Exhibit 17(f) TABLE OF CONTENTS Letter to Policyholders.......................... 1 Economic Snapshot................................ 2 Comstock Portfolio Performance Results........... 3 Performance in Perspective..................... 4 Portfolio Management Review.................... 5 Portfolio of Investments....................... 7 Statement of Assets and Liabilities............ 9 Statement of Operations........................ 10 Statement of Changes in Net Assets............. 11 Financial Highlights........................... 12 Emerging Growth Portfolio Performance Results.... 13 Performance in Perspective..................... 14 Portfolio Management Review.................... 15 Portfolio of Investments....................... 17 Statement of Assets and Liabilities............ 19 Statement of Operations........................ 20 Statement of Changes in Net Assets............. 21 Financial Highlights........................... 22 Enterprise Portfolio Performance Results......... 23 Performance in Perspective..................... 24 Portfolio Management Review.................... 25 Portfolio of Investments....................... 27 Statement of Assets and Liabilities............ 29 Statement of Operations........................ 30 Statement of Changes in Net Assets............. 31 Financial Highlights........................... 32 Growth and Income Portfolio Performance Results........................................ 33 Performance in Perspective..................... 34 Portfolio Management Review.................... 35 Portfolio of Investments....................... 37 Statement of Assets and Liabilities............ 39 Statement of Operations........................ 40 Statement of Changes in Net Assets............. 41 Financial Highlights........................... 42 Morgan Stanley Real Estate Portfolio Performance Results........................................ 43 Performance in Perspective..................... 44 Portfolio Management Review.................... 45 Portfolio of Investments....................... 47 Statement of Assets and Liabilities............ 48 Statement of Operations........................ 49 Statement of Changes in Net Assets............. 50 Financial Highlights........................... 51 Strategic Stock Portfolio Performance Results... 52 Performance in Perspective..................... 53 Portfolio Management Review.................... 54 Portfolio of Investments....................... 56 Statement of Assets and Liabilities............ 57 Statement of Operations........................ 58 Statement of Changes in Net Assets............. 59 Financial Highlights........................... 60 Notes to Financial Statements.................... 61 Report of Independent Accountants................ 68 NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. LETTER TO POLICYHOLDERS January 20, 2000 Dear Policyholder, As we enter a new century--and millennium--it seems appropriate to take a look back at the progress that's been made over the last 100 years and how the world of investing has changed over the generations. Although rapid advances in technology and science have dramatically altered the world that we live in today, one of the greatest shifts we've seen is the increasing importance of investing for many Americans. Once considered primarily for the wealthy, investing in the stock market is now available to most people. In fact, almost 79 million individuals--who represent almost half of all U.S. households--own stocks either directly or through mutual funds. This is even more impressive when considering that just 16 years earlier, only 19 percent of households owned stocks. Another important shift has been the need for retirement planning beyond a pension plan or Social Security. The Investment Company Institute, the leading mutual fund industry association, reports that 77 percent of all mutual fund shareholders earmarked retirement as their primary financial goal in 1998. Through all the changes in the investment environment over the past century, the general principles that have made generations of investors successful remain the same. Some that have stood the test of time include: - INVESTING FOR THE LONG-TERM - BASING INVESTMENT DECISIONS ON SOUND RESEARCH - BUILDING A DIVERSIFIED PORTFOLIO - BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE While no one can predict the future, at Van Kampen we believe that these ideas will remain important tenets for investors well into this century. As we continue to focus on these principles, we hope that our decades of investment experience can help bring you closer to your financial goals as we welcome the new millennium. Sincerely, /s/ Richard F. Powers, III /s/ Dennis J. McDonnell Richard F. Powers, III Dennis J. McDonnell Chairman President Van Kampen Asset Management Inc. Van Kampen Asset Management Inc. 1 ECONOMIC SNAPSHOT ECONOMIC GROWTH The nation's brisk rate of economic growth continued throughout 1999, bringing the United States to the verge of its longest economic expansion on record. High levels of consumer spending, a host of new jobs, and increasing productivity kept the economy strong. Gross domestic product, the primary measure of economic growth, increased 4.2 percent for the year, including an impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent in the fourth quarter. EMPLOYMENT The job market remained vibrant throughout the year, with more than 2.7 million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1 percent in October--its lowest rate in three decades. With jobs plentiful and wages on the rise, most Americans were optimistic about the future. At the end of the year the consumer confidence index hit its highest level since 1968. Although wage pressures caused some concerns about the potential erosion of corporate profits, productivity gains helped keep those concerns muted through the end of the year. INFLATION AND INTEREST RATES Although the Consumer Price Index continued to reflect historically low inflation--rising only 2.7 percent during 1999--concerns about future increases in inflation were prevalent throughout the reporting period. The Federal Reserve Board remained active in guarding against inflation and trying to temper economic growth. The Fed reversed its three interest-rate cuts from the fall of 1998 by raising rates in June, August, and November 1999. U.S. GROSS DOMESTIC PRODUCT Seasonally Adjusted Annualized Rates Third Quarter 1997 through Fourth Quarter 1999 [BAR GRAPH] 97Q3 4 97Q4 3.1 98Q1 6.7 98Q2 2.1 98Q3 3.8 98Q4 5.9 99Q1 3.7 99Q2 1.9 99Q3 5.7 99Q4 5.8 Source: Bureau of Economic Analysis 2 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST COMSTOCK PORTFOLIO TOTAL RETURNS Life-of-Portfolio cumulative total return based on NAV(1)... (5.53%) Commencement date........................................... 04/30/99 (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk--management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 3 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE COMSTOCK PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Standard & Poor's 500 Index, and the Standard & Poor's 500 Barra Value Index* over time. These indexes are broad-based, statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of the indices. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Comstock Portfolio vs. the Standard & Poor's 500 Index and the Standard & Poor's 500 Barra Value Index* (April 30, 1999, through December 31, 1999) - ------------------------------ Inception Avg. Annual = -5.53% - ------------------------------ [INVESTMENT PERFORMANCE GRAPH] VAN KAMPEN LIT-COMSTOCK STANDARD & POOR'S 500 BARRA PORTFOLIO STANDARD & POOR'S 500 INDEX VALUE INDEX* ----------------------- --------------------------- --------------------------- Apr1999 10000 10000 10000 May1999 10060 9750 9823 Jun1999 10070 10312 10200 Jul1999 9650 9982 9886 Aug1999 9380 9919 9636 Sep1999 9080 9670 9259 Oct1999 9490 10274 9781 Nov1999 9350 10470 9724 Dec1999 9447 11106 10089 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. * Since Lipper Analytical Services has reclassified how it categorizes its indices, we will no longer be using Lipper comparisons because we believe the new system is less applicable. As a result, the Lipper Growth and Income Fund Index will not appear in this or future reports. In its place, we have included the Standard & Poor's Barra Value Index, a second index that we believe represents an additional point of comparison for the Portfolio. The Standard & Poor's Barra Value Index contains companies with lower price-to-book ratios. 4 PORTFOLIO MANAGEMENT REVIEW COMSTOCK PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Comstock Portfolio. The representatives include B. Robert Baker, Jr., senior portfolio manager, Kevin Holt and Jason Leder, portfolio managers, and Stephen L. Boyd, chief investment officer for equity investments. The following discussion reflects their views on the Portfolio's performance since its inception on April 30, 1999, through December 31, 1999. Q WHAT MARKET FACTORS AFFECTED THE PORTFOLIO DURING THE REPORTING PERIOD? A In early May the Dow Jones Industrial Average--the country's most widely known stock market index--first crossed the 11,000 milestone. Major fluctuations followed, however, as the index nearly fell back to 10,000 in a difficult third quarter before setting a new record high in December. For value-oriented funds such as the Comstock Portfolio, most of the period--with the exception of its first few weeks--was challenging because investors continued to prefer growth stocks to value. This preference is reflected in the differences between the S&P Barra Growth and the S&P Barra Value indices during the reporting period: 19.97 percent versus 0.90 percent, during the period from April 30 to December 31, 1999. Q GIVEN THIS ENVIRONMENT, WHAT STRATEGIES DID YOU USE TO MANAGE THE PORTFOLIO? A We consistently seek to invest in undervalued stocks that we believe have the potential for future price appreciation. To do this, we look for companies that we believe are temporarily out of favor in the marketplace, meaning their stock prices are lower than we believe they should be. Then, we apply basic fundamental analysis to determine whether, in our opinion, the company is sound and has the potential to reach its fair value. When we find a company that we think is undervalued and fundamentally sound, we consider adding it to the portfolio. Because of overall market conditions, we generally found it challenging to identify undervalued stocks with an improving outlook. Value stocks--and the Portfolio--underperformed during most of the period, and many of the securities we bought at the Portfolio's inception at low valuations were still undervalued later in the year. Q WHAT AREAS OF THE MARKET WAS THE PORTFOLIO MOST INVESTED IN, AND HOW DID THOSE AREAS AFFECT PERFORMANCE DURING THE REPORTING PERIOD? A The Portfolio continued to have significant weightings in the financial service and electric utility sectors. Financial and utility stocks have tended to perform poorly when interest rates are rising, and this period was no exception. The Portfolio's large holdings in these areas contributed to weak Portfolio performance during the reporting period. This weakness, however, was partially balanced by the Portfolio's modest weighting in technology, the market's strongest area during the period. Electric utility stocks were especially hard hit in 1999. Nevertheless, we believe that the valuations for these companies are now attractive enough that legitimate concerns about the industry have already been amply factored into the stock prices. We're maintaining our position in utilities, in the belief that better days may lie ahead. Q WHICH STOCKS HELPED THE PORTFOLIO'S PERFORMANCE? A The largest contributor to the Portfolio's return was Check Point Software, which develops secure computer networking environments for businesses. This stock appreciated swiftly and steadily throughout the reporting period. We have been gradually trimming our position because we think the stock has become fairly valued. Other stocks that helped the Portfolio's performance were Cognex (provider of machine-aided vision), BMC Software (business software developer), and Comverse Technologies (maker of telecommunications systems). Cognex remained in the Portfolio as of the end of the reporting period, while we sold our holdings in BMC and Comverse. 5 The Portfolio's investments in oil-drilling companies such as ENSCO and Rowan were successful ones during the period. So were those in U.S. Steel and Corus Group, steel companies that outperformed during the market's brief second-quarter preference shift from growth to value. Remember that not all stocks in the Portfolio performed favorably, and there is no guarantee that any of these stocks will perform well in the future. Q WHICH STOCKS HURT THE PORTFOLIO? A The Portfolio was most hurt by its investment in two stocks that performed extremely poorly during the reporting period: Waste Management and Philip Morris. Waste Management's stock dropped precipitously during the reporting period as questions surfaced about the company's management and accounting practices. In response to these factors, we sold most of our stake in the business. Philip Morris, meanwhile, continued to face escalating legal difficulties associated with numerous tobacco-industry lawsuits. Despite its legal troubles and poor recent performance, however, we believe the company's high dividend-yield and inexpensive valuation make this an attractive investment. As mentioned earlier, the Portfolio's significant weighting in utilities and financial companies also hurt performance. Some of the poorly performing financial companies during the reporting period included Washington Mutual, AMBAC, and BankAmerica, while weak-performing utilities included Texas Utilities, New Century Energies, DTE Energy, and Reliant Energy. Q HOW DID THE PORTFOLIO PERFORM OVERALL DURING 1999? A Because of several underperforming securities and a significant weighting in utilities and financial companies, the Portfolio had a difficult period, returning -5.53 percent from its inception on April 30, 1999, to December 31, 1999. By comparison, the Standard & Poor's 500 Index returned 11.06 percent, and the Standard & Poor's Barra Value Index returned 0.90 percent. The S&P 500 Index is a broad-based, unmanaged index that reflects the general performance of the stock market, and the S&P Barra Value Index is a broad-based unmanaged index that reflects the general performance of value stocks. Generally, the companies in the value index exhibit characteristics such as lower price-to-earnings ratios, higher dividend yields, and lower historical and predicted earnings growth. Keep in mind that these indices are statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of the indices. An investment cannot be made directly in an index. Please refer to the footnotes and chart on page 3 for additional Portfolio performance results. Past performance doesn't guarantee future results. Q WHAT DO YOU SEE AHEAD FOR THE PORTFOLIO IN THE NEXT SIX MONTHS? A Stock valuations are at unprecedented levels. As the valuations of growth stocks continue to increase relative to those of value stocks, we are hopeful that an eventual return to historical norms may occur and that value may begin to outperform growth. When this might happen in this growth-driven market is anyone's guess. In the meantime, we will continue to focus on our "bottom up" stock-selection process, seeking to identify undervalued stocks that meet our investment criteria. 6 COMSTOCK PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - ---------------------------------------------------------- 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 Description Shares Market Value - ---------------------------------------------------------- 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 ----- -------- See Notes to Financial Statements 7 COMSTOCK PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - ------------------------------------------------------- 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 --------- Description Market Value - ----------------------------------------------------- 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 ========== (a) Non-income producing security as this stock currently does not declare dividends. ADR--American Depositary Receipt See Notes to Financial Statements 8 COMSTOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 ========== See Notes to Financial Statements 9 COMSTOCK PORTFOLIO STATEMENT OF OPERATIONS For the Period April 30, 1999 (Commencement of Investment Operations) to December 31, 1999 - -------------------------------------------------------------------------------- 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) ======== See Notes to Financial Statements 10 COMSTOCK PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Period April 30, 1999 (Commencement of Investment Operations) to December 31, 1999 - -------------------------------------------------------------------------------- Period Ended December 31, 1999 - -------------------------------------------------------------------------------- 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 ========== See Notes to Financial Statements 11 COMSTOCK PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the period indicated. - ------------------------------------------------------------------------------------- April 30, 1999 (Commencement of Investment Operations) to December 31, 1999 - ------------------------------------------------------------------------------------- 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%) ______________ ** Non-Annualized See Notes to Financial Statements 12 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST EMERGING GROWTH PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)........................... 104.38% Life-of-Portfolio average annual total return based on NAV(1)... 40.58% Commencement date............................................... 07/03/95 (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. See the Comparative Performance section of the current prospectus. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; emerging growth companies investment risk--the stocks of emerging growth companies can be subject to more abrupt or erratic market movements than stocks of larger, more established companies or the stock market in general; and manager risk--management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 13 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE EMERGING GROWTH PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Russell 2000 Index and the Standard & Poor's MidCap 400 Index* over time. These indices are broad-based, statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of these indices. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Emerging Growth Portfolio vs. the Russell 2000 Index and the Standard & Poor's MidCap 400 Index* (July 3, 1995, through December 31, 1999) - ----------------------------------- Portfolio's Total Return 1 Year Total Return = 104.38% Inception Avg. Annual = 40.58% - ----------------------------------- [GRAPH] VAN KAMPEN LIT-EMERGING STANDARD & POOR'S MIDCAP GROWTH PORTFOLIO RUSSELL 2000 INDEX 400 INDEX* ----------------------- ------------------ ------------------------ Jul 1995 10000.00 10000.00 10000.00 10860.00 10576.00 10509.00 11000.00 10795.00 10684.00 11270.00 10988.00 10974.00 11110.00 10496.00 10679.00 11460.00 10937.00 11126.00 Dec 1995 11710.00 11226.00 11130.00 11550.00 11214.00 11279.00 12140.00 11563.00 11642.00 12540.00 11799.00 11814.00 13500.00 12429.00 12161.00 14040.00 12919.00 12306.00 Jun 1996 13690.00 12389.00 12154.00 12350.00 11307.00 11319.00 13000.00 11963.00 11954.00 14180.00 12431.00 12505.00 13700.00 12239.00 12526.00 13950.00 12743.00 13212.00 Dec 1996 13660.00 13077.00 13261.00 14480.00 13339.00 13744.00 13250.00 13015.00 13613.00 12550.00 12401.00 13067.00 13040.00 12436.00 13391.00 14250.00 13819.00 14542.00 Jun 1997 14850.00 14411.00 14984.00 16360.00 15082.00 16449.00 16160.00 15427.00 16412.00 17450.00 16556.00 17390.00 16330.00 15829.00 16616.00 16110.00 15727.00 16844.00 Dec 1997 16450.00 16002.00 17534.00 16260.00 15749.00 17183.00 18020.00 16914.00 18587.00 19037.00 17611.00 19461.00 19287.00 17709.00 19798.00 18477.00 16755.00 18889.00 Jun 1998 20097.00 16790.00 19045.00 19537.00 15431.00 18287.00 15946.00 12435.00 14868.00 17676.00 13408.00 16293.00 17967.00 13955.00 17727.00 19437.00 14686.00 18592.00 Dec 1998 22628.00 15595.00 20877.00 24749.00 15802.00 20046.00 23118.00 14522.00 18971.00 25639.00 14749.00 19545.00 26110.00 16070.00 21067.00 25139.00 16305.00 21135.00 Jun 1999 27600.00 17042.00 22309.00 27360.00 16575.00 21814.00 28440.00 15961.00 21044.00 28800.00 15965.00 20439.00 32102.00 16029.00 21461.00 37003.00 16987.00 22561.00 Dec 1999 46247.00 18909.00 23946.00 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. ___________________ * The Russell 2000 Index reflects the general performance of small-cap stocks and was initially selected as a benchmark for the Portfolio's performance. Based upon the Portfolio's asset composition, we believe the Standard & Poor's MidCap 400 Index provides a more accurate broad-based benchmark for the Fund. Therefore, the Russell 2000 Index will not be shown in future reports. 