
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 423
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE DEBT 17.5%
CONSUMER NON-DURABLES 0.4%
$ 250 Kroger Company, Ser B....................................... 7.250% 6/01/09 $ 239,968
-----------
ENERGY 0.9%
500 Enron Corp. ................................................ 6.875 10/15/07 474,680
-----------
FINANCE 3.7%
500 American Re Corp., Ser B.................................... 7.450 12/15/26 475,974
250 Avalonbay Communities, Inc. ................................ 7.500 08/01/09 238,828
250 Countrywide Funding Corp. .................................. 8.250 07/15/02 253,778
250 Finova Cap Corp. ........................................... 7.625 09/21/09 246,273
500 Lehman Brothers, Inc. ...................................... 7.125 07/15/02 497,370
250 Washington Mutual Capital I................................. 8.375 06/01/27 239,479
-----------
1,951,702
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 1.0%
500 Georgia Pacific Corp........................................ 9.950 06/15/02 529,076
-----------
TECHNOLOGY 1.8%
500 Raytheon Co................................................. 6.750 08/15/07 466,034
500 Sun Microsystems, Inc....................................... 7.500 08/15/06 502,683
-----------
968,717
-----------
TRANSPORTATION 2.3%
500 CSX Corp. .................................................. 8.625 05/15/22 522,057
250 Ford Motor Credit Co. ...................................... 6.700 07/16/04 244,836
500 Southwest Air Lines Co. .................................... 7.375 03/01/27 465,005
-----------
1,231,898
-----------
UTILITIES 7.4%
300 360 Communications Co. ..................................... 7.125 03/01/03 299,753
500 Cox Communications, Inc. ................................... 6.875 06/15/05 486,984
250 Edison International........................................ 6.875 09/15/04 245,070
250 El Paso Electric Co. ....................................... 8.250 02/01/03 254,375
500 Houston Lighting & Power Co. ............................... 7.750 03/15/23 472,724
500 MCI WorldCom, Inc. ......................................... 6.950 08/15/28 457,397
250 Niagara Mohawk Power Corp., Ser G........................... 7.750 10/01/08 250,268
500 Southern Energy, Inc., 144A-- Private Placement (b)......... 7.900 07/15/09 484,702
250 Sprint Capital Corp. ....................................... 6.125 11/15/08 227,026
750 Texas Utilities Electric Co. ............................... 8.250 04/01/04 770,352
-----------
3,948,651
-----------
TOTAL CORPORATE DEBT ............................................................ 9,344,692
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 17.3%
500 U.S. Treasury Note.......................................... 5.875 02/15/04 491,875
500 U.S. Treasury Note.......................................... 6.125 08/15/07 487,500
1,000 U.S. Treasury Note.......................................... 6.500 10/15/06 997,500
500 U.S. Treasury Note.......................................... 6.875 05/15/06 508,907
1,000 U.S. Treasury Note.......................................... 7.250 08/15/04 1,032,188
2,000 U.S. Treasury Bond.......................................... 7.125 02/15/23 2,083,126
2,900 U.S. Treasury Bond.......................................... 7.250 05/15/16 3,032,312
500 U.S. Treasury Bond.......................................... 8.750 08/15/20 605,937
-----------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS........................................ 9,239,345
-----------
TOTAL LONG-TERM INVESTMENTS 82.0%
(Cost $38,424,872)....................................................................... 43,807,741
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 424
ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT 16.4%
Warburg Dillon Read ($8,795,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 12/31/99, to be sold on 01/03/00 at $8,796,906)
(Cost $8,795,000)................................................................. $ 8,795,000
-----------
TOTAL INVESTMENTS 98.4%
(Cost $47,219,872)....................................................................... 52,602,741
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%................................................ 836,787
-----------
NET ASSETS 100.0%......................................................................... $53,439,528
===========
</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.
ADR--American Depositary Receipt.
See Notes to Financial Statements
F-5
<PAGE> 425
ASSET ALLOCATION PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including a repurchase agreement of
$8,795,000 (Cost $47,219,872)............................. $52,602,741
Cash........................................................ 559,109
Receivables:
Interest.................................................. 360,311
Investments Sold.......................................... 64,090
Dividends................................................. 29,190
Other....................................................... 44,300
-----------
Total Assets.......................................... 53,659,741
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 24,970
Investment Advisory Fee................................... 21,613
Shareholder Reports....................................... 19,364
Distributor and Affiliates................................ 6,709
Trustees' Deferred Compensation and Retirement Plans........ 123,245
Accrued Expenses............................................ 24,312
-----------
Total Liabilities..................................... 220,213
-----------
NET ASSETS.................................................. $53,439,528
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $42,297,099
Net Unrealized Appreciation................................. 5,382,869
Accumulated Net Realized Gain............................... 3,900,528
Accumulated Undistributed Net Investment Income............. 1,859,032
-----------
NET ASSETS.................................................. $53,439,528
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $53,439,528 and 4,399,081 shares
of beneficial interest issued and outstanding)............ $ 12.15
===========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 426
ASSET ALLOCATION PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 1,848,405
Dividends................................................... 413,479
-----------
Total Income............................................ 2,261,884
-----------
EXPENSES:
Investment Advisory Fee..................................... 277,196
Custody..................................................... 40,175
Trustees' Fees and Related Expenses......................... 32,619
Accounting.................................................. 25,190
Shareholder Reports......................................... 19,345
Audit....................................................... 17,128
Legal....................................................... 3,740
Other....................................................... 20,867
-----------
Total Expenses.......................................... 436,260
Investment Advisory Fee Reduction....................... 95,967
Less Credits Earned on Overnight Cash Balances.......... 2,246
-----------
Net Expenses............................................ 338,047
-----------
NET INVESTMENT INCOME....................................... $ 1,923,837
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 3,958,873
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 8,728,544
End of the Period:
Investments............................................. 5,382,869
-----------
Net Unrealized Depreciation During the Period............... (3,345,675)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 613,198
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,537,035
===========
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 427
ASSET ALLOCATION PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 1,923,837 $ 1,954,643
Net Realized Gain........................................... 3,958,873 5,930,830
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (3,345,675) 1,114,702
----------- -----------
Change in Net Assets from Operations........................ 2,537,035 9,000,175
----------- -----------
Distributions from Net Investment Income.................... (1,970,700) (67,589)
Distributions from Net Realized Gain........................ (5,938,317) (1,826,978)
----------- -----------
Total Distributions......................................... (7,909,017) (1,894,567)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (5,371,982) 7,105,608
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 2,459,470 4,124,365
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 7,909,018 1,894,567
Cost of Shares Repurchased.................................. (13,018,242) (14,960,988)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (2,649,754) (8,942,056)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (8,021,736) (1,836,448)
NET ASSETS:
Beginning of the Period..................................... 61,461,264 63,297,712
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $1,859,032 and $1,905,895,
respectively)............................................. $53,439,528 $61,461,264
=========== ===========
</TABLE>
See Notes to Financial Statements
F-8
<PAGE> 428
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,
----------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............ $13.384 $11.910 $11.352 $ 11.64 $ 9.99
------- ------- ------- ------- ------
Net Investment Income............................. .459 .425 .513 .482 .48
Net Realized and Unrealized Gain/Loss............. .115 1.416 1.897 1.083 2.6425
------- ------- ------- ------- ------
Total from Investment Operations.................... .574 1.841 2.410 1.565 3.1225
------- ------- ------- ------- ------
Less:
Distributions from Net Investment Income.......... .451 .013 .518 .478 .4775
Distributions from Net Realized Gain.............. 1.359 .354 1.334 1.375 .995
------- ------- ------- ------- ------
Total Distributions................................. 1.810 .367 1.852 1.853 1.4725
------- ------- ------- ------- ------
Net Asset Value, End of the Period.................. $12.148 $13.384 $11.910 $11.352 $11.64
======= ======= ======= ======= ======
Total Return*....................................... 4.94% 15.67% 21.81% 13.87% 31.36%
Net Assets at End of the Period (In millions)....... $ 53.4 $ 61.5 $ 63.3 $ 63.9 $ 63.0
Ratio of Expenses to Average Net Assets*............ .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*........................................... 3.41% 3.17% 3.86% 3.78% 3.85%
Portfolio Turnover.................................. 78% 93% 58% 118% 124%
* If certain expenses had not been assumed by Van
Kampen, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average Net Assets............. .77% .72% .71% .81% .74%
Ratio of Net Investment Income to Average Net
Assets............................................ 3.24% 3.05% 3.75% 3.57% 3.71%
</TABLE>
See Notes to Financial Statements
F-9
<PAGE> 429
DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE DEBT 92.3%
CONSUMER DISTRIBUTION 7.9%
$500 Borden, Inc. ............................................... 7.875% 02/15/23 $ 386,875
500 Gruma SA De CV, 144A -- Private Placement (Mexico) (a)...... 7.625 10/15/07 435,000
500 Nabisco, Inc. .............................................. 7.550 06/15/15 473,700
-----------
1,295,575
-----------
CONSUMER NON-DURABLES 5.5%
500 Bausch & Lomb, Inc.......................................... 7.125 08/01/28 435,845
500 Westpoint Stevens, Inc. .................................... 7.875 06/15/05 457,500
-----------
893,345
-----------
CONSUMER SERVICES 21.5%
500 Cox Communications, Inc. ................................... 6.800 08/01/28 436,388
500 CSC Holdings, Inc........................................... 7.875 12/15/07 495,000
250 Liberty Media Group, 144A -- Private Placement (a).......... 8.500 07/15/29 253,849
500 News America Holdings, Inc. ................................ 10.125 10/15/12 550,436
500 Park Place Entertainment Corp. ............................. 7.950 08/01/03 495,547
500 Royal Caribbean Cruises Ltd. ............................... 7.500 10/15/27 450,701
250 Socgen Real Estate Co. LLC Ser A, 144A -- Private Placement 12/29/49 229,542
(a)......................................................... 7.640
100 Time Warner Entertainment Co. .............................. 8.375 07/15/33 104,225
500 Viacom, Inc. ............................................... 7.625 01/15/16 491,250
-----------
3,506,938
-----------
ENERGY 2.3%
250 PDV America, Inc. .......................................... 7.875 08/01/03 235,570
150 Petroleum Geo-Services ASA.................................. 7.125 03/30/28 131,283
-----------
366,853
-----------
FINANCE 9.6%
250 Abbey National PLC.......................................... 7.350 10/29/49 239,206
500 Avalonbay Communities, Inc. ................................ 7.500 08/01/09 477,656
250 Finova Capital Corp. ....................................... 7.625 09/21/09 246,273
125 Korea Development Bank...................................... 6.500 11/15/02 121,167
250 Nordbanken AB, 144A -- Private Placement (a)................ 7.250 11/12/09 244,869
250 Washington Mutual Capital I................................. 8.375 06/01/27 239,479
-----------
1,568,650
-----------
HEALTHCARE 2.9%
500 Manor Care, Inc. ........................................... 7.500 06/15/06 480,585
-----------
PRODUCER MANUFACTURING 2.8%
500 Idex Corp................................................... 6.875 02/15/08 450,119
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 10.0%
500 Georgia-Pacific Corp. ...................................... 9.950 06/15/02 529,076
500 Owens Illinois, Inc. ....................................... 7.150 05/15/05 465,000
250 Tosco Corp. ................................................ 8.250 05/15/03 254,417
300 Vicap SA De CV (Mexico)..................................... 10.250 05/15/02 290,250
100 Vicap SA De CV (Mexico)..................................... 11.375 05/15/07 92,250
-----------
1,630,993
-----------
RETAIL 1.5%
250 Fred Meyer, Inc. ........................................... 7.375 03/01/05 250,938
-----------
TECHNOLOGY 1.5%
250 Sun Microsystems, Inc. ..................................... 7.500 08/15/06 251,342
-----------
</TABLE>
See Notes to Financial Statements
F-10
<PAGE> 430
DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION 8.5%
$100 Canadian National Railway Co. .............................. 7.625% 05/15/23 $ 97,125
500 CSX Corp. .................................................. 8.625 05/15/22 522,058
500 Delta Air Lines, Inc. ...................................... 9.750 05/15/21 555,547
200 United Air Lines, Inc., Ser 91A2............................ 10.020 03/22/14 216,275
-----------
1,391,005
-----------
UTILITIES 18.3%
250 Edison International........................................ 6.875 09/15/04 245,070
250 El Paso Electric Co., Ser C................................. 8.250 02/01/03 254,375
500 Houston Lighting & Power Co. ............................... 7.750 03/15/23 472,724
250 Israel Electric Corp. Ltd., 144A -- Private Placement (a)... 8.250 10/15/09 249,287
500 MCI Worldcom, Inc. ......................................... 6.950 08/15/28 457,397
250 Niagara Mohawk Power Corp., Ser G........................... 7.750 10/01/08 250,268
350 Public Service Co. of Colorado.............................. 8.750 03/01/22 351,004
500 Southern Energy, Inc., 144A -- Private Placement (a)........ 7.900 07/15/09 484,702
250 Sprint Capital Corp. ....................................... 6.125 11/15/08 227,026
-----------
2,991,853
-----------
TOTAL CORPORATE DEBT 92.3%....................................................... 15,078,196
-----------
GOVERNMENT OBLIGATIONS 3.6%
296 Federal National Mortgage Association Pool (U.S.)........... 10.000 04/01/21 315,295
250 United Mexican States (Mexico).............................. 10.375 02/17/09 266,563
-----------
TOTAL GOVERNMENT OBLIGATIONS...................................................... 581,858
-----------
TOTAL LONG-TERM INVESTMENTS 95.9%
(Cost $16,251,793)....................................................................... 15,660,054
REPURCHASE AGREEMENT 1.7%
Warburg Dillion Read ($283,000 par collateralized by U.S. Government obligations 283,000
in a pooled cash account, dated 12/31/99, to be sold on 01/03/00 at $283,061)
(Cost $283,000)...................................................................
-----------
TOTAL INVESTMENTS 97.6%
(Cost $16,534,793)....................................................................... 15,943,054
OTHER ASSETS IN EXCESS OF LIABILITIES 2.4%................................................ 386,588
-----------
NET ASSETS 100.0%......................................................................... $16,329,642
===========
</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
F-11
<PAGE> 431
DOMESTIC INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $16,534,793)........................ $15,943,054
Cash........................................................ 165,427
Receivables:
Interest.................................................. 323,930
Portfolio Shares Sold..................................... 868
Other....................................................... 43,360
-----------
Total Assets.......................................... 16,476,639
-----------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 7,502
Investment Advisory Fee................................... 6,615
Portfolio Shares Repurchased.............................. 2,265
Trustees' Deferred Compensation and Retirement Plans........ 118,429
Accrued Expenses............................................ 12,186
-----------
Total Liabilities..................................... 146,997
-----------
NET ASSETS.................................................. $16,329,642
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $16,763,020
Accumulated Undistributed Net Investment Income............. 1,244,530
Net Unrealized Depreciation................................. (591,739)
Accumulated Net Realized Loss............................... (1,086,169)
-----------
NET ASSETS.................................................. $16,329,642
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $16,329,642 and 2,030,866 shares
of beneficial interest issued and outstanding)............ $ 8.04
===========
</TABLE>
See Notes to Financial Statements
F-12
<PAGE> 432
DOMESTIC INCOME PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 1,417,603
Other....................................................... 625
-----------
Total Income............................................ 1,418,228
-----------
EXPENSES:
Investment Advisory Fee..................................... 85,467
Trustees' Fees and Related Expenses......................... 31,029
Shareholder Reports......................................... 18,250
Custody..................................................... 16,278
Accounting.................................................. 16,174
Shareholder Services........................................ 15,980
Audit....................................................... 7,300
Legal....................................................... 2,189
Other....................................................... 1,553
-----------
Total Expenses.......................................... 194,220
Expense Reduction ($85,467 Investment Advisory Fee and
$764 Other)............................................ 86,231
Less Credits Earned on Overnight Cash Balances.......... 2,148
-----------
Net Expenses............................................ 105,841
-----------
NET INVESTMENT INCOME....................................... $ 1,312,387
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (328,221)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 694,170
End of the Period:
Investments............................................. (591,739)
-----------
Net Unrealized Depreciation During the Period............... (1,285,909)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(1,614,130)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (301,743)
===========
</TABLE>
See Notes to Financial Statements
F-13
<PAGE> 433
DOMESTIC INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 1,312,387 $ 1,257,306
Net Realized Loss........................................... (328,221) (54,296)
Net Unrealized Depreciation During the Period............... (1,285,909) (155,883)
----------- -----------
Change in Net Assets from Operations........................ (301,743) 1,047,127
Distributions from Net Investment Income.................... (1,259,398) (44,123)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (1,561,141) 1,003,004
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 5,830,207 6,157,023
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 1,259,398 44,123
Cost of Shares Repurchased.................................. (7,120,021) (6,481,744)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (30,416) (280,598)
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... (1,591,557) 722,406
NET ASSETS:
Beginning of the Period..................................... 17,921,199 17,198,793
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $1,244,530 and $1,198,922,
respectively)............................................. $16,329,642 $17,921,199
=========== ===========
</TABLE>
See Notes to Financial Statements
F-14
<PAGE> 434
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,
-------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $8.748 $8.252 $8.008 $ 8.21 $ 7.35
------ ------ ------ ------ -------
Net Investment Income................................... .611 .614 .704 .755 .71
Net Realized and Unrealized Gain/Loss................... (.738) (.096) .252 (.212) .8525
------ ------ ------ ------ -------
Total from Investment Operations.......................... (.127) .518 .956 .543 1.5625
Less Distributions from Net Investment Income............. .580 .022 .712 .745 .7025
------ ------ ------ ------ -------
Net Asset Value, End of the Period........................ $8.041 $8.748 $8.252 $8.008 $ 8.21
====== ====== ====== ====== =======
Total Return*............................................. (1.55%) 6.34% 11.90% 6.68% 21.37%
Net Assets at End of the Period (In millions)............. $ 16.3 $ 17.9 $ 17.2 $ 19.8 $ 26.6
Ratio of Expenses to Average Net Assets* (a).............. .61% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*..... 7.43% 7.29% 7.74% 7.97% 8.11%
Portfolio Turnover........................................ 74% 46% 78% 77% 54%
* 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 (a)............... 1.10% 1.09% 1.05% 1.29% .93%
Ratio of Net Investment Income to Average Net Assets...... 6.94% 6.80% 7.29% 7.28% 7.78%
</TABLE>
(a) The Ratio of Expenses to Average Net Assets do not reflect credits earned on
overnight cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .01% for the year ended December 31,
1999.
See Notes to Financial Statements
F-15
<PAGE> 435
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- --------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 99.3%
AUSTRALIA 1.9%
Orica Ltd.......................... 2,089 $ 11,260
Pacific Dunlop Ltd................. 8,200 11,606
Rio Tinto Ltd...................... 2,688 57,742
----------
80,608
----------
AUSTRIA 0.5%
OMV, AG............................ 200 19,442
----------
CANADA 3.3%
Barrick Gold Corp.................. 100 1,784
Enbridge, Inc...................... 3,000 59,543
Nortel Networks Corp............... 800 80,831
Placer Dome, Inc................... 100 1,067
----------
143,225
----------
DENMARK 0.3%
Novo Nordisk A/S, Ser B............ 100 13,263
----------
FINLAND 5.0%
Nokia (Ab) Oy (a).................. 1,200 217,587
----------
FRANCE 3.9%
Alcatel Alsthom (Cie Gen El)....... 165 37,896
Axa-UAP............................ 230 32,066
Compagnie de Saint Gobain.......... 148 27,835
LVMH (Moet Hennessy Louis
Vuitton)......................... 55 24,638
Total, Class B..................... 344 45,915
----------
168,350
----------
GERMANY 5.0%
Allianz, AG........................ 102 34,267
BASF, AG........................... 250 12,844
Bayer, AG.......................... 200 9,469
DaimlerChrysler, AG................ 251 19,520
Degussa Huels, AG (a).............. 50 2,100
Deutsche Bank, AG.................. 400 33,786
Deutsche Telekom, AG............... 606 43,159
Linde, AG.......................... 500 27,349
Siemens, AG........................ 200 25,446
VEBA, AG........................... 200 9,721
----------
217,661
----------
ITALY 2.0%
Enstituto Nazionale delle
Assicurazioni
(INA)............................ 12,000 31,792
Ente Nazionale Idrocarburi, SpA.... 2,000 11,000
Fiat SpA........................... 400 11,423
Telecom Italia..................... 2,500 27,929
Telecom Italia SpA (a)............. 2 28
Unione Immobiliare................. 12,000 5,561
----------
87,733
----------
JAPAN 17.3%
Acom Co., Ltd...................... 200 19,595
Bank of Tokyo...................... 600 8,362
Daiwa Securities................... 1,000 15,650
East Japan Railway................. 1 5,393
Hitachi............................ 1,000 16,052
Honda Motor Co..................... 1,000 37,193
</TABLE>
<TABLE>
<CAPTION>
Market
Description Shares Value
- --------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Japan Air Lines Co. (a)............ 1,000 $ 2,966
Japan Energy Corp.................. 3,000 2,731
Japan Tobacco, Inc................. 2 15,308
Kao Corp........................... 1,000 28,531
Kawasaki Heavy Industries.......... 1,000 1,331
Kawasaki Steel Corp................ 2,000 3,582
Komatsu............................ 1,000 4,600
Kyocera Corp....................... 100 25,937
Matsushita Electric Industries..... 1,000 27,699
Mitsubishi Electric Corp........... 2,000 12,920
Mitsubishi Estate.................. 1,000 9,758
Nagoya Railroad Co................. 3,000 8,779
NEC Corp........................... 1,000 23,833
Nippon Steel Corp.................. 1,000 2,339
Nippon Telegraph & Telephone
Corp............................. 3 51,385
Nippon Yusen Kabushiki Kaisha...... 2,000 8,182
Nissan Motor Co.................... 1,000 3,935
NSK Ltd............................ 1,000 6,842
Oji Paper Co....................... 1,000 6,019
Sekisui House...................... 1,000 8,858
Sharp Corp......................... 1,000 25,595
Softbank Corp...................... 300 287,168
Teijin............................. 1,000 3,690
Tobu Railway Co.................... 1,000 2,936
Toppan Printing Co................. 1,000 9,983
Toshiba Corp....................... 2,000 15,269
Toyota Motor Corp.................. 1,000 48,449
----------
750,870
----------
MALAYSIA 0.2%
RHB Capital Berhard................ 9,000 9,332
----------
NETHERLANDS 1.7%
ABN Amro Holdings.................. 660 16,488
Akzo Nobel......................... 400 20,066
Elsevier........................... 700 8,363
Koninklijke Ahold NV............... 547 16,195
Wolters Kluwer..................... 408 13,810
----------
74,922
----------
REPUBLIC OF KOREA 0.4%
Korea Electric Power
Corp. -- ADR..................... 307 5,142
Pohang Iron & Steel Co.,
Ltd. -- ADR...................... 317 11,095
----------
16,237
----------
SINGAPORE 1.1%
Singapore Telecommunications....... 24,000 49,571
----------
SOUTH AFRICA 0.2%
Sasol Ltd. -- ADR.................. 1,126 9,430
----------
SPAIN 2.3%
Endesa, SA......................... 300 5,956
Repsol-YPF, SA..................... 1,200 27,827
Telefonica de Espana (a)........... 2,667 66,628
----------
100,411
----------
SWEDEN 1.2%
Ericsson Telefon LM, Ser B......... 800 51,428
----------
</TABLE>
See Notes to Financial Statements
F-16
<PAGE> 436
GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- --------------------------------------------------------
<S> <C> <C>
SWITZERLAND 2.6%
Credit Suisse Group................ 200 $ 39,754
Nestle, SA......................... 10 18,320
Novartis, AG....................... 20 29,366
Roche Holdings Genusscheine, AG.... 2 23,739
----------
111,179
----------
UNITED KINGDOM 9.5%
Allied Zurich (a).................. 850 10,023
Barclays........................... 1,000 28,736
Bass............................... 1,160 14,597
BP Amoco........................... 2,324 23,459
BP Amoco PLC -- ADR................ 528 31,317
British America Tobacco............ 850 4,806
British Telecommunications......... 2,400 58,151
Burmah Castrol PLC................. 583 10,302
Carlton Communications............. 2,500 24,351
Glaxo Wellcome..................... 1,000 28,332
HSBC Holdings...................... 3,300 45,736
Invensys PLC....................... 1,255 6,635
Lloyds TSB Group................... 2,100 26,085
Marks & Spencer.................... 1,200 5,738
Rank Group......................... 2,486 8,031
Scot & Newcastle................... 2,100 14,586
ScottishPower PLC -- ADR........... 580 16,240
Smithkline Beecham................. 2,000 25,360
Smiths Industries.................. 1,000 14,942
Zeneca Group....................... 400 16,618
----------
414,045
----------
UNITED STATES 40.9%
Abbott Laboratories, Inc........... 600 21,788
Alcoa, Inc......................... 400 33,200
American Express Co................ 200 33,250
American Home Products Corp........ 600 23,663
American International Group,
Inc.............................. 375 40,547
AT&T Corp.......................... 750 38,062
Bank of America Corp............... 100 5,019
BellSouth Corp..................... 800 37,450
Boeing Co.......................... 100 4,156
Bristol-Myers Squibb Co............ 600 38,512
Chevron Corp....................... 300 25,988
Cisco Systems, Inc. (a)............ 900 96,412
Citigroup, Inc..................... 750 41,672
Coca Cola Co....................... 700 40,775
Columbia/HCA Healthcare Corp....... 300 8,794
Conexant Systems, Inc. (a)......... 300 19,913
Delphi Automotive Systems Corp..... 209 3,292
Dominion Resources, Inc............ 700 27,475
Dow Chemical Co.................... 200 26,725
Du Pont (E. I.) de Nemours & Co.... 200 13,175
Eastman Kodak Co................... 200 13,250
Exxon Mobil Corp................... 264 21,269
Federal National Mortgage
Association...................... 300 18,731
</TABLE>
<TABLE>
<CAPTION>
Market
Description Shares Value
- --------------------------------------------------------
<S> <C> <C>
First Data Corp.................... 400 $ 19,725
FPL Group, Inc..................... 400 17,125
General Electric Co................ 300 46,425
General Motors Corp................ 300 21,806
Gillette Co........................ 400 16,475
Hewlett Packard Co................. 300 34,181
Home Depot, Inc.................... 750 51,422
Illinois Tool Works, Inc........... 200 13,513
Intel Corp......................... 400 32,925
International Business Machines
Corp............................. 400 43,200
International Paper Co............. 300 16,931
J.C. Penney, Inc................... 300 5,981
Johnson & Johnson.................. 300 27,938
JP Morgan & Co., Inc............... 300 37,987
Kimberly-Clark Corp................ 300 19,575
LifePoint Hospitals, Inc........... 15 177
Lilly Eli & Co..................... 300 19,950
Lucent Technologies, Inc........... 1,200 89,775
McDonald's Corp.................... 800 32,250
MCI WorldCom, Inc. (a)............. 1,050 55,716
Meritor Automotive, Inc............ 100 1,937
Microsoft Corp. (a)................ 1,200 140,100
Minnesota Mining & Manufacturing
Co............................... 300 29,362
Motorola, Inc...................... 200 29,450
Oracle Corp. (a)................... 375 42,023
Pfizer, Inc........................ 600 19,463
Procter & Gamble Co................ 300 32,869
Raytheon Co., Class A.............. 25 620
Rockwell International Corp........ 300 14,363
SBC Communications, Inc............ 800 39,000
Schering-Plough Corp............... 400 16,875
Sears Roebuck & Co................. 300 9,131
Time Warner, Inc................... 600 43,462
Triad Hospitals, Inc............... 15 227
Warner-Lambert Co.................. 600 49,162
Wells Fargo Co..................... 1,000 40,437
Weyerhaeuser Co.................... 300 21,544
Xerox Corp......................... 600 13,613
----------
1,779,833
----------
TOTAL LONG-TERM INVESTMENTS 99.3%
(Cost $2,527,840)........................ 4,315,127
REPURCHASE AGREEMENT 2.5%
State Street Bank & Trust Co., dated
12/31/99, due 01/03/00, to be repurchased
at $109,023, collateralized by $110,000
U.S. Treasury Note, 6.250%, due 08/31/02,
valued at $112,338 (Cost $109,000)....... 109,000
----------
TOTAL INVESTMENTS 101.8%
(Cost $2,636,840)........................ 4,424,127
FOREIGN CURRENCY 0.0%
(Cost $3)................................ 4
LIABILITIES IN EXCESS OF OTHER
ASSETS (1.8%)........................... (76,984)
----------
NET ASSETS 100.0%......................... $4,347,147
----------
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR -- American Depository Receipt
See Notes to Financial Statements
F-17
<PAGE> 437
GLOBAL EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,636,840)......................... $4,424,127
Cash........................................................ 689
Foreign Currency (Cost $3).................................. 4
Receivables:
Dividends................................................. 6,077
Interest.................................................. 8
Unamortized Organizational Costs............................ 674
Forward Currency Contracts.................................. 18
Other....................................................... 163
----------
Total Assets.......................................... 4,431,760
----------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 3,938
Fund Shares Repurchased................................... 58
Accrued Expenses............................................ 47,193
Trustees' Deferred Compensation and Retirement Plans........ 33,424
----------
Total Liabilities..................................... 84,613
----------
NET ASSETS.................................................. $4,347,147
==========
NET ASSETS CONSIST OF:
Capital (Par Value of $.01 per share with an unlimited
number of shares authorized).............................. $2,597,427
Net Unrealized Appreciation................................. 1,787,251
Accumulated Net Realized Loss............................... (708)
Accumulated Distributions in Excess of Net Investment
Income.................................................... (36,823)
----------
NET ASSETS.................................................. $4,347,147
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (Based on net assets of $4,347,147 and 256,613
shares of beneficial interest issued and outstanding)..... $ 16.94
==========
</TABLE>
See Notes to Financial Statements
F-18
<PAGE> 438
GLOBAL EQUITY PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $4,592)...... $ 53,990
Interest.................................................... 2,007
----------
Total Income............................................ 55,997
----------
EXPENSES:
Custody..................................................... 61,677
Investment Advisory Fee..................................... 34,688
Shareholder Reports......................................... 17,155
Audit....................................................... 15,946
Shareholder Services........................................ 15,611
Trustees' Fees and Related Expenses......................... 10,912
Accounting.................................................. 7,088
Amortization of Organizational Costs........................ 1,365
Legal....................................................... 486
Other....................................................... 2,089
----------
Total Expenses.......................................... 167,017
Expense Reduction ($34,688 Investment Advisory Fee and
$90,836 Other)......................................... 125,524
----------
Net Expenses............................................ 41,493
----------
NET INVESTMENT INCOME....................................... $ 14,504
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain/Loss:
Investments............................................... $ 51,044
Foreign Currency Translation.............................. (17,190)
----------
Net Realized Gain........................................... 33,854
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 880,273
----------
End of the Period:
Investments............................................. 1,787,287
Forward Currency Contracts.............................. 18
Foreign Currency Translation............................ (54)
----------
1,787,251
----------
Net Unrealized Appreciation During the Period............... 906,978
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 940,832
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 955,336
==========
</TABLE>
See Notes to Financial Statements
F-19
<PAGE> 439
GLOBAL EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 14,504 $ 25,140
Net Realized Gain........................................... 33,854 17,243
Net Unrealized Appreciation During the Period............... 906,978 572,323
---------- -----------
Change in Net Assets from Operations........................ 955,336 614,706
---------- -----------
Distributions from Net Investment Income.................... (9,541) (25,140)
Distributions in Excess of Net Investment Income............ -0- (12,870)
---------- -----------
Distributions from and in Excess of Net Investment Income... (9,541) (38,010)
---------- -----------
Distributions from Net Realized Gain........................ (33,854) -0-
Distributions in Excess of Net Realized Gain................ (10,981) -0-
---------- -----------
Distributions from and in Excess of Net Realized Gain....... (44,835) -0-
---------- -----------
Total Distributions......................................... (54,376) (38,010)
---------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 900,960 576,696
---------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 829,783 782,393
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 33,418 24,409
Cost of Shares Repurchased.................................. (767,893) (1,006,628)
---------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 95,308 (199,826)
---------- -----------
TOTAL INCREASE IN NET ASSETS................................ 996,268 376,870
NET ASSETS:
Beginning of the Period..................................... 3,350,879 2,974,009
---------- -----------
End of the Period (Including accumulated distributions in
excess of net investment income of $36,823 and $24,594,
respectively)............................................. $4,347,147 $ 3,350,879
========== ===========
</TABLE>
See Notes to Financial Statements
F-20
<PAGE> 440
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
1999 1998 1997 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period......... $13.208 $11.004 $11.658 $10.30 $ 10.00
------- ------- ------- ------- -------
Net Investment Income/Loss..................... .240 .089 .110 .035 (.16)
Net Realized and Unrealized Gain............... 3.712 2.258 1.696 1.687 .46
------- ------- ------- ------- -------
Total from Investment Operations................. 3.952 2.347 1.806 1.722 .30
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income............................ .041 .143 .106 .188 -0-
Distributions from and in Excess of Net
Realized Gain................................ .179 -0- 2.354 .176 -0-
------- ------- ------- ------- -------
Total Distributions.............................. .220 .143 2.460 .364 -0-
------- ------- ------- ------- -------
Net Asset Value, End of the Period............... $16.940 $13.208 $11.004 $11.658 $ 10.30
======= ======= ======= ======= =======
Total Return*.................................... 30.06% 21.61% 15.85% 16.72% 3.00%**
Net Assets at End of the Period (In millions).... $ 4.3 $3.4 $3.0 $2.5 $ 2.4
Ratio of Expenses to Average Net Assets*......... 1.20% 1.20% 1.20% 1.20% 4.35%
Ratio of Net Investment Income/Loss to Average
Net Assets*.................................... .42% 0.79% .76% .27% (2.76%)
Portfolio Turnover............................... 7% 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.......... 4.84% 6.27% 6.78% 7.43% 8.27%
Ratio of Net Investment Loss to Average Net
Assets......................................... (3.22%) (4.28%) (4.82%) (5.96%) (6.68%)
</TABLE>
**Non-Annualized
See Notes to Financial Statements
F-21
<PAGE> 441
GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 70.3%
$2,000 Federal Farm Credit Bank Medium Term Note............. 6.520% 09/24/07 $ 1,934,700
971 Federal Home Loan Mortgage Corp. Gold 30 Year Pools... 7.000 05/01/24 to 07/01/24 940,877
150 Federal Home Loan Mortgage Corp. Gold 30 Year Pools... 7.500 10/1/24 148,573
130 Federal Home Loan Mortgage Corp. Gold 30 Year Pools... 8.000 09/01/24 to 10/01/24 131,424
500 Federal Home Loan Mortgage Corp. Pools................ 5.750 03/15/09 455,865
2,991 Federal Home Loan Mortgage Corp. Pools................ 6.000 05/01/2029 to 09/01/2029 2,739,439
2,486 Federal Home Loan Mortgage Corp. Pools................ 6.500 05/01/2029 to 06/01/2029 2,346,741
1,998 Federal Home Loan Mortgage Corp. Pools................ 7.500 10/01/2029 to 11/01/2029 1,978,924
356 Federal Home Loan Mortgage Corp. CMO Floater.......... 5.840 09/15/27 356,812
168 Federal Home Loan Mortgage Corp. CMO Floater.......... 5.910 09/15/23 167,336
1,161 Federal National Mortgage Association 15 Year Dwarf
Pools................................................. 6.500 06/01/09 to 04/01/11 1,134,288
1,074 Federal National Mortgage Association 15 Year Dwarf
Pools................................................. 7.000 07/01/10 to 01/01/12 1,065,211
167 Federal National Mortgage Association Pools........... 5.500 07/01/24 to 02/01/29 148,752
2,154 Federal National Mortgage Association Pools........... 6.000 01/01/14 to 12/01/28 2,038,072
500 Federal National Mortgage Association Pools........... 6.250 11/15/02 494,690
500 Federal National Mortgage Association Pools........... 6.375 06/15/09 476,475
5,760 Federal National Mortgage Association Pools........... 6.500 03/01/26 to 09/01/29 5,433,994
970 Federal National Mortgage Association Pools........... 7.000 12/01/23 to 06/01/24 940,159
263 Federal National Mortgage Association Pools........... 7.500 05/01/24 to 10/01/24 260,555
230 Federal National Mortgage Association Pools........... 8.000 06/01/24 to 10/01/24 231,787
401 Federal National Mortgage Association Pools........... 11.000 11/01/20 444,184
4,823 Government National Mortgage Association Pools (a).... 6.500 05/15/23 to 03/15/29 4,529,691
7,451 Government National Mortgage Association Pools (a).... 7.000 04/15/23 to 04/15/29 7,206,177
943 Government National Mortgage Association Pools........ 7.500 12/15/21 to 06/15/24 933,832
225 Government National Mortgage Association Pools........ 8.000 05/15/17 to 01/15/23 227,940
196 Government National Mortgage Association Pools........ 8.500 04/15/17 to 07/15/17 202,864
448 Government National Mortgage Association Pools........ 9.500 06/15/09 to 10/15/09 479,892
28 Government National Mortgage Association Pools........ 11.000 09/15/10 to 08/15/20 31,329
-----------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS........................................ 37,480,583
-----------
UNITED STATES TREASURY OBLIGATIONS 8.6%
4,000 United States Treasury Bonds (a)...................... 6.000 02/15/26 3,657,960
1,000 United States Treasury Notes (a)...................... 5.500 2/15/08 936,380
-----------
TOTAL UNITED STATES TREASURY OBLIGATIONS................................................. 4,594,340
-----------
TOTAL LONG-TERM INVESTMENTS 78.9%
(Cost $43,398,766).............................................................................. 42,074,923
REPURCHASE AGREEMENT 19.7%
Fuji Securities Incorporated ($10,520,000 par collateralized by U.S. Government obligations in a
pooled cash account, dated 12/31/99, to be sold on 1/3/00 at $10,520,000)
(Cost $10,519,182).............................................................................. 10,519,182
-----------
TOTAL INVESTMENTS 98.6%
(Cost $53,917,948).............................................................................. 52,594,105
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%....................................................... 735,193
-----------
NET ASSETS 100.0%............................................................................... $53,329,298
===========
</TABLE>
(a) Assets segregated as collateral for open futures transactions.
CMO--Collateralized Mortgage Obligations
See Notes to Financial Statements
F-22
<PAGE> 442
GOVERNMENT PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including a repurchase agreement of
$10,519,182 (Cost $53,917,948)............................ $52,594,105
Cash........................................................ 537,911
Interest Receivable......................................... 360,557
Other....................................................... 46,950
-----------
Total Assets.......................................... 53,539,523
-----------
LIABILITIES:
Payables:
Variation Margin on Futures............................... 30,313
Investment Advisory Fee................................... 16,836
Distributor and Affiliates................................ 11,200
Portfolio Shares Repurchased.............................. 7,007
Trustees' Deferred Compensation and Retirement Plans........ 124,170
Accrued Expenses............................................ 20,699
-----------
Total Liabilities..................................... 210,225
-----------
NET ASSETS.................................................. $53,329,298
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $61,096,754
Accumulated Undistributed Net Investment Income............. 3,221,466
Net Unrealized Depreciation................................. (1,507,647)
Accumulated Net Realized Loss............................... (9,481,275)
-----------
NET ASSETS.................................................. $53,329,298
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $53,329,298 and 6,047,586 shares
of beneficial interest issued and outstanding)............ $ 8.82
===========
</TABLE>
See Notes to Financial Statements
F-23
<PAGE> 443
GOVERNMENT PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 3,540,737
-----------
EXPENSES:
Investment Advisory Fee..................................... 275,370
Custody..................................................... 28,728
Trustees' Fees and Related Expenses......................... 31,469
Accounting.................................................. 29,309
Shareholder Services........................................ 16,629
Legal....................................................... 7,062
Other....................................................... 23,061
-----------
Total Expenses.......................................... 411,628
Investment Advisory Fee Reduction....................... 76,349
Less Credits Earned on Overnight Cash Balances.......... 2,256
-----------
Net Expenses............................................ 333,023
-----------
NET INVESTMENT INCOME....................................... $ 3,207,714
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (826,384)
Futures................................................... (982,628)
-----------
Net Realized Loss........................................... (1,809,012)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,842,793
-----------
End of the Period:
Investments............................................. (1,323,843)
Futures................................................. (183,804)
-----------
(1,507,647)
-----------
Net Unrealized Depreciation During the Period............... (3,350,440)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(5,159,452)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(1,951,738)
===========
</TABLE>
See Notes to Financial Statements
F-24
<PAGE> 444
GOVERNMENT PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 3,207,714 $ 3,088,718
Net Realized Gain/Loss...................................... (1,809,012) 973,202
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (3,350,440) 327,575
----------- -----------
Change in Net Assets from Operations........................ (1,951,738) 4,389,495
Distributions from Net Investment Income.................... (2,745,022) (529,309)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (4,696,760) 3,860,186
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 9,298,965 11,164,705
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 2,745,022 529,309
Cost of Shares Repurchased.................................. (11,077,541) (11,052,927)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 966,446 641,087
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... (3,730,314) 4,501,273
NET ASSETS:
Beginning of the Period..................................... 57,059,612 52,558,339
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $3,221,466 and $2,681,124,
respectively)............................................. $53,329,298 $57,059,612
=========== ===========
</TABLE>
See Notes to Financial Statements
F-25
<PAGE> 445
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,
-----------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $ 9.594 $ 8.920 $ 8.666 $ 9.06 $ 8.28
------- ------- ------- ------- -------
Net Investment Income......................... .526 .520 .566 .569 .60
Net Realized and Unrealized Gain/Loss......... (.845) .244 .231 (.388) .78
------- ------- ------- ------- -------
Total from Investment Operations................ (.319) .764 .797 .181 1.38
Less Distributions from and in Excess of Net
Investment Income............................. .457 .090 .543 .575 .60
------- ------- ------- ------- -------
Net Asset Value, End of the Period.............. $ 8.818 $ 9.594 $ 8.920 $ 8.666 $ 9.06
======= ======= ======= ======= =======
Total Return*................................... (3.36%) 8.59% 9.61% 2.12% 17.17%
Net Assets at End of the Period (In millions)... $ 53.3 $ 57.1 $ 52.6 $ 57.3 $ 67.0
Ratio of Expenses to Average Net Assets*........ .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net
Assets*....................................... 5.92% 5.74% 6.51% 6.56% 6.89%
Portfolio Turnover.............................. 92% 107% 119% 143% 164%
* If certain expenses had not been assumed by
Van Kampen, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets......... .74% .73% .74% .80% .72%
Ratio of Net Investment Income to Average Net
Assets........................................ 5.78% 5.61% 6.37% 6.36% 6.77%
</TABLE>
See Notes to Financial Statements
F-26
<PAGE> 446
MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Description Date Purchase Cost
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER 37.0%
$1,000 American Express Credit Corp. .............................. 02/16/00% 5.853% $ 992,678
800 American General Finance Corp. ............................. 02/22/00 6.003 793,217
1,000 Associates Corp. of North America........................... 01/24/00 5.883 996,307
1,000 Chevron USA, Inc. .......................................... 01/21/00 6.033 996,706
1,000 CIT Group Holdings, Inc. ................................... 01/26/00 5.946 995,945
1,000 Citicorp.................................................... 02/08/00 6.092 993,698
1,000 Coca-Cola Co. .............................................. 01/28/00 6.132 995,485
1,000 Ford Motor Credit Co. ...................................... 01/19/00 6.154 996,975
1,000 General Electric Corp. ..................................... 02/28/00 5.937 990,656
1,000 IBM Credit Corp. ........................................... 03/20/00 6.113 986,943
1,000 John Deere Capital Corp. ................................... 02/02/00 5.810 994,933
800 Norwest Financial, Inc. .................................... 02/07/00 5.917 795,231
800 Prudential Funding Corp. ................................... 02/04/00 5.893 795,633
-----------
TOTAL COMMERCIAL PAPER.............................................................. 12,324,407
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS 13.7%
493 Federal Farm Credit Bank Discount Note...................... 02/15/00 5.665 489,573
486 Federal Home Loan Bank Consolidated Discount Note........... 03/17/00 5.923 480,080
700 Federal Home Loan Mortgage Corp Discount Note............... 01/27/00 5.630 697,209
500 Federal Home Loan Mortgage Corp Discount Note............... 02/02/00 5.646 497,547
800 Federal Home Loan Mortgage Corp Discount Note............... 03/16/00 5.701 790,767
800 Federal National Mortgage Association Discount Note......... 07/07/00 5.452 778,150
839 Federal National Mortgage Association Discount Note......... 03/02/00 5.722 830,982
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS............................................ 4,564,308
-----------
CERTIFICATES OF DEPOSIT 12.3%
500 Bank One Illinois........................................... 04/06/00 6.000 500,000
800 Commerzbank AG.............................................. 02/01/00 5.000 799,984
800 National Westminster Bank................................... 01/07/00 5.010 799,994
1,000 UBS AG...................................................... 07/17/00 5.660 999,716
1,000 Westdeutsche Landesbank..................................... 03/06/00 6.060 1,000,025
-----------
TOTAL CERTIFICATES OF DEPOSIT....................................................... 4,099,719
-----------
NOTE 3.0%
1,000 Lasalle National Bank....................................... 02/18/00 6.030 1,000,000
-----------
REPURCHASE AGREEMENTS 32.9%
BankAmerica Securities ($4,000,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 12/31/99, to be sold on 01/03/00 at $4,000,917)... 4,000,000
State Street Bank & Trust Co. ($6,943,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/99, to be sold on 01/03/00 at
$6,944,736)....................................................................... 6,943,000
-----------
TOTAL REPURCHASE AGREEMENTS......................................................... 10,943,000
-----------
TOTAL INVESTMENTS 98.9%............................................................ 32,931,434
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%......................................... 362,813
-----------
NET ASSETS 100.0%.................................................................. $33,294,247
===========
</TABLE>
See Notes to Financial Statements
F-27
<PAGE> 447
MONEY MARKET PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at amortized cost which approximates market,
including repurchase agreements of $10,943,000............ $32,931,434
Cash........................................................ 346,625
Interest Receivable......................................... 123,608
Other....................................................... 45,602
-----------
Total Assets.......................................... 33,447,269
-----------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 7,462
Distributor and Affiliates................................ 5,101
Income Distribution....................................... 2,806
Trustees' Deferred Compensation and Retirement Plans........ 121,859
Accrued Expenses............................................ 15,794
-----------
Total Liabilities....................................... 153,022
-----------
NET ASSETS.................................................. $33,294,247
===========
NET ASSETS CONSIST OF:
Capital (Equivalent to $1.00 per share for 33,294,247 shares
outstanding).............................................. $33,294,247
===========
</TABLE>
See Notes to Financial Statements
F-28
<PAGE> 448
MONEY MARKET PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,507,956
----------
EXPENSES:
Investment Advisory Fee..................................... 146,480
Trustees' Fees and Related Expenses......................... 32,481
Accounting.................................................. 24,073
Custody..................................................... 24,845
Shareholder Services........................................ 15,947
Audit....................................................... 11,363
Shareholder Reports......................................... 10,915
Legal....................................................... 2,509
Other....................................................... 1,927
----------
Total Expenses.......................................... 270,540
Investment Advisory Fee Reduction....................... 91,001
Less Credits Earned on Overnight Cash Balances.......... 3,448
----------
Net Expenses............................................ 176,091
----------
NET INVESTMENT INCOME....................................... $1,331,865
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,331,865
==========
</TABLE>
See Notes to Financial Statements
F-29
<PAGE> 449
MONEY MARKET PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 1,331,865 $ 1,061,603
----------- -----------
Distributions from Net Investment Income.................... (1,331,826) (1,061,807)
Distributions in Excess of Net Investment Income............ -0- (39)
----------- -----------
Distributions from and in Excess of Net Investment Income... (1,331,826) (1,061,846)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 39 (243)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 36,672,632 31,396,945
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 1,341,788 1,061,846
Cost of Shares Repurchased.................................. (31,429,889) (25,489,643)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 6,584,531 6,969,148
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 6,584,570 6,968,905
NET ASSETS:
Beginning of the Period..................................... 26,709,677 19,740,772
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $0 and $(39), respectively).......... $33,294,247 $26,709,677
=========== ===========
</TABLE>
See Notes to Financial Statements
F-30
<PAGE> 450
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,
--------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<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....................................... .045 .049 .049 .048 .0533
Less Distributions from Net Investment Income............... .045 .049 .049 .048 .0533
------ ----- ----- ----- -----
Net Asset Value, End of the Period.......................... $ 1.00 $1.00 $1.00 $1.00 $1.00
====== ===== ===== ===== =====
Total Return*............................................... 4.63% 5.02% 5.06% 4.89% 5.46%
Net Assets at End of the Period (In millions)............... $ 33.3 $26.7 $19.7 $19.6 $21.6
Ratio of Expenses to Average Net Assets* (a)................ .62% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 4.25% 4.88% 4.95% 4.78% 5.33%
* 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 (a)................. .93% .99% .98% 1.29% .93%
Ratio of Net Investment Income to Average Net Assets........ 4.56% 4.49% 4.57% 4.10% 5.00%
</TABLE>
(a) The Ratio of Expenses to Average Net Assets do not reflect credits earned on
overnight cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .02% for the year ended December 31,
1999.
See Notes to Financial Statements
F-31
<PAGE> 451
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
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 eleven Portfolios: Asset Allocation Portfolio
("Asset Allocation"), Comstock Portfolio(1) ("Comstock"), Domestic Income
Portfolio ("Domestic Income"), Emerging Growth Portfolio(1) ("Emerging Growth"),
Enterprise Portfolio(1) ("Enterprise"), Global Equity Portfolio ("Global
Equity"), Government Portfolio ("Government"), Growth and Income Portfolio(1)
("Growth and Income"), Money Market Portfolio ("Money Market"), Morgan Stanley
Real Estate Securities Portfolio(1) ("Real Estate") and Strategic Stock
Portfolio(1) ("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 investment risk; Domestic Income
seeks current income as its primary objective and capital appreciation as a
secondary objective; Global Equity seeks long-term growth of capital through an
internationally diversified portfolio of equity securities of companies of any
nation, including the United States; Government seeks high current return
consistent with preservation of capital; and Money Market seeks protection of
capital and high current income by investing in money market instruments.
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 valued by independent pricing services or dealers
using the mean of the bid and asked prices. Unlisted securities and listed
securities for which the last sales price is not available are valued at the
mean of the bid and asked prices. For those securities where prices or
quotations are not available, valuations are determined in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost. For Money Market, all investments are valued at amortized cost, which
approximates market value.
Domestic Income'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 18% of Domestic Income's net assets at December 31,
1999.
- ---------------
(1) These Portfolios are included under a separate cover.
F-32
<PAGE> 452
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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--Global Equity has reimbursed Van Kampen Funds Inc. or
its affiliates (collectively "Van Kampen") for costs incurred in connection with
the Portfolio's organization in the amount of $6,828. 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
Portfolio originally purchased by Van Kampen are redeemed during the
amortization period, the Portfolio 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, 1999 along with its expiration dates. The table
also presents the identified cost of investments at December 31, 1999 for
federal income
F-33
<PAGE> 453
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
tax purposes with the associated gross unrealized appreciation, gross unrealized
depreciation and net unrealized appreciation/depreciation on investments.
<TABLE>
<CAPTION>
ASSET DOMESTIC GLOBAL
ALLOCATION INCOME EQUITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized capital loss carryforward.................... -- $ 1,083,199 --
Expiration dates of capital loss carryforward......... -- 2002-2007 --
Amount expiring on 12/31/00........................... -- -- --
Identified cost....................................... $47,343,466 $16,537,763 $2,650,368
Gross unrealized appreciation......................... 6,680,161 149,201 1,912,180
Gross unrealized depreciation......................... 1,420,886 743,910 138,417
Net unrealized appreciation/depreciation.............. 5,259,275 (594,709) 1,773,763
</TABLE>
<TABLE>
<CAPTION>
MONEY
GOVERNMENT MARKET
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Realized capital loss carryforward.......................... $ 9,664,340 $ 1,765
Expiration dates of capital loss carryforward............... 2000-2007 2003-2007
Amount expiring on 12/31/00................................. $ 117,213 --
Identified cost............................................. $53,917,948 $32,931,434
Gross unrealized appreciation............................... 166,968 --
Gross unrealized depreciation............................... 1,490,811 --
Net unrealized appreciation/depreciation.................... (1,323,843) --
</TABLE>
Net realized gains or losses may differ for financial and tax reporting
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 relating to wash sale transactions.
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 Income, Global Equity and Government 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.
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
1999 fiscal year have been identified and appropriately reclassified.
<TABLE>
<CAPTION>
GLOBAL
DOMESTIC EQUITY GOVERNMENT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated Undistributed Net Investment Income...... $ (7,381)(b) $(17,192)(a) $77,650 (b)
Accumulated Net Realized Gain/Loss................... 416,872(b)(c) 17,192(a) (77,650)(b)
Capital.............................................. (409,491)(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.
F-34
<PAGE> 454
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
(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, 1999, 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.
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.
H. EXPENSE REDUCTIONS--During the year ended December 31, 1999, custody fees
were reduced by the following amounts as a result of credits earned on overnight
cash balances:
<TABLE>
<CAPTION>
ASSET DOMESTIC GLOBAL MONEY
ALLOCATION INCOME EQUITY GOVERNMENT MARKET
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credits earned on overnight cash
balances................................ $2,246 $2,148 $ -0- $2,256 $3,448
</TABLE>
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>
<CAPTION>
- -------------------------------------------------------------------
<S> <C>
Asset Allocation, Domestic Income, 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.)
Global Equity............................................... 1.00%
</TABLE>
In relation to Global Equity, the Adviser has entered into a subadvisory
agreement, dated April 1, 1997 with Morgan Stanley Dean Witter Investment
Management Inc. (the "Subadviser") to provide advisory services to the Portfolio
and the Adviser with respect to the Portfolio's 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 Income, 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>
<CAPTION>
- -------------------------------------------------------------------
<S> <C>
Asset Allocation, Domestic Income, Government and Money
Market...................................................... .60%
Global Equity............................................... 1.20%
</TABLE>
F-35
<PAGE> 455
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
Other transactions with affiliates during the year ended December 31, 1999
were as follows:
<TABLE>
<CAPTION>
ASSET DOMESTIC GLOBAL
ALLOCATION INCOME EQUITY
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounting......................................... $25,200 $16,200 $ 7,000
Shareholder servicing agent's fees................. 15,000 15,000 15,600
Legal (Skadden Arps)............................... 3,700 2,200 500
</TABLE>
<TABLE>
<CAPTION>
MONEY
GOVERNMENT MARKET
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Accounting.................................................. $29,300 $24,100
Shareholder servicing agent's fees.......................... 16,600 15,000
Legal (Skadden Arps)........................................ 7,000 2,500
</TABLE>
Accounting services are provided by Van Kampen at cost. Van Kampen Investor
Services Inc., an affiliate of the Adviser, serves as the shareholder servicing
agent for the Portfolios. Transfer agency fees are determined through
negotiations with the Portfolios' 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, 1999, Van Kampen owned 95,241 shares of Global Equity.
3. CAPITAL TRANSACTIONS
For the year ended December 31, 1999, share transactions were as follows:
<TABLE>
<CAPTION>
ASSET DOMESTIC GLOBAL
ALLOCATION INCOME EQUITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Shares......................................... 4,591,957 2,048,609 253,694
Sales.................................................... 200,932 700,539 53,999
Dividend Reinvestment.................................... 680,053 155,098 2,147
Repurchases.............................................. (1,073,861) (873,380) (53,227)
----------- ----------- ----------
Ending Shares............................................ 4,399,081 2,030,866 256,613
=========== =========== ==========
Capital at 12/31/99...................................... $42,297,099 $16,763,020 $2,597,427
=========== =========== ==========
</TABLE>
F-36
<PAGE> 456
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY
GOVERNMENT MARKET
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................................ 5,947,274 26,709,716
Sales....................................................... 1,022,161 36,672,632
Dividend Reinvestment....................................... 305,002 1,341,788
Repurchases................................................. (1,226,851) (31,429,889)
----------- ------------
Ending Shares............................................... 6,047,586 33,294,247
=========== ============
Capital at 12/31/99......................................... $61,096,754 $ 33,294,247
=========== ============
</TABLE>
At December 31, 1999, with the exception of Van Kampen's ownership of shares
of certain portfolios, five 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, 1998, share transactions were as follows:
<TABLE>
<CAPTION>
ASSET DOMESTIC GLOBAL
ALLOCATION INCOME EQUITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Shares......................................... 5,314,563 2,084,276 270,266
Sales.................................................... 330,901 719,808 64,891
Dividend Reinvestment.................................... 153,034 5,259 2,004
Repurchases.............................................. (1,206,541) (760,734) (83,467)
----------- ----------- ----------
Ending Shares............................................ 4,591,957 2,048,609 253,694
=========== =========== ==========
Capital at 12/31/98...................................... $44,946,853 $17,202,927 $2,502,119
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
MONEY
GOVERNMENT MARKET
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................................ 5,892,077 19,740,568
Sales....................................................... 1,196,357 31,396,945
Dividend Reinvestment....................................... 58,944 1,061,846
Repurchases................................................. (1,200,104) (25,489,643)
----------- ------------
Ending Shares............................................... 5,947,274 26,709,716
=========== ============
Capital at 12/31/98......................................... $60,130,308 $ 26,709,716
=========== ============
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of long-term
investments, including principal paydowns and excluding forward commitment
transactions and short-term investments, were:
<TABLE>
<CAPTION>
ASSET DOMESTIC GLOBAL
ALLOCATION INCOME EQUITY GOVERNMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases................................... $38,018,687 $12,598,685 $314,577 $45,887,119
Sales....................................... 50,581,909 12,910,019 256,558 54,452,418
</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.
F-37
<PAGE> 457
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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, cash or liquid 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, 1999, were
as follows:
<TABLE>
<CAPTION>
NUMBER OF
GOVERNMENT CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1998............................ 154
Futures Opened.............................................. 1,185
Futures Closed.............................................. (1,258)
------
Outstanding at December 31, 1999............................ 81
======
</TABLE>
The futures contracts outstanding at December 31, 1999, 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 2000
(Current notional value of $90,938 per contract)..... 68 (202,406)
SHORT CONTRACTS
10-year U.S. Treasury Notes--March 2000
(Current notional value of $95,844 per contract)..... 13 18,602
--- --------
81 (183,804)
=== ========
</TABLE>
B. FORWARD COMMITMENTS--Domestic Income, Global Equity, and Government 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
F-38
<PAGE> 458
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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.
The forward currency contracts outstanding as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- ------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL EQUITY
SHORT CONTRACTS
Japanese Yen, 10,089,000 expiring 03/17/00................ $99,982 $ 18
======= ----
</TABLE>
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each Fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the facility meets or exceeds $650 million on a
complex-wide basis, each Fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each Fund incurs based on its pro-rata percentage of
quarterly net assets. The Portfolios did not borrow against the credit facility
during the period.
F-39
<PAGE> 459
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of the Van Kampen Life Investment
Trust--Comstock Portfolio, Emerging Growth Portfolio, Enterprise Portfolio,
Growth and Income Portfolio, Morgan Stanley Real Estate Securities Portfolio and
Strategic Stock Portfolio:
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 Comstock Portfolio, Emerging Growth
Portfolio, Enterprise Portfolio, Growth and Income Portfolio, Morgan Stanley
Real Estate Securities Portfolio and Strategic Stock Portfolio (each a Portfolio
of Van Kampen Life Investment Trust, collectively referred to as the
"Portfolios") at December 31, 1999, 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 accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolios' 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 11, 2000
F-40
<PAGE> 460
COMSTOCK PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
CONSUMER DISTRIBUTION 4.7%
Albertson's, Inc. ................ 705 $ 22,736
Federated Department Stores,
Inc. (a)........................ 335 16,939
Ford Motor Co. ................... 100 5,344
Kroger Co. (a).................... 950 17,931
May Department Stores Co. ........ 225 7,256
Saks, Inc. (a).................... 330 5,136
----------
75,342
----------
CONSUMER NON-DURABLES 8.0%
ConAgra, Inc. .................... 400 9,025
Dial Corp. ....................... 300 7,294
Nabisco Holdings Corp., Class A... 200 6,325
Payless Shoesource, Inc. (a)...... 210 9,870
Philip Morris Cos., Inc. ......... 1,600 37,100
Ralston-Ralston Purina Group...... 400 11,150
Sara Lee Corp. ................... 1,140 25,151
Weyerhaeuser Co. ................. 300 21,544
----------
127,459
----------
CONSUMER SERVICES 0.9%
Computer Associates International,
Inc. ........................... 200 13,988
----------
ENERGY 9.0%
BP Amoco PLC--ADR
(United Kingdom)................ 180 10,676
Chevron Corp. .................... 190 16,459
Conoco, Inc., Class A............. 300 7,425
Conoco, Inc., Class B............. 1,220 30,347
Diamond Offshore Drilling,
Inc. ........................... 140 4,279
ENSCO International, Inc. ........ 280 6,405
Halliburton Co. .................. 450 18,113
Rowan Cos., Inc. (a).............. 270 5,856
ScottishPower PLC--ADR
(United Kingdom)................ 465 13,009
Texaco, Inc. ..................... 170 9,233
Ultramar Diamond Shamrock
Corp. .......................... 210 4,764
Unocal Corp. ..................... 290 9,733
USX--Marathon Group............... 260 6,419
----------
142,718
----------
FINANCE 17.8%
Allstate Corp. ................... 1,000 24,000
AMBAC Financial Group, Inc. ...... 510 26,616
Aon Corp. ........................ 380 15,200
Bank One Corp. ................... 280 8,977
Bank of America Corp. ............ 370 18,569
Bear Stearns Cos., Inc. .......... 270 11,542
Chase Manhattan Corp. ............ 170 13,207
Chubb Corp. ...................... 300 16,894
Everest Reinsurance Holdings,
Inc. ........................... 160 3,570
Federal Home Loan Mortgage
Corp. .......................... 100 4,706
FleetBoston Financial Corp. ...... 418 14,552
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
LandAmerica Financial Group,
Inc. ........................... 120 $ 2,205
Liberty Financial Cos., Inc. ..... 70 1,606
Providian Financial Corp. ........ 490 44,621
Torchmark, Inc. .................. 310 9,009
Travelers Property Casualty Corp.,
Class A......................... 100 3,425
U.S. Bancorp...................... 1,050 25,003
Washington Mutual, Inc. .......... 980 25,480
Wells Fargo Co. .................. 380 15,366
----------
284,548
----------
HEALTHCARE 8.5%
American Home Products Corp. ..... 605 23,860
Baxter International, Inc. ....... 135 8,480
Columbia/HCA Healthcare Corp. .... 660 19,346
Tenet Healthcare Corp. (a)........ 2,540 59,690
United HealthCare Corp. .......... 460 24,437
----------
135,813
----------
PRODUCER MANUFACTURING 2.6%
Aventis SA--ADR (France).......... 440 25,025
Waste Management, Inc. ........... 920 15,812
----------
40,837
----------
RAW MATERIALS/PROCESSING
INDUSTRIES 9.9%
Barrick Gold Corp. ............... 280 4,953
Bethlehem Steel Corp. (a)......... 2,050 17,169
Boise Cascade Corp. .............. 390 15,795
Caterpillar, Inc. ................ 200 9,412
Freeport-McMoRan Copper & Gold,
Inc., Class B (a)............... 755 15,949
Homestake Mining Co. ............. 560 4,375
Imperial Chemical Industries
PLC--ADR (United Kingdom)....... 200 8,512
International Paper Co. .......... 479 27,034
Kimberly-Clark Corp. ............. 410 26,752
Louisiana-Pacific Corp. .......... 280 3,990
Placer Dome, Inc. ................ 470 5,053
USX-U.S. Steel Group.............. 590 19,470
----------
158,464
----------
TECHNOLOGY 4.3%
American Power Conversion
Corp. (a)....................... 420 11,077
Check Point Software Technologies
Ltd. (a)........................ 40 7,950
Cognex Corp. (a).................. 400 15,600
Gartner Group, Inc., Class
A (a)........................... 100 1,525
Hewlett-Packard Co. .............. 100 11,394
SunGard Data Systems, Inc. (a).... 860 20,425
----------
67,971
----------
TRANSPORTATION 0.3%
Canadian National Railway Co. .... 200 5,263
----------
</TABLE>
See Notes to Financial Statements
F-41
<PAGE> 461
COMSTOCK PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
UTILITIES 17.8%
Bell Atlantic Corp. .............. 380 $ 23,394
Carolina Power & Light Co. ....... 180 5,479
Central & South West Corp. ....... 420 8,400
Constellation Energy Group........ 270 7,830
DTE Energy Co. ................... 390 12,236
Duke Energy Corp. ................ 300 15,037
Edison International.............. 460 12,046
Entergy Corp. .................... 180 4,635
FirstEnergy Corp. ................ 240 5,445
GPU, Inc. ........................ 260 7,784
IDACORP, Inc. .................... 320 8,580
Illinova Corp. ................... 400 13,900
New Century Energies, Inc. ....... 470 14,276
Northern States Power Co. ........ 180 3,510
NSTAR............................. 266 10,773
OGE Energy Corp. ................. 520 9,880
PG&E Corp. ....................... 310 6,355
Pinnacle West Capital Corp. ...... 150 4,584
Public Service Co. of New
Mexico.......................... 320 5,200
Public Service Enterprise Group... 300 10,444
Reliant Energy, Inc. ............. 1,240 28,365
Texas Utilities Co. .............. 1,390 49,432
Unicom Corp. ..................... 500 16,750
----------
284,335
----------
</TABLE>
<TABLE>
<CAPTION>
Description Market Value
- -----------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 83.8%
(Cost $1,413,776).................. $1,336,738
----------
SHORT-TERM INVESTMENTS 14.6%
REPURCHASE AGREEMENT 8.4%
State Street Bank & Trust Co.,
($134,000 par collateralized by U.S.