14 PORTFOLIO MANAGEMENT REVIEW EMERGING GROWTH PORTFOLIO The following is an interview with the representatives of the adviser of the Van Kampen Life Investment Trust--Emerging Growth Portfolio. The representatives include Gary Lewis, senior portfolio manager; Dudley Brickhouse, Janet Luby, and David Walker, portfolio managers; and Stephen L. Boyd, chief investment officer for equity investments. Q WHAT MARKET FACTORS AFFECTED THE PORTFOLIO DURING THE REPORTING PERIOD? A The Dow Jones Industrial Average--perhaps the country's most widely recognized stock market index--began the reporting period near 9200, crossing several key milestones in the first half of the year: 10,000 in March and 11,000 in May. Major fluctuations followed, however, as the index nearly fell again to around 10,000 in the difficult third quarter before once again lifting to a record high late in December. While the Dow performed well overall during 1999, it was actually the technology-heavy NASDAQ stock index that stole the show, returning an impressive 86 percent for the year. However, these high returns helped to mask that not all stocks shared in the good fortune. In fact, more stocks lost than gained value in 1999--the indices were fueled by the outstanding performance of a relatively small group of investments. Q IN LIGHT OF THIS ENVIRONMENT, HOW DID YOU MANAGE THE PORTFOLIO? A In all kinds of market conditions, we look for stocks with rising earnings expectations and rising valuations, and we invested in those companies we believed had the potential to outperform earnings expectations. Conversely we sell stocks if their underlying companies' earnings estimates or valuations are declining. We consistently manage the Portfolio from the "bottom up," meaning that we evaluate each company individually before deciding to invest. The Portfolio's investment approach leads us to the areas of the market where we believe we can find the best stocks at any given time. As a result, during all of 1999 the Portfolio was invested heavily in companies taking advantage of burgeoning technologies--such as the Internet and wireless communications. This weighting significantly benefited the Portfolio's performance, as stocks in these areas were overwhelmingly the best performers in the stock market during the year. Q WHAT INVESTMENTS MOST CONTRIBUTED TO THE PORTFOLIO'S RETURN? A In the area of wireless communications, the Portfolio was most helped by our investment in Qualcomm, the Portfolio's largest holding as of December 31, 1999. Qualcomm has pioneered CDMA (code division multiple access) technology, which is rapidly becoming a standard used in wireless phones worldwide. The growth of the Internet generated a number of successful investment opportunities for the Portfolio. Our second-largest holding, JDS Uniphase, is helping to meet the growing demand for Internet infrastructure while VeriSign also helped the Portfolio's results--the company is working to ensure the security of Internet-based commercial transactions. In the Internet services area, the Portfolio's performance was enhanced by two of the largest and best- known companies in the field: Yahoo! and America Online. We also found success investing in businesses that are developing systems to store the enormous amounts of data generated in an on-line world. EMC and Veritas are both leaders in this area, and in 1999 we saw especially good results stemming from the Portfolio's investments in these companies. Q DID ANY STOCKS HURT PERFORMANCE? A The biggest drag on the Portfolio during 1999 was Compuware, which develops business software solutions. The stock fell dramatically in response to concerns that corporate spending on computer hardware, software, and services would slow down in the face of companies' need to focus on critical Y2K projects. 15 Other disappointing stocks for the Portfolio included - CSG Systems--Investors worried about declining future demand for the company's automated customer-service and billing systems. - American Power Conversion--This company saw its stock depreciate because of surplus inventory and fears of declining demand for its electrical-equipment products. - USWeb--Investors reacted poorly to the company's numerous corporate acquisitions. We completely eliminated a position in this stock late in 1999 when the market penalized the company for potentially overpaying to merge with another company. Q HOW DID THE PORTFOLIO PERFORM IN 1999? A Because of successful stock selection--especially in the technology and wireless communications areas--the Portfolio performed extremely well, achieving a 12-month total return of 104.38 percent(1) as of December 31, 1999. By comparison the Standard & Poor's MidCap 400 Index returned 14.70 percent. There is no guarantee that the circumstances leading to this performance will continue to occur in the future. The Portfolio invests primarily in companies whose market capitalizations fall within the range of the companies composing the Standard & Poor's MidCap 400 Index. The S&P MidCap 400 Index is a broad-based index that reflects the general performance of 400 domestic mid-cap stocks. This index is a statistical composite that doesn't include any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment cannot be made directly in an index. Please refer to the chart and footnotes on page 13 for additional Portfolio performance results. Q WHAT DO YOU ANTICIPATE AHEAD FOR THE PORTFOLIO? A Barring any unforeseen events, we envision continued worldwide economic health, low inflation, and strong earnings growth. Of course, our outlook may in part depend on whether the Federal Reserve again increases interest rates soon. Although recent rate increases have had only a moderately negative effect on stock prices, an additional rate hike could have a more substantial impact. We're also keeping our eye on stock valuations, because the higher they get, the greater the negative impact on the Portfolio if investors were to lose their enthusiasm for growth stocks. Regardless of the short-term market environment, we believe that our best long-term course of action is to stick with the Portfolio's investment discipline by focusing on companies with rising earnings expectations and rising valuations. 16 EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - ---------------------------------------------------------- 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 ----------- Description Shares Market Value - --------------------------------------------------------- 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 See Notes to Financial Statements 17 EMERGING GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - --------------------------------------------------------- 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 Description Shares Market Value - --------------------------------------------------------- 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 ============ (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 18 EMERGING GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 ============ See Notes to Financial Statements 19 EMERGING GROWTH PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 20 EMERGING GROWTH PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - ------------------------------------------------------------------------------------------------------ Year Ended Year Ended December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------ 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 ============ =========== See Notes to Financial Statements 21 EMERGING GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - ----------------------------------------------------------------------------------------------------------------- July 3, 1995 (Commencement Year Ended December 31, of Investment ---------------------------------------- Operations) to 1999 1998 1997 1996 December 31, 1995 - ----------------------------------------------------------------------------------------------------------------- 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%** 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%) _________________ * If certain expenses had not been assumed by Van Kampen, Total Return would have been lower and the ratios would have been as follows: ** Non-Annualized See Notes to Financial Statements 22 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST ENTERPRISE PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... 25.85% Five-year average annual total return based on NAV(1)....... 28.57% Ten-year average annual total return based on NAV(1)........ 17.58% Life-of-Portfolio average annual total return based on NAV(1)..................................................... 14.47% Commencement date........................................... 04/07/86 (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. See the Comparative Performance section of the current prospectus. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk-- management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 23 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE ENTERPRISE PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the general market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Standard & Poor's 500 Index over time. This index is a broad-based, statistical composite that does not include any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Enterprise Portfolio vs. the Standard & Poor's 500 Index (December 31, 1989, through December 31, 1999) - ----------------------------------- Portfolio's Total Return 1 Year Avg. Annual = 25.85% 5 Year Avg. Annual = 28.57% 10 Year Avg. Annual = 17.58% - ----------------------------------- [GRAPH] VAN KAMPEN LIT-ENTERPRISE PORTFOLIO STANDARD & POOR'S 500 INDEX ----------------------------------- --------------------------- Dec 1989 10000.00 10000.00 9212.00 9312.00 9451.00 9391.00 9655.00 9698.00 9366.00 9437.00 10255.00 10305.00 10229.00 10305.00 9980.00 10251.00 9019.00 9284.00 8539.00 8895.00 8459.00 8836.00 9019.00 9365.00 Dec 1990 9316.00 9689.00 9667.00 10091.00 10286.00 10770.00 10590.00 11091.00 10554.00 11095.00 11119.00 11523.00 10535.00 11066.00 11035.00 11563.00 11406.00 11790.00 11310.00 11658.00 11602.00 11796.00 11225.00 11278.00 Dec 1991 12706.00 12628.00 12500.00 12376.00 12699.00 12495.00 12358.00 12310.00 12375.00 12653.00 12488.00 12666.00 12176.00 12545.00 12640.00 13038.00 12394.00 12726.00 12706.00 12940.00 12981.00 12967.00 13492.00 13359.00 Dec 1992 13658.00 13588.00 13754.00 13684.00 13841.00 13828.00 14158.00 14180.00 13720.00 13820.00 14076.00 14133.00 14028.00 14247.00 13990.00 14171.00 14403.00 14659.00 14692.00 14614.00 14605.00 14897.00 14221.00 14705.00 Dec 1993 14885.00 14952.00 15385.00 15438.00 15201.00 14974.00 14425.00 14390.00 14629.00 14555.00 14609.00 14736.00 14228.00 14451.00 14650.00 14906.00 15163.00 15467.00 14650.00 15157.00 14814.00 15474.00 14239.00 14863.00 Dec 1994 14381.00 15155.00 14857.00 15523.00 15460.00 16083.00 15913.00 16626.00 16300.00 17091.00 16946.00 17711.00 17298.00 18208.00 18015.00 18786.00 18085.00 18780.00 18731.00 19650.00 18367.00 19552.00 19295.00 20355.00 Dec 1995 19699.00 20829.00 20450.00 21509.00 21134.00 21658.00 21308.00 21946.00 22085.00 22241.00 22806.00 22749.00 22237.00 22929.00 20933.00 21880.00 21724.00 22291.00 23430.00 23632.00 23749.00 24249.00 25289.00 26029.00 Dec 1996 24583.00 25599.00 26397.00 27169.00 26231.00 27330.00 24657.00 26290.00 25853.00 27826.00 27707.00 29456.00 28841.00 30870.00 31630.00 33282.00 30833.00 31370.00 32825.00 33179.00 31278.00 32035.00 31891.00 33463.00 Dec 1997 32119.00 34128.00 32066.00 34474.00 35064.00 36903.00 37046.00 38878.00 37619.00 39231.00 36185.00 38493.00 37781.00 40158.00 36938.00 39692.00 30304.00 33905.00 32133.00 36171.00 34266.00 39076.00 36310.00 41386.00 Dec 1998 40148.00 43861.00 41762.00 45660.00 40040.00 44186.00 41682.00 46043.00 42320.00 47790.00 40985.00 46597.00 42824.00 49283.00 41624.00 47704.00 41372.00 47406.00 40985.00 46212.00 43462.00 49102.00 45591.00 50038.00 Dec 1999 50525.00 53078.00 The above charts reflect the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. 24 PORTFOLIO MANAGEMENT REVIEW ENTERPRISE PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Enterprise Portfolio. The team includes Jeff D. New, senior portfolio manager; Michael Davis and Mary Jayne Maly, portfolio managers; and Stephen L. Boyd, chief investment officer for equity investments. Q WHAT MARKET FACTORS AFFECTED THE PORTFOLIO DURING THE REPORTING PERIOD? A The Dow Jones Industrial Average--perhaps the country's most widely recognized stock market index--began the reporting period near 9200 and crossed several key milestones in the first half of the year: 10,000 in March and 11,000 in May. Major fluctuations followed, however, as the index nearly dropped to 10,000 in the difficult third quarter before once again lifting to a record high at year-end. Although many growth stocks--particularly in the technology area-- continued their strong results during most of the year, it was, in fact, a "narrow" stock market propelled by the stellar performance of only a few stocks. Along those lines, more stocks lost than gained ground during the year. Q GIVEN THIS ENVIRONMENT, WHAT STRATEGIES DID YOU USE TO MANAGE THE PORTFOLIO? A As we have stressed in prior reports, the Portfolio's investment discipline leads us to purchase stocks that meet our criteria of positive future fundamentals and attractive current valuations. By our definition, a company with positive future fundamentals possesses at least one of the following traits: consistent earnings growth; accelerating earnings growth; better-than- expected fundamentals; or an underlying change in a company, industry, or regulatory environment. We evaluate stocks from the "bottom up"--in other words, on a company-by-company basis. Because of our bottom-up approach to stock selection, market conditions didn't have a direct impact on the Portfolio's results. The Portfolio's performance during the reporting period was lifted by the outstanding results of some of its top holdings, especially in technology. Nevertheless, some of our long-time investments in more traditional areas--such as health care and grocery stores--were big disappointments that hurt performance relative to the Portfolio's peers during the reporting period. Q WHAT STOCKS HELPED THE PORTFOLIO'S RETURN DURING 1999? A Technology stocks continued to be the big winners, and most of the Portfolio's best contributors to performance were in this area. As of December 31, 1999, the Portfolio's largest holding was Cisco Systems, a company whose products have become the backbone of the Internet. Cisco, which makes the devices that enable computers on the Internet to communicate with each other, represented 4.6 percent of the Portfolio's long- term investment at year's end. The stock was an impressive performer during the year and was the strongest contributor to the Fund's total return. The Portfolio also benefited greatly from the performance of two large technology companies that are leaders in their fields: Internet service provider America Online and data-storage powerhouse EMC. Both companies are building on their dominant role in their respective areas. Broadcast and media stocks also helped results in 1999. The Portfolio's holdings in CBS, Clear Channel Communications, and Chancellor Media provided positive contributions. But the Portfolio's best performer in this area was Univision, the nation's largest Spanish-language television network. The company has been able to capitalize on the increasing economic importance of Spanish speakers in the United States. Keep in mind that not all securities in the Portfolio performed as well, nor is there any guarantee they will continue to do so in the future. 25 Q WHAT STOCKS HURT THE PORTFOLIO'S PERFORMANCE? A Two of the Portfolio's longstanding holdings in the grocery industry, Safeway and Kroger, were among the weakest performers. Investors sold these and other grocery-store companies primarily because of concerns about Internet's potential impact on the industry and slowing sales growth. Waste Management and Philip Morris, two of the Portfolio's large holdings at the beginning of 1999, saw their stock prices plummet during the year. Waste Management's troubles began when word leaked that the company's management used questionable accounting methods. We sold the Portfolio's position in the company, but not in time to avoid a negative effect on the Portfolio's return. Philip Morris, meanwhile, continued to languish as a result of ongoing litigation involving the tobacco industry. This poor performance had a significant impact on the Portfolio because Philip Morris was the largest holding at the beginning of the reporting period. Fortunately, we decided to sell this stock relatively early in the year and thus avoided the brunt of the stock's continued weakness. Not all technology stocks outperformed in 1999. Two of the Portfolio's stocks in this area--Compuware and Network Associates--were among its worst performers during the year. Compuware suffered from concerns about their accounting practices as well as uncertainty about their growth prospects, while Network Associates failed to meet earnings expectations because of problems concerning the company's aggressive expansion through corporate acquisitions. Q HOW DID THE PORTFOLIO PERFORM? A The strong overall performance of most technology stocks helped fuel the Portfolio's results during the reporting period. As a result, the Portfolio achieved a 12-month total return of 25.85 percent(1) as of December 31, 1999. By comparison, the Standard & Poor's 500 Index returned 21.04 percent. The S&P 500 is a broad-based, unmanaged index that reflects the general performance of the stock market. Past performance does not guarantee future results. This index is a statistical composite that doesn't include any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment cannot be made directly in an index. Please refer to the footnotes and chart on page 23 for additional Portfolio performance results. Q WHAT DO YOU SEE AHEAD FOR THE PORTFOLIO? A Barring any unforeseen events, we envision continued worldwide economic health, slightly rising but contained inflation, and moderate earnings growth. Of course, our outlook will in part depend on whether the Federal Reserve again increases interest rates. Although recent rate increases have had only a moderate effect on stock prices, further increases could have a more significant impact. The overall stock market and growth stock valuations have historically been hurt by rising interest rates. Regardless of the short-term market environment, we believe that our best long-term course of action is to stick with the Portfolio's investment discipline by focusing on companies that have positive earnings outlooks combined with attractive valuations. 