Government obligations in a pooled
cash account, dated 12/31/99, to be
sold on 01/03/00 at $134,034)........ 134,000
U.S. GOVERNMENT AGENCY OBLIGATION 6.2%
United States Treasury Bill ($100,000
par, yielding 5.12%, 02/24/00
maturity) (b)........................ 99,232
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $233,232).................... 233,232
----------
TOTAL INVESTMENTS 98.4%
(Cost $1,647,008).................. 1,569,970
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.6%.................... 24,669
----------
NET ASSETS 100.0%..................... $1,594,639
==========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR--American Depositary Receipt
See Notes to Financial Statements
F-42
<PAGE> 462
COMSTOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,647,008)......................... $1,569,970
Cash........................................................ 13,711
Receivables:
Expense Reimbursement by Adviser.......................... 67,971
Investments Sold.......................................... 7,340
Dividends................................................. 2,914
Portfolio Shares Sold..................................... 45
Other....................................................... 36
----------
Total Assets.......................................... 1,661,987
----------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 16,654
Investments Purchased..................................... 13,728
Accrued Expenses............................................ 30,605
Trustees' Deferred Compensation and Retirement Plans........ 6,361
----------
Total Liabilities..................................... 67,348
----------
NET ASSETS.................................................. $1,594,639
==========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,668,635
Accumulated Net Realized Gain............................... 8,752
Accumulated Distributions in Excess of Net Investment
Income.................................................... (5,710)
Net Unrealized Depreciation................................. (77,038)
----------
NET ASSETS.................................................. $1,594,639
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $1,594,639 and 171,239 shares of
beneficial interest issued and outstanding)............... $ 9.31
==========
</TABLE>
See Notes to Financial Statements
F-43
<PAGE> 463
COMSTOCK PORTFOLIO STATEMENT OF OPERATIONS
For the Period April 30, 1999 (Commencement of Investment Operations) to
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 16,116
Interest.................................................... 6,584
--------
Total Income............................................ 22,700
--------
EXPENSES:
Accounting.................................................. 22,140
Custody..................................................... 12,322
Reports to Shareholders..................................... 12,300
Audit....................................................... 9,840
Trustees' Fees and Related Expenses......................... 9,595
Shareholder Services........................................ 8,776
Investment Advisory Fee..................................... 4,642
Legal....................................................... 369
--------
Total Expenses.......................................... 79,984
Expense Reduction ($4,642 Investment Advisory Fee and
$67,971 Other)......................................... 72,613
Less Credits Earned on Cash Balances.................... 22
--------
Net Expenses............................................ 7,349
--------
NET INVESTMENT INCOME....................................... $ 15,351
========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 8,752
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... -0-
End of the Period......................................... (77,038)
--------
Net Unrealized Depreciation During the Period............... (77,038)
--------
NET REALIZED AND UNREALIZED LOSS............................ $(68,286)
========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(52,935)
========
</TABLE>
See Notes to Financial Statements
F-44
<PAGE> 464
COMSTOCK PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Period April 30, 1999 (Commencement of Investment Operations) to
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
December 31, 1999
- ------------------------------------------------------------------------------
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 15,351
Net Realized Gain........................................... 8,752
Net Unrealized Depreciation During the Period............... (77,038)
----------
Change in Net Assets from Operations........................ (52,935)
----------
Distributions from Net Investment Income.................... (15,351)
Distributions in Excess of Net Investment Income............ (5,710)
----------
Total Distributions from and in Excess of Net Investment
Income.................................................... (21,061)
----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (73,996)
----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 662,801
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 7,651
Cost of Shares Repurchased.................................. (1,817)
----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 668,635
----------
TOTAL INCREASE IN NET ASSETS................................ 594,639
NET ASSETS:
Beginning of the Period..................................... 1,000,000
----------
End of Period (Including accumulated distributions in excess
of net investment income of $5,710)....................... $1,594,639
==========
</TABLE>
See Notes to Financial Statements
F-45
<PAGE> 465
COMSTOCK PORTFOLIO FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Portfolio outstanding throughout the period indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30, 1999
(Commencement
of Investment
Operations)
to December 31, 1999
- ---------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period.................... $10.000
-------
Net Investment Income..................................... .101
Net Realized and Unrealized Gain.......................... (.655)
-------
Total from Investment Operations............................ (.554)
Less Distributions from and in Excess of Net Investment
Income.................................................... .134
-------
Net Asset Value, End of the Period.......................... $ 9.312
=======
Total Return*............................................... (5.53%)**
Net Assets at End of the Period (In millions)............... $ 1.6
Ratio of Expenses to Average Net Assets*.................... .95%
Ratio of Net Investment Income to Average Net Assets*....... 1.99%
Portfolio Turnover.......................................... 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..................... 10.36%
Ratio of Net Investment Income to Average Net Assets........ (7.42%)
</TABLE>
** Non-Annualized
See Notes to Financial Statements
F-46
<PAGE> 466
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------
<S> <C> <C>
COMMON STOCKS* 90.7%
CONSUMER DISTRIBUTION 2.8%
AnnTaylor Stores Corp. (a)....... 7,300 $ 251,394
BJ's Wholesale Club, Inc. (a).... 10,500 383,250
CDW Computer Centers, Inc. (a)... 4,600 361,675
Emulex Corp. (a)................. 3,800 427,500
Family Dollar Stores, Inc........ 14,800 241,425
Home Depot, Inc.................. 35,850 2,457,965
Kohl's Corp. (a)................. 800 57,750
Tiffany & Co..................... 27,600 2,463,300
Williams Sonoma, Inc. (a)........ 17,200 791,200
------------
7,435,459
------------
CONSUMER SERVICES 5.3%
CBS Corp. (a).................... 21,100 1,349,081
Clear Channel Communications,
Inc. (a)....................... 31,900 2,847,075
Comcast Corp., Class A........... 11,200 566,300
Entercom Communications Corp.
(a)............................ 5,000 330,000
Hispanic Broadcasting Corp.
(a)............................ 8,700 802,303
Infinity Broadcasting Corp.,
Class A (a).................... 15,125 547,336
InfoSpace.com, Inc. (a).......... 2,400 513,600
Omnicom Group, Inc............... 17,250 1,725,000
Spanish Broadcasting Systems,
Inc., Class A (a).............. 2,900 116,725
TMP Worldwide, Inc. (a).......... 9,900 1,405,800
UnitedGlobalCom, Inc., Class A
(a)............................ 2,000 141,250
Univision Communications, Inc.,
Class A (a).................... 23,400 2,391,187
Valassis Communications, Inc.
(a)............................ 15,350 648,538
Young & Rubicam, Inc............. 8,000 566,000
------------
13,950,195
------------
ENERGY 1.2%
Apache Corp...................... 30,150 1,113,666
BJ Services Co. (a).............. 13,800 577,012
Devon Energy Corp................ 8,400 276,150
Kerr-McGee Corp.................. 14,800 917,600
Vastar Resources, Inc............ 1,700 100,300
------------
2,984,728
------------
FINANCE 1.0%
Capital One Financial Corp....... 12,000 578,250
Lehman Brothers Holdings, Inc.... 17,100 1,448,156
Marsh & McLennan Cos., Inc....... 4,000 382,750
UnionBanCal Corp................. 8,400 331,275
------------
2,740,431
------------
HEALTHCARE 3.1%
Affymetrix, Inc. (a)............. 4,400 746,625
Allergan, Inc.................... 18,000 895,500
Biogen, Inc. (a)................. 16,300 1,377,350
Cree Research, Inc. (a).......... 7,000 597,625
Medimmune, Inc. (a).............. 24,000 3,981,000
QLT Phototherapeutics, Inc.
(a)............................ 8,800 517,000
------------
8,115,100
------------
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 2.3%
ASM Lithography Holding NV -- ADR
(Netherlands) (a).............. 9,400 $ 1,069,250
Corning, Inc..................... 21,100 2,720,581
E-Tek Dynamics, Inc. (a)......... 4,700 632,738
Metromedia Fiber Network, Inc.,
Class A (a).................... 29,300 1,404,569
Zebra Technologies Corp., Class A
(a)............................ 5,400 315,900
------------
6,143,038
------------
TECHNOLOGY 70.7%
Adaptec, Inc. (a)................ 8,100 403,988
Adobe Systems, Inc............... 38,100 2,562,225
Advanced Fibre Communication,
Inc. (a)....................... 13,600 607,750
Altera Corp. (a)................. 27,200 1,348,100
Amdocs Ltd. (a).................. 11,900 410,550
America Online, Inc. (a)......... 38,300 2,889,256
Analog Devices, Inc. (a)......... 24,600 2,287,800
Applied Materials, Inc. (a)...... 9,500 1,203,531
Applied Micro Circuits Corp.
(a)............................ 15,200 1,934,200
Ariba, Inc. (a).................. 3,800 674,025
Bea Systems, Inc. (a)............ 24,400 1,706,475
Broadcom Corp., Class A (a)...... 15,050 4,099,244
BroadVision, Inc. (a)............ 35,000 5,952,187
Brocade Communications Systems,
Inc. (a)....................... 3,900 690,300
Check Point Software Technologies
Ltd. (a)....................... 10,500 2,086,875
Cisco Systems, Inc. (a).......... 16,700 1,788,988
Citrix Systems, Inc. (a)......... 23,300 2,865,900
Clarify, Inc. (a)................ 9,000 1,134,000
CommScope, Inc. (a).............. 9,300 374,906
Comverse Technology, Inc. (a).... 29,750 4,306,312
Concord EFS, Inc. (a)............ 20,100 517,575
Conexant Systems, Inc. (a)....... 82,900 5,502,487
Cypress Semiconductor Corp.
(a)............................ 8,500 275,188
Echostar Communications Corp.,
Class A (a).................... 51,300 5,001,750
Electronic Arts, Inc. (a)........ 16,000 1,344,000
EMC Corp. (a).................... 33,500 3,659,875
Exodus Communications, Inc.
(a)............................ 39,400 3,499,212
Flextronics International Corp.
(a)............................ 27,800 1,278,800
Foundry Networks, Inc. (a)....... 2,100 633,544
Gateway, Inc. (a)................ 5,300 381,931
Gemstar International Group Ltd.
(a)............................ 70,200 5,001,750
General Instrument Corp. (a)..... 12,350 1,049,750
i2 Technologies, Inc. (a)........ 4,700 916,500
Infonet Services Corp., Class B
(a)............................ 3,200 84,000
Jabil Circuit, Inc. (a).......... 7,500 547,500
JDS Uniphase Corp. (a)........... 78,000 12,582,375
Juniper Networks, Inc. (a)....... 2,600 884,000
KLA-Tencor Corp. (a)............. 12,800 1,425,600
Lam Research Corp. (a)........... 15,700 1,751,531
Legato Systems, Inc. (a)......... 25,500 1,754,719
LSI Logic Corp. (a).............. 59,600 4,023,000
Macromedia, Inc. (a)............. 13,350 976,219
McLeodUSA, Inc., Class A (a)..... 25,600 1,507,200
</TABLE>
See Notes to Financial Statements
F-47
<PAGE> 467
EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Mercury Interactive Corp. (a).... 17,200 $ 1,856,525
Microchip Technology, Inc. (a)... 4,800 328,500
Microstrategy, Inc. (a).......... 4,050 850,500
Motorola, Inc.................... 12,100 1,781,725
National Semiconductor Corp.
(a)............................ 20,000 856,250
Network Appliance, Inc. (a)...... 49,850 4,140,666
Network Solutions, Inc. (a)...... 11,100 2,414,944
Nokia Corp. -- ADR (Finland)..... 19,850 3,771,500
Nortel Networks Corp............. 29,700 2,999,700
Novellus Systems, Inc. (a)....... 2,500 306,328
Peregrine Systems, Inc. (a)...... 7,500 631,406
Phone.com, Inc. (a).............. 5,600 649,250
PMC-Sierra, Inc. (a)............. 10,500 1,683,281
Portal Software, Inc. (a)........ 4,100 421,788
QLogic Corp. (a)................. 13,550 2,166,306
QUALCOMM, Inc. (a)............... 72,200 12,716,225
Rational Software Corp. (a)...... 20,500 1,007,063
Razorfish, Inc. (a).............. 2,800 266,350
Real Networks, Inc. (a).......... 12,200 1,467,813
Research In Motion Ltd. (a)...... 800 36,950
S1 Corp. (a)..................... 5,000 390,625
Sanmina Corp. (a)................ 9,200 918,850
Sapient Corp. (a)................ 9,900 1,395,281
Scient Corp. (a)................. 4,200 363,038
Scientific-Atlanta, Inc.......... 19,000 1,056,875
SDL, Inc. (a).................... 9,850 2,147,300
Siebel Systems, Inc. (a)......... 41,500 3,486,000
Solectron Corp. (a).............. 15,200 1,445,900
STMicroelectronics NV -- ADR
(Netherlands).................. 17,600 2,665,300
Sun Microsystems, Inc. (a)....... 27,200 2,106,300
Sycamore Networks, Inc. (a)...... 1,650 508,200
Taiwan Semiconductor -- ADR
(Taiwan) (a)................... 16,808 756,360
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Texas Instruments, Inc........... 45,350 $ 4,393,281
VeriSign, Inc. (a)............... 41,300 7,885,719
Veritas Software Corp. (a)....... 61,500 8,802,187
Viant Corp. (a).................. 2,500 247,500
Vignette Corp. (a)............... 7,400 1,206,200
Vishay Intertechnology, Inc.
(a)............................ 7,000 221,375
Vitesse Semiconductor Corp.
(a)............................ 55,500 2,910,281
Western Wireless Corp., Class A
(a)............................ 23,200 1,548,600
Xilinx, Inc. (a)................. 60,400 2,746,313
Yahoo!, Inc. (a)................. 10,800 4,673,025
------------
186,152,698
------------
UTILITIES 4.3%
AT&T Corp., Class A (a).......... 25,900 1,469,825
Calpine Corp. (a)................ 12,500 800,000
Charter Communications, Inc.,
Class A (a).................... 13,700 299,688
Nextel Communications, Inc.,
Class A (a).................... 24,800 2,557,500
NEXTLINK Communications, Inc.,
Class A (a).................... 13,400 1,113,038
RF Micro Devices, Inc. (a)....... 27,900 1,909,406
Telephone & Data Systems, Inc.... 9,400 1,184,400
VoiceStream Wireless Corp. (a)... 14,200 2,020,837
------------
11,354,694
------------
TOTAL LONG-TERM INVESTMENTS 90.7%
(Cost $139,518,970).................... 238,876,343
REPURCHASE AGREEMENT 8.4%
Warburg Dillon Read ($22,167,000 par
collateralized by U.S. Government
obligations in a pooled cash account,
dated 12/31/99, to be sold on 01/03/00
at $22,171,803)
(Cost $22,167,000).....................
22,167,000
------------
TOTAL INVESTMENTS 99.1%
(Cost $161,685,970).................... 261,043,343
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.9%...................... 2,449,189
------------
NET ASSETS 100.0%....................... $263,492,532
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR -- American Depositary Receipt
* The common stocks are classified by sectors which represent broad groupings of
related industries.
See Notes to Financial Statements
F-48
<PAGE> 468
EMERGING GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $161,685,970)....................... $261,043,343
Cash........................................................ 2,637,632
Receivables:
Dividends................................................. 15,376
Portfolio Shares Sold..................................... 4,718
Interest.................................................. 1,601
Unamortized Organizational Costs............................ 681
Other....................................................... 2,474
------------
Total Assets.......................................... 263,705,825
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 130,752
Distributor and Affiliates................................ 1,833
Trustees' Deferred Compensation and Retirement Plans........ 47,249
Accrued Expenses............................................ 33,459
------------
Total Liabilities..................................... 213,293
------------
NET ASSETS.................................................. $263,492,532
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $163,220,121
Net Unrealized Appreciation................................. 99,357,373
Accumulated Net Realized Gain............................... 962,152
Accumulated Net Investment Loss............................. (47,114)
------------
NET ASSETS.................................................. $263,492,532
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $263,492,532 and 5,700,230 shares
of beneficial interest issued and outstanding)............ $ 46.22
============
</TABLE>
See Notes to Financial Statements
F-49
<PAGE> 469
EMERGING GROWTH PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 464,241
Dividends................................................... 146,443
-----------
Total Income............................................ 610,684
-----------
EXPENSES:
Investment Advisory Fee..................................... 623,083
Custody..................................................... 37,908
Trustees' Fees and Related Expenses......................... 25,469
Accounting.................................................. 25,931
Legal....................................................... 8,177
Amortization of Organizational Costs........................ 1,365
Other....................................................... 64,088
-----------
Total Expenses.......................................... 786,021
Investment Advisory Fee Reduction....................... 28,250
Less Credits Earned on Cash Balances.................... 292
-----------
Net Expenses............................................ 757,479
-----------
NET INVESTMENT LOSS......................................... $ (146,795)
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 2,654,240
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 10,107,012
End of the Period......................................... 99,357,373
-----------
Net Unrealized Appreciation During the Period............... 89,250,361
-----------
NET REALIZED AND UNREALIZED GAIN............................ $91,904,601
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $91,757,806
===========
</TABLE>
See Notes to Financial Statements
F-50
<PAGE> 470
EMERGING GROWTH PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss......................................... $ (146,795) $ (42,769)
Net Realized Gain/Loss...................................... 2,654,240 (1,437,065)
Net Unrealized Appreciation During the Period............... 89,250,361 8,165,916
------------ -----------
Change in Net Assets from Operations........................ 91,757,806 6,686,082
Distributions in Excess of Net Investment Income............ -0- (4,851)
------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 91,757,806 6,681,231
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 168,226,421 25,418,092
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. -0- 4,851
Cost of Shares Repurchased.................................. (29,911,735) (9,175,988)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 138,314,686 16,246,955
------------ -----------
TOTAL INCREASE IN NET ASSETS................................ 230,072,492 22,928,186
NET ASSETS:
Beginning of the Period..................................... 33,420,040 10,491,854
------------ -----------
End of the Period (Including accumulated net investment loss
of $47,114 and $27,756, respectively)..................... $263,492,532 $33,420,040
============ ===========
</TABLE>
See Notes to Financial Statements
F-51
<PAGE> 471
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
1999 1998 1997 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $22.615 $16.450 $13.660 $11.72 $ 10.00
------- ------- ------- ------- -------
Net Investment Loss............................. (.012) (.014) (.007) (.016) (.08)
Net Realized and Unrealized Gain................ 23.619 6.186 2.797 1.956 1.80
------- ------- ------- ------- -------
Total from Investment Operations................ 23.607 6.172 2.790 1.940 1.72
Less Distributions in Excess of Net Investment
Income........................................ -0- .007 -0- -0- -0-
------- ------- ------- ------- -------
Net Asset Value, End of the Period.............. $46.222 $22.615 $16.450 $13.660 $ 11.72
======= ======= ======= ======= =======
Total Return.................................... 104.38% 37.56% 20.42% 16.55% 17.20%**
Net Assets at End of the Period (In millions)... $263.5 $33.4 $10.5 $5.2 $ 2.3
Ratio of Expenses to Average Net Assets*........ .85% .85% .85% .85% 2.50%
Ratio of Net Investment Loss to Average Net
Assets*....................................... (.17%) (.23%) (.11%) (.17%) (1.45%)
Portfolio Turnover.............................. 96% 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......... .88% 1.23% 2.14% 3.28% 5.40%
Ratio of Net Investment Loss to Average Net
Assets........................................ (.20%) (.61%) (1.40%) (2.60%) (4.35%)
</TABLE>
** Non-Annualized
See Notes to Financial Statements
F-52
<PAGE> 472
ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------
<S> <C> <C>
COMMON STOCKS* 87.9%
CONSUMER DISTRIBUTION 5.9%
Costco Wholesale Corp. (a)....... 7,700 $ 702,625
Dayton Hudson Corp............... 19,500 1,432,031
Home Depot, Inc.................. 51,000 3,496,688
Tandy Corp. ..................... 20,700 1,018,181
Wal-Mart Stores, Inc. ........... 52,000 3,594,500
------------
10,244,025
------------
CONSUMER DURABLES 0.4%
Harley-Davidson, Inc. ........... 10,500 672,656
------------
CONSUMER NON-DURABLES 3.9%
Anheuser-Busch Cos., Inc. ....... 8,600 609,525
Colgate-Palmolive Co. ........... 7,000 455,000
Jones Apparel Group, Inc. (a).... 33,100 897,838
Kimberly-Clark Corp. ............ 9,400 613,350
Pepsi Bottling Group, Inc........ 47,600 788,375
Procter & Gamble Co. ............ 14,000 1,533,875
Quaker Oats Co. ................. 20,700 1,358,437
Seagram Co. Ltd. ................ 14,200 638,113
------------
6,894,513
------------
CONSUMER SERVICES 6.2%
CBS Corp. (a).................... 31,900 2,039,606
Clear Channel Communications,
Inc. (a)....................... 17,843 1,592,488
Hispanic Broadcasting Corp.
(a)............................ 10,000 922,188
Metro-Goldwyn-Mayer, Inc. (a).... 36,080 850,135
MGM Grand, Inc. ................. 8,000 402,500
Omnicom Group, Inc. ............. 19,100 1,910,000
Park Place Entertainment Corp.
(a)............................ 34,000 425,000
Time Warner, Inc. ............... 11,300 818,544
Univision Communications, Inc.,
Class A (a).................... 18,600 1,900,687
------------
10,861,148
------------
ENERGY 0.4%
Noble Drilling Corp. (a)......... 20,000 655,000
------------
FINANCE 8.6%
American Express Co.............. 8,000 1,330,000
American International Group,
Inc. .......................... 11,250 1,216,406
Bank of America Corp. ........... 15,000 752,812
Capital One Financial Corp. ..... 13,000 626,437
Charles Schwab Corp. ............ 17,000 652,375
Chase Manhattan Corp. ........... 10,000 776,875
Citigroup, Inc. ................. 19,075 1,059,855
Federal Home Loan Mortgage
Corp. ......................... 13,000 611,813
Federal National Mortgage
Association.................... 11,000 686,812
Fifth Third Bancorp. ............ 12,000 880,500
Firstar Corp. ................... 38,000 802,750
FleetBoston Financial Corp. ..... 22,000 765,875
Franklin Resources, Inc. ........ 12,000 384,750
Lehman Brothers Holdings,
Inc. .......................... 10,000 846,875
MBNA Corp. ...................... 20,000 545,000
MGIC Investment Corp. ........... 10,000 601,875
Providian Financial Corp. ....... 4,000 364,250
SLM Holding Corp. ............... 16,000 676,000
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
T. Rowe Price Associates,
Inc. .......................... 10,000 $ 369,375
UnumProvident Corp. ............. 11,000 352,688
Wells Fargo Co. ................. 18,000 727,875
------------
15,031,198
------------
HEALTHCARE 8.5%
American Home Products Corp. .... 31,500 1,242,281
Amgen, Inc. (a).................. 17,600 1,057,100
Baxter International, Inc. ...... 10,500 659,531
Biogen, Inc. (a)................. 9,600 811,200
Bristol-Myers Squibb Co. ........ 29,900 1,919,206
Guidant Corp. (a)................ 13,000 611,000
Johnson & Johnson ............... 21,000 1,955,625
Lincare Holdings, Inc. (a)....... 31,300 1,085,719
Merck & Co., Inc. ............... 20,000 1,341,250
PE Corp.-PE Biosystems Group..... 6,000 721,875
Pfizer, Inc. .................... 16,100 522,244
Schering-Plough Corp. ........... 28,500 1,202,344
Warner-Lambert Co. .............. 14,000 1,147,125
Wellpoint Health Networks, Inc.
(a)............................ 7,500 494,531
------------
14,771,031
------------
PRODUCER MANUFACTURING 5.4%
Corning, Inc. ................... 22,800 2,939,775
General Electric Co. ............ 34,500 5,338,875
Honeywell International, Inc. ... 20,250 1,168,172
------------
9,446,822
------------
RAW MATERIALS/PROCESSING INDUSTRIES 0.5%
USX-U.S. Steel Group............. 25,000 825,000
------------
TECHNOLOGY 44.4%
Adobe Systems, Inc. ............. 6,000 403,500
Altera Corp. (a)................. 15,500 768,219
America Online, Inc. (a)......... 57,600 4,345,200
Analog Devices, Inc. (a)......... 10,000 930,000
Apple Computer, Inc. (a)......... 7,000 719,687
Applied Materials, Inc. (a)...... 12,400 1,570,925
BMC Software, Inc. (a)........... 14,800 1,183,075
Cisco Systems, Inc. (a).......... 65,250 6,989,906
Citrix Systems, Inc. (a)......... 22,700 2,792,100
Computer Associates
International, Inc. ........... 7,000 489,563
Comverse Technology, Inc. (a).... 14,600 2,113,350
Echostar Communications Corp.,
Class A (a).................... 6,700 653,250
Electronic Arts, Inc. (a)........ 4,000 336,000
EMC Corp. (a).................... 36,300 3,965,775
First Data Corp. ................ 20,700 1,020,769
Gateway, Inc. (a)................ 13,000 936,812
General Instrument Corp. (a)..... 14,500 1,232,500
Intel Corp. ..................... 54,800 4,510,725
International Business Machines
Corp. ......................... 7,200 777,600
JDS Uniphase Corp. (a)........... 14,800 2,387,425
Linear Technology Corp. ......... 6,200 443,688
LSI Logic Corp. (a).............. 14,500 978,750
Lucent Technologies, Inc. ....... 39,975 2,990,630
</TABLE>
See Notes to Financial Statements
F-53
<PAGE> 473
ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Micron Technology, Inc. ......... 16,000 $ 1,244,000
Microsoft Corp. (a).............. 64,500 7,530,375
Motorola, Inc. .................. 11,000 1,619,750
Nokia Corp. -- ADR (Finland)..... 19,300 3,667,000
Nortel Networks Corp. ........... 18,600 1,878,600
Oracle Corp. (a)................. 42,400 4,751,450
QUALCOMM, Inc. (a)............... 12,000 2,113,500
Sanmina Corp. (a)................ 13,500 1,348,312
Solectron Corp. (a) ............. 6,000 570,750
STMicroelectronics NV -- ADR
(Netherlands).................. 8,300 1,256,931
Sun Microsystems, Inc. (a)....... 36,000 2,787,750
Texas Instruments, Inc. ......... 20,800 2,015,000
Veritas Software Corp. (a)....... 4,500 644,063
Waters Corp. (a)................. 8,300 439,900
Xilinx, Inc. (a)................. 24,800 1,127,625
Yahoo!, Inc. (a)................. 4,000 1,730,750
------------
77,265,205
------------
TRANSPORTATION 0.2%
Kansas City Southern Industries,
Inc. .......................... 5,000 373,125
------------
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------
<S> <C> <C>
UTILITIES 3.5%
AES Corp. (a).................... 12,000 $ 897,000
ALLTEL Corp. .................... 26,900 2,224,294
MCI WorldCom, Inc. (a)........... 20,400 1,082,475
Nextel Communications, Inc.,
Class A (a).................... 7,000 721,875
VoiceStream Wireless Corp. (a)... 8,000 1,138,500
------------
6,064,144
------------
TOTAL LONG-TERM INVESTMENTS 87.9%
(Cost $93,907,344)................... 153,103,867
------------
SHORT-TERM INVESTMENTS 11.4%
REPURCHASE AGREEMENT 9.7%
Bank America ($16,839,000 par
collateralized by U.S. Government
obligations in a pooled cash account,
dated 12/31/99, to be sold on 01/03/00
at $16,842,859) (b).................... 16,839,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 1.7%
Federal Home Loan Bank Discount Note
($2,000,000 par, yielding 5.580%,
03/29/00 maturity)..................... 1,978,840
Federal Home Loan Bank Discount Note
($1,000,000 par, yielding 5.547%,
03/29/00 maturity)..................... 994,074
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS....................... 2,972,914
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $19,811,914)................... 19,811,914
------------
TOTAL INVESTMENTS 99.3%
(Cost $113,719,258).................. 172,915,781
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.7%...................... 1,220,945
------------
NET ASSETS 100.0%....................... $174,136,726
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated for open futures transactions.
ADR -- American Depositary Receipt
* The common stocks are classified by sectors which represent broad groupings of
related industries.
See Notes to Financial Statements
F-54
<PAGE> 474
ENTERPRISE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $113,719,258)....................... $172,915,781
Cash........................................................ 1,787,610
Receivables:
Dividends................................................. 71,394
Variation Margin on Futures............................... 39,100
Interest.................................................. 1,300
Other....................................................... 50,084
------------
Total Assets.......................................... 174,865,269
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 483,218
Investment Advisory Fee................................... 62,078
Distributor and Affiliates................................ 10,090
Trustees' Deferred Compensation and Retirement Plans........ 131,971
Accrued Expenses............................................ 41,186
------------
Total Liabilities..................................... 728,543
------------
NET ASSETS.................................................. $174,136,726
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 96,272,278
Net Unrealized Appreciation................................. 59,541,665
Accumulated Net Realized Gain............................... 18,081,348
Accumulated Undistributed Net Investment Income............. 241,435
------------
NET ASSETS.................................................. $174,136,726
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $174,136,726 and 6,669,872 shares
of beneficial interest issued and outstanding)............ $ 26.11
============
</TABLE>
See Notes to Financial Statements
F-55
<PAGE> 475
ENTERPRISE PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 746,601
Interest.................................................... 383,214
-----------
Total Income............................................ 1,129,815
-----------
EXPENSES:
Investment Advisory Fee..................................... 674,997
Accounting.................................................. 42,885
Trustees' Fees and Related Expenses......................... 36,792
Custody..................................................... 34,539
Legal....................................................... 7,207
Other....................................................... 62,161
-----------
Total Expenses.......................................... 858,581
Investment Advisory Fee Reduction....................... 36,478
Less Credits Earned on Cash Balances.................... 2,834
-----------
Net Expenses............................................ 819,269
-----------
NET INVESTMENT INCOME....................................... $ 310,546
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $18,174,698
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 43,715,944
-----------
End of the Period:
Investments............................................. 59,196,523
Futures................................................. 345,142
-----------
59,541,665
-----------
Net Unrealized Appreciation During the Period............... 15,825,721
-----------
NET REALIZED AND UNREALIZED GAIN............................ $34,000,419
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $34,310,965
===========
</TABLE>
See Notes to Financial Statements
F-56
<PAGE> 476
ENTERPRISE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 310,546 $ 379,529
Net Realized Gain........................................... 18,174,698 9,559,452
Net Unrealized Appreciation During the Period............... 15,825,721 14,397,910
------------ ------------
Change in Net Assets from Operations........................ 34,310,965 24,336,891
------------ ------------
Distributions from Net Investment Income.................... (393,720) (92,265)
Distributions from Net Realized Gain........................ (9,274,929) (1,126,323)
------------ ------------
Total Distributions......................................... (9,668,649) (1,218,588)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 24,642,316 23,118,303
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 43,053,299 23,512,376
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 9,668,649 1,218,588
Cost of Shares Repurchased.................................. (26,796,761) (22,994,120)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 25,925,187 1,736,844
------------ ------------
TOTAL INCREASE IN NET ASSETS................................ 50,567,503 24,855,147
NET ASSETS:
Beginning of the Period..................................... 123,569,223 98,714,076
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $241,435 and $324,609,
respectively)............................................. $174,136,726 $123,569,223
============ ============
</TABLE>
See Notes to Financial Statements
F-57
<PAGE> 477
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,
-----------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $22.390 $18.106 $16.262 $ 14.69 $ 12.39
------- ------- ------- ------- -------
Net Investment Income................................... .047 .069 .091 .113 .32
Net Realized and Unrealized Gain........................ 5.390 4.441 4.734 3.417 4.22
------- ------- ------- ------- -------
Total from Investment Operations.......................... 5.437 4.510 4.825 3.530 4.54
------- ------- ------- ------- -------
Less:
Distributions from Net Investment Income................ .070 .017 .096 .109 .3175
Distributions from Net Realized Gain.................... 1.649 .209 2.885 1.849 1.9225
------- ------- ------- ------- -------
Total Distributions....................................... 1.719 .226 2.981 1.958 2.24
------- ------- ------- ------- -------
Net Asset Value, End of the Period........................ $26.108 $22.390 $18.106 $16.262 $ 14.69
======= ======= ======= ======= =======
Total Return*............................................. 25.85% 25.00% 30.66% 24.80% 36.98%
Net Assets at End of the Period (In millions)............. $174.1 $123.6 $98.7 $84.8 $76.0
Ratio of Expenses to Average Net Assets*.................. .60% .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*..... .22% .35% .47% .68% 2.06%
Portfolio Turnover........................................ 116% 82% 82% 152% 145%
* 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................... .62% .64% .66% .75% .68%
Ratio of Net Investment Income to Average Net Assets...... .20% .31% .41% .53% 1.98%
</TABLE>
See Notes to Financial Statements
F-58
<PAGE> 478
GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 87.9%
CONSUMER DISTRIBUTION 2.3%
Federated Department Stores, Inc.
(a)............................. 11,220 $ 567,311
Lexmark International Group, Inc.,
Class A (a)..................... 7,100 642,550
-----------
1,209,861
-----------
CONSUMER NON-DURABLES 10.6%
Anheuser-Busch Cos., Inc. ........ 9,700 687,487
Benckiser NV, Class B -- ADR
(Netherlands)................... 5,000 195,000
Colgate-Palmolive Co.............. 15,920 1,034,800
Nabisco Holdings Corp., Class A... 3,800 120,175
Pepsi Bottling Group, Inc. ....... 39,800 659,188
PepsiCo, Inc. .................... 15,800 556,950
Philip Morris Cos., Inc. ......... 6,030 139,821
Procter & Gamble Co. ............. 4,400 482,075
Ralston-Ralston Purina Group...... 26,820 747,607
Seagram Co. Ltd. ................. 9,500 426,906
Unilever NV -- ADR
(Netherlands)................... 4,050 220,472
Whitman Corp...................... 22,480 302,075
-----------
5,572,556
-----------
ENERGY 9.2%
Burlington Resources, Inc. ....... 9,700 320,706
Coastal Corp. .................... 16,870 597,831
El Paso Energy Corp. ............. 24,790 962,162
Exxon Mobil Corp. ................ 14,245 1,147,612
Royal Dutch Petroleum Co. -- ADR
(Netherlands)................... 9,800 592,287
Schlumberger Ltd. ................ 4,500 253,125
Texaco, Inc. ..................... 12,700 689,769
Tosco Corp. ...................... 8,000 217,500
Transocean Sedco Forex, Inc. ..... 871 29,349
-----------
4,810,341
-----------
FINANCE 12.6%
American General Corp. ........... 8,050 610,794
Aon Corp. ........................ 8,500 340,000
AXA Financial, Inc. .............. 17,300 586,037
Bank of America Corp. ............ 6,900 346,294
Bank of Tokyo-Mitsubishi,
Ltd. -- ADR (Japan)............. 37,510 522,796
Citigroup, Inc. .................. 10,500 583,406
Federal National Mortgage
Association..................... 6,400 399,600
FleetBoston Financial Corp. ...... 21,540 749,861
Franklin Resources, Inc. ......... 3,400 109,013
Jefferson-Pilot Corp. ............ 6,800 464,100
Lincoln National Corp. ........... 7,200 288,000
Marsh & McLennan Cos., Inc. ...... 7,900 755,931
MBIA, Inc. ....................... 5,800 306,312
U.S. Bancorp...................... 300 7,144
Wachovia Corp. ................... 400 27,200
Washington Mutual, Inc. .......... 18,706 486,356
-----------
6,582,844
-----------
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
HEALTHCARE 9.1%
American Home Products Corp. ..... 21,910 $ 864,076
Aventis SA, Warrants -- ADR
(France)........................ 2,079 10,655
Beckman Coulter, Inc.............. 9,500 483,312
Bristol-Myers Squibb Co. ......... 6,000 385,125
Columbia/HCA Healthcare Corp. .... 26,100 765,056
IMS Health, Inc. ................. 13,900 377,906
Lincare Holdings, Inc. (a)........ 8,800 305,250
Oxford Health Plans, Inc. (a)..... 1,600 20,300
Pharmacia & Upjohn, Inc. ......... 8,600 387,000
United HealthCare Corp. .......... 5,600 297,500
Warner-Lambert Co. ............... 10,800 884,925
-----------
4,781,105
-----------
PRODUCER MANUFACTURING 6.5%
Fluor Corp. ...................... 3,000 137,625
Honeywell International, Inc. .... 8,020 462,654
Ingersoll-Rand Co. ............... 11,700 644,231
Koninklijke Philips Electronics
NV -- ADR (Netherlands)......... 6,390 862,650
Minnesota Mining & Manufacturing
Co. ............................ 13,300 1,301,738
-----------
3,408,898
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 5.9%
Boise Cascade Corp. .............. 7,900 319,950
Imperial Chemical Industries
PLC -- ADR (United Kingdom)..... 9,740 414,559
International Paper Co. .......... 10,300 581,306
Monsanto Co. ..................... 8,900 317,062
Newmont Mining Corp. ............. 9,100 222,950
Pall Corp. ....................... 18,700 403,219
Sherwin-Williams Co. ............. 18,900 396,900
USX-U.S. Steel Group.............. 14,000 462,000
-----------
3,117,946
-----------
TECHNOLOGY 19.6%
Adobe Systems, Inc. .............. 6,900 464,025
Alcatel SA -- ADR (France)........ 13,700 616,500
Altera Corp. (a).................. 4,400 218,075
Boeing Co. ....................... 14,600 606,812
Cadence Design Systems, Inc.
(a)............................. 22,100 530,400
Cisco Systems, Inc. (a)........... 2,500 267,813
Dell Computer Corp. (a)........... 4,300 219,300
Electronic Data Systems Corp. .... 6,900 461,869
EMC Corp. (a)..................... 2,500 273,125
Hewlett-Packard Co. .............. 4,200 478,538
Intel Corp. ...................... 4,500 370,406
J.D. Edwards & Co. (a)............ 7,300 218,088
Legato Systems, Inc. (a).......... 3,200 220,200
Microsoft Corp. (a)............... 1,900 221,825
Motorola, Inc. ................... 8,540 1,257,515
Nippon Telegraph &
Telephone -- ADR (Japan)........ 9,100 783,737
Nortel Networks Corp. ............ 7,000 707,000
Oracle Corp. (a).................. 7,100 795,644
SAP AG -- ADR (Germany)........... 2,700 140,569
</TABLE>
See Notes to Financial Statements
F-59
<PAGE> 479
GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Sun Microsystems, Inc. (a)........ 2,700 $ 209,081
SunGard Data Systems, Inc. (a).... 18,100 429,875
Texas Instruments, Inc. .......... 5,700 552,187
Xilinx, Inc. (a).................. 5,080 230,981
-----------
10,273,565
-----------
UTILITIES 12.1%
Consolidated Edison, Inc.......... 8,000 276,000
DQE, Inc. ........................ 14,400 498,600
Edison International.............. 8,000 209,500
GPU, Inc. ........................ 5,400 161,663
GTE Corp. ........................ 13,810 974,468
Illinova Corp. ................... 24,920 865,970
Niagara Mohawk Holdings, Inc.
(a)............................. 58,110 809,908
Northeast Utilities (a)........... 41,000 843,062
NSTAR............................. 19,310 782,055
PECO Energy Co. .................. 9,310 323,523
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
SBC Communications, Inc. ......... 6,500 $ 316,875
Sprint Corp....................... 4,390 295,502
-----------
6,357,126
-----------
TOTAL COMMON STOCKS 87.9%................ 46,114,242
-----------
CORPORATE BOND 0.2%
Hewlett-Packard Co., LYON, 144A -- Private
Placement ($125,000 par, yielding
3.125%, 10/14/17 maturity) (c).......... 86,094
-----------
TOTAL LONG-TERM INVESTMENTS 88.1%
(Cost $39,886,460)........................ 46,200,336
-----------
SHORT-TERM INVESTMENTS 10.9%
REPURCHASE AGREEMENT 9.0%
Warburg Dillon Read ($4,754,000 par
collateralized by U.S. Government
obligations in a pooled cash account,
dated 12/31/99, to be sold on 01/03/00
at $4,755,030) (b)...................... 4,754,000
U.S. GOVERNMENT AGENCY OBLIGATION 1.9%
Federal Home Loan Bank Discount Note
($1,000,000 par, yielding 5.574%,
03/29/00 maturity)...................... 986,653
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,740,653)....................... 5,740,653
-----------
TOTAL INVESTMENTS 99.0%
(Cost $45,627,113)...................... 51,940,989
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.0%....................... 520,904
-----------
NET ASSETS 100.0%........................ $52,461,893
===========
</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.
ADR -- American Depositary Receipt
LYON--Liquid yield option note
See Notes to Financial Statements
F-60
<PAGE> 480
GROWTH AND INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $45,627,113)........................ $51,940,989
Cash........................................................ 543,925
Receivables:
Investments Sold.......................................... 48,719
Dividends................................................. 41,109
Variation Margin on Futures............................... 5,100
Interest.................................................. 343
Other....................................................... 3,859
-----------
Total Assets.......................................... 52,584,044
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 30,717
Investment Advisory Fee................................... 15,226
Distributor and Affiliates................................ 3,016
Accrued Expenses............................................ 47,886
Trustees' Deferred Compensation and Retirement Plans........ 25,306
-----------
Total Liabilities..................................... 122,151
-----------
NET ASSETS.................................................. $52,461,893
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $45,852,112
Net Unrealized Appreciation................................. 6,490,114
Accumulated Net Realized Gain............................... 60,038
Accumulated Undistributed Net Investment Income............. 59,629
-----------
NET ASSETS.................................................. $52,461,893
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $52,461,893 and 3,419,972 shares
of beneficial interest issued and outstanding).......... $ 15.34
===========
</TABLE>
See Notes to Financial Statements
F-61
<PAGE> 481
GROWTH AND INCOME PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 639,082
Interest.................................................... 224,749
----------
Total Income............................................ 863,831
----------
EXPENSES:
Investment Advisory Fee..................................... 258,622
Custody..................................................... 35,989
Shareholder Reports......................................... 24,820
Accounting.................................................. 22,684
Trustees' Fees and Related Expenses......................... 18,159
Audit....................................................... 16,790
Legal....................................................... 2,845
Other....................................................... 17,779
----------
Total Expenses.......................................... 397,688
Investment Advisory Fee Reduction....................... 73,947
Less Credits Earned on Cash Balances.................... 64
----------
Net Expenses............................................ 323,677
----------
NET INVESTMENT INCOME....................................... $ 540,154
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $2,665,293
Futures................................................... 204,372
----------
Net Realized Gain........................................... 2,869,665
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 4,305,619
----------
End of the Period:
Investments............................................. 6,313,876
Futures................................................. 176,238
----------
6,490,114
----------
Net Unrealized Appreciation During the Period............... 2,184,495
----------
NET REALIZED AND UNREALIZED GAIN............................ $5,054,160
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $5,594,314
==========
</TABLE>
See Notes to Financial Statements
F-62
<PAGE> 482
GROWTH AND INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 540,154 $ 269,134
Net Realized Gain/Loss...................................... 2,869,665 (422,384)
Net Unrealized Appreciation During the Period............... 2,184,495 3,766,083
----------- -----------
Change in Net Assets from Operations........................ 5,594,314 3,612,833
----------- -----------
Distributions from Net Investment Income.................... (745,667) (18,683)
Distributions from Net Realized Gain........................ (2,344,365) -0-
----------- -----------
Total Distributions......................................... (3,090,032) (18,683)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 2,504,282 3,594,150
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 21,242,526 18,319,408
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 3,090,032 18,683
Cost of Shares Repurchased.................................. (6,605,514) (1,415,264)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 17,727,044 16,922,827
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 20,231,326 20,516,977
NET ASSETS:
Beginning of the Period..................................... 32,230,567 11,713,590
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $59,629 and $265,142,
respectively)............................................. $52,461,893 $32,230,567
=========== ===========
</TABLE>
See Notes to Financial Statements
F-63
<PAGE> 483
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)
1999(a) 1998 1997 to December 31, 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.............. $14.481 $12.123 $ 9.970 $10.000
------- ------- ------- -------
Net Investment Income............................... .190 .120 .072 .011
Net Realized and Unrealized Gain/Loss............... 1.655 2.254 2.309 (.041)
------- ------- ------- -------
Total from Investment Operations...................... 1.845 2.374 2.381 (.030)
------- ------- ------- -------
Less:
Distributions from Net Investment Income............ .264 .016 .065 -0-
Distributions from and in Excess of Net Realized
Gain.............................................. .722 -0- .163 -0-
------- ------- ------- -------
Total Distributions................................... .986 .016 .228 -0-
------- ------- ------- -------
Net Asset Value, End of the Period.................... $15.340 $14.481 $12.123 $ 9.970
======= ======= ======= =======
Total Return*......................................... 12.99% 19.61% 23.90% (.30%)**
Net Assets at End of the Period (In millions)......... $ 52.5 $ 32.2 $ 11.7 $ 0.5
Ratio of Expenses to Average Net Assets*.............. .75% .75% .75% .75%
Ratio of Net Investment Income to Average Net
Assets*............................................. 1.25% 1.27% 1.19% 4.47%
Portfolio Turnover.................................... 96% 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............... .92% 1.09% 1.63% 45.97%
Ratio of Net Investment Income/Loss to Average Net
Assets.............................................. 1.08% .93% .31% (40.74%)
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
See Notes to Financial Statements
F-64
<PAGE> 484
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 95.0%
APARTMENTS 22.4%
Amli Residential Properties
Trust......................... 67,700 $ 1,366,694
Archstone Communities Trust..... 166,646 3,416,243
AvalonBay Communities, Inc. .... 272,800 9,360,450
Equity Residential Properties
Trust......................... 60,954 2,601,974
Essex Property Trust, Inc. ..... 226,800 7,711,200
Pennsylvania Real Estate
Investment.................... 147,800 2,152,337
Smith (Charles E.) Residential
Realty, Inc. ................. 195,900 6,929,962
------------
33,538,860
------------
DEVELOPMENT 4.5%
Atlantic Gulf Communities Corp.
(a)........................... 426,124 21,306
Atlantic Gulf Communities
Corp. --
Preferred Ser B (Convertible
into 96,770 common shares)
(a)........................... 55,647 333,882
Atlantic Gulf Communities
Corp. --
Preferred Shares,
144A -- Private Placement (a)
(b)........................... 79,420 476,520
Atlantic Gulf Communities Corp.
Warrants, 37,098 shares Class
A, B and C, expiring 06/23/04
(a)........................... 111,294 4,452
Atlantic Gulf Communities Corp.
Warrants,
74,352 shares Class A, B and
C,
expiring 06/24/01,
144A -- Private Placement (a)
(b)........................... 223,056 8,922
Brookfield Properties Corp...... 553,642 5,813,241
Merry Land Properties, Inc.
(a)........................... 14,090 73,973
------------
6,732,296
------------
HEALTHCARE FACILITIES 0.1%
Meditrust Co. .................. 32,700 179,850
------------
HOTEL & LODGING 5.1%
Candlewood Hotel Co., Inc.
(a)........................... 80,000 140,000
Host Marriott Corp.............. 201,811 1,664,940
Interstate Hotels Management,
Inc. (a) ..................... 13,575 44,119
Starwood Hotels & Resorts, Class
B............................. 195,911 4,603,908
Wyndham International, Inc.,
Class A....................... 380,163 1,116,729
------------
7,569,696
------------
MANUFACTURED HOME
COMMUNITIES 6.5%
Chateau Communities, Inc. ...... 330,338 8,568,142
Manufactured Home Communities,
Inc. ......................... 48,300 1,174,294
------------
9,742,436
------------
OFFICE/INDUSTRIAL 34.6%
Arden Realty, Inc. ............. 367,500 7,372,969
Beacon Capital Partners Inc.,
144A --
Private Placement (a) (b)
(c)........................... 271,300 4,247,473
BCP Voting Trust, 144A (a) (b)
(c)........................... 12,233 1,178,527
Boston Properties, Inc.......... 37,000 1,151,625
Brandywine Realty Trust......... 308,700 5,054,962
CarrAmerica Realty Corp......... 266,900 5,638,262
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------
<S> <C> <C>
OFFICE/INDUSTRIAL (CONTINUED)
EastGroup Properties, Inc. ..... 10,200 $ 188,700
Equity Office Properties
Trust......................... 198,411 4,885,871
Great Lakes REIT, Inc. ......... 404,375 5,812,891
Pacific Gulf Properties,
Inc. ......................... 307,600 6,228,900
Prime Group Realty Trust........ 323,600 4,914,675
ProLogis Trust.................. 15,100 290,675
Trizec Hahn Corp................ 60,900 1,027,688
Wellsford Real Properties, Inc.,
144A -- Private Placement (a)
(b)........................... 447,242 3,801,557
------------
51,794,775
------------
SELF-STORAGE 5.5%
PS Business Parks, Inc. ........ 126,920 2,887,430
Public Storage, Inc. ........... 207,438 4,706,250
Shurgard Storage Centers, Inc.,
Class A....................... 27,800 644,612
------------
8,238,292
------------
SHOPPING CENTERS 8.3%
Acadia Realty Trust............. 28,300 130,888
Burnham Pacific Properties,
Inc. ......................... 650,882 6,102,019
Federal Realty Investment
Trust......................... 189,800 3,570,612
Pan Pacific Retail Properties,
Inc. ......................... 126,100 2,057,006
Philips International Realty
Corp.......................... 5,900 96,981
Ramco-Gershenson Properties
Trust......................... 2,000 25,250
Vornado Realty Trust............ 13,700 445,250
------------
12,428,006
------------
SHOPPING MALLS 8.0%
Rouse Co. ...................... 26,000 552,500
Simon Property Group, Inc. ..... 128,200 2,940,588
Taubman Centers, Inc. .......... 701,742 7,543,726
Urban Shopping Centers, Inc. ... 33,400 905,975
------------
11,942,789
------------
TOTAL COMMON AND PREFERRED STOCKS........ 142,167,000
CONVERTIBLE CORPORATE OBLIGATIONS 1.2%
Brookfield Properties
Corp. -- Installment Receipts
Representing Subordinated Debenture
($2,262,000 par, 6.00% Coupon, 02/14/07
Maturity) (Canada)..................... 1,755,068
------------
TOTAL LONG-TERM INVESTMENTS 96.2%
(Cost $161,485,448).................... 143,922,068
REPURCHASE AGREEMENT 2.3%
Warburg Dillon Read ($3,475,000 par
collateralized by U.S. Government
obligations in a pooled cash account,
dated 12/31/99, to be sold on 01/03/00
at $3,475,753)
(Cost $3,475,000)...................... 3,475,000
------------
TOTAL INVESTMENTS 98.5%
(Cost $164,960,448).................... 147,397,068
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.5%...................... 2,182,201
------------
NET ASSETS 100.0%....................... $149,579,269
============
</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.
(c) Security values at fair value.
See Notes to Financial Statements
F-65
<PAGE> 485
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF ASSETS AND
LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $164,960,448)....................... $147,397,068
Cash........................................................ 1,442,104
Receivables:
Dividends................................................. 1,508,371
Portfolio Shares Sold..................................... 49,732
Interest.................................................. 47,802
Unamortized Organizational Costs............................ 849
Other....................................................... 6,719
------------
Total Assets.......................................... 150,452,645
------------
LIABILITIES:
Payables:
Portfolio Shares Repurchased.............................. 626,028
Investment Advisory Fee................................... 118,533
Distributor and Affiliates................................ 26,600
Trustees' Deferred Compensation and Retirement Plans........ 52,228
Accrued Expenses............................................ 49,987
------------
Total Liabilities..................................... 873,376
------------
NET ASSETS.................................................. $149,579,269
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $169,606,644
Accumulated Undistributed Net Investment Income............. 6,546,576
Accumulated Net Realized Loss............................... (9,008,522)
Net Unrealized Depreciation................................. (17,565,429)
------------
NET ASSETS.................................................. $149,579,269
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $149,579,269 and 12,090,590 shares
of beneficial interest issued and outstanding).......... $ 12.37
============
</TABLE>
See Notes to Financial Statements
F-66
<PAGE> 486
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 8,282,018
Interest.................................................... 234,014
------------
Total Income.......................................... 8,516,032
------------
EXPENSES:
Investment Advisory Fee..................................... 1,761,084
Custody..................................................... 46,692
Trustees' Fees and Related Expenses......................... 25,783
Shareholder Services........................................ 16,996
Legal....................................................... 9,855
Amortization of Organizational Costs........................ 1,365
Other....................................................... 121,312
------------
Total Expenses........................................ 1,983,087
Investment Advisory Fee Reduction..................... 39,541
Less Credits Earned on Cash Balances.................. 7,106
------------
Net Expenses.......................................... 1,936,440
------------
NET INVESTMENT INCOME....................................... $ 6,579,592
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (2,236,925)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (7,525,146)
------------
End of the Period:
Investments........................................... (17,563,380)
Foreign Currency Translation.......................... (2,049)
------------
(17,565,429)
------------
Net Unrealized Depreciation During the Period............... (10,040,283)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(12,277,208)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (5,697,616)
============
</TABLE>
See Notes to Financial Statements
F-67
<PAGE> 487
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF CHANGES IN NET
ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 6,579,592 $ 11,836,164
Net Realized Loss........................................... (2,236,925) (6,375,125)
Net Unrealized Depreciation During the Period............... (10,040,283) (38,598,410)
------------ ------------
Change in Net Assets from Operations........................ (5,697,616) (33,137,371)
------------ ------------
Distributions from Net Investment Income.................... (11,849,805) (453,855)
Distributions from Net Realized Gain........................ -0- (4,452,811)
------------ ------------
Total Distributions......................................... (11,849,805) (4,906,666)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (17,547,421) (38,044,037)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 72,449,932 88,276,432
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 11,849,796 4,906,666
Cost of Shares Repurchased.................................. (126,003,752) (145,715,375)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (41,704,024) (52,532,277)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................ (59,251,445) (90,576,314)
NET ASSETS:
Beginning of the Period..................................... 208,830,714 299,407,028
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $6,546,576
and $11,817,690, respectively)............................ $149,579,269 $208,830,714
============ ============
</TABLE>
See Notes to Financial Statements
F-68
<PAGE> 488
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
1999 1998 1997 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $13.759 $15.846 $14.784 $ 10.74 $10.00
------- ------- ------- ------- ------
Net Investment Income....................... .676 .781 .464 .217 .20
Net Realized and Unrealized Gain/Loss....... (1.150) (2.597) 2.617 4.117 .6325
------- ------- ------- ------- ------
Total from Investment Operations.............. (.474) (1.816) 3.081 4.334 .8325
------- ------- ------- ------- ------
Less:
Distributions from Net Investment Income.... .913 .025 .470 .199 .0925
Distributions from Net Realized Gain........ -0- .246 1.549 .091 -0-
------- ------- ------- ------- ------
Total Distributions........................... .913 .271 2.019 .290 .0925
------- ------- ------- ------- ------
Net Asset Value, End of the Period............ $12.372 $13.759 $15.846 $14.784 $10.74
======= ======= ======= ======= ======
Total Return*................................. (3.37%) (11.62%) 21.47% 40.53% 8.35%**
Net Assets at End of the Period (In
millions)................................... $ 149.6 $ 208.8 $ 299.4 $ 167.5 $ 8.6
Ratio of Expenses to Average Net Assets*...... 1.10% 1.08% 1.07% 1.10% 2.50%
Ratio of Net Investment Income to Average Net
Assets*..................................... 3.74% 4.72% 3.42% 5.06% 3.75%
Portfolio Turnover............................ 23% 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....... 1.13% N/A N/A 1.27% 2.90%
Ratio of Net Investment Income to Average Net
Assets...................................... 3.71% N/A N/A 4.89% 3.36%
</TABLE>
** Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
F-69
<PAGE> 489
STRATEGIC STOCK PORTFOLIO PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 97.7%
CONSUMER DISTRIBUTION 8.1%
Limited, Inc. ................... 14,650 $ 634,528
May Department Stores Co. ....... 31,235 1,007,329
Sears Roebuck & Co. ............. 13,660 415,776
SYSCO Corp. ..................... 5,910 233,814
Too, Inc. (a) ................... 2,911 50,215
TRW, Inc. ....................... 1,400 72,713
-----------
2,414,375
-----------
CONSUMER DURABLES 16.4%
Delphi Automotive Systems
Corp. ......................... 9,568 150,696
Eastman Kodak Co. ............... 22,380 1,482,675
General Motors Corp. ............ 18,780 1,365,071
Genuine Parts Co. ............... 15,180 376,654
Goodyear Tire & Rubber Co. ...... 18,230 513,858
Masco Corp. ..................... 12,800 324,800
Maytag Corp. .................... 7,670 368,160
Newell Rubbermaid, Inc. ......... 10,770 312,330
-----------
4,894,244
-----------
CONSUMER NON-DURABLES 13.7%
Anheuser-Busch Cos., Inc. ....... 4,000 283,500
Avon Products, Inc. ............. 9,730 321,090
General Mills, Inc. ............. 26,450 945,587
H. J. Heinz Co. ................. 12,850 511,591
Philip Morris Cos., Inc. ........ 43,030 997,758
Sara Lee Corp. .................. 47,070 1,038,482
-----------
4,098,008
-----------
CONSUMER SERVICES 3.2%
McGraw-Hill, Inc. ............... 14,620 900,958
Service Corp. International ..... 7,020 48,701
-----------
949,659
-----------
ENERGY 9.0%
Chevron Corp. ................... 14,050 1,217,081
Exxon Mobil Corp. ............... 18,370 1,479,933
-----------
2,697,014
-----------
FINANCE 5.3%
J.P. Morgan & Co., Inc. ......... 12,470 1,579,014
-----------
HEALTHCARE 1.8%
Abbott Laboratories, Inc. ....... 15,060 546,866
-----------
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 16.9%
Caterpillar, Inc. ............... 27,550 $ 1,296,572
Dana Corp. ...................... 13,430 402,061
Deere & Co. ..................... 6,620 287,143
Emerson Electric Co. ............ 6,710 384,986
Minnesota Mining & Manufacturing
Co. ........................... 18,140 1,775,452
Parker-Hannifin Corp. ........... 8,000 410,500
Textron, Inc. ................... 5,450 417,947
Xerox Corp. ..................... 3,680 83,490
-----------
5,058,151
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 14.6%
Air Products & Chemicals,
Inc. .......................... 13,160 441,682
E. I. Du Pont de Nemours &
Co. ........................... 22,650 1,492,069
International Paper Co. ......... 14,920 842,047
PPG Industries, Inc. ............ 6,280 392,893
Sherwin-Williams Co. ............ 57,390 1,205,190
-----------
4,373,881
-----------
TRANSPORTATION 1.7%
Burlington Northern Santa Fe
Corp. ......................... 20,910 507,067
-----------
UTILITIES 7.0%
Bell Atlantic Corp. ............. 11,770 724,591
BellSouth Corp. ................. 4,760 222,828
SBC Communications, Inc. ........ 23,370 1,139,287
-----------
2,086,706
-----------
TOTAL LONG-TERM INVESTMENTS
(Cost $29,816,792) ..................... 29,204,985
REPURCHASE AGREEMENT 1.1%
Warburg Dillon Read ($329,000 par
collateralized by U.S. Government
obligations in a pooled cash account,
dated 12/31/99, to be sold on 01/03/00
at $329,071) (Cost $329,000) ........... 329,000
-----------
TOTAL INVESTMENTS 98.8%
(Cost $30,145,792) ..................... 29,533,985
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.2% ...................... 358,483
-----------
NET ASSETS 100.0% ....................... $29,892,468
===========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
See Notes to Financial Statements
F-70
<PAGE> 490
STRATEGIC STOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $30,145,792)........................ $29,533,985
Cash........................................................ 311,973
Receivables:
Dividends................................................. 73,343
Interest.................................................. 88
Unamortized Organizational Costs............................ 22,749
Other....................................................... 1,142
-----------
Total Assets.......................................... 29,943,280
-----------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 7,862
Distributor and Affiliates................................ 2,717
Accrued Expenses............................................ 21,392
Trustees' Deferred Compensation and Retirement Plans........ 18,841
-----------
Total Liabilities..................................... 50,812
-----------
NET ASSETS.................................................. $29,892,468
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $29,290,998
Accumulated Net Realized Gain............................... 723,277
Accumulated Undistributed Net Investment Income............. 490,000
Net Unrealized Depreciation................................. (611,807)
-----------
NET ASSETS.................................................. $29,892,468
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Based on net assets of $29,892,468 and 2,548,299 shares
of beneficial interest issued and outstanding).......... $ 11.73
===========
</TABLE>
See Notes to Financial Statements
F-71
<PAGE> 491
STRATEGIC STOCK PORTFOLIO STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 642,826
Interest.................................................... 34,321
-----------
Total Income............................................ 677,147
-----------
EXPENSES:
Investment Advisory Fee..................................... 137,236
Custody..................................................... 29,067
Accounting.................................................. 17,331
Audit....................................................... 16,793
Trustees' Fees and Related Expenses......................... 15,694
Shareholder Services........................................ 15,481
Amortization of Organizational Costs........................ 8,001
Legal....................................................... 1,732
Other....................................................... 7,622
-----------
Total Expenses.......................................... 248,957
Investment Advisory Fee Reduction....................... 69,223
Less Credits Earned on Overnight Cash Balances.......... 122
-----------
Net Expenses............................................ 179,612
-----------
NET INVESTMENT INCOME....................................... $ 497,535
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 757,354
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,218,605
End of the Period......................................... (611,807)
-----------
Net Unrealized Depreciation During the Period............... (1,830,412)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(1,073,058)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (575,523)
===========
</TABLE>
See Notes to Financial Statements
F-72
<PAGE> 492
STRATEGIC STOCK PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 497,535 $ 228,843
Net Realized Gain........................................... 757,354 27,796
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (1,830,412) 1,211,770
----------- -----------
Change in Net Assets from Operations........................ (575,523) 1,468,409
----------- -----------
Distributions from Net Investment Income.................... (236,337) (6,617)
Distributions from Net Realized Gain........................ (61,873) -0-
----------- -----------
Total Distributions......................................... (298,210) (6,617)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (873,733) 1,461,792
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 14,861,659 19,135,086
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 295,270 6,375
Cost of Shares Purchased.................................... (5,799,584) (1,720,599)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 9,357,345 17,420,862
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 8,483,612 18,882,654
NET ASSETS:
Beginning of the Period..................................... 21,408,856 2,526,202
----------- -----------
End of Period (Including accumulated undistributed net
investment income of $490,000 and $228,802,
respectively)............................................. $29,892,468 $21,408,856
=========== ===========
</TABLE>
See Notes to Financial Statements
F-73
<PAGE> 493
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 Year Ended Operations) to
December 31, 1999 December 31, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period......... $11.932 $10.245 $10.000
------- ------- -------
Net Investment Income.......................... .182 .113 .027
Net Realized and Unrealized Gain/Loss.......... (.236) 1.586 .218
------- ------- -------
Total from Investment Operations................. (.054) 1.699 .245
------- ------- -------
Less:
Distributions from Net Investment Income....... .117 .012 -0-
Distributions from Net Realized Gain........... .031 -0- -0-
------- ------- -------
Total Distributions.............................. .148 .012 -0-
------- ------- -------
Net Asset Value, End of the Period............... $11.730 $11.932 $10.245
======= ======= =======
Total Return*.................................... (.47%) 16.51% 2.45%**
Net Assets at End of the Period (In millions).... $ 29.9 $ 21.4 $ 2.5
Ratio of Expenses to Average Net Assets*......... .65% .65% .61%
Ratio of Net Investment Income to Average Net
Assets*........................................ 1.81% 2.01% 2.67%
Portfolio Turnover............................... 43% 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.......... .91% 1.25% 2.59%
Ratio of Net Investment Income to Average Net
Assets......................................... 1.55% 1.41% .68%
</TABLE>
** Non-Annualized
See Notes to Financial Statements
F-74
<PAGE> 494
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
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 eleven Portfolios: Asset Allocation Portfolio(1)
("Asset Allocation"), Comstock Portfolio ("Comstock"), Domestic Income
Portfolio(1) ("Domestic Income"), Emerging Growth Portfolio ("Emerging Growth"),
Enterprise Portfolio ("Enterprise"), Global Equity Portfolio(1) ("Global
Equity"), Government Portfolio(1) ("Government"), Growth and Income Portfolio
("Growth and Income"), Money Market Portfolio(1) ("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: Comstock seeks capital growth
and income through investments in equity securities including common and
preferred stocks and securities convertible into common and preferred stocks;
Emerging Growth seeks capital appreciation by investing principally in common
stocks of emerging growth companies; Enterprise seeks capital appreciation by
investing principally in common stocks of growth companies; 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; 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 high
dividend yielding 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 valued by independent pricing services or dealers
using the mean of the bid and asked prices. Unlisted securities and listed
securities for which the last sales price is not available are valued at the
mean of the bid and asked prices. For those securities where prices or
quotations are not available, valuations are determined in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
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.