26 ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - ------------------------------------------------------- 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 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 See Notes to Financial Statements 27 ENTERPRISE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - -------------------------------------------------------------------- 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 ------------ Description Shares Market Value - -------------------------------------------------------------------- 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 ============ (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 28 ENTERPRISE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 ============ See Notes to Financial Statements 29 ENTERPRISE PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 30 ENTERPRISE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - ---------------------------------------------------------------------------------------------------- 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 ============ ============ See Notes to Financial Statements 31 ENTERPRISE PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- Year Ended December 31, ----------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- 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% See Notes to Financial Statements 32 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST GROWTH AND INCOME PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... 12.99% Life-of-Portfolio average annual total return based on NAV(1)..................................................... 18.48% Commencement date........................................... 12/23/96 (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. See the Comparative Performance section of the current prospectus. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk-- management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 33 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE GROWTH AND INCOME PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Standard & Poor's 500 Index and the Russell 1000 Index* over time. These indexes are broad-based, statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of the indices. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Growth and Income Portfolio vs. the Standard & Poor's 500 Index and the Russell 1000 Index* (December 23, 1996, through December 31, 1999) - ----------------------------------- Portfolio's Total Return 1 Year Avg. Annual = 12.99% Inception Avg. Annual = 18.48% - ----------------------------------- [GRAPH] VAN KAMPEN LIT-GROWTH AND INCOME PORTFOLIO STANDARD & POOR'S 500 INDEX RUSSELL 1000 INDEX* ------------------------- --------------------------- ------------------- Dec 1996 10000.00 10000.00 10000.00 10390.00 10579.00 10592.00 10480.00 10642.00 10633.00 10124.00 10237.00 10155.00 10474.00 10836.00 10704.00 11155.00 11470.00 11391.00 Jun 1997 11565.00 12020.00 11864.00 12467.00 12959.00 12837.00 11856.00 12215.00 12231.00 12477.00 12919.00 12901.00 11976.00 12474.00 12483.00 12216.00 13030.00 13024.00 Dec 1997 12353.00 13289.00 13288.00 12465.00 13424.00 13388.00 13270.00 14369.00 14342.00 14021.00 15139.00 15065.00 14143.00 15276.00 15221.00 14041.00 14988.00 14892.00 Jun 1998 14255.00 15637.00 15441.00 13970.00 15455.00 15256.00 12276.00 13202.00 12975.00 12755.00 14085.00 13850.00 13623.00 15215.00 14944.00 14327.00 16115.00 15867.00 Dec 1998 14776.00 17079.00 16878.00 14755.00 17779.00 17481.00 14286.00 17205.00 16927.00 14484.00 17929.00 17577.00 15440.00 18609.00 18311.00 15563.00 18144.00 17916.00 Jun 1999 16283.00 19190.00 18828.00 16056.00 18575.00 18246.00 15697.00 18459.00 18083.00 15152.00 17994.00 17586.00 16200.00 19120.00 18754.00 16293.00 19484.00 19245.00 Dec 1999 16695.00 20668.00 20411.00 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. *Since Lipper Analytical Services has reclassified how it categorizes its indices, we will no longer be using Lipper comparisons because we believe the new system is less applicable. As a result, the Lipper Growth and Income Fund Index will not appear in this or future reports. In its place, we have included the Russell 1000 Index, a second index that we believe represents an additional point of comparison for the Portfolio. The Russell 1000 Index measures the performance of 1,000 large-capitalization companies. 34 PORTFOLIO MANAGEMENT REVIEW GROWTH AND INCOME PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Growth and Income Portfolio. The representatives are led by James A. Gilligan, senior portfolio manager, and include Scott A. Carroll and James O. Roeder, portfolio managers, and Stephen L. Boyd, chief investment officer for equity investments. Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE PORTFOLIO OPERATED? A The stock market celebrated a historic year, with the Dow Jones Industrial Average and the Standard & Poor's 500 Index up 27.2 percent and 21.0 percent, respectively. This performance capped an equally spectacular decade for the market, with 10-year cumulative returns of 439.3 percent and 430.8 percent, respectively, for the two indices. After a somewhat slow start, the equity market--led by growth and particularly technology stocks--began its ascent in earnest at the end of the first quarter. In April, value stocks briefly took center stage, but investors soon renewed their interest in growth. The end result was a significant disparity between the average return of growth and value stocks for the 12-month reporting period, as demonstrated by the 33.2 percent return for the Russell 1000 Growth Index versus the 7.4 percent return for the Russell 1000 Value Index. Although interest rates rose sharply throughout the year, the increases caused only brief stock market corrections in July and October. Even as fears of additional rate increases by the Federal Reserve Board continued through the end of the period, the stock market was relatively unaffected; the economic strength that triggered higher rates failed to cause any appreciable increase in the rate of inflation. Q WHAT WAS YOUR STRATEGY FOR MANAGING THE PORTFOLIO IN THIS ENVIRONMENT? A In seeking value investments, we continued to focus on companies that we believed were underappreciated by the market and demonstrated a catalyst for positive change. At the same time, we monitored the Portfolio for existing holdings that no longer appeared to meet our value criteria. For example, we decreased or eliminated some of the Portfolio's holdings in the technology area when we believed they had become overvalued or showed signs of disappointing earnings. Throughout the year, we reduced the Portfolio's substantial position in IBM because of concerns that Year 2000 computer problems would weaken mainframe sales. In October, IBM announced an earnings shortfall, so we sold the remaining shares. We pursued a similar strategy with Adobe and Oracle, two top contributors to the Portfolio's performance. We initially purchased shares of these leading companies because they were selling at historically low values. After their shares appreciated significantly, we gradually began reducing these holdings, although we maintained positions in each company at the end of the reporting period. Despite these reductions, technology stocks contributed heavily to the Portfolio's return and comprised its largest sector at the end of the period. This heightened profile was primarily due to price appreciation among the Portfolio's existing technology stocks, although we added new positions in companies such as Alcatel, Nortel, and Hewlett Packard. Of course, not all the stocks in the Portfolio performed as favorably, and there is no guarantee that any of these stocks will perform as well or continue to be owned by the Portfolio in the future. Q IN WHAT OTHER AREAS DID YOU SEARCH FOR VALUE? A We looked to the utilities and consumer nondurables sectors, both of which trailed the technology sector but experienced favorable returns relative to other value stocks. Within the utilities sector, we sought to take advantage of opportunities in the deregulated energy market. For example, we added to the Portfolio's position in Illinova, an electric utility company, immediately after it announced a merger with Dynegy, a large energy trading company. Overall, this sector contributed moderately to the Portfolio's return. 35 Within the consumer nondurables sector, we added a position in Proctor & Gamble because of its prospects for accelerated revenues and earnings growth. This stock performed well, as did Colgate-Palmolive, which announced better-than-expected earnings in the second half of the year. However, the Portfolio's gains in this sector were overshadowed by its position in Philip Morris, which continued to suffer from legal difficulties. We also continued to monitor the progress of bottling companies added to the Portfolio early in the year. To date, these holdings have not met our expectations for appreciation, although they have met several of our criteria. Q WERE THERE ANY OTHER DISAPPOINTMENTS IN THE PORTFOLIO? A One of the biggest disappointments was the performance of HMO stocks. Halfway through the Portfolio's fiscal year, we believed that HMO stocks were due to emerge from a long period of underperformance, as customer rate increases promised to outweigh projected cost increases. This belief was confirmed as holdings in this sector performed well going into the summer. However, the threat of legislation to increase the liability of HMOs and the announcement of class-action lawsuits late in the period caused us to reevaluate holdings in Aetna and United HealthCare. As a result, we sold all of Aetna and more than half of the Portfolio's position in United HealthCare in the second half of the reporting period. The financial sector also turned in poor returns because of rising interest rates and earnings deceleration. Regional banks such as FleetBoston Financial were weak, as were larger banks such as Bank of America. Not all financial stocks were disappointing, however. We added to Citigroup, which did well relative to the sector, and enjoyed positive performance from Marsh & McLennan. Q TAKING EVERYTHING INTO CONSIDERATION, HOW DID THE PORTFOLIO PERFORM DURING THE FISCAL YEAR? A Although the majority of the stock market did not participate in the rally that lifted the technology sector, our holdings in technology and other carefully chosen value stocks boosted the Portfolio's return during the fiscal year. As a result, the Portfolio achieved a total return of 12.99 percent(1) for the 12-month period ended December 31, 1999. By comparison, the Standard & Poor's 500 Index returned 21.01 percent and the Russell 1000 Index, which most closely resembles the Portfolio, returned 20.91 percent for the same period.* The S&P 500 Index is an unmanaged, broad-based index that reflects the general performance of the stock market, and the Russell 1000 Index is an unmanaged index that reflects the general performance of the 1,000 largest U.S. companies based on total market capitalization. These indices do not reflect any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of the indices. An investment cannot be made directly in an index. Of course, past performance is no guarantee of comparable future results. Please refer to the chart on page 33 for additional Portfolio performance results. Q WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO AND THE MARKET? A We expect this challenging market environment to continue in the short term, as investors wait to see what effect higher rates will have on corporate profits and stock valuations. Although we foresee a continuation of the rising interest-rate environment, we look for interest rates to stabilize eventually, bringing some relief to the market in general and providing opportunities for bonds and struggling stock sectors such as finance and utilities to recover. Ultimately, our hope is that value stocks are able to catch up to the narrow band of growth stocks currently dominating the market. In this scenario, we believe our bottom-up analysis and disciplined value criteria will help us uncover fresh investment opportunities for the Growth and Income Portfolio. - --------------- * Since Lipper Analytical Services has reclassified how it categorizes its indices, we will no longer be using Lipper comparisons because we believe the new system is less applicable. As a result, the Lipper Growth and Income Fund Index will not appear in this or future reports. In its place, we have included the Russell 1000 Index, a second index that we believe represents an additional point of comparison for the Portfolio. 36 GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - ----------------------------------------------------------------- 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 ---------- Description Shares Market Value - ----------------------------------------------------------------- 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 See Notes to Financial Statements 37 GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - ---------------------------------------------------------- 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 Description Shares Market Value - ---------------------------------------------------------- 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 =========== (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 38 GROWTH AND INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 39 GROWTH AND INCOME PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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 ========== See Notes to Financial Statements 40 GROWTH AND INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - ---------------------------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - ---------------------------------------------------------------------------------------------------- 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 =========== =========== See Notes to Financial Statements 41 GROWTH AND INCOME PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- December 23, 1996 Year Ended December 31 (Commencement of ---------------------------- Investment Operations) 1999(a) 1998 1997 to December 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- 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%) ** Non-Annualized (a) Based on average month-end shares outstanding. See Notes to Financial Statements 42 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... (3.37%) Life-of-Portfolio average annual total return based on NAV(1)...................................................... 10.70% Commencement date........................................... 07/03/95 (1) Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. See the Comparative Performance section of the current prospectus. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk-- management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Investing in REITs involves unique risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified and are subject to the risks of financing projects. REITs are subject to heavy cash flow dependency, default by borrowers, self-liquidation and the possibilities of failing to qualify for tax-exempt status under the Internal Revenue Code of 1986, as amended. REITs, especially mortgage REITs, are also subject to some interest rate risk (e.g., as interest rates rise, the value of REITs may decline). Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 43 PAGE> PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Standard & Poor's 500 Index and the NAREIT (National Association of Real Estate Investment Trusts) Equity Index over time. These indexes are broad-based, statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of these indices. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Morgan Stanley Real Estate Securities Portfolio vs. the Standard & Poor's 500 Index and the NAREIT Equity Index (July 3, 1995, through December 31, 1999) - ----------------------------------- Portfolio's Total Return 1 Year Avg. Annual = -3.37% Inception Avg. Annual = 10.70% - ----------------------------------- [GRAPH] VAN KAMPEN LIT-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STANDARD & POOR'S 500 INDEX NAREIT EQUITY INDEX --------------------- -------------------------- ------------------ Jul 1995 10000.00 10000.00 10000.00 10200.00 10274.00 10000.00 10290.00 10270.00 10120.00 10490.00 10746.00 10241.00 10190.00 10693.00 10417.00 10310.00 11132.00 10194.00 Dec 1995 10835.00 11391.00 10286.00 11006.00 11763.00 10849.00 11168.00 11844.00 11027.00 11117.00 12002.00 11156.00 11135.00 12163.00 11095.00 11489.00 12441.00 11151.00 Jun 1996 11751.00 12539.00 11439.00 11822.00 11965.00 11588.00 12337.00 12190.00 11675.00 12700.00 12924.00 12135.00 13053.00 13261.00 12346.00 13710.00 14234.00 12712.00 Dec 1996 15226.00 14000.00 13291.00 15278.00 14858.00 14672.00 15494.00 14946.00 14839.00 15296.00 14377.00 14809.00 14758.00 15217.00 14778.00 15306.00 16108.00 14373.00 Jun 1997 16217.00 16882.00 14794.00 16800.00 18201.00 15513.00 16607.00 17155.00 15993.00 16194.00 18144.00 15954.00 17718.00 17519.00 17347.00 17997.00 18300.00 16879.00 Dec 1997 18496.00 18663.00 17243.00 17971.00 18853.00 17650.00 18192.00 20181.00 17557.00 18310.00 21261.00 17258.00 18045.00 21454.00 17567.00 17831.00 21050.00 16995.00 Jun 1998 17594.00 21961.00 16876.00 16703.00 21706.00 16761.00 15123.00 18542.00 15673.00 15954.00 19781.00 14194.00 15024.00 21369.00 14997.00 16168.00 22633.00 14719.00 Dec 1998 16346.00 23986.00 14936.00 15919.00 24970.00 14559.00 15705.00 24164.00 14255.00 15706.00 25180.00 13920.00 17276.00 26135.00 13858.00 17647.00 26482.00 15173.00 Jun 1999 17736.00 26952.00 15506.00 17123.00 26088.00 15255.00 16604.00 25925.00 14770.00 16114.00 25272.00 14583.00 15591.00 26852.00 14028.00 15259.00 27364.00 13683.00 Dec 1999 15795.00 29027.00 13460.00 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. 44 PORTFOLIO MANAGEMENT REVIEW MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO ANNUAL REPORT The following is an interview with the portfolio managers of the Van Kampen Life Investment Trust--Morgan Stanley Real Estate Securities Portfolio. The managers are Theodore R. Bigman. and Douglas A. Funke. Q WHAT WERE THE MARKET CONDITIONS IN WHICH THE PORTFOLIO OPERATED DURING THE REPORTING PERIOD? A The REIT market was overshadowed by persistent downward pressure during the year, punctuated with intermittent rallies. After a difficult first quarter, in which we saw a continuation of the negative market conditions from 1998, the REIT market recovered in May in a value-oriented rally. However, the third quarter was marked by declining prices and waning interest from non-dedicated REIT investors. This trend affected much of the domestic equity market as well, where positive stock returns and strong corporate fundamentals were overshadowed by interest-rate fears and narrow market leadership during the same period. Fortunately, the fourth quarter brought some relief as value investors renewed their interest in the overlooked REIT market. Buoyed by this interest, the market rallied nearly 10 percent in the last few weeks of the year. However, overall performance was negative for the 12-month period, and REITs ended the year trading at a discount to the underlying value of their assets. As a result, it was generally cheaper to buy real estate on Wall Street (through the ownership of securities) than on Main Street (through the direct ownership of properties). Q HOW DID YOU POSITION THE PORTFOLIO DURING THIS TIME? A Throughout the year, we were encouraged by the strength of the U.S. economy and became more optimistic that this strength would translate into favorable real estate fundamentals. As a result, we continued to shape the Portfolio with companies that offered attractive fundamental valuations relative to their underlying real estate value. Although the Portfolio's sector weightings changed little from six months ago, we positioned the Portfolio with a bias toward central business district and Southern California office properties and began moving away from grocery-anchored shopping centers. We maintained the Portfolio's overweight position to markets with high barriers to entry, including West Coast apartments and downtown office buildings. We continued to upgrade the Portfolio in terms of the quality of properties held by REITs and the management teams. At the same time, we took advantage of price weakness to add to some of the Portfolio's existing positions, including Equity Residential Properties Trust, Arden Realty Trust, and Boston Properties, Inc.. Due to relative valuations, we sold the Portfolio's position in Apartment & Investment Management Company and its position in Regency Realty Corp. after a failed merger. Q WHAT WAS THE PORTFOLIO'S PERFORMANCE FOR THE REPORTING PERIOD? A Due in large part to the negative performance of the sector, the Portfolio's total return was -3.37 percent(1) for the 12-month period ended December 31, 1999. This performance was comparable to the total return of the NAREIT (National Association of Real Estate Investment Trusts) Equity Index of -4.60 percent over the same period. The NAREIT Index reflects the performance of a broad range of equity REITs of all property types. By comparison, the Standard & Poor's 500-Stock Index registered a total return of 21.04 percent in the 12 months ended December 31, 1999. The S&P 500 Index is a broad-based, unmanaged index that reflects the general performance of the stock market. These indices do not reflect any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of the indices. An investment cannot be made directly in an index. Of course, past performance is no guarantee of future results. Please refer to the chart and footnotes on page 43 for additional Portfolio performance results. 