- ---------------
(1) These Portfolios are included under a separate cover.
F-75
<PAGE> 495
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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, Real Estate and Strategic Stock 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, $6,828 and $40,000, respectively per Portfolio. These costs
are being amortized on a straight line basis over the 60 month period ending
July 2, 2000, July 2, 2000 and November 4, 2002, respectively. 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, 1999 along with its expiration dates. The table
also presents the identified cost of investments at December 31, 1999 for
federal income tax purposes with the associated gross unrealized appreciation,
gross unrealized depreciation and net unrealized appreciation/depreciation on
investments.
<TABLE>
<CAPTION>
EMERGING
COMSTOCK GROWTH ENTERPRISE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized capital loss carryforward.................. -- -- --
Expiration dates of capital loss carryforward....... -- -- --
Amount expiring on 12/31/99......................... -- -- --
Identified cost..................................... $1,660,613 $161,852,388 $113,929,111
Gross unrealized appreciation....................... 54,641 99,616,088 61,484,805
Gross unrealized depreciation....................... 145,284 425,133 2,498,135
Net unrealized appreciation/depreciation............ (90,643) 99,190,955 58,986,670
</TABLE>
<TABLE>
<CAPTION>
GROWTH
AND REAL STRATEGIC
INCOME ESTATE STOCK
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized capital loss carryforward.................. -- $ 7,806,768 --
Expiration dates of capital loss carryforward....... -- 2006-2007 --
Amount expiring on 12/31/99......................... -- -- --
Identified cost..................................... $45,975,629 $166,270,627 $30,487,276
Gross unrealized appreciation....................... 7,894,730 3,745,270 2,021,719
Gross unrealized depreciation....................... 1,929,370 22,618,829 2,975,010
Net unrealized appreciation/depreciation............ 5,965,360 (18,873,559) (953,291)
</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,
the deferral of losses relating to wash sale transactions and gains recognized
for tax purposes on open future positions at December 31, 1999.
F-76
<PAGE> 496
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
F. DISTRIBUTION OF INCOME AND GAINS--Comstock, Emerging Growth, Enterprise,
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.
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
1999 fiscal year have been identified and appropriately reclassified.
<TABLE>
<CAPTION>
EMERGING REAL
GROWTH ESTATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Undistributed Net Investment Income/Loss........ $ 127,437(a) $(901)(b)
Accumulated Net Realized Gain/Loss.......................... -- 901(b)
Capital..................................................... (127,437)(a) --
</TABLE>
(a) A permanent difference related to a net operating loss has been reclassified
from accumulated net investment loss to capital.
(b) 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.
G. EXPENSE REDUCTIONS--During the year ended December 31, 1999, custody fees
were reduced by the following amounts as a result of credits earned on overnight
cash balances:
<TABLE>
<CAPTION>
GROWTH
EMERGING AND REAL STRATEGIC
COMSTOCK GROWTH ENTERPRISE INCOME ESTATE STOCK
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Credits earned on overnight cash
balances........................... $22 $292 $2,834 $64 $7,106 $122
</TABLE>
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>
<CAPTION>
- -------------------------------------------------------------------
<S> <C>
Asset Allocation, Domestic Income, 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%
Comstock, Growth and Income
First $500 million..................................... .60%
Over $500 million...................................... .55%
Real Estate................................................. 1.00%
Strategic Stock............................................. .50%
First $500 million..................................... .50%
Over $500 million...................................... .45%
</TABLE>
F-77
<PAGE> 497
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
In relation to Real Estate, the Adviser has entered into a subadvisory
agreement, dated October 1, 1998, with Morgan Stanley Dean Witter Investment
Management Inc. (the "Subadviser") to provide advisory services to the Portfolio
and the Adviser with respect to the Portfolio's 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 Enterprise, 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>
<CAPTION>
- -------------------------------------------------------------------
<S> <C>
Comstock.................................................... .95%
Emerging Growth............................................. .85%
Enterprise.................................................. .60%
Growth and Income........................................... .75%
Real Estate................................................. 1.10%
Strategic Stock............................................. .65%
</TABLE>
Other transactions with affiliates during the year ended December 31, 1999
were as follows:
<TABLE>
<CAPTION>
EMERGING
COMSTOCK GROWTH ENTERPRISE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounting.................................................. $22,100 $25,900 $42,900
Shareholder servicing agent's fees.......................... 8,800 15,000 15,100
Legal (Skadden Arps)........................................ 400 8,200 7,200
</TABLE>
<TABLE>
<CAPTION>
GROWTH
AND REAL STRATEGIC
INCOME ESTATE STOCK
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounting.................................................. $22,700 $66,600 $17,300
Shareholder servicing agent's fees.......................... 15,000 15,000 14,900
Legal (Skadden Arps)........................................ 2,800 9,900 1,700
</TABLE>
Accounting services are provided by Van Kampen at cost. Van Kampen Investor
Services Inc., an affiliate of the Adviser, serves as the shareholder servicing
agent for the Portfolios. Transfer agency fees are determined through
negotiations with the Portfolios' 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, 1999, Van Kampen owned 100,000 shares of Comstock, 10 shares
of Emerging Growth, 54,451 shares of Growth and Income, 10 shares of Real
Estate, and 20,000 shares of Strategic Stock.
F-78
<PAGE> 498
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
For the year ended December 31, 1999, share transactions were as follows:
<TABLE>
<CAPTION>
EMERGING
COMSTOCK GROWTH ENTERPRISE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Shares.................................... 100,000(1) 1,477,759 5,518,824
Sales............................................... 70,595 5,233,873 1,916,479
Dividend Reinvestment............................... 838 -0- 445,355
Repurchases......................................... (194) (1,011,402) (1,210,786)
------------ ------------ -----------
Ending Shares....................................... 171,239 5,700,230 6,669,872
============ ============ ===========
Capital at 12/31/99................................. $ 1,668,635 $163,220,121 $96,272,278
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND REAL STRATEGIC
INCOME ESTATE STOCK
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Shares.................................... 2,225,645 15,178,156 1,794,237
Sales............................................... 1,413,376 5,498,923 1,206,873
Dividend Reinvestment............................... 209,139 972,091 24,667
Repurchases......................................... (428,188) (9,558,580) (477,478)
----------- ------------ -----------
Ending Shares....................................... 3,419,972 12,090,590 2,548,299
=========== ============ ===========
Capital at 12/31/99................................. $45,852,112 $169,606,644 $29,290,998
=========== ============ ===========
</TABLE>
(1) Portfolio commenced investment operations on April 30, 1999.
At December 31, 1999, with the exception of Van Kampen's ownership of shares
of certain portfolios, five 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, 1998, share transactions were as follows:
<TABLE>
<CAPTION>
EMERGING
GROWTH ENTERPRISE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................................ 637,815 5,452,063
Sales....................................................... 1,341,978 1,178,203
Dividend Reinvestment....................................... 260 59,530
Repurchases................................................. (502,294) (1,170,972)
----------- -----------
Ending Shares............................................... 1,477,759 5,518,824
=========== ===========
Capital at 12/31/98......................................... $25,032,872 $70,347,091
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND REAL STRATEGIC
INCOME ESTATE STOCK
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Shares.................................... 966,202 18,894,267 246,576
Sales............................................... 1,366,787 6,057,194 1,699,551
Dividend Reinvestment............................... 1,387 326,458 557
Repurchases......................................... (108,731) (10,099,763) (152,447)
----------- ------------ -----------
Ending Shares....................................... 2,225,645 15,178,156 1,794,237
=========== ============ ===========
Capital at 12/31/98................................. $28,125,068 $211,310,668 $19,933,653
=========== ============ ===========
</TABLE>
F-79
<PAGE> 499
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding forward commitment transactions and short-term investments, were:
<TABLE>
<CAPTION>
GROWTH
EMERGING AND REAL STRATEGIC
COMSTOCK GROWTH ENTERPRISE INCOME ESTATE STOCK
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases............ $1,730,621 $197,028,186 $151,278,655 $49,273,465 $ 40,292,613 $20,576,214
Sales................ 417,981 82,187,255 154,408,090 37,306,260 88,414,424 11,302,906
</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, cash or liquid 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, 1999, were
as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
ENTERPRISE GROWTH AND INCOME
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1998............................ 0 5
Futures Opened.............................................. 46 18
Futures Closed.............................................. 0 17
--- ---
Outstanding at December 31, 1999............................ 46 6
=== ===
</TABLE>
F-80
<PAGE> 500
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
The futures contracts outstanding at December 31, 1999, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS DEPRECIATION
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ENTERPRISE
LONG CONTRACTS
S&P 500 Index Futures -- Mar 00
(Current notional value of $371,050 per contract)...... 46 $345,142
== ========
GROWTH AND INCOME
LONG CONTRACTS
S&P 500 Index Futures -- Mar 00
(Current notional value of $371,050 per contract)...... 6 $176,238
== ========
</TABLE>
B. FORWARD COMMITMENTS--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. 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. There were
no forward bond commitments outstanding as of December 31, 1999.
6. BORROWINGS
In accordance with its investment policies, the Portfolios may borrow from banks
for temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Portfolios, in conjunction with certain other
funds of Van Kampen, have entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each Portfolio is
permitted to utilize the facility in accordance with the restrictions of its
prospectus. In the event the demand for the facility meets or exceeds $650
million on a complex-wide basis, each Portfolio will be limited to its pro-rata
percentage based on the net assets of each participating fund. Interest on
borrowings is charged under the agreement at a rate of 0.50% above the federal
funds rate per annum. An annual commitment fee of 0.09% per annum is charged on
the unused portion of the credit facility, which each Portfolio incurs based on
its pro-rata percentage of quarterly net assets. The Portfolios did not borrow
against the credit facility during the period.
F-81
<PAGE> 501
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<C> <S> <C>
(a) (1) First Amended and Restated Agreement and Declaration of
Trust(1)
(2) Certificate of Amendment(1)
(3) Second Certificate of Amendment(7)
(4) Third Amended and Restated Certificate of Designation of
Enterprise Portfolio+
(5) Third Amended and Restated Certificate of Designation of
Domestic Income Portfolio+
(6) Second Amended and Restated Certificate of Designation of
Emerging Growth Portfolio+
(7) Second Amended and Restated Certificate of Designation of
Global Equity Portfolio+
(8) Second Amended and Restated Certificate of Designation of
Government Portfolio+
(9) Second Amended and Restated Certificate of Designation of
Money Market Portfolio+
(10) Third Amended and Restated Certificate of Designation of
Asset Allocation Portfolio+
(11) Third Amended and Restated Certificate of Designation of
Morgan Stanley Real Estate Securities Portfolio+
(12) Second Amended and Restated Certificate of Designation of
Growth and Income Portfolio+
(13) First Amended and Restated Certificate of Designation of
Strategic Stock Portfolio+
(14) First Amended and Restated Certificate of Designation of
Comstock Portfolio+
(b) Amended and Restated Bylaws(1)
(c) Not applicable
(d) (1) Investment Advisory Agreement for Asset Allocation
Portfolio, Domestic Income Portfolio, Enterprise Portfolio,
Government Portfolio and Money Market Portfolio(5)
(2)(i) Investment Advisory Agreement for Emerging Growth
Portfolio(5)
(ii) Amendment One to the Investment Advisory Agreement for
Emerging Growth Portfolio+
(3)(i) Investment Advisory Agreement for Global Equity Portfolio(5)
(ii) Amendment One to the Investment Advisory Agreement for
Global Equity Portfolio+
(4) Investment Sub-Advisory Agreement for Global Equity
Portfolio(5)
(5)(i) Investment Advisory Agreement for Morgan Stanley Real Estate
Securities Portfolio(5)
(ii) Amendment One to the Investment Advisory Agreement for
Morgan Stanley Real Estate Securities Portfolio+
(6) Investment Advisory Agreement for Growth and Income
Portfolio(5)
(7) Investment Advisory Agreement for Strategic Stock
Portfolio(5)
(8) Investment Advisory Agreement for Comstock Portfolio(6)
(e) (1) Distribution and Service Agreement(5)
(2) Form of Participation Agreement+
(f) (1) Form of Trustee Deferred Compensation Plan(8)
(2) Form of Trustee Retirement Plan(8)
(g) (1) Custodian Contract(4)
(2) Transfer Agency and Service Agreement(6)
(h) (1) Data Access Services Agreement(3)
(2) Fund Accounting Agreement(6)
(i) (1) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(6)
(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)+
(j) Consent of Independent Accountants+
(k) Not applicable
(l) (1) Investment Letter dated April 4, 1986 for the Government
Portfolio and Common Stock Portfolio and Money Market
Portfolio(7)
(2) Investment Letter dated July 3, 1995 for the Emerging Growth
Portfolio, Global Equity Portfolio and Morgan Stanley Real
Estate Securities Portfolio(2)
(m) (1) Plan of Distribution Pursuant to Rule 12b-1+
(2) Service Plan+
</TABLE>
C-1
<PAGE> 502
<TABLE>
<C> <S> <C>
(n) not applicable
(o) Multiclass Plan
(p) (1) Form of Code of Ethics for the Funds, investment adviser and distributor+
(2) Form of Code of Ethics for the subadviser+
(q) Power of Attorney+
(z) (1) List of certain investment companies in response to Item 27(a)+
(2) List of officers and directors of Van Kampen Funds Inc. in response to Item 27(b)+
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
December 22, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
March 6, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
April 30, 1997.
(4) Incorporated herein by reference to Post-Effective Amendment No. 75 to the
Registration Statement on Form N-1A of Van Kampen American Capital Growth
and Income Fund, File Number 2-21657, filed March 27, 1998.
(5) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
April 30, 1998.
(6) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
May 18, 1998.
(7) Incorporated herein by reference to Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
March 1, 1999.
(8) Incorporated herein by reference to Post-Effective Amendment No. 81 to the
Registration Statement on Form N-1A of Van Kampen Harbor Fund, File Number
2-12685, filed April 29, 1999.
+ Filed herewith.
++ To be filed by further amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the prospectus and statement of additional information.
ITEM 25. INDEMNIFICATION.
Pursuant to Del. Code Ann. Title 12, Section 3817, a Delaware business
trust may provide in its governing instrument for the indemnification of its
officers and trustees from and against any and all claims and demands
whatsoever.
Reference is made to Article 8, Section 8.4 of the Registrant's Amended and
Restated Agreement and Declaration of Trust. Article 8; Section 8.4 of the
Amended and Restated Agreement and Declaration of Trust provides that each
officer and trustee of the Registrant shall be indemnified by the Registrant
against all liabilities incurred in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, in which the
officer or trustee may be or may have been involved by reason of being or having
been an officer or trustee, except that such indemnity shall not protect any
such person against a liability to the Registrant or any shareholder thereof to
which such person would otherwise be subject by reason of (i) not acting in good
faith in the reasonable belief that such person's actions were not in the best
interest of the Trust, (ii) willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
(iii) for a criminal proceeding, not having a reasonable cause to believe that
such conduct was unlawful (collectively "Disabling Conduct"). Absent a court
determination that an officer or trustee seeking indemnification was not liable
on the merits or guilty of Disabling Conduct in the
C-2
<PAGE> 503
conduct of his or her office, the decision by the Registrant to indemnify such
person must be based upon the reasonable determination of independent counsel or
non-party independent trustees, after review of the facts, that such officer or
trustee is not guilty of Disabling Conduct in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds Inc. (the
"Distributor") and each of its trustees and officers and each person if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damages or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damages,
or expense and reasonable counsel fees) arising by reason of any person
acquiring any shares, based upon the ground that the Registration Statement
prospectus, shareholder reports or other information filed or made public by the
Registrant (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statute or the common law. The Registrant does not agree to indemnify
the Distributor or hold it harmless to the extent that the statement or omission
was made in reliance upon, and in conformity with, information furnished to the
Registrant by or on behalf of the Distributor. In no case is the indemnity of
the Registrant in favor of the Distributor or any person indemnified to be
deemed to protect the Distributor or any person against any liability to the
Fund or its security holders to which the Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the agreement.
Pursuant to the agreement by which Van Kampen Investor Services Inc.
("Investor Services") is appointed transfer agent of the Fund, the Registrant
agrees to indemnify and hold Investor Services harmless against any losses,
damages, costs, charges, payments, liabilities and expenses (including
reasonable counsel fees) arising out of or attributable to:
(1) the performance of Investor Services under the agreement provided that
Investor Services acted in good faith with due diligence and without negligence
or willful misconduct.
C-3
<PAGE> 504
(2) reliance by Investor Services on, or reasonable use by, Investor
Services of information, records and documents which have been prepared on
behalf of, or have been furnished by, the Fund, or the carrying out by Investor
Services of any instructions or requests of the Fund.
(3) the offer or sale of the Fund's shares in violation of any federal or
state law or regulation or ruling by any federal agency unless such violation
results from any failure by Investor Services to comply with written
instructions from the Fund that such offers or sales were not permitted under
such law, rule or regulation.
(4) the refusal of the Fund to comply with terms of the agreement, or the
Fund's lack of good faith, negligence or willful misconduct or breach of any
representation or warranty made by the Fund under the agreement provided that if
the reason for such failure is attributable to any action of the Fund's
investment adviser or distributor or any person providing accounting or legal
services to the Fund, Investor Services only will be entitled to indemnification
if such entity is otherwise entitled to the indemnification from the Fund.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of Van Kampen Asset Management Inc. (the "Adviser"). For
information as to the business, profession, vocation and employment of a
substantial nature of directors and officers of the Adviser, reference is made
to the Adviser's current Form ADV (File No. 801-1669) filed under the Investment
Advisers Act of 1940, as amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Fund Inc. (the
"Distributor"), which acts as principal underwriter for certain investment
companies and unit investment trusts. See Exhibit (z)(1).
(b) Van Kampen Funds Inc., which is an affiliated person of an affiliated
person of Registrant, is the sole principal underwriter for Registrant. The
name, principal business address and positions and offices with the Distributor
of each of the directors and officers are disclosed in Exhibit (z)(2)
incorporated herein by reference. Except as disclosed under the heading,
"Trustees and Executive Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 1 Parkway Plaza, PO Box
5555 Oakbrook Terrace, Illinois 60181-5555, or at Van Kampen Investor Services
Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at the State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by
the Adviser, will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555 Oakbrook Terrace, Illinois 60181-5555; and (iii) by the Distributor,
the principal underwriter, will be maintained at its offices located at 1
Parkview Plaza, PO Box 5555 Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable
C-4
<PAGE> 505
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN LIFE INVESTMENT TRUST, certifies that it meets all of the
requirements for effectiveness of this Amendment to the Registration Statement
pursuant to Rule 485(b) under the 1933 Act and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized in the City of Oakbrook Terrace and State of Illinois,
on the 27th day of April, 2000.
VAN KAMPEN LIFE INVESTMENT TRUST
By /s/ A. THOMAS SMITH III
----------------------------------------
A. Thomas Smith III,
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on April 27, 2000 by the following
persons in the capacities indicated:
<TABLE>
<C> <S> <C>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* Trustee and President
- -----------------------------------------------------
Richard F. Powers, III
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief
- ----------------------------------------------------- Financial Officer and Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Trustee
- -----------------------------------------------------
Jerry D. Choate
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ MITCHELL M. MERIN* Trustee
- -----------------------------------------------------
Mitchell M. Merin
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee and Chairman
- -----------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
- -----------------------------------------------------
Suzanne H. Woolsey
* Signed by A. Thomas Smith III pursuant to a
power of attorney filed herewith
/s/ A. THOMAS SMITH III
- -----------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>
April 27, 2000
<PAGE> 506
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 29 FORM N-1A
AS SUBMITTED TO THE
SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S> <C>
(a) (4) Third Amended and Restated Certificate of Designation of
Enterprise Portfolio
(5) Third Amended and Restated Certificate of Designation of
Domestic Income Portfolio
(6) Second Amended and Restated Certificate of Designation of
Emerging Growth Portfolio
(7) Second Amended and Restated Certificate of Designation of
Global Equity Portfolio
(8) Second Amended and Restated Certificate of Designation of
Government Portfolio
(9) Second Amended and Restated Certificate of Designation of
Money Market Portfolio
(10) Third Amended and Restated Certificate of Designation of
Asset Allocation Portfolio
(11) Third Amended and Restated Certificate of Designation of
Morgan Stanley Real Estate Securities Portfolio
(12) Second Amended and Restated Certificate of Designation of
Growth and Income Portfolio
(13) First Amended and Restated Certificate of Designation of
Strategic Stock Portfolio
(14) First Amended and Restated Certificate of Designation of
Comstock Portfolio
(d) (2)(ii) Amendment One to the Investment Advisory Agreement for
Emerging Growth Portfolio
(d) (3)(ii) Amendment One to the Investment Advisory Agreement for
Global Equity Portfolio
(d) (5)(ii) Amendment One to the Investment Advisory Agreement for
Morgan Stanley Real Estate Securities Portfolio
(e) (2) Form of Participation Agreement
(i) (2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(j) Consent of Independent Accountants
(m) (1) Plan of Distribution Pursuant to Rule 12b-1
(2) Service Plan
(o) Multiclass Plan
(p) (1) Form of Code of Ethics for the Funds, investment adviser and
distributor
(2) Form of Code of Ethics for the subadviser
(q) Power of Attorney
(z) (1) List of certain investment companies in response to Item
27(a)
(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)
</TABLE>
<PAGE> 1
(a)(4)
VAN KAMPEN LIFE INVESTMENT TRUST
Third Amended and Restated Certificate of Designation
of
Van Kampen Enterprise Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Enterprise Portfolio (the "Portfolio")
with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
-----------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(5)
VAN KAMPEN LIFE INVESTMENT TRUST
Third Amended and Restated Certificate of Designation
of
Van Kampen Domestic Income Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Domestic Income Portfolio (the
"Portfolio") with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
------------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(6)
VAN KAMPEN LIFE INVESTMENT TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Emerging Growth Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Emerging Growth Portfolio (the
"Portfolio") with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
-----------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(7)
VAN KAMPEN LIFE INVESTMENT TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Global Equity Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Global Equity Portfolio (the
"Portfolio") with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
------------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(8)
VAN KAMPEN LIFE INVESTMENT TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Government Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Government Portfolio (the "Portfolio")
with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
___________________________________
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(9)
VAN KAMPEN LIFE INVESTMENT TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Money Market Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Money Market Portfolio (the "Portfolio")
with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
____________________________
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(10)
VAN KAMPEN LIFE INVESTMENT TRUST
Third Amended and Restated Certificate of Designation
of
Van Kampen Asset Allocation Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Asset Allocation Portfolio (the
"Portfolio") with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
-----------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(11)
VAN KAMPEN LIFE INVESTMENT TRUST
Third Amended and Restated Certificate of Designation
of
Van Kampen Morgan Stanley Real Estate Securities Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Morgan Stanley Real Estate Securities
Portfolio (the "Portfolio") with following the rights, preferences and
characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
-----------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(12)
VAN KAMPEN LIFE INVESTMENT TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Growth and Income Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Growth and Income Portfolio (the
"Portfolio") with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
-----------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(13)
VAN KAMPEN LIFE INVESTMENT TRUST
First Amended and Restated Certificate of Designation
of
Van Kampen Strategic Stock Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Strategic Stock Portfolio (the
"Portfolio") with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
A. Thomas Smith III
-----------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
(a)(14)
VAN KAMPEN LIFE INVESTMENT TRUST
First Amended and Restated Certificate of Designation
of
Van Kampen Comstock Portfolio
The undersigned, being the Secretary of Van Kampen Life Investment Trust, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the Comstock Portfolio (the "Portfolio")
with following the rights, preferences and characteristics:
1. Shares. The beneficial interest in the Portfolio shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the
Portfolio. The Trustees shall have the authority from time to time to authorize
separate Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Portfolio shall be divided into two
classes--Class I and Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Portfolio.
3. Sales Charges. Each Class I Share and Class II Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Portfolio's prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Portfolio may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose affecting
only holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Portfolio unless otherwise specified
in this Certificate of Designation, in which case this Certificate of
Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Portfolio outstanding and
entitled to vote or, if such amendment affects the Shares of one or more but
not all of the Classes of the Fund, the holders of a majority of all the Shares
of the affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
April 17, 2000
/s/ A. Thomas Smith III
-----------------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
Exhibit (d)(2)(ii)
AMENDMENT ONE
-------------
TO THE
INVESTMENT ADVISORY AGREEMENT
VAN KAMPEN LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO
DATED MAY 31, 1997
THIS AMENDMENT ONE to the Investment Advisory Agreement dated May 31,
1997 by and between Van Kampen Life Investment Trust Emerging Growth Portfolio,
a Delaware business trust (hereinafter referred to as the "Fund") and Van Kampen
Asset Management Inc., a Delaware Corporation (hereinafter referred to as the
"Adviser").
W I T N E S S E T H
-------------------
WHEREAS, the Fund wishes to amend the current Investment Advisory
Agreement in accordance with the terms set forth by The Board of Trustees of the
Fund at a Meeting held on April 17, 2000;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Section 4 of
the Agreement be amended as follows:
(4) COMPENSATION PAYABLE TO THE ADVISER
The TRUST shall pay to the ADVISER, as compensation for the
services rendered, facilities furnished and expenses paid by the
ADVISER, with respect to the Portfolio, a monthly fee computed
at the following annual rate: 0.70% to $500 million, 0.65% next
$500 million and 0.60% over $1billion of average daily net
assets.
Average daily net assets shall be determined by taking the
average of the net assets for each business day during a given
calendar month calculated in the manner provided in the TRUST's
Declaration of Trust. Such fee shall be payable for each
calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the TRUST pursuant to this
Section 4 shall be reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments
received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen Investments Inc., in
connection with the purchase and sale of portfolio investments
of the TRUST, less any direct expenses incurred by such person,
in connection with obtaining such commissions, fees, brokerage
or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and
exchange offer fees in connection with the TRUST's portfolio
transactions and shall advise the Trustees of any other
commissions, fees, brokerage or similar payments which may be
possible for the ADVISER or any other direct or indirect
majority owned subsidiary of Van Kampen Investments Inc. to
receive in connection with the TRUST's portfolio transactions or
other arrangements which may benefit the TRUST.
If the ADVISER shall serve for less than the whole of any
month, the foregoing compensation shall be prorated.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment One to be
executed this 17th day of April, 2000.
VAN KAMPEN LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO
By: /s/ John L. Sullivan
------------------------------
John L. Sullivan
Vice President, Chief Financial Officer and Treasurer
VAN KAMPEN ASSET MANAGEMENT INC.
By: /s/ Stephen L. Boyd
------------------------------
Stephen L. Boyd
President and Chief Operating Officer
2
<PAGE> 1
Exhibit (d)(3)(ii)
AMENDMENT ONE
-------------
TO THE
INVESTMENT ADVISORY AGREEMENT
VAN KAMPEN LIFE INVESTMENT TRUST
GLOBAL EQUITY PORTFOLIO
DATED MAY 31, 1997
THIS AMENDMENT ONE to the Investment Advisory Agreement dated May 31,
1997 by and between Van Kampen Life Investment Trust Global Equity Portfolio, a
Delaware business trust (hereinafter referred to as the "Fund") and Van Kampen
Asset Management Inc., a Delaware Corporation (hereinafter referred to as the
"Adviser").
W I T N E S S E T H
-------------------
WHEREAS, the Fund wishes to amend the current Investment Advisory
Agreement in accordance with the terms set forth by The Board of Trustees of the
Fund at a Meeting held on April 17, 2000;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Section 4 of
the Agreement be amended as follows:
(4) COMPENSATION PAYABLE TO THE ADVISER
The TRUST shall pay to the ADVISER, as compensation for the
services rendered, facilities furnished and expenses paid by the
ADVISER, with respect to the Portfolio, a monthly fee computed
at the following annual rate: 1.00% to $500 million, 0.95% next
$500 million and 0.90% over $1billion of average daily net
assets.
Average daily net assets shall be determined by taking the
average of the net assets for each business day during a given
calendar month calculated in the manner provided in the TRUST's
Declaration of Trust. Such fee shall be payable for each
calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the TRUST pursuant to this
Section 4 shall be reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments
received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen Investments Inc., in
connection with the purchase and sale of portfolio investments
of the TRUST, less any direct expenses incurred by such person,
in connection with obtaining such commissions, fees, brokerage
or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and
exchange offer fees in connection with the TRUST's portfolio
transactions and shall advise the Trustees of any other
commissions, fees, brokerage or similar payments which may be
possible for the ADVISER or any other direct or indirect
majority owned subsidiary of Van Kampen Investments Inc. to
receive in connection with the TRUST's portfolio transactions or
other arrangements which may benefit the TRUST.
If the ADVISER shall serve for less than the whole of any
month, the foregoing compensation shall be prorated.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment One to be
executed this 17th day of April, 2000.
VAN KAMPEN LIFE INVESTMENT TRUST
GLOBAL EQUITY PORTFOLIO
By: /s/ John L. Sullivan
------------------------------
John L. Sullivan
Vice President, Chief Financial Officer and Treasurer
VAN KAMPEN ASSET MANAGEMENT INC.
By: /s/ Stephen L. Boyd
- ---------------------------------
Stephen L. Boyd
President and Chief Operating Officer
2
<PAGE> 1
Exhibit (d)(5)(ii)
AMENDMENT ONE
-------------
TO THE
INVESTMENT ADVISORY AGREEMENT
VAN KAMPEN LIFE INVESTMENT TRUST
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
DATED MAY 31, 1997
THIS AMENDMENT ONE to the Investment Advisory Agreement dated May 31,
1997 by and between Van Kampen Life Investment Trust Morgan Stanley Real Estate
Securities Portfolio, a Delaware business trust (hereinafter referred to as the
"Fund") and Van Kampen Asset Management Inc., a Delaware Corporation
(hereinafter referred to as the "Adviser").
W I T N E S S E T H
-------------------
WHEREAS, the Fund wishes to amend the current Investment Advisory
Agreement in accordance with the terms set forth by The Board of Trustees of the
Fund at a Meeting held on April 17, 2000;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Section 4 of
the Agreement be amended as follows:
(4) COMPENSATION PAYABLE TO THE ADVISER
The TRUST shall pay to the ADVISER, as compensation for the
services rendered, facilities furnished and expenses paid by the
ADVISER, with respect to the Portfolio, a monthly fee computed
at the following annual rate: 0.70% to $500 million, 0.55% next
$500 million and 0.50% over $1billion of average daily net
assets.
Average daily net assets shall be determined by taking the
average of the net assets for each business day during a given
calendar month calculated in the manner provided in the TRUST's
Declaration of Trust. Such fee shall be payable for each
calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the TRUST pursuant to this
Section 4 shall be reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments
received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen Investments Inc., in
connection with the purchase and sale of portfolio investments
of the TRUST, less any direct expenses incurred by such person,
in connection with obtaining such commissions, fees, brokerage
or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and
exchange offer fees in connection with the TRUST's portfolio
transactions and shall advise the Trustees of any other
commissions, fees, brokerage or similar payments which may be
possible for the ADVISER or any other direct or indirect
majority owned subsidiary of Van Kampen Investments Inc. to
receive in connection with the TRUST's portfolio transactions or
other arrangements which may benefit the TRUST.
If the ADVISER shall serve for less than the whole of any
month, the foregoing compensation shall be prorated.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment One to be
executed this 17th day of April, 2000.
VAN KAMPEN LIFE INVESTMENT TRUST
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
By: /s/ John L. Sullivan
-----------------------------
John L. Sullivan
Vice President, Chief Financial Officer and Treasurer
VAN KAMPEN ASSET MANAGEMENT INC.
By: /s/ Stephen L. Boyd
------------------------------
Stephen L. Boyd
President and Chief Operating Officer
2
<PAGE> 1
EXHIBIT e(2)
FORM OF
PARTICIPATION AGREEMENT
AMONG
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
AND
XYZ COMPANY
DATED AS OF
[ ], 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Fund Shares.............................................
ARTICLE II Representations and Warranties..........................
ARTICLE III Prospectuses, Reports to Shareholders and
Proxy Statements; Voting................................
ARTICLE IV Sales Material and Information..........................
ARTICLE V Distribution and Service Plans..........................
ARTICLE VI Diversification.........................................
ARTICLE VII Potential Conflicts.....................................
ARTICLE VIII Indemnification.........................................
ARTICLE IX Applicable Law..........................................
ARTICLE X Termination.............................................
ARTICLE XI Notices.................................................
ARTICLE XII Foreign Tax Credits.....................................
ARTICLE XIII Miscellaneous...........................................
SCHEDULE A Separate Accounts and Contracts.........................
SCHEDULE B Participating Life Investment Trust Portfolios..........
SCHEDULE C Proxy Voting Procedures.................................
EXHIBIT A Services................................................
</TABLE>
i
<PAGE> 3
PARTICIPATION AGREEMENT
Among
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
and
XYZ COMPANY
THIS AGREEMENT, made and entered into as of the [ ] day of [ ], 2000 by
and among XYZ Company (hereinafter the "Company"), a [ ] corporation, on its own
behalf and on behalf of each separate account of the Company set forth on
Schedule A hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), and VAN KAMPEN LIFE INVESTMENT TRUST
(hereinafter the "Fund"), a Delaware business trust, VAN KAMPEN FUNDS INC.
(hereinafter the "Underwriter"), a Delaware corporation, and VAN KAMPEN ASSET
MANAGEMENT INC. (hereinafter the "Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
payout provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Products are required to enter
into participation agreements with the Fund and the Underwriter (the
"Participating Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
<PAGE> 4
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1990 (File No. 812-7552), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act") and Rules 6e2(b)(15) and 6e3j)(b)(15) thereunder to the extent necessary
to permit shares of the Fund to be sold to and held by Variable Annuity Product
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Fund; and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Underwriter and the Adviser agree as follows:
2
<PAGE> 5
ARTICLE 1
Fund Shares
1.1 The Fund and the Underwriter agree to make available for purchase
by the Company shares of the Portfolios and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund and the Underwriter for receipt of
such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
10:00 a.m. Houston time on the next following Business Day. Notwithstanding the
foregoing, the Company shall use its best efforts to provide the Fund with
notice of such orders by 9:15 a.m. Houston time on the next following Business
Day. "Business Day" shall mean any day on which New York Stock Exchange is open
for trading and on which the Fund calculate's its net asset value pursuant to
the rules of the Securities and Exchange Commission, as set forth in the Fund's
prospectus and statement of additional information. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies for their Variable Insurance
Products. No shares of any Portfolio will be sold to the general public.
1.3 The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
which afford the Company substantially the same protections currently provided
by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to
govern such sales.
1.4 The Fund and the Underwriter agree to redeem for cash, on the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the
3
<PAGE> 6
Fund or its designee of the request for redemption. For purposes of this Section
1.4, the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Underwriter receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5 The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Accounts of the Company,
under which amounts may be invested in the Fund are listed on Schedule A
attached hereto and incorporated herein by reference, as such Schedule A may be
amended from time to time by mutual written agreement of all of the parties
hereto. The Company will give the Fund and the Underwriter sixty (60) days
written notice of its intention to make available in the future, as a funding
vehicle under the Contracts, any other investment company.
1.6 The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem Portfolio shares is made in accordance with the provisions of
Section 1.4 hereof.
Notwithstanding the foregoing, if the payment of redemption proceeds on the next
Business Day would require the Portfolio to dispose of Portfolio securities or
otherwise incur substantial additional costs, and if the Portfolio has
determined to settle redemption transactions for all shareholders on a delayed
basis, proceeds shall be wired to the Company within seven (7) days and the
Portfolio shall notify in writing the person designated by the Company as the
recipient for such notice of such delay by 3:00 p.m. Houston time on the same
Business Day that the Company transmits the redemption order to the Portfolio.
1.7 Issuance and transfer of the Fund's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
4
<PAGE> 7
1.8 The Underwriter shall use its best efforts to furnish same day
notice by 6:00 p.m. Houston time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9 The Underwriter shall make the net asset value per share of each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Houston time. In the event that Underwriter is unable to meet the 6:00 p.m. time
stated immediately above, then Underwriter shall provide the Company with
additional time to notify Underwriter of purchase or redemption orders pursuant
to Sections 1.1 and 1.4, respectively above. Such additional time shall be equal
to the additional time that Underwriter takes to make the net asset values
available to the Company provided, however, that notification must be made by
10:00 a.m. Houston time on the Business Day such order is to be executed,
regardless of when net asset value is made available.
1.10 If Underwriter provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level pursuant to the SEC's recommended guidelines. Any material error
in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company.
5
<PAGE> 8
ARTICLE 2
Representations and Warranties
2.1 The Company represents and warrants that the interests of Accounts
(the "Contracts") are or will be registered and will maintain the registration
under the 1933 Act and the regulations thereunder to the extent required by the
1933 Act; that the Contracts will be issued and sold in compliance with all
applicable federal and state laws and regulations. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the [ ] Insurance Code and the regulations thereunder and
has registered or, prior to any issuance or sale of the Contracts, will register
and will maintain the registration of each Account as a unit investment trust in
accordance with and to the extent required by the provisions of the 1940 Act and
the regulations thereunder to serve as a segregated investment account for the
Contracts. The Company shall amend its registration statement for its contracts
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its Contracts.
2.2 The Fund and the Underwriter represent and warrant that Fund shares
sold pursuant to this Agreement shall be registered under the 1933 Act and the
regulations thereunder to the extent required by the 1933 Act, duly authorized
for issuance in accordance with the laws of the State of Delaware and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and that each will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision and that each will notify the Company immediately upon having
a reasonable basis for believing that the Fund has ceased to so qualify or that
the Fund might not so qualify in the future.
2.4 The Company represents that each Account is and will continue to be
a "segregated account" under applicable provisions of the Code and that each
Contract is and will be
6
<PAGE> 9
treated as a "variable contract" under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Fund immediately upon having a reasonable basis for believing that
the Account or Contract has ceased to be so treated or that they might not be so
treated in the future.
2.5 The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7 The Fund and the Adviser represent that the Fund is duly organized
and validly existing under the laws of the State of Delaware and that the Fund
does and will comply in all material respects with the 1940 Act.
2.8 The Underwriter represents and warrants that it is and shall remain
duly registered under all applicable federal and state laws and regulations and
that it will perform its obligations for the Fund and the Company in compliance
with the laws and regulations of its state of domicile and any applicable state
and federal laws and regulations.
2.9 The Company represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
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ARTICLE 3
Prospectuses, Reports to Shareholders and Proxy Statements; Voting
3.1 The Fund shall provide the Company with as many printed copies of
the Fund's current prospectus and statement of additional information as the
Company may reasonably request. If requested by the Company in lieu of providing
printed copies the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and statement of additional information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a) Except as otherwise provided in this Section 3.2., all expenses
of preparing, setting in type and printing and distributing Fund prospectuses
and statements of additional information shall be the expense of the Company.
For prospectuses and statements of additional information provided by the
Company to its existing owners of Contracts in order to update disclosure as
required by the 1933 Act and/or the 1940 Act, the cost of setting in type,
printing and distributing shall be borne by the Fund. If the Company chooses to
receive camera-ready film or computer diskettes in lieu of receiving printed
copies of the Fund's prospectus and/or statement of additional information, the
Fund shall bear the cost of typesetting to provide the Fund's prospectus and/or
statement of additional information to the Company in the format in which the
Fund is accustomed to formatting prospectuses and statements of additional
information, respectively, and the Company shall bear the expense of adjusting
or changing the format to conform with any of its prospectuses and/or statements
of additional information. In such event, the Fund will reimburse the Company in
an amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional information to prospective
Contract owners.
3.2(b) The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses
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and statements of additional information, which are covered in Section 3.2(a)
above) to shareholders in such quantity as the Company shall reasonably require
for distributing to Contract owners. The Fund shall not pay any costs of
distributing such proxy related material, reports to shareholders, and other
communications to prospective Contract owners.
3.2(c) The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by the Fund
pursuant to Section 3.2 hereof, incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares.
3.2 The Fund's statement of additional information shall be obtainable
from the Fund, the Underwriter, the Company or such other person as the Fund may
designate.
3.3 If and to the extent required by law the Company shall distribute
all proxy material furnished by the Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(1) solicit voting instructions from Contract owners;
(2) vote the Fund shares in accordance with instructions received
from Contract owners; and
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<PAGE> 12
(3) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require passthrough voting privileges for
variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.4 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE 4
Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund, the Underwriter or their designee, each piece of sales literature or other
promotional material prepared by the Company or any person contracting with the
Company in which the Fund, the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund, the
Adviser, the Underwriter or their designee reasonably objects to such use within
ten Business Days after receipt of such material.
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<PAGE> 13
4.2 Neither the Company nor any person contracting with the Company
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or Fund prospectus, as such registration statement or Fund prospectus
may be amended or supplemented from time to time, or in reports to shareholders
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund or its designee.
4.3 The Fund shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material prepared by the Fund in which the Company or its Accounts, are named at
least ten Business Days prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
4.4 Neither the Fund nor the Underwriter shall give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to
11
<PAGE> 14
the investment in an Account or Contract, contemporaneously with the filing of
such document with the Securities and Exchange Commission or other regulatory
authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE 5
Distribution and Service Plans
5.1 The Fund is subject to a plan adopted under Rule 18f-3 under the
1940 Act pursuant to which, as described in the current prospectus of each
Portfolio, the Fund may sell multiple classes of its shares of each Portfolio
with a varying combination of distribution fees, service fees, exchange
features, conversion rights, voting rights, expense allocations and investment
requirements.
5.2 Should the Company wish to participate in the Fund's distribution
plan with respect to a class of shares of a Portfolio of the Fund pursuant to
Rule 12b-1 (the "Rule 12b-1 Plan") under the 1940 Act, or the Fund's service
plan (the "Service Plan"), each as described in the current prospectus of each
Portfolio, with respect to a class of shares of a Portfolio of the Fund, it is
understood that the Company must be approved by the Board of Trustees of the
Fund. Pursuant to the Rule 12b-1 Plan and the Service Plan, the Underwriter is
authorized to remit payments at rates specified in the respective plans with
respect to the net asset value of shares maintained by the Company for
distribution-related services and/or personal services to Contract owners
accounts provided as follows:
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<PAGE> 15
(1) The Company agrees to perform the services (the "Services")
specified in Exhibit A hereto for the benefit of the Contract
holders;
(2) The Company represents and agrees that it will maintain and
preserve all records as required by law to be maintained and
preserved in connection with providing the Services, and will
otherwise comply with all laws, rules and regulations
applicable to the Services;
(3) The Company agrees to provide copies of all the historical
records relating to transactions between the Fund and Contract
shareholders, and all written communications and other related
materials regarding the Fund to or from such Contract
shareholders, as reasonably requested by Fund or its
representatives (which representatives, include, without
limitation, its auditors, legal counsel or the Underwriter, as
the case may be), to enable the Fund or its representatives to
monitor and review the Services performed by Company, or
comply with any request of the board of trustees of the Fund,
or of a governmental body or self-regulatory organization.
(4) The Company agrees that it will permit Adviser, the
Underwriter, the Fund or their representatives, to have
reasonable access to its personnel and records in order to
facilitate the monitoring of the quality of the Services.
(5) The Company hereby agrees to notify Adviser promptly if for
any reason it is unable to perform fully and promptly any, of
its obligations under this Agreement.
5.3 The Company's acceptance of this Agreement constitutes a
representation that it will adopt policies and procedures to comply with Rule
18f-3 under the 1940 Act, with respect to when the Company may appropriately
make available the various classes of shares of the Portfolios of the Fund and
that it will make available such shares only in accordance therewith.
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<PAGE> 16
ARTICLE 6
Diversification
6.1 The Fund will use its best efforts to at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.8175, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event the Fund ceases to so qualify, it will take all
reasonable steps (a) to notify Company of such event and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 8175.
ARTICLE 7
Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract owners and variable life insurance contract owners;
or (f) a decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
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<PAGE> 17
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Accounts
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5 For purposes of Sections 7.3 through 7.4 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
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<PAGE> 18
Contracts. The Company shall not be required by Section 7.3 through 7.4 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict.
7.6 If and to the extent that Rule 6e2 and Rule 6e3(T) are amended, or
Rule 6e3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e2 and 6e3(T),
as amended, and Rule 6e3, as adopted, to the extent such rules are applicable.
7.7 Each of the Company and the Adviser shall at least annually submit
to the Board such reports, materials or data as the Board may reasonably request
so that the Board may fully carry out the obligations imposed upon them by the
provisions hereof and in the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board. All reports received by the Board of potential or existing conflicts,
and all Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies of a conflict, and determining
whether any proposed action adequately remedies a conflict, shall be properly
recorded in the minutes of the Board or other appropriate records, and such
minutes or other records shall be made available to the Securities and Exchange
Commission upon request.
ARTICLE 8
Indemnification
8.1 Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become
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subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use
in the registration statement or prospectus for the Contracts
or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control
and other than statements or representations authorized by the
Fund or the Underwriter) or unlawful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(3) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of
17
<PAGE> 20
the Fund or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such a
statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
8.1(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such
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<PAGE> 21
party of the Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Company will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
this Agreement, the issuance or sale of the Fund shares or the Contracts, or the
operation of the Fund.
8.2 Indemnification by Underwriter
8.2(a) The Underwriter agrees, with respect to each Portfolio that it
distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares that it distributes or
the Contracts and:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of
the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Fund or the Underwriter by or on behalf of
the Company for use in the
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<PAGE> 22
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Portfolio
shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Underwriter or persons
under their respective control and other than statements or
representations authorized by the Company) or unlawful conduct
of the Fund or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or
Portfolio shares; or
(3) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund or the Underwriter; or
(4) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials
under the terms of this Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and
in accordance with the provisions of Section 8.2(b) and 8.2(c)
hereof.
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<PAGE> 23
8.2(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.2(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts or the operation of each Account.
8.3 Indemnification by the Adviser
8.3(a) The Adviser agrees to indemnify and hold harmless the Company
and its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.3) against any and all losses, claims,
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<PAGE> 24
damages, liabilities (including amounts paid in settlement with the written
consent of the Adviser) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
operations of the Adviser or the Fund and:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made
in reliance upon and in conformity with information
furnished to the Adviser, the Fund or the Underwriter by
or on behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or
Portfolio shares; or
(2) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration statement,
prospectus or sales literature for the Contracts not
supplied by the Fund, the Adviser or persons under its
control and other than statements or representations
authorized by the Company) or unlawful conduct of the
Fund, the Adviser or persons under their control, with
respect to the sale or distribution of the Contracts or
Portfolio shares; or
(3) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in
a registration statement, prospectus, or sales
literature
22
<PAGE> 25
covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statement or statements
therein not misleading, if such statement or omission
was made in reliance upon information furnished to the
Company by or on behalf of the Fund or the Adviser; or
(4) arise as a result of any failure by the Adviser to
provide the services and furnish the materials under the
terms of this Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or the
Adviser in this Agreement or arise out of or result from
any other material breach of this Agreement by the Fund
or the Adviser, including without limitation any failure
by the Fund to comply with the conditions of Article VI
hereof.
8.3(b) The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.3(c) The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
23
<PAGE> 26
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d) The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the Adviser.
ARTICLE 9
Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE 10
Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(1) termination by any party for any reason upon six months
advance written notice delivered to the other parties; or
(2) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements
24
<PAGE> 27
of the Contracts. Reasonable advance notice of election to
terminate shall be furnished by the Company, said termination
to be effective ten (10) days after receipt of notice unless
the fund makes available a sufficient number of shares to
reasonably meet the requirements of the Account within said
ten (10) day period; or
(3) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as
the underlying investment medium of the Contracts issued or to
be issued by the Company. The terminating party shall give
prompt notice to the other parties of its decision to
terminate; or
(4) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision; or
(5) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article V1 hereof, or
(6) termination by either the Fund, the Adviser or the
Underwriter by written notice to the Company, if either one or
more of the Fund, the Adviser or the Underwriter, shall
determine, in its or their sole judgment exercised in good
faith, that the Company and/or their affiliated companies has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse
publicity, provided that the Fund, the Adviser or the
Underwriter will give the Company sixty (60) days' advance
written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any
other changes
25
<PAGE> 28
in circumstances since the giving of such notice, the
determination of the Fund, the Adviser or the Underwriter
shall continue to apply on the 60th day since giving of such
notice, then such 60th day shall be the effective date of
termination, or
(7) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good faith, that
either the Fund, the Adviser or the Underwriter has suffered a
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity, provided that the
Company will give the Fund, the Adviser and the Underwriter
sixty (60) days' advance written notice of such determination
of its intent to terminate this Agreement, and provided
further that after consideration of the actions taken by the
Fund, the Adviser or the Underwriter and any other changes in
circumstances since the giving of such notice, the
determination of the Company shall continue to apply on the
60th day since giving of such notice, then such 60th day shall
be the effective date of termination; or
(8) termination by the Fund, the Adviser or the Underwriter by
written notice to the Company, if the Company gives the Fund,
the Adviser and the Underwriter the written notice specified
in Section 1.5 hereof and at the time such notice was given
there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective sixty (60) days
after the notice specified in Section 1.5 was given; or
(9) termination by any party upon the other party's breach of
any representation in Section 2 or any material provision of
this Agreement which breach has not been cured to the
satisfaction of the terminating party within ten (10) days
after written notice of such breach is delivered to the Fund
or the Company, as the case may be; or
26
<PAGE> 29
(10) termination by the Fund, Adviser or Underwriter by
written notice to the Company in the event an Account or
Contract is not registered or sold in accordance with
applicable federal or state law or regulation, or the Company
fails to provide passthrough voting privileges as specified in
Section 3.4.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Adviser 90 days notice of its intention to do so.
27
<PAGE> 30
ARTICLE 11
Notices
11.1 Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Van Kampen Life Investment Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Thomas A Smith III
If to Underwriter:
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Thomas A Smith III
If to Adviser:
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Thomas A Smith III
If to the Company:
[ADDRESS]
ARTICLE 12
Foreign Tax Credits
12.1 The Fund and Adviser agree to consult in advance with the Company
concerning whether any series of the Fund qualifies to provide a foreign tax
credit pursuant to Section 853 of the Code.
28
<PAGE> 31
ARTICLE 13
Miscellaneous
13.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund. Each of the Company, Adviser and
Underwriter acknowledges and agrees that, as provided by Article 8, Section 8.1,
of the Fund's Agreement and Declaration of Trust, the shareholders, trustees,
officers, employees and other agents of the Fund and its Portfolios shall not
personally be bound by or liable for matters set forth hereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder. A Certificate of Trust referring to the Fund's Agreement and
Declaration of Trust is on file with the Secretary of State of Delaware.
13.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby
29
<PAGE> 32
13.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(1) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon practical and in any event within 90 days after the end
of each fiscal year;
(2) the Company's June 30th quarterly statements (statutory),
as soon as practical and in any event within 45 days following
such period;
(3) any financial statement proxy statement, notice or report
of the Company sent to stockholders and/or policyholders, as
soon as practical after the delivery thereof to stockholders;
(4) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as soon
as practical after the filing thereof,
(5) any other public report submitted to the Company by
independent accountants in connection with any annual, interim
or special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
30
<PAGE> 33
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified above.
XYZ LIFE INSURANCE COMPANY
on behalf of itself and each of its Accounts named in
Schedule A hereto, as amended from time to time
By:
-------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST
By:
-------------------------------------
VAN KAMPEN FUNDS INC.
By:
-------------------------------------
VAN KAMPEN ASSET MANAGEMENT INC.
By:
-------------------------------------
31
<PAGE> 34
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board of Directors Funded by Separate Account
- -------------------------------------- -----------------------------------
32
<PAGE> 35
SCHEDULE B
PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS
33
<PAGE> 36
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding
responsibilities for the handling of proxies and voting instructions relating to
the Fund. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Company to perform the steps
delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, address and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or
34
<PAGE> 37
its affiliate must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the Cards.
Information commonly found on the Cards includes:
1. name (legal name as found on account registration)
2. address
3. fund or account number
4. coding to state number of units (or equivalent shares)
5. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid
for by the Company). Contents of envelope sent to Customers by the
Company will include:
1. Voting Instruction Card(s)
2. One proxy notice and statement (one document)
3. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
4. "urge buckslip" optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as
possible and that their vote is important. One copy will be supplied
by the Fund.)
5. cover letter optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 35
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
35
<PAGE> 38
* The Fund must allow at least a 15 day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card
and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive, into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares.
36
<PAGE> 39
(It is very important that the fund receives the tabulations stated in
terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 A.M. Houston time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote. Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
16. All approvals and "signing off' may be done orally, but must always be
followed up in writing.
37
<PAGE> 40
EXHIBIT A
[TO COME]
38
<PAGE> 1
EXHIBIT (i)(2)
[Letterhead of Skadden, Arps, Slate, Meagher & Flom (Illinois)]
April 27, 2000
Van Kampen Life Investment Trust
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Re: Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A for the
Van Kampen Life Investment Trust
(the "Registration Statement")
(File Nos. 33-00628 and 811-4424)
--------------------------------
We hereby consent to the reference to our firm under the heading "Legal
Counsel" in the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate
Meagher & Flom (Illinois)
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 29 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 11, 2000, relating to the financial statements and financial highlights
of Van Kampen Life Investment Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectuses which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Prospectuses and to the reference to us under
the heading "Independent Accountants" in such Statement of Additional
Information.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 26, 2000
<PAGE> 1
(m)(1)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
VAN KAMPEN LIFE INVESTMENT TRUST
The plan set forth below (the "Distribution Plan") is the written plan
contemplated by Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), for the VAN KAMPEN LIFE INVESTMENT TRUST
(the "Trust"). This Distribution Plan describes the material terms and
conditions under which assets of the Trust may be used in connection with
financing distribution related activities with respect to Class II Shares of
beneficial interest (the "Class II Shares").
The Trust has adopted a service plan (the "Service Plan") pursuant to
which the Trust is authorized to expend on an annual basis a portion of its
average net assets attributable to Class II Shares in connection with the
provision by the principal underwriter (within the meaning of the 1940 Act) of
the Shares and by brokers, dealers and other financial intermediaries
(collectively, "Financial Intermediaries") of personal services to holders of
Shares and/or the maintenance of shareholder accounts. The Trust also has
entered into a distribution and services agreement (the "Distribution and
Services Agreement") with Van Kampen Funds Inc. (the "Distributor"), pursuant
to which the Distributor acts as the principal underwriter with respect to each
class of Shares and provides services to the Fund and acts as agent on behalf
of the Fund in connection with the implementation of the Service Plan. The
Distributor may enter into selling agreements (the "Selling Agreements") with
Financial Intermediaries in order to implement the Distribution and Services
Agreement, the Service Plan and this Distribution Plan.
1. The Trust hereby is authorized to pay the Distributor a distribution
fee with respect to Class II Shares to compensate the Distributor for
activities which are primarily intended to result in the sale of such Shares
("distribution related activities") performed by the Distributor with respect
to the Class II Shares of the Fund. Such distribution related activities
include without limitation: (a) printing and distributing copies of any
prospectuses and annual and interim reports of the Trust (after the Trust has
prepared and set in type such materials) that are used by such Distributor in
connection with the offering of Shares; (b) preparing, printing or otherwise
manufacturing and distributing any other literature or materials of any nature
used by such Distributor in connection with promoting, distributing or offering
the Shares; (c) advertising, promoting and selling Shares to broker-dealers,
banks and the public; (d) distribution related overhead and the provision of
information programs and shareholder services intended to enhance the
attractiveness of investing in the Fund; (e) incurring initial outlay expenses
in connection with compensating Financial Intermediaries for (i) selling CDSC
Shares and Combination Shares and (ii) providing personal services to
shareholders and the maintenance of shareholder accounts of Class II Shares,
including paying interest on and incurring other carrying costs on funds
borrowed to pay such initial outlays; and (f) acting as agent for the Trust in
connection with implementing this Distribution Plan pursuant to the Selling
Agreements.
2. The amount of the distribution fee hereby authorized with respect to
each class of Shares of the Fund shall be as follows:
3. With respect to Class II Shares, the distribution fee authorized hereby
and the service fee authorized pursuant to the Service Plan, in the aggregate,
shall not exceed on an annual basis 0.35% of the Trust's average daily net
assets attributable to Class II Shares sold on or after the date on which this
Distribution Plan is first implemented with respect to Class II Shares. The
Trust may pay a distribution fee as determined from time to time by its Board
of Trustees in an annual amount not to exceed the lesser of (i) (A) 0.35% of
the Trust's average daily net asset value during such year attributable to
Class II Shares sold on or after the date on which this Distribution Plan was
first implemented with respect to Class II Shares minus (B) the amount of the
service fee with respect to the Class II Shares actually expended during such
year by the Trust pursuant to the Service Plan and (ii) the actual amount of
distribution related expenses incurred by the Distributor with respect to Class
II Shares.
1
<PAGE> 2
4. Payments pursuant to this Distribution Plan shall not be made more
often than monthly upon receipt by the Trust of a separate written expense
report with respect to Class II Shares setting forth the expenses qualifying
for such reimbursement allocated to Class II Shares and the purposes thereof.
5. In the event that amounts payable hereunder with respect to shares of a
Front-End Class do not fully reimburse the Distributor for its actual
distribution related expenses with respect to the Shares of such class, there
is no carryforward of reimbursement obligations to succeeding years. In the
event the amounts payable hereunder with respect to shares of a CDSC Class or a
Combination Class do not fully reimburse the Distributor for its actual
distribution related expenses with respect to the Shares of the respective
class, such unreimbursed distribution expenses will be carried forward and paid
by the Fund hereunder in future years so long as this Distribution Plan remains
in effect, subject to applicable laws and regulations. Reimbursements for
distribution related expenses payable hereunder with respect to a particular
class of Shares may not be used to subsidize the sale of Shares of any other
class of Shares.
6. The Trust shall not compensate the Distributor, and neither the Trust
nor the Distributor shall compensate any Financial Intermediary, for any
distribution related expenses incurred with respect to a Class II Shares prior
to the later of (a) the implementation of this Distribution Plan with respect
to Class II Shares or (b) the date that such Financial Intermediary enters into
a Selling Agreement with the Distributor.
7. The Trust hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to
such Financial Intermediaries for activities and services of the type referred
to in Paragraph 1 hereof. Prior to the implementation of a Selling Agreement,
such agreement shall be approved by a majority of the Board of Trustees of the
Trust and a majority of the Disinterested Trustees (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of
voting on such Selling Agreements. The Distributor may reallocate all or a
portion of its distribution fee to such Financial Intermediaries as
compensation for the above-mentioned activities and services. Such
reallocation shall be in an amount as set forth from time to time in the
Trust's prospectus. Such Selling Agreements shall provide that the Financial
Intermediaries shall provide the Distributor with such information as is
reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
8. Subject to the provisions of this Distribution Agreement, the Trust is
hereby authorized to pay a distribution fee to any person that is not an
"affiliated person" or "interested person" of the Trust or its "investment
adviser" or "principal underwriter" (as such terms are defined in the 1940 Act)
who provides any of the foregoing services for the Trust. Such fee shall be
paid only pursuant to written agreements between the Trust and such other
person the terms of which permit payments to such person only in accordance
with the provisions of this Distribution Agreement and which have the approval
of a majority of the Disinterested Trustees by vote cast separately with
respect to Class II Shares and cast in person at a meeting called for the
purpose of voting on such written agreement.