45 Q WHAT IS YOUR OUTLOOK FOR THE REAL ESTATE MARKET? A The prices of public real estate securities continue to decline despite favorable activity in the underlying real estate markets and a corresponding increase in private real estate values. Generally, real estate markets remain in equilibrium as strong levels of demand mute any serious threat of oversupply. High demand was evident at the property level throughout the past year as public companies reported strong cash flow growth and, correspondingly, strong growth in asset value per share. Our analysis indicates that property markets generally remain strong, buoyed by the continuation of a strong economy. We anticipate a moderating of this growth, primarily due to a combination of expiring, lower-priced leases being rolled to market and an eventual slowing of the U.S. economy. Moderate growth combined with low price-to-earnings ratios imply the ability for modest stock prices of public real estate companies. In conjunction with high dividend yields, this scenario may result in the sector providing more typical total returns than we've seen in the previous year. 46 MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - ---------------------------------------------------------------------------- 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 Description Shares Market Value - --------------------------------------------------------------------------- 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 ============ (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 47 MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 ============ See Notes to Financial Statements 48 MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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) ============ See Notes to Financial Statements 49 MORGAN STANLEY REAL ESTATE SECURITIES STATEMENT OF CHANGES IN NET ASSETS PORTFOLIO For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - ---------------------------------------------------------------------------------------------------- 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 ============= ============= See Notes to Financial Statements 50 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. - -------------------------------------------------------------------------------- July 3, 1995 (Commencement Year Ended December 31, of Investment ------------------------------------- Operations) to 1999 1998 1997 1996 December 31, 1995 - ------------------------------------------------------------------------------------------------------------ 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% ** Non-Annualized N/A = Not Applicable See Notes to Financial Statements 51 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST STRATEGIC STOCK PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... (.47%) Life-of-Portfolio average annual total return based on NAV(1)..................................................... 8.33% Commencement date........................................... 11/03/97 (1) Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. See the Comparative Performance section of the current prospectus. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk-- management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 52 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE STRATEGIC STOCK PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment portfolio's performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your investments are being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Dow Jones Industrial Average and the Morgan Stanley Capital International (MSCI) U.S.A. Index over time. These indexes are broad-based, statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of these indices. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Strategic Stock Portfolio vs. the Dow Jones Industrial Average and the Morgan Stanley Capital International (MSCI) U.S.A. Index (November 3, 1997, through December 31, 1999) - ----------------------------------- Portfolio's Total Return 1 Year Avg. Annual = -.47% Inception Avg. Annual = 8.33% - ----------------------------------- [GRAPH] VAN KAMPEN LIT-STRATEGIC DOW JONES INDUSTRIAL STOCK PORTFOLIO AVERAGE MSCI U.S.A. INDEX ------------------------ -------------------- ----------------- Nov 1997 10000.00 10000.00 10000.00 10290.00 10194.00 10472.00 Dec 1997 10250.00 10351.00 10614.00 10320.00 10348.00 10739.00 10940.00 11185.00 11479.00 Mar 1998 11442.00 11565.00 12062.00 11382.00 11911.00 12191.00 11362.00 11697.00 11933.00 Jun 1998 11262.00 11814.00 12433.00 11282.00 11723.00 12297.00 10161.00 9949.00 10572.00 Sep 1998 10641.00 10401.00 11254.00 11372.00 11395.00 12112.00 11893.00 12090.00 12921.00 Dec 1998 11943.00 12228.00 13670.00 11812.00 12464.00 14246.00 11632.00 12395.00 13833.00 Mar 1999 11897.00 13087.00 14394.00 13396.00 14428.00 14899.00 13143.00 14122.00 14538.00 Jun 1999 13315.00 14730.00 15304.00 12920.00 14306.00 14793.00 12718.00 14540.00 14684.00 Sep 1999 12130.00 13938.00 14233.00 12302.00 14468.00 15419.00 12008.00 14667.00 15458.00 Dec 1999 11887.00 15557.00 16521.00 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. 53 PORTFOLIO MANAGEMENT REVIEW STRATEGIC STOCK PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Strategic Stock Portfolio. The representatives include John M. Cunniff, senior portfolio manager, Raj Wagle, portfolio manager, and Stephen L. Boyd, chief investment officer for equity investments. Q WHAT MARKET FACTORS AFFECTED THE PORTFOLIO LAST YEAR? A The Dow Jones Industrial Average--perhaps the most widely recognized stock market index--began the reporting period near 9200 and crossed several key milestones in the first half of the year: 10,000 in March and 11,000 in May. Major fluctuations followed, however, as the index nearly fell back to 10,000 in a difficult third quarter before setting a new record high in December. For value-oriented portfolios such as the Strategic Stock Portfolio, most of the year was challenging because investors continued to prefer growth stocks to value. Q IN LIGHT OF THESE CONDITIONS, HOW DID YOU SEEK TO MEET THE PORTFOLIO'S OBJECTIVE? A As always, we use a disciplined strategy to select undervalued stocks of high-quality companies. First, we analyze the Dow, which is composed of 30 blue-chip stocks. Each month, we invest half of the Portfolio's new assets into equal amounts of the 10 Dow stocks with the highest dividend-yields. Investors often refer to this as a "Dogs of the Dow" strategy. Next, we review the nearly 370 large-company stocks that comprise the Morgan Stanley Capital International USA Index. We exclude the 30 stocks of the Dow and all utility and financial stocks. The remaining securities are screened for quality factors, such as sales growth, earnings growth, dividend performance, and trading volume. Of the securities that pass our screen, we select the 10 stocks with the highest dividend yields. The other half of the Portfolio's new assets are invested in equal amounts of these 10 stocks each month. By limiting our investments to these two indices, we select from a pool of high-quality U.S. companies. Also, because stocks with high dividend-yields tend to be undervalued, our strategy pinpoints companies that could potentially rebound in price. There is, of course, no guarantee of this, and the perceived fair value of these securities may never be realized. Q HOW DOES THIS STRATEGY WORK OVER TIME? A Every month, we purchase 20 stocks--10 from the Dow and 10 from the MSCI-USA Index. As a result, the Portfolio effectively has 12 "baskets" of stocks (one for each month). We sell each basket after 12 months and purchase a new basket of 20 stocks to replace it. It's important to understand that shareholders of the Portfolio don't own just one basket of stocks. Each shareholder owns the whole Portfolio, which contains multiple baskets. Through this stock-selection process, the Portfolio is rotated every month to purchase stocks that may be undervalued in the marketplace and sell stocks that have had a full 12 months to potentially rebound to their fair values. It has been our experience that solid, well-established companies do not often languish at reduced valuations. These companies' true worth usually become 54 recognized over time. Our strategy gives each stock at least a 12-month window to achieve its appreciation potential. Q WHICH STOCKS MOST HELPED THE PORTFOLIO'S PERFORMANCE? A The Portfolio's largest holdings and biggest contributors to positive performance were stocks that passed our screens during multiple months and therefore were purchased repeatedly throughout the year. The stocks that most significantly contributed to the total return for the 12-month period included industrial and consumer products manufacturer Minnesota Mining & Manufacturing (3M), clothing retailer Limited, and auto maker General Motors. These companies benefited from strong economic growth during the year. Q WHICH STOCKS HINDERED PERFORMANCE? A Philip Morris stood out as the largest detractor to performance, as concerns about ongoing litigation in the tobacco industry continued to trouble investors and erode its stock price. Because of the stock's high dividend-yield and low price throughout the year, Philip Morris represented a substantial portion of the Portfolio and therefore had a large negative impact on the Portfolio's return. Q HOW DID THE PORTFOLIO PERFORM IN 1999? A Because of the generally poor climate for value investments and significant underperformance of the Portfolio's top holding, the Portfolio endured a difficult 12 months. The Portfolio achieved a 12-month total return of -0.47 percent(1) as of December 31, 1999. By comparison, the Standard & Poor's 500 Index returned 21.04 percent, the Dow Jones Industrial Average returned 27.26 percent, and the MSCI-USA Index returned 22.38 percent for the same period. Past performance does not guarantee future results. The S&P 500 Index is a broad-based, unmanaged index that reflects the general performance of the stock market. The Dow consists of 30 actively traded stocks of well-established, blue-chip companies, and the MSCI-USA Index achieves a 60 percent representation of U.S. market capitalization, as well as 60 percent of the capitalization of each industry group. These indices are statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of the indices. An investment cannot be made directly in an index. Please refer to the chart and footnotes on page 52 for additional performance results. Q WHAT DO YOU SEE AHEAD FOR THE PORTFOLIO? A Regardless of market conditions, we continue to follow our disciplined stock-selection strategy. Because of dramatic market gains in recent years, stock valuations are at unprecedented levels. A return to historical norms might represent a good sign for the Portfolio, as investors tend to purchase stocks with high dividend-yields during times of market uncertainty. Of course, when this normalization might occur in this growth-driven market is uncertain. In the meantime, we will continue to stick with our discipline and hope for better conditions for the Portfolio in 2000. 55 STRATEGIC STOCK PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - --------------------------------------------------------- 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 ----------- 56 Description Shares Market Value - --------------------------------------------------------- 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 =========== (a) Non-income producing security as this stock currently does not declare dividends. See Notes to Financial Statements 57 STRATEGIC STOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 58 STRATEGIC STOCK PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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) =========== See Notes to Financial Statements 59 STRATEGIC STOCK PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------- 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 =========== =========== See Notes to Financial Statements 60 STRATEGIC STOCK PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- November 3, 1997 (Commencement of Investment Year Ended Year Ended Operations) to December 31, 1999 December 31, 1998 December 31, 1997 - ---------------------------------------------------------------------------------------------------------------------- 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% ** Non-Annualized See Notes to Financial Statements 61 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. 62 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. EMERGING COMSTOCK GROWTH ENTERPRISE - -------------------------------------------------------------------------------------------------- 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 GROWTH AND REAL STRATEGIC INCOME ESTATE STOCK - -------------------------------------------------------------------------------------------------- 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) 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. 63 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. EMERGING REAL GROWTH ESTATE - ------------------------------------------------------------------------------------------------ Accumulated Undistributed Net Investment Income/Loss........ $ 127,437(a) $(901)(b) Accumulated Net Realized Gain/Loss.......................... -- 901(b) Capital..................................................... (127,437)(a) -- (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: GROWTH EMERGING AND REAL STRATEGIC COMSTOCK GROWTH ENTERPRISE INCOME ESTATE STOCK - ---------------------------------------------------------------------------------------------------- Credits earned on overnight cash balances........................... $22 $292 $2,834 $64 $7,106 $122 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: - ------------------------------------------------------------------- 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% 64 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: - ------------------------------------------------------------------- Comstock.................................................... .95% Emerging Growth............................................. .85% Enterprise.................................................. .60% Growth and Income........................................... .75% Real Estate................................................. 1.10% Strategic Stock............................................. .65% Other transactions with affiliates during the year ended December 31, 1999 were as follows: EMERGING COMSTOCK GROWTH ENTERPRISE - ---------------------------------------------------------------------------------------------- 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 GROWTH AND REAL STRATEGIC INCOME ESTATE STOCK - -------------------------------------------------------------------------------------------- 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 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. 65 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- 3. CAPITAL TRANSACTIONS For the year ended December 31, 1999, share transactions were as follows: EMERGING COMSTOCK GROWTH ENTERPRISE - --------------------------------------------------------------------------------------------------- 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 ============ ============ =========== GROWTH AND REAL STRATEGIC INCOME ESTATE STOCK - -------------------------------------------------------------------------------------------------- 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 =========== ============ =========== (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: EMERGING GROWTH ENTERPRISE - ------------------------------------------------------------------------------------------ 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 =========== =========== GROWTH AND REAL STRATEGIC INCOME ESTATE STOCK - -------------------------------------------------------------------------------------------------- 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 =========== ============ =========== 66 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: GROWTH EMERGING AND REAL STRATEGIC COMSTOCK GROWTH ENTERPRISE INCOME ESTATE STOCK - ---------------------------------------------------------------------------------------------------------- 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 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: NUMBER OF CONTRACTS ENTERPRISE GROWTH AND INCOME - -------------------------------------------------------------------------------------------- Outstanding at December 31, 1998............................ 0 5 Futures Opened.............................................. 46 18 Futures Closed.............................................. 0 17 --- --- Outstanding at December 31, 1999............................ 46 6 === === 67 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: UNREALIZED NUMBER OF APPRECIATION/ CONTRACTS DEPRECIATION - ---------------------------------------------------------------------------------------- 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 == ======== 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. 68 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 69 VAN KAMPEN FUNDS GROWTH Aggressive Growth* American Value* Emerging Growth Enterprise Equity Growth Focus Equity Growth Mid Cap Growth Pace Small Cap Value Technology GROWTH AND INCOME Comstock Equity Income Growth and Income Harbor Real Estate Securities Utility Value GLOBAL/INTERNATIONAL Asian Growth Emerging Markets European Equity Global Equity Global Equity Allocation Global Fixed Income* Global Franchise Global Government Securities* Global Managed Assets* International Magnum Latin American Strategic Income Worldwide High Income INCOME Corporate Bond Government Securities High Income Corporate Bond High Yield High Yield & Total Return Limited Maturity Government U.S. Government U.S. Government Trust for Income CAPITAL PRESERVATION Reserve Tax Free Money SENIOR LOAN Prime Rate Income Trust Senior Floating Rate TAX FREE California Insured Tax Free Florida Insured Tax Free Income High Yield Municipal** Insured Tax Free Income Intermediate Term Municipal Income Municipal Income New York Tax Free Income Pennsylvania Tax Free Income Tax Free High Income To find out more about any of these funds, ask your financial advisor for a prospectus, which contains more complete information, including sales charges, risks, and ongoing expenses. Please read it carefully before you invest or send money. To view a current Van Kampen fund prospectus or to receive additional fund information, choose from one of the following: - - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus - - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time. Telecommunications Device for the Deaf users, call 1-800-421-2833. - - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us * Closed to new investors ** Open to new investors for a limited time 70 VAN KAMPEN LIFE INVESTMENT TRUST BOARD OF TRUSTEES J. MILES BRANAGAN JERRY D. CHOATE LINDA HUTTON HEAGY R. CRAIG KENNEDY MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* PHILLIP B. ROONEY FERNANDO SISTO WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY, PH.D. PAUL G. YOVOVICH OFFICERS RICHARD F. POWERS, III* President DENNIS J. MCDONNELL* Executive Vice President and Chief Investment Officer A. THOMAS SMITH III* Vice President and Secretary JOHN L. SULLIVAN* Vice President, Treasurer and Chief Financial Officer STEPHEN L. BOYD* PETER W. HEGEL* MICHAEL H. SANTO* EDWARD C. WOOD, III* Vice Presidents INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 INVESTMENT SUBADVISOR (MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO) MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. 1585 Broadway New York, NY 10036 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 218256 Kansas City, Missouri 64121-8256 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02105 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP 200 E. Randolph Drive Chicago, Illinois 60601 * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940. (C) Van Kampen Funds Inc., 2000 All rights reserved. (SM) denotes a service mark of Van Kampen Funds Inc. This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors unless it has been preceded or is accompanied by an effective prospectus of the Fund which contains additional information on how to purchase shares, the sales charge, and other pertinent data. The following represents the percentage of 1999 income distributions paid by the designated fund which qualify for the 70% dividends received deduction for corporations: Comstock Portfolio...................................................... 35.90% Enterprise Portfolio.................................................... 100.00% Growth and Income Portfolio............................................. 53.73% Strategic Stock Portfolio............................................... 99.97% For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during its taxable year ended December 31, 1999. 20% RATE GAIN PORTFOLIO DISTRIBUTION - ---------------------------------------------------- Enterprise........................... $9,117,357 Growth and Income.................... 1,686,660 Strategic Stock...................... 20,287 71 RESULTS OF SHAREHOLDER VOTES A Joint Special Meeting of the Shareholders of the Portfolio was held on December 15, 1999, where shareholders voted on the election of trustees and independent public accountants. - -------------------------------------------------------------------------------- Emerging Growth Real Strategic # of Shares Comstock Growth Enterprise and Income Estate Stock - ------------------------------------------------------------------------------------------------------------ 1) With regard to the election of the following trustees by shareholders: J. Miles Branagan In Favor.......................... 131,857 3,775,180 6,226,235 3,126,036 11,259,746 2,384,516 Withheld.......................... -- 79,096 114,269 10,151 433,769 46,820 Jerry D. Choate In Favor.......................... 131,857 3,775,363 6,221,332 3,126,036 11,278,498 2,383,627 Withheld.......................... -- 78,912 119,172 10,151 415,017 47,710 Linda Hutton Heagy In Favor.......................... 131,857 3,775,863 6,226,235 3,126,036 11,277,188 2,384,516 Withheld.......................... -- 78,412 114,269 10,151 416,327 46,820 R. Craig Kennedy In Favor.......................... 131,857 3,775,863 6,225,717 3,126,036 11,286,222 2,384,516 Withheld.......................... -- 78,412 114,787 10,151 407,292 46,820 Mitchell M. Merin In Favor.......................... 131,857 3,774,842 6,225,717 3,126,036 11,280,602 2,384,516 Withheld.......................... -- 79,433 114,787 10,151 412,913 46,820 Jack E. Nelson In Favor.......................... 131,857 3,775,863 6,225,717 3,126,036 11,282,244 2,384,516 Withheld.......................... -- 78,412 114,787 10,151 411,271 46,820 Richard F. Powers, III In Favor.......................... 131,857 3,774,842 6,224,582 3,121,117 11,279,132 2,384,516 Withheld.......................... -- 79,433 115,921 15,069 414,382 46,820 Philip B. Rooney In Favor.......................... 131,857 3,775,863 6,226,235 3,123,612 11,285,269 2,369,104 Withheld.......................... -- 78,412 114,269 12,575 408,246 62,232 Fernando Sisto In Favor.......................... 131,857 3,759,564 6,211,047 3,123,612 11,252,849 2,384,516 Withheld.......................... -- 94,712 129,457 12,575 440,666 46,820 Wayne W. Whalen In Favor.......................... 131,857 3,775,863 6,225,152 3,121,117 11,281,552 2,384,516 Withheld.......................... -- 78,412 115,352 15,069 411,962 46,820 Suzanne H. Woolsey In Favor.......................... 131,857 3,775,863 6,221,332 3,120,772 11,275,765 2,384,516 Withheld.......................... -- 78,412 119,172 15,414 417,750 46,820 Paul G. Yovovich In Favor.......................... 131,857 3,775,456 6,227,436 3,123,129 11,279,375 2,367,029 Withheld.......................... -- 78,819 113,068 13,057 414,140 64,307 2) With regard to the ratification of PricewaterhouseCoopers LLP to act as independent public accountants for the Portfolio: In Favor.......................... 131,857 3,780,401 6,147,254 3,071,900 11,239,458 2,336,097 Against........................... -- 15,308 14,459 14,756 136,985 3,575 Abstaining........................ -- 58,567 178,790 49,531 317,071 91,664 72 YEAR 2000 UPDATE As we enter the new century, it's "business as usual" for Van Kampen. Thank you for the confidence you showed in us during the changeover on January 1, 2000, and for entrusting us with your investment portfolio. We look forward to continuing to serve your investment needs. 73 TABLE OF CONTENTS Letter to Policyholders.......................... 1 Economic Snapshot................................ 2 Asset Allocation Portfolio Performance Results... 3 Performance in Perspective..................... 4 Portfolio Management Review.................... 5 Portfolio of Investments....................... 7 Statement of Assets and Liabilities............ 11 Statement of Operations........................ 12 Statement of Changes in Net Assets............. 13 Financial Highlights........................... 14 Domestic Income Portfolio Performance Results.... 15 Performance in Perspective..................... 16 Portfolio Management Review.................... 17 Portfolio of Investments....................... 19 Statement of Assets and Liabilities............ 21 Statement of Operations........................ 22 Statement of Changes in Net Assets............. 23 Financial Highlights........................... 24 Global Equity Portfolio Performance Results...... 25 Performance in Perspective..................... 26 Portfolio Management Review.................... 27 Portfolio of Investments....................... 29 Statement of Assets and Liabilities............ 31 Statement of Operations........................ 32 Statement of Changes in Net Assets............. 33 Financial Highlights........................... 34 Government Portfolio Performance Results......... 35 Performance in Perspective..................... 36 Portfolio Management Review.................... 37 Portfolio of Investments....................... 39 Statement of Assets and Liabilities............ 40 Statement of Operations........................ 41 Statement of Changes in Net Assets............. 42 Financial Highlights........................... 43 Money Market Portfolio Management Review......... 44 Portfolio of Investments....................... 46 Statement of Assets and Liabilities............ 47 Statement of Operations........................ 48 Statement of Changes in Net Assets............. 49 Financial Highlights........................... 50 Notes to Financial Statements.................... 51 Report of Independent Accountants................ 59 NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. 74 LETTER TO POLICYHOLDERS January 20, 2000 Dear Policyholder, As we enter a new century--and millennium--it seems appropriate to take a look back at the progress that's been made over the last 100 years and how the world of investing has changed over the generations. Although rapid advances in technology and science have dramatically altered the world that we live in today, one of the greatest shifts we've seen is the increasing importance of investing for many Americans. Once considered primarily for the wealthy, investing in the stock market is now available to most people. In fact, almost 79 million individuals--who represent almost half of all U.S. households--own stocks either directly or through mutual funds. This is even more impressive when considering that just 16 years earlier, only 19 percent of households owned stocks. Another important shift has been the need for retirement planning beyond a pension plan or Social Security. The Investment Company Institute, the leading mutual fund industry association, reports that 77 percent of all mutual fund shareholders earmarked retirement as their primary financial goal in 1998. Through all the changes in the investment environment over the past century, the general principles that have made generations of investors successful remain the same. Some that have stood the test of time include: - INVESTING FOR THE LONG-TERM - BASING INVESTMENT DECISIONS ON SOUND RESEARCH - BUILDING A DIVERSIFIED PORTFOLIO - BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE While no one can predict the future, at Van Kampen we believe that these ideas will remain important tenets for investors well into this century. As we continue to focus on these principles, we hope that our decades of investment experience can help bring you closer to your financial goals as we welcome the new millennium. Sincerely, /s/ Richard F. Powers, III /s/ Dennis J. McDonnell Richard F. Powers, III Dennis J. McDonnell Chairman President Van Kampen Asset Management Inc. Van Kampen Asset Management Inc. 75 ECONOMIC SNAPSHOT ECONOMIC GROWTH The nation's brisk rate of economic growth continued throughout 1999, bringing the United States to the verge of its longest economic expansion on record. High levels of consumer spending, a host of new jobs, and increasing productivity kept the economy strong. Gross domestic product, the primary measure of economic growth, increased 4.2 percent for the year, including an impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent in the fourth quarter. EMPLOYMENT The job market remained vibrant throughout the year, with more than 2.7 million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1 percent in October--its lowest rate in three decades. With jobs plentiful and wages on the rise, most Americans were optimistic about the future. At the end of the year the consumer confidence index hit its highest level since 1968. Although wage pressures caused some concerns about the potential erosion of corporate profits, productivity gains helped keep those concerns muted through the end of the year. INFLATION AND INTEREST RATES Although the Consumer Price Index continued to reflect historically low inflation--rising only 2.7 percent during 1999--concerns about future increases in inflation were prevalent throughout the reporting period. The Federal Reserve Board remained active in guarding against inflation and trying to temper economic growth. The Fed reversed its three interest-rate cuts from the fall of 1998 by raising rates in June, August, and November 1999. U.S. GROSS DOMESTIC PRODUCT Seasonally Adjusted Annualized Rates Third Quarter 1997 through Fourth Quarter 1999 [BAR GRAPH] 97Q3 4 97Q4 3.1 98Q1 6.7 98Q2 2.1 98Q3 3.8 98Q4 5.9 99Q1 3.7 99Q2 1.9 99Q3 5.7 99Q4 5.8 Source: Bureau of Economic Analysis 76 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST ASSET ALLOCATION PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... 4.94% Five-year average annual total return based on NAV(1)....... 17.21% Ten-year average annual total return based on NAV(1)........ 12.29% Life-of-Portfolio average annual total return based on NAV(1)...................................................... 11.58% Commencement date........................................... 06/30/87 (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying fund or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. See the Comparative Performance section of the current prospectus. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; credit risk--an issuer's ability to make timely payments of interest and principal; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk--management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 77 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE ASSET ALLOCATION PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Standard & Poor's 500 Index and the Lipper Flexible Portfolio Fund Index* over time. These indices are broad-based, statistical composites that do not include any commissions or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of these indices. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Asset Allocation Portfolio vs. the Standard & Poor's 500 Index and the Lipper Flexible Portfolio Fund Index* (December 31, 1989, through December 31, 1999) [LINE GRAPH] - ------------------------------ Portfolio's Total Return 1 Year Avg. Annual = 4.94% 5 Year Avg. Annual = 17.21% 10 Year Avg. Annual = 12.29% - ------------------------------ VAN KAMPEN LIT-ASSET LIPPER FLEXIBLE PORTFOLIO ALLOCATION PORTFOLIO STANDARD & POOR'S 500 INDEX FUND INDEX* -------------------- --------------------------- ------------------------- Dec 1989 10000.00 10000.00 10000.00 9582.00 9312.00 9644.00 9684.00 9391.00 9726.00 9614.00 9698.00 9832.00 9545.00 9437.00 9632.00 10214.00 10305.00 10133.00 10223.00 10305.00 10170.00 10335.00 10251.00 10181.00 9712.00 9284.00 9672.00 9461.00 8895.00 9461.00 9443.00 8836.00 9454.00 9889.00 9365.00 9861.00 Dec 1990 10189.00 9689.00 10093.00 10345.00 10091.00 10458.00 10824.00 10770.00 10955.00 11058.00 11091.00 11165.00 11019.00 11095.00 11208.00 11391.00 11523.00 11535.00 11019.00 11066.00 11175.00 11381.00 11563.00 11537.00 11714.00 11790.00 11841.00 11772.00 11658.00 11870.00 11968.00 11796.00 12060.00 11704.00 11278.00 11800.00 Dec 1991 12945.00 12628.00 12814.00 12699.00 12376.00 12744.00 12892.00 12495.00 12884.00 12581.00 12310.00 12609.00 12562.00 12653.00 12637.00 12755.00 12666.00 12791.00 12573.00 12545.00 12657.00 13034.00 13038.00 13036.00 12830.00 12726.00 12910.00 13109.00 12940.00 13062.00 13270.00 12967.00 13063.00 13689.00 13359.00 13351.00 Dec 1992 13888.00 13588.00 13539.00 14040.00 13684.00 13766.00 14168.00 13828.00 13799.00 14436.00 14180.00 14090.00 14064.00 13820.00 13945.00 14404.00 14133.00 14228.00 14486.00 14247.00 14337.00 14485.00 14171.00 14391.00 14908.00 14659.00 14881.00 15049.00 14614.00 14936.00 14890.00 14897.00 15153.00 14533.00 14705.00 14943.00 Dec 1993 14958.00 14952.00 15263.00 15440.00 15438.00 15679.00 15022.00 14974.00 15336.00 14401.00 14390.00 14721.00 14515.00 14555.00 14779.00 14413.00 14736.00 14831.00 14172.00 14451.00 14520.00 14540.00 14906.00 14865.00 14832.00 15467.00 15286.00 14401.00 15157.00 15020.00 14439.00 15474.00 15129.00 14210.00 14863.00 14765.00 Dec 1994 14411.00 15155.00 14855.00 14815.00 15523.00 14972.00 15306.00 16083.00 15407.00 15623.00 16626.00 15733.00 15930.00 17091.00 16028.00 16652.00 17711.00 16537.00 16941.00 18208.00 16877.00 17374.00 18786.00 17316.00 17518.00 18780.00 17463.00 17995.00 19650.00 17782.00 17879.00 19552.00 17651.00 18558.00 20355.00 18167.00 Dec 1995 18930.00 20829.00 18360.00 19402.00 21509.00 18715.00 19272.00 21858.00 18813.00 19499.00 21946.00 18946.00 19708.00 22241.00 19231.00 19757.00 22749.00 19475.00 19890.00 22929.00 19445.00 19426.00 21880.00 18841.00 19658.00 22291.00 19167.00 20255.00 23632.00 19892.00 20637.00 24249.00 20252.00 21665.00 26029.00 21233.00 Dec 1996 21556.00 25599.00 20949.00 21860.00 27169.00 21553.00 21936.00 27330.00 21523.00 21381.00 26290.00 20873.00 21808.00 27826.00 21420.00 22759.00 29456.00 22330.00 23283.00 30870.00 22988.00 24699.00 33282.00 24281.00 24330.00 31370.00 23518.00 25397.00 33179.00 24514.00 25087.00 32035.00 23999.00 25669.00 33463.00 24433.00 Dec 1997 26259.00 34128.00 24771.00 26567.00 34474.00 24918.00 27449.00 36903.00 26126.00 28331.00 38878.00 27008.00 28468.00 39231.00 27177.00 28241.00 38493.00 26905.00 28513.00 40158.00 27424.00 27923.00 39692.00 27139.00 25970.00 33905.00 24474.00 27355.00 36171.00 25448.00 28422.00 39076.00 26654.00 29535.00 41386.00 27749.00 Dec 1998 30374.00 43861.00 28862.00 31010.00 45660.00 29418.00 29784.00 44186.00 28607.00 30246.00 46043.00 29320.00 30826.00 47790.00 30181.00 30458.00 46597.00 29652.00 30878.00 49283.00 30516.00 30511.00 47704.00 29974.00 30327.00 47406.00 29701.00 30065.00 46212.00 29378.00 30930.00 49102.00 30151.00 31114.00 50038.00 30479.00 Dec 1999 31875.00 53078.00 31689.00 The above chart reflects the performance of Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. * Although Lipper Analytical Services has reclassified how it categorizes its indices, we are continuing to refer to the Lipper Flexible Portfolio Fund Index because we believe it remains an applicable point of comparison for the Fund. 78 PORTFOLIO MANAGEMENT REVIEW ASSET ALLOCATION PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Asset Allocation Portfolio. The representatives consist of John Cunniff, senior portfolio manager; Kelly Gilbert, Tom Copper, and Raj Wagle, portfolio managers; and Stephen L. Boyd, chief investment officer for equity investments. Q CAN YOU DESCRIBE THE STOCK AND BOND MARKET ENVIRONMENTS FOR THE PORTFOLIO DURING THE REPORTING PERIOD? A The Dow Jones Industrial Average--perhaps the country's most widely recognized stock market index--began the reporting period near 9200 and crossed several key milestones in the first half of the year: 10,000 in March and 11,000 in May. Major fluctuations followed, however, as the index nearly fell back to 10,000 in the difficult third quarter before once again lifting to a record high late in December. Although many growth stocks--particularly in the technology area--continued their strong results during most of the year, it was, in fact, a "narrow" stock market propelled by the stellar performance of only a handful of stocks. Conditions were much less favorable for the fixed-income market--yield spreads widened through the summer as the Fed implemented two rate hikes of 0.25 percent each. The results seemed to soothe investors, and spreads began to narrow in early September. This narrowing trend continued until November, when investors grew concerned about the potential effects of year 2000 problems on corporate bond issuance and liquidity. However, a third Fed hike and a lower-than-expected new issuance calendar ushered in a relatively smooth ending to a volatile and difficult year for the fixed-income market. Q GIVEN THIS ENVIRONMENT, HOW DID YOU MANAGE THE PORTFOLIO? A The Portfolio seeks to provide high total return consistent with prudent investment risk through investments in stocks, bonds, and money-market securities. In seeking to achieve this goal, we first decide how we want to allocate the Portfolio's assets based on performance expectations for stocks, bonds, and cash. After determining the asset allocation, we generally invest the stock portion of the Portfolio in large, well-established companies with above-average growth rates. We select bonds based on a combination of their income components and capital-appreciation potential. During 1999 we reduced the Portfolio's exposure to the stock market and added to cash and bonds. As of December 31, the asset allocation was approximately 48 percent stocks, 36 percent bonds, and 16 percent cash. (The allocation at the start of 1999 was 60 percent stocks, 30 percent bonds, and 10 percent cash.) We made this change based on the results of our asset allocation model, which, in response to the rise in both the stock market and interest rates during the reporting period, recommended a relatively conservative asset allocation. This hurt the Portfolio's performance because the stock market rose even more and bond prices fell after we shifted to the more cautious mix. Q WHICH STOCKS SUPPORTED THE PORTFOLIO'S PERFORMANCE? A As we mentioned, technology stocks as a group were extremely successful during the reporting period, and most of the Portfolio's best-performing stocks were in this area. As new technologies such as the Internet continue to enhance business productivity, companies are spending freely to upgrade their existing systems. The Portfolio's top three contributors to performance--Oracle (database management software), Cisco Systems (maker of essential computer-networking products), and Microsoft (consumer and business software manufacturer)--were each well positioned to take advantage of these trends. Keep in mind that not all stocks in the Portfolio performed as favorably, and there is no guarantee that any of these stocks will perform as well in the future. 