9. The Trust and the Distributor shall prepare separate written reports
for Class II Shares and shall submit such reports to the Board of Trustees on a
quarterly basis summarizing all payments made by them with respect to Class II
Shares pursuant to this Distribution Plan, the Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Trustees or the Disinterested Trustees may
reasonably request from time to time, and the Board of Trustees shall review
such reports and other information.
10. This Distribution Plan shall become effective upon its approval by (a)
a majority of the Board of Trustees and a majority of the Disinterested
Trustees by vote cast separately with respect to Class II Shares cast in person
at a meeting called for the purpose of voting on this Distribution Plan, and
(b) with respect to Class II Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such Shares voting
separately as a class.
11. This Distribution Plan and any agreement contemplated hereby shall
continue in effect beyond
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<PAGE> 3
the first anniversary of its adoption by the Board of Trustees of the Trust
only so long as (a) its continuation is approved at least annually in the
manner set forth in clause (a) of paragraph 9 above and (b) the selection and
nomination of those trustees of the Trust who are not "interested persons" of
the Trust are committed to the discretion of such trustees.
12. This Distribution Plan may be terminated with respect to Class II
Shares without penalty at any time by a majority of the Disinterested Trustees
or by a "majority of the outstanding voting securities" of the respective
class of Shares of the Trust.
13. This Distribution Plan may not be amended to increase materially the
maximum amounts permitted to be expended hereunder except with the approval of
a "majority of the outstanding voting securities" of the Class II Shares of the
Trust and may not be amended in any other material respect except with the
approval of a majority of the Disinterested Trustees. Amendments required to
conform this Distribution Plan to changes in the Rule or to other changes in
the 1940 Act or the rules and regulations thereunder shall not be deemed to be
material amendments.
14. To the extent any service fees paid by the Trust pursuant to the
Service Plan are deemed to be payments for the financing of any activity
primarily intended to result in the sale of Shares issued by the Trust within
the meaning of the Rule, the terms and provisions of such plan and any payments
made pursuant to such plan hereby are authorized pursuant to this Distribution
Plan in the amounts and for the purposes authorized in the Service Plan without
any further action by the Board of Trustees or the shareholders of the Trust.
To the extent the terms and provisions of the Service Plan conflict with the
terms and provisions of this Distribution Plan, the terms and provisions of the
Service Plan shall prevail with respect to amounts payable pursuant thereto.
This paragraph 13 is adopted solely due to the uncertainty that may exist with
respect to whether payments to be made by the Trust pursuant to the Service
Plan constitute payments primarily intended to result in the sale of Shares
issued by the Trust within the meaning of the Rule.
15. The Trustees of the Trust have adopted this Distribution Plan as
trustees under the Declaration of Trust of the Trust and the policies of the
Trust adopted hereby are not binding upon any of the Trustees or shareholders
of the Trust individually, but bind only the trust estate.
3
<PAGE> 1
(m)(2)
VAN KAMPEN LIFE INVESTMENT TRUST
SERVICE PLAN
The plan set forth below (the "Service Plan") for each portfolio (each a
"Portfolio," and collectively, the "Portfolios") of the VAN KAMPEN LIFE
INVESTMENT TRUST (the "Trust") set forth on Annex A hereto describes the
material terms and conditions under which assets of each Portfolio may be used
to compensate the Portfolios' principal underwriter, within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), brokers, dealers
and other financial intermediaries (collectively "Financial Intermediaries") for
providing personal services to shareholders and/or the maintenance of
shareholder accounts with respect to its Class II shares of beneficial interest
(the "Class II Shares").(1)
Each Portfolio has adopted a distribution plan (the "Distribution Plan")
pursuant to which each such Portfolio is authorized to expend on an annual basis
a portion of its average net assets attributable to its Class II Shares in
connection with financing distribution related activities. Each Portfolio also
has entered into a distribution and services agreement (the "Distribution and
Services Agreement") with Van Kampen Funds Inc. (the "Distributor"), pursuant to
which the Distributor acts as agent on behalf of the Portfolio in connection
with the implementation of the Service Plan and acts as the principal
underwriter with respect to each class of its shares. The Distributor may enter
into selling agreements (the "Selling Agreements") with brokers, dealers and
other financial intermediaries ("Financial Intermediaries") in order to
implement the Distribution Agreement the Distribution Plan and this Service
Plan.
1. Each Portfolio hereby is authorized to pay a service fee with respect to
its Class II Shares to any person who sells such shares and provides personal
services to shareholders and/or maintains shareholder accounts in an annual
amount not to exceed 0.25% of the average daily net assets of the Portfolio
attributable to Class II Shares. The aggregate annual amount of all such
payments with respect to Class II Shares may not exceed 0.25% of the Portfolio's
average daily net assets attributable to Class II Shares.
- ---------------------
1 Each Portfolio is authorized to offer multiple classes of shares pursuant
to a Rule 18f-3 Plan adopted under the 1940 Act.
<PAGE> 2
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf of
a Portfolio by the Distributor acting as the Portfolio's agent.
3. Payments by a Portfolio to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the such Portfolio of
a separate written expense report setting forth the expenses qualifying for such
reimbursement and the purposes thereof
4. In the event that amounts payable hereunder with respect to the Class II
Shares of a Portfolio do not fully reimburse the Distributor for pre-paid
service fees, such unreimbursed service fee expenses will be carried forward and
paid by the Portfolio hereunder in future years so long as this Service Plan
remains in effect, subject to applicable laws and regulations. Reimbursements
for service fee related expenses payable hereunder with respect to Class II
Shares may not be used to subsidize services provided with respect to any other
class of shares of such Portfolio
5. No Portfolio shall compensate the Distributor, and neither any Portfolio
nor the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to the Class II Shares prior to the later
of (a) the implementation of this Service Plan with respect to the Class II
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. Each Portfolio hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Trustees of the Trust
and a majority of the Trustees of the Trust who are not "interested persons" of
the Trust (as such term is defined in the 1940 Act) and who have no direct or
indirect financial interest therein by a vote cast in person at a meeting called
for the purpose of voting on such Selling Agreements. Such Selling Agreements
shall provide that the Financial Intermediaries shall provide the Distributor
with such information as is reasonably necessary to permit the Distributor to
comply with the reporting requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, each Portfolio is
hereby authorized to pay a service fee to any person that is not an "affiliated
person" or "interested person" of the Fund or its "investment adviser" or
"principal underwriter" (as such terms are defined in the 1940 Act) who
provides any of the foregoing services for such Portfolio. Such fee shall be
paid only pursuant to written
2
<PAGE> 3
agreements between the Trust and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Trustees of the Trust
who are not "interested persons" of the Trust (as such term is defined in the
1940 Act) and who have no direct or indirect financial interest therein by
vote cast separately with respect to the Class II Shares and cast in person at a
meeting called for the purpose of voting on such written agreement.
8. Each Portfolio and the Distributor shall prepare written reports and shall
submit such reports to the Trust's Board of Trustees on a quarterly basis
summarizing all payments made by them pursuant to this Service Plan and the
agreements contemplated hereby, the purposes for which such payments were made
and such other information as the Board of Trustees or the Trustees of the Trust
who are not "interested persons" of the Trust (as such term is defined in the
1940 Act) may reasonably request from time to time, and the Board of Trustees
shall review such reports and other information.
9. This Service Plan may be terminated with respect to any Portfolio without
penalty at any time by a majority of the Trustees of the Trust who are not
"interested persons" of the Trust (as such term is defined in the 1940 Act) and
who have no direct or indirect financial interest therein or by a "majority of
the outstanding voting securities" (as such term is defined in the 1940 Act) of
the Class II Shares of such Portfolio.
10. This Service Plan shall become effective with respect to each respective
Portfolio upon its approval by a majority of the Board of Trustees and a
majority of the Trustees of the Trust who are not "interested persons" of the
Trust (as such term is defined in the 1940 Act) and who have no direct or
indirect financial interest therein.
11. This Service Plan and any agreement contemplated hereby shall continue in
effect beyond the first anniversary of its adoption by the Board of Trustees of
the Trust only so long as (a) its continuation is approved at least annually in
the manner set forth in clause paragraph 10 above and (b) the selection and
nomination of those trustees of the Trust who are not "interested persons" of
the Trust are committed to the discretion of such trustees.
12. This Service Plan may not be amended with respect to any Portfolio to
increase materially the maximum amounts permitted to be expended hereunder
except with the approval of a "majority of the outstanding voting securities"
(as such
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<PAGE> 4
term is defined in the 1940 Act) of the Class II Shares of such Portfolio and
may not be amended in any other material respect except with the approval of a
majority of the Trustees of the Trust who are not "interested persons" of the
Trust (as such term is defined in the 1940 Act) and who have no direct or
indirect financial interest in the Service Plan. Amendments required to conform
this Service Plan to changes in the Rule or to other changes in the 1940 Act or
the rules and regulations thereunder shall not be deemed to be material
amendments.
13. The Trustees of the Trust have adopted this Service Plan as trustees under
the Declaration of Trust of the Trust and the policies of the Trust adopted
hereby are not binding upon any of the Trustees or shareholders of the Trust
individually, but bind only the trust estate.
4
<PAGE> 5
ANNEX A
VAN KAMPEN LIFE INVESTMENT TRUST
Asset Allocation Portfolio
Comstock 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
Strategic Stock Portfolio
5
<PAGE> 1
EXHIBIT (o)
MULTI-CLASS PLAN
FOR
VAN KAMPEN LIFE INVESTMENT TRUST
This Plan is adopted pursuant to Rule 18f-3 under the Act to provide for
the issuance and distribution of multiple classes of shares by each of the Funds
in accordance with the terms, procedures and conditions set forth below. A
majority of the Trustees of the Funds, including a majority of the Trustees who
are not interested persons of the Funds within the meaning of the Act, found
this Multi-Class Plan, including the expense allocations, to be in the best
interest of each Fund and each Class of Shares of each Fund and adopted this
Plan on April 17, 2000.
A. Definitions. As used herein, the terms set forth below shall have the
meanings ascribed to them below.
1. The Act - Investment Company Act of 1940, as amended.
2. Class - a class of Shares of a Fund.
3. Class I Shares - shall have the meaning ascribed in Section B. 1.
4. Class II Shares - shall have the meaning ascribed in Section B. 2.
5. Distribution Expenses - expenses incurred in activities which are
primarily intended to result in the distribution and sale of Shares as
defined in a Plan of Distribution and/or board resolutions.
6. Distribution Fee - a fee paid by a Fund to the Distributor in
reimbursement of Distribution Expenses.
7. Distributor - Van Kampen Funds Inc.
8. Fund - as listed on Exhibit A hereto.
9. Plan of Distribution - Any plan adopted under Rule 12b-1 under the Act
with respect to payment of a Distribution Fee.
10. Service Fee - a fee paid to financial intermediaries for the ongoing
provision of personal services to Fund shareholders and/or the
maintenance of shareholder accounts.
11. Share - a share of beneficial interest in a Fund.
12. Trustees - the trustees of a Fund.
B. Classes. Each Fund may offer two Classes as follows:
1. Class I Shares. Class I Shares shall be offered at net asset value.
2. Class II Shares. Class II Shares shall be offered at net asset value
and subject to ongoing Service Fees and Distribution Fees approved
from time to time by the Trustees and set forth in each Fund's
prospectus.
C. Rights and Privileges of Classes. Each Class of each Fund will represent an
interest in the same portfolio of investments of that Fund and will have
identical voting, dividend, liquidation and other
<PAGE> 2
rights, preferences, powers, restrictions, limitations, qualifications,
designations and terms and conditions except as described otherwise herein.
D. Service and Distribution Fees. Class II Shares shall be subject to a
Service Fee and a Distribution Fee. The Service Fee applicable to the class
shall not exceed 0.25% per annum of the average daily net assets of the
Class and the combined Service and Distribution Fee shall not exceed 0.35%
per annum of the average daily net assets of the Class. All other terms and
conditions with respect to Service Fees and Distribution Fees shall be
governed by the plans adopted by the Fund with respect to such fees and
Rule 12b-1 of the Act.
E. Allocation of Expenses, Income and Gains Among Classes.
1. Expenses applicable to a particular class. Class II Shares of each
Fund shall pay any Service Fee and Distribution Fee applicable to that
Class. Other expenses applicable to a particular Class such as
incremental transfer agency fees, but not including advisory or
custodial fees or other expenses related to the management of the
Fund's assets, shall be allocated between Classes in different amounts
if they are actually incurred in different amounts by the Classes or
the Classes receive services of a different kind or to a different
degree than other Classes.
2. Income, capital gains and losses, and other expenses applicable to all
Classes. Income, realized and unrealized capital gains and losses, and
expenses such as advisory fees applicable to all Classes shall be
allocated to each Class on the basis of the net asset value of that
Class in relation to the net asset value of the Fund.
3. Determination of nature of expenses. The Trustees shall determine in
their sole discretion whether any expense other than those listed
herein is properly treated as attributed to a particular Class or all
Classes.
F. Voting Rights of Classes
1. Shareholders of Class II Shares shall have exclusive voting rights
on any matter submitted to them that relates solely to the Plan of
Distribution related to that Class.
2. Shareholders shall have separate voting rights on any matter
submitted to shareholders in which the interest of one Class
differs from the interests of any other Class.
G. Dividends. Dividends paid by a Fund with respect to each Class, to the
extent any dividends are paid, will be calculated in the same manner at the
same time on the same day and will be in substantially the same amount,
except any Distribution Fees, Service Fees or incremental expenses relating
to a particular Class will be borne exclusively by that Class.
H. Reports to Trustees. The Distributor shall provide to the Trustees of each
Fund quarterly and annual statements concerning distribution and
Shareholder servicing expenditures complying with paragraph (b)(3)(ii) of
Rule 12b-1 of the Act, as it may be amended from time to time. The
Distributors also shall provide the Trustees such information as the
Trustees may from time to time deem to be reasonably necessary to evaluate
this Plan.
I. Amendment. Any material amendment to this Plan shall be approved by the
affirmative vote of a majority of the Trustees of a Fund, including the
affirmative vote of the trustees of the Fund who are not interested persons
of the Fund. The Distributor shall provide the Trustees such information as
may be reasonably necessary to evaluate any amendment to this Plan.
<PAGE> 3
EXHIBIT A
VAN KAMPEN ASSET ALLOCATION PORTFOLIO
VAN KAMPEN COMSTOCK PORTFOLIO
VAN KAMPEN DOMESTIC INCOME PORTFOLIO
VAN KAMPEN EMERGING GROWTH PORTFOLIO
VAN KAMPEN ENTERPRISE PORTFOLIO
VAN KAMPEN GLOBAL EQUITY PORTFOLIO
VAN KAMPEN GOVERNMENT PORTFOLIO
VAN KAMPEN GROWTH AND INCOME PORTFOLIO
VAN KAMPEN MONEY MARKET PORTFOLIO
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
VAN KAMPEN STRATEGIC STOCK PORTFOLIO
<PAGE> 1
EXHIBIT(p)(1)
FORM OF
CODE OF ETHICS
I. INTRODUCTION
Each of the Van Kampen Open-End Funds listed on Schedule 1 attached hereto
(each a "Fund" and collectively the "Funds"), Van Kampen Asset Management Inc.
("Asset Management"), Van Kampen Investment Advisory Corp. ("Advisory Corp.")
(each of Asset Management and Advisory Corp. are sometimes referred herein as
the "Adviser" or collectively as the "Advisers") and Van Kampen Funds Inc. (the
"Distributor") (the Advisers and the Distributor are collectively referred to
as "Van Kampen") has adopted this Code of Ethics. The Advisers are fiduciaries
that provide investment advisory services to the Funds and private investment
management accounts, and the Distributor acts as the principal underwriter for
the Funds.
II. GENERAL PRINCIPLES
A. Shareholder and Client Interests Come First
Every trustee/director, officer and employee of a Fund and every
director, officer and employee of Van Kampen owes a fiduciary duty to
the investment account and the respective investors of such Fund or
private investment management account (collectively, the "Clients").
This means that in every decision relating to investments, such
persons must recognize the needs and interests of the Clients and be
certain that at all times the Clients' interests are placed ahead of
any personal interest of such person.
B. Avoid Actual and Potential Conflicts of Interest
The restrictions and requirements of this Code are designed to
prevent behavior which conflicts, potentially conflicts or raises the
appearance of an actual or potential conflict with the interests of
Clients. It is of the utmost importance that the personal securities
transactions of trustee/directors, officers and employees of a Fund
and directors,
1
<PAGE> 2
officers and employees of Van Kampen be conducted in a manner
consistent with both the letter and spirit of the Code, including
these principles, to avoid any actual or potential conflict of
interest or any abuse of such person's position of trust and
responsibility.
C. Avoiding Personal Benefit
Trustee/directors, officers and employees of the Funds and directors,
officers and employees of Van Kampen should ensure that they do not
acquire personal benefit or advantage as a result of the performance
of their normal duties as they relate to Clients. Consistent with the
principle that the interests of Clients must always come first is the
fundamental standard that personal advantage deriving from management
of Clients' money is to be avoided.
III. OBJECTIVE
Section 17(j) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), makes it unlawful for certain persons associated
investment companies to engage in conduct which is deceitful, fraudulent or
manipulative, or which involves false or misleading statements, in connection
with the purchase or sale of a security held or proposed to be acquired by an
investment company. In addition, Section 204A of the Investment Advisers Act of
1940, as amended (the "Investment Advisers Act"), requires investment advisers
to establish, maintain and enforce written policies and procedures designed to
prevent misuse of material non-public information. The objective of this Code
is to require trustee/directors, officers and employees of the Funds and
directors, officers and employees of Van Kampen to conduct themselves in
accordance with the general principles set forth above, as well as to prevent
trustee/directors, officers and employees of the Funds or the Distributor from
engaging in conduct prohibited by the Investment Company Act and directors,
officers and employees of the Advisers from engaging in conduct prohibited by
the Investment Company Act and the Investment Advisers Act.
IV. DEFINITIONS
A. "Access Person" means (i) any trustee/director or officer of a
Fund, (ii) any director or officer of a Fund's Adviser, (iii) any
employee of a Fund or the Fund's Adviser (or any company in a control
relationship
2
<PAGE> 3
to the Fund or Adviser) who, in connection with such person's regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a Covered Security by a Client, or
whose functions relate to the making of any recommendations with
respect to such purchases or sales; (iv) any natural person in a
control relationship to the Fund or the Fund's Adviser who obtains
information concerning recommendations made to a Client with regard to
the purchase or sale of a Covered Security by such Client, and (v) any
director or officer of the Distributor, who, in the ordinary course of
business, makes, participates in or obtains information regarding, the
purchase or sale of a Covered Security by a Client for which it acts
as principal underwriter, or whose functions relate to the making of
any recommendations with respect to such purchases or sales.
B. "Beneficial Ownership" is interpreted in the same manner as it is
under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in determining whether a person is the
beneficial owner of a security for purposes of Section 16 of the 1934
Act and the rules and regulations thereunder, which includes "any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in" a security. The term "pecuniary
interest" is further defined to mean "the opportunity, directly or
indirectly, to profit or share in any profit derived from a
transaction in the subject securities." "Beneficial ownership"
includes (i) securities held by members of a person's immediate family
sharing the same household and includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law" and includes adoptive relationships
and (ii) aright to acquire securities through the exercise or
conversion of any derivative security, whether or not presently
exercisable.
Any report required to be made by this Code may contain a statement
that the report shall not be construed as an admission by the person
making such report that he has any direct or indirect Beneficial
Ownership in the security to which the report relates.
C. "Chief Compliance Officer" is the individual set forth in Exhibit A.
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<PAGE> 4
D. "Code of Ethics Review Committee" consists of the individuals set
forth in Exhibit A.
E. "Control" has the same meaning as in Section 2(a)(9) of the Investment
Company Act.
F. "Covered Security" refers not only to the instruments set forth in
Section 2(a)(36) of the Investment Company Act but to any instrument
into which such instrument may be converted or exchanged, any warrant
of any issuer that has issued the instrument and any option written
relating to such instrument, provided, however, that it does not
include: (a) any direct obligation of the United States Government,
(b) banker's acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements, and (c) shares issued by any open-end
investment companies registered under the Investment Company Act.
G. "Disinterested Trustee/Director" means a trustee or director of an
Fund who is not an "interested person" of such Fund within the meaning
of Section 2(a)(19) of the Investment Company Act.
H. "Employee Account" means any brokerage account or unit investment
trust account in which the Van Kampen Employee has any direct or
indirect beneficial ownership.
I. "General Counsel" is the individual set forth in Exhibit A.
J. "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer of which, immediately before the
registration, was not subject to the reporting requirements of
sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
K. "Investment Personnel" means (i) any employee of a Fund (or of any
company in a control relationship to the Fund), (ii) Portfolio
Managers, security analysts, traders and any other employees of a
Fund's Adviser (or of any company in a control relationship to the
Fund's Adviser) who, in connection with his or her regular functions
or
4
<PAGE> 5
duties, makes or participates in making investment recommendations
regarding the purchase or sale of securities by the Fund or other
Clients; and (iii) any natural person who controls a Fund or Adviser
and who obtains information concerning recommendations made to such
Fund or other Client regarding the purchase or sale of securities.
L. "Limited Offering" is an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) of
the Securities Act or pursuant to Rule 504, Rule 505 or Rule 506 under
the Securities Act.
M. "Portfolio Manager" means any person who exercises investment
discretion on behalf of an Adviser for a Client.
N. "Van Kampen Employee" includes any director, officer or employee of
Van Kampen.
V. STANDARDS OF CONDUCT FOR PERSONAL SECURITIES TRANSACTIONS
A. Van Kampen Employee Brokerage Accounts
1. All brokerage accounts of Van Kampen Employees must be maintained
through Morgan Stanley Dean Witter & Co. ("MSDW") and/or Morgan
Stanley Dean Witter Online ("MSDWO"). No other brokerage accounts
are permitted unless permission is granted by the Chief
Compliance Officer or General Counsel.
If any Van Kampen Employee maintains accounts outside MSDW or
MSDWO, such person must transfer such accounts to a MSDW branch
or MSDWO within 120 days from his or her date of hire.
a. Each Van Kampen Employee must inform the appropriate person
in the compliance department as set forth in Exhibit A, in
writing, of their MSDW and MSDWO brokerage accounts, or, if
applicable, their outside
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<PAGE> 6
brokerage accounts. The Van Kampen compliance department
shall direct the brokerage firm to provide duplicate
confirmations and account statements to the Van Kampen
compliance department.
1) Van Kampen Employees shall notify the appropriate
persons in the Van Kampen compliance department as set
forth in Exhibit A when opening a brokerage account.
B. Pre-Clearance
1. Except as set forth below, all Van Kampen Employees must
pre-clear purchases or sales of Covered Securities in their
Employee Accounts with the appropriate person in the Van Kampen
compliance department as set forth in Exhibit A.
2. Exceptions from the Pre-Clearance Requirement.
a. Persons otherwise subject to pre-clearance are not required
to pre-clear the acquisition of the following Covered
Securities:
1) Covered Securities acquired through automatic
reinvestment plans.
2) Covered Securities acquired through employee
purchase plans.
3) Covered Securities acquired through the exercise of
rights issued by an issuer pro-rata to all holders of a
class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so
acquired.
4) Morgan Stanley Dean Witter & Co. common stock
(including exercise of stock option grants),
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a) The restrictions imposed by the Firm on senior
management and other persons in connection with
transactions in such stock are not affected by
this exemption.
5) Units in unit investment trusts.
3. Pre-cleared securities transactions must be effected timely.
a. All approved Covered Securities transactions must take place
on the same day that the authorization is obtained. If the
transaction is not completed on the date of clearance, a new
clearance must be obtained.
b. Purchases through an issuer direct purchase plan must be
pre-cleared on the date the purchaser writes the check to
the issuer's agent
1) Authorization for purchases through an issuer direct
purchase plan are effective until the issuer's agent
purchases the Covered Securities.
4. Pre-Clearance Procedure
a. Van Kampen Employees shall pre-clear their transactions by
submitting a Trade Authorization Form (a copy of which is
attached as Exhibit B) to the appropriate persons in the
compliance department as set forth in Exhibit A.
1) The compliance department shall pre-clear the purchase
or sale of a Covered Security if the transaction does
not violate the Code.
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<PAGE> 8
a) The compliance department shall verify that the
transaction is in compliance with the Code.
b) The compliance department shall sign the Trade
Authorization Form.
c) The compliance department shall communicate
authorization of the trade to the Van Kampen
Employee.
d) The time at which the trade authorization is
communicated to the Van Kampen Employee shall be
documented on the Trade Authorization Form.
e) The compliance department shall maintain the
originally executed Trade Authorization Form. A
copy of the executed Trade Authorization Form will
be forwarded to the Van Kampen Employee.
f) The compliance department shall review Van Kampen
Employee duplicate confirmations and statements to
verify that all personal transactions in Covered
Securities have been properly pre-cleared.
C. Other Restrictions
1. Van Kampen Employee trades for which pre-clearance has been
obtained, including short sales and permissible option trades,
are subject to 30-day holding period from the trade date.
2. Van Kampen Employees are prohibited from trading in futures,
options on futures, and forward contacts. Van Kampen
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<PAGE> 9
Employees may trade listed equity and index options and equity
warrants, however, there is a 30-day holding period from the
trade date. In addition, Van Kampen Employees are also prohibited
from trading in warrants or options (with the exception of listed
warrants or options) on physical commodities and currencies.
3. Van Kampen Employees shall not purchase Covered Securities during
an initial or secondary public offering.
4. Van Kampen Employees shall not enter into limit orders which
extend beyond one day.
5. Van Kampen Employees shall not participate in an investment club.
6. Van Kampen Employees shall not purchase shares of an investment
company that is managed by Van Kampen if such investment company
is not generally available to the public.
7. Van Kampen Employees shall not purchase shares of an open end
investment company that is managed by Van Kampen if as a result
of such purchase the Van Kampen Employee shall own 1% or more of
the assets of such investment company.
8. Van Kampen Employees are prohibited from the following activities
unless they have obtained prior written approval from the Code of
Ethics Review Committee:
a. Van Kampen Employees may not purchase a Covered Security in
a private placement or any other Limited Offering.
b. Van Kampen Employees may not serve on the boards of
directors of a public or private company. Requests to serve
on the board of a religious, charitable or educational
organization as set forth in Section 503(c) of the IRS Code
will generally be approved.
9
<PAGE> 10
D. Additional Responsibilities of Access Persons
In addition to the requirements set forth above, the following
prohibitions and reporting obligations are applicable to Access
Persons.
1. Access Persons shall not purchase or sell a Covered Security on a
day during which a Client has a pending purchase or sale order in
that same Covered Security.
2. Initial/Annual Reporting: Within ten days after becoming an
Access Person and thereafter, annually, each Access Person must
furnish a report to the Chief Compliance Officer showing (i) the
date of the report, (ii) the title, number of shares and
principal amount of each Covered Security owned directly or
indirectly by the Access Person on the date such person become an
Access Person (for initial reports) or as of a date no more than
30 prior to the date of the report (for annual reports) and (iii)
the name of any broker, dealer or bank with an account holding
any securities for the direct or indirect benefit of the Access
Person as of the date such person became an Access Person (for
initial reports) or as of a date no more than 30 prior to the
date of the report (for annual reports).
a. Exclusion: A Disinterested Trustee/Director who would be
required to make this report solely by reason of being a
Fund trustee/director is excluded from the initial and
annual reporting requirement for Access Persons.
3. Quarterly Reporting: On a calendar quarterly basis, each Access
Persons must furnish a report to the Chief Compliance Officer
within ten days after the end of each calendar quarter, on forms
sent to the Access Person each quarter:
a. With respect to any transactions in Covered Securities in
which the Access Person had direct or indirect Beneficial
Ownership, a report showing (i) the date of the report; (ii)
the date of the transaction, the title, the interest rate
and maturity date (if applicable), the num-
10
<PAGE> 11
ber of shares, and the principal amount of each Covered
Security involved; (iii) the nature of the transaction
(i.e., purchase, sale or any other type of acquisition or
disposition); (iv) the price at which the transaction was
effected; and (v) the name of the broker, dealer or bank
with or through which the transaction was effected; and
b. With respect to any account established by the Access Person
in which any securities were held during the quarter for
direct or indirect benefit of the Access Person, a report
showing (i) the date of the report; (ii) the name of the
broker, dealer or bank with which established the account;
and (iii) the date the account was established.
c. Exclusion: A Disinterested Trustee/Director who would be
required to make this report solely by reason of being a
Fund trustee/director is excluded from the quarterly
reporting requirement for Access Persons unless the
trustee/director knew or, in the ordinary course of
fulfilling his or her official duties as a Fund
trustee/director, should have known that during the 15-day
period immediately before or after the trustee/director's
transaction in a Covered Security, the Fund purchased or
sold the Covered Security, or the Fund or its investment
adviser considered purchasing or selling the Covered
Security.
d. Exclusion: An Access Person need not make a quarterly
transaction report if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Fund, the Adviser and the
Distributor with respect to the Access Person in the time
period required above if all of the information required by
that paragraph is contained in the broker trade
confirmations or account statements, or in the records of
the Fund, the Adviser and the Distributor.
11
<PAGE> 12
E. Additional Responsibilities of Investment Personnel
In addition to the requirements set forth above, the following
prohibitions and reporting obligations are applicable to Investment
Personnel.
1. Investment Personnel shall not sell a Covered Security purchased
within the previous 60 calendar days from the trade date, except
that a Covered Security held for at least 30 days from the trade
date may be sold at a loss or no gain. Any profits realized on
trades executed within the 60-day holding period shall be
disgorged to the Client or a charitable organization as
determined by the Chief Compliance Officer.
2. All Investment Personnel shall disclose all personal and
beneficial Covered Securities holdings upon the commencement of
employment and thereafter on an annual basis to the compliance
department.
3. Investment Personnel of a Fund or its investment adviser must
obtain approval from the Fund or the Fund's investment adviser
before directly or indirectly acquiring beneficial ownership in
any securities in an Initial Public Offering or in a Limited
Offering.
F. Additional Responsibilities of Portfolio Managers
In addition to the requirements set forth above for Van Kampen
Employees, Access Persons and Investment Personnel, the following
additional requirements are applicable to Portfolio Managers.
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<PAGE> 13
1. A Portfolio Manager may not buy or sell a Covered Security within
7 calendar days before or after any Client, over which such
Portfolio Manager exercises investment discretion, trades in such
Covered Security.
2. A Portfolio Manager may not purchase shares of a closed-end
investment company over which such Portfolio Manager exercises
investment discretion.
G. Insiders
1. Each Van Kampen Employee shall comply with all laws and
regulations, and prohibitions against insider trading. Trading on
or communicating material non-public information, or "inside
information," of any sort, whether obtained in the course of
research activities, through a Client relationship or otherwise,
is strictly prohibited.
2. Van Kampen Employees shall not disclose any non-public
information relating to a Client's account portfolio or
transactions or to the investment recommendations of Van Kampen,
nor shall any Van Kampen Employee disclose any non-public
information relating to the business or operations of the members
of Van Kampen, unless properly authorized to do so.
3. No Van Kampen Employee who is required to file a statement of
ownership pursuant to Section 16 of the Exchange Act may purchase
or sell or sell and purchase a company-sponsored closed-end
investment company within a six month period and realize a profit
on such transaction.
H. Exceptions
1. Notwithstanding the foregoing, the Chief Compliance Officer or
his or her designee, in keeping with the general principles and
objectives of this Code, may refuse to grant clearance of a
personal transaction in their sole discretion without being
required to specify any reason for the refusal.
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<PAGE> 14
2. Upon proper request by a Van Kampen Employee, a Code of Ethics
Review Committee (the "Committee") will consider for relief or
exemption from any restriction, limitation or procedure contained
herein, which restriction, limitation or procedure is claimed to
cause a hardship for such Van Kampen Employee. The Chief
Compliance Officer will in his sole discretion determine whether
the request is appropriate for consideration by the Committee.
The Committee shall meet on an ad hoc basis, as deemed necessary
upon the Van Kampen Employee's written request outlining the
basis for his or her request for relief. The decision is within
the sole discretion of the Committee.
VI. ADMINISTRATION OF THE CODE
A. The administration of this Code shall be the responsibility of the
Chief Compliance Officer or his or her designee whose duties shall
include:
1. Continuously maintaining a list of all Access Persons who are
under a duty to make reports or pre-clear transactions under this
Code.
2. Providing each such person with a copy of this Code and informing
them of their duties and obligations hereunder.
3. Reviewing all quarterly securities transactions and holdings
reports required to be filed pursuant to this Code, and
maintaining a record of such review, including the name of the
compliance personnel performing the review.
4. Reviewing all initial and annual securities position reports
required to be filed pursuant to this Code, and maintaining a
record of such review, including the name of the compliance
personnel performing the review.
5. Preparing listings of all transactions effected by persons
subject to reporting requirements under the Code and comparing
all reported personal securities transactions with completed
14
<PAGE> 15
portfolio transactions of the Clients and securities being
considered for purchase or sale by Clients to determine whether a
violation of this Code may have occurred.
6. Conducting such inspections or investigations as shall reasonably
be required to detect and report any apparent violations of this
Code to any person or persons appointed by Van Kampen to deal
with such information and to the Fund's Board of
Directors/Trustees.
7. Submitting a written report, no less frequently than annually, to
the Board of Directors/Trustees of each Fund containing a
description of issues arising under the Code or procedures since
the last report, including, but not limited to, material
violations of the Code or procedures and sanctions imposed in
response to material violations.
8. Submitting a certification, no less frequently than annually, to
the Board of Directors/Trustees of each Fund from the Fund, the
respective Adviser and the Distributor that it has adopted
procedures reasonably necessary to prevent Access Persons from
violating the Code.
VII. RECORDS
The Fund, the Advisers and the Distributor shall, at its principal place
of business, maintain records of the following:
A. A copy of any code of ethics adopted by the such entity which is or
has been in effect during the past five years must be maintained in an
easily accessible place;
B. A copy of any record or report of any violation of the code of ethics
of such entity and any action taken thereon maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which the violation occurs;
15
<PAGE> 16
C. A copy of each report made by an Access Person as required by this
Code, including any information provided in lieu of the reports,
must be maintained for at least five years after the end of the
fiscal year in which the report is made or the information is
provided, the first two years in an easily accessible place;
D. A record of all persons, currently or within the past five years,
who are or were required to make reports under this Code, or who are
or were responsible for reviewing these reports, must be maintained
in an easily accessible place; and
E. A copy of each written report required to be provided to the Board
of Directors/Trustees of each Fund containing a description of
issues arising under the Code or procedures since the last report,
including, but not limited to, material violations of the Code or
procedures and sanctions imposed in response to material violations
must be maintained for at least five years after the end of the
fiscal year in which it is made, the first two years in an
easily accessible place.
F. A Fund or investment adviser must maintain a record of any
decision, and the reasons supporting the decision, to approve the
acquisition by Investment Personnel of securities in an Initial
Public Offering or in a Limited Offering.
G. A copy of any decision and reasons supporting such decision to
approve a pre-clearance transaction pursuant to this Code, made
within the past five years after the end of the fiscal year in which
such approval is granted.
VIII. SANCTIONS
Upon discovering a violation of this Code, Van Kampen may impose such
sanctions as it deems appropriate, including, but not limited to, a reprimand
(orally or in writing), demotion, and suspension or termination of employment.
The General Counsel of Van Kampen, in his sole discretion, is authorized to
determine the choice of sanctions to be imposed in specific cases, including
termination of employment of any employee.
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<PAGE> 17
IX. APPROVAL OF CODE OF ETHICS
A. Van Kampen shall provide to the Board of Directors/Trustees of each
Fund the following:
1. A copy of the Fund's Code, the Adviser's Code and the
Distributor's Code for such Board's review and approval.
2. Promptly, a copy of any amendments to such Codes.
3. Upon request, copies of any reports made pursuant to the Code by
any person as to an investment company client.
4. Immediately, without request by an investment company client, all
material information regarding any violation of the Code by any
person as to such investment company client.
5. Certification, no less frequently than annually, to the Board of
Directors/Trustees of each Fund from the Fund, the respective
Adviser and the Distributor that it has adopted procedures
reasonably necessary to prevent Access Persons from violating the
Code.
B. Prior to adopting this Code, the Board of Trustees/Directors of
each Fund, including a majority of Disinterested Trustee/Directors,
reviewed and approved this Code with respect to the Fund, each adviser
of the Fund and the principal underwriter of the Fund, including all
procedures or provisions related to the enforcement of this Code. The
Board based its approval of this Code on, among other things, (i)
certifications from the Fund, the respective Adviser and the
Distributor that it has adopted procedures reasonably necessary to
prevent violations of the Code and (ii) a determination that such Code
is adequate and contains provisions reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by Rule
17j-1(b).
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<PAGE> 18
X. EFFECTIVE DATE
All Van Kampen Employees are required to sign a copy of this Code
indicating their agreement to abide by the terms of the Code.
In addition, Van Kampen Employees will be required to certify
annually that (i) they have read and understand the terms of this Code and
recognize the responsibilities and obligations incurred by their being subject
to this Code, and (ii) they are in compliance with the requirements of the Code.
Approved this _____ day of _______________.
18
<PAGE> 1
EXHIBIT (p)(2)
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO. INCORPORATED
("MS&Co.")
CODE OF ETHICS
1. PURPOSES
This Code of Ethics has been adopted by the Funds, the Investment
Managers and MS&Co., the principal underwriter of the Open-End Funds, in
accordance with Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "Act"). Rule 17j-1 under the Act generally proscribes fraudulent or
manipulative practices with respect to purchases or sales of securities held or
to be acquired by investment companies, if effected by affiliated persons (as
defined under the Act) of such companies. Specifically, Rule 17j-1 provides
that it is unlawful for any affiliated person of or principal underwriter for a
registered investment company, or any affiliated person of an investment adviser
of or principal underwriter for a registered investment company, in connection
with the purchase or sale, directly or indirectly, by such person of a security
held or to be acquired by such registered investment company:
1
<PAGE> 2
(a) To employ any device, scheme or artifice to defraud such registered
investment company;
(b) To make to such registered investment company any untrue statement of
a material fact or omit to state to such registered investment company
a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such registered
investment company; or
(d) To engage in any manipulative practice with respect to such registered
investment company.
While Rule 17j-1 is designed to protect only the interests of the
Funds and their stockholders, the Investment Managers apply the policies and
procedures described in this Code of Ethics to all employees of the Investment
Managers to protect the interests of their non-Fund clients as well
(hereinafter, where appropriate, non-Fund clients of the Investment Managers are
referred to as "Advisory Clients" and any reference to an Advisory Client(s)
relates only to the activities of employees of the Investment Managers).
The purpose of this Code of Ethics is to (i) ensure that Access
Persons conduct their personal securities transactions in a manner which does
not (a) create an actual or potential conflict of interest with the Funds' or an
Advisory Client's portfolio transactions, (b) place their personal interests
before the interest of the Funds and their stockholders or an Advisory Client or
(c) take unfair advantage of their relationship to the Funds or an Advisory
Client and (ii) provide policies and procedures consistent with the Act and
Rule17j-1 designed to give effect to the general prohibitions set forth in Rule
17j-l.
Among other things, the procedures set forth in this Code of Ethics
require that all (i) Access Persons review this Code of Ethics at least
annually, (ii) Access Persons, unless excepted by Sections 8. (d) or (e) of this
Code of Ethics, report transactions in Covered Securities, (iii) Access Persons
refrain from engaging in certain transactions, and (iv) employees of the
Investment Managers pre-clear with the Compliance Department or the trading desk
at MAS any transactions in Covered Securities.
2. DEFINITIONS
(a) "Access Person" means (i) any director, officer or Advisory Person of
the Funds or of the Investment Managers, and (ii) any director or
officer of MS&Co., who, in the ordinary course of business, makes,
participates in or obtains information regarding the purchase or sale
of Covered Securities by the Funds.
2
<PAGE> 3
(b) "Advisory Person" means any employee of the Funds, or of the
Investment Managers (or of any company in a control relationship to
the Funds or the Investment Managers), who, in connection with his or
her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of Covered Securities by
the Funds or an Advisory Client, or whose functions relate to the
making of any recommendations with respect to such purchases or sales.
(c) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all securities
which an Access Person has or acquires.
(d) "Control" shall have the same meaning as that set forth in Section 2
(a)(9) of the Act.
(e) "Compliance Department" means the MSDW Investment Management or MAS
Compliance Department.
(f) "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include: (i) shares of registered
open-end investment companies, (ii) direct obligations of the
Government of the United States, and (iii) bankers" acceptances, bank
certificates of deposit, commercial paper, and high quality short-term
debt instruments, including repurchase agreements.
(g) "Disinterested Director" means a director of a Fund who is not an
"interested person" of such Fund within the meaning of Section 2(a)
(19) of the Act.
(h) "Purchase or sale (or sell)" with respect to a Covered Security means
any acquisition or disposition of a direct or indirect beneficial
interest in a Covered Security, including, inter alia, the writing or
buying of an option to purchase or sell a Covered Security.
(i) "Security held or to be acquired" means (i) any Covered Security
which, within the most recent 15 days, is or has been held by a Fund
or an Advisory Client, or is being or has been considered by a Fund or
an Advisory Client or the Investment Managers for purchase by a Fund
or an Advisory Client and (ii) any option to purchase or sell, and any
security convertible into or exchangeable for, a Covered Security
described in this paragraph.
3. PROHIBITED TRANSACTIONS
(a) No Access Person or employee of the Investment Managers shall purchase
or sell any Covered Security
3
<PAGE> 4
which to his or her actual knowledge at the time of such purchase or
sale:
(i) is being considered for purchase or sale by a Fund or an
Advisory Client; or
(ii) is being purchased or sold by a Fund or an Advisory Client.
(b) No employee of the Investment Managers shall purchase or sell a
Covered Security while there is a pending "buy" or "sell" order in the
same or a related security for a Fund or an Advisory Client until that
order is executed or withdrawn.
(c) No Advisory Person shall purchase or sell a Covered Security within
seven calendar days before or after any portfolio(s) of the Funds over
which such Advisory Person exercises investment discretion or an
Advisory Client over which the Advisory Person exercises investment
discretion purchases or sells the same or a related Covered Security.
Any profits realized or unrealized by the Advisory Person on a
prohibited purchase or sale within the proscribed period shall be
disgorged to a charity.
(d) No employee of the Investment Managers shall profit from the purchase
and sale or sale and purchase of the same (or equivalent) Covered
Security within 60 calendar days, except that he or she may sell a
Covered Security for a loss after 30 calendar days. Any profits
realized within 60 calendar days on such purchase or sale shall be
disgorged to a charity.
(e) No employee of the Investment Managers shall purchase any securities
in an initial public offering.
(f) No employee of the Investment Managers shall purchase privately-placed
securities unless such purchase is pre-approved by the Compliance
Department. Any such person who has previously purchased privately-
placed securities must disclose such purchases to the Compliance
Department before such person participates in a Fund's or an Advisory
Client's subsequent consideration of an investment in the securities
of the same or a related issuer. Upon such disclosure, the Compliance
Department shall appoint another person with no personal interest in
the issuer, to conduct an independent review of such Fund's or such
Advisory Client's decision to purchase securities of the same or a
related issuer.
(g) No Access Person or employee of the Investment Managers shall
recommend the purchase or sale of any Covered Securities to a Fund or
to an Advisory Client without having disclosed to the Compliance
Department his or her interest, if any, in such Covered Securities or
the issuer thereof, including without limitation (i) his or her direct
or indirect beneficial ownership of any securities of such issuer,
(ii) any contemplated purchase or sale by such person of such
securities, (iii) any position
4
<PAGE> 5
with such issuer or its affiliates, and (iv) any present or proposed
business relationship between such issuer or its affiliates, on the
one hand, and such person or any party in which such person has a
significant interest, on the other; provided, however, that in the
event the interest of such person in such securities or the issuer
thereof is not material to his or her personal net worth and any
contemplated purchase or sale by such person in such securities cannot
reasonably be expected to have a material adverse effect on any such
purchase or sale by a Fund or an Advisory Client or on the market for
the securities generally, such person shall not be required to
disclose his or her interest in the securities or the issuer thereof
in connection with any such recommendation.
(h) No Access Person or employee of the Investment Managers shall reveal
to any other person (except in the normal course of his or her duties
on behalf of a Fund or an Advisory Client) any information regarding
the purchase or sale of any Covered Security by a Fund or an Advisory
Client or consideration of the purchase or sale by a Fund or an
Advisory Client of any such Covered Security.
4. PRE-CLEARANCE OF COVERED SECURITIES TRANSACTIONS AND PERMITTED BROKERAGE
ACCOUNTS
No employee of MSDW Investment Management shall purchase or sell Covered
Securities without prior written authorization from its Compliance Department.
No employee of MAS shall purchase or sell Covered Securities without prior
written authorization from the appropriate trading desk. Unless otherwise
indicated by the Compliance Department, pre-clearance of a purchase or sale
shall be valid and in effect only for the business day in which such
pre-clearance is given; provided, however, that the approval of an unexecuted
purchase or sale is deemed to be revoked when the employee becomes aware of
facts or circumstances that would have resulted in the denial of approval of
the approved purchase or sale were such facts or circumstances made known to the
Compliance Department or MAS trading desk, as appropriate, at the time the
proposed purchase or sale was originally presented for approval. The
Investment Managers require all of their employees to maintain their personal
brokerage accounts at MS&Co. or a broker/dealer affiliated with MS&Co.
(hereinafter, a "Morgan Stanley Account"). Outside personal brokerage accounts
are permitted only under very limited circumstances and only with express
written approval by the Compliance Department. The Compliance Department has
implemented procedures reasonably designed to monitor purchases and sales
effected pursuant to the aforementioned pre-clearance procedures.
5. Exempted Transactions
(a) The prohibitions of Section 3 and Section 4 of this Code of Ethics
shall not apply to:
(i) Purchases or sales effected in any account over which an Access
Person or an employee of the Investment Managers has no direct
or indirect influence or control;
5
<PAGE> 6
(ii) Purchases or sales which are non-volitional;
(iii) Purchases which are part of an automatic purchase plan directly
with the issuer or its agent or which are part of an automatic
dividend reinvestment plan; or
(iv) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities and
sales of such rights so acquired, but only to the extent such
rights were acquired from such issuer.
(b) Notwithstanding the prohibitions of Sections 3. (a), (b) and (c) of
this Code of Ethics, the Compliance Department or MAS trading desk, as
appropriate, may approve a purchase or sale of a Covered Security by
employees of the Investment Managers which would appear to be in
contravention of the prohibitions in Sections 3. (a), (b) and (c) if
it is determined that (i) the facts and circumstances applicable at
the time of such purchase or sale do not conflict with the interests
of a Fund or an Advisory Client, or (ii) such purchase or sale is only
remotely potentially harmful to a Fund or an Advisory Client because
it would be very unlikely to affect a highly institutional market, or
because it is clearly not related economically to the securities to be
purchased, sold or held by such Fund or Advisory Client, and (iii) the
spirit and intent of this Code of Ethics is met.
6. RESTRICTIONS ON RECEIVING GIFTS
No employee of the Investment Managers shall receive any gift or other
consideration in merchandise, service or otherwise of more than de minimis value
from any person, firm, corporation, association or other entity that does
business with or on behalf of the Funds or an Advisory Client.
7. SERVICE AS A DIRECTOR
No employee of the Investment Managers shall serve on the board of
directors of a publicly-traded company without prior written authorization from
the Compliance Department. Approval will be based upon a determination that the
board service would not conflict with the interests of the Funds and their
stockholders or an Advisory Client.
8. REPORTING
(a) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person must disclose all personal holdings in Covered
Securities to the Compliance Department for its review no later than
10 days after becoming an Access Person and annually thereafter. The
initial and annual holdings reports must contain the following
information:
6
<PAGE> 7
(i) The title, number of shares and principal amount of each
Covered Security in which the Access Person has any direct or
indirect beneficial ownership;
(ii) The name of any broker, dealer or bank with or through whom the
Access Person maintained an account in which any securities
were held for the direct or indirect benefit of the Access
Person; and
(iii) The date the report was submitted to the Compliance Department
by the Access Person.
(b) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
transactions in Covered Securities in which such person has, or by
reason of such transactions acquires any direct or indirect beneficial
interest:
(i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Covered Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
The price of the Covered Security at which the purchase or
sale was effected;
(iv) The name of the broker, dealer or bank with or through which
the purchase or sale was effected; and
(v) The date the report was submitted to the Compliance Department
by such person.
(c) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
any account established by such person in which any securities were
held during the quarter for the direct or indirect benefit of such
person:
(i) The name of the broker, dealer or bank with whom the account
was established;
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<PAGE> 8
(ii) The date the account was established; and
(iii) The date the report was submitted to the Compliance Department
by such person.
(d) An Access Person will not be required to make any reports described in
Sections 8. (a), (b) and (c) above for any account over which the
Access Person has no direct or indirect influence or control. An
Access Person or an employee of the Investment Managers will not be
required to make the annual holdings report under Section 8. (a) and
the quarterly transactions report under Section 8. (b) with respect to
purchases or sales effected for, and Covered Securities held in: (i) a
Morgan Stanley Account, (ii) an account in which the Covered
Securities were purchased pursuant to an automatic purchase plan set
up directly with the issuer or its agent or pursuant to a dividend
reinvestment plan, or (iii) an account for which the Compliance
Department receives duplicate trade confirmations and quarterly
statements. An Access Person or an employee of MSDW Investment
Management will not be required to make a report under Section 8. (c)
for any account in which only shares of open-end registered investment
companies can be purchased or sold. Lastly, an employee of MSDW
Investment Management will no be required to make a report under
Section 8. (c) for any account established with MS&Co. or a broker/
dealer affiliated with MS&Co., or for any account which was pre-
approved by the Compliance Department.
(e) A Disinterested Director of a Fund, who would be required to make a
report solely by reason of being a Fund director, is not required to
make initial and annual holdings reports. Additionally, such
Disinterested Director need only make a quarterly transactions report
for a purchase or sale of Covered Securities if he or she, at the time
of that transaction, knew or, in the ordinary course of fulfilling his
or her official duties as a Disinterested Director of a Fund, should
have known that, during the 15-day period immediately preceding or
following the date of the Covered Securities transaction by him or
her, such Covered Security is or was purchased or sold by a Fund or
was being considered for purchase or sale by a Fund.
(f) The reports described in Sections 8. (a), (b) and (c) above may
contain a statement that the reports shall not be construed as an
admission by the person making such reports that he or she has any
direct or indirect beneficial ownership in the Covered Securities to
which the reports relate.
9. ANNUAL CERTIFICATIONS
All Access Persons and employees of the Investment Managers must certify
annually that they have read, understood and complied with the requirements of
this Code of Ethics and recognize that they are subject to this Code of Ethics
by signing the certification attached hereto as Exhibit A.
8
<PAGE> 9
10. BOARD REVIEW
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., shall each
provide each Fund's Board of Directors, at least annually, with the following:
(a) a summary of existing procedures concerning personal investing and any
changes in the procedures made during the past year;
(b) a description of any issues arising under this Code of Ethics or
procedures since the last such report, including, but not limited to,
information about material violations of this Code of Ethics or
procedures and sanctions imposed in response to material violations;
(c) any recommended changes in the existing restrictions or procedures
based upon a Fund's or the Investment Managers' experience under this
Code of Ethics, evolving industry practices or developments in
applicable laws and regulations; and
(d) a certification (attached hereto as Exhibits B, C, D, and E, as
appropriate) that each has adopted procedures reasonably necessary to
prevent its Access Persons from violating this Code of Ethics.
11. SANCTIONS
Upon discovering a violation of this Code of Ethics, the Board of
Directors of such Fund or of the Investment Managers, as the case may be, may
impose such sanctions as it deems appropriate.
12. RECORDKEEPING REQUIREMENTS
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., each shall
maintain, as appropriate, the following records for a period of five years, the
first two years in an easily accessible place, and shall make these records
available to the Securities and Exchange Commission or any representative of
such during an examination of the Funds or of the Investment Managers:
(a) a copy of this Code of Ethics or any other Code of Ethics which was in
effect at any time within the previous five years;
9
<PAGE> 10
(b) a record of any violation of this Code of Ethics during the previous
five years, and of any action taken as a result of the violation;
(c) a copy of each report required by Section 8. of this Code of Ethics,
including any information provided in lieu of each such report;
(d) a record of all persons, currently or within the past five years, who
are or were subject to this Code of Ethics and who are or were
required to make reports under Section 8. of this Code of Ethics;
(e) a record of all persons, currently or within the past five years, who
are or were responsible for reviewing the reports required under
Section 8. of this Code of Ethics; and
(f) a record of any decision, and the reasons supporting the decision, to
approve the acquisition of securities described in Sections 3. (e) and
(f) of this Code of Ethics.
10
<PAGE> 11
EXHIBIT A
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT
MANAGERS")
AND
MORGAN STANLEY & CO., INCORPORATED
("MS&Co.")
CODE OF ETHICS
ANNUAL CERTIFICATION
I hereby certify that I have read and understand the Code of Ethics (the
"Code") which has been adopted by the Funds, the Investment Managers and MS&Co.
and recognize that it applies to me and agree to comply in all respects with
the policies and procedures described therein. Furthermore, I hereby certify
that I have complied with the requirements of the Code in effect, as amended,
for the year ended December 31, , and that all of my reportable transactions
in Covered Securities were executed and reflected accurately in a Morgan Stanley
Account (as defined in the Code) or that I have attached a report that
satisfies the annual holdings disclosure requirement as described in Section 8.
(a) of the Code.
Date: Name:
---------------------------- --------------------------------
Signature:
--------------------------
<PAGE> 1
EXHIBIT (q)
POWER OF ATTORNEY
The undersigned, being Officers and Trustees of each of the Van Kampen
Open End Trusts (individually, a "Trust") as indicated on Schedule 1 attached
hereto and incorporated by reference, each a Delaware business trust, except for
the Van Kampen Pennsylvania Tax Free Income Fund being a Pennsylvania trust, and
being Officers and Directors of Van Kampen Series Fund, Inc. (the
"Corporation"), a Maryland corporation, do hereby, in the capacities shown
below, appoint Richard F. Powers, III, Stephen L. Boyd and A. Thomas Smith III,
each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with full
power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: January 28, 2000
Signature Title
--------- -----
/s/ Richard F. Powers, III President, Trustee/Director
- ---------------------------------------
Richard F. Powers, III
/s/ John L. Sullivan Vice President, Chief Financial
- --------------------------------------- Officer and Treasurer
John L. Sullivan
/s/ J. Miles Branagan Trustee/Director
- ---------------------------------------
J. Miles Branagan
/s/ Jerry D. Choate Trustee/Director
- ---------------------------------------
Jerry D. Choate
/s/ Linda Hutton Heagy Trustee/Director
- ---------------------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee/Director
- ---------------------------------------
R. Craig Kennedy
/s/ Mitchell M. Merin Trustee/Director
- ---------------------------------------
Mitchell M. Merin
/s/ Jack E. Nelson Trustee/Director
- ---------------------------------------
Jack E. Nelson
/s/ Phillip B. Rooney Trustee/Director
- ---------------------------------------
Phillip B. Rooney
/s/ Fernando Sisto, Sc. D. Trustee/Director
- ---------------------------------------
Fernando Sisto, Sc. D.
/s/ Wayne W. Whalen Trustee/Director
- ---------------------------------------
Wayne W. Whalen
/s/ Suzanne H. Woolsey Trustee/Director
- ---------------------------------------
Suzanne H. Woolsey
/s/ Paul G. Yovovich Trustee/Director
- ---------------------------------------
Paul G. Yovovich
<PAGE> 2
SCHEDULE 1
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN EQUITY TRUST II
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
<PAGE> 1
EXHIBIT (z)(1)
Item 27(a)
- ----------
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Growth Fund
Van Kampen Small Cap Value Fund
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Technology Fund
Van Kampen Tax Managed Equity Growth Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 2
Van Kampen Limited Maturity Government Fund
Van Kampen Global Managed Assets Fund
Van Kampen Government Securities Fund
Van Kampen Growth and Income Fund
Van Kampen Harbor Fund
Van Kampen High Income Corporate Bond Fund
Van Kampen Life Investment Trust on behalf of its series
Asset Allocation Portfolio
Comstock Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen U.S. Government Trust for Income
Van Kampen World Portfolio Series Trust
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Focus Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund
Van Kampen Tax Managed Global Franchise Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
* Funds that have not commenced investment operations.
<PAGE> 3
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 419
FLORIDA INSURED MUNICIPALS INCOME TRUST SERIES 129
MICHIGAN INSURED MUNICIPALS INCOME TRUST SERIES 160
New York Insured Municipals Income Trust Series 149
THE DOW(SM) STRATEGIC 10 TRUST February 2000
SERIES
THE DOW(SM) STRATEGIC 10 TRUST February 2000
TRADITIONAL
SERIES
THE DOW(SM) STRATEGIC 5 TRUST February 2000
SERIES
THE DOW(SM) STRATEGIC 5 TRUST February 2000
TRADITIONAL
SERIES
EAFE STRATEGIC 20 TRUST February 2000
SERIES
STRATEGIC PICKS OPPORTUNITY TRUST February 2000
SERIES
NASDAQ Strategic 10 Trust February 2000 Series
Dow 30 Index Trust Series 9
Dow & Tech Strategic 10 Trust Series 3/00
Global Energy Trust Series 12
Financial Institutions Trust Series 3a
Financial Institutions Trust Series 3b
Edward Jones Select Growth Trust February 2000
Series
Internet Trust Series 19A
Internet Trust Series 19B
Morgan Stanley High-Technology 35 Index Trust Series 11A
Morgan Stanley High-Technology 35 Index Trust Series 11B
Pharmaceutical Trust Series 9A
Pharmaceutical Trust Series 9B
Telecommunications & Bandwidth Trust Series 9A
Telecommunications and Bandwidth Trust Series 9B
Semi-Conductor Trust Series 1A
Semi-Conductor Trust Series 1B
Global Wireless Trust Series 2A
Global Wireless Trust Series 2B
Roaring 2000s Trust Series 5a
Roaring 2000s Trust Series 5b
Roaring 2000s Trust Traditional Series 4
Morgan Stanley Multinational Index Trust Series 2a
Morgan Stanley Multinational Index Trust Series 2b
Software Trust Series 2A
Software Trust Series 2B
Baird Economic Outlook Trust
Natcity - Great American Equities Trust Series 3
Natcity - Great American Value Trust Series 1
Josephthal - The New Millennium Consumer Trust, Retail.com Portfolio II
</TABLE>
<PAGE> 1
Exhibit (z)(2)
<TABLE>
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary:
Vice President and Secretary of the Funds
William A. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Operations & Technology Officer Oakbrook Terrace, IL
Colette M. Sauccdo Executive Vice President & Houston, TX
Chief Administrative Officer
Steven M. Massoni Executive Vice President Oakbrook Terrace, IL
David Swanson Executive Vice President and Chief
Marketing Officer Oakbrook Terrace, IL,
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Don J. Andrews Sr. Vice President & Chief Compliance Oakbrook Terrace, IL
Officer
Sara L. Badler Sr. Vice President, Deputy Oakbrook Terrace, IL
General Counsel & Assistant Secretary;
Assistant Secretary of the Funds
James J. Boyne Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Glenn M. Cackovic Senior Vice President Laguna Niguel, CA
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Eric J. Hargens Senior Vice President Orlando, FL
Dominic C. Martellaro Senior Vice President Oakbrook Terrace, IL
Carl Mayfield Senior Vice President Oakbrook Terrace, IL
Mark R. McClure Senior Vice President Oakbrook Terrace, IL
Robert F. Muller, Jr. Senior Vice President Oakbrook Terrace, IL
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Patrick J. Woelfel Senior Vice President Oakbrook Terrace, IL
Weston B. Wetherell Senior Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace, IL
James R. Yount Senior Vice President Mercer Island, WA
Patricia A. Bettlach lst Vice President Chesterfield, MO
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Thomas Rowley 1st Vice President St. Louis, MO
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
Leslie Ann Ashton Vice President
Patricia L. Allen Vice President
Matthew T. Baker Vice President Oakbrook Terrace, IL
Shakeel Anwar Barkat Vice President Annapolis, MD
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
William Edwin Bond Vice President New York, NY
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
Michael Winston Brown Vice President Colleyville, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Maragaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Gina Costello Vice President Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Michael D. Hibsch Vice President Oakbrook Terrace, IL
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michelle Huber Vice President Oakbrook Terrace, IL
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Laurie L. Jones Vice President Oakbrook Terrace, IL
Robert Daniel Kendall Vice President Oakbrook Terrace, IL
Michael C. Kinney Vice President Oakbrook Terrace, IL
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
S. William Lehew III Vice President Charlotte, NC
Ivan R. Lowe Vice President Houston, TX
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Carin Elizabeth Morgan Vice President Oakbrook Terrace, IL
Ted Morrow Vice President Plano, TX
Lance O'Brian Murphy Vice President Houston, TX
Peter Nicholas Vice President Beverly, MA
James A. O'Brien Vice President New York, NY
Allyn O'Connor Vice President & Assoc. General Counsel Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Theresa Marie Renn Vice President Oakbrook Terrace, IL
Kevin Wayne Reszel Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Brett Van Bortel Vice President Oakbrook Terrace, IL
Diane Saxon Vice President & Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Timothy N. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Jeffrey M. Scott Vice President Oakbrook Terrace, IL
Gwen L. Shaneyfelt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Stainforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angeles, CA
William C. Strafford Vice President Granger, IN
Charles S. Thompson Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Thomas J. Sauerborn Vice President New York, NY
Larry Brian Vickrey Vice President Houston, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Sharon Wells Coicou Vice President Oakbrook Terrace, IL
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Lynn Chadderton Asst. Vice President Oakbrook Terrace, IL
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Paula Duerr Asst. Vice President Oakbrook Terrace, IL
Tammy Echevarria-Davis Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Nancy Johannsen Asst. Vice President Oakbrook Terrace, IL
Thomas Johnson Asst. Vice President New York, NY
Tara Jones Asst. Vice President Oakbrook Terrace, IL
Holly Lieberman Asst. Vice President Oakbrook Terrace, IL
Gregory Mino Asst. Vice President Oakbrook Terrace, IL
Barbara Novak Asst. Vice President Oakbrook Terrace, IL
Christopher Perozek Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Leah Richardson Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Katherine Scherer Asst. Vice President Oakbrook Terrace, IL
Heather Schmitt Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Laurel Shipes Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
Damienne Trippiedi Asst. Vice President Oakbrook Terrace, IL
David B. Villarreal Asst. Vice President Oakbrook Terrace, IL
Judy Wooley Asst. Vice President Houston, TX
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
John Yovanovic Officer Oakbrook Terrace, IL
Richard F. Powers III Director Oakbrook Terrace, IL
Michael H. Santo Director Oakbrook Terrace, IL
A. Thomas Smith III Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
</TABLE>