79 Q DID ANY STOCKS HURT THE PORTFOLIO? A Philip Morris stood out overwhelmingly as the largest detractor to the Portfolio's performance, as concerns about ongoing litigation in the tobacco industry continued to trouble investors. The stock's price fell throughout the reporting period, declining very sharply in October after an unfavorable judgment by a Florida court. Despite the risk of continued litigation for Philip Morris, we believe the stock may provide an attractive total return going forward. As a result, we continue to own the stock in the Portfolio. Q HOW DID YOU MANAGE THE BOND PORTION OF THE PORTFOLIO? A To maintain diversification, enhance liquidity, and seek to reduce risk, we continued to allocate the Portfolio's bond assets across a variety of sectors within the corporate bond market. We continued to focus on investment-grade securities (bonds rated BBB or higher) with maturities of 10 to 30 years. The duration of the Portfolio is currently 6.06 years. This duration, which is minimally longer than our benchmark, reflects essentially neutral position on interest rates. Duration is a measurement used to quantify the sensitivity of a bond's price to changes in interest rates. Typically, portfolios with longer durations have performed better when rates are declining, and portfolios with shorter durations have performed better when interest rates are rising. Q HOW DID THE PORTFOLIO PERFORM DURING THE LAST 12 MONTHS? A Because of the stock market's healthy performance and the rise in interest rates (environments of rising interest rates are typically unfavorable for bonds), the Portfolio's conservative asset allocation hindered performance. The Portfolio achieved a 12-month total return of 4.94 percent(1) as of December 31, 1999. By comparison, the Standard & Poor's 500 Index returned 21.04 percent, and the Lipper Flexible Portfolio Fund Index, which more closely resembles the Portfolio, returned 9.80 percent. The S&P 500 Index is a broad-based, unmanaged index that reflects the general performance of the stock market, and the Lipper Flexible Portfolio Fund Index reflects the average performance of the 30 largest flexible portfolio funds. These indices are statistical composites that don't include any commissions or sales charges that would be paid by an investor purchasing the securities they represent. Such costs would lower the performance of these indices. An investment cannot be made directly in an index. Past performance doesn't guarantee future results. Please refer to the chart and footnotes on page 3 for additional Portfolio performance results. Q WHAT DO YOU SEE AHEAD FOR THE PORTFOLIO FOR THE NEXT SIX MONTHS? A Our outlook depends partly on whether the Federal Reserve increases interest rates again soon. Although recent rate increases haven't had a substantially adverse effect on stock prices, another one could be more consequential. We're also keeping our eye on stock valuations, because the higher they get, the greater the negative result on the market if investors were to lose their enthusiasm for growth stocks. Because of these risks, we continue to believe that maintaining current asset allocation--which includes a significant percentage of bond investments and cash--is the best approach for the Portfolio. 80 ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - --------------------------------------------------------- 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 Description Shares Market Value - --------------------------------------------------------- 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 See Notes to Financial Statements 81 ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Description Shares Market Value - --------------------------------------------------------- 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 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 ----------- See Notes to Financial Statements 82 ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Par Amount (000) Description Coupon Maturity Market Value - ----------------------------------------------------------------------------------------------------------- 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 See Notes to Financial Statements 83 ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Description Market Value - ----------------------------------------------------------------------------------------------------------- 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 =========== (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 84 ASSET ALLOCATION PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 85 ASSET ALLOCATION PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 86 ASSET ALLOCATION PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------- 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 =========== =========== See Notes to Financial Statements 87 ASSET ALLOCATION PORTFOLIO FINANCIAL HIGHLIGHTS The following presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------- 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% See Notes to Financial Statements 88 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST DOMESTIC INCOME PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... (1.55%) Five-year average annual total return based on NAV(1)....... 8.69% Ten-year average annual total return based on NAV(1)........ 7.88% Life-of-Portfolio average annual total return based on NAV(1).................................................... 7.31% Commencement date........................................... 11/04/87 YIELD SEC Yield(2)................................................ 8.10% (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying fund or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. (2)SEC Yield is a standardized calculation prescribed by the Securities and Exchange Commission for determining the amount of net income a portfolio should theoretically generate for the 30-day period ending December 31, 1999. See the Comparative Performance section of the current prospectus. The Portfolio is subject to certain risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; credit risk--an issuer's ability to make timely payments of interest and principal; 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; call risk--if interest rates fall, it is possible that issuers of securities with high interest rates will prepay or "call" their securities before their maturity dates; and manager risk--management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 89 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE DOMESTIC INCOME PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Lehman Brothers BBB Corporate Bond Index over time. This index is a broad-based, statistical composite that does not include any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Domestic Income Portfolio vs. the Lehman Brothers BBB Corporate Bond Index (December 31, 1989, through December 31, 1999) - ------------------------------ Portfolio's Total Return 1 Year Avg. Annual = -1.55% 5 Year Avg. Annual = 8.69% 10 Year Avg. Annual = 7.88% - ------------------------------ [LINE GRAPH] VAN KAMPEN LIT DOMESTIC INCOME LEHMAN BROTHERS BBB CORPORATE PORTFOLIO BOND INDEX ------------------------------ ----------------------------- Dec 1989 10000.00 10000.00 9572.00 9914.00 9306.00 9945.00 9445.00 9962.00 9517.00 9863.00 9691.00 10205.00 9900.00 10359.00 10028.00 10259.00 9703.00 10078.00 9309.00 10081.00 9170.00 10022.00 9239.00 10161.00 Dec 1990 9277.00 10326.00 9397.00 10396.00 9663.00 10669.00 9796.00 10838.00 9916.00 11012.00 10023.00 11117.00 10069.00 11116.00 10223.00 11274.00 10502.00 11520.00 10643.00 11738.00 10855.00 11838.00 10955.00 11960.00 Dec 1991 11246.00 12320.00 11348.00 12228.00 11522.00 12377.00 11682.00 12346.00 11631.00 12406.00 11907.00 12678.00 11995.00 12876.00 12271.00 13215.00 12416.00 13312.00 12547.00 13470.00 12300.00 13205.00 12416.00 13243.00 Dec 1992 12651.00 13479.00 12952.00 13802.00 13268.00 14131.00 13442.00 14196.00 13545.00 14321.00 13672.00 14357.00 14084.00 14727.00 14211.00 14844.00 14575.00 15196.00 14591.00 15205.00 14765.00 15303.00 14623.00 15133.00 Dec 1993 14716.00 15221.00 15042.00 15579.00 14768.00 15209.00 14305.00 14734.00 14077.00 14569.00 14009.00 14499.00 14009.00 14480.00 14232.00 14892.00 14283.00 14922.00 14095.00 14643.00 13992.00 14623.00 13957.00 14608.00 Dec 1994 14079.00 14735.00 14309.00 15066.00 14730.00 15509.00 14922.00 15652.00 15223.00 15923.00 15914.00 16687.00 15980.00 16851.00 15990.00 16802.00 16240.00 17079.00 16431.00 17292.00 16623.00 17451.00 16672.00 17780.00 Dec 1995 17087.00 18082.00 17274.00 18185.00 16962.00 17769.00 16816.00 17632.00 16717.00 17484.00 16759.00 17478.00 16967.00 17741.00 17051.00 17787.00 17051.00 17738.00 17426.00 18127.00 17804.00 18643.00 18260.00 19068.00 Dec 1996 18226.00 18809.00 18342.00 18857.00 18501.00 18962.00 18216.00 18666.00 18490.00 18947.00 18716.00 19177.00 19061.00 19465.00 19860.00 20207.00 19517.00 19905.00 19905.00 20270.00 20042.00 20537.00 20248.00 20646.00 Dec 1997 20398.00 20896.00 20645.00 21092.00 20719.00 21081.00 20749.00 21152.00 20922.00 21293.00 21170.00 21545.00 21270.00 21673.00 21294.00 21642.00 20799.00 21594.00 21284.00 22251.00 21170.00 21816.00 21716.00 22265.00 Dec 1998 21691.00 22326.00 21864.00 22621.00 21294.00 22123.00 21567.00 22351.00 21673.00 22483.00 21301.00 22168.00 21142.00 22060.00 21089.00 21951.00 21009.00 21857.00 21275.00 22095.00 21381.00 22179.00 21461.00 22226.00 Dec 1999 21355.00 22145.00 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. 90 PORTFOLIO MANAGEMENT REVIEW DOMESTIC INCOME PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Domestic Income Portfolio. The representatives are led by Kelly Gilbert, portfolio manager, who is joined by Reid J. Hill, assistant portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income investments. Q WHAT WERE THE MARKET CONDITIONS IN WHICH THE PORTFOLIO OPERATED DURING THE PERIOD? A In the first days of 1999, the fixed-income market appeared to be poised for a recovery from the volatility it had experienced in late 1998. As investors gained confidence from the declining interest-rate and low-inflation environment, yield spreads narrowed between Treasuries and other types of bonds (such as corporate, high-yield, and mortgage-backed securities). However, a robust domestic economy in the second quarter of 1999 threatened to fuel inflationary pressures, which drew the attention and intervention of the Federal Reserve Board. Yield spreads widened through the summer as the Fed implemented two rate hikes of 0.25 percent each. These increases seemed to soothe investors, and spreads began to narrow in early September. This narrowing trend continued until November, when investors grew concerned about the potential effects of year 2000 problems on corporate bond issuance and liquidity. However, a third Fed hike and a lighter-than-expected new issuance calendar ushered in a relatively smooth ending to a volatile and difficult year for the fixed-income market. Q HOW DID YOU POSITION THE PORTFOLIO IN RESPONSE TO THESE CONDITIONS? A We decreased the Portfolio's significant exposure to the industrial sector--which includes health-care, media and telecommunications, and consumer cyclical securities--in favor of increased weightings in the finance sector. We accomplished this by eliminating industrial holdings such as Tenet Healthcare, which was reduced due to concerns about the welfare of health-care companies. In turn, we added positions like Abbey National and Washington Mutual, which boosted the Portfolio's exposure to finance. This strategy was effective, because the finance sector enjoyed relatively strong performance for much of the period. In addition, the Portfolio's slight overweighting in cable and media securities, which outperformed during the period, contributed positively to its return. Q WHAT WAS THE STRUCTURE OF THE PORTFOLIO AT THE END OF THE REPORTING PERIOD? A The Portfolio's credit-quality allocation continued to be weighted in medium-quality securities, which are defined as A and BBB rated securities. At the end of the reporting period, approximately 22 percent of long-term investments were allocated to securities rated A and higher, and 60 percent of long-term investments were invested in BBB rated securities. The remaining 18 percent was allocated to securities rated BB and lower. This allocation benefited the Portfolio during the last six months of the reporting period, as BB and B rated securities outperformed A rated securities by 126 basis points and 43 basis points, respectively. We also continued to focus on managing the Portfolio's duration during the period. Duration, which is expressed in years, is a measurement of a bond's price sensitivity to changes in interest rates. For most of the period, the Portfolio's duration was held equivalent to or slightly longer than that of its benchmark, the Lehman Brothers BBB Corporate Bond Index. Because interest rates rose during this time, the long duration position was negative to the Portfolio's return during this time. At the end of the period, the Portfolio's duration was 6.5 years, which is slightly longer than the benchmark duration of 6.0 years. We'll look for opportunities to reallocate cash into the market in the coming months, which would achieve a shorter duration. 91 Q HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD? A Although the Portfolio's return was supported by its favorable sector allocations, this benefit was overshadowed by the slow recovery of the corporate bond market. For the 12 months ended December 31, 1999, the Portfolio achieved a total return of -1.55 percent(1). Dividends paid and reinvested by the Portfolio during the period totaled $0.580 per share. By comparison, the Lehman Brothers BBB Corporate Bond Index produced a total return of -0.82 percent for the same period. This broad-based, unmanaged index, which reflects the general performance of corporate bonds, does not reflect any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment cannot be made directly in an index. Of course, past performance is not a guarantee of comparable future results. Please refer to the chart and footnotes on page 15 for additional performance results. Q WHAT IS THE OUTLOOK FOR THE MONTHS AHEAD? A Generally, the picture for the corporate bond market has improved from six months ago, and certainly from 12 months ago. We'll look for signs of continued improvement by monitoring the level of new issuance released in 2000 and investors' reaction to this supply. As we manage the Portfolio going forward, our focus on fundamental, in-depth research and assessment of corporate bonds will remain unchanged. We will continue to look beyond the sector, credit rating, or structure of a bond to identify those issuers that we believe will remain financially sound and perform well in a range of market conditions. We'll also search for value in out-of-favor areas of the market in our quest to maintain the diversification of the Portfolio and contribute to its performance. 92 DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Par Amount (000) Description Coupon Maturity Market Value - ----------------------------------------------------------------------------------------------------------- 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 ----------- See Notes to Financial Statements 93 DOMESTIC INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Par Amount (000) Description Coupon Maturity Market Value - ----------------------------------------------------------------------------------------------------------- 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 ----------- (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 94 DOMESTIC INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 95 DOMESTIC INCOME PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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) =========== See Notes to Financial Statements 96 DOMESTIC INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------- 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 =========== =========== See Notes to Financial Statements 97 DOMESTIC INCOME PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- Year Ended December 31, ------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------- 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% (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 98 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST GLOBAL EQUITY PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... 30.06% Life-of-Portfolio average annual total return based on NAV(1).................................................... 19.23% Commencement date........................................... 07/03/95 (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. See the Comparative Performance section of the current prospectus. An investment should be made with an understanding of the risks that an investment in equity securities entails. These include the risk that the financial condition of the issuers of the securities in the portfolio, or the condition of the stock market in general, may worsen and therefore, the value of Portfolio shares may decline. In addition, the Portfolio is subject to other risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk--management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. Because the prices of common stocks and other securities fluctuate, the value of an investment in the Portfolio will vary upon the Portfolio's investment performance. Foreign securities may magnify volatility due to changes in foreign exchange rates, the political and economic uncertainties in foreign countries, and the potential lack of liquidity, government supervision, and regulation. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 99 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE GLOBAL EQUITY PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to opportunities and challenges. The following graph compares your Portfolio's performance to that of the Morgan Stanley Capital International (MSCI) World Index + Dividends over time. This index is a broad-based, statistical composite that does not include any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Global Equity Portfolio vs. the Morgan Stanley Capital International (MSCI) World Index + Dividends (July 3, 1995, through December 31, 1999) [LINE GRAPH] - ------------------------------ Portfolio's Total Return 1 Year Avg. Annual = 30.06% Inception Avg. Annual = 19.23% - ------------------------------ VAN KAMPEN LIT-GLOBAL EQUITY PORTFOLIO MSCI WORLD INDEX + DIVIDENDS ---------------------------- ---------------------------- Jul 1995 10000.00 10000.00 10230.00 10502.00 10140.00 10270.00 10280.00 10571.00 9950.00 10407.00 10160.00 10770.00 Dec 1995 10310.00 11087.00 10470.00 11290.00 10720.00 11360.00 10930.00 11552.00 11420.00 11825.00 11560.00 11838.00 Jun 1996 11520.00 11900.00 11030.00 11481.00 11350.00 11615.00 11610.00 12072.00 11590.00 12159.00 12060.00 12842.00 Dec 1996 12034.00 12639.00 12488.00 12793.00 12674.00 12943.00 12501.00 12689.00 12741.00 13106.00 13492.00 13917.00 Jun 1997 14129.00 14614.00 14724.00 15289.00 13555.00 14268.00 14244.00 15046.00 13419.00 14256.00 13691.00 14511.00 Dec 1997 13941.00 14690.00 14360.00 15101.00 15108.00 16125.00 15914.00 16809.00 16107.00 16976.00 15966.00 16765.00 Jun 1998 16299.00 17166.00 16441.00 17141.00 14233.00 14857.00 14503.00 15123.00 15414.00 16492.00 16274.00 17476.00 Dec 1998 16954.00 18332.00 17339.00 18736.00 17005.00 18240.00 17751.00 19002.00 18665.00 19754.00 17944.00 19035.00 Jun 1999 18922.00 19925.00 18645.00 19868.00 18742.00 19836.00 18472.00 19646.00 19527.00 20670.00 20325.00 21254.00 Dec 1999 22050.00 22977.00 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. 100 PORTFOLIO MANAGEMENT REVIEW GLOBAL EQUITY PORTFOLIO The following is an interview with the representatives of the subadviser of the Van Kampen Life Investment Trust--Global Equity Portfolio. The representatives are led by portfolio managers Barton M. Biggs and Ann D. Thivierge, Morgan Stanley Dean Witter Investment Management (the "Investment Subadviser"). Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE PORTFOLIO OPERATED DURING THE PAST 12 MONTHS? A Global economic recovery was the story of 1999, as economic activity increased in most regions of the world. The U.S. economy resumed its impressive climb with strong growth and minimal inflation. Meanwhile, declining interest rates and a focus on cost-cutting fiscal reforms helped revive many emerging markets. In particular, Japan and other Asian nations emerged from devastating depressions and bear markets. In Europe, the introduction of the euro went smoothly, though it declined against the U.S. dollar in the first half of the year because of economic weakness, particularly in Germany. The euro finished 1999 slightly above the dollar as the economy recovered in the second half of the year. Q WHAT SIGNIFICANT INVESTMENT STRATEGIES AND TECHNIQUES DID YOU USE TO PURSUE THE PORTFOLIO'S INVESTMENT OBJECTIVE? A At the end of the reporting period, the Portfolio had the following regional allocations relative to 12 months earlier: DECEMBER 31, 1998 DECEMBER 31, 1999 ----------------- ----------------- North America.............. 50.6% ..... 44.6% Europe .................... 37.5% ..... 34.2% Japan ..................... 8.0% ..... 17.4% Far East .................. 1.8% ..... 1.7% Other ..................... 2.1% ..... 2.1% Throughout the period, the Portfolio remained underweighted in the United States because stocks appeared overpriced and therefore highly vulnerable in the event of a market downturn. This strategy hindered performance in the first half of the year as the U.S. economy continued its strong growth, but it benefited the Portfolio in the second half when international markets surpassed the U.S. stock market. Early in the year, we visited Singapore, Hong Kong, and Japan to talk with government officials, central bankers, businesses, and other investors. At the time, these meetings reinforced our belief that Asia had a long way to go in its recoveries. However, we've seen evidence of their commitment to restructuring, particularly in Singapore and Japan. In response, we significantly increased the Portfolio's Singapore exposure. The leading economic indicators were higher and point to even stronger economic growth. Stock prices were reasonable, and earnings growth and earnings momentum were the highest in the Portfolio's investment universe during the reporting period. We gave Singapore high marks for the government and corporate environment. Additionally, while Singapore remains dependent on consumer electronics and electronics exports, its economy is broadening into other areas, which can help lessen the impact of a downturn in the electronics sector. In Japan, stock prices were not as attractive in the second half of the year as they were in the first half, but the market had a great run, and the Portfolio's overweight position contributed positively to performance. During the year, Germany lagged the rest of Europe, but we believe recent tax reform proposals are likely to unleash a massive corporate restructuring in this largest of European economies, increasing capital efficiencies in Germany and sending competitive shock waves across the continent. The fact that these proposals came from the ruling party, Sozialdemokratische Partei Deutschland (SPD), which 18 months ago proposed marking all corporate assets to market for immediate tax assessments, illustrates the extent of cultural leadership change. Similarly, the negative local press resulting from the recent disclosure of illegal funding (i.e. suitcases of cash) for Germany's Christian Democratic Union (CDU) party (former Chancellor Kohl's party) should help to expose and weaken the unhealthy post-World War II based relationships between German politicians and companies, banks and utilities. This weakening is 101 important to the continuation of the process of privatization and deregulation. Only through dynamic reform can Europe's economy finally enjoy a long cycle of strong growth and low inflation. We believe this change is occurring--and at an accelerating pace. Finally, the Portfolio is fully invested, meaning that it does not hold a significant cash position. Q HOW HAS THE PORTFOLIO PERFORMED DURING THE REPORTING PERIOD? A The Portfolio performed well in 1999 as a result of our favorable asset and country allocations in Asia and the United States and our less defensive strategy. The Portfolio's total return during the 12 months ended December 31, 1999, was 30.06 percent(1). During the same period, the Morgan Stanley Capital International World Index returned 26.83 percent. Please keep in mind that the MSCI World Index is a broad-based index used as a benchmark for general global equity funds. It does not reflect any commissions or sales charges that would be paid by an investor purchasing the securities it represents. Please refer to the chart and footnotes on page 25 for additional Portfolio performance results. Past performance does not guarantee future results. Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD? A We believe that consumer spending in Japan may experience a revival, which we believe will boost its GDP above consensus expectations next year as investors continue to gain confidence in Japanese markets. We feel the ongoing recovery in the rest of Asia should aid Japan as well. Our outlook for European equities is positive with the markets supported by strong earnings growth, upward earnings estimates, and little threat in the short-term from either interest rates or bond yields. For the third quarter, earnings growth was strong and positive surprises outnumbered negative surprises by 2:1, and we believe these trends may continue. Liquidity remains powerful with strong individual investor buying. Importantly, we expect the euro to strengthen from current levels, which may provide a boost for U.S. dollar-based investors. However, we believe valuations are rich and the European markets are highly correlated to the U.S. markets. We are cautious about the U.S. equity market due to expensive valuations and a more compelling case for fundamental change in the international arena. As long as the U.S. market remains relatively stable, we believe that many European and Asian markets can perform well given their rising economic growth, continued restructuring, and improving earnings. While we are encouraged by the present lack of meaningful inflation in the U.S., we continue to watch the Federal Reserve Board, hoping that policy makers tap the brakes cautiously without causing global reverberations. We expect the international markets to outperform the United States not for months, but for years. 102 GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Market Description Shares Value - -------------------------------------------------------- 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 Market Description Shares Value - -------------------------------------------------------- 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 ---------- See Notes to Financial Statements 103 GLOBAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Market Description Shares Value - -------------------------------------------------------- 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 Market Description Shares Value - -------------------------------------------------------- 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 ========== (a) Non-income producing security as this stock currently does not declare dividends. ADR -- American Depository Receipt See Notes to Financial Statements 104 GLOBAL EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 ========== See Notes to Financial Statements 105 GLOBAL EQUITY PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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 ========== See Notes to Financial Statements 106 GLOBAL EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------- 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 ========== =========== See Notes to Financial Statements 107 GLOBAL EQUITY PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- July 3, 1995 (Commencement Year Ended December 31, of Investment ------------------------------------- Operations) to 1999 1998 1997 1996 December 31, 1995 - ------------------------------------------------------------------------------------------------------------ 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%) **Non-Annualized See Notes to Financial Statements 108 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN LIFE INVESTMENT TRUST GOVERNMENT PORTFOLIO TOTAL RETURNS One-year total return based on NAV(1)....................... (3.36%) Five-year average annual total return based on NAV(1)....... 6.60% Ten-year average annual total return based on NAV(1)........ 6.54% Life-of-Portfolio average annual total return based on NAV(1)...................................................... 6.42% Commencement date........................................... 04/07/86 YIELD SEC Yield(2)................................................ 5.92% (1)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. Total returns do not include any charges, expenses, or fees imposed by an insurance company at the underlying Portfolio or separate account levels. If the returns included the effect of these additional charges, the returns would have been lower. (2)SEC Yield is a standardized calculation prescribed by the Securities and Exchange Commission for determining the amount of net income a portfolio should theoretically generate for the 30-day period ending December 31, 1999. See the Comparative Performance section of the current prospectus. The Portfolio is subject to certain risks. These risks include, but are not limited to: market risk--the possibility that the market values of securities owned by the Portfolio will decline; credit risk--an issuer's ability to make timely payments of interest and principal; 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; prepayment risk--if interest rates fall, the principal on debt securities held by the Portfolio may be paid earlier than expected; extension risk--the value of debt securities tends to fall as interest rates rise; derivative investment risk--a derivative investment is one whose value depends on (or is derived from) the value of an underlying asset, interest rate or index and involves risks different from investment in the underlying security; and manager risk--management may not be successful in selecting the best performing securities and the Portfolio's performance may lag behind that of similar portfolios. Past performance does not guarantee future results. U.S. Government securities are backed by the full faith and credit of the U.S. Government, its agencies or instrumentalities. The government backing applies only to the timely payment of principal and interest when due, on specific securities in the Portfolio, not to shares of the Portfolio. Portfolio shares when redeemed, may be worth more or less than their original cost. The value of debt securities will fluctuate with changes in market conditions and interest rates, which will effect the value of Portfolio shares. Securities which are issued by private issuers involve greater risk than those issued directly by the U.S. Government. Market forecasts provided in this report may not necessarily come to pass. The Portfolio being offered is through a variable annuity contract. 109 PUTTING YOUR PORTFOLIO'S PERFORMANCE IN PERSPECTIVE GOVERNMENT PORTFOLIO As you evaluate your progress toward achieving your financial goals, it is important to track your investment performance at regular intervals. A comparison of your Portfolio's performance to an applicable benchmark can: - Illustrate the market environment in which your Portfolio is being managed. - Reflect the impact of favorable market trends or difficult market conditions. - Help you evaluate how your Portfolio's management team has responded to the opportunities and challenges. The following graph compares your Portfolio's performance to that of the Lehman Brothers Mutual Fund Government/Mortgage Index over time. This index is a broad-based, statistical composite that does not include any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment cannot be made directly in an index. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT Van Kampen Life Investment Trust--Government Portfolio vs. the Lehman Brothers Mutual Fund Government/Mortgage Index (December 31, 1989, through December 31, 1999) [LINE GRAPH] - ------------------------------ Portfolio's Total Return 1 Year Avg. Annual = -3.36% 5 Year Avg. Annual = 6.60% 10 Year Avg. Annual = 6.54% - ------------------------------ VAN KAMPEN LIT-GOVERNMENT LEHMAN BROTHERS MUTUAL FUND PORTFOLIO GOVERNMENT/MORTGAGE INDEX ------------------------- --------------------------- Dec 1989 10000.00 10000.00 9812.00 9883.00 9630.00 9916.00 9635.00 9923.00 9737.00 9835.00 10012.00 10120.00 10148.00 10280.00 10296.00 10428.00 10207.00 10296.00 10285.00 10389.00 10413.00 10540.00 10652.00 10770.00 Dec 1990 10831.00 10942.00 10967.00 11076.00 11069.00 11149.00 11125.00 11213.00 11233.00 11329.00 11317.00 11393.00 11307.00 11386.00 11479.00 11542.00 11715.00 11789.00 11953.00 12027.00 12129.00 12167.00 12196.00 12276.00 Dec 1991 12589.00 12633.00 12376.00 12454.00 12476.00 12528.00 12420.00 12452.00 12475.00 12546.00 12705.00 12776.00 12845.00 12947.00 13003.00 13197.00 13148.00 13337.00 13237.00 13495.00 13101.00 13328.00 13137.00 13328.00 Dec 1992 13311.00 13534.00 13515.00 13782.00 13721.00 14009.00 13772.00 14069.00 13891.00 14164.00 13906.00 14183.00 14127.00 14423.00 14172.00 14501.00 14338.00 14734.00 14331.00 14775.00 14392.00 14826.00 14284.00 14711.00 Dec 1993 14358.00 14789.00 14548.00 14972.00 14256.00 14728.00 13786.00 14379.00 13648.00 14268.00 13629.00 14276.00 13589.00 14244.00 13825.00 14514.00 13833.00 14532.00 13643.00 14326.00 13606.00 14317.00 13557.00 14284.00 Dec 1994 13693.00 14380.00 13974.00 14662.00 14336.00 14998.00 14374.00 15083.00 14575.00 15286.00 15033.00 15856.00 15084.00 15967.00 15062.00 15937.00 15226.00 16117.00 15350.00 16267.00 15556.00 16480.00 15014.00 16713.00 Dec 1995 16043.00 16940.00 16136.00 17052.00 15829.00 16777.00 15686.00 16665.00 15555.00 16580.00 15501.00 16545.00 15697.00 16764.00 15720.00 16812.00 15678.00 16788.00 15933.00 17068.00 16282.00 17429.00 16595.00 17712.00 Dec 1996 16383.00 17564.00 16417.00 17624.00 16445.00 17660.00 16244.00 17481.00 16485.00 17743.00 16649.00 17904.00 16872.00 18107.00 17351.00 18557.00 17164.00 18425.00 17431.00 18686.00 17698.00 18966.00 17768.00 19050.00 Dec 1997 17958.00 19239.00 18250.00 19491.00 18179.00 19474.00 18220.00 19540.00 18261.00 19636.00 18464.00 19810.00 18627.00 19985.00 18667.00 20041.00 19094.00 20430.00 19664.00 20861.00 19501.00 20806.00 19481.00 20852.00 Dec 1998 19501.00 20915.00 19623.00 21046.00 19176.00 20714.00 19273.00 20820.00 19273.00 20886.00 18974.00 20732.00 18646.00 20676.00 18739.00 20597.00 18697.00 20597.00 18953.00 20838.00 19017.00 20909.00 18974.00 20898.00 Dec 1999 18846.00 20800.00 The above chart reflects the performance of the Portfolio. The Portfolio's performance assumes reinvestment of all distributions and is shown at net asset value. While past performance is not indicative of future performance, the above information provides a broader vantage point from which to evaluate the discussion of the Portfolio's performance found in the following pages. 110 PORTFOLIO MANAGEMENT REVIEW GOVERNMENT PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Government Portfolio. The representatives are led by John R. Reynoldson, portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income investments. Q HOW WOULD YOU DESCRIBE THE MARKET IN WHICH THE PORTFOLIO OPERATED DURING THE REPORTING PERIOD? A In the first days of 1999, the fixed-income market appeared to be poised for a slowdown in the global economy after the meltdown in Asia and concurrent economic turmoil from the previous fall. Fixed-income securities grew less expensive as a result of high levels of price volatility and uncertainties regarding credit risk. As the new year unfolded, however, it became clear that the global economy had not only stabilized, but that positive economic growth, particularly in the United States, had strongly reemerged. Concerns about inflationary pressures grew in the second half of the year, fueled by tight labor markets and rallying commodity prices. In response, the Federal Reserve Board systematically added the 75 basis points it had withdrawn from the federal funds rate in 1998. Meanwhile, the market grew wary of the potential year 2000 problem--specifically, the effects it might have on new bond supply and cash for investors through the millennium. As a result of the conditions above, interest rates rose steadily during the year as economic realities proved to be more positive than had originally been expected. For example, the 10-year Treasury note, which began the year with a 4.64 percent yield, ended the period with a 6.43 percent yield--a rise of 1.79 percent. During this time, the yield curve also flattened as shorter-term yields increased more than longer-term yields, which rose only 1.39 percent. Fixed-income securities experienced a topsy-turvy year, as yield spreads tightened through May, widened into August due to year 2000 perception, and finally tightened again as investors recognized that reports of computer problems had been overblown. Q HOW DID THESE CONDITIONS AFFECT YOUR MANAGEMENT OF THE PORTFOLIO? A We maintained a substantial percentage of the Portfolio's assets in mortgage-backed securities for most of the period. When spreads began to widen late in the second quarter, we slightly decreased this position, only to replenish the mortgage-backed allocation when the securities became less expensive in August. Within this sector, the Portfolio was comprised primarily of GNMA issues yielding 6.5 and 7 percent. We believed these holdings presented good values and were exposed to negligible homeowner refinancing risks. We also maintained the Portfolio's Treasury holdings in a barbell pattern, with the heaviest weightings falling on the short- and long-maturity ends of the yield curve. Our strategy was to minimize holdings in the "belly" of the curve, which was especially vulnerable to flattening of the yield curve. We felt this strategy was effective, given the rising interest-rate environment and the changing shape of the curve. Finally, we held the Portfolio's duration modestly higher than its benchmark for much of the period. Because of the rise in interest rates, this position moderately restrained the Portfolio's performance until we pared back the duration near the end of the period. Q HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD? A Rising interest rates and challenging market conditions were the most significant factors affecting the Portfolio's return. For the 12-month period ended December 31, 1999, the Government Portfolio generated a total return of -3.36 percent.(1) By comparison, the Lehman Brothers Mutual Fund Government/Mortgage Index posted a total return of -0.54 percent for the same period. This broad-based, unmanaged index, which reflects the general performance of U.S. government and mortgage-backed securities, does not reflect any commissions or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower the performance of the index. An investment 111 cannot be made directly in an index. Of course, past performance is no guarantee of comparable future results. For additional performance results, please refer to the chart and footnotes on page 35. Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD? A We continue to see value in the mortgage market and believe it will be buoyed by increased demand from banks and other interested investors in the coming months. Of course, we will continue to keep a close eye on the changing yield spreads between Treasuries and other fixed-income securities, but we expect yield spreads to be fairly contained. We believe our ongoing evaluation of the relationship between mortgages and Treasuries will enable us to maintain an optimal balance between the two sectors in the Portfolio. Assuming that additional interest-rate increases are on the horizon, we will also continue our efforts to adjust the Portfolio's duration to more neutral levels. 112 GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Par Amount (000) Description Coupon Maturity Market Value - ---------------------------------------------------------------------------------------------------------------- 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 =========== (a) Assets segregated as collateral for open futures transactions. CMO--Collateralized Mortgage Obligations See Notes to Financial Statements 113 GOVERNMENT PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 114 GOVERNMENT PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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) =========== See Notes to Financial Statements 115 GOVERNMENT PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------- 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 =========== =========== See Notes to Financial Statements 116 GOVERNMENT PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- 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% See Notes to Financial Statements 117 PORTFOLIO MANAGEMENT REVIEW MONEY MARKET PORTFOLIO The following is an interview with representatives of the adviser of the Van Kampen Life Investment Trust--Money Market Portfolio. The representatives are led by Reid Hill and Michael Bird, portfolio managers, and Peter W. Hegel, chief investment officer for fixed-income investments. Q HOW WOULD YOU CHARACTERIZE THE ECONOMIC AND MARKET CONDITIONS IN WHICH THE PORTFOLIO OPERATED DURING THE PAST 12 MONTHS? A A robust domestic economy, buoyed by high employment rates and strong consumer activity, prompted the Federal Reserve Board to implement interest-rate hikes in June, August, and November in an attempt to ward off inflation. The cumulative effect of these rate hikes restored the federal funds rate to its September 1998 level of 5.50 percent. Against this backdrop, the Dow Jones Industrial Average continued along its volatile path, ending the period with a return to its mid-year record highs. The equity market easily outshone the fixed-income market, which suffered in the third quarter of 1999 amid concerns that Year 2000 computer problems might make it difficult for investors to liquidate their investments in the final weeks of the year. As fears heightened, yield spreads widened between Treasuries and other types of bonds, such as corporate, high-yield, and mortgage-backed securities. In an effort to reassure investors, the Fed announced a series of programs designed to maintain cash reserves for banks and investment companies. The programs gave institutional investors several options for procuring liquid assets, including the ability to borrow funds from the Fed. These steps helped settle the fixed-income market toward the end of the Portfolio's reporting period. Q HOW DID YOU MANAGE THE PORTFOLIO IN LIGHT OF THESE CONDITIONS? A We continued to pursue our allocation model, in which half of the Portfolio's assets would be invested in commercial paper, a third of the Portfolio's assets invested in bank notes and CDs (certificates of deposit), and the remainder invested in agency discount notes and repurchase agreements ("repos"). During the past year, we maintained a focus on commercial paper, which tends to provide the greatest yield advantage among the Portfolio's investments. Correspondingly, we decreased the Portfolio's emphasis on bank notes and CDs, which provided less value. However, market volatility prompted us to pursue the liquidity of repos, thus creating a slight underweighting in the commercial paper sector at the end of the reporting period. Within the commercial paper sector, we continued to select high-rated, short-term corporate securities with ratings of at least A-1/P-1 from Moody's and Standard & Poor's. These corporate securities provided income without assuming excessive risk. We also continued to favor commercial paper with an average maturity of 90 days or less. In the current interest-rate environment, we believe there is little benefit in extending the Portfolio's risk by investing in longer-term paper, which provides only a minimally higher return than shorter-term paper. Q HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD? A The Portfolio continued to provide shareholders with relative stability, daily liquidity at $1.00 per share, and a competitive level of current income. For the 12-month period ended December 31, 1999, the Portfolio produced a total return of 4.63 percent. As of December 31, the Portfolio generated a seven-day average yield of 4.80 percent and a 30-day effective yield of 5.10 percent. The Portfolio's price per share remained unchanged at $1.00 throughout the reporting period. 118 Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS? A We expect the Fed to continue to gauge the strength of the economy and indications of increasing price pressures in order to determine if another interest-rate hike is warranted. At this point, we anticipate at least one rate hike in the first few months of the year, although the market appears to be preparing for the possibility of more than one increase. In conjunction with this outlook, we will maintain our pursuit of the allocation model described earlier in this report. Given our perspective on the interest-rate environment, our focus on securities with short maturities will continue in the foreseeable future. At the same time, we'll look to add value to the Portfolio through careful security selection as we continue to seek to achieve the Portfolio's objective of protection of capital and high current income. An investment in the Portfolio is neither insured nor guaranteed by the U.S. government, and there can be no assurance that the Portfolio will be able to maintain a stable net asset value of $1.00 per share. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Portfolio shares, when redeemed, may be worth more or less than their original cost. The Portfolio is offered through a variable annuity contract. 119 MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 1999 - -------------------------------------------------------------------------------- Discount Par Yield on Amount Maturity Date of Amortized (000) Description Date Purchase Cost - ------------------------------------------------------------------------------------------------------------ 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 =========== See Notes to Financial Statements 120 MONEY MARKET PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- 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 =========== See Notes to Financial Statements 121 MONEY MARKET PORTFOLIO STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- 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 ========== See Notes to Financial Statements 122 MONEY MARKET PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - --------------------------------------------------------------------------------------------------- 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 =========== =========== See Notes to Financial Statements 123 MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one share of the Portfolio outstanding throughout the periods indicated. - -------------------------------------------------------------------------------- Year Ended December 31, -------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------- 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% (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 124 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. 125 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 126 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. ASSET DOMESTIC GLOBAL ALLOCATION INCOME EQUITY - -------------------------------------------------------------------------------------------------- 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 MONEY GOVERNMENT MARKET - ------------------------------------------------------------------------------------------ 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) -- 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. GLOBAL DOMESTIC EQUITY GOVERNMENT - -------------------------------------------------------------------------------------------------- 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) -- -- (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. 127 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: ASSET DOMESTIC GLOBAL MONEY ALLOCATION INCOME EQUITY GOVERNMENT MARKET - ------------------------------------------------------------------------------------------------ Credits earned on overnight cash balances................................ $2,246 $2,148 $ -0- $2,256 $3,448 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: - ------------------------------------------------------------------- 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% 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: - ------------------------------------------------------------------- Asset Allocation, Domestic Income, Government and Money Market...................................................... .60% Global Equity............................................... 1.20% 128 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- Other transactions with affiliates during the year ended December 31, 1999 were as follows: ASSET DOMESTIC GLOBAL ALLOCATION INCOME EQUITY - ------------------------------------------------------------------------------------------------ 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 MONEY GOVERNMENT MARKET - ----------------------------------------------------------------------------------------- Accounting.................................................. $29,300 $24,100 Shareholder servicing agent's fees.......................... 16,600 15,000 Legal (Skadden Arps)........................................ 7,000 2,500 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: ASSET DOMESTIC GLOBAL ALLOCATION INCOME EQUITY - -------------------------------------------------------------------------------------------------- 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 =========== =========== ========== 129 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- MONEY GOVERNMENT MARKET - ---------------------------------------------------------------------------------------- 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 =========== ============ 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: ASSET DOMESTIC GLOBAL ALLOCATION INCOME EQUITY - -------------------------------------------------------------------------------------------------- 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 =========== =========== ========== MONEY GOVERNMENT MARKET - ---------------------------------------------------------------------------------------- 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 =========== ============ 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: ASSET DOMESTIC GLOBAL ALLOCATION INCOME EQUITY GOVERNMENT - ------------------------------------------------------------------------------------------------ Purchases................................... $38,018,687 $12,598,685 $314,577 $45,887,119 Sales....................................... 50,581,909 12,910,019 256,558 54,452,418 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. 130 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: NUMBER OF GOVERNMENT CONTRACTS - ------------------------------------------------------------------------ Outstanding at December 31, 1998............................ 154 Futures Opened.............................................. 1,185 Futures Closed.............................................. (1,258) ------ Outstanding at December 31, 1999............................ 81 ====== The futures contracts outstanding at December 31, 1999, and the descriptions and unrealized appreciation/depreciation are as follows: UNREALIZED NUMBER OF APPRECIATION/ CONTRACTS DEPRECIATION - --------------------------------------------------------------------------------------- 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) === ======== 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 131 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: UNREALIZED CURRENT APPRECIATION/ DESCRIPTION VALUE DEPRECIATION - ------------------------------------------------------------------------------------------ GLOBAL EQUITY SHORT CONTRACTS Japanese Yen, 10,089,000 expiring 03/17/00................ $99,982 $ 18 ======= ---- 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. 132 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 133 VAN KAMPEN FUNDS GROWTH Aggressive Growth* American Value* Emerging Growth Enterprise Equity Growth Focus Equity Growth Mid Cap Growth Pace Small Cap Value Technology GROWTH AND INCOME Comstock Equity Income Growth and Income Harbor Real Estate Securities Utility Value GLOBAL/INTERNATIONAL Asian Growth Emerging Markets European Equity Global Equity Global Equity Allocation Global Fixed Income* Global Franchise Global Government Securities* Global Managed Assets* International Magnum Latin American Strategic Income Worldwide High Income INCOME Corporate Bond Government Securities High Income Corporate Bond High Yield High Yield & Total Return Limited Maturity Government U.S. Government U.S. Government Trust for Income CAPITAL PRESERVATION Reserve Tax Free Money SENIOR LOAN Prime Rate Income Trust Senior Floating Rate TAX FREE California Insured Tax Free Florida Insured Tax Free Income High Yield Municipal** Insured Tax Free Income Intermediate Term Municipal Income Municipal Income New York Tax Free Income Pennsylvania Tax Free Income Tax Free High Income To find out more about any of these funds, ask your financial advisor for a prospectus, which contains more complete information, including sales charges, risks, and ongoing expenses. Please read it carefully before you invest or send money. To view a current Van Kampen fund prospectus or to receive additional fund information, choose from one of the following: - - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus - - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time. Telecommunications Device for the Deaf users, call 1-800-421-2833. - - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us * Closed to new investors ** Open to new investors for a limited time 134 VAN KAMPEN LIFE INVESTMENT TRUST BOARD OF TRUSTEES J. MILES BRANAGAN JERRY D. CHOATE LINDA HUTTON HEAGY R. CRAIG KENNEDY MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* PHILLIP B. ROONEY FERNANDO SISTO WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY, PH.D. PAUL G. YOVOVICH OFFICERS RICHARD F. POWERS, III* President DENNIS J. MCDONNELL* Executive Vice President and Chief Investment Officer A. THOMAS SMITH III* Vice President and Secretary JOHN L. SULLIVAN* Vice President, Treasurer and Chief Financial Officer STEPHEN L. BOYD* PETER W. HEGEL* MICHAEL H. SANTO* EDWARD C. WOOD, III* Vice Presidents INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 INVESTMENT SUBADVISOR (GLOBAL EQUITY PORTFOLIO) MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. 1585 Broadway New York, NY 10036 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 218256 Kansas City, Missouri 64121-8256 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02105 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP 200 E. Randolph Drive Chicago, Illinois 60601 * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940. (C) Van Kampen Funds Inc., 2000 All rights reserved. (SM) denotes a service mark of Van Kampen Funds Inc. This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors unless it has been preceded or is accompanied by an effective prospectus of the Fund which contains additional information on how to purchase shares, the sales charge, and other pertinent data. For federal income tax purposes, the following information is furnished with respect to the distributions paid by Asset Allocation and Global Equity during its taxable year ended December 31, 1999. Asset Allocation and Global Equity designated and paid $4,997,426 and $44,835, respectively, as a 20% rate gain distribution. The following represents the percentage of 1999 income distributions paid by the designated fund which qualify for the 70% dividends received deduction for corporations: Asset Allocation Portfolio.................. 23.06% Domestic Income Portfolio................... 2.42% Global Equity Portfolio..................... 100.00% 135 RESULTS OF SHAREHOLDER VOTES A Joint Special Meeting of the Shareholders of the Portfolio was held on December 15, 1999, where shareholders voted on the election of trustees and independent public accountants. - -------------------------------------------------------------------------------- Asset Domestic Global Money # of Shares Allocation Income Equity Government Market - ---------------------------------------------------------------------------------------------------------- 1) With regard to the election of the following trustees by shareholders: J. Miles Branagan In Favor..................................... 4,380,131 2,096,777 231,132 6,098,585 31,552,251 Withheld..................................... 50,467 15,843 7,337 79,427 258,396 Jerry D. Choate In Favor..................................... 4,380,131 2,099,418 231,132 6,098,585 31,541,054 Withheld..................................... 50,467 13,201 7,337 79,427 269,593 Linda Hutton Heagy In Favor..................................... 4,380,131 2,100,852 231,132 6,098,585 31,552,251 Withheld..................................... 50,467 11,768 7,337 79,427 258,396 R. Craig Kennedy In Favor..................................... 4,380,131 2,100,852 231,132 6,098,585 31,552,251 Withheld..................................... 50,467 11,768 7,337 79,427 258,396 Mitchell M. Merin In Favor..................................... 4,380,131 2,100,852 231,132 6,098,585 31,552,251 Withheld..................................... 50,467 11,768 7,337 79,427 258,396 Jack E. Nelson In Favor..................................... 4,380,131 2,051,777 231,132 6,098,585 31,552,251 Withheld..................................... 50,467 60,842 7,337 79,427 258,396 Richard F. Powers, III In Favor..................................... 4,378,083 2,100,852 231,132 6,098,585 31,552,251 Withheld..................................... 52,515 11,768 7,337 79,427 258,396 Philip B. Rooney In Favor..................................... 4,380,131 2,100,852 231,132 6,096,052 31,552,251 Withheld..................................... 50,467 11,768 7,337 81,961 258,396 Fernando Sisto In Favor..................................... 4,380,131 2,051,777 231,132 6,096,052 31,552,251 Withheld..................................... 50,467 60,842 7,337 81,961 258,396 Wayne W. Whalen In Favor..................................... 4,380,131 2,051,777 231,132 6,098,585 31,516,758 Withheld..................................... 50,467 60,842 7,337 79,427 293,889 Suzanne H. Woolsey In Favor..................................... 4,380,131 2,099,418 231,132 6,098,585 31,541,054 Withheld..................................... 50,467 13,201 7,337 79,427 269,593 Paul G. Yovovich In Favor..................................... 4,380,131 2,100,431 231,132 6,098,585 31,552,251 Withheld..................................... 50,467 12,188 7,337 79,427 258,396 2) With regard to the ratification of PricewaterhouseCoopers LLP to act as independent public accountants for the Portfolio: In Favor..................................... 4,364,077 2,043,759 238,469 5,916,420 30,745,838 Against...................................... 9,579 25,447 -- 23,045 229,694 Abstaining................................... 56,941 43,413 -- 238,547 835,114 136 YEAR 2000 UPDATE As we enter the new century, it's "business as usual" for Van Kampen. Thank you for the confidence you showed in us during the changeover on January 1, 2000, and for entrusting us with your investment portfolio. We look forward to continuing to serve your investment needs. 137 VAN KAMPEN FUNDS YOUR NOTES